Right Of First Refusal Removed By Amendment: Court Dismisses Claims In Centennial Plaza

What You Need to Know

• In analyzing whether a right of first refusal in a Master Deed survived two subsequent amendments, the Court found that the plain language of the amendments clearly displaced the original Article of the Master Deed, including the right of first refusal provision, as both amendments stated that the Article was "amended and restated in its entirety."
• The Court dismissed the Plaintiffs' claims (breach of contract, specific performance, and declaratory judgment) because there was no right of first refusal in the controlling version of the Master Deed after the amendments.
• The Court also rejected the Plaintiffs' breach of implied covenant claim, finding that the covenant could not be used to add terms that had been explicitly removed from the contract.
• This case highlights the importance of analyzing all relevant documents, including amendments, when determining if real property is encumbered by restrictions such as rights of first refusal.

Introduction

In a recent decision from the United States District Court for the District of New Jersey, the Court undertook a methodical contractual analysis of the controlling provisions relating to a deed affecting various units in a condominium. Specifically, the District Court considered whether a right of first refusal existing in a master lease survived two subsequent amendments and continued to encumber a unit owner's right to sell its unit to an outsider. Centennial Plaza Prop., LLC v. Trane U.S. Inc., No. 22-cv-01262, 2025 U.S. Dist. LEXIS 47803 (D.N.J. Mar. 17, 2025).

Background

Two limited liability companies (Centennial Plaza Prop, LLC and IMARC Properties, LLC) (collectively, the “Plaintiffs”) jointly owned two out of four units in a four-unit condominium. A 1985 master deed (the “1985 Master Deed”) originally imposed certain restrictions on the owners of the four units, including a right of first refusal provision in Article 17, which stated in relevant part:

Thus, Article 17 required a unit owner to elect between seeking permission from the Condominium's Board of Managers (the “Board”), or giving the other unit owners a right of first refusal before selling a unit. The 1985 Master Deed also provided that the Board's consent was needed to sell a unit if no 30-day right of first refusal had been provided to other unit owners.

The 1985 Master Deed was amended in 2001 and 2002. The 2001 amended Article 17 stated that the original Article 17 was “hereby amended and restated in its entirety, as follows,” and identified various instances where an owner would be required to obtain the Board's consent. The right of first refusal issue at controversy in this case was not part of that amendment. The 2002 amendment, like the prior amendment, identified specific instances requiring the Board's consent; however, the right of first refusal was also not included therein.

Ultimately, the corporation that owned the remaining two units (the “Defendant”) sold them to another limited liability company without offering a right of first refusal to the other unit owners. The Plaintiffs sued the corporation for allegedly violating the right-of-first-refusal provision. This issue came before the District Court on the Defendant's motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).

The Decision

As an initial procedural matter, the District Court identified the typical motion to dismiss standard that, for purposes of the motion, it must generally take the plaintiffs' allegations as true. However, it also noted that where a disparity exists between a written instrument annexed to a pleading and an allegation in that pleading, that the written instrument controls. On this issue, the Court found that there was a disparity between the Plaintiffs' allegation (that the 1985 Master Deed contained a right of first refusal), and the 1985 Master Deed which, as after the amendments, did not include a right of first refusal. Thus, the District Court determined that the language of the 1985 Master Deed would control over Plaintiffs' allegation.

In interpreting the 1985 Master Deed and two amendments, the District Court found that the plain language of the amendments clearly entirely displaced the original language of Article 17 of the 1985 Master Deed, including the right of first refusal language. The District Court found that such an interpretation would be most in-line with applicable contract maxims, such as reading a contract and amendments as a whole, avoiding redundancies, and avoiding the creation of internal contradictions.

Based on its contractual interpretation, the District Court found that Plaintiffs could not sustain their breach of contract, and specific performance and declaratory judgment claims since there simply was no right of first refusal in the latest controlling version of the Master Deed. The amendments did not supplement the 1985 Master Deed as to whether the unit owner could sell without the Board's permission if it had not offered a right of first refusal; rather, it removed that obligation when it stated that the applicable contract section (Article 17) was replaced in its entirety and then did not list not offering a right of first refusal as an instance where the Board's permission was required to sell. Regarding Plaintiffs' remaining breach of implied covenant claim, the Court found that (i) since the Master Deed was amended to remove the right of first refusal, the covenant could not be used to supplement additional terms; (ii) there was no suggestion of unfair surprise or unreasonableness; (iii) since there were no case-specific reasons for the reading of a right of first refusal into the transaction, Plaintiffs were essentially seeking a reading of a right of first refusal to all New Jersey real property covenants, which the Court declined to do. Therefore, the District Court granted Defendant's motion to dismiss.

Takeaways

This case highlights the importance of being mindful of basic contract principles when considering whether real property is encumbered in some fashion, and that all key documents must be analyzed including any amendments thereto. That is, as analyzed by the District Court, the amendments to the previously controlling master deed eliminated the prior encumbrance (the right of first refusal) on the corporate owner's right to freely sell the unit to its preferred buyer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.