Opinion ID: 1318910
Heading Depth: 1
Heading Rank: 1

Heading: was the partnership transfer a sale?

Text: Trolley's right to purchase the leased property is triggered only by Elm's offering it for sale. Consequently, if Elm's agreeing to contribute the property to the Partnership or its subsequent conveyance thereto was not an offer of sale or a sale, Trolley's right to purchase did not arise and the summary judgment against plaintiff Trolley was proper on this ground. Whether a transfer of property from a lessor to a partnership in which the lessor owns a majority interest but whose management decisions must be made unanimously is a sale for purposes of a lease provision granting the lessee a right of first refusal is a question of first impression in Utah and, so far as we can ascertain, has not been addressed in any other jurisdiction. In support of the district court's judgment, Elm and its codefendants argue that Trolley's right of first refusal arises only upon a sale through which the lessor transfers all of its interest in the subject property to a third party and divests itself completely of control with respect to the property. Defendants cite five categories of cases in which a partial transfer or a reorganization of the form of ownership was held not to be a sale for purposes of a right of first refusal. In the first, a corporate lessor transferred the leased property to a second corporation whose stockholders were essentially identical to the transferor's. Sand v. London & Co., 39 N.J. Super. 513, 121 A.2d 559 (1956). The second group consists of cases involving the incorporation of a group of lessors. Straley v. Osborne, 262 Md. 514, 278 A.2d 64 (1971); Kroehnke v. Zimmerman, 171 Colo. 365, 467 P.2d 265 (1970). In the third category, the stockholders in a lessor corporation conveyed the stock to themselves as a partnership. Midland Container Corp. v. Sophia Realty Corp., 65 A.D.2d 784, 410 N.Y.S.2d 638 (1978). A fourth circumstance involves one or more lessors selling their interest to fellow lessors. Rogers v. Neiman, 187 Neb. 582, 193 N.W.2d 266 (1971). The fifth group of cases involves the sale of all the stock of a corporate lessor. K.C.S., Ltd. v. East Main Street Land Development Corp., 40 Md. App. 196, 388 A.2d 181 (1978); Cruising World, Inc. v. Westermeyer, Fla.App., 351 So.2d 371 (1977); Torrey Delivery, Inc. v. Chautauqua Truck Sales & Service, Inc., 47 A.D.2d 279, 366 N.Y.S.2d 506 (1975). None of the foregoing cases is a persuasive precedent for the case at bar. A common characteristic of the first three categories is that the transfer or reorganization achieved no change in the substance of control of the parties who owned the leased property. The fourth circumstance involves merely an adjustment of interests among multiple lessors without introducing any new lessor. The fifth category of cases does not involve a change in lessor at all. In view of the ready severability and alienability of corporate stock  and indeed the inevitability of a turnover in the stockholders of a corporation of perpetual duration  it would in most cases be unrealistic and unfair not to consider the lessor to be the corporation itself, not its stockholders. A sale of stock should not, therefore, be equated with the sale of a corporate asset. [3] In any event, the present case, in which a corporate lessor transferred the leased property to a partnership in which entirely new parties held a forty-nine percent interest and an effective veto over management decisions, is easily distinguished from the cited cases in terms of actual ownership and practical control. All of the cases cited by Elm (discussed above), as well as the cases cited by Trolley, [4] can be harmonized under a single rule: for purposes of a right of first refusal, a sale occurs upon the transfer (a) for value (b) of a significant interest in the subject property (c) to a stranger to the lease, (d) who thereby gains substantial control over the leased property. Each of these four elements of a sale is present in the instant case. (a) The transfer was for value. (b) Because of its forty-nine percent interest in the Partnership, Elm transferred and Boyer-Gardner received a significant interest in the leased property. (c) Boyer-Gardner was a stranger to the Elm-Trolley lease. (d) Because of the terms of the Partnership, Boyer-Gardner gained substantial control (in effect, a veto power) over the leased property as a result of the transfer. The holder of a right of first refusal has negotiated for a right to purchase ahead of any other buyer if the promisor-owner decides to sell. We see no reason to limit the application of that right to a sale of the promisor-owner's entire interest. The more reasonable approach is to allow the holder to exercise its right of first refusal to the extent of any significant transfer of ownership or control to an unrelated third party. [5] We therefore conclude as a matter of law that the transfer of the leased property from Elm to the Partnership was a sale for purposes of the right of first refusal held by Trolley. The summary judgment cannot be sustained on this issue.