The plaintiffs, Trustees of the First United Methodist Church (the "Church"), have brought a complaint for declaratory relief pursuant to the provisions of G.L. c. 231A, §1 et seq. to secure a determination as to whether a proposed lease from the Church to Forbes Realty Trust (Exhibit No. 66) violates the provisions of an agreement dated December 10, 1970 between the Church and the defendants Irving E. Rogers, Jr. and Martha B. Rogers, as Trustees of the Lawrence Eagle-Tribune Realty Trust ("Eagle-Tribune"). [Note l] The plaintiffs argue that the proposed ground lease is not covered by the Eagle-Tribune agreement and that if it is, the property has been offered to the newspaper on the same basis as that proposed by Forbes Realty Trust. The Eagle-Tribune responds that the lease is in fact a sale of the premises, that it is entitled to purchase the land described in the ground lease and that the latter was used as a device to avoid the Church's obligations both to the Eagle-Tribune and to all United Methodists (see Exhibit No. 69).
In a newsletter from the then Pastor of the Church to Church members, the current litigation is described. It was recognized that according to the Book of Discipline (see Exhibits Nos. 76-78 inclusive) the local Church holds its property in trust for all United Methodists. The Pastor stated "the Forbes proposal will, in the long run, enable us to develop our facilities and expand our ministries in ways heretofor [sic] only dreamed about, if thought of at all." The letter concluded with this sentence: " [i]n the meantime, as Jesus said to his disciples, we must be 'as shrewd as snakes and as innocent as doves (Matthew 10:16)". To an impartial observer, the conduct of the Church follows the first part of this stricture, but acts falling within the latter characterization seem to be lacking. The Court has strong reservations about the Church's course in electing to lease rather than to sell the locus to the Eagle-Tribune, but I find and rule that on all the evidence the contemplated lease is not in this instance tantamount to a sale, that it has not been shown by a preponderance of the evidence that the "lease" technique was designed to evade contractual obligations, and that the Church accordingly is not legally bound to offer to sell the premises to the Eagle-Tribune at the present time. I further find and rule that should the present lease arrangement not be consummated, the right of first refusal of the Eagle-Tribune continues. Whether the Eagle-Tribune's rights would survive the ninety years of the possible extended terms of the lease need not now be decided.
A trial was held at the Land Court on October 12 and 13, 1988 at which a stenographer was appointed to record and transcribe the testimony. All exhibits introduced into evidence are incorporated herein for the purpose of any appeal. Oral arguments were held at the Court on December 8 and post-trial memoranda were filed at or before such arguments. At the trial William W. Pickles III, manager of the Shawsheen News Agency and a member of the Land Committee of the First United Methodist Church from 1979-1986, James Philbin, a trustee and beneficiary of the Forbes Realty Trust, and Donald Megathlin, a partner with Economics Research Associates, a real estate consulting firm, testified for the plaintiffs. Portions of the deposition of Reverend James A. Fraser who was a part-time Pastor from September 1, 1968 until the end of June 1973, while attending Andover-Newton Theological School, were read into the record, Irving E. Rogers, Jr., the Publisher and Treasurer of the Eagle-Tribune Publishing Company and a defendant in his capacity as Trustee, and William Lucey, Jr., the Business Manager of the newspaper, testified for the defendants.
The parties entered into a Statement of Agreed Facts as follows:
1. The Church is a religious corporation organized and existing under the laws of the Commonwealth of Massachusetts.
2. Jacqueline H. Rogers, Irving E. Rogers, Jr., and Martha B. Rogers are the Trustees of the Lawrence Eagle-Tribune Realty Trust.
3. During the summer of 1965, the Church began looking for a new site to which to relocate. The Reverend Neil Fisher ("Rev. Fisher"), pastor of the Church, contacted Stewart P. Wilson ("Mr. Wilson"), a parishioner and real estate broker, about possible sites for the construction of a new church building.
4. Mr. Wilson showed Rev. Fisher several sites, including property located on the corner of Turnpike Street (Route 114) and Peters Street in North Andover, Massachusetts. This property, consisting of approximately 15 acres, was owned by the heirs of one Ellen P. Driscoll ("the Driscoll heirs").
