Tenant's Right to Buy Building for Appraised Value Not Triggered

A lease gave the tenant the right to buy the building in which its space was located for $590,000—its appraised value—if the owner chose to sell it. The lease said that if the tenant declined to buy the building, the owner could offer to sell it to a third party, but the tenant would have a right of first refusal. The owner offered the building and an adjacent building to the tenant. The tenant made a counteroffer to buy only the building in which it was located, subject to certain conditions. But the owner rejected the counteroffer and accepted an offer from a third party for both buildings. The owner then gave the tenant a chance to match the third party's offer of $790,000 for the building in which it was located, but the tenant insisted that it be allowed to buy the building for $590,000. The owner refused, so the tenant sued the owner.

A California appeals court ruled that the tenant's right to buy the building for its appraised value was never triggered, so the owner didn't have to let the tenant buy it for that amount. To trigger the tenant's right, the owner had to offer to sell the tenant only the building in which the tenant's space was located. Here, the owner offered two buildings to the tenant. So the tenant's right was never triggered, the court reasoned [Thompson v. Herold].