Strangers in the Right (of First Refusal)
In a case of first impression, a New York trial court has held a preemptive right of first refusal (ROFR) in favor of a third party is not invalidated or rendered unenforceable by the “stranger to the deed” rule. Peters v. Smolian, 2015 NY Slip Op 25215 (Sup. Ct., Suff. Cty., June 25, 2015).
Smolian had previously sold the parcel to Peters “subject to” an ROFR in his favor, as well as that of each of four other Smolian family members. When Peters found a buyer, Smolian signed a waiver of the ROFR, but the family members refused to do so. Since the family members were not parties to the deed containing the ROFRs, Peters sought a declaratory judgment invalidating those rights.
After tracing the development of the “stranger to the deed” rule, the court concluded that “the right of first refusal is not a reservation or exception from a conveyance.” Hence, the rule was inapplicable, and the court awarded reverse summary judgment in favor of the non-moving party.
A 1990 Court of Appeals case stated: “the holder of a right of first refusal, like the holder of any option, has an interest in land.” Peters had argued that an attempt to create any third-party interest in land was invalid under the “stranger to the deed” rule. The earlier case, however, concerned the rule against perpetuities. There was no perpetuities issue at play in Peters and the analysis centered on whether the “interest” created by an ROFR was similar to those previously invalidated under the rule.