The right of first refusal in urban leases raises several problems, having been considered recently by the High Court by means of two different Judgments.
The first one, dated May 9th, 2011, makes its considerations in regards to the validity of previous waiver to use the right of first refusal in business lease.
Having agreed in a contract under the Urban Leasing Act of 1964 the waiver of rights of first refusal, in all cases of sale, donation or award, the tenant exercised the right of redemption. In response, the Lessor, alleged lack of standing as a result of such waiver and decided to counterclaim by terminating the agreement for contract works without his consent.
The Judgment issued by the Court of first instance rejected the claim as considered valid the resignation and upheld the counterclaim, thus, terminating the lease agreement.
The Lessee appealed this judgment and the Court of Appeal reversed this judgment, considering the claim and dismissing the counterclaim, based on the premise that the waiver shall not be considered valid as it has not been included in the heritage of the holder, following the meaning of the High Court decision in October 11th, 2001 where it is considered as a curtsey right.
This decision was appealed to the High Court.
It is alleged, the breach of Section 1.6 of the Civil Code, so it is based in only one decision, but this reason is dismissed since a single judgment may have value as binding case law.
It also alleged violation of Article 6.3 of the Urban Leases Act of 1964 as it rules the possibility of waiving in advance all rights except the obliged extension of the contract.
In this sense, the High Court considered that it is necessary to state the difference between the rental housing, that needs greater protection than the business rentals, where prevails freedom of agreements and includes the anticipated waiver of all rights but the forced extension.
The High Court concludes that there is no similarity with the decision alleged of 2001 which contains a generic clause of resignation more suitable for a accession agreement, while in this case there is a specific waive of rights so it is necessary to review the Criteria of that decision.
Therefore, the Court decides to revoke the decision of the Regional Court and considers the waiver as valid, but without hearing on the counterclaim, sending the case again to the Regional Court for their decision.
On the other hand, the judgment of the High Court of April 4th,2011, rules about the rights of first refusal in Urban Leases even if it is a result of a public auction.
In this sense, even though the judgments of first and second instance dismissed the lawsuit, The High Court decided in a different way and revoked the previous decision as it follows:
One of the issues raised in this litigation is whether the object of the contract was a housing or a commercial lease. In the first instance it is concluded that it was a housing lease but it is considered that the Lessee can’t use the right of first refusal when there is an auction, and we are in a proceeding where the Lessee was aware about it but decided not to be present in that proceeding and in which the award was worth considerably less comparing it with the market price.
Against this decision, the Regional Court mentions a novation of the agreement so the Lessee has changed his address during the contract so it does not decide about the validity of the redemption at such a low price.
The High Court considers that it is dealt with a housing agreement and revoke the previous decision establishing that to consider that it has been applied a novation in the lease agreement, it is necessary an unequivocal willingness of both parties entering the novation of the lease agreement.
Regarding the validity of the redemption as a result of a public auction and the price of it, it is considered that it is perfectly valid, being recognized in our legal system and the low price does not change this decision and it is not considered as abuse of right.
Under that judgment, we would find many cases in which the mortgagee, usually a bank, is awarded by auction house for 60% of its appraised value and following, the Lessee exercises the redemption of such value, which is below the market price.