9 Right Of First Refusal

CROSS REFERENCES AND OTHER SOURCES OF INFORMATION

Registration of Charges

See s. 197 of the Land Title Act in chapter 15 (Land Title Act Part 14 (ss. 197 to 237)—Charges).

Discharge or Waiver of Rights of First Refusal

See the discussion of “Practice” under s. 246 of the Land Title Act in chapter 17 (Land Title Act Part 16 (ss. 241 to 259)—Cancellation of Charges).

Secondary Sources

See Di Castri, Registration of Title to Land, vol. 2, paras. 381 and 607, and vol. 3, paras. 803 and 821.

CASE LAW

Elements of Right of First Refusal

A right of first refusal clause must, at a minimum, set out the procedure by which the price will be determined and a mechanism by which an offer can be made and a time within which it can be accepted. Where these minimum requirements are not present, the clause is unenforceable and the court will order the registrar to discharge the right from the title to the land (Baykey v. North West Office Furniture Ltd., 1992 CanLII 568 (BC SC)).

Vendor’s Failure to Comply with Right

A lease contained a right of first refusal that required the lessor to notify the lessee of receipt of an offer that the lessor was “willing to accept” and to offer the property to the lessee on the same terms. The lessor did not comply with the right of first refusal because it accepted a purchaser’s offer to purchase, subject to the right of first refusal. By statute, a right of first refusal is an equitable interest in land; apart from statute it is not. An equitable interest was created when the lessor received an offer it was willing to accept. Even if the agreement between the lessor and the purchaser was sufficiently certain to be enforced between them, a court of equity cannot uphold a decree of specific performance if to do so would compromise a statutory equitable interest, in this case the right of first refusal, that is prior in time to the purchaser’s interest (Stellar Properties Ltd. v. Botham Holdings Ltd., 1990 CanLII 2138 (BC CA)).

The defendant owned two adjacent commercial properties that were leased to two different enterprises, the plaintiff, WS, and CIRP. Both leases contained a right of first refusal. The defendant decided to sell the properties through an agent and received an unsegregated offer for both properties from the plaintiff, Alim. CIRP declined to act on its right of first refusal. The plaintiff, WS, exercised its right of first refusal with respect to both properties. The plaintiff, Alim, initiated proceedings for an order for specific performance. By court order, the two proceedings were heard together. WS decided to exercise its rights and matched the Alim offer for the two properties. The court found that WS could not be compelled to match an unsegregated offer but that it was entitled to insist upon a segregated offer for the property covered by its right of first refusal. The court also found that Alim’s offer corresponded to the property leased to WS and included, by way of consideration, another parcel within the unsegregated offer. Accordingly, WS was entitled to waive the defendant’s breach of the WS lease by accepting the offer from Alim and to accept the unsegregated offer for the two properties on that basis that the inclusion of the CIRP lot was more a question of consideration than a question of stepping outside the boundaries of the right of first refusal (Alim Holdings Ltd. v. Tom Howe Holdings Ltd., 2015 BCSC 71, affirmed 2016 BCCA 84).

Right Is an Insurable Interest

A tenant leased commercial space in a building from a landlord. The lease gave the tenant a right of first refusal over the entire building. While the tenant had an insurable interest in the entire building, there was no implied obligation on the landlord to insure that interest for the tenant (Matthews v. Andrew, 1986 CanLII 998 (BC SC)).

Effect of Lease Expiry on Right of First Refusal

Under the terms of an expired lease, the respondent, Christy’s, had a right of first refusal to purchase property it leased for the purpose of operating a gas bar. The petitioner now operates the gas bar under the terms of a lease with the respondent, Chevron. Chevron received a bona fide offer to purchase the property from the petitioner. Uncertain as to whether the RFR survived the expiry of the lease, Chevron gave notice of the offer to Christy’s and the petitioner brought this action to determine whether an RFR contained in a lease survived the expiry of the lease. The court found that the lease had a defined term and that there was nothing in the agreement that suggested the lease should extend beyond the term. It examined the wording of the agreement to determine what the parties intended at the time the lease was signed. Article 48 of the lease agreement stated “Should the Landlord during the Term determine to sell the Leased Premises, this Right of First Refusal shall remain in full force and effect during the Term or for as long as the Landlord leases the Adjacent Gas Bar Premises, whichever is longer”. The court found that the exercise of the RFR was subject to the precondition that the landlord determined to sell the leased premises during the term of the lease. As the decision to sell was made after the end of the lease, the RFR under the lease had expired and could not be exercised (North Eastern Enterprises Ltd. v. Chevron Canada Ltd., 2016 BCSC 1954).