Rights of first refusal (ROFR) can be a valuable addition to a billboard ground lease that can help maintain the longevity of an investment in a sign and real estate. However, whether to push for a ROFR in a lease should be determined on a case-by-case basis.
A right of first refusal (or ROFR) gives its holder a right to purchase property on the same terms offered by or to a bona fide purchaser. It can add significant value to a billboard ground lease when many billboards are under threat of extinction due to widening freeways and increased sign regulation. A ROFR can offer an avenue to purchase the property on which a sign sits, negotiate a perpetual easement, extend the term of an expiring lease, or simply secure an investment in real estate.
And, a ROFR can be drafted to cover more transactions than just sales of fee simple property. Here is a clause I often use:
During any term of this Lease and for a period of ninety (90) days following any termination of this Lease, LESSOR grants LESSEE the right of first refusal to match any offer acceptable to LESSOR for the use or purchase of any of LESSOR’s rights and/or interests in the Property. A written copy of any such third party offer received by LESSOR shall be delivered to LESSEE by certified mail-return receipt requested. LESSEE shall then have twenty (20) business days from the date of receipt in which to match such offer by giving notice of acceptance to LESSOR.
What is key is that the ROFR allows its holder to match any offer to acquire any interest in the subject property, even after expiration of the lease term. Therefore, you have protection if another company wants to lease the same land after your lease expires. You also have the rights to match an offer for an easement. All of these privileges provide options and negotiating chips that can be used to guarantee longevity of investment in a billboard and the property on which it sits.
Not surprisingly, many landowners aren’t big fans of ROFRs. They constitute a restraint on alienation (in other words, a challenge to selling the encumbered property). Additionally, many landowners either forget that they’ve granted the ROFR, or think that they don’t have to honor it.
That’s why it’s important to know the law with respect to ROFRs. A sale of property in violation of a ROFR is a breach of contract. In many jurisdictions, a purchaser from a lessor who has given lessee a right of first refusal to buy takes the property subject to that right and the lessee must be granted the opportunity to purchase at the price transferred. Likewise, a purchaser from a lessor who has given a lessee a right of first refusal to buy takes the property subject to that right and must afford the lessee the option to purchase the property sold in violation of the ROFR.
At the end of the day, while valuable, an operator should determine whether pushing for a ROFR may spoil a deal in progress. The ultimate goal is to put a sign in the ground, so sacrificing a ROFR for the greater good may ultimately be necessary to get a lease signed. Nevertheless, a ROFR is often worth a bump in rent since it can open doors in the future to adding security to an investment in a particular location.
Insider Note: This article was from Chris’ presentation at last weeks IBO COnference. His powerpoint for the presentation can be found at this LINK.
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