Massachusetts Agencies

Right of First Refusal: Waiver

Purchase and Sale Agreements

InStone v. W.E. Aubuchon Co., Inc., 29 Mass.App.Ct. 523, 562 N.E.2d 852, (1990) Riseberg Realty leased property to Aubuchon and in the lease the tenant had a right of first refusal and could sublet the property with the landlord's permission. In 1983 Stone agreed to buy the property from Riseberg Realty, but no notice was given to Aubuchon of the Stone's offer, as was required under the terms of the right of first refusal. After title passed Stone notified Aubuchon that rent payments thereafter should be sent to him, and Aubuchon complied.

Three years later Aubuchon desired to sublet the premises and asked Stone for permission to do so. Stone refused to approve the subtenant. That's when the trouble began. Aubuchon unearthed the right of first refusal clause in the lease and insisted that since it had not received notice from Riseberg Realty of its sale to Stone, Aubuchon was now exercising that right. The Appeals Court held that Aubuchon no longer had, and could not exercise its right of first refusal:

When the holder of a right of first refusal receives notice of a bona fide offer to purchase which the owner has decided to accept, the right of first refusal ripens into an option to purchase. Mucci v. Brockton Bocce Club, Inc., 19 Mass.App.Ct. 155, 159, 472 N.E.2d 966 (1985). 1A, Corbin, Contracts §261 at 472-473 (1963). See also Roy v. George W. Greene, Inc., 404 Mass. 67, 69-70, 533 N.E.2d 1323 (1989). A completed sale to a third party does not extinguish the lessee's right of first refusal. Rather, the lessee in such circumstances is entitled to exercise the option upon notice of the sale, and may enforce the option through an action for specific performance. Tucker v. Connors, 342 Mass. 376, 382, 173 N.E.2d 619 (1961).

Nevertheless, Aubuchon could not wait indefinitely to assert its rights under the first refusal clause. In the circumstances, when Aubuchon learned of the sale to Stone, Aubuchon had a reasonable time to inquire into the terms of the purchase and to exercise its right. * * * Here, Aubuchon did not promptly assert its right under the first refusal clause when it learned in May, 1983, of Stone's purchase of the property. Instead, it seemingly acquiesced in Stone's purchase by remitting the rent payments to Stone without mention of a right to purchase. Only when the parties started quarreling about the percentage rent and the proposed sublease three years later did Aubuchon assert rights under the first refusal clause and seek specific performance. "What is a reasonable time depends on all the circumstances of the case." Powers, Inc. v. Wayside, Inc., 343 Mass. 686, 691, 180 N.E.2d 677 (1962).