The Improper Execution of a Right of First Refusal Does Not Render Title Unmarketable

This week we wanted to bring your attention to an interesting decision out of the Appellate Division, First Department, which, in part, confirmed that an improperly executed Right of First Refusal purchase option did not render title “Unmarketable” or place a “Cloud on Title” where the option holder had only exercised its purchase rights on a prior offer to the Seller. 
The relevant facts of, as well as a link to, the case are set forth below:  

In reviewing the record on appeal, the Appellate Court stated that the Defendant, Clear Channel's earlier attempt to exercise its right of first refusal to purchase property owned by National Land & Building Corp. in response to a prior offer for $1.2 million was clearly untimely and ineffective where Clear Channel had elected not to exercise its right of first refusal to purchase the property for a subsequent offer for $1.4 million memorialized in a contract executed with Appellant, Khurshid A. Kazim (“Kazim”).  The Court went on further to determine that Clear Channel could "revive" the prior, ineffective exercise in an attempt to block the subsequent sale of the property (citations omitted), nor can National Land & Building Corp. rely on the threat of litigation to render the title unmarketable. The Appellate Court ultimately decided that the “mere possibility of a defect, which has no probable basis, as here, does not render title unmarketable (see Regan v Lanze, 40 NY2d 475, 482 [1976])”.

In affirming the Lower Court’s decision which had granted Kazim’s motion for summary judgment dismissing the Plaintiff’s compliant and validating Kazim’s contract, the Appellate Court held that Kazim had standing to contest the validity of the purported exercise of Clear Channel's right of first refusal given that Kazim was “aggrieved” by plaintiff's reliance on Clear Channel's purported exercise of its right of first refusal in seeking to cancel the Kazim contract.  The Appellate Court stated that “[t]o hold otherwise would place a purchaser in the precarious position of being unable to vindicate its contractual rights, while allowing a seller to rely on any spurious claim so long as it implicated a third party's rights, in order to avoid a contract with impunity. Under such circumstances, as the motion court observed, a would-be purchaser would be unable to determine the validity of a third party's claim to property, or to prevent collusion between a seller and such third-party purchaser (see also Isa v Gas Elezaj Corp., 303 AD2d 636 [2003]).”

To view this case, click the below link:
https://www.nycourts.gov/reporter/3dseries/2006/2006_00554.htm