When does a lease with option to purchase breach a right of first refusal? Simmons Media Group v. Waykar Explained

The Utah Court of Appeals in Simmons Media Group v. Waykar addressed when a landlord’s entry into a lease with option to purchase agreement violates a tenant’s right of first refusal.

Background and Facts

Simmons Media Group leased a billboard site from Waykar under a lease containing a right of first refusal. This right required Waykar to notify Simmons of any third-party offers and give Simmons thirty days to purchase the property on the same terms. In 2002, Waykar entered into a “Lease with Option to Purchase” agreement with the Evanses, granting them exclusive rights to purchase the property. Waykar never notified Simmons or offered it the opportunity to exercise its right of first refusal. Waykar later sold the company owning the property to an entity controlled by the Evanses, again without honoring Simmons’ right of first refusal.

Key Legal Issues

The case presented several issues: whether the renewed lease was valid despite imprecise property descriptions, whether Waykar ratified an unauthorized lease through its conduct, and most significantly, whether the lease with option to purchase agreement triggered the right of first refusal. Waykar argued that only the 2005 sale of the company, not the 2002 lease/option agreement, could constitute a breach.

Court’s Analysis and Holding

The court found that Waykar had ratified the lease through its conduct of accepting rent payments with knowledge of the lease terms. Regarding the central issue, the court held that Waykar breached the right of first refusal in 2002 when it entered the lease/option agreement. The court ruled this breach was independent of the 2005 company sale, noting that Waykar failed to challenge both alternative grounds for finding breach. The court granted specific performance, ordering Waykar to sell the property to Simmons at a reduced price reflecting lost profits.

Practice Implications

This decision demonstrates that rights of first refusal are triggered by agreements that effectively transfer purchase rights, not just completed sales. Practitioners should advise clients that lease/option agreements constitute sufficient commitment to trigger notification requirements. The court also imposed attorney fees under Rule 24(k) for inadequate briefing, emphasizing the importance of marshaling evidence when challenging factual findings and accurately representing the procedural history.