THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean

Lesson # 131 (part two) • Right of First Refusal

In the last lesson we began our discussion of the right of first refusal with the comment that the requirement to comply is under the rubric of acting lifnim mishurath hadin, that is to act beyond the requirements of the law. As in all cases dealing with money, Hashem wants us not only to deal with our fellow man in an honest and considerate manner, but even more than that, to do more than the law may require of us. To sell a parcel of land to a person who is not an adjoining land owner when the adjoining land owner wants to buy the real estate at the same price, is to act in a manner that is not becoming to a person of Klal Yisroel. The adjoining land owner is deemed to have a greater interest in purchasing the adjoining land than does a person who does not own a piece of real estate adjoining the real estate being sold. 

In addition to those cases mentioned in the prior lesson where the adjoining land owner has the right of first refusal to buy the real estate being sold by Reuven, there are other cases where the concept also applies. It will apply if the real estate is sold by Beth Din to Levi to foreclose a money judgment owed by Reuven to Levi. For example, Reuven owns real estate and Shimon owns the land adjoining. Reuven owes money to Levi and Reuven does not have money to pay the debt. Assume that Beth Din seizes Reuven’s real estate and gives it to Levi to satisfy the debt from Reuven to Levi. Levi now owns Reuven’s real estate. Shimon still has the right of first refusal to acquire the real estate that Levi obtained from Reuven. Shimon, if he exercises the right of first refusal to acquire the real estate of Reuven, must pay to Levi the amount of Reuven's debt, or the value of the real estate which Beth Din seized for Levi, whichever is lower. 

The law is the same if Reuven sold his real estate to Shimon, who owns land next to Reuven’s, and then, Levi, the creditor of Reuven, seized the land from Shimon. For example, on January 1, Reuven borrowed $200 from Levi and a note of indebtedness was written and delivered to Levi that stated that the debt shall be repaid on March 1. Because of the delivery of the note of indebtedness to Levi, Levi now has a lien on the real estate of Reuven. If Reuven sells the real estate to a purchaser, and Reuven does not repay the debt to Levi, Levi can take from the purchaser the real estate that Reuven sold to the purchaser. On February 1, Reuven sells his real estate to his contiguous neighbor, Shimon. On March 1, Reuven fails to pay Levi the $200. Levi, pursuant to an order of the Beth Din seizes the real estate that Shimon purchased from Reuven. Levi now owns Reuven’s real estate. Shimon still has the right of first refusal to acquire Reuven’s real estate, since Shimon is still a contiguous neighbor of the real estate seized by Levi. The land is worth $100. The majority view is that Shimon must pay only $100 to Levi and obtain the real estate. There is another view that Shimon must pay to Levi $200 since to Levi the land is worth $200.

Assume that Reuven owns a parcel of real estate that he does not want his neighbor Shimon to acquire. Reuven sells his real estate to Aharon. Reuven in his sale to Aharon may stipulate that if Shimon, the owner of adjoining land exercises his right of first refusal, then the sale to Aharon is rescinded. He cannot stipulate that the sale to Aharon shall remain in effect and that Shimon cannot exercise his right of first refusal. 

The law is the same regardless of the status of Levi, the third party. As for example, Levi is a great sage and Shimon is unlearned, Shimon, the adjoining land owner, may still exercise his right of first refusal. The concept of the right of first refusal applies even if Levi, to whom Reuven sells the real estate is related to Reuven (other than a son) or is a close friend of Reuven or Levi lives close to where Reuven lives, but is not a contiguous neighbor to the real estate that Reuven is selling. Even if Shimon is not related to or even friendly with Reuven, so long as Shimon owns land contiguous to the land that Reuven is selling, Shimon may exercise his light of first refusal. 

An interesting situation in which there are opinions both ways regarding the right of first refusal. Reuven and Shimon are owners of a condominium building, Reuven owns the upper floor and Shimon owns the lower floor. Levi owns the contiguous attached house. Reuven desires to sell his floor to Levi. There are authorities both ways as to whether Shimon may exercise a right of first refusal against Levi. The decision is dependant upon whether Reuven and Shimon are deemed to be co-owners of the house or just contiguous neighbors? They may be deemed to be co-owners since they each have an interest in the land beneath their house. If they are deemed to be co-owners, then the rights of Shimon are greater than those of Levi. 

All of these laws dealing with the right of first refusal apply if Reuven is not damaged by Shimon’s exercise of the right of first refusal. However, there may be a situation where Levi has strong financial ability, and Reuven permits Levi to pay the purchase price over a period of time. Shimon, the adjoining land owner, on the other hand, is not in a strong financial position to pay off the purchase price over the same period of time. Beth Din may determine that Shimon may have to pay the entire purchase price to Reuven at once rather than receive the same terms as are given to Levi. If Reuven grants Levi terms and Shimon has at least the same financial position as does Levi, Shimon may avail himself of those terms. The burden of proof is on Shimon to show that he has at least equal financial ability so that Reuven can rely upon it. 

As was stated in the last lesson, the law of right of first refusal forces a buyer of realty (and perhaps the seller) to do that which is right and benefits the contiguous neighbor. Therefore, it must be strictly construed against the interests of the contiguous neighbor since the halachah confers a benefit on him for the sake of doing the right thing. There are individuals and situations in which, if the law were to be followed, it would not be the right thing for the purchaser, Levi, and/or the seller Reuven. The halachah has exceptions to this law. If the facts of the case fall into one of the exceptions, then the law of right of first refusal does not apply. 

IYH, in the next lesson we shall see some of the situations where the right of first refusal does not apply. 

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