Billboard Insider published an article entitled “A Right of First Refusal Holds Up in Court” its December 14, 2022 edition. As the title suggests, the article reported on the February 24, 2022 decision by the Michigan Court of Appeals in Adams Outdoor Advertising vs Todd Tarr, which upheld the enforcement of a right of first refusal in a billboard ground lease.
Even though rights of first refusal are usually disfavored and heavily negotiated by landowners, because such clauses limit the ability and price for sale of the property, the Adams case follows several others across the country generally upholding their enforceability. Indeed, I originally wrote on the topic in Billboard Insider on January 24, 2019, once again entitling the article “ROTHFELDER ON RIGHT OF FIRST REFUSAL,” and the clause is discussed on page 16 of Billboard Insider’s Guide to Leases, Easements, and Real Estate. On page 63 of the Guide is the following standard right of first refusal clause:
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 the Property or any portion of 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.
My law firm also successfully handled a right of first refusal dispute in the recent case of SignAd vs BJZ, which was decided by the Texas court of Appeals on January 27, 2022, and reported by Billboard Insider in its August 2, 2022 edition. In this case, the third party who purchased the property in the face of the landlord’s breach of the right of first refusal even built a structure and otherwise enhanced the value of the property, and the Court held the billboard company tenant still had the right to match the original offer the third party paid for the vacant land. In these and other cases we’ve argued on behalf of our billboard owner clients who are tenants in leases with disputed rights of first refusal the following legal principles:
“A right of first refusal, also known as a preemptive or preferential right, empowers its holder with a preferential right to purchase the subject property on the same terms offered by or to a bona fide purchaser.” Tenneco Inc. v. Enter. Prod. Co., 925 S.W.2d 640, 644 (Tex. 1996). “It requires the owner, before selling the property to another, to offer the property to the rightholder on the same terms or conditions specified in the offer by or to a bona fide purchaser.” Jarvis v. Peltier, 400 S.W.3d 644, 652 (Tex. App.—Tyler 2013, pet. denied). “The rightholder does not have a duty to act in order to exercise his preferential purchase right unless and until he receives a reasonable disclosure of the terms of the contemplated conveyance.” McMillan v. Dooley, 144 S.W.3d 159, 174 (Tex. App.—Eastland 2004, pet. denied) (emphasis added). “A transfer in violation of the preemptive right is equivalent to a declaration by the owner that he intends to sell the property.” Jarvis, 400 S.W.3d at 652. “When a purchaser who has knowledge of the right of first refusal purchases real property, he stands in the shoes of the original seller when specific performance is sought and may be compelled to convey title to the first purchaser.” Id. at 653. Indeed, “[i]t is indisputable that a purchaser from a lessor who has given lessee a right of first refusal to buy takes the property subject to that right and lessee must be granted the opportunity to purchase at the price transferred.” Sanchez v. Dickinson, 551 S.W.2d 481, 485 (Tex. Civ. App.—San Antonio 1977, no writ).
As Billboard Insider advised in its recent article, litigation over rights of first refusal may be avoided in the first place through clear communication with the landlord about the applicability of such clauses. Otherwise, a breach of such clauses by the landlord can usually be successfully enforced by the billboard company tenant in litigation across the country.
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