Listing a Property Subject to a Right of First Refusal

QUESTION: I have listing where my seller’s property is subject to a right of first refusal. I have heard about rights of first refusal but I do not really know how they work. I disclosed the right of first refusal in my advertising and we just now received an offer from a prospective buyer. How can I inform the person with the right of first refusal of the price offered if the buyers won’t give me permission to share the terms of the offer? What do I do now that I have the offer?

ANSWER: According to Webster’s Real Estate Law in North Carolina (Sixth Edition), a right of first refusal “is distinguishable from both an option to purchase and a contract for the sale of real property. By granting a right of first refusal, the seller is not bound to sell the property; rather, the owner promises that if he or she decides to sell at some future time, the promisee will receive the first chance to purchase or the opportunity to match bona fide offers to purchase from third parties. The promisee is not obligated to purchase the property.”

It was proper to disclose the existence of the right of first refusal as this contractual obligation is a material fact. If the person to whom the right of first refusal was granted (the “grantee”) exercises the right to purchase the property, it will affect the seller’s ability to complete the transaction.

Next, by disclosing a right of first refusal to a prospective buyer, the buyer and agent understand that any offer submitted to the seller will, by necessity, be shared in some form with the grantee of that right. Therefore, the buyer implicitly agrees that you may submit the offer, or at least the necessary terms, to the grantee; otherwise, the buyer’s offer could never be accepted by the seller without breaching the obligations set forth in the right of first refusal.

With the offer in hand, it will be important to carefully review the right of first refusal and caution the seller not to accept the prospective buyer’s offer until all duties under the right are satisfied. The seller will need to deliver the required information to the grantee. It will likely be necessary for the seller to provide the notice in a very specific way, such as by sharing specific terms or the full offer, and by delivering the information by hand or by some other defined delivery service.

Once the required information is presented to the grantee, and the delivery of that information is completed properly, the grantee will likely have a specific time within which to either exercise the right to contract for the purchase of the property before the right is lost. If the seller has any questions about compliance with the terms of the right of first refusal, the seller should seek counsel from an attorney to ensure they don’t accept the buyer’s offer without first fully satisfying all duties required under the right of first refusal. A buyer and seller who go under contract without satisfying all terms of the right of first refusal may find the property tied up in litigation and impossible to convey or mortgage.

Release Date: 12/12/2024