Rights of First Refusal ... and YOU

Two recent cases concerning rights of first refusal have come from the Tennessee Court of Appeals.

In Geraldine Abbott, et. al. v. Mark Abbott, et. al, No. E2015-01233-COA-R3-CV (July 20, 2016), the relevant deed contained the language shall have a right of first refusal to purchase said property and once a price is agreed upon. That price could not be agreed upon and litigation ensued. The putative buyer said that reading the language literally gave the seller the ability to hold up the sale forever. The seller, unsurprisingly, said that it says what it says.

The trial court imposed a reasonable time frame on the right of 45 days. The Court of Appeals said even that was a stretch and the right was unenforceable since it was missing an essential term, price. The court cited a case Four Eights, 194 S.W.3d 484, for the proposition that even if the price was confined to fair market value, then that was still not definite enough. The Four Eights case concerned a lease option, not aright of first refusal.

In Delain L. Deatherage v. John C. Hailey et. al., No. M2015-02202-COA-R3-CV (July 19, 2016), the court ruled as to whether an email message constituted a binding right of first refusal. The relevant email read

[Defendant] does not want to sell any of his properties at this time. He may need to at some point in the future. He did say you can stay as long as you want and should he decide to do something with the house you will be contacted first. You would have the first right of refusal. And of course if you do find something else you wanted to buy, I would understand. Let me know if I can help with anything.

The plaintiff subsequently renewed her lease (8 months later) and argued that she had turned down other purchasing opportunities. The court found this was not adequate consideration since the renewal was eight months later and unconnected. Also, not buying other properties was not consideration as there was no expectation on the part of defendants that plaintiff would cease searching for properties to buy.

Presumably, if the email had said thanks for the ROFR because of that, I will renew my lease with you, then it would have been enforceable.

Its curious how a mountain of paperwork, signed at the closing table, is sometimes not enough to adequately record the agreement between buyer, seller, lender and agents. On the other hand, sometimes a sentence in an email can do.

I remember a case many years ago where a wife had given husband a ROFR. They then divorced. The wife transferred the property from herself individually into a single-member LLC. The deed to the LLC had the standard language of for one dollar and other good and valuable consideration. The husband then mailed wife a letter with a $1 bill saying "hand it over." It was a jerk move that ultimately failed, but it resulted in years of litigation.


Be careful with your property and your documents!