Many commercial tenants, depending upon market conditions and their overall leverage in a transaction, are able to negotiate for a right of first refusal or first offer to purchase the property they lease. A right of first refusal typically provides the tenant a right to match a third-party offer to buy the property, whereas a right of first offer provides the tenant with the first opportunity to buy the property on material economic terms that are proposed by the seller.  From the perspective of both landlord and tenant, any such provision should be carefully drafted in the lease so that the rights and obligations of the parties are unambiguous, and there are no misunderstandings or disagreements as to how and when the clause is triggered.

What Are Tenants’ Rights? Do They Still Exist?

Often the specific details of the purchase right are contained in the original lease. A memorandum of lease, which puts third parties on notice as to the existence of such right, is often recorded in the land records. While the terms may originally seem clear to both parties, what transpires over the course of time can often muddy the waters. For instance, the lease could be amended with or without a clause that provides that all terms of the original lease, as amended, remain in full force and effect. Another situation may involve the written lease term expiring and the tenant becoming a “month-to-month” tenant without any writing addressing whether the purchase right was intended to extend into the month-to-month tenancy. In situations such as these where the result is not clear, applicable case law in a given state should be researched to fill in the gaps and help interpret such ambiguous provisions.

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