In A Right to Match Can Provide Multiple Benefits, I discussed some subtle ways to create value through the use of a right to match or a right of first refusal. A recent decision by Justice Robert Ullmann of the Massachusetts Superior Court highlights some additional features of rights to match that are far from intuitive and could either be used to your benefit or be a trap for the unwary.
In Serrano v. Serrano, Dennis Serrano had the right of first refusal to purchase property owned by the Marina Trust. In March of 2014, the trustee of that Trust offered the property for sale, and Bremis Realty, Inc. offered to purchase the property for $2.2 million and agreed to put up a $5,000 deposit. After Serrano was notified of the offer, he timely informed the trustee that he was exercising his right of first refusal, and tendered a check in the amount of $5,000, confirming that he genuinely was matching the Bremis Realty offer. When Bremis Realty learned that Serranno had exercised his right to match, it made an enhanced offer that included, among other things, an expedited closing date and additional pre-payments.
When the Trust sought to accept the enhanced Bremis Realty offer, Serrano sued, claiming that he had matched Bremis Realty’s offer and had a right to buy the Trust property. The Trust argued that because Serrano did not match Bremis Realty’s enhanced offer, Serrano waived any tentative right he might previously have had to buy the property. Ultimately, Judge Ullmann ruled that:
It does not matter if Bremis Realty, Inc.… is now willing to make advance payments and expedite the closing. Plaintiff has demonstrated a reasonable likelihood of success by timely exercising his right to first refusal and matching the terms of the third-party offer that was communicated to him.
While Judge Ullmann does not say so expressly, it appears that his underlying reasoning was that when Serrano matched Bremis Realty’s initial offer, a contract was formed for the purchase and sale of the real estate. As such, Bremis Realty’s enhanced offer was irrelevant because, by then, the Trust was bound to sell the property to Serrano.
This case provides two takeaways for in-house counsel. First, if you are in the position of trying to make a deal where another party has a right of right refusal, you should consider making your best offer initially, as opposed to starting low in the hope of negotiating a better price. If you don’t, you risk losing the deal to the holder of the right to match without ever being able to make your best offer. Second, if you are the seller, you want to make sure that potential buyers know that if they try to lowball you and you accept, they still may lose out because the third party holding the right to match may exercise that right. In either case, understanding how rights to match work can have a big impact on getting a deal done at the best price.