An Illinois appellate court has considered whether a buyer could claim specific performance of a real estate contract based on a right of first refusal the parties had agreed to negotiate but had never reached an agreement on its specific terms.
The Noggle Family Limited Partnership ("Owner") entered into an agreement with Crestview Builders, Inc. ("Developer") to sell the Developer 220 acres of land over a series of three closings. The Owner retained possession of homestead property located on the land, but agreed in a rider ("Rider") to the purchase contract to "execute and deliver to the [Developer] a recordable right of first refusal on the [Owner's] retained homestead."
Negotiations for the right of first refusal did not occur until after the third closing. The parties inserted language into the third closing statement stating that the Owners would deliver to the Developers "a signed and recordable right of first refusal by 12/30/00 for the homestead."
During the subsequent negotiations, the Developers sought a right of first refusal lasting for ten years, while the Owners wanted to limit the right of first refusal to three years. The negotiations covered December 2000 and January 2001, but no agreement was ever reached. In April 2001, the Developers filed a lawsuit seeking a judicial declaration that the right of first refusal was valid and binding against the Owners for an unlimited period of time. The trial court ruled in favor of the Developers and the Owners appealed.
The Appellate Court of Illinois, Second District, reversed the trial court and ruled in favor of the Owners. Looking at existing case law, the terms of the right of first refusal must be ascertainable by the court. Price is usually an essential term for which, at the minimum, there must be an ascertainable method of determining. The Owners argued that the price for the right of first refusal had not been agreed to nor had the parties negotiated a method for ascertaining this price. The Developer argued that the right of first refusal was sufficiently clear in its terms.
The court ruled that the right of first refusal was unenforceable because there were no negotiated terms for the right of first refusal. Not only was the court unable to determine the price that the parties had negotiated for the right of first refusal but the court was unable to identify any of the terms the parties had agreed to regarding the right of first refusal. Since the terms of the right of first refusal were not identifiable nor was there any other method established by the parties to identify these terms, the court ruled that the right of first refusal was unenforceable. Therefore, the court reversed the trial court's ruling in favor of the Developer.