Rights of First Refusal in Florida
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Have you ever heard the term “right of first refusal” in connection with real estate, commonly referred to as a “ROFR,” and wondered what it meant? Even if you are familiar with the term, have you ever wondered what may or may not trigger a ROFR? This Blog addresses exactly these issues.
Florida courts have consistently found “a ROFR is a right to elect to take specified property at the same price and on the same terms and conditions as those contained in a good faith offer by a third person if the owner manifests a willingness to accept the offer.” Power v. Power, 864 So. 2d 523 (Fla. 4th DCA 2004); Coastal Bay Golf Club, Inc. v. Holbein, 231 So. 2d 854, 854 (Fla. 3d DCA 1970). A ROFR does not grant the power to compel an unwilling owner to sell, nor does it create a legal or equitable interest in the property. Old Port Cove Holdings, Inc. v. Old Port Cove Condominium Association One, Inc., 986 So. 2d 1279, 1285-86 (Fla. 2008). The right becomes “activated” and “irrevocable during the period of time set forth in the [agreement]” once the agreed upon events occur; commonly manifesting an intention to sell to a third party. Vorpe v. Key Island, Inc., 374 So. 2d 1035, 1036-37 (Fla. 2nd DCA 1979). The ROFR, therefore, is dependent on the terms of the agreement as to the event(s) that trigger the ROFR.
Manifesting an intention to sell does not automatically trigger a ROFR. Despite manifesting an intention to sell property and accepting bids, the court, in Schine Enterprises, Inc. v. Askew, 291 So. 2d 130 (1974), found that because of a clause in the agreement, the ROFR was not triggered. Id. 132. The clause conditioned the ROFR upon the owner deeming an offer satisfactory. Id. A subsequent 99-year lease, for one dollar, did not trigger the ROFR either. Id. at 133. It is unclear whether the ROFR would be triggered under different facts, but the court found no prohibition on transferring property from one governmental agency to another. Id. The fact that the property was not conveyed out of governmental ownership into private ownership supported the court’s finding that the ROFR was not triggered. Id.
As the terms of the agreement are imperative to determining whether the ROFR has been triggered, this right should be analyzed under applicable contract law. “A right of first refusal is a contractual right.” Old Port Cove Holdings, Inc., 986 So. 2d at 1287. Prior to triggering and actually exercising the right, changes in the status of the property should not affect the ROFR because no interest in the land exists. Id. at 1286-87. The Fourth District Court of Appeal, in Milani v. Palm Beach Cnty., 973 So. 2d 1222 (Fla. 4th DCA 2008), found that there is no reason a contract interpretation issue cannot be settled by way of declaratory judgment prior to a proposed event to determine whether it may trigger a right of first refusal. 973 So. 2d at 1227. In this case, there were easements on the property in question that were minor encroachments which did not diminish the ability to use the property in the agreed upon manner. Id. at 1225. Accordingly, the principle of de minimis non curat lex applied, which is translated as “the law does not concern itself with trifles.” Id. The determinative test Florida courts apply when determining whether easements, existing or proposed, have an effect on the usefulness is “whether the encroachment is substantial enough seriously to interfere with the use and enjoyment of the premises.” Id. (quoting Loeffler v. Roe, 69 So. 2d 331, 337 (Fla. 1954)). The courts and tests do not directly determine what events—other than sales—trigger the right of first refusal; however, the emphasis placed on the contract creates the notion that sale of property, unless otherwise specified, is when ROFR is triggered. See Whyhopen v. Via, 404 So. 2d 851 (1981) (finding a lessee’s ROFR must be honored according to the terms of the contract).
To exercise the ROFR, aside from an event occurring to trigger the right, the terms need to be identical to the essential terms offered by the third party with regard to the property in question. The Fourth District Court of Appeals, in Int’l Christian Fellowship, Inc. v. Vinh on Property, Inc., 954 So. 2d 1214 (Fla. 4th DCA 2007), found that the ROFR was triggered, but because numerous terms differed, the ROFR was improperly exercised. Id. at 1216. However, the terms of the agreement that establish the ROFR override the need to match the terms of a third-party offer that may encompass other property. In Whyhopen a landlord refused to honor tenant’s ROFR because the tenants did not agree to purchase the entire parcel, as the third-party offer proposed. Whyhopen, 404 So. 2d at 852. The court, relying on precedent, found that the intention to sell was evidenced and the ROFR was converted into an “irrevocable option to purchase.” Id. at 853. A third party, attempting to purchase a parcel containing multiple individual leases, is subject to the rights of each individual lease holder. Id.