By: Bill Blake 

         Thanks, in large part, to Home Depot, Lowes, HGTV and the Internet, we now more than ever live in a "Do It Yourself" society.  People have become empowered to attempt, or in some instances even scoffed at for not attempting, projects that were once reserved for the trained craftsman.  Who needs to hire an electrician, plumber, carpenter or other contractor when you can go to one of the big box stores and save hundreds, if not thousands of dollars?  Sure, you can do it.  They can help.

        This phenomenon is not limited to home improvement.  With a few mouse clicks on the internet, people can find the resources that will enable them to file their taxes, diagnose their medical conditions and perform their own legal work.  But what happens if something goes wrong?  If the basement ends up full of water, an electrical fire starts in the wall, or the "dot-com" purchase agreement leaves out important, state-specific provisions, then what?  Then, almost invariably, people seek out the professionals who are called upon to fix a much more daunting, and typically much more expensive problem that could have easily been avoided.

         In many of our practices, we have encountered situations in which we could have offered clients practical and cost-effective advice at some earlier time which would have avoided the problem for which they have come  seeking counsel. And, almost invariably, it ends up costing significantly more to fix a problem than it does to avoid one.  An example of such a situation recently came up in a case we successfully litigated.  The case involved the purchase of a piece of property near Lincoln that was subject to a right of first refusal.  As you will see, while the end result turned out well for the client, the path to that result was long and expensive.

         In February 1998, Bob and Brenda Buyer (for the purposes of this article, we feel it is appropriate to avoid using real names) entered into an agreement with Samantha Seller to purchase part of a parcel of real property she owned.  During the negotiations, Bob and Brenda had a discussion regarding the property she was not selling, and the possibility of acquiring a right of first refusal should Samantha decide to sell it in the future.  Samantha informed Bob that she had already granted a right of first refusal on part of it to Tom Neighbor, an adjacent landowner.  Bob was agreeable and the purchase agreement was drafted to reflect that Bob and Brenda had a right of first refusal, subject and subordinate to the right previously granted to Tom Neighbor. 

           Trouble Spot #1

Neither Bob and Brenda nor Samantha sought the assistance of an attorney in drafting the purchase agreement and the terms of the right of first refusal.  There was no language in the purchase agreement that dealt with what events triggered the right, how notice had to be given, how the intent to exercise the right could be communicated and/or acknowledged, and any time limits for providing notice of intent to exercise the right.  In short, the terms and conditions regarding Bob and Brenda's right of first refusal were not developed. 

         In June 2005, Samantha listed her remaining property for sale.  Her real estate broker provided written notice to Bob and Brenda that the property was for sale, and that once an offer came in, they would have 24 hours to meet or exceed said offer. 

            Trouble Spot #2

            Did the right of first refusal impute a duty to match or exceed any offer that Samantha received, or just an accepted offer?  Were all the parties relying on the realtor's understanding and interpretation of the right of first refusal?  Without any defined terms, how were the parties to prepare and proceed should an offer come in?  Where did the 24-hour requirement come from?

        Samantha received an offer to purchase her property from Johnny Law Suit. Samantha accepted the offer and her realtor contacted Bob and Brenda to advise them of the purchase agreement.  Within 24 hours, Bob's real estate agent delivered a purchase agreement to Samantha offering to purchase the property for the same price Johnny had offered.  However, Bob and Brenda had inserted an addendum to the purchase agreement which stated:

    "Buyer reserves the right to assign this contract to a third party prior to closing."

           Trouble Spot #3

            Were Bob and Brenda able to change the terms of Johnny's accepted offer? Did this new language constitute a material change? Did they even need to include that language in order to assign their right prior to closing? 

        A few days later, Bob and Brenda received correspondence from Samantha's attorney, indicating that their offer was not acceptable as it provided the ability to assign the contract to a third party prior to closing.  The letter indicated that Samantha intended the right to be personal to Bob and that she was not willing to allow its assignment.  Furthermore, Samantha advised that Johnny had submitted another offer for more money and that Bob and Brenda had 24 hours to agree to, or exceed its terms.  Bob advised they would stand on the initial exercise of their right and they were ready, able and willing to close. 

           Trouble Spot #4

            Can a right of first refusal be assigned?  Did Bob and Brenda know when they entered the agreement that Samantha did not want it to be assigned?  Can Johnny bid against Bob and Brenda after they have exercised their right of first refusal?

        Ultimately, Samantha did not sell the property to either Johnny or Bob and Brenda, but did sell a small parcel to Tom Neighbor.  Johnny filed a lawsuit against Samantha as well as Bob and Brenda, seeking declaratory judgment to determine the rights and duties of the parties.  After a trial, the court dismissed Johnny from the action, finding he lacked standing.  The trial court reasoned that Samantha had not intended the right of first refusal to be assignable.  Accordingly, it determined that Bob and Brenda's offer to purchase was an invalid exercise of the right of first refusal and dismissed their claims.  Bob and Brenda appealed the District Court's decision. 

        Nearly three years after the original purchase agreement, the Court of Appeals determined that once Samantha decided to sell her property and accepted Johnny's offer to purchase, Bob and Brenda's right of first refusal ripened into an option contract.  By law, option contracts are assignable by the optionee.  It did not matter that Samantha did not want the right to be assigned; she had not so stated in the original agreement.  As such, Bob and Brenda's reservation of a right to assign before closing did not constitute a material deviation from Johnny's original offer.  The District Court was reversed with direction to grant Bob and Brenda specific performance of the contract. 

         We believe the Court of Appeals reached the right decision, and that Bob and Brenda were entitled to purchase the property.  The purpose of this article is not to discuss the substantive law of options, but rather to highlight the fact that sometimes it just makes sense to seek the assistance of a professional.  If Bob and Brenda had taken one hour at any one of the identified "Trouble Spots" to meet with an attorney about their transaction, it is very likely that the litigation could have been entirely avoided; $200 to save $25,000, not to mention nearly three years of their lives.  We strive every day to help our clients, which includes helping them save money and emotional energy. 

        So, the next time you head to the basement with your gloves, pipe wrench and torch, take just a second and remember Bob and Brenda.  What did that plumber say it would cost?  Maybe more importantly, do you still want to be worrying about it three years from now?  That's what we thought!