Right of first refusal to buy: this you need to know

The moment the owner of a property decides to sell, a preferential right may apply. He must then first offer the property to the person who has that preferential right. That person is called the preferred bidder. The main difference with the purchase option is that when it is exercised, a purchase agreement is concluded immediately. In the case of a preferential right, the property only needs to be offered. Nevertheless, an obligation to deliver can also arise afterwards. In this blog, the lawyer real estate law of Lexys Lawyers will tell you more about the right of first refusal to buy, the obligation to offer that arises from it and the obligations that can come about afterwards.

Who is the right of first refusal to buy for?

In fact, a right of first refusal can be agreed upon with anyone. But usually it happens between parties who already have other agreements on the matter. For example, between the tenant and the landlord: they can agree on a right of first refusal in case the landlord wants to sell the property. Furthermore, we often encounter the right of first refusal in case the seller wants to have the option to buy the property back later. With both the purchase option and the right of first refusal, freedom of contract applies. This means that you may make agreements about it with whomever you want, or the property you have your eye on and under the conditions you want.

Civil right of first refusal and municipal right of first refusal

With the civil right of first refusal, however, a distinction must be made from the municipal right of first refusal. This is, in fact, a figure from the Environment Act, which gives the municipality the first right of purchase on a property. The municipality can designate land for which the preferential right applies in a decree. Then the owner may not just sell that land without first offering it for sale to the municipality.

The right of first refusal to buy, often an offer obligation

With a right of first refusal to buy, the preferred bidder is given the right, in the event of a proposed sale of the property, to be given the first opportunity by the owner to buy it. A right of first refusal to buy cannot be invoked if the owner does not (yet) wish to proceed with the sale. Only when the seller has expressed his will to sell the leased property can the entitled party invoke his right of first refusal to buy. When, as the entitled party, you invoke a right of first refusal to buy, you usually still cannot force the landlord to sell. A purchase agreement is only concluded if the parties agree on the terms of the sale. These include the selling price, delivery date and any resolutive conditions. After all, the right of first refusal to buy is only a conditional right of offer, not a right to buy or delivery (see ECLI:NL:GHSGGR:2004:AP9233).

After going through the offer requirement, owner may sell to a third party

If the conditions of the obligation to offer are met and no purchase agreement is reached, the owner may sell the property to a third party despite the existence of the right of first refusal. There are often conditions attached to this as well, such as the requirement that the owner may not sell the property to a third party for a lower amount than what he offered it to the preferred bidder.

Right of first refusal may have elements of the purchase option

However, the right of first refusal can be defined in such a way that if certain conditions are met, a purchase agreement will be concluded. For example, if the right of first refusal stipulates that if the entitled party offers a price equal to the appraised value and is willing to take delivery within a certain period of time, then the owner is obliged to deliver. In that case, the right of first refusal also has many characteristics of the option to buy.

Disputes over right of first refusal to buy

Disputes often arise as a result of an unclear wording of the right of first refusal, or a wording that can be interpreted in multiple ways. For example, the right of first refusal may provide that an offer obligation applies at the time of “proposed sale”. The next question is whether that right of first refusal then also applies if the owner wants to donate the property, lease it out, contribute it to a limited liability company (after which the right of first refusal does not apply to the shares in that limited liability company), and so on.

Notary continues delivery despite violation of right of first refusal

Even if the right of first refusal is violated, the notary will usually have to cooperate with the delivery. This does not immediately lead to the notary liable is. The Novitarius judgment (HR April 3, 2015, ECLI:NL:HR:2015:831) stipulates that the notary may not refuse his services on the sole ground that rights of third parties are violated. However, the disciplinary judge (January 23, 2018, ECLI:NL:GHAMS:2018:166) does state that in such a case, the notary should consult with the parties and conduct further investigation, to determine whether the third party's right (such as a preferential beneficiary) prevents the execution of the deed. However, a closed purchase agreement is a stronger right than a right of first refusal, so the starting point is that the delivery goes through. All the more so if the buyer was not aware of the existence of the (older) preferential right (The Hague Chamber of Notaries December 30, 2021, ECLI:NL:TNORDHA:2021:29).

Distinction between right of first refusal and option to buy not always clear

The distinction between the right of first refusal and the option to buy is not always clear. Often the question is whether an option to buy or a right of first refusal has been agreed upon. This cannot be determined based solely on the literal text of the agreement. In fact, the intention of the parties when making the agreements must be considered: the so-called Haviltex formula. If the intention of the parties shows that they intended to make a binding and irrevocable offer of purchase, then there is an option to purchase. If only the conditions under which the parties would enter into negotiations with each other have been determined, then it is more likely to be a right of first refusal. The distinction is a close one: it makes the difference between whether or not a purchase agreement has been concluded. Therefore, if in doubt, contact a lawyer in contract law who understands real estate.