A right of first refusal over a property gives the holder of the right the opportunity to purchase the property in preference to any other buyer. The situation can become complicated, however, when the owner intends to sell the property to a third party for a lower price, or on conditions more favourable than those rejected by the holder of the right. The decision of the Supreme Court in Butchart & Anor v Sinnamon & Ors [2021] QSC 317 considers these issues and illustrates the importance of careful contract drafting.
The facts
Mr Sinnamon owned land at Moggill which he subdivided. In 2019 the Butcharts purchased one of the subdivided lots. The contract contained a special condition that:
“The Seller ... agrees to give the Buyer first right of refusal to purchase Lot 30 ... when the Seller is looking to sell at a future date.”
On 29 June 2021, Mr Sinnamon gave the Butcharts the opportunity to purchase Lot 30 at a price of “approximately $1.2 million”. Although the Butcharts were interested in purchasing the land, the parties did not reach an agreement, in part because the Butcharts wanted a 12 month settlement. Having not reached an agreement, Mr Sinnamon told the Butcharts that he would list the land on the open market on 1 July.
On 13 July 2021, Mr Sinnamon signed a contract to sell Lot 30 to the second respondents for $1.17 million. Before the contract settled the Butcharts commenced proceedings contending that Mr Sinnamon had not complied with the special condition, and asserted an equity in the land superior to that of the second respondents.
The Court's decision
In their application to the Supreme Court, the Butcharts submitted that—
(a) Mr Sinnamon’s use of the word “approximately” when qualifying the price meant that he had not sufficiently complied with the special condition because he had not offered the land at a precise price; and
(b) Mr Sinnamon was obliged to give the Butcharts an opportunity to buy the land at the lowest price which Mr Sinnamon would take, and if he did that on 29 June 2021, he was obliged to give them another opportunity to buy the land at a price of $1.17 million once he had determined to accept the second respondents’ offer.
In determining the matter, Dalton J considered what the special condition required Mr Sinnamon to do. Critically, the special condition did not define what rights the Butcharts were to gain, nor did it provide any mechanism or procedure to be followed in according those rights. Simply put, there was nothing which required the opportunity to be in a high state of definition. It followed that her Honour considered the opportunity to purchase the land for approximately $1.2 million, given orally and in a fairly informal conversation over the telephone, was a sufficiently clear opportunity to buy the land at that price.
Her honour further held that when the Butcharts refused to buy the land at that price, their right of first refusal was exhausted. While her Honour noted that there are some cases concerning clauses which specifically oblige the grantor to give the grantee a second or subsequent opportunity to buy or refuse to buy, this was not one of them. The special condition amounted to nothing more than a bare right of first refusal. Mr Sinnamon was under no obligation to give the Butcharts another opportunity to buy the land once he had determined to accept the second respondents’ offer of $1.17 million.
Comment
The Court's decision demonstrates the importance of careful drafting and makes clear that a bare right of first refusal, at least in the context of an unexceptional sale of residential land, should be taken prima facie as conferring no more than a pre-emptive right. Parties wishing to secure an opportunity to match terms and conditions offered by a third party purchaser should ensure they provide a mechanism to be followed in affording those rights.