SAWYER v CHIOZA & ORS 1999 (1) ZLR 203 (H)

Flynote

Contract — option — lease of immovable property — provisions giving lessee right of first refusal if lessor decided to sell — meaning of "right of first refusal" — lessee's remedy in case of breach of duty to offer first refusal — second purchaser — distinction between bona fide and mala fide purchaser — protection given to second purchaser — price to be paid by lessee exercising right of first option

Headnote

The applicant leased a farm in terms of a contract which gave him the right of first refusal in the event of the lessor deciding to sell the farm. The lessor nonetheless sold the farm to another person, without giving the lessee the opportunity to exercise his right of first refusal. The lessee sought an order setting aside the sale and requiring the transfer to him of the property at the price offered by the other person.

Held, that the right of first refusal imposes a duty on the seller to offer the property to the lessee at the price which the other would-be purchaser has offered. If the lessee accepts that price, the lessor must sell it to him at that price. If he refuses, the right of first refusal falls away and the lessor is entitled to sell to the other person. $\epsilon$

Held, further, that the lessee's remedies, where the right of first refusal is not offered, depend on whether the other purchaser was acting mala fide or bona fide and, if the latter, on whether he had taken transfer of the property. He would be acting mala fide not only where there was an element of deceit but also where knowledge of the right of first refusal was shown. Where the other purchaser acted bona fide, however, the lessee's right would be limited to an action for damages, unless the other purchaser acquired knowledge of the lessee's rights before taking transfer.

Held, further, that it is within the court's discretion as to whether to grant an order of specific performance in favour of the lessee. In this case, as the other purchaser had not taken occupation of the farm despite transfer to him, there could be no prejudice to him, and he would still have a claim for damages against the lessor.

Held, further, that where a price is fixed and determinable and the right of first refusal imposes an obligation on the seller to act in a certain way, the court can order specific performance at that price. The fact that the property might have appreciated in value since the time of the sale to the other purchaser did not affect this principle. The price was ascertainable, being the price offered by the other purchaser.