Right of First Refusal: Is it Freely Assignable in Iowa?
Here, the Iowa Court of Appeals was asked to determine whether a right of first refusal in a real estate contract is freely assignable or whether it is personal to the party who contracts for it. In this case, the defendants entered into a contract to sell their farmland to a cattle farmer, but retained the acre of land on which their homestead was located. Under the real estate contract, the farmer had the right of first refusal upon the sale of the one-acre tract. A year after the sale, the farmer turned around and sold the farm to the plaintiffs. The warranty deed stated that the farmland was being transferred along with the right of first refusal to purchase the one-acre homestead.
In 2002, the defendants quitclaimed the one-acre homestead to their children. The children later transferred the land by warranty deed to another party in 2004. No formal notice was given to the plaintiffs. Upon discovering the transfer, the plaintiffs filed a petition against the defendants and asked the trial court to rescind the deed transferring the homestead and allow them to purchase the one-acre parcel. The defendants argued that the right of first refusal was “personal” to the original transferee (the farmer) and was extinguished upon his transfer to the plaintiffs. The trial court found in favor of the defendants, holding that the right of first refusal was presumed to be personal unless “express language confirmed an intent to the contrary.”
The plaintiffs appealed and the appellate court, noting that the issue was one of first impression in Iowa, agreed with the trial court. The court noted that the prevailing rule in the U.S. is that a right of first refusal is a personal and non-assignable right unless the written instrument clearly indicates otherwise. The court gave several reasons for this rule. One such rationale was the “indefiniteness” of a right of first refusal may impede the marketability of real estate. The court saw no reason to deviate from the general rule and further held that the contract language between the original parties was not enough to overcome the presumption against assignability. The right of first refusal, in this case, clearly referenced the original transferee and no others. In addition, the parties knew how to make the right of first refusal transferrable – they had included in the original contract language that gave the cattle farmer an easement that was “binding on the “Sellers’ and Buyer’s personal representatives, distributes, heirs, successors, transferees and assigns.” Malone v. Flattery, et al., No. 0-912/10-0904, 2011 Iowa App. LEXIS 110 (Iowa Ct. App., Feb. 9, 2011).
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