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What Is the Difference Between a Right of First Refusal and an Option to Purchase?

I often meet farmers and others involved in the agriculture industry that want to repurchase property that once belonged to their family.  With the ebb and flow of the agriculture economy, unfortunately bankruptcies do happen.  If you want to repurchase property that once belonged to your family, or are interested in property for any reason, but the seller is not currently interested in selling the property a Right of First Refusal may be a good initial step.

A right of first refusal at its most basic level preserves the right of the grantee (the person receiving the right of first refusal) to buy property.  It should be clear regarding the triggering events. The grantor of a right of first refusal will need to provide notice to the grantee when the seller is interested in selling or if the seller has received an offer to purchase the real property subject to the right of first refusal.  The right of first refusal should be clear regarding whether the grantee has the right to assign it.  Nebraska courts will find that the right of first refusal (until it ripens into an option as described below), is personal and cannot be assigned.  One can understand why this might be the case. If I grant a right of first refusal to someone that I don’t mind being neighbors with, I do not want them to be able to assign the right of first refusal to a stranger.

A right of first refusal will often be contained in a “Right of First Refusal Agreement”, which will be held in escrow with an attorney or third party.  A Memorandum regarding the right of first refusal should be filed with the Register of Deeds for the County where the real property is located.

An option to purchase should be more specific regarding the time frame when the grantee will be able to purchase the real estate.  It should contain the terms of the sale (including the price and any other key terms).

In Nebraska, a right of first refusal to purchase real estate becomes an “option to purchase” once the seller has decided both to sell the entire remaining property and to accept the terms and conditions specified by a potential buyer. Options are ordinarily assignable.  Thus, a provision in the option holder's acceptance reserving the right to assign does not constitute a material deviation from the offer provided by a third party.  Jones v. Stahr, 16 Neb. App. 596, 746 N.W.2d 394 (2008)

In the scenario I described above in which you want to purchase property, you could have the grantor sign a right of first refusal as an initial step and then ask them to sign an option to purchase once you have finalized the time frame for the purchase, the price, and other key terms.

A right of first refusal is a very helpful tool when you are interested in buying property.  If you would like to repurchase your family’s home place or ancestral property this can be an important first step towards achieving that goal.

Angela Madathil is a Real Estate lawyer licensed to practice in Kansas and Nebraska.  The Goosmann Law Firm has team members licensed in Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota, and other states.