## Facts

- Lessors leased ten contiguous lots to Thomas & Son Transfer Line, Inc. for five years at $400/month under an unrecorded written lease containing a renewal option and a typewritten right of first refusal.
- The lease expired May 1, 1973; the tenant remained in open possession, continued paying rent, and later agreed to increased rent ($550/month) without executing a new written lease.
- The property was continuously used as the tenant’s truck terminal.
- On July 26, 1974, the lessors sold the ten leased lots plus four additional lots to the Cohens; the tenant learned of the sale shortly afterward and promptly sought to enforce its right of first refusal.
- Before purchasing, the Cohens knew the tenant was in possession and asked the lessors about leasing; the lessors stated the written lease had expired and the tenant was month-to-month.
- The Cohens did not request or review the prior written lease and did not ask the tenant about its rights.
- The trial court found the tenant exercised the renewal option by holding over and paying rent (no notice to lessor required), but ruled the right of first refusal did not continue into the renewed term; it denied specific performance.
- The court of appeals reversed; the Colorado Supreme Court granted review.

## Issues

1. Whether a lease renewal effected by the tenant’s holding over and continued rent payments carries forward all lease provisions, including a right of first refusal.
2. Whether purchasers who know a tenant is in possession have a duty to inquire of the tenant about its rights, making them bound by an unrecorded right of first refusal discoverable by reasonable inquiry.

## Decision

- The Colorado Supreme Court affirmed the court of appeals and directed entry of judgment for the tenant.
- The tenant effectively exercised the renewal option by remaining in possession and paying rent; the renewed lease continued on the same terms and conditions as the original lease.
- The right of first refusal was part of the renewed lease; separating it typographically or placing it in typewritten/parenthetical form did not exclude it from renewal absent express language.
- The Cohens’ knowledge of the tenant’s open possession imposed a duty to inquire directly of the tenant (or otherwise reasonably investigate) regarding its rights.
- Because the Cohens failed to make the required inquiry, they were charged with notice of the tenant’s right of first refusal despite the lease being unrecorded.
- Specific performance enforcing the right of first refusal against the Cohens was proper.

## Legal Principles

- Open and visible possession by a tenant provides notice sufficient to put a purchaser on inquiry as to the nature and extent of the tenant’s rights.
- A purchaser must make reasonable inquiry of the possessor; reliance solely on the seller’s statements is inadequate when possession suggests possible unrecorded interests.
- An unrecorded lease provision, including a right of first refusal, is enforceable against a subsequent purchaser who has inquiry notice and would have discovered the provision through reasonable investigation.
- When a renewal option is exercised and the lease does not provide otherwise, renewal is on the same terms and conditions as the original lease, including ancillary rights such as rights of first refusal.

## Conclusion

Because the tenant’s possession required the purchasers to inquire into the tenant’s rights and the tenant’s renewal carried forward the right of first refusal, the purchasers took subject to that unrecorded provision, and the tenant was entitled to specific performance.


Cohen v. Thomas & Son Transfer Line, Inc., 586 P.2d 39 (Colo. 1978)