SALUTE TO THE HIGH SCHOOL GRADUATES OF 2017

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FIRST RIGHT OF REFUSAL?

By: Rabbi Max Sutton

Charles put his private home on the market for sale. Hymie, his next-door neighbor, was interested in the property and offered to match any price Charles received from the outside. By word of mouth, Charles found Ralph, a customer who was willing to pay 2.7 million dollars up-front for the property and go to closing within two weeks. Charles contacted Hymie and notified him of Ralph’s offer. Hymie agreed to match the purchase price, however, he requested a mortgage contingency contract with a thirty-day window to obtain a loan from the bank. Hymie reassured Charles that he was in good standing with the bank and was probably eligible to receive a loan, but Charles rejected Hymie’s offer in favor of Ralph’s immediate cash payment. Charles signed with Ralph and accepted a deposit for the sale.

Hymie was disheartened by the refusal of his long-time friend and neighbor, and he reached out to other community members to intervene on his behalf. As a result, Charles had a change of heart and verbally agreed to sell his property to Hymie with a mortgage contingency. Charles contacted Ralph and notified him of the latest developments and unilaterally sent him back his deposit.

At first, Ralph refused to hear any of the details of the story and was prepared to enforce his contract. Hymie got involved then, contacting Ralph and claiming that as a next-door neighbor he had first right of refusal of the property. He further insisted that by Torah law Ralph was required to walk away from the deal. At this point, Ralph did not want the argument to escalate and suggested the matter be resolved in Bet Din. The three signed on for the customary binding of arbitration and presented their cases to our Bet Din.

Who is entitled to purchase the property, Hymie or Ralph? How should the Bet Din rule and why?

TORAH LAW

According to the ruling of the Shulhan Aruch, a next-door neighbor maintains the right of first refusal in the event that the adjoining property to his home is up for sale. The rationale for this ruling is based on a verse in the Torah which requires one to go beyond the letter of the law at times, for the sake of his brother. Since a next-door neighbor stands to gain significantly from purchasing the adjoining property, it is incumbent upon an outside buyer to allow the neighbor the first right of refusal. In the event that the outside buyer purchases the property without legal confirmation from the neighbor, a Bet Din will elect to evict him from the property, and allow the neighbor to make the acquisition. The above ruling is subject to numerous provisions and restrictions and a competent halachic authority must be consulted before awarding a neighbor the right to purchase the adjoining property to one’s home.

In instances in which the seller will be at a disadvantage if he sells to the neighbor and not the outside buyer, the law of “first right of refusal” is not applicable. Numerous scenarios are discussed by the great Sages of the Talmud which illustrate common disadvantages, including a neighbor who is willing to match the purchase price of an outside buyer, but requests a mortgage contingency. If the outside buyer is ready to close immediately, the neighbor is denied the right to purchase. However, if the seller is willing to wait for his neighbor to come up with the funds needed, the outside buyer is required to step away from the deal in the meantime.

Leading halachic authorities debate whether the above ruling is applicable in instances in which the seller initially denied his neighbor on account of his mortgage contingency request, but later changed his mind in the neighbor’s favor. Early halachic sources rule that once the seller legally commits to an outside buyer who is willing to close immediately, he may not reverse his decision and sell the property to his neighbor. Since the outside buyer established a legal holding on the property, he is entitled to complete his purchase without moral concern for the neighbor. Although another reputable halachic opinion rules in contrary, this opinion is the one that prevails.

 As mentioned earlier, an outside buyer is evicted from the property if he halachically violated the rights of the adjoining neighbor. Nevertheless, in instances in which there is a halachic debate as to whether a neighbor is entitled to evict the outside buyer, the neighbor’s claim is rejected. Since the outside buyer is already in possession of the property, the neighbor may not claim rights of ownership in this instance. Rather the outside buyer currently in possession of the property keeps his purchase, relying on the prevailing halachic opinion to support him.

VERDICT Too Late

Our Bet Din ruled in favor of Ralph and denied Hymie, the neighbor, the right to purchase Charles’ home. As mentioned in Torah law, Ralph purchased the home only after Charles legally rejected Hymie because he was unable to close immediately. Since Charles was not required to wait for Hymie to get an approval for a mortgage, and since, furthermore, there was no guarantee that the bank would extend him a loan, the law of “first right of refusal” was not applicable here. Hence, although Charles later changed his mind, it was simply too late. Once Hymie lost the legal right to purchase, it could not be reinstated. Instead, Charles was required to accept the return of the deposit and close the sale of his property with Ralph. As mentioned in Torah law, leading halachic authorities would rule that although Charles was eventually willing to sell the property to Hymie his neighbor, by that point Ralph had no further moral obligation to Hymie and was completely entitled to his acquisition.