A property owner grants a written right of first refusal to a business partner that allows the partner to purchase the property "on identical terms" if the owner receives an offer to sell. Months later, the owner receives and accepts a written offer from a third party to purchase the property for $500,000. The owner notifies the partner of the accepted offer, including the purchase price and terms, and gives the partner 30 days to match the terms. The partner, however, sends a counteroffer to the owner to purchase the property for $450,000 within the 30-day period. The owner rejects the counteroffer and proceeds to sell the property to the third party. The partner subsequently files a lawsuit to enforce the right of first refusal. Who is most likely to prevail and why?
The partner, because the third party’s offer was rejected when the partner submitted the counteroffer within the 30-day period.
The owner, because rights of first refusal are not enforceable if a third party offers to purchase the property for market value.
The partner, because submitting a counteroffer constituted an exercise of the right of first refusal under equitable principles.
The owner, because the partner did not match the purchase price and terms as required under the right of first refusal.
The enforceability of a right of first refusal hinges on whether the individual holding such a right exercises it in strict accordance with its terms. In this case, the partner was required to match the third party's offer of $500,000 to exercise the right. By attempting to renegotiate terms with a counteroffer of $450,000, the partner failed to properly exercise the right of first refusal. Therefore, the owner was free to sell the property to the third party. The other answers highlight misunderstandings often associated with rights of first refusal, such as arguing for partial performance or misunderstanding the mandatory nature of the terms.
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What is a right of first refusal?
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Why might someone believe that a counteroffer could constitute an exercise of the right of first refusal?