Ruling Adds Clarity to Right of First Refusal for CRE Tenants Involving Bulk Sales

Oscar R. Rivera
August 14, 2023


A recent ruling by Florida’s Fourth District Court of Appeal brought an added measure of clarity to the application of a right of first refusal (ROFR) for commercial real estate tenants whose spaces are being sold as part of a bulk sale in a condominium setting.

The case stems from the sale of the commercial condominium unit leased to The Blind Monk, which is a wine and tapas bar at the ground level of a nine-story West Palm Beach condominium. The business filed suit in Palm Beach County Circuit Court alleging it was not given the opportunity to consider whether to exercise its right to purchase its space when the space was sold as part of a bulk sale of 139 units in the building.

The lawsuit against the selling landlord and bulk buyer alleged that they ignored the tenant’s ROFR as provided in its lease agreement. It states that in 2016 a realtor representing the landlord notified the tenant’s owner that its unit and others in the building were for sale and inquired whether he would be interested. The owner replied by citing his ROFR and requesting additional information.

About a week later, the realtor advised him that his unit was appraised at $250,000 and the landlord had received an offer, but contrary to the terms of the lease, the specific terms of the offer were not disclosed and the tenant was never given the opportunity to match them.

The landlord eventually moved forward with a bulk sale of 139 condominium and retail units to the bulk buyer. However, the sale was consummated without any further disclosure of the terms to the tenant, who only learned of the deal when he received notice to send his future rent payments to the bulk buyer.

The tenant filed suit seeking rescission of the contract and cancellation of the deed, as well as claims for specific performance and breach of contract against the landlord and a claim for tortious interference against the buyer. The rescission of the deed would allow the tenant the ability to exercise its ROFR under its lease, and the specific performance claim demanded the he be provided the opportunity to purchase the unit under the same terms.

The bulk buyer responded with a motion to dismiss the rescission and tortious interference claims, arguing that the tenant could not obtain rescission and specific performance because it was a stranger to the purchase contract and it had not alleged it was financially ready, willing and able to purchase the unit. The tenant’s response was that it excused from the usual ready, willing and able test because it had not been provided with the purchase price or terms before the sale and therefore could not prove its ability to match that price and terms.

The trial court denied the buyer’s motion to dismiss, and the buyer then raised defenses that the tenant had not pled it was ready, willing and able to purchase the unit, and its ROFR was not triggered because the purchase of the unit would not be identical to the bulk sale of the 139 units in the building.

The trial court granted the buyer’s motion for summary judgment on the rescission count, finding that rescinding the entire bulk sale would serve no purpose if the tenant was not entitled to specific performance. It also denied the tenant’s subsequent motion for rehearing based on the impossibility of proving its ability to match an offer which had not been disclosed.

In the tenant’s subsequent appeal, it argued that summary judgment was improper on its rescission claim because its readiness, willingness and ability to acquire the unit could not be decided before the landlord complied with the ROFR by providing it with the purchase offer. It contended that the trial court could not perform the “ready, willing and able” analysis without the specific purchase price, which the buyer acknowledged had not been disclosed.

The appellate panel unanimously agreed. It found that the bulk sale did not preclude either rescission or cancellation of the deed to the bar’s unit, or specific performance of the ROFR. The opinion cites several prior appellate rulings dating as far back as 1959 that found an owner is not excused from its obligation to offer a property to an ROFR’s holder in bulk purchases, and trial courts must enforce such ROFRs and determine what portion of the bulk sale purchase price should be allocated to the ROFR property.

Because both the landlord and bulk buyer failed to provide the tenant with the purchase price and terms, the tenant had no duty to show that it was ready, willing and able to meet some undisclosed price and terms. The panel reversed the summary judgment and remanded the matter back to the trial court for further proceedings to determine the purchase price and terms of the sale of the unit. Once those are determined, the tenant will then have thirty days in which to elect whether to purchase the property in accordance with its ROFR. The opinion also notes that in order to prevent useless judicial labor, the court may wish to defer consideration of tenant’s rescission claim until it decides whether or not to exercise its ROFR.

This ruling will prove to be precedential for future commercial property sellers and bulk buyers where a right of first refusal exists in a tenant’s lease. Even if the seller and buyer believe such tenant would be unable to make the purchase, they must still provide them with the proposed terms and abide by the contractual provisions of the ROFR.

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