New Decision: Right of First Refusal (The Allegro v. Pearson)

Michael Gelfand 12/24/2019

The Fourth District Court of Appeals recently addressed when does receipt equal delivery which then triggers a deadline in The Allegro at Boynton Beach, LLC v. Pearson, Fla. 4th DCA Case No. 4D18-3387 (Fla. 4th DCA November 27, 2019).

BACKGROUND: The ROFR

Allegro acquired the right of first refusal (“ROFR”) to purchase property adjacent to its senior housing community. The ROFR required the seller to deliver a copy of a third-party purchase contract to Allegro, and Allegro had 10 days after receipt of the contract to provide notice to the seller of Allegro’s election to purchase the property on the same terms and conditions.

The contract also provides that notices shall be delivered by “mail, personal delivery or electronic media” and that “[a]ny notice, document or item delivered to or received by an attorney . . . representing a party will be as effective as if delivered to or by that party.” Further, “[i]f for any reason . . . Seller fails, refuses or neglects to perform this Contract, [Allegro] may choose to receive a return of [Allegro’s] deposit. . . or to seek specific performance. . . .”

FIRST CONTRACT/FIRST LAWSUIT

In September 2013, the seller obtained a contract to sell for $2.5 million. Allegro elected to purchase the property pursuant to the ROFR. A year later Allegro terminated the contract and demanded return of its earnest money. Litigation regarding the termination was settled.

SECOND CONTRACT/SECOND LAWSUIT

In May 2015 the seller obtained a second contract for $3.75 million Allegro demanded a copy of the contract pursuant to the ROFR; however, the seller refused claiming that the ROFR terminated upon Allegro’s termination of the first contract. This lawsuit was filed by Allegro seeking damages for breach of contract, declaratory relief, injunctive relief including seeking a copy of the contract, and specific performance.

In the second lawsuit, the second buyer moved to intervene.

KEY FACT: Allegro through its counsel received a copy of the second contract when the second buyer’s motion to intervene was served upon counsel and attached the second contract.

FIRST APPEAL

The trial court ruled on a number of summary judgments which resulted in a separate, first appeal, in which the Court of Appeal stated:

When an owner enters into a contract for sale, a pre-existing right of first refusal is “converted into an irrevocable option to purchase.” Vorpe v. Key Island, Inc., 374 So. 2d 1035, 1037 (Fla. 2d DCA 1979); see 1 Williston on Contracts, §§ 5:15, 5:16, 5:18 (4th ed. May 2017). Once a holder’s right of first refusal ripens into an option, the option is not affected by termination of the underlying contract. Vorpe, 374 So. 2d at 1037; see also King v. Hall, 306 So. 2d 171, 173 (Fla. 1st DCA 1975).

Allegro at Boynton Beach, LLC v. Pearson 227 So. 3d 1288, 1289-91 (Fla. 4th DCA 2017). On remand Allegro sought specific performance and the seller sought a summary judgment on the injunctive relief and specific performance claims.

THE ANALYSIS/SECOND APPEAL

The substantive issue in this second appeal turned on whether Allegro counsel’s receipt of the second contract through discovery constituted delivery which in turn triggered Allegro’s right to accept the second contract’s terms. The appellate court discussed the concept of locus poenitentiae which is grossly defined as returning to the position before acceptance, or in other words rejecting a prior acceptance.

The appellate court rejected the concept that delivery through the buyer’s attorney’s court filing did not constitute delivery under the ROFR. The court did not accept that delivery of the second contract required an intent to deliver. In this regard, the court refused the attempted analogy to delivery of a deed or negotiable instrument, both of which were distinguished from the delivery of the ROFR contract because “delivery is essential to the existence of the instrument as a legal obligation.”

The appellate court also addressed whether the seller’s refusal to deliver the contract constituted anticipatory repudiation. While the refusal would appear to fall squarely within the defense of anticipatory breach, the doctrine does not apply to a unilateral contract.

The appellate court further explained that after an ROFR is created, when the seller and contract buyer entered into a contract, the ROFR “was converted into an option.” An option contract is nothing more than a unilateral contract that does not ripen into a bilateral contract until the “option holder manifests to the owner a desire to purchase the property….” Thus, the doctrine of anticipatory repudiation does not apply.

KIBITZING

This decision is valuable for the association practitioner addressing delivery generally, as well as what triggers the exercise of a right of first refusal.

Though the court extensively quoted the ROFR’s delivery requirements, the analysis did not refer to those provisions. The notice provisions are somewhat broad, not stating that delivery must be by the seller, and providing that notice is not only effective upon receipt, but that notice may be upon a party’s attorney. One must question why the court did not merely rely upon the seemingly unambiguous contract language to determine notice occurred.

The concept of intent seems to be lurking under the court’s analysis; however, interestingly court does not discuss intent beyond a passing quote and citation. In any event, it appears that the concept of intent is not a criteria for delivery at least under these circumstances. One must note the vigorous, to put it mildly, dissent by Judge Warner as to whether involuntary delivery constitutes delivery.

Best for a peaceful and healthy holiday!

Michael J. Gelfand

Past Chair

Real Property, Probate and Trust Law Section

of The Florida Bar

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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section

© 2019 Michael J. Gelfand

Michael J. Gelfand

Florida Bar Board Certified:

Real Estate Attorney

Condominium & Planned Development Law

Florida Supreme Court Certified Mediator:

Civil Circuit Court & Civil County Court

Fellow, American College of Real Estate Attorneys

The only thing necessary for the triumph of evil is for good men to do nothing.

- Edmund Burke


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