BACK TO ROFRs

            Barry Clarke owns a strip club. It is situated across the street from another strip club owned by Group Investment Company. In 1999, Clarke leased from GIC half of the parking lot, to support Clarke’s burgeoning business.

            The Lease contains a provision granting Clarke this ROFR: “Lessor grants the Lessee the right of first refusal should it wish to sell.” The Lease does not state what property – only the parking lot or perhaps the building plus the parking lot – is the subject of the ROFR clause.

            As well, there are no provisions in the Lease providing how the purchase price will be determined, timing and means to exercise the ROFR, inspection rights, title, platting, earnest money, type of deed to be used, tax proration, closing date, or anything else.

Just one vague sentence.

            In 2007 GIC conveyed its strip club to RRJR. Clarke testified he “probably” knew GIC transferred the property, but did not seek to exercise his ROFR because, in his view, GIC and RRJR contained the same shareholders.

            RRJR conveyed the property in 2013 to Fine Housing. Neither Fine Housing nor RRJR notified Clarke of the transaction.

            Clarke learned of the sale to Fine Housing and asserted a claim in 2015 against Fine Housing and RRJR to enforce Clarke’s ROFR. The trial court ruled the ROFR is enforceable as to the entire property (building plus parking lot), and ordered Fine Housing to convey it to Clarke upon his payment of $350k.

            The court of appeals reversed, holding that the ROFR is unenforceable. Clarke appealed to the Supreme Court.

            The Supreme Court started its evaluation by stating that “unreasonable restraints” on real property are unenforceable. And that ROFR clauses will be tested by that standard. Factors to determine reasonable vs. unreasonable are: (a) the legitimacy of the purpose; (b) pricing; (c) procedures to exercise the ROFR; and (d) clarity as to what real property is encumbered by the ROFR.

            Clarke claimed that there was no need for the ROFR provision to include pricing or procedures. And, that: the ROFR pertains to all of the property – building plus parking lot, the ROFR allows Seller to determine the pricing, and State law requires that the ROFR be exercised in a reasonable time.

            The Supreme Court, however, could not readily identify the precise subject of the ROFR, pricing, or mechanical procedures to exercise the right. Clarke’s ROFR must fail; Clarke must lose, again.

            See Clarke v. Fine Housing and RRJR; Supreme Court of South Carolina, Case No. 28126, January 4, 2023: https://scholar.google.com/scholar_case?case=15964625316625534298&hl=en&as_sdt=6&as_vis=1&oi=scholarr.

            Questions / Issues:

1. Who drafted this one-line ROFR and why is that not discussed – would it have made a difference if Lessor or Lessee had prepared it?

2. Or perhaps did a broker draft this, and if so did that lead to a malpractice claim against a broker licensed by the Real Estate Commission?

3. There is no reason that the use of the premises as a strip club had to be stated in this Opinion. The property could merely have been identified as a commercial building and adjacent parking lot. Did the utilization of the building influence the Appellate Courts, tilting their thoughts towards denying Clarke what otherwise could have been a valuable entitlement, as found by the trial court?

                                                                                  Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York

  

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.