Opinion ID: 2321631
Heading Depth: 2
Heading Rank: 2

Heading: The Duties of a Holder of a Right of First Refusal

Text: [¶ 18] The Spicklers argue that as holders of a right of first refusal, they had no duty to act before being offered the opportunity to exercise their right, and that because they received no offer from the Van Dams they were absolved from taking any action to enforce their right. [¶ 19] Generally, the holder of a right of first refusal on a piece of land only has the right to receive an offer to buy the land. 3 Eric Mills Holmes, Corbin on Contracts § 11.3, at 470 (Joseph Perillo ed., 1996). A right of first refusal is therefore distinguishable from an option, which gives the option-holder the power to make a contract solely by calling upon the owner to perform. Id. [¶ 20] However, a right of first refusal ripens into an option once an owner receives an offer and makes a good-faith decision to accept it. Id. § 11.3, at 470-71; Williston & Lord, supra, § 67:85, at 502; Greenfield Country Estates Tenants Ass'n v. Deep, 423 Mass. 81, 666 N.E.2d 988, 993 (1996). Furthermore, an owner who transfers property to a third party in violation of a right of first refusal creates an enforceable option in the rightholder. Koch Indus. v. Sun Co., 918 F.2d 1203, 1211 (5th Cir.1990); see also Holmes, supra, § 11.3, at 480 (Although [the rightholder's] Right of First Refusal was not an Option Contract, [the owner's] wrongful act has caused it to become one.). Once a right of first refusal ripens into an option, contract law applicable to option contracts applies. Holmes, supra, § 11.3, at 471 n. 6. [¶ 21] When a transfer of property in violation of a right of first refusal gives rise to an enforceable option, the option is not perpetual and the rightholder must choose between exercising it or acquiescing in the transfer of property. A.G.E., Inc. v. Buford, 105 S.W.3d 667, 673 (Tex.App.2003); see also Koch, 918 F.2d at 1211. In determining whether or not to exercise an option, the option-holder must have enough information about the terms of the ... deal to make an informed choice about purchasing ... on those terms. Koch, 918 F.2d at 1212. Initially, the new property owner must make a reasonable disclosure of the terms of the purchase to the rightholder. A.G.E., Inc., 105 S.W.3d at 673. However, once a reasonable disclosure is made, the rightholder has a subsequent duty to undertake a `reasonable' investigation of any terms unclear to him. Koch, 918 F.2d at 1212; see also Williston & Lord, supra, § 67:85, at 504. The power of acceptance lapses after a reasonable time. A.G.E., Inc., 105 S.W.3d at 673. [¶ 22] From the foregoing, it is clear that the Spicklers misconstrue their responsibilities under their right of first refusal. When Marco sold Lot 25 to the Van Dams in violation of the right of first refusal, the Spicklers' right of first refusal ripened into an option. Although Brian Van Dam did not divulge all of the details of the sale, he did inform Robert that he had paid $35,000 for Lot 25. Given Robert's extensive real estate background, and the relative lack of complexity involved in the sale of Lot 25, an unimproved parcel, Brian's disclosure was a reasonable disclosure sufficient to put the Spicklers on notice of a need to undertake a reasonable investigation. It was therefore incumbent on the Spicklers to investigate any terms that were unclear to them in order to determine whether or not they wished to exercise their enforceable option. The Spicklers did no such thing. Indeed, the only investigation the Spicklers undertook was to ask the Van Dams in their initial conversations what the terms of the sale were. They failed to contact Marco, their grantee. Although the Spicklers claim that they should not be forced to litigate in order to discover the terms of the sale to the Van Dams, they do not point to any other action taken by them over a period of approximately five years to inquire about or discover the terms of the sale.