5. Rev. Fisher expressed an interest in this property. Accordingly, Mr. Wilson contacted the attorney for the Driscoll heirs to obtain further information. Mr. Wilson was told that the Driscoll heirs were asking $65,000 for the property.
6. At a special meeting of the Board of Trustees of the Church held on July 8, 1965, the Church authorized Mr. Wilson to obtain an option to purchase the property, the price of the option not to exceed $500. Mr. Wilson inquired of the Arlington Trust Company about its willingness to lend the Church the purchase price of the property and was assured that that money would be loaned to the Church.
7. On or about November 18, 1965, in consideration of $500, the Driscoll heirs executed an option (Exhibit No. 2) to purchase the property for $65,000 in favor of the Church. The option was to be exercised by the Church within six months of that date.
8. Starting in 1964, the Eagle-Tribune also began searching for a suitable site on which to relocate. William F. Lucey, Jr., who is currently the business manager of the Lawrence Eagle-Tribune newspaper ("the Newspaper"), began working for the Newspaper in 1964. One of his first projects, which he undertook with defendant Irving E. Rogers, Jr., was to find a site that was in excess of five acres, so that it would accommodate the growth of the Newspaper, and that would be accessible to the Newspaper's distribution fleet.
9. Initially, Mr. Lucey and Mr. Rogers restricted their search to the city limits of Lawrence. After approximately one and one-half years of exploring various alternatives, they determined that there was no suitable site available for the Eagle-Tribune in Lawrence.
10. In late 1965, Mr. Lucey and Mr. Rogers became aware through a newspaper article that the Church was going to acquire a large parcel of land in North Andover. Mr. Lucey and Mr. Rogers thought that there might be an opportunity to purchase some of the property from the Church. Mr. Rogers contacted Francis Kitteridge (now deceased) of Great Pond Realty, who informed him that the matter was being handled by Mr. Wilson.
11. Sometime in December, 1965, Mr. Wilson met with Mr. Lucey, Mr. Rogers, Mr. Rogers' father, then the publisher of the Newspaper, Mr. Lucey's father, then the business manager of the newspaper, and Mr. Joseph Bacigalupo, attorney for the Newspaper. Mr. Wilson informed those present that, if the Church were to sell any part of the property, it would be under the following terms: the Church would keep that portion of the property that it wanted and the Eagle-Tribune would pay $65,000 for the remainder. After some discussion, the Eagle-Tribune offered to purchase a portion of the property for $65,000.
12. Shortly thereafter, Mr. Wilson met with the Church to inform them of the Eagle-Tribune's offer and to request that the Church authorize him to enter negotiations with the Eagle-Tribune. Mr. Wilson received that authorization and then arranged a second meeting with the representatives of the Eagle-Tribune.
13. At the second meeting, the Eagle-Tribune raised the prospect of purchasing two homes that were located within the boundaries of the property on which the Church had an option, but which had expressly been excluded from the option. During that meeting, it was determined that the two homes could be purchased for an additional $55,000. The Eagle-Tribune offered to pay $35,000 of that amount. Mr. Wilson informed the Eagle-Tribune that the Church had no use for the two homes, but that he would advise the Church of the Eagle-Tribune's proposal.
14. Mr. Wilson reported the events of this meeting to the Church's Building Committee, which advised him that the Church was not willing to pay anything toward the purchase of the two homes. Mr. Wilson conveyed that information to the Eagle-Tribune, which ultimately agreed to pay the additional $55,000, provided that Mr. Wilson obtained signed options on the two houses before January 24, 1966.
15. On December 14, 1965, Mr. Wilson reported to the Official Board of the Church that he had been approached by a buyer and offered $65,000 to purchase a portion of the property, and that the buyer wanted to purchase the two houses and give deeds to the two lots to the Church or give the Church the money to purchase the houses. The Official Board voted to accept Mr. Wilson's report.
16. On January 6, 1966, Mr. Wilson obtained signed options in favor of the Church for the purchases of the two houses for $25,000 and $30,000 respectively (Exhibit Nos. 6, 7), to be exercised no later than May 18, 1966.
