THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean

Lesson # 133 (part four) • Right of First Refusal

I am mindful of the fact that there are some readers of Torah Tidbits who are new to it or are new readers of my column. We are in the midst of a series of lessons covering the topic of the right of first refusal. I am therefore, in very short form, giving the facts of the situation. Reuven owns a piece of land that he wants to sell. He offers the land to a broker to sell for $1,000. The broker finds a person Levi who is willing to buy the land for $1,000. Reuven has a neighbor, Shimon, whose land is contiguous (touching) Reuven’s land. Shimon can demand that Reuven sell the land to Shimon for the same price of $1,000. If Reuven refuses, Beth Din will compel him to do so. Even if Reuven has already sold the land to Levi for $1,000, Beth Din will compel Levi to transfer the land to Shimon and Shimon will pay Levi the $1,000. When the parties so act, they are acting beyond the simple requirement of the law, they are acting lifnim mishurath hadin. In the prior lesson (132) there was discussed case where the transfer of the ownership of the land to Levi would not be undone, and Shimon could not ask Beth Din to compel that the land to be sold to him. 

We continue with some more exceptions where Beth Din will not compel the land to be sold to Shimon.

The right of first refusal does not apply in land for land exchange situations. For example, Reuven exchanges his parcel of land, parcel #1. for a parcel of land, parcel #2, owned by Levi. Shimon may not exercise the right of first refusal and acquire parcel #1 from Levi. There is no way that Shimon can give to Reuven a piece of land that is the same as Reuven receives from Levi. Also, Levi would not give up his land except for the land he receives from Reuven. However, if Reuven exchanges his land for an animal or other personal property belonging to Levi, Shimon can have the animal or personal property that Levi gave to Reuven appraised and pay to Levi the appraised value to acquire the land from Levi. Levi cannot demand that Shimon obtain from Reuven the animal or personal (movable) property that Levi gave to Reuven for the land. In this last described situation, Beth Din will be within its rights if it suspects fraud, or at least an attempt to circumvent the right of first refusal on the part of Reuven and Levi, since it is unusual for a person to give up his land for an animal or personal property. 

The law of right of first refusal also does not apply if Reuven sells his land to minor orphans. This is true even if the neighbor instead of being Shimon is a minor orphan (or a woman). The reason for the right of first refusal is that Levi, the purchaser, can just as easily purchase a piece of land somewhere else and Shimon, the contiguous neighbor, will gain if he can purchase the land and develop it as part of the land he already owns. In the case of a minor orphan this reason does not prevail since minor orphans are not required to search for land in another place. Orphans who are not minors or minors who have a father are also not exempt from the law of right of first refusal. Shimon may take the land from them upon paying to them the purchase price. However, a partner or joint owner of Reuven can exercise the right of first refusal against the minor orphan. There is also an opinion that holds that if the seller (the role of Reuven) is a minor or a woman, then the law of right of first refusal does not apply. For example, Sarah (or Reuven. an orphaned minor) sells land to Levi. Shimon cannot exercise a right of first refusal. 

The law of right of first refusal also does not apply if Reuven sells the land to a woman who is a widow or a divorcee, or even a married woman purchasing the land from Reuven with her own funds over which her husband does not exercise control. As was stated above, the reason for the right of first refusal is that Levi, the purchaser, can just as easily purchase a piece of land somewhere else and Shimon, the contiguous neighbor, will gain if he can purchase the land and develop it as part of the land he already owns. In the case of a woman this reason does not prevail, since women are not required to search for land in another place. This is true even if the neighbor instead of being Shimon is a woman (or a minor orphan). Beth Din must be convinced that the purchase by the woman is with her own independent funds, and is not in reality a purchase by her husband to circumvent Shimon's right of first refusal. If Beth Din is convinced, then Shimon will lose his right of first refusal even if the woman purchases the land from Reuven in partnership with her husband. However, if Reuven has a partner or joint owner in the land in which he is selling his interest, such partner or joint owner can exercise the right of first refusal against the woman. 

The law of right of first refusal also does not apply against a partner. If Reuven and Naftali are partners in the ownership of the land or joint tenants in the ownership of the land or partners even in another business, Reuven can sell his interest to Naftali. Shimon, the contiguous neighbor to the land, cannot exercise his right of first refusal. 

The law of right of first refusal does not apply against mortgagees. (What is a mortgagee? Many lawyers even do not remember the difference between a mortgagor and a mortgagee. Lets say that one of the readers of this lesson, Reuven owns an apartment or a house and needs money, say $600. Or Reuven is going to buy an apartment or a house for $1,000 and he has only $400. He is lacking $600. He goes to the Bank (or to a friend) and borrows $600 to be repaid at the rate of $50 a month. The Bank (or friend), in order to secure themselves, take a mortgage (a security) on Reuven’s apartment or house. Reuven is the mortgagor; the Bank (or the friend) is the mortgagee.

The document showing that the Bank (or the friend) has a lien on the apartment or the house owned by Reuven is the mortgage. Should Reuven fail to make the required payments, the Bank (or the friend) will go to court to obtain a judgment permitting the Bank (or friend) to sell the house or apartment owned by Reuven. The first $600 from the sale of the house or apartment will be paid to the Bank (or friend), and the balance of the proceeds, if any, will be paid to Reuven.) Assume that Reuven is about to borrow the $600 from Isaac and Isaac will be given a mortgage on Reuven’s land. Shimon, the contiguous neighbor, fears that if Isaac lends Reuven the money and becomes a mortgagee, Reuven may end up selling the land to Isaac and Shimon will not be able to exercise his right of first refusal. Shimon as the contiguous neighbor offers to lend the money to Reuven on the same terms as Isaac lends the money. Reuven may insist that he wants to borrow the money from Isaac since he feels that if he has a problem with repayment it may be easier for him to make an arrangement with Isaac than with Shimon. After Reuven borrows the money from Isaac and Isaac has a mortgage on Reuven’s land, Reuven sells the land to Isaac. Shimon, the contiguous land owner may not exercise the right of first refusal. Beth Din, upon request from Shimon, must examine all aspects of the loan from Isaac to Reuven since there may be collusion on their part to sell Reuven’s land to Isaac and preclude Shimon from exercising his right of first refusal. 

IYH next week we shall examine the last exceptions to the exercise of 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 byE. Quint, published by Jason Aronson, Inc. and on sale at local Judaica bookstores. 

Questions to quint@inter.net.il