A common feature of many New York real estate transactions is the “right of first offer.” Basically, this means that the seller of a property is contractually obligated to give a specific potential buyer the first opportunity to negotiate a sale. A right of first offer does not obligate the parties to make a deal, only to negotiate in good faith. If no deal is made, the seller is then free to negotiate a sale with anyone else.
A right of first offer should not be confused with a “right of first refusal.” This refers to a contractual right to enter into an agreement. In other words, if the buyer has a right of first refusal, the seller must sell the property under certain terms. A right of first offer, in contrast, only obligates the seller to attempt to negotiate a deal.
When Does an Owner “Desire to Sell”?
Many landlord-tenant agreements include a right of first offer. This can lead to problems when the parties disagree as to the scope of their agreement. Here is a recent example. A landlord owned a building in Manhattan. One of the retail tenants had a lease including a right of first offer provision. The right applied at the point the landlord “desired to sell” the building.
The lease expired at the end of January 2014, but the tenant continued to occupy the property on a month-to-month basis until the end of September. In February 2014, about two weeks after the lease expired, the landlord's real estate broker sent out a mass email indicating the building was for sale. The email did not name a price or other specific terms; rather, the landlord wanted “to explore market interest in the property.”
The landlord, a nonprofit corporation, did not formally sell the property on the market until August 2014, when its board of directors approved a sale to a third-party buyer for approximately $38 million. A few weeks later, the tenant demanded the landlord “comply” with the lease and allow it to make an offer on the building before completing the sale to the third party. When the landlord refused, the tenant filed suit in Manhattan Supreme Court, asking for an injunction preventing the sale unless and until the landlord honored the right of first offer.
On September 25, Judge Kelly A. O'Neill Levydismissed the tenant's claims. The judge agreed with the landlord that the right of first offer lapsed with the end of the lease in January 2014. The tenant argued the right still applied because the landlord decided to sell the building before the lease expired. The judge disagreed. She said the “desired to sell” language in the right of first offer clause referred to the point where the landlord “could propose a minimum purchase price.” Here, that did not happen until August 2014, when the landlord's board formally approved a resolution to sell the property for a particular price. As this occurred long after the lease expired, the tenant had no rights.
Need Help With a Real Estate Matter?If you are involved in any sort of lease negotiation or property sale, it is important to work with an experienced New York real estate attorney. Contact the offices of Waldhauser & Nisar, LLP, today if you would like to speak with someone today.