FIENBERG v. HASSAN

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Appeals Court of Massachusetts.

Andrew FIENBERG, trustee,1 v. Sam HASSAN & another 2 (and a companion case 3).

No. 09-P-1545.

Decided: June 16, 2010

Gregory V. Sullivan for Sam Hassan. Joseph M. Klements for Andrew Fienberg. Alan S. Fanger for Rattlesnake Bar & Grill, Inc.

The defendant Sam Hassan, also known as Hicham Ali Hassan (Hassan), appeals from a judgment entered in the Superior Court, which declared that the defendant Rattlesnake Bar & Grill, Inc. (Rattlesnake), validly exercised a right of first refusal it held to purchase property owned by the plaintiff Fienberg, and that Rattlesnake's exercise of the right of first refusal operated to nullify the offer to purchase the property previously made by Hassan and accepted by Fienberg. Because Rattlesnake's notice exercising its right of first refusal materially deviated from certain terms of Hassan's offer, we conclude that Rattlesnake did not validly exercise its right of first refusal, and reverse.

Fienberg owns property at 382-390 Boylston Street, Boston, and Rattlesnake occupies the property under a written lease. The lease includes the following provision:

“If the Lessor decides to sell the real estate, the Lessee shall have the right of first refusal if the Lessee matches a bona fide written offer to purchase which the Lessor has been offered.”

On May 14, 2008, Hassan submitted to Fienberg a written offer to purchase the property for a total purchase price of $4.5 million, with a deposit of $500,000 paid with the offer and the balance to be paid at the time of closing. The offer further specified that the parties would enter into a purchase and sale agreement on or before May 23, 2008, and that the transaction would close on June 16, 2008. The offer included a requirement that Fienberg notify Rattlesnake of the offer “in accordance with the right of first refusal set forth in the lease” on or before May 19, 2008. Fienberg signed the offer, signifying acceptance of it.4

On May 19, 2008, Fienberg sent to Rattlesnake a written notice of Hassan's offer, including a copy of the offer. On June 6, 2008, Rattlesnake submitted to Fienberg a written offer to purchase the property for a total purchase price of $4.5 million, with a deposit of $500,000 to be paid by wire transfer upon acceptance of the offer and the balance to be paid at the time of closing. The offer further specified that the parties would enter into a purchase and sale agreement on or before June 20, 2008, and that the transaction would close on August 1, 2008. Finally, the offer addressed the possibility that a dispute could arise concerning the validity of Rattlesnake's exercise of its right of first refusal; paragraph 5 of the offer authorized Fienberg to commence an action for a declaratory judgment in that event, and further addressed the parties' further rights upon determination of the declaratory judgment action.5

“A right of first refusal is a limitation on a property owner's ability to sell the property to a third party, requiring the owner to first offer the property to the holder of the right at the third party's offering price and terms.” T.W. Nickerson, Inc. v. Fleet Natl. Bank, 456 Mass. 562, 571-572, 924 N.E.2d 696 (2010). “Upon notice of a bona fide offer to purchase, the right of first refusal ripens into an option to purchase the property at the price and otherwise on the terms stated in the offer.” Frostar Corp. v. Malloy, 63 Mass.App.Ct. 96, 103, 823 N.E.2d 417 (2005).6 “Accordingly, to meet [Hassan's] bona fide offer, [Rattlesnake] was required to purchase the [property] on substantially the same terms and conditions as presented in [Hassan's offer]. See Stone v. W.E. Aubuchon Co., 29 Mass.App.Ct. 523, 527, 562 N.E.2d 852 (1990) (‘It is basic, of course, that an option may be exercised only in strict compliance with its terms').” Franklin v. Wyllie, 443 Mass. 187, 195-196, 819 N.E.2d 943 (2005).7 In the present case, Rattlesnake's offer matched the price set forth in Hassan's offer, but did not match other material terms. In particular, Rattlesnake's offer proposed a closing date of August 1, fifty-six days after the date of Rattlesnake's offer and more than forty-five days after the closing date specified in Hassan's offer.8 The difference in time was significant in both absolute and relative terms, since Hassan's offer to purchase called for a closing to occur in thirty-three days.9 Indeed, the date Rattlesnake specified for the parties to execute a more detailed purchase and sale agreement was later than the date Hassan's offer specified to close the transaction.

As the court observed in Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376, 389, 805 N.E.2d 957 (2004), “[r]ights of first refusal provide the weakest protection of all possible option arrangements.” Indeed, in Uno Restaurants, Inc., the court rejects explicitly the rationale that a right of first refusal does not allow a third party to dictate the terms of a contract between the parties to the right of first refusal: “[i]nherent in a right of first refusal is the fact that a third party, not the holder of the right, will dictate the price” and other terms. Id. at 384, 805 N.E.2d 957.

Had Fienberg wished to preserve his freedom to contract with Rattlesnake to sell the property for the same price but on different terms, he could have deferred his acceptance of Hassan's offer until after Rattlesnake had an opportunity to submit an offer. However, once Fienberg accepted Hassan's offer, he became bound to Hassan subject only to a valid exercise by Rattlesnake of its right of first refusal. Since Rattlesnake's offer did not match Hassan's as to, inter alia, the closing date, it did not constitute a valid exercise of Rattlesnake's right of first refusal.

The judgment is reversed, and the case is remanded for entry of a new judgment, declaring that Rattlesnake did not validly exercise its right of first refusal, and ordering Fienberg to convey the property to Hassan in accordance with the terms of the purchase and sale agreement between Hassan and Fienberg.

So ordered.

RESCRIPT.