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Woodland Hills Associates, L.P. v. Flamm

A-1908-03T1 (N.J. Super. App. Div. 2004) (Unpublished)

RIGHT OF FIRST REFUSAL—Exercise of a right of first refusal requires the unequivocal meeting of and matching of the terms of the offer.

In 1984, a buyer purchased fifteen acres of undeveloped land out of a 23.6 acre parcel. The seller gave the buyer a right of first refusal to purchase the remaining 8.6 acres. It provided that upon receipt of an offer for the 8.6 acre parcel, the seller would give the buyer thirty days to match it. The buyer’s failure to give an acceptance notice within the thirty days would constitute a refusal to meet the offer.

In 2002, the buyer was notified of a $6.5 million offer. The contract between the seller and the new buyer gave the seller the discretionary right to enter into an ancillary joint development venture with the new buyer. If that right was exercised, the seller was to deed the 8.6 acre parcel to a New Jersey limited liability company owned by both the seller and the potential buyer, with the seller owning 95 percent of the company. The seller’s contribution of the parcel was to be considered as a $6.5 million capital contribution to the company. While the new buyer developed the property, the seller was to receive monthly payments until this capital contribution was repaid.

On January 6, 2003, the 15 acre buyer notified the seller that it was exercising its right of first refusal on the same terms and conditions as the new buyer had offered, but reserved the right to seek a judicial order to reform the original 1984 contract under which the 15 acre parcel buyer held the right of first refusal. The seller asserted that this was not an effective exercise of the right or refusal, and the 15 acre buyer sued. The Chancery court held that 15 acre old buyer had not effectively exercised its right of first refusal because it had not agreed to purchase on the same terms and conditions as offered the new buyer.

On appeal, the Appellate Division noted that the first buyer was objecting to the new buyer’s proposed contract provision giving the seller the option to transfer the property to a limited liability company. It pointed out that the right of first refusal required the seller to offer the property for sale on the same terms as offered by a potential buyer. Therefore, as holder of the right of first refusal, the old buyer was required to meet and match the terms of the offer. Here, the old buyer did not unequivocally agree to accept the terms of the new buyer’s offer. For that reason, the Court affirmed the lower court’s decision and held that the 15 acre buyer failed to effectively exercise its right of first refusal.

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