Right of first refusal to buy: How broadly may you interpret it?

Share transaction not covered by right of first refusal to buy.

Recently, another ruling was issued (Gelderland District Court dated April 3, 2019 in which it was ruled that a share transaction does not fall within the scope of the pre-emptive right. Not based on the text of the pre-emptive right and also not based on the circumstances of the case.

Interpretation in accordance with previous court ruling in The Hague

The ruling of the Gelderland District Court once again ruled that, in order to invoke the right of first refusal to buy in a lease, it is important what exactly the parties have agreed upon and thus how the text reads of the relevant article.

This was already ruled earlier, for example, by the District Court of The Hague. The latter ruling concerned a case between De Bijenkorf and a number of other parties. Here, too, the question was whether a share transaction fell within the scope of the pre-emptive right. The text of the article offered no indication for this, nor was there any reason to reach a different opinion.

The case heard by the Gelderland District Court on April 3, 2019 involved - in brief - an appeal by HEMA for fulfillment of the obligations arising from a right of first refusal to purchase included in the lease. Also in this case, the tenant was not vindicated and it was ruled that the interpretation of the right of first refusal of purchase did not lead to its applicability. The Gelderland court gave a nice summary of how the provision of the right of first refusal should be interpreted, referring, among other things, to the linguistic meaning of the chosen wording, to which great weight is given. Insufficient was that reference was made to "any other legal act of a property law and/or bond nature that materially leads to a similar effect."

Although everything else was also pulled out of the closet and it was argued at various points that the right of first refusal would apply in this case, the court came to a different opinion than that argued by HEMA. This was because the contractual rental relationship between landlord and tenant had remained unchanged. Thus, the basis for the claims lapsed and HEMA was ordered to pay the costs of the proceedings. The question is justified whether there may have been underlying interests in this case to conduct these proceedings?

Importance of a well-defined right of first refusal to buy

It is important, also in light of several previous rulings on this subject, to pay close attention when determining the text of a right of first refusal to buy. A right of first refusal of sale may be important for a tenant to be able to influence in some way and continue to rent a good location for as long as possible. A tenant, in the event a good location is leased, does not want, at the time a new owner or shareholder comes in with perhaps different ideas, to be able to be forced to leave.

Suppose that the shares of a leasing company are transferred and the new shareholder is of the opinion that the tenant should leave, then it is nice if you, as a tenant, can prevent that new shareholder from getting involved. Of course, this must be a shareholder who can actually exercise a lot of power. Because such a new shareholder will always have to observe the rules of the lease as well. The lease agreement itself will normally also contain provisions intended to protect the tenant. Nevertheless, a lease can end and to avoid that, it is important as a lessee to maintain or obtain control over a location. A right of first refusal to buy can contribute to this. However, it is important to know the exact wording of the right of first refusal and to take into account that, although in principle a lease is transferred with the property on the basis of Article 7:226 of the Dutch Civil Code ("purchase does not break a lease"), this does not necessarily apply to every clause in a lease.

Importance of correct description: also in purchase agreements

Not only in leases, but also in purchase agreements, we often see a right of first refusal of purchase included. In that case, too, it is important how broadly the right of first refusal is described. Make a clear distinction between a purchase option and a first right of purchase. With an option to buy, there is usually agreement on the price or on how the price will be determined by invoking the option. There is a strong right. With a right of first sale/preemptive right, this is precisely not true. With a right of first sale, the seller is obliged to give the entitled party (buyer) the opportunity to buy, but only at the time the seller actually wants to sell. There is then only an obligation of the seller to offer the property first. Should the parties fail to reach an agreement or if the entitled party does not want to exercise that right, the seller may offer the property for sale to whomever he wishes.

Again, the literal text of the clause is of enormous importance. And what to do to prevent the clause from being used only once? Think carefully and seek advice on the appropriate wording.

Conclusion

Pay close attention to the wording of a right of first refusal to buy or an option to buy. Be aware of the pitfalls and determine in advance how broadly the right should be described. Of course, this comes at a price, but it can prevent a lot of discussion, afterwards, at the time when reliance on such a clause is desired.