The Motel Lease – Sale by the Tenant or by the Landlord

By David Burrough

Before a Tenant sells their business and before a Landlord sells their freehold investment, it is important that they check their Motel Lease and be aware of any right of first refusal that may be contained in the Motel Lease which places obligations on them prior to selling the leasehold business or freehold motel, as the case may be.

Most modern Motel Leases will contain a clause requiring any Tenant, prior to disposing of the Tenant’s business, to offer the Tenant’s business to the Landlord on the same terms and conditions and at the same price as any proposed sale.

Likewise, there should also be a clause that requires the Landlord, prior to disposing of the freehold of the Motel, to offer the freehold to the Tenant on the same terms and conditions and at the same price as any proposed sale.

In both cases, the party receiving the offer will usually have 14 days (from receipt of the offer) to accept it in writing.

If the offer is accepted the Motel Lease will generally require that the parties enter into a Contract of sale immediately.  The Contract will incorporate the terms of the offer and any other reasonable terms applying to the sale of a leasehold motel business or a freehold motel.

In the event that the offer is not accepted, then the person making the offer may sell the freehold motel or the leasehold business, as the case may be, to any third party on the same terms and conditions as contained in the offer.

It is important for Landlord’s and Tenants to be aware that if their offer is not accepted, that does not give them permission to sell to a third party on any terms - it simply means they are able to sell on the terms that were offered.

If a Landlord or a Tenant enters into a Contract of Sale without first offering the business or the freehold land to the other party to the Lease they will be in breach of the Motel Lease.  Accordingly it is very important for Landlords and Tenants to be aware of the provisions of the Motel Lease relating to the sale of the leasehold business and the sale of the freehold motel.