Winter 2005-02 Supreme Court enforces right of first refusal

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Number 58
Winter 2005

Supreme Court enforces right of first refusal

A lessor who grants the lessee the right to purchase the property in the event of the former's decision to sell, must honor that obligation. The sale price will be that in the contract, if one is stated. Gonzalez v. Cruz, 2004 T.S.P.R. 199.

In May, 1999, a decedent's estate composed by Antonio Cruz, Generosa Cruz, Luz María Acevedo and Luz María Gonzalez leased a commercial property to Zaida Luz Gonzalez. The lease agreement provided that the lessee had the right to purchase the property in the event that the estate decided to sell it. The document added that the purchase price would be the property's value, as determined by an appraiser selected by both parties.

The sale

Five months later the lessors decided to sell, and so notified the lessee. The requested appraisal resulted in a value of $136,600. The lessors, however, found it to be too low, and asked for $140,000 instead. The lessee accepted the higher price, subject to the lessors performing certain improvements to the property. Nevertheless, the parties did not come to an agreement as to the upgrades desired by the lessee. Months later the estate committed to sell the property to a different purchaser, although subject to the lease. The lessee sued.

Not an option

The Puerto Rico Supreme Court first explained that the contract at hand was not one of option. In an option, the Court said, the purchaser enjoys the discretionary right to purchase at any time within the period fixed. That was not the case here because the lessee's right depended on the lessors' decision to sell. This characteristic made it a contract of right of first refusal. "The right of first refusal is the preferential right that a person has to acquire a determined thing, in the event that its owner wishes to sell it, and thus, in such case, his right to so [be informed by] the owner, indicating the price and conditions of the transfer, unless previously agreed to."

The Court concluded that the estate had breached its obligation to sell for the $136,600, and recognized the lessee's right of demanding title and compensation for the damages suffered.

No waiver either

The parties' talks to improve the property in exchange for the higher price did not constitute a cancellation of the right of first refusal. In order for cancellation to take place, the parties to a contract must either express so outright, or agree on a new contract that is wholly incompatible with the original one. Moreover, the parties' intention to repeal the original contract must also be present. The Court found those circumstances missing. ◙


© 2005 Goldman Antonetti