Land Sale Contracts

Question 1

Does a long term lease for commercial property containing a term which gives the lessee the right of first refusal if the landlord decides to sell the property violate the RAP?

Answer 1

Although a jurisdiction may follow the common-law Rule Against Perpetuities and treat a right of first refusal as subject to the Rule Against Perpetuities, there is an exception where the right is given in conjunction with a lease. Accordingly, the Rule Against Perpetuities would not apply in those situations.

Note that there is a commercial transaction exception under the Uniform Statutory Rule Against Perpetuities.

Question 2

Does exercising the right of first refusal prior to the expiration of the RAP 21 year period render the right valid?

Answer 2

The Rule Against Perpetuities applies if the right of first refusal could have been exercised after the expiration of the 21-year period, even if the right was exercised prior to that time.

Question 3

Enforceable Liquidated Damages

Answer 3

The touchstone for the enforceability of a liquidated damages clause which provides for a seller to retain the earnest money in the event of the buyer’s breach, is that the amount be reasonable.