Welcome to this issue of our Extractive & Waste Management Industry Newsletter, focused specifically on providing information on topical legal issues facing members of the extractive industry.
Cornwall Stodart is widely recognised for its experience in the extractive industry. Our clients are indicative of the diversity of the industry and include quarry operators, concrete plants, landfill operators and mining and resources companies.
We regularly advise such clients on mergers and acquisitions, dispositions, workplace relations, occupational health and safety issues, corporate matters, commercial contracts, dispute resolution, property and leasing including planning matters, environmental issues and taxation.
We are members of The Institute of Quarrying, the Waste Management Association of Australia, and the Victorian Planning and Environmental Law Association.
If you would like any information in relation to the following article, or any other topic of interest, please contact us.
Levent Shevki, Partner and Head of the Extractive Industry Group
Buying and selling property can be a risky business – particularly if you are unsure of the legal ramifications of terms like 'options' and 'first rights of refusal'. This article considers these terms but is not intended as legal advice. You should speak to your legal adviser about individual transactions…
More and more we are seeing vendors of properties grant prospective purchasers either an option or a first right of refusal over their property. Without understanding the legal ramifications of these terms, people are exposing themselves to risk.
Options and first rights of refusal are often confused. An option to purchase confers entitlements of a different nature from a first right of refusal. A first right of refusal is something less than an option.
They may be contained in single purpose agreements or as part of other agreements such as leases.
OPTIONS TO PURCHASE
An option to purchase is an agreement between two parties, whereby the vendor of a property (referred to as the grantor) grants to the other party (referred to as the grantee) a right to elect to purchase that property, usually within a limited time and for a specified price.
When exercised effectively, an option constitutes a contract for sale binding on both parties. The relationship becomes that of vendor and purchaser just like under any contract of sale of real estate.
Important considerations when entering into an option agreement include:
As well as binding the parties contractually, an option also constitutes an interest in land. This is particularly important because an option gives a grantee the right to lodge a caveat on the title to the property to protect his or her interest. This should be done immediately. Failure by the grantee to do so will allow the grantor to deal with the property without notice to the grantee. Although the grantee may have a substantial damages claim against the grantor, he or she will have lost the right to acquire the property.
An option often contains specified conditions. These conditions must be observed strictly, irrespective of whether they are important or trivial. Failure on the part of a grantee to adhere to the conditions may result in the loss of the right. For example, grantees often get caught when they fail to exercise the option within the specified time. This leads to a loss of the option, and the grantee is often left having to re-negotiate the deal (possibly for a higher price). The exercise date for any option should be diarised carefully;
The terms of an option (including the terms of sale of the property) must be certain. If there is uncertainty, the whole option may be unenforceable. For this reason it is recommended that a copy of the proposed contract of sale should be attached to the option.
FIRST RIGHT OF REFUSAL
A first right of refusal operates differently from an option. Under an option, the grantor is bound to sell if the grantee complies with all conditions. Under a first right of refusal, the grantor is not bound to sell, but if the grantor does decide to sell, the grantee must be given the first right to accept an offer.
A first right of refusal is not an offer and in itself imposes no obligation on the vendor to sell. If the vendor decides to sell, then the holder of the first right of refusal has the right to receive the first offer, which he or she may also accept or not. If the offer is not accepted, the vendor is free to sell to another buyer. However, it is common practice to require a sale to another buyer must be on no less favourable terms than the offer made to the holder of the first right.
People drafting a first right of refusal should specify the precise terms of the entitlement, including its duration.
For further information, please contact Levent Shevki on +61 3 9608 2278 or l.shevki@cornwalls.com.au
Marelda is experienced in acting for corporations involved in property development and extractive industries advising on a wide range of areas of environmental and planning law including permit issues, land use, work authorities and EPA issues.
Marelda also has extensive experience acting in domestic town planning matters. She has advised clients on a broad range of issues including large scale retail developments, residential developments and land use issues particularly re-cycling, waste and extractive industries.
Marelda has acted in numerous disputes in the Victorian Civil and Administrative Appeals Tribunal and the Supreme Court on environmental and planning matters. She has also been involved in hearings before Planning Panels Victoria.
Marelda is a member of the Victorian Planning and Environmental Law Association and the Construction Material Processes Association.
