Brother Fails to Exercise Right of First Refusal…Twice

A right of first refusal is triggered upon the happening of certain events.  One of those triggering events could be the owner’s decision to sell the property.  In that event, the right is conditional until the party holding the right is notified of a third party offer to purchase the land. Once this occurs, the right is no longer conditional and becomes an option to purchase the property, which requires strict compliance with the terms of acceptance. In the following case, one sibling learned the hard way that exercising legal rights to purchase property requires timely and unequivocal acceptance.

The facts are straightforward. Three siblings each inherited an undivided one-third interest in their parents’ farmland. The parties could not agree on how to divide the farm, so a partition action was filed resulting in a sale of the land and division of the proceeds. After a trial, the court found that an agreement between the siblings existed giving the defendant in this present action the right to the southern one-third of the property and the plaintiff and his sister the northern two-thirds. The court also found that the defendant had the right to buy the northern two-thirds interest if he could match their best offer.

Later, a third-party offer on the northern parcel was received, and the defendant was notified of his right to match the offer. He failed to respond and the offer expired. A second offer came in shortly thereafter. The offer included an agreement that the defendant would be allowed to lease the land and farm it. The defendant’s attorney was notified of the offer and a deadline was set for the defendant’s response. The notice also said that they were granting this courtesy despite the fact that the defendant’s right to purchase the property had already been relinquished due to his failure to respond to the first offer. 

The defendant asked for an extension to accept, and the plaintiff refused. Despite this a follow-up letter was sent clarifying that the failure to respond by the requested extension meant the right to match the offer was not going to be exercised and the sale to the third party could proceed. The defendant’s attorney responded that the defendant was willing to sign the necessary document as long as his right to lease the land was preserved. When documents were received, the defendant’s attorney expressed concern that signing the documents might jeopardize the agreement to lease the land or waive the defendant’s right of first refusal if the proposed sale failed to go through.

The defendant was informed that he had waived his right of first refusal on this sale and there would be no subsequent purchases, but the siblings would re-extend his right if the sale fell through. A short time later, but ten weeks after receiving notice of the second offer to purchase by a third-party, the defendant sought to exercise his right to purchase the land. 

The plaintiff brother moved to enforce the original partition judgment and for a determination that the defendant had waived his right of first refusal and should be compelled to execute a quitclaim deed to the northern portion of the property. The court agreed with the plaintiff. The defendant appealed.

On appeal, the appellate court held that even if the defendant had waived his right of first refusal after notice of the first third-party offer, the siblings acted as if the right had not expired, and they extended the option to him again after the second offer was made, so the defendant still had the opportunity to exercise his right after notice of the second offer.  But, the court agreed that the defendant had waived his right on the second offer despite repeated opportunities by his siblings to allow him to exercise the option. 

The court noted that even though the stated period for exercising his right had expired, the siblings still contacted the defendant’s attorney to clarify that the right would not be exercised and whether they could proceed with execution of the deeds. The defendant essentially agreed as long as his right to lease the land was preserved. Other facts were also relevant to the court. The defendant built a partition fence during the 10-week period between his land and the northern two-thirds parcel. He also submitted a check for the 2011 rent payable to the siblings and the purchaser. Further, the court found the defendant’s delayed request to exercise the right was “equivocal at best”. The brother’s statement in “exercising” his option was statement that he was prepared to match the offer subject to confirmation of the terms. The brother, however, had been notified of the terms 10 weeks earlier. This was not an affirmative acceptance. Consequently, the district court opinion that the defendant waived his right of first refusal was affirmed by the appellate court. Stone v. Stoner, No. 20233/11-1146, 2012 Iowa App. LEXIS 445 (Iowa Ct. App. Jun. 13, 2012).