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WHAT IS IT? A right of first refusal is a contract between a landowner
and a potential purchaser
A right of first refusal is similar to but not the same as an option to purchase. 139 Generally, an option to purchase is used when a prospective purchaser knows he or she wants the land, or may want it within a certain time. A right of first refusal is used if the Potential Purchaser merely wants to be in a position to buy the land should it come on the market. An option to purchase is generally more expensive than a right of first refusal.
POSSIBLE APPLICATIONS. A conservation organization might want to ensure that, if land comes up for sale, it is in a preferred position to decide whether to buy the land.
LEGAL BASIS. Basically, a right of first refusal ensures that the land will not be sold without the Potential Purchaser having an opportunity to make an offer. If the landowner, during the period of the right of first refusal, received an acceptable offer to purchase the land from a third party, the landowner would have to advise the Potential Purchaser who would have a chance to match the offer. If the Potential Purchaser matched the offer within the time specified by the right of first refusal, he or she would be able to buy the land. 140
The landowner's ownership rights to use the land are unaffected by the right of first refusal. However, the right to dispose of the property or an interest in the property is curtailed. Because the landowner has given the Potential Purchaser a right with respect to the entire property, the landowner cannot dispose of part of the property without honouring the terms of the right of first refusal. 141
HOW IS IT CREATED? A right of first refusal is created by a written contract between the landowner and the Potential Purchaser. The contract must contain the terms of the right of first refusal, its duration, and the consideration paid by the Potential Purchaser for the right. 142 The right of first refusal is then registered against the landowner's land.
HOW LONG CAN IT LAST? A right of first refusal usually specifies the time during which it operates. It is subject to the rule against perpetuities, so the maximum length of time it can last is a life in being plus 21 years, or eighty years. 143
WHO MONITORS AND MAINTAINS THE LAND? Because the landowner retains all of the ownership rights related to the use of the land, it is up to the landowner how and whether to manage it for conservation purposes.
HOW CAN THE LAND BE PROTECTED OVER TIME? A right of first refusal is a very weak tool to protect land over time. Since the landowner continues to own the property and have the use of it, the landowner is responsible for what happens to the land. The Potential Purchaser has only an opportunity, at the time the landowner sells, to acquire the land.
HOW IS IT TERMINATED? A right of first refusal ends
137. For simplicity we will call the potential purchaser the Potential Purchaser.
138. "A right of pre-emption, or a 'right of first refusal' is not an absolute option but one which is conditional and contingent upon the will or desire of the owner to sell. Accordingly, it does not impede the owner's right to alienate the land; the sole right of the quasi-optionee being to accept or reject as a preferred purchaser when the owner is ready to sell ... A first refusal involves a negative contract obligating A not to part with the land without first offering it to B." Di Castri, above at footnote 44, at 6-7, paragraph 213. A right of first refusal is sometimes called a right of pre-emption. In British Columbia a right of first refusal is an equitable interest in land. The Property Law Act, R.S.B.C. 1979, c. 340, s. 9, provides: "A right of first refusal to land, also known as a right of refusal or right of pre-emption, created before or after this section comes into force is an equitable interest in land."
139. See Chapter 9 on Options to Purchase.
140. "The holder of the right [of first refusal] must meet the terms of the offer accepted by the giver of the right. In general, the holder of the right is entitled to a fair opportunity to meet the conditions of a third party offer if the owner decides to sell." See Di Castri, above at footnote 44, at 6-8, paragraph 213.
141. The owner can get a mortgage on the land, however. Section 25 of the Property Law Act provides that unless there is a contrary intention in the document, the landowner is free to mortgage land notwithstanding the registration of a right to purchase.
142. Either the Potential Purchaser must pay some consideration (money or money's worth) under the contract, or the contract must be under seal. This is a rule of contract law.
143. The Perpetuity Act, R.S.B.C. 1979, c. 321, s. 18. See the discussion of the rule against perpetuities in Chapter 5, Everything You Always Wanted to Know about Land ...
144. Or, if there is no period specified, the right of first refusal ends after the perpetuity period.
