Right of First Refusal

     A right of first refusal, also known as a preemptive right, is different from a contract to purchase real property or an option to purchase real property.  In giving a right of first refusal, the owner of real property promises that if he decides to sell, the holder of the right will receive the opportunity to match the actual offer that has been made to the owner by a third party or, alternatively, the owner must first offer it to the holder at a fair market value before he places it for sale.       

The holder of such a right does not own an interest in the real property of the owner but has an executory (meaning to happen in the future) contractual right which, when triggered, may require the owner to convey the subject real property to the holder.  A right of first refusal is valid in North Carolina upon the fulfillment of two requirements: (1) the right must be exercised within 30 years of its creation; and (2) the price is linked to fair market value or the price is what the property owner is willing to accept from the third party.  Many times you will also see language regarding the time period to accept the proffered sale pursuant to the right and whether such right continues upon the failure of the alternative third party transaction.        

Conveyance of real property in violation of a valid right of refusal may have substantial monetary consequences to the owner.        Rights of first refusal may be found in leases, contracts, restrictive covenants, planned unit development declarations, or  recorded in chains of title.  They can stand outside the chain of title as well.  Therefore, it is important that you make reasonable inquiry of a prospective seller of real property as to whether he or she has sold or given a right of first refusal to anyone and review all leases, covenants and declarations to identify the existence of such preemptive right.

        If you discover a right of first refusal, you will want to work with your seller on a strategy to manage it in the listing and sale process.  They discourage buyers, and there are ways to address them early in the listing process.