Also known as: first options to buy · right of first refusal · option to purchase
Written by attorneys · grounded in primary & secondary sources — see below
A contractual right granting its holder the first opportunity to purchase specified property at a designated price if the owner elects to sell during the contract period.
Farid Farahani sent a signed letter to Flagship Logistics expressing interest in leasing warehouse space. After months of talks the parties reached an oral deal for an eight-year lease that included a first option to buy the parcel at a set price. When Flagship later refused to honor the purchase right, the two writings were read together and satisfied the statute of frauds requirement.
Freeman Engineering's board authorized the issuance of convertible notes that expressly included a first option to buy additional shares at a fixed conversion price. The company later sought to block exercise of the option. The statutory grant of corporate power to issue securities containing purchase options confirmed that the corporation possessed authority to create and honor the right.
Select any source to read its text and confirm it supports the definition.
Frank Fisher obtained a first option to buy adjacent land from Fabian Flynn for a fixed sum, with no stated expiration. Five years later Flynn attempted to sell to a third party without offering Fisher the chance to match. Because no duration was specified the option lasted only a reasonable time and had already expired.
Floyd Franklin's will devised a parcel to his niece subject to a first option to buy held by Fairview Manufacturing at seventy-five percent of any third-party offer, exercisable within thirty days. When the niece received a higher outside bid she notified the company. The price and time terms were reasonable, so the preemptive right did not constitute an invalid restraint on alienation.
Frostline Textiles received an unsolicited bid and granted its CEO a first option to buy key assets at a below-market price. The board approved the grant without shopping the company. Shareholders challenged the transaction as a breach of the duty to maximize value for owners.
Felix Franco's company board granted a favored bidder a first option to buy the firm after a brief market canvass. A competing suitor offered more but was rebuffed. The board's failure to pursue the higher bid exposed it to liability for breaching duties to shareholders.
A first option to buy gives the holder the right to purchase at a predetermined price whenever the owner decides to sell. A right of first refusal instead allows the holder to match a third-party offer at whatever price that buyer proposes.
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An option to purchase property other than one appurtenant to a lease lasts only for a reasonable time under the governing servitude rules.
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The provision is enforceable if its price and exercise-period terms are reasonable. Otherwise it becomes an invalid restraint on alienation.
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Yes. Signed documents may be read together even without cross-references when they clearly relate to the same transaction and one contains the party's signature.
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…After years of rental use, however, the building had fallen into disrepair, and could no longer be rented out. The Nollans' option to purchase was conditioned on their promise to demolish the bungalow and replace it. In order to do so, under Cal. Pub. Res. Code Ann. §§ 30106, 30212, and 30600 (West 1986), they were required to…