Opinion ID: 2362881
Heading Depth: 2
Heading Rank: 1

Heading: Options to Purchase and Rights of First Refusal Generally.

Text: In order to consider properly whether Petitioner's omission of the no-mining clause rendered ineffective the exercise of its preemptive right, it is necessary first to refresh our recollection of the conceptual underpinnings of option contracts and rights of first refusal. An option is a continuing offer to sell during the duration [of the option agreement] which on being exercised by the optionee becomes a binding and enforceable contract. Straley v. Osborne, 262 Md. 514, 521, 278 A.2d 64, 68 (1971) (quoting Diggs v. Siomporas, 248 Md. 677, 681, 237 A.2d 725, 727 (1968)). It is well settled-law in Maryland that to be an effective exercise of an option, the exercise of that option must be unequivocal and in accordance with the terms of the option. Katz v. Pratt St. Realty Co., 257 Md. 103, 118, 262 A.2d 540, 547 (1970) (citing Simpers v. Clark, 239 Md. 395, 401, 211 A.2d 753 (1965)); Foard v. Snider, 205 Md. 435, 446, 109 A.2d 101, 105-06 (1954) (Whatever the option requires must be done. As in the case of all offers, revocable or irrevocable, the exercise must be unconditional and in exact accord with the terms of the option.) (emphasis added); 1 WILLISTON ON CONTRACTS § 5:18 (4th ed. 1990) (When the optionee decides to exercise [its] option, [it] must act unconditionally and according to the terms of the option.); see also Post v. Gillespie, 219 Md. 378, 385-86, 149 A.2d 391, 395-96 (1959). Indeed, Maryland applies generally this objective rule of offer and acceptance to the formation of any contract underlying the alienation of real property. See Peoples Drug Stores v. Fenton Realty Corp., 191 Md. 489, 494, 62 A.2d 273, 276 (1948) (To constitute a valid contract, the offer of one party must be certain and definite, and the acceptance of the other party must correspond with the offer in its entirety. A contract, to be final, must extend to all the terms which the parties intend to introduce, and material terms cannot be left for future settlement.). A right of first refusal, or preemptive right, is a type of option, Ferrero Construction Co., 311 Md. at 567, 536 A.2d at 1140. The purposes for which rights of first refusal are utilized are closely related to the purposes of [traditional] option contracts. 3 CORBIN ON CONTRACTS § 11.3 (rev. ed.1996). The two types of agreements are dissimilar, however, in terms of the legal relationships of the parties who enter them. Id. A right of first refusal is an agreement between the property owner (grantor) and a holder (preemptioner) whereby the receipt of an offer from a third-party purchaser to buy the subject property triggers the right of first refusal which, in turn, ripens into an option to buy on part of the preemptioner. Id.; see also Straley, 262 Md. at 521-22, 278 A.2d at 68-69 (referring to a preemptive right as a conditional option, or first privilege of purchase); Westpark, Inc. v. Seaton Land Co., 225 Md. 433, 449-50, 171 A.2d 736 (1961); Iglehart v. Jenifer, 35 Md.App. 450, 451 n. 1, 371 A.2d 453 (1977) (differentiating between the legal effect of a traditional option and an option of first refusal). In sum, [preemptive] rights of the [holder] are contingent upon the desire of the owner to sell. [Unlike a true option] the [holder of a right of first refusal] has no unqualified power to compel a sale to him or to a third person. . . . These provisions are, consequently, analogous to options upon a condition precedent, and subject to many of the same rules [as an option agreement]. RESTATEMENT OF PROPERTY § 413, cmt. b (1944) (emphasis added) (internal cross-references omitted); see Straley, 262 Md. at 521-22, 278 A.2d 64 at 68-69. Thus, despite the differences in the legal effects of the two types of agreements, the rules relating to options are applicable, for the most part, to rights of first refusal.