Issue:   Right of First Refusal

Key Points

  • The Right of First Refusal (ROFR) is a clear and present danger.
  • The Resort’s position on the ROFR is that it can exercise the ROFR on any property in Sea Pines for any reason at any time and retain it for as long as it wishes. There are no checks and balances.
  • ROFR makes the Resort the only buyer and able to dictate the sale price.
  • Right of First Offer (ROFO) gives the Resort the first opportunity to buy the property and eliminates their ability to deny it access to the free market.
  • In its current form the covenant will be transferred to future unknown owners.

The ROFR was included in the covenants of Sea Pines in the 1970’s. Its intent was to give the developer the ability to protect the community from outside ownerships that would be detrimental to the community. Sea Pines Resort has misused the covenant as a legal instrument to assemble property to the detriment of individual Sea Pines property owners. This misuse is outside the intended use of the covenant in the opinion of the property owners affected.

 

How ROFR Works

  1. The Resort exercises the ROFR on a bona fide, third party contract. This taking alerts the real estate brokerage community.
  2. Real Estate agents will stop showing the remaining property in the neighborhood since they know that their clients will not be able to close a purchase.
  3. The property owner cannot sell through a For Sale By Owner offering since those contracts will also be taken by the Resort.
  4. With no agent showings and no For Sale By Owner opportunities, the Resort has successfully eliminated the open market for the property.
  5. There is no limit as to how long the Resort can retain the cloud of ROFR on the property.
  6. The Resort has made itself the only buyer.
  7. If the seller has to sell and there is only one buyer, the seller must take the only buyer’s price.

In the June 19th  2017 letter to the Sea Pines residents the Resort announced that they would pay full value and possibly a premium for property that they designate for ROFR. They restated it in the survey distributed by CSA.

Neither the letter nor the survey addresses the primary issue with the ROFR. The primary issue arises when remaining Sea Pines property owners are not in agreement with the Resort as to market value/premium. The Sea Pines property owner has no options. There is only one buyer – the Resort.

A Solution

A Right of First Offer (ROFO) is the solution to the problem.

  • The Resort would designate property it would like to purchase thereby giving it the first opportunity to acquire the properties it wants.
  • If the Sea Pines property owner decides to sell, he/she would be required to contact the Resort.
  • The Resort would have thirty days to reach an agreement with the Sea Pines property owner.
  • If an agreement cannot be reached, the Sea Pines property owner would then be free to offer and sell his/her property on the open market unencumbered by the Resort. The Resort would agree to sign a waiver of future preferential purchase rights in the sale but could continue to negotiate with the Sea Pines property owner without eliminating or limiting competition from the market.

A ROFO is common sense. The first potential buyer that a seller would want to contact is the Resort.

  • Sellers know that the Resort is a ready and willing buyer with the capacity to close promptly.
  • Sellers would avoid the listing/showing process, which can be very time-consuming and burdensome.
  • The Resort would have the first opportunity to acquire the property that it wants.
  • If the Sea Pines property owner and the Resort agree on price, the transaction would be quick and easy.

A ROFO puts a time limit on the Resort’s ability to eliminate competition from the free market and is the product of an agreement between two willing parties, like a normal real estate transaction.

By not agreeing to the ROFO thirty-day limit, the Resort is  signaling  their desire to prevent access to the free market and to hold the property hostage until the Sea Pines property owner agrees to the Resort’s price offer.

By agrring to the ROFO, the Resort would avoid the bad publicity of the ROFR and be recognized as the corporate citizen/leader, recognition it rightly deserves with its $85,000,000 investment and willingness to continue its history of improvements.

In the fall of 2012 the Resort exercised the ROFR on a contract at Fairway One. For the last five years Fairway One has had the ROFR cloud over it. The Resort has told Fairway One that they will continue to assemble Fairway One units using the ROFR for another five to ten years.

With the misuse of this covenant the Resort has removed a free market from Fairway One, made itself the only buyer for five years and plans to continue this practice for another ten years. In the opinion of the property owners, this is clearly an illegal action.

All Sea Pines property is vulnerable to the misuse of the ROFR. If the Resort is allowed to set the precedent of using ROFR for property assemblage for development, the Resort and possible future owners could use it to assemble unsuspecting and ambivalent owners in later years.

Any property with low density and moderately priced with attractive physical features can be a future target with this interpretation of the covenant.

  • Houses along Harbour Town Course - holes 1, 10, 17 and 18
  • Property adjacent to the Inn and Harbour Town Clubhouse
  • Schooner Court with its Calibogue frontage
  • Deer Island with its beautiful island
  • Land’s End surrounded by water

ROFR as defined by the Resort is a clear and present danger. The Resort has made it clear that they will not give up what they consider their right without receiving something in return.The Resort’s unwillingness to relinquish their ROFR as it exists signals intent to use it in the future and possible intent to assign it to any future purchasers of the Resort. The use of ROFR in May 2017 in Harbour Town to purchase the Surf Shop confirms their plan to use it.