17. On January 7, 1966, the Church granted the Eagle-Tribune an option to purchase 8.7 acres of the property for $120,000, to be exercised no later than May 1, 1966 (Exhibit No. 8).
18. At a Quarterly Charge Conference of the Church held on March 20, 1966, the Church voted to sell the land under option to the Eagle-Tribune in accordance with the terms of the option.
19. In April, 1966, after the proposed sale to the Eagle-Tribune became public, several of the Driscoll heirs notified the Church that they believed that they were entitled to more money for the sale of the property to the Church. In order to avoid litigation, the Church agreed to pay the Driscoll heirs an additional $7,000 for their property, increasing the option from $65,000 to $72,000, and authorized the Chairman of the Church's Board of Trustees to borrow $7,000 from the Arlington Trust Company.
20. Sometime before April 26, 1966, the Eagle-Tribune notified the Church of its intent to exercise its option for the purchase of the property.
21. A closing on all of the property transactions was held at the Middlesex North Registry of Deeds, Lawrence, Massachusetts on June 14, 1966. At that time, the Driscoll heirs conveyed their property to Stewart Wilson, who in turn made conveyances to the Church and to the Eagle-Tribune. The Eagle-Tribune paid a total of $119,000, in addition to the $1,000 paid for the option, for its 8.7 acres (representing $65,000 for the land and $55,000 for the two houses and the land on which they were situated), together with a broker's fee of $3,000 to Great Pond Realty Co., Inc.
22. After the closing, the Church began seeking purchasers and/or uses for the two houses. At the same time, the Church explored the possibility of building a new parsonage on the Church's new site or moving one of the two houses and using that for a parsonage.
23. Because of the difficulty in selling and moving the two houses as required in the Eagle-Tribune option, in May, 1967, the Church requested that it be allowed until August 1, 1967 to remove the houses.
24. The Church executed a purchase and sale agreement in the amount of $2,000 with respect to one of the houses on or about June 8, 1967. On June 28, 1967, it authorized a committee to develop plans for the removal to Church property and the remodeling of the second house as a new parsonage.
25. On June 27, 1967, Mr. Wilson attended a meeting of the Board of Trustees of the Church to report on the sale of the Church's old parsonage. At that meeting, he submitted two written agreements from the Eagle-Tribune: one a grant of a right-of-way over the Church's property to Peters Street, and the other a right of first refusal to the Eagle-Tribune if the Church should sell its property. The Board of Trustees voted to authorize the signing of both documents.
26. The agreement granting the Eagle-Tribune a right of first refusal on the Church's property, consisting of 6.1 acres, was executed on June 30, 1967 ("the 1967 Agreement") (Exhibit No. 16). [Note 2]
27. Approximately one year later, the Church began to seek financing for the construction of its new sanctuary and education building on its property. It sought a loan of $80,000 from, among others, the Essex Broadway Savings Bank ("the Bank").
28. On or about February 7, 1969, the Church, the Eagle-Tribune and the Bank executed an agreement entitled Memorandum of Agreement (Exhibit No. 23).
29. In April, 1969, the Merrimack Valley National Bank ("Merrimack Valley") approached the Church about purchasing a portion of the Church's property fronting on Turnpike Street. Among other things, Merrimack Valley was informed that the Eagle-Tribune would have to approve the sale. When approached by a representative of Merrimack Valley, the Eagle-Tribune refused to approve the sale. At a meeting with Andrew Coffin, a representative of the Church, Mr. Rogers, Sr. and Mr. Rogers, Jr. expressed the view that, if the Church intended to sell its property, the Eagle-Tribune was interested in purchasing it themselves.
30. In May, 1970, inquiries were again made by Merrimack Valley regarding purchasing a portion of the property. The Board of Trustees of the Church met on June 24, 1970 to consider Merrimack Valley's interest. At that meeting, they considered a lease of the property to Merrimack Valley as a method of deriving income from the property. The consensus of the meeting was that the Church did not wish to sell or lease the property and hoped to retain it permanently.
