NC Court of Appeals: Taylor v. Miller- Validity of Right of First Refusal in a Deed

Summary: After Mr.  Taylor and Ms.  Miller separated, they executed a deed transferring real property to Mr.  Taylor but providing that if Mr.  Taylor later sought to sell the property, Ms.  Miller would have a right of first refusal, allowing her to either match the sales price or pay $41,500.00, plus subsequent costs of repairs and improvements to the property.  In June of 2009, Mr.  Taylor wrote to Ms.  Miller asking her to forego this right of first refusal.  Ms.  Miller did not respond.  Later that month, Mr.  Taylor again wrote to Ms.  Miller of his intention to convey the property to his son and his contention that the right of first refusal in the deed was invalid.  Ms.  Miller responded, through her attorney, that she was invoking her right to purchase the property for $41,500.00. Quoting Smith v. Mitchell, 301 N.C. 58, 61, 269 S.E.2d 608, 610 (1980), the Court of Appeals stated that "the minimal interference with alienability presented by a preemptive right does little violence to the primary reason for prohibiting restraints on alienation in the first place, and should not be per se void." Id. at 63, 269 S.E.2d at 611.  Despite the argument by Taylor to the contrary, the Court of Appeals held that Ms.  Miller’s unbounded time period for her right of first refusal at a fixed price was not per se invalid.  Instead, looked "to the circumstances existing at the time the contract was made to determine whether the price is reasonable." Determination of whether a right of first refusal is unreasonable is based on the following:

1. The duration of the right;
2. The provisions it makes for determining the price of exercising the right;
3. The reasonableness of option terms had to be  determined by all circumstances at time of creation of option;
4. That bare documents relating to option were not sufficient to assess reasonableness of price because they did not establish facts relating to nature of relationship between parties, precise nature of transactions, relationship of parties to property at time of execution of option, or reason behind option terms.

See  Texaco, Inc. v. Creel, 310 N.C. 695, 314 S.E.2d 506 (1984) and Witt v. Disque, 79 A.D.2d 419,  436 N.Y.S.2d 890 (1981). Accordingly, the Court held that Ms.  Miller’s right of first refusal was not unreasonable, particularly as it was primarily a result of a divorce and property settlement between the parties. Taylor v. Miller- Validity of Right of First Refusal in a Deed.PDF