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H&G Hardware v. Cohen

A-0667-04T2 (N.J. Super. App. Div. 2006) (Unpublished)

LEASES; OPTIONS; RIGHT OF FIRST REFUSAL—The holder of a right of first refusal is required to match the terms of an offer even if it makes what appears to be a financially equivalent offer.

According to a lease, in the event the landlord received an offer to purchase the property, the landlord was to forward a written copy to the tenant and give the tenant thirty days in which to exercise its right to purchase the property on the same terms as contained in the offer. The landlord entered into a contract for sale of the property to a third party. It did not disclose the tenant’s right of first refusal. The landlord provided a copy of the contract to the tenant. Believing the third party purchaser was purchasing the property as is, without requiring the landlord to satisfy some outstanding zoning issues, the tenant replied that it would not buy the property on the terms contained in the contract but would be interested in buying the property if the terms changed.

The municipal subcode official would not issue a certificate of code compliance until the landlord made changes to the building. As these changes were significant, the third party purchaser and the landlord engaged in extensive negotiations, the effect of which was to alter the terms of the contract. For a period of several months, the issues between the landlord and the third party purchaser went unresolved. In the meantime, the tenant sent numerous letters requesting to be kept informed of the status of the negotiations between the landlord and the third party purchaser. At the end of the contract negotiations, the third party purchaser agreed to pay $20,100 for roof repairs in addition to the agreed-upon purchase price. This was orally communicated to the tenant. The tenant replied that it could meet the purchase price, but could perform the same roof repairs for a far less amount. The landlord wrote to the tenant stating that the third party purchaser’s offer was for a greater sum than the tenant’s offer because the third party purchaser was willing to pay the higher figure for the roof repairs. Because the tenant offered to purchase the property for less than the third party purchaser, the offer by the tenant was not the same as the offer by the third party purchaser, and the landlord considered any rights under the lease to a right of first refusal to have been satisfied. When the landlord sold the property to the third party purchaser, the tenant sued to void the contract and to compel the landlord to sell to the tenant.

The lower court held that the landlord did not have a continuing obligation to keep the tenant abreast of the negotiations with the third party purchaser. However, once the negotiations were final, the lower court ruled the landlord did have an obligation under the lease to notify the tenant in writing of all the terms of the offer. The lower court further held that the landlord was entitled to accept the $20,100 from any purchaser for the costs of roof repairs and that the landlord had no obligation to agree to the repairs for a lesser amount. The lower court also found that the landlord never properly forwarded a written copy of the third party purchaser’s offer to the tenant. Thus, the tenant could not intelligently decide whether or not to exercise its right of first refusal. As a consequence, the lower court ordered the landlord to provide the tenant with a copy of the written offer and allow the tenant the right to exercise its option to purchase the property on those same terms. The Appellate Division affirmed for the same reasons expressed by the lower court.


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