Wednesday, January 7, 2015

Important Decision on Right of First Refusal in Foreclosure Sale

An important decision came out on December 23, 2014 regarding the right of first refusal—the requirement that a property owner, if and when he is offered to sell his property to a third party, must first present that offer to the party who previously entered into a contract which gave that party the right to purchase the property before others. The right of first refusal is easy to understand if we use a basic example. Let’s say Allison wanted to sell her real estate to Bobby but Carrie had a written right of first refusal for the property in question. Allison would first get an offer from Bobby and then, offer that to Carrie. If Carrie accepts the terms set by Bobby, she can purchase the property. If not, Bobby has a deal to buy the property.

Here, in the case, Centech LLC v. Yippie Holdings LLC, the issue was whether a party who had a right of first refusal could exercise it based upon a foreclosure sale. The Court found that the right of first refusal was not applicable in the foreclosure sale because the language of the right of first refusal did not clearly provide for a foreclosure sale as a trigger to the right of first refusal.

The takeaway is that when you have a right of first refusal, make sure that it clearly sets forth the trigger to our ability to exercise your right. Vagueness can prevent you from having a right that you otherwise believe to be yours.