31. On or about December 10, 1970, the Church and the Eagle-Tribune entered into a new agreement granting the Eagle-Tribune a right of first refusal with respect to 1.8 acres of the Church's property ("1970 Agreement"). The 1970 Agreement was executed by the Chairman and Vice-Chairman of the Church's Board of Trustees, by the then pastor of the Church, the Rev. James A. Fraser, and by the Church's District Superintendent, Rev. E. McKinnon White (Exhibit No. 35).
32. The authority of the Church to enter into the 1970 Agreement had previously been approved by a Church conference on October 21, 1970.
33. The Church's new sanctuary on the property was consecrated on April 25, 1971.
34. In 1985, Forbes Realty Trust ("Forbes") made a proposal to the Church for the use of the property. As required by the Church, Forbes' proposal was in the form of a long-term ground lease.
35. On October 16, 1985, the Board of Trustees of the Church voted to accept Forbes' proposal and present it to the Church.
36. In or about December, 1985, the Church and Forbes executed a Letter of Intent (Exhibit No. 59).
37. By letter dated December 31, 1985 addressed to counsel for the Eagle-Tribune, the Church provided a copy of the Letter of Intent to the Eagle-Tribune and offered to enter into the same transaction with the Eagle-Tribune as that described in the Letter of Intent. The Eagle-Tribune declined.
38. In March, 1986, the Church commenced the instant action for a declaratory judgment as to its rights and obligations under the 1970 Agreement.
39. On June 4, 1986, the Church executed a ground lease with Forbes (Exhibit No. 66).
I find and rule as aforesaid. I further find and rule as follows:
1. The original arrangement between the plaintiff and the Eagle-Tribune was to the advantage of both parties since the newspaper was able to acquire a site for its publishing plant and offices and the Church acquired the land for its new Church building and a house suited for its parsonage free of any financial outlay, the monies being furnished by the defendant (other than the additional $7,000 paid to the Driscoll heirs). In addition, the Church also received from the Eagle-Tribune the $2,000 paid for the sale of the second house which had been situated on the Driscoll properties.
2. Although the Reverend Wilson testified that counsel for the Church had told a meeting of the Board of Trustees that the option set forth in the December 10, 1970 agreement concerned selling the land only and it was his understanding that the Eagle-Tribune had a right of first refusal, neither party, during the negotiations which preceded the 1970 or earlier rights of first refusal, discussed the possibility that the Church might ultimately wish to lease the land in question rather than to sell it. In the negotiations, the Eagle-Tribune suggested that it wished a right to purchase should the Church plan to develop the property and the language ultimately adopted was suggested by the Church representatives. The newspaper serves the community in which it is located and wished to preserve the view of its buildings from the highway and to monitor the use to be made of the locus.
3. During the course of the negotiations which preceded the institution of this litigation, counsel for the Church proposed that the premises be leased to the Eagle-Tribune for a term of fifteen (15) years at an annual rental of $20,000 per year. Under this proposal the defendants were to leave the land undeveloped during the term of the lease but would have a right to purchase the land at the end of the term for its then fair market value. This offer was refused by the Eagle-Tribune since in the view of the Trustees they presently had a right to purchase the premises.
4. A committee was formed by the Church's Board of Trustees when its financial picture darkened to study the situation and to make recommendations as to the course to be followed. The Committee weighed as alternatives a sale of the excess premises, a net lease thereof and development by the Church. The Church was reluctant to sell the premises since it feared that under the Book of Discipline the proceeds would have to be remitted to the central governing body of the United Methodist Church. In addition, the Church's financial needs to meet the short fall between its fixed costs and its income were such that it could be met by lease payments and were not of the size to require an outright sale of the premises. In addition, the Church would still retain title to the land although it might be 90 years before the property would again be available to the lessor. Finally, the Committee members doubted the Church's capability to develop the site. The lessee testified that the long-term lease as opposed to a purchase eliminated the need for a substantial financial investment by the lessee who anticipated receiving 100% financing on the strength of the lease.
5. A specialist in the field set forth three reasons why a ground lease sometimes was preferable to a sale in point of view of the parties. He suggested that the owner had some control over the use of the property if it were leased rather than sold, that the capital outlay from the point of view of the tenant was less, and financially the owner would receive a high fixed payment with minimal risk. Such considerations are debatable, but suggest that there are business reasons why a landowner may consider a long-term lease as preferable to a sale, quite apart from the considerations present here as to the effect on third parties of the instrument chosen.
