Rights of first refusal – are they single use?

Our Managing Partner, Carrie Ritchie, contributed to the Toronto Law Journal, offering a detailed look at how rights of first refusal operate in corporate and real estate transactions, and the key drafting lessons emerging from the Ontario Superior Court’s decision in McMullen v. Dilawri Property Holdings Ltd.

“A right of first refusal (“ROFR”) is a right that is granted to a party which typically provides the grantee the right to match a third-party offer from an arm’s-length party for the acquisition of real or personal property, such as an interest in land or shares in company. In the real property context, a high-value tenant or neighbouring landowner may be able to negotiate a ROFR for the purchase of an adjoining property or a property they lease. In the corporate context, shareholders in a corporation may grant reciprocal ROFR rights in a shareholders’ agreement. In both cases, the general principle is the same. If the grantor of the ROFR receives a bona fide offer from an arm’s-length third party, there arises an obligation to notify the ROFR holder of the offer and provide them with the opportunity to match the third-party offer within a specified time frame.

In the case of McMullen v Dilawri Property Holdings Ltd.,1 the Ontario Superior Court confirmed that after a ROFR is exercised, the common law rule prevails and the ROFR is spent after its first use, where proper language to the contrary is not provided.2 This case serves as a cautionary tale for both real estate and business lawyers in drafting ROFRs. Careful consideration as to the terms under which these rights may be extinguished or revived is required.”

The full text of the article can be found here: Read the full article.

This update is not intended to provide legal advice, but to high-light matters of interest in this area of law. If you have questions or need assistance in navigating the sale of a business, please contact Carrie Ritchie at carrie@ritchiesmyth.com.