THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean

Lesson # 135 (part six) • Right of First Refusal

During the last five lessons, we have been discussing the principle of the right of first refusal. Reuven is selling his land to Levi who does not own land next to Reuven’s land. Shimon does own land next to Reuven’s land. Shimon may offer to match the terms of sale to Levi and Beth Din will compel Reuven to sell the land to Shimon, or if he has already sold the land to Levi, Beth Din will compel Levi to transfer the land to Shimon.

The right of first refusal may be exercised only by Shimon (or any other entity) who is the contiguous neighbor of Reuven both during the time when the land is sold by Reuven and also when Shimon exercises the right. If he is the contiguous owner only when the land is sold but is no longer the owner when the right of first refusal is sought to be exercised, or if he is the contiguous owner when he attempts to exercise his right of first refusal but was not the contiguous owner when the land was sold by Reuven, he may not exercise the right of first refusal. For example, on January 1, Reuven sells his land, parcel #1 to Levi. On January 1, Shimon is the contiguous neighbor to Reuven's land by virtue of the ownership of parcel #2. On January 2, Shimon, before attempting to exercise his right of first refusal, sells parcel #2 to Jacob. Neither Shimon nor Jacob can exercise the right of first refusal, Shimon because he is no longer the contiguous owner to parcel #1, and Jacob because he was not the contiguous owner on January 1. Shimon did not, together with the sale of parcel #2, transfer to Jacob the right to exercise the light of first refusal that Shimon had on January 1. Levi does not have to act in a just and honorable manner to Shimon since Shimon sold his land, and not to Jacob because Levi bought parcel #1 before Jacob even came into the picture.

Shimon may not assign his right of first refusal to another person. For example, Reuven sells his land to Levi. Shimon, the contiguous owner attempts to assign his right to exercise the right of first refusal and to sell the land to Judah. Judah may not exercise such right.

It is not necessary that there not be anything intervening all along the border between the land being sold by Reuven to Levi and Shimon's land for Shimon to be the contiguous neighbor. Even if there is a fence or trees or rocks or a depression in the land, if there is a way for Shimon to enter upon Reuven's land directly from his land, then Shimon is deemed the contiguous neighbor. In the case of houses, if Shimon can make an opening from his house into Reuven's house, then Shimon is the contiguous neighbor.

In all disputes regarding the right of first refusal, the burden of proof is on Shimon to prove he is entitled under the law and under the facts to exercise his right of first refusal. If there is a dispute between Shimon, who claims that he is a contiguous owner, and Levi, who claims that Shimon is not a contiguous owner, the burden of proof is on Shimon to show that he is entitled to exercise the right of first refusal.

There must be an immediate exercise by Shimon of the right of first refusal.

Just a few words regarding the price that Shimon pays to Reuven if the sale to Levi has not been completed, or the price that he pays to Levi if the sale to Levi has been completed and Beth Din orders Levi to transfer ownership to Shimon. Ordinarily, the price to be paid by Shimon to Reuven is the price that Levi was going to pay. If the sale between Reuven and Levi has already been completed, the price is the one that Levi paid to Reuven.

If the value of the land appreciates between the time that Reuven sells the land to Levi and the time that Shimon exercises his light of first refusal, Shimon need pay only the price that Levi paid. If the land declines in value between the time that Reuven sells the land to Levi and the time that Shimon exercises his right of first refusal, Shimon must pay the price that Levi paid.

Levi pays Reuven $100 for the land. The land is appraised as of the date of the sale at $200. If Reuven would have sold the land to any purchaser for $100 because Reuven needed cash, Shimon need pay Levi only $100. However, if Reuven sold the land to Levi at a reduced price because of his special relationship with Levi and would have sold it to anyone else for $200. Shimon must pay Levi $200 if Shimon exercises his right of first refusal. Levi need not share the excess $100 with Reuven. In the event there is a difference of opinion between Shimon and Levi as to whether Reuven would have sold the land to others for $100, the burden of proof is on Shimon.

Levi pays Reuven $200 for the land. The land is appraised as of the date of the sale at $100. Shimon must pay Levi $200 to exercise his right of first refusal. If Shimon pleads that there is a conspiracy between Reuven and Levi to make Shimon pay the additional $100 but that the actual sale price from Reuven to Levi was $100. Levi takes an oath while holding a sacred object and obtains the $200 from Shimon. If there are witnesses present when Levi pays Reuven the $200, Levi need not take the oath to be paid $200.

Levi improves the land between the time he purchased it from Reuven and the time that Shimon exercises his right of first refusal. Shimon must reimburse Levi for his actual expenses or the improvement to the land, whichever is higher. However, if Levi improves the land after he knows that Shimon will exercise his light of first refusal, then Shimon need pay only the lower of the actual expenses of Levi or he actual improvement of the land, then Shimon need pay Levi only the lower of the actual expenses of Levi or the actual improvement to the land. Assume that Levi causes damage to the land or removes some of the things attached to the land, whether done prior to or after Shimon notifies Levi that Shimon will exercise his right of first refusal. Such damage or things that have been removed are deducted from the price that Shimon will pay to Levi. In the case of crops that Levi removes from the land, if they are removed prior to the time that Shimon notifies Levi that he is exercising his right of first refusal, the crops belong to Levi. However, if he removes them afterward. Levi must reimburse Shimon for the crops that he removed.

There is still much that can be said on this topic of the right of first refusal. I will, IYH write a final lesson next week to try to point out the importance in acting in such a manner that Hashem sees that we are trying to that which is just and right in His eyes.

The subject matter of this lesson is more fully discussed in Volume V Chapter 175 of A Restatement of Rabbinic Civil Law byE. Quint, published by Jason Aronson, Inc. and on sale at local Judaica bookstores.

Questions to quint@inter.net.il