6. The agreement (Exhibit No. 35) might have been more artfully drawn. Its first paragraph provides:
1. If Church shall decide to sell the land hereinafter described or any part thereof, it shall offer the same to Trust at a price to be computed at the rate of Ten Thousand Dollars ($10,000.00) per Acre. Said offer shall be made in writing and given as provided in Paragraph 7. and 9. hereof.
The agreement then goes on to set up the mechanics for consummating the acquisition by the Eagle-Tribune from the Church. The right to purchase initially described in the agreement expired after one year from the date of the agreement. The provision of the agreement which controls the decision of this action is paragraph 5 which reads as follows:
5. At the expiration of said period of one (1) year as set forth in Paragraph 4. above, this Agreement shall continue further in full force and effect and all of its provisions shall be fully operative except that the provisions specifying that the price to be paid by Trust to Church computed at the rate of $10,000.00 per Acre shall no longer be applicable and the price to be paid by Trust to Church shall be the subject of negotiation between Trust and Church;
After the description of the premises covered by the agreement, the agreement continues with the following paragraph 8:
8. It is the intention of the parties hereto that Trust shall have the right of first refusal of the purchase of all or any part of the land described in Paragraph 6, hereof, whether said land or parts thereof shall be offered for sale in one or any number of offers to sell by Church;
The agreement now before the Court is an unusual mix of provisions relating to a fixed option to purchase and a right of first refusal. The provision which left the initiative with the Church to institute the sale mechanism but did provide the price has long since expired. Accordingly, it is those provisions of the agreement which became operative after the initial year that are relevant to a solution of the present controversy. They are phrased in an unusual manner, for it is customary to provide either that if the owner of the real estate receives a bona fide offer to purchase which he is willing to accept, he then gives notice to the holder of the right of first refusal and offers to sell it to said party on the same terms and conditions. The language under review at first blush suggests that the landowner out of the blue without receipt of such offer mentally may wish to sell and then proceeds to offer the premises. This construction leaves the price open and would lead to the conclusion that the instrument merely is an agreement to agree. However, a somewhat similar right of first refusal was recently considered by the Supreme Judicial Court in the case of Roy v. George W. Greene, Inc., 404 Mass. 67 (1989). In the case, representations had been made to the plaintiff that if the property were to be sold, plaintiff would have "a right of first refusal" without more. The oral offers to purchase made by a third party had been received and related to the plaintiff who had made a counter offer. The Supreme Judicial Court held that the plaintiff had not refused to purchase the premises on the same terms as those of an outstanding enforceable offer made by a third party and that he neither exercised his right of first refusal nor waived his right to purchase. In reaching this conclusion, the Court, speaking through Justice O'Connor said, at pages 69 and 70:
A right of first refusal necessarily implies a right to choose between purchasing and not purchasing the premises if the owner elects to sell them. An owner cannot truly elect to sell until he has an opportunity to do so, that is, until he has received a bona fide and enforceable offer to purchase. See Tamura v. DeIuliis, 23 Or. 619, 626 (1955). Therefore, the right that a person with a right of first refusal has to choose either to purchase or not to purchase cannot be exercised before the owner has received a bona fide and enforceable (written) offer from a third party. Accordingly, courts from other jurisdictions that have considered the matter appear to have accepted the principle that, unless the context of the agreement dictates otherwise, the term "right of first refusal" and expressions of similar import refer to a right that arises only after the owner has received an enforceable offer to buy.
There have been other appellate decisions in Massachusetts' which have considered a right of first refusal. For example, in Mucci v. Brockton Bocci Club, Inc., 19 Mass. App. Ct. 155 , 159 (1985), it was held that when the holder of the right is notified of a bona fide offer, the right ripens into an option to purchase at the stated price. Of course, the owner of the right must be able to perform if he exercises his right. Kanavos v. Hancock Bank & Trust Co., 395 Mass. 199 (1985). The lack of purchase price in a right of first refusal is not fatal if it is supplied by the third party. While the proper interpretation is not free from doubt, I find and rule that the agreement before me constituted a right of first refusal.
