Lesson # 343 • The "Buy or Sell" Option
If there is an agreement between the joint owners that they will not, for a certain period of time, make a demand to the other to exercise the buy or sell option, it may not be demanded during that period. The demand is available only in situations where the parties who are joint owners in the ownership of the land or the personal property are not entitled as a matter of right to demand partition, either because the land is too small to permit one of the joint owners to demand partition as of right, or because Beth Din determines, in the case of land or personal property, that it does not lend itself to partition. If Reuven and Shimon are joint lessees rather than owners, 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 fixed price in the demand. There is a view that the law of the buy or sell option does not apply to property not belonging to the parties and only rented to them. If Reuven and Shimon jointly hold a mortgage on Yehuda’s real estate, or a promissory note showing that Yehuda owes them money, the buy or sell option does not exist, since they only have a right to money that is due from Yehuda.
Assume that Reuven and Shimon are joint owners of a piece of real estate. Reuven may make a demand to Shimon that either Shimon sell his share to Reuven at a stated price or that Shimon buy out Reuven for the same amount. The demand is not valid unless it states the price of selling or buying. The price need not be the true value of the share. Reuven may set a price that is the actual or close to actual value, or it may be much higher or lower than the true value. The demand must be reciprocal. If it does not include Reuven’s reciprocal offer to purchase Shimon’s share, it is not a valid offer. When Shimon exercises his option to buy or sell, the payment must be made immediately. If Reuven makes the demand on Shimon to exercise the option to sell or buy and Shimon exercises the option to buy, he may request that Beth Din grant him up to thirty days to make the payment. If Shimon exercises his option to sell, Reuven must make immediate payment, since he should have anticipated that he may be called upon to purchase if Shimon exercises his option to sell. If Reuven does not pay, then his demand is voided, and if he once again makes a demand, Shimon can request that Beth Din ascertain whether or not Reuven has the money if Shimon decides to sell. If Reuven does not have the money to purchase he cannot make the demand to sell. This is true even if the price fixed by Reuven is very low so that there is incentive for Shimon to buy Reuven’s share.
A situation may arise where Reuven is wealthy and Shimon is poor and Reuven will take advantage of the situation by making a demand with a very low price for the shares, knowing that Shimon cannot even pay such a low price and thus Shimon will have to sell to Reuven for the low price. Shimon, if he is able, may borrow the money and buy Reuven’s share. (Most probably Reuven ascertained that it is difficult for Shimon to borrow money before Reuven made the demand.) Or Shimon may sell his share to Levi. When Shimon sells his share to Levi it includes the sale of his right to exercise the option to sell or buy made by Reuven’s demand.
Then Levi can buy for the low price stated in Reuven’s demand. For example, the land is worth $200 and thus the share of each joint owner is worth $100. Reuven makes a demand that Shimon purchase Reuven’s share for $40, or sell his share to Reuven for $40. Reuven knows that Shimon does not have the $40. Shimon can sell his share to Levi for $100 and then Levi can exercise the option and purchase Reuven’s share for $40. Levi will own the $200 land for $140 and Shimon will not bear any loss.
If Shimon is not able to borrow the money or is not able to sell his share to Levi, then Shimon may go to Beth Din to have it establish a true price for the share and then Shimon will exercise the option of selling his share to Reuven for its full price.
If both parties want to sell and neither wants to buy, neither will make a demand; the parties may sell to a third party who offers the highest price for the combined shares of Reuven and Shimon. If the thing owned jointly does not lend itself to be used together, then if it can be rented, they will rent the thing and they divide the rental payments. Or either party may make a demand to the other to either lease or rent his part of the thing owned jointly at a rental fixed in the demand. Then the other party must exercise his option. If the thing cannot be rented, then the parties will agree or cast lots as to who will use it for a reasonable period and then the other party will use it for a similar period. If Reuven leases the thing without the consent of Shimon, the rental must be divided equally between them. Whenever an equal division is spoken of, it assumes that the parties are equal owners in the real estate or the personal property. If one owns a greater share, then they share proportionately as to income and as to time. Very often the parties will let an outside arbitrator suggest how to apportion the use and income of the thing.
The subject matter of this lesson is more fully discussed in volume V chapter 171 A Restatement of Rabbinic Civil Law by E. Quint. Copies of all volumes can be purchased via email: firstname.lastname@example.org and via website: www.israelbooks.com and at local Judaica bookstores. Questions to email@example.com