A right of first refusal is a right to be given preference as against third parties in the event that a party decides to conclude a contract. If the contemplated contract is a contract of sale it is referred to as a right of pre-emption. The person who gives the right is called the grantor and the person who is given the right the grantee. The right does not compel the grantor to contract with or to sell the property to the grantee but simply gives the grantee priority to other prospective contractants or buyers should the grantor decides to conclude a contract or to sell the property. It is therefore different from an option in that under an option there is the main offer and an agreement is made in terms of which the grantor undertakes to keep the main offer open for a certain period of time.
What constitute a right of first refusal was clearly explained in the case of Eastview Gardens Residents Association v Zimbabwe Reinsurance Corporation Corporation (Ltd) & Ors 2002 (2) ZLR 543 (S) in the following terms:
A right of first refusal or pre-emption is created when, in an agreement, one party(the grantor) undertakes that when he decides to sell his property he will give the other party(the grantee) the opportunity of refusing or buying of the property at a price equal to that offered by another person. The grantor is then said to be under an obligation to do, at the time he sells the property, what he voluntarily bound himself to do, that is, offer the property to the grantee first at a price equal to that offered by a third party or which he is prepared to accept from any other would be buyer. The grantee is said to have acquired the correlative right to have the property offered to him first so that he can match the price offered by the third party or refuse the offer.
The right of first refusal is therefore created by contract and he who alleges its existence should prove so on a balance of probabilities.
A right of first refusal is very common in contracts of lease. In this case the lessor agrees with the tenant that in the event that he (the lessor) wants to sell the property under lease then he will offer it to the tenant at a price offered by a would be purchaser which the lessor is prepared to accept. The right does not therefore arise automatically by virtue of there being a landlord- tenant relationship or some other relationship. In most cases the right of first refusal clause is put in the agreement of lease. This is also sometimes the case in employment contracts where by virtue of employment an employee is given company property to use and the parties agree to a right of first refusal in the event that the employer decides to sell the property.
Where the grantor sells the property to a third party in violation of the right of first refusal the remedies available to the grantee depend on whether the third party was aware or unaware of the existence of the right of first refusal. Where the third party was unaware and therefore acted bona fide the grantee can only claim damages against the grantor. Where the third party was aware of the existence of the right then the grantee can assert his right and pursue the property in the hands of the third party subject to the court’s discretion to refuse specific performance.
It is important to note that there is also a statutory right of first refusal which is provided for in terms of the s 3 of the Land Acquisition (Disposal of Rural Land) Regulations, 1999. In terms of these Regulations an owner of rural land cannot sell his or her land to any other person without having approached the State, through the relevant Minister, to exercise its right of first refusal. If the State is not interested in the land, the Minister will issue a certificate of no present interest and only then can a person enter into an agreement of sale with any other party. An agreement of sale of rural land in the absence of a certificate of no present interest is invalid.
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