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Shaked v. McDermott

A-6964-03T1 (N.J. Super. App. Div. 2005) (Unpublished)

LEASES; RIGHT OF FIRST REFUSAL; AMBIGUITY — Typically, when a lease contains a right of first refusal, the tenant is obligated to buy at the same terms as the third party making the offer; thus, if the lease’s right of first refusal language is ambiguous, it is appropriate for a court to entertain parol evidence to determine the parties’ actual intention.

One paragraph of a commercial lease gave the tenant an option to purchase the property, at any time during the lease, for a set price, provided that the tenant notified the landlord within ninety days of the date it intended to close title. Next to the purchase price, there was an asterisk that referred to an addendum drawn by the parties. It included a provision that granted the tenant the option to purchase the property at the set price during the first year of the lease. It also stated that the tenant retained the right of first refusal after the first year at a three percent increase per year. During the lease term, the tenant sent notice to the landlord exercising its option to buy the property. The landlord refused to sell and the tenant sued for specific performance. The lower court denied the landlord’s motion to exclude parol evidence of the parties’ intentions with respect to the lease and addendum. It found that upon reading the lease and the addendum together, there was clearly an ambiguity as to the parties’ intention that needed to be resolved through parol evidence. The lower court, finding the tenant’s testimony more credible, found that the parties intended to give the tenant a three-year purchase option with a price adjustment after each year of the lease. It also found that the parties’ intent with respect to the right of first refusal was that after the first lease year the landlord could entertain offers thus forcing a sale. The lower court awarded specific performance and the Appellate Division affirmed, agreeing that the lease’s provisions, taken together with the addendum, were clearly ambiguous and that parol evidence was necessary to clarify the parties’ intentions. The Court noted, as evidence of the ambiguity, that the addendum section referenced a right of first refusal at three percent increases per year. Typically, when a lease contains a right of refusal, the tenant is obligated to purchase at the same terms as the third party making the offer. The inclusion of a three percent increase appeared to be ambiguous and inconsistent with typical right of first refusal provisions. Thus, it was appropriate for the trial court to entertain parol evidence to determine the parties’ intentions. The Court found sufficient credible evidence to support the lower court’s award of specific performance.


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