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
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,
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:
- 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?
- 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?
- 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.