Interpreting Stale Preferential Rights to Acquire Real Estate: Beyond the Restatement of Property
Villanova Law Review, 2017
58 Pages Posted: 12 Oct 2016
Date Written: October 10, 2016
Options to purchase, rights of first refusal, and other preferential rights give a prospective buyer priority to acquire property. But stale preferential rights often backfire. In one recent case, a 20-year old right thwarted a plan to save a pristine site on Long Island. In another, a right granted in 1988 may prevent the property’s sale in perpetuity. In scores of other cases, changed circumstances lead to disputes over how to apply the right. Such problems can arise because preferential rights to purchase real estate often survive beyond the imaginations of the parties who establish them. Current law, as reflected in the Restatement (Third) of Property (Servitudes), primarily entrusts enforcement of these aging rights to the Rule against Perpetuities and the common law principles regulating restraints on alienation. The Restatement fails to provide an effective framework for analyzing recurring situations in which unforeseen developments render the parties’ agreement incomplete.
This Article argues that ancient common law property rules and rigid cannons of contract interpretation cannot fairly and logically resolve disputes that arise when preferential rights encumber land titles for years, decades, lifetimes, or beyond. It explains that best contractual practices under existing law work only when sophisticated parties retain highly experienced real estate lawyers to craft comprehensive agreements that anticipate every reasonably foreseeable contingency. As a result, for most landowners and potential buyers, a long-term preferential purchase right is simply a bad idea. This Article proposes an alternative model that courts should adopt when aging preferential rights agreements prove to be incomplete because the contracting parties failed to anticipate future circumstances. Under this more flexible approach, courts would acknowledge the relevant contextual aspects of the dispute and would accord appropriate weight to the passage of time.
Keywords: contract law, property law, options to purchase, rights of first refusal, rights of first offer, preferential purchase rights, preemptive rights; contract interpretation, rule against perpetuities, restraints on alienation
JEL Classification: K11, K12
Suggested Citation: Suggested Citation