Apr 21, 2016

Marketing Decisions Can Be Significant #485

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By Brian Taylor,
Norton Rose Fulbright LLP

A decision as to whether a seller should market multiple lots separately or as a package is usually considered a marketing decision, but it can have legal implications as well.

In this case,1 the seller offered two separate commercial properties for sale as a package. Each property was subject to a right of first refusal (RFR) in favour of the respective tenants. Each RFR provided that the tenant would have a right to purchase the property at the price and on the terms offered by any third party.

The seller accepted a single offer to purchase both properties as a package subject to the seller receiving notice that the respective tenants had not exercised their RFR. The condition precedent provided that if the subjects were not waived or satisfied by a certain date the accepted offer would be null and void. The two properties were of significance to the buyer as their purchase would give the buyer control of the whole block for redevelopment. One wonders if that fact lead to the decision to market the two properties as a package.

As required by each RFR the seller sent the accepted offer to both tenants. The tenant of the first property on McPherson Avenue did not exercise its RFR, but the tenant of the other parcel (Kingsway Property) sent the following letter to the seller:

"Since your letter and accepted Offer to Purchase included two properties for sale for one aggregate price, and since we understand that the holder of the right to purchase the property on McPherson Avenue has waived its rights under such right of first refusal we take the position that your letter amounts to an offer to sell both of the two properties to us at the aggregate price for both properties, all on the terms of the Offer to Purchase that you forwarded to us."

Upon receipt of the letter, the seller advised the buyer that the tenant of the Kingsway Property had exercised its RFR and as a result the accepted offer was null and void. The seller returned to the buyer the deposit held pursuant to the accepted offer and entered into an agreement to sell the two parcels to the tenant.

The buyer refused to accept that result and sued for specific performance of the accepted offer arguing that the RFR on the Kingsway Property could not be exercised with respect to the property on McPherson Avenue and in attempting to do so the tenant of the Kingsway Property had failed to properly exercise its RFR. One assumes the buyer sued for specific performance rather than damages because of the unique nature of the two properties and their importance in the land assembly.

The BC Court of Appeal concluded that despite the unsegregated nature of the two properties, the Kingsway RFR was still triggered by the buyer's accepted offer. It also concluded that the letter sent by the Kingsway tenant constituted an effective exercise of its RFR.

The Court agreed with the buyer that the Kingsway RFR did not entitle the tenant of the Kingsway Property to purchase the McPherson Avenue property. However, by exercising its RFR, the Kingsway tenant rendered the buyer's accepted offer null and void. Once the buyer's accepted offer ceased to exist, the seller could sell both parcels as a package to the tenant outside of the parameters of the RFR.

In this case the decision to market the two properties as a package rather than separately was significant. Had the properties been marketed separately and had the buyer made separate offers for each property, the tenant's exercise of the Kingsway RFR would only have rendered the offer on the Kingsway Property null and void and would not have affected the offer on the McPherson Avenue property.

Brian Taylor 
Bull Housser LLP

 1. Alim Holdings Ltd. v. Tom Howe Holdings Ltd., 2016 BCCA 84 .

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By Brian Taylor,
Norton Rose Fulbright LLP

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