Since 1971, the plaintiff has been a tenant under an oral agreement and has operated an automobile repair shop on premises owned by the defendant George W. Greene,
When Greene received an oral offer from the defendant Carlow in June, 1984, Greene again offered the premises to the plaintiff for $100,000 and again the plaintiff refused the offer and made a counter-offer of $75,000. Other than Greene's serving the plaintiff on September 28, 1984, with a notice to vacate the premises, the parties had no further communication prior to October 18, 1984, when Greene signed a purchase and sale agreement with Carlow. Shortly thereafter, the plaintiff commenced this action in which he seeks a court order requiring Greene to sell the premises to him on the same terms and conditions as provided in Greene's agreement with Carlow.
The case was tried before a judge of the Probate and Family Court sitting by designation in the Superior Court. The judge denied the requested relief, and the plaintiff appealed. The Appeals Court affirmed the judgment by an unpublished memorandum and order under its summary disposition rule 1:28. 25 Mass.App.Ct. 1109 (1988). We allowed the plaintiff's application for further appellate review. We now reverse the judgment entered in the Superior Court and remand to that court for the entry of a new order consistent with this opinion.
We accept the parties' framing of the issue presented for review. That issue is whether the trial judge erred in refusing to order that Greene specifically perform its agreement granting the plaintiff a "right of first refusal to purchase" the premises of which the plaintiff was a tenant. The parties agree that the plaintiff had a right of first refusal. The question is whether, by responding to Greene's offers to sell for $100,000 with $75,000 counter-offers, the plaintiff exercised that right. In answering that question, we make the assumption that the
The parties agree that the term "right of first refusal," in the absence of explanatory context or contractual definition, has legal meaning, but they disagree as to what that meaning is. The defendants assert that the holder of the right is entitled to nothing more than an opportunity to purchase the property on terms as favorable to him as the terms of any purchase and sale agreement previously or subsequently entered into by the owner and a third person. Here, the defendants say, the plaintiff was given that opportunity and rejected it, thereby exercising his right of refusal (waiving any right to purchase). If we were to accept the defendants' argument, of course, there would be no call for a specific performance order.
The plaintiff argues that, in the absence of contractual definition or explanation, the holder of a right of first refusal is entitled to be presented by the owner with a third person's bona fide offer to purchase, and then, having been informed about that offer, to elect whether to meet it. According to the plaintiff's construction of the terms in question, once a person with a right of first refusal is presented with a third person's offer, the right of first refusal ripens into an option to purchase in accordance with the terms of that offer. The plaintiff argues, however, that, until an existing offer has been made known to the holder of the right, the holder of the right realistically and fairly is not in a position to exercise it.
A right of first refusal necessarily implies a right to choose between purchasing and not purchasing the premises if the owner elects to sell them. An owner cannot truly elect to sell until he has an opportunity to do so, that is, until he has received a bona fide and enforceable offer to purchase. See
At no time did the plaintiff refuse to purchase the premises on the same terms as those of an outstanding enforceable offer made by a third person.
A right of first refusal provision is designed to afford the holder protection against a sale to others. That protection is only effective if, in the event the owner has elected to sell the property, the holder, who is usually a tenant and frequently, as here, has made substantial improvements, has a realistic opportunity to meet the offer the owner has elected to accept. Thus, we hold that a person in the position of the plaintiff who is a tenant and has improved the property may properly be deemed to have exercised his right of first refusal only when the owner has decided to accept a third person's outstanding and enforceable offer and the holder of the right has been informed of the details of that offer and has had a reasonable time to meet it. Such a construction of "right of first refusal" language in an agreement not demonstrating the parties' different intent serves the apparent objectives of the term without unfairly burdening the owner of the premises.
The defendants have not presented arguments based on the Statute of Frauds or on the lack of recording of the plaintiff's right of first refusal. We do not intimate whether such arguments would have been successful had they been made. On the one issue argued, we conclude that the judge should have ordered Greene to offer to sell the premises to the plaintiff on