Must a right of first refusal be recorded in order to defeat the claim of a buyer of real estate who recorded his own option to purchase?
According to a recent decision of the North Carolina Court of Appeals (Anderson v. Walker, No. COA 17-782, 3 July 2018), the answer is “No” in circumstances where the would-be buyer had actual knowledge of another person’s unrecorded rights.
The Court of Appeals ruled that a tenant who had negotiated “preemptive rights” in a lease renewal that also included a right of first refusal agreement (ROFR) was not required to record the ROFR in order to enforce it. The Court stated that “according to the plain language of the [recordation] statute, [N.C. Gen Statutes §47-18], a right of first refusal need not be recorded in order to be valid.” The would-be buyer argued that the tenant’s failure to record the lease or the ROFR which was part of the lease renewal was fatal to his claim, but the Court disagreed.
“A right of first refusal is enforceable against a subsequent purchaser for value who has ‘actual or constructive knowledge of the preemptive right'” the Court ruled. Constructive knowledge or notice may be disclosed in “muniments of record title” or otherwise “brought to the notice of the purchaser in such a manner as to put him upon inquiry.”
Ellinger Carr lawyers often work on commercial real estate transactions involving ROFRs, options to purchase, and purchase and sale agreements. Although the Court ruled in this case that the recordation of the ROFR was not required by the State statute, it may be a good idea to record the right of first refusal agreement in the land and title records. This is particularly true for rights that may not be exercised for many years, in order to put potential third party buyers on notice of the ROFR, in cases where the owner or seller forgets, or refuses, to give notice to the holder of the preemptive rights.
Ellinger Carr is a business law and commercial real estate law firm based in Raleigh, North Carolina. Ellinger Carr lawyers are experienced and knowledgeable counselors, transaction leaders, and business problem solvers, admitted to practice in North Carolina, South Carolina, Florida, Louisiana, Virginia and New York. For assistance in commercial real estate, corporate law and business development matters, please call 919-785-9998 or email Susan Ellinger at , Steven Carr at , Heather McDowell at , and Sarah Goodin at . 