THE JERUSALEM INSTITUTE OF JEWISH LAW 
Rabbi Emanuel Quint, Dean

Lesson # 127 (part one) • Buy or Sell Options 

The prior lessons discussed partition of land. This means, that Reuven and Shimon jointly own a piece of land. Reuven wants to divide the land so that he, all by himself, will own a part of that land, and Shimon will, all by himself, own the remaining part of the land. Reuven asks Shimon to divide the land. Shimon refuses. Reuven can commence a case in Beth Din to have Beth Din compel Shimon to divide the land between Reuven and Shimon. (Whatever is said about Reuven’s right to demand partition, of course applies if Shimon wants to partition the land.) Beth Din will not grant Reuven’s request for partition if the land cannot be conveniently partitioned. Also Beth Din will not grant Reuven’s request for partition of the parcel of their jointly owned land if the land is too small to be partitioned. In the case of personal property it must be capable of being divided. Reuven and Shimon are given this right since they should not be required to be joint owners against their will. The right to partition does not apply if there are agreements between Reuven and Shimon that restrict their right to seek partition. 

Assume a situation where Reuven wishes to sever his interest in the joint ownership of the land, but the Beth Din will not grant him the right to partition. In such a situation, Reuven has the right to demand that Shimon either sell his share in the real estate or personal property to Reuven, or that Shimon purchase Reuven's share at price stated by Reuven. If Reuven makes the demand, Shimon has the right to exercise the option to sell his share to Reuven or to buy Reuven's share. If Shimon refuses to exercise the option to buy or to sell, Reuven can obtain a judgment from Beth Din compelling Shimon to exercise his option. Beth Din will inform Shimon that if he fails to so act, Beth Din will permit Reuven to exercise the option to buy or to sell. The demand that Reuven makes to Shimon is herein designated "the demand." and the option is designated as "the buy or sell option." When Shimon makes his choice it is designated as “exercising the option." 

The concept of the buy or sell option is based on a person doing that which is right and correct in the eyes of the Lord. (Deut 6:16) The Torah (Hashem) considers this procedure to be something that is right and correct. 

The right to make the demand is not always available. The right to make the demand is limited to certain situations and certain persons described below. 

We are speaking of one parcel of land. That was also the case where we discussed partition in the prior two lessons. 

The demand that the other joint owner exercise the option, and the exercise thereof, is not to be confused with the situation of the right of first refusal that will IYH be discussed in a future lesson. In the case of right of first refusal, Reuven wants to sell land that is owned solely by himself to Levi. Shimon, Reuven’s next door neighbor, may exercise a right of first refusal and Reuven, must sell the land to Shimon. There, Shimon and Reuven are not joint owners and Reuven is selling his own land and not offering to sell his land or to buy Shimon's land. 

The right to demand that the other joint owner exercise the buy or sell option is not available in all cases. For example, there may be an agreement between the joint owners that they will not exercise the demand for a certain period of time. 

Assume that Reuven and Shimon are not owners of the land but rather jointly rent the land under a lease. The majority opinion is that either party may make the demand that the other joint lessee either buy out his ownership in the lease or sell his ownership in the lease for a price fixed in the demand. There is also a minority opinion among the commentators and codifiers that neither renter may make such a demand from his joint renter to buy or sell his ownership in the lease. 

Assume that Yehudah wants to borrow $1,000 from lenders Reuven and Shimon, each to lend him $500. In order to secure their loan Yehudah gives them a mortgage on the house that he owns; if Yehudah does not repay the loan, Reuven and Shimon may sell the house. Assume that the house is sold for $2,500. Reuven and Shimon will take their $1,000 and the balance of $1,500 will go to Yehudah. A common commercial transaction. Since the loan was made by both Reuven and Shimon simultaneously they take one mortgage so that neither of them will hold a first mortgage while the second holds second mortgage. (A first mortgage has priority over a second mortgage in the event of the sale of the house to foreclose the mortgage.) As a result of the loans Reuven and Shimon now jointly hold a mortgage on Yehudah's real estate. Between Reuven and Shimon, the sell or buy option does not exist, since they only have a right to money that is due from Yehudah. 

Getting back to the situation where Reuven and Shimon jointly own a piece of real estate, Reuven may make the demand, whether there are two joint owners or multiple joint owners, that is, the land may be owned by Reuven, Shimon and Levi. Where there are multiple joint owners, more than one joint owner can make the demand by demanding of the other joint owners that they sell their shares or buy the shares of the offerors. If two joint owners make the demand and then the others sell their shares to these two joint owners, one of these two can then make a demand to the other of the buy or buy option. 

The demand must state a price for which Reuven is willing to sell his share to Shimon or to purchase Shimon's share; then Shimon may either sell his share to Reuven at that price or buy Reuven's share at that price. The price need not be the true value of the share. Reuven may set a price that is close to or the actual value of the share to be bought or purchased, or it may be much higher or much lower than the true price. There is early authority that the price should be the value or close to the value of the shares being sold or bought, and if the parties cannot agree on the true price, Beth Din will set the price. 

Reuven’s demand must state that Shimon either sell his share to Reuven or to buy Reuven's share. The demand cannot be for Shimon to purchase Reuven's share if it does not include Reuven's reciprocal offer to purchase Shimon's share. 

There is also an opinion that Reuven may make a demand that Shimon lease to him at a fixed rental or that Shimon rent from Reuven at that fixed rental. 

If the entire parcel jointly owned by Reuven and Shimon is less than forty-nine square feet, the law of demanding that the other joint owner sell or buy does not apply. There is also a dissent that holds that the law of demand applies even in this situation. 

The topic of the sell and buy option will be continued IYH in the next lesson. 

The subject matter of this lesson is more fully discussed in Volume V Chapter 171 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