In Bill Signs Trucking, LLC v. Signs Family Limited Partnership, (— Cal.Rptr.3d —, 2007 WL 4394908, Cal.App. 4 Dist., Dec. 18, 2007), a California Court of Appeal considered whether clauses in a lease agreement, which gave the tenant the first right to purchase the property in question, were triggered when limited partners in the partnership that owned the property redistributed ownership interest in the partnership among themselves.
The court ruled that the lease agreement intended only to trigger the tenant’s purchase rights in the event of a sale to an outside party, and that since redistributions between the partners did not involve a third party, they did not trigger the tenant’s purchasing rights.
This case involved a dispute between family members and a business partner of William Signs, Jr. (“Signs”), who died in 2001, over the terms of a lease between those parties. Signs had founded Bill Signs Trucking Inc. (“BST”), and pursuant to his wishes, ownership of BST moved to his business partner Robert Neal upon his death. Signs also created the Signs Family Limited Partnership (“SFLP”), to manage real estate holdings, and also pursuant to his wishes, control of the partnership upon his death moved to his wife, Lori Signs, and his daughter from a previous marriage, Tammy Duncan. Before Signs’ death, SFLP had leased property to BST, with provisions allowing BST the first right to purchase the property by matching any other offer made.
Lori Signs and Duncan, meanwhile, became involved in disputes over the management of the partnership, and eventually settled their disagreements in 2003 by allowing Lori Signs to buy out Duncan’s interest. SFLP sent Neal a letter outlining the terms of the sale, and stating further that it did not trigger BST’s purchase rights on the property. Neal disagreed and he and BST sued SFLP, seeking to be allowed to buy the property as a result of Lori Signs’ buyout of Duncan. The trial court denied his claim, ruling that his purchase rights had not been triggered. Neal and BST appealed.
The lease agreement specified that SFLP would provide BST notice in writing of any intent to sell the property to “any persons”, specifying the price and terms of the potential sale, and stated that BST would then have the right to purchase the property under the same terms and conditions.
The court rejected BST’s contention that the transfer of the partnership interest between Lori Signs and Duncan constituted a sale to “any persons.” The partnership itself was the landlord in the lease, and therefore the term “any persons” could only logically be construed to mean parties other than the landlord, the court ruled.
The court further cited Creque v. Texaco Antilles Ltd. (3d Cir. 2005) 409 F. 3d 155, in which the court found that a similar dispute hinged on “the true nature of the conveyance” and ruled, “Only when the conveyance is marked by arms’ length dealing and a change in control of the property may that right be exercised.” Here, the court said, the transfer adjusted the interests of the co-owners, but did not introduce any new party into the arrangement. As a result, the transfer did not have the effect of moving any of BST’s purchase rights outside the existing ownership, and its purchase rights remained intact in the event of an attempted sale to a third party.
With no third party involved, Lori Signs’ purchase of Duncan’s interest in the partnership therefore did not trigger BST’s purchase rights and the trial court correctly denied BST’s claim, the court ruled. The judgment was affirmed.