Picture the scenario. You’re speaking to a friend over a couple of drinks and they let it slip that they’re looking to buy a house or a shop, or whatever it may be. You then turn to them and say “if I sell my property, I’ll offer it to you first“. And there you have it – the makings of a ‘right to buy’.
But what exactly have you just agreed to?
It might seem entirely straightforward when you first say it: “if I sell my property, I’ll offer it to you first“. But just pause for a moment and think it through to its logical conclusion. It’s not quite as clear-cut as it sounds. It’s very easy for the recipient of the information (ie. your friend) to have a different interpretation from yours. In fact, your own interpretation of what you’ve just said could evolve as time goes by.
Here’s what it could mean, depending on how you look at it:
You intended to give them an option to buy, which means that they can call on you at any time to demand that you sell the property to them. The price could be fixed now, or determined at the time of the sale. This type of agreement is strictly enforceable.
You intended to create an option to sell whereby you can put the onus on them at any time and demand that they buy the property from you. The price could be fixed now, or determined at the time of the sale. Again, you are creating a strictly enforceable legal contract.
Right of first Refusal / Pre-emption
Neither of you can demand that the property is sold, but if you ever do decide to sell, then you are giving them the first shot at buying it. The price would be determined at the time and there would be a mechanism and specific timeframes to make sure that both parties actively progress the sale. For example, you might give them a 20 day window to commit to buying the property after you announce that it’s up for sale. Not quite as potent as an option agreement because you could choose not to sell, or your friend could choose not to buy, but this is still a legally enforceable contract.
You simply agree to notify them before you sell – as a matter of courtesy rather than any underlying legal principle. You are effectively giving them a chance to negotiate with you in the event that you decide to sell. Unsurprisingly, not legally enforceable and there are no real consequences of failing to stick to the agreement, other than reputational damage of course.
So there you have it; four possible interpretations from one relatively innocuous statement. And by the time you instruct your lawyers to draft something up, and your friend does likewise, you might find that you’re negotiating something far more complex than you had originally envisaged.
Top tip: you avoid this type of ambiguity, always take your lawyer with you when you go out for drinks!
This post was written by Shazan Miah. For further information, please contact:
Shazan Miah, associate, real estate
T: 0121 234 0261