Pre-emptive rights of purchase under leases

A pre-emptive right of purchase (which is often referred to as a first right of refusal) allows tenants to have some control over how their landlord may deal with the premises. In a recent decision of Mayfair Property Holdings Pty Ltd v Southland Packers Pty Ltd [2106] QSC 27, the Supreme Court of Queensland considered whether a landlord looking to sell their property to a third party was required to strictly comply with the terms of the pre-emptive right granted to its tenant.

The defendant Southland as seller and the plaintiff Mayfair as buyer entered into a contract for the sale and purchase of a property in Ashmore, Queensland, which was leased to BP Australia. The lease contained a pre-emptive right which prevented Southland from selling the property to a third party without first offering it to BP Australia on no less favourable terms.

The contract between Southland and Mayfair was subject to, amongst other conditions, Southland offering the property to BP Australia to purchase on the same terms as those to Mayfair and if BP Australia accepts that offer within the required timeframe, the contract would be at an end. After negotiations, Southland subsequently entered into a contract with BP Refinery, a related company of BP Australia, on different terms than those to Mayfair. Southland then purported to terminate the contract with Mayfair and sold the property to BP Refinery.

Mayfair started proceedings against Southland for breach of contract and sued Southland for damages. The Court found that Southland’s termination of the contract with Mayfair was a breach of that contract, as Southland failed to strictly comply with the contract and lease by not selling the property to the tenant, which was BP Australia not BP Refinery. Further, Southland’s contract with BP Refinery also contained other significant terms which were different to the Mayfair contract such as deposit amounts, settlement timeframes and deletion of some conditions in the Mayfair contract.

The case is an important reminder to take care during drafting the rights of pre-emption, and to carefully consider the language and strict terms of those clauses to ensure that they are properly complied with.

Elena Mastyuk

Senior Associate

Brisbane 07 3009 8444
Email e.mastyuk@rclaw.com.au

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Gavin McInnes

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Sydney 02 9307 8900
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