Can a right of first refusal be invalidated by late closing? Harper v. Great Salt Lake Council, Inc. Explained

In Harper v. Great Salt Lake Council, Inc., the Utah Supreme Court addressed whether a right of first refusal becomes invalid when the parties fail to close within the timeframe specified in the original agreement. The decision clarifies the distinction between exercising a right of first refusal and completing the subsequent purchase transaction.

Background and Facts

Mt. Jordan donated seventy-one acres to the Boy Scouts of America in 1983, retaining a right of first refusal if BSA decided to sell. In 1996, Harper submitted an earnest money agreement to purchase the property, which expressly acknowledged Mt. Jordan’s right of first refusal. Mt. Jordan exercised this right within the required sixty days by providing written notice. However, the actual closing between Mt. Jordan and BSA occurred beyond the sixty-day period specified in the original first refusal agreement. Harper argued this delay invalidated Mt. Jordan’s exercise of the right, entitling him to purchase the property.

Key Legal Issues

The court addressed two primary questions: (1) whether the failure to close within sixty days invalidated Mt. Jordan’s exercise of its right of first refusal, and (2) whether Harper, as a third-party offeror, had standing to challenge modifications to the first refusal agreement between BSA and Mt. Jordan.

Court’s Analysis and Holding

The Utah Supreme Court distinguished between the requirements for exercising a right of first refusal and the requirements for closing the subsequent purchase. The court held that Mt. Jordan properly exercised its right by providing timely written notice within sixty days. The closing deadline was a separate requirement that the parties could waive or modify under the agreement’s terms. Harper’s purchase agreement was subject to a condition precedent—that Mt. Jordan not exercise its right of first refusal. Once Mt. Jordan exercised this right, Harper’s agreement was terminated regardless of when the actual closing occurred.

Practice Implications

This decision emphasizes the importance of carefully drafting rights of first refusal and understanding their interaction with subsequent purchase agreements. Practitioners should clearly distinguish between mandatory requirements for exercising the right and terms that parties can waive or modify. The ruling also confirms that third-party offerors typically lack standing to challenge modifications to agreements to which they are not parties, even when those agreements affect their interests.