Navigating Firsts Rights Offerings & Non Competes Clauses
Employing specific language and terms to benefit both parties.
Rights Of First Offering and Non-Compete Clauses
Granting rights of First Offering can seem innocent enough when trying to make a commercial or industrial sale or lease. A buyer with the right to purchase additional land adjacent to its location for instance will allow the buyer to grow its business. Or a tenant with rights to contiguous space might mean the tenant will remain with the owner longer.
The same can be said for allowing buyers and tenants non-compete rights where the owner does not sell or lease more land or space to operators in competing businesses.
Clarity of language in the clauses that grant these rights is the key to accommodating buyers and tenants while not taking advantage of owners.
In the case of a Right of First Offering to purchase an adjacent lot from the same Seller (in a commercial subdivision, for instance), the Buyer would have the right to assume the position of a new buyer who makes terms with the Seller. From the Seller’s standpoint, consider including language that requires Buyer to close if it exercises and steps into the new buyer’s role. Without this condition, the Buyer might have rights in the Due Diligence conditions that allow for an out (inspections or financing, for instance). And in that case, the Seller could lose a good buyer who would have closed. Also, consider making the Right of First Offering a one-time opportunity for the Buyer. Otherwise, the same experience could happen over and over for the Seller.
For a Tenant’s non-compete right in a shopping center, as the Landlord, consider language that specifies the exact use of the Tenant’s business, not the general sector of business within which the Tenant operates. In the case of a health club, for instance, narrow the language in the non-compete clause so that other fitness operators like martial arts and dance studio’s could still be permitted to lease without approval by the Tenant.