>
>
>Daily Development for Friday, April 2, 2004
>by: Patrick A. Randolph, Jr.
>Elmer F. Pierson Professor of Law
>UMKC School of Law
>Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri
>dirt@umkc.edu
>
>
>
>RIGHT OF FIRST REFUSAL; COTENANCY INTEREST: A right of first refusal is not triggered by a deed in lieu of foreclosure of a tenancy in common interest.
>
>Pelladini v. Valadao, 7 Cal. Rptr. 3d 413 (Cal. App. 2003)
>
>
>Pelladini obtained a right of first refusal on a parcel held by two cotenants. Later, one of the cotenants gave a deed in lieu of foreclosure to the other owner, who had taken a deed of trust on the first cotenants portion. Pelladini demanded the opportunity to match the offer under his right of first refusal, and to obtain the transferring cotenant’s interest.
>
>The court here held that Pelladini had no right to exercise the refusal option because there had been no sale of the property in which he had an interest - the ownership of the entire parcel. Sale by one cotenant to another did not result in a significant enough change in ownership to justify recognizing an interest in Palladini. Pelladini retained his refusal right should the remaining cotenant later elect to dispose of the entire interest.
>
>The court first acknowledged that the fact that the transaction was a deed in lieu of foreclosure did not insulate it from application of the refusal right. It pointed out that a foreclosure circumstance could always to manufactured to avoid application of a refusal right. Nevertheless, the refusal right was not triggered here because of another fact - there had been no effective change in ownership of the property subject to the right. The property was the entire property, not one cotenant’s interest in it, and that property remained in the other cotenant, still subject to the right.
>
>The court cited to a number of cases from different jurisdictions with interesting holdings on the point.
>
>A Utah case held that a right of first refusal was triggered when the property was conveyed to a partnership in which the transferor owned a 51% interest. The Utah court stressed that “for purposes of a right of first refusal, a ‘sale’occurs upon the transfer (a) for value (b) of a significant interest in the subject property ( c) to a stranger to a lease, (d) who thereby gains substantial control over the leased property.” Thus, the fact that the other owners in the partnership now had a significant interest in the property meant that a sale had occurred, even though the transferring partner had a controlling interest still.
>
>Cases in New Hampshire, Illinois, Tennesse, Nebraska and Kentucky had all held that transfers between cotenants did not trigger a right applicable to the whole property. Most of these cases involved tenant’s refusal rights in the leased property, owned by cotenant landlords. In the New Hampshire case, there were three cotenants, and the transfer affected only one cotenants interest. The other cases involved only two cotenants, like the case here.
>
>The court noted an Arizona case did find that a refusal right was triggered upon the sale of a cotenancy interest, but the distinguishing feature in that case was that the interest was sold to a stranger to the title, and not to the other cotenant.
>
>Comment 1: The case is obviously correct. Note one corollary a little more complicated. What if the owner of property subject to a right of refusal attempts to sell a partial interest to a third party? This is not literally the title to which the right applies. But if it is sold away, of course, then the question remains whether the right of refusal continues to exist, and to what interest?
>
>For an example of this situation, see , see the unreported decision in
>Rottier v. Walsh, 1999 Wisc. App. LEXIS 1053 (9/23/99), where the owner
>of several parcels of land subject collectively to a right of first
>refusal received an offer to buy only one parcel. The owner tendered
>this opportunity to the holder of the right, but the holder responded
>with a lawsuit to enjoin the sale of only one parcel. The holder
>argued that the property could not be sold at all except as an entire
>parcel. It was not fair to the holder to tender only part of the
>property on penalty of losing the right to exercise the right on the
>parcel as a whole. It further would have been unfair to the buyer of
>the parcel to require it to buy subject to a right of refusal, since
>the real purpose of the right was to preserve the holder's interest in
>the entire property, not just one parcel. And to permit the parcel to
>be sold free of the right would permit the owner ultimately to sell off
>both parcels and a
void the right entirely. The appeals court agreed (reversing the trial court). The sale could not proceed. In essence, the court held that an implied provision of a right of first refusal is that the land subject to the right cannot be sold piecemeal. Also see: Raymond v. Steen, 882 P.2d 852 (Wyo. 1994) (semble).
>
>Another situation might arise where property subject to the right is combined with other property and sold. Stuart v. Stammen, 590 N.W.2d 224 (N.D. 1999) (The DIRT DD for 11/19/99) held that an owner of property subject to right of right of first refusal may not eliminate a right of first refusal by selling more than the property subject to the right.
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>The editor, in a cursory search, couldn’t find authority contra to either of these results, but believes, that, in the foggy recesses of his long term memory, he has seen cases going the other way. When fog dissipates, however, what seemed real often is shown only to be apparent.
>
>Comment 2: Other related cases from the archives of the ABA Current
>Development reporter volumes: Power Test Petroleum Distributors, Inc.
>v. Baker-Trippi Realty Corp., 594 N.Y.S. 2d 266 (N.Y. App. 1993)
>(Absetn bad faith, the structuring of a conveyance of real property as
>a stock sale so as to avoid a lessee’s right under a right of first
>refusal does not trigger the lesseeps option.) Linden Bv.d L.P. v.
>Elota Realty, 601 N.Y.S. 2d 949 *N.Y. App. 1993) (Dissolution of an
>partnership and transfer of partnership interest to a general partner
>does not trigger right of first refusal.)
>
>
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