The Texas Court of Appeals, Fifth District Dallas Division, issued a comprehensive and favorable opinion on rights of first refusal, holdover tenancies, waiver, and conversion in billboard leases in the case of Lamar vs LaCore on December 31, 2024. The facts of the case are familiar to the outdoor advertising operator: Lamar entered into a  lease with a five year primary term and a five year renewal option in 2006, which also contained a right for Lamar to purchase an easement on 30 days notice in the event of a sale of the leasehold premises. The property transferred several times between 2007 and 2013, and Lamar didn’t exercise its right to purchase the easement in any of the transactions. In 2018, after Lamar continued to operate its billboard and the landlords continued to accept rent for a couple of years after the expiration date, the property was sold to LaCore. LaCore also accepted four monthly rental payments from Lamar, which tendered its intent to purchase an easement in connection with the sale of the property. LaCore refused, and the parties sued each other for breach of the lease and conversion of the billboard. After the Trial Court granted a summary judgment for LaCore, the Appellate Court reversed and rendered judgment for Lamar on both claims.

In ruling that Lamar was entitled to enforce the right of first refusal to purchase an easement on the sale to LaCore, the Appellate Court first addressed LaCore’s argument that the lease expired in 2016, so Lamar had no rights thereafter. The Court, in turn, distinguished between a “holdover tenant”, a “tenant at will,” and a “tenant at sufferance,” explaining that a holdover tenant is one who “holds possession with the landlord’s consent but without fixed terms (as to duration of rent);” whereas, a tenant at sufferance is a “tenant who has been in lawful possession of property and wrongfully remains as a holdover after the tenant’s interest has expired.” The Court went on to clarify that “with the [landowner’s] consent, the holdover tenant becomes as tenant at will; without it, a tenant at sufferance.” And, in this case, since LaCore and its predecessors knew of the expiration of the lease and continued to accept rent, Lamar continued to operate as a tenant at will, “and the terms of the prior lease will continue to govern the new arrangement absent an agreement to the contrary.”

Having determined the right of first refusal was still available for Lamar to exercise while it was a mere tenant at will a couple years after expiration of the primary term of the lease, the Court next ruled the provision was enforceable as a preferential right and not an option. Specifically, the Court explained “in Texas, a preferential right to purchase or a right of first refusal does not violate the rule against perpetuities.” The Court also held that Lamar did not waive this right by failing to exercise it during the first several transfers of the property prior to the sale to LaCore: “each right of first refusal attaches to a specific offer and the waiver of a right of first refusal applies only to the specific transaction for which the right attached.” As such, LaCore was liable for breach of contract in refusing to honor the right of first refusal.

The Court then concluded that Lamar could enforce specific performance of the right of first refusal as a remedy for LaCore’s breach of the lease. In so ruling, the Court noted that LaCore had constructive notice of the lease and Lamar’s rights under it, as “the Billboard was clearly visible on the Property and LaCore knew of the existence of the Lamar lease, [so] LaCore had a responsibility to investigate whether the Lese truly was expired; [and] their failure to do so does not protect them from constructive notice.”

Finally, the Court held that LaCore had converted Lamar’s billboard as well. The elements of Lamar’s conversion claim, as the Court explained, are “(1) it owned, had legal possession or, or was entitled to possession of the Billboard; (2) LaCore unlawfully and without authorization, assumed and exercised dominion and control over the property to the exclusion of, or inconsistent with Lamar’s right; (3) Lamar made a demand for the property’ and (4) LaCore refused to return the property.”

My friend Allen Smith and his colleagues at Settle Pou represent Lamar in the case, and he tells me that the landowner is aggressive and likely to continue the appellate process. I’ve represented Lamar, and know that it is just as determined. So, stay tuned for further developments.