THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean

Lesson # 132 (part three) • Right of First Refusal

As stated in the prior lesson, there are some situations in which the right of first refusal does not apply. This in spite of the fact that to apply the principle is a highly desirable act, it means that the parties are acting lifnim mishurath hadin, even above the norms of action.

Some of the situations in which the principle does not apply are discussed below.

The principle does not apply to gifts. For example, Reuven gives his field to Levi by gift. Shimon, the contiguous owner, cannot ask that the law apply and he will pay to Levi the appraised value of the land. The theory is that when Reuven gives the land to Levi. he wants Levi to remember the gift when he uses the land. If the gift is converted by Shimon into money. when Levi shall have spent the money he will forget that Reuven gave him the gift of the land. Therefore. it would not be the right thing for Reuven to set up a situation whereby Levi will forget that it was Reuven who gave him the land as a gift. 

The halachah sets up several tests to ascertain if the transfer is really a gift or just a subterfuge to evade the law of right of first refusal. Before proceeding, what is warranty clause? Well, a warranty clause in a deed is a guarantee from the seller to the buyer. It says that if the buyer will lose the real estate that he purchased because the seller did not really own the land and the true owner, pursuant to a judgment of the Beth Din evicts the buyer, the seller will return the buyer’s money to him. For example, Naftali sells land to Dan for $100. The deed of sale contains a warranty clause. Lets say a year later, Asher sues Dan to get off the land because the land really belongs to Asher.

Dan refuses and Asher takes Dan to Beth Din and Asher wins the case. Dan must give up the land he purchased from Naftali. Dan can now sue Naftali to get back the $100 he paid Naftali for he land. (This is an oversimplification, but for the purpose of this lesson it is sufficient. I have purposely used different names in explaining what a warranty clause is.) Getting back to our lesson, Reuven the owner of the land gave a gift of the land to Levi. Shimon is the owner of land contiguous to the land of Reuven. If the deed of gift of the land from Reuven to Levi contains a warranty clause, it will be strong evidence that it was not a gift because donors of gifts generally do not warrant title to a gift of land, and the law of right of first refusal applies. Shimon will pay to Levi the appraised value of the land. If Levi admits it was an attempted fraud, then Levi can take an oath of how much he paid Reuven, and if his alleged paid price approximates the appraised price, Shimon will pay to Levi the price included in the oath. There is an opinion that if the price Levi alleges he paid is approximately that of the appraised valuation, he need not take an oath, and Shimon must pay that price if Shimon exercises his light of first refusal.

There is a dispute among the authorities regarding the following fact situation: Levi purchases the land from Reuven and before Shimon can exercise his right of first refusal. Levi gives the land by gift to Judah. According to some authorities the law of right of first refusal does not apply to Judah and Shimon cannot exercise his right of first refusal, while according to other authorities the law of right of first refusal does apply. Even according to the first authority, Beth Din should closely scrutinize to see if the gift from Levi to Judah is really a gift since these facts are rather unusual. 

Another example where the right of first refusal will not apply is where Reuven owns several parcels of land that are not contiguous to each other Reuven sells all of the parcels to Levi. Shimon cannot exercise his right of first refusal even regarding the parcel that is contiguous to his parcel. Shimon may not exercise his light of first refusal even if he offers to purchase all of the parcels that Reuven sold to Levi.

Another example of where the principle of first refusal does not apply is I a situation if Reuven sells the land to the person from whom he purchased the land. For example, Reuven purchased the land from Naftali. He now resells the land to Naftali or to Naftali's heirs if Naftali is dead. Shimon has no right of first refusal. A person does that which is right and just when he resells land to the original owner. However, if Reuven purchased the land from Naftali and then sells the land to Levi, and now Levi sells the land to Naftali, Shimon may exercise the right of first refusal. 

The law of right of first refusal also does not apply if Reuven sells the land to his son. 

There are emergencies that come up in life when of course least expected. Assume that a federal marshall or sheriff is at Reuven’s door with a warrant that states that he is to be arrested for failure to pay his income taxes. The warrant further states that if Reuven fails to make the payment within 24 hours he will face proceedings to expel him from the country, and send him back to his home to face a corrupt regime where his life may be in danger. Lets say he needs $50,000. Reuven has no money but he does own a piece of land. His friend Levi has the money and offers to buy Reuven’s land for $50,000. Reuven’s next door neighbor, Shimon, also offers to buy the land for $50,000, except that Shimon’s money is on deposit in a foreign bank and it will take five business days for him to get the $50,000. By that time Reuven will already be facing deportation proceedings, and once started can usually not be discontinued. Levi will not purchase the land if he knows that Shimon may get a judgment in Beth Din to force him to sell the land to Shimon.

Thus Reuven will not find a ready buyer and he cannot wait until Shimon gets his money from his bank. Exercising the right of first refusal also does not apply if Reuven must raise immediate cash to bury a close relative. If Levi is willing to purchase within those few minutes, then Shimon cannot come up with the money immediately, Shimon cannot exercise his right of first refusal. The law is the same if Reuven borrows money from Levi in these emergency situations and now wants to sell the land to Jacob to repay Levi. Shimon cannot exercise the right of first refusal against Jacob. However, if Reuven needs money for his business, the nature of the requirement is not enough of an emergency to make Shimon lose his right of first refusal. Merchants very often need cash in a hurry and to have the light of first refusal not apply to those situations will essentially emasculate the law. 

There is authority that the emergency exception can be extended to any situation when it would create hardship on Levi, a member of the community where the land is located to require him to transfer title to Shimon, the contiguous neighbor. For example, Levi purchases Reuven's house and Levi cannot find any other place to live. Such situations occur in many countries. For Shimon the gain is to expand his land to include the land sold by Reuven to Levi. This opinion holds that it is up to Beth Din to weigh the conflicting interests between Levi and Shimon. Many authorities do not agree and hold that to include this exception would result in an emasculation of the law of right of first refusal. 

IYH we shall continue with some more exceptions to the right to exercise the right of first refusal.

The subject matter of this lesson is more fully discussed in Volume V Chapter 175 of A Restatement of Rabbinic Civil Law by E. Quint, published by Jason Aronson, Inc. and on sale at local Judaica bookstores.
Questions to quint@inter.net.il