Although the Rule Against Perpetuities has been held to apply to options to purchase, Certified Corp. v. GTE Products Corp., 392 Mass. 82 (1984), Eastman Marble Co. v. Vermont Marble Co., 236 Mass. 138 (1920), it has not yet been held to apply to a true right of first refusal. [Note 3] The Roy decision seems to assume that the right of first refusal is valid and not subject to the Rule Against Perpetuities. This assumption would seem to be buttressed by the view expressed in American Law of Property §26.67, p. 511 that:
while the rule against perpetuities may technically be applicable in this situation, it ought not to be applied, since the future interest of the pre-emptioner constitutes no impediment to transfer of the property.
I also would conclude that the Rule Against Perpetuities should not apply to a right of first refusal since it does not prevent a sale of the premises. The plaintiff urges a contrary view as exemplified by the decision of Ferrero Construction Co. v. Dennis Rourke Corp., 311 Md. 560 (1988). However, I do not need to reach this question since the initial inquiry in a determination of this case is whether the agreement contemplated a ground lease of the premises or only a sale thereof.
The evidence compels a finding that the parties did not in fact consider the possibility that the Church might elect to lease the premises covered by the agreement on a long-term basis, but was drafted only with a sale as the pivotal operative act. If in fact the term of the lease might extend for a period of 99 years, then under the provisions of G.L. c. 186, §1, it might well be held that the lease amounted to a disposition of the fee and thus a sale. In truth, of course, the term of the present lease if each extension is exercised, falls just short of the statutorily mandated fee. Absent, however, the remaining nine years between possible term of the lease and the 99 year statute, I feel constrained to hold that in truth Exhibit No. 66 is a lease and not a sale. A "sale" can be construed in many ways, but the normal definition of the word contemplates the passage of title. Black's Law Dictionary also provides a definition of a sale stating that it is "a contract between two parties, called respectively, the 'seller' and 'buyer' by which the former, in consideration of the payment or promise of payment of a certain price of money, transfers to the latter the title and possession of property"; this is in accordance with Massachusetts case law. See Arnold v. North American Chemical Co., 232 Mass. 196 , 199 (1919) (sale ordinarily implies the passing of general and absolute title to property as opposed to a lease.) If any of such definitions are applied to the present factual situation, the only logical conclusion is that the arrangement evidenced by the lease is not the sale contemplated by the agreement between the Church and the Eagle-Tribune and thus falls without the requirements of the defendants' right of first refusal.
The Church did indeed offer the premises to the Eagle-Tribune both as a lease on the same terms as to the Forbes Realty Trust and on another lease scenario which was economically unsound from the defendants' point of view. Accordingly, I find and rule that as drafted, the agreement does not contemplate a ground lease of the premises, that it is silent as to the rights of the Eagle-Tribune when the Church enters into a long-term contract which essentially deprives the Church of all rights in the locus other than the right to receive rents, that equitably, the Eagle-Tribune should now be in a position to purchase the leased premises, but that the agreement, as I have construed it, anticipates the execution of such right only when the landowner has received an offer to sell which it has elected to accept, and that, therefore, the rights of the defendants have not as yet matured, but continue in full and force and effect.
I further find and rule that although there were competing reasons why the Church selected the device of a long-term lease rather than a sale, the choice was within its powers so long as the sole reason was not to evade either the rights of the Eagle-Tribune or of the United Methodists generally.
[Note l] At the time of the execution of the agreement, the defendant Jacqueline H. Rogers was not a Trustee. The third Trustee at that time was Irving E. Rogers.
[Note 2] Exhibit No. 16 is in fact a vote authorizing the execution of the agreement which is Exhibit No. 17.
[Note 3] In decisions concerning the applicability of the Rule Against Perpetuities to rights of first refusal, the right included a stated price term; thus it was actually an option to purchase. See Reef v. Bernstein, 23 Mass. App. Ct. 599 (1987), Fisher v. Fisher, 23 Mass. App. Ct. 205 (1986). Additionally, a frequently cited case, Franklin v. Spadafora, 388 Mass. 764 (1983), actually deals with a restriction on owning more than two condominium units; the right of first refusal is only mentioned in passing.