Dear PAO,

In my lease contract, a provision for the exercise of the right of first refusal was expressly agreed upon. It came to my knowledge, however, that my lessor intends to sell the leased premises to his relative. My lessor claimed that I cannot invoke my right of first refusal since the right of his own kin to his property prevails over our agreement. Is my lessor correct in saying so?

Beverly

Dear Beverly,

Please be informed of the Supreme Court’s ruling in the case of Tanay Recreation Center and Development Corp. vs. Catalina M. Fausto (GR 140182, April 12, 2005, Ponente: Associate Justice Alicia Austria-Martinez), where it was held that:

“When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor’s first offer shall be in his favor. Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal and is built into the reciprocal obligations of the parties.

It was erroneous for the Court of Appeals to rule that the right of first refusal does not apply when the property is sold to Fausto’s relative. When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties.

In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to the petitioner. The stipulation does not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto’s kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner. xxx” (Emphasis supplied).

In the given case above, the Supreme Court ruled that whatever has been stipulated in writing will be considered to contain all the terms agreed upon. Since the clause for the exercise of the right of first refusal was plain and unambiguous, there is no other room for interpretation. That is to say, the legal duty of the lessor is to not sell the leased premises to anybody, even to his/her relatives, since the clause did not provide for an exception, until an offer was made to the lessee and the latter had failed to accept it.

Hence, it is not correct for your lessor to say that the right of his or her relative to the leased property prevails over the contract of lease with a provision for the right of first refusal. Your right of first refusal in the said contract prevails because it was expressly agreed upon by you and the lessor, unless there is an express qualification or limitation in your contract giving such relative a superior right to acquire the property.

We hope that we were able to answer your queries. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated on.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected].