New Jersey Lawyers BlogNew Jersey Appeals Court Enforces Right of First Refusal in Commercial Contract
New Jersey business law provides that parties to a contract may agree that after closing one party, usually the seller, can have the right to match another offer which a party receives. This is called a “right of first refusal.” This most frequently occurs in contracts for the sale of a business or the sale of real estate, but also often occurs in leases and other contracts as well. A New Jersey appeals court’s decision in the case of PMG New Jersey II, LLC vs Amrit Inc. examined the law regarding New Jersey law regarding contractual rights of first refusal.
Amrit, Inc. Buys a Gas Station and a Decade Later Litigation Ensues
The decision explained that in 2012, the parties entered into a into a Motor Fuel Supply Agreement (MFSA) in connection with Amrit, Inc.’s purchase of a gas station in New Brunswick, New Jersey from PMG New Jersey II, LLC. The MFSA was amended three years later in 2015 to include a provision which provided that if the purchaser received an offer to buy the gas station, PMG had 30 days to give notice that it was exercising its right to purchase the gas station on the same terms and conditions as the new offer; if not it waived this right of first refusal. The MFSA was later amended to last through 2027.
Amrit closed on the gas station, and years later in 2022 they negotiated with Jabbar Singh for his company, Fuel One, to purchase the gas station for $2,500,000. In their contract Amrit represented that it was not contractually prevented from selling the gas station to Singh and Fuel One but did give them an unsigned copy of the MFSA containing the amendment with PMG’s right of first refusal. PMG received an unsigned copy of the contract on January 17, 2023, and PMG reported the discrepancy to Fuel One and Amrit, and they amended their agreement to include PMG’s right of first refusal. PMG received the amended contract on May 8, 2023, and exercised its right of first refusal 29 days later on June 6th. Amrit, however, advised PMG that it intended to sell the gas station to Fuel One notwithstanding PMG’s right of first refusal.
PMG then filed suit in the Superior Court of New Jersey to enjoin the sale to Fuel One and compel specific performance of the contract and order Amrit to sell the gas station to PMG in accordance with the terms of its right of first refusal and the Fuel One offer.
The Superior Court judge entered summary judgment in favor of PMG, finding that it validly exercised its right of first refusal and ordering Amrit to sell the gas station to PMG under the terms of the Fuel One offer.
The Appellate Division’s Decision
Amrit appealed to the Appellate Division of the Superior Court of New Jersey. The Court addressed each of Amrit’s arguments in turn and in a comprehensive decision rejected them all.
First, it rejected Amrit’s argument that the January 17th date when PMG received the contract should have started the 30-day clock to exercise the right of first refusal. It explained that informal receipt of the unsigned contract which was amended before it was signed did not satisfy the terms of the MFSA and trigger the 30-day time period for PMG to exercise its right of first refusal.
The Appellate Division also rejected Amrit’s argument that the May amendment were merely “tweaks” which did not materially change the terms of Fuel One’s offer. The court explained that the change to notify Fuel One of PMG’s right of first refusal was necessary to cure Amrit’s misrepresentation. Without the changes, Fuel One could not have made a bona fide offer.
Finally, the court rejected Amrit’s argument that the clock should have started on May 4th, when it advised PMG of the changes, even though it did not actually give PMG an actual copy until May 8th. It explained that the MFSA required Amrit to “send” a copy of the bona fide offer to PMG, not merely to inform it that there was one.
The Bottom Line
The right of first refusal is a material term of contracts which courts will enforce. Parties to contracts with a right of first refusal should strictly comply with its terms. The right of first refusal can be extremely valuable in many commercial and real estate contexts, but its terms must be complied with.
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