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Saturday, January 8, 2005

Cases—Notice—Reasonable notice required for right of first refusal

When a right of first refusal on a piece of real estate does not specify the notice period required, the right extends for a “reasonable” period, according to the Minnesota Supreme Court in a case of first impression. Similarly, the person holding the right has a “reasonable” time to respond.

Plaintiff David Dyrdal leased 630 acres of Red River Valley land from Golden Nuggets, Inc. He had a right of first refusal to buy the property if GNI decided to sell. One day in 2001, GNI’s farm manager orally notified Dyrdal that a contract for sale was pending, and gave him 48 hours to respond. Dyrdal did not respond within that time, claiming he had 45 days to respond. GNI went ahead and sold the property. Dyrdal did not attempt to exercise his right during the 45 days.

The 48 hour oral notice was unreasonable, said the court in an en banc opinion by Justice Russell Anderson:

We hold that when, as in this case, the lease provides the lessee with right of first refusal but is otherwise silent regarding the right, the lessor need only provide reasonable notice of the essential terms of an offer of sale to trigger the lessee's obligation to timely exercise his right of first refusal. We acknowledge that upon receiving notice of sale, the lessee may need to clarify or investigate uncertainties or ambiguities in essential sale terms before exercising the lessee's first refusal right, but we also hold that such inquiry, and lessor's response thereto, must be reasonable, timely and in good faith.

The plaintiff nevertheless lost, said the court, because he did not act even within the 45 days he claimed he had. Dyrdal v. Golden Nuggets, Inc., 2004 Minn. LEXIS 755 (Dec. 16, 2004).

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