The restaurant owner unsuccessfully argued that the tenant’s right of refusal was not triggered because the owner was selling both the restaurant and the building.
M&A Stories
May 7, 2023
Introduction
A buyer of a business frequently seeks the real property used by the business.
The deal
The seller in this deal owned a restaurant, and the restaurant building. Another business leased part of the building for its flooring business. The lease between the seller and the tenant gave the tenant a right of first refusal.
A buyer agreed to purchase the restaurant assets for $300K and the building for $300K. The seller agreed and asked the tenant to waive its right of first refusal to purchase the building. The tenant declined and instead told the seller that it was exercising its right to purchase the building for $300K.
The seller refused to sell the building to the tenant. It argued that the tenant’s right to purchase the building was not triggered because the buyer was buying the building as part of a package deal, along with the restaurant building.
The seller and buyer closed the deal.
The lawsuit
The seller asked an Iowa trial court to hold that its deal with the buyer did not trigger the tenant’s right of first refusal. The court did so, and the tenant appealed. The appellate court held that the acquisition of the seller’s restaurant business and building did trigger the tenant’s right of first refusal. The appellate court ordered the trial court to determine the tenant’s “proper remedy.”
See Pistol Limited Company v. Green Family Flooring, Inc., No. 22-0126, Court of Appeals of Iowa (Filed April 10, 2023.)
Comment
Does the “proper remedy,” include the trial court unwinding the sale of the property to the buyer and selling it to the tenant? If not, how would the trial court compute the tenant’s monetary damages?
What’s the lesson? Closing the transaction without resolving the right of first refusal was very risky for both the buyer and the seller.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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