Making an offer that can be refused

Minnesota businesses can face serious setbacks by not providing sufficient attention to the fine print of agreements. This may have particularly serious ramifications in commercial real estate leases that may allow for the sale of the property occupied by a tenant’s business.

Leases and other agreements may allow owners to sell the property that is being leased or rented. However, these agreements often restrict the owner’s right to freely dispose of the property by granting the tenant a right of first refusal to purchase. This right becomes an option when the property owner offers and notifies the holder of the right of refusal.

Property owners must provide reasonable notice of the essential terms of an offer of sale which then triggers the tenant’s right to timely exercise the right of first refusal. However, the lease or contract does not have to contain specific terms or even a deadline governing this right. According to the Minnesota Supreme Court, the tenant has to accept or reject the sale offer within a reasonable time if the lease contains no explicit period.

The state Supreme Court ruled on a property sale where no time period or other specifics concerning the right of first refusal was not contained in the agreement between the tenant and property owner. The Court said that the tenant may need to investigate or seek clarification of any ambiguous terms of the sale. However, the tenant must make prompt inquiries and the property owner must make a timely, reasonable and good faith response.

The Court, accordingly, rejected the tenant’s argument that he was not granted the right of first refusal where he promptly received notice of the essential terms of the sale and did not even respond within the 45-day period that was allowed in an earlier agreement. However, requiring a response within 48 hours was also unreasonable.

In commercial real estate transactions, legal assistance can help assure that leases and other agreements do not harm business owners. Legal representation can help assure that businesses preserve their rights in a contract negotiation and with drafting a purchase agreement.

Source: FindLaw, “Dyrdal v. Golden Nuggets, Inc., 689 N.W.2d 779 (Minn. 2004),” accessed May 4, 2015

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