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By neglecting to raise a key, compelling point in Land Court, a Dorchester landlord may have lost a case it could have otherwise won.
Two retail tenants recently litigated over their conflicting rights to acquire ownership of commercial property at 80-90 Washington St. in Dorchester, with an interesting result.
This story begins in 1991, when Froio Management Group Inc., a Burger King franchisee, leased a restaurant building at 100 Washington St. from Dunn River Assoc. The lease gave Froio a right of first refusal to purchase its building and the adjacent building at 80-90 Washington St.
In 2009, the landlord leased 80-90 Washington St. to Bargain Discount Markets, Inc. (BDM), a furniture retailer, for a 10-year term. BDM’s lease gave BDM an option to purchase 80-90 Washington St. for the greater of $10 million or the appraised value, exercisable within a two-year window starting in 2017. BDM’s option did not include Froio’s restaurant building. The lease specifically stated that the purchase option was subject to Froio’s right of first refusal.
The landlord received an offer to purchase the entire property from a third party in 2012, whereupon Froio exercised its right of first refusal and bought the property for $7.1 million through an affiliate, Washington Street Enterprises LLC (WSE). Froio and BDM remained as tenants. WSE hoped to redevelop the entire property, with BDM as a tenant. Its plan would not come to fruition.
WSE contacted BDM in 2015 to discuss renewing BDM’s lease or reducing BDM’s space at 80-90 Washington St. In response, BDM notified WSE that BDM intended to exercise its purchase option when it ripened in 2017. Surprised by BDM’s response, WSE asked BDM to acknowledge that its purchase option was subordinate to Froio’s right of first refusal. BDM refused. Froio and WSE filed suit in Land Court, seeking a declaratory judgment that Froio’s right of first refusal remained in existence and trumped BDM’s purchase option.
A Compelling Argument Goes Unraised
Both sides filed motions for summary judgment with the Land Court. Froio and WSE argued that Froio’s right of first refusal remained in effect, so that any attempt by BDM to exercise its purchase option could be negated by Froio’s exercise of its right of first refusal. To support this argument, they pointed out that Froio’s affiliate WSE purchased the property instead of Froio, and that Froio continued its tenancy under the existing lease with the right of first refusal.
Froio should have argued that BDM’s purchase option, which was subject to Froio’s right of first refusal, was extinguished when Froio exercised its first refusal and WSE purchased the property. However, for unknown reasons, Froio and WSE neglected to raise this compelling argument in the Land Court. This oversight would haunt Froio later.
BDM, on the other hand, argued that Froio’s right of first refusal was extinguished when Froio exercised it in 2012, and the separate ownership arrangement with WSE did not change this. According to BDM, the extinguishment of Froio’s right left BDM’s purchase option intact. The Land Court agreed with BDM, and ruled that Froio’s right of first refusal was extinguished, and that BDM’s purchase option was no longer subject to it and remained enforceable.
Christopher R. Vaccaro
An Oversight With Big Consequences
Froio appealed, belatedly arguing that Froio’s exercise of its right of first refusal extinguished BDM’s purchase option. The Appeals Court hastily dispatched the appeal. In a short, unpublished decision, the court ruled that Froio could not raise the new argument for the first time on appeal, and affirmed the Land Court’s judgment in favor of BDM.
The failure by Froio, and its attorneys, to argue that BDM’s option was extinguished may have cost Froio the case. Last month, on the day that BDM’s lease was scheduled to expire, WSE sold 80-90 Washington Street to a BDM affiliate for $10 million, the minimum sales price allowed under BDM’s purchase option.
Christopher R. Vaccaro Esq. is a partner at Dalton & Finegold LLP in Andover. His email address is cvaccaro@dfllp.com.
