Some of you may have noticed that for about a week your editor was so farthinking that he was dating all the DD’s “2007.” No point in correcting these now - the editor’s proclivity for getting dates wrong has reached the status of legend. Anyway, we’re back on track.
Daily Development for Monday, July 10, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
OPTIONS; RIGHTS OF REFUSAL: An agreement “hold” a parcel of land for four months without selling it to another did not trigger the right of first refusal on the parcel held by a third party.
King v. Litman, 802 N.Y.S.2d 768 (A.D. 3 Dept. 2005).
Plaintiff purchased a building lot in a subdivision built by defendant, which agreement also contained a right of first refusal for plaintiff to purchase an adjoining lot. Defendant subsequently entered into two successive “lot hold” agreements for the adjoining lot with a potential purchasers whereby the potential purchasers paid a deposit to reserve the lot for 4 months. If either of the purchasers eventually acquired the lot, the deposit would be applied to the purchase price. Otherwise, the deposit would be returned. The first potential purchaser did not buy the lot, freeing the defendant to enter into a lot hold agreement with a second purchaser. Defendant did not inform plaintiff of either agreement.
Following expiration of the second lot hold agreement which also was not exercised, Plaintiff brought suit to enforce its right of first refusal.
The court stated that a right of first refusal does not compel an owner to sell property to the holder of a right of first refusal but rather binds an owner not to sell without giving the holder of the right of first refusal an opportunity to purchase. The court held that the lot hold agreement did not trigger plaintiff’s right of first refusal because the lot hold agreement was not a final sales contract or purchase agreement and defendant was still allowed to sell or not sell regardless of the lot hold agreement.
Comment: Although it is not absolutely clear, the “lot hold” agreements did set a specific price and other terms for performance. We are not told, but the editor suspects, that the parties signing these lot hold agreements were wholly unaware of the right of first refusal held by another party, although it is possible that the right was recorded and that they’d have learned of it eventually. Now, of course, future potential purchasers will be made aware of this action - which had the advantage of getting the Plaintiff into the land records. The court did declare Plaintiff’s right of first refusal valid and binding.
The court says that the original right of first refusal appeared in the sale contract by which Plaintiff acquired the adjacent lot. Although this clearly was an “ancillary agreement” to which the doctrine of merger by deed would not apply, the fact that the right appeared only in the contract suggests that the refusal right was not recorded. A good object lesson to lawyers whose clients reserve such rights. They’re not much good if they’re not in the record. You’ll not get the property, and will be left with a damage claim against the developer.
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