Yes, an estate absolutely must honor a Right of First Refusal (ROFR) on property. This obligation is not optional. The core problem arises from a direct conflict between an executor’s two primary legal duties. The duty to follow the will’s instructions, including the ROFR, clashes with the fiduciary duty to maximize the estate’s financial value for all beneficiaries, a standard of practice that governs all estate administration. This conflict can paralyze an estate, as the presence of a ROFR is known to deter outside buyers, with some studies showing it can suppress a property’s marketability and final sale price.
This article will give you the tools to navigate this complex situation.
- 📜 Understand the Rules: You will learn exactly what a Right of First Refusal is, how it gets triggered, and why it is legally binding on an estate.
- ⚖️ Balance Your Duties: You will discover how an executor must balance the duty to honor the ROFR with the duty to get the best price for the estate, and the consequences of failing.
- 🗺️ Follow a Step-by-Step Guide: You will get a clear, actionable process for handling a ROFR, from the first notice to the final sale, protecting yourself from legal trouble.
- ❌ Avoid Critical Mistakes: You will learn the most common and costly errors people make and how to avoid them, preventing family disputes and personal liability.
- ✍️ Draft an Ironclad Clause: You will find out the essential elements needed to write a ROFR that is clear, fair, and legally enforceable, preventing future confusion and conflict.
The ‘First Dibs’ Dilemma: What Exactly is a Right of First Refusal?
A Right of First Refusal is a legal right, created by a contract or a will, that gives a specific person “first dibs” to buy a property. The property owner cannot sell it to anyone else without first offering it to the person who holds this right, known as the ROFR holder. This right is not an order to sell; it is a dormant right that only awakens when the owner decides to sell and gets a real offer from an outside buyer.
The person who creates the right is the grantor (in this case, the person who died). The person who receives the right is the grantee or holder. When the grantor dies, the estate, managed by the executor or trustee, steps into the grantor’s shoes and is legally required to honor the ROFR.
How a ROFR Wakes Up: The Triggering Event
The ROFR is triggered when the estate’s executor receives a bona fide offer from a third party. A bona fide offer is a legitimate, serious offer from an unrelated person that the estate is otherwise ready to accept. This is the moment the holder’s dormant right matures into an active, enforceable option to buy the property.
However, not every property transfer is a trigger. A well-drafted ROFR will specify what counts. Transfers for estate planning, like moving the property into a trust or giving it as a gift to a family member, usually do not trigger the ROFR. The new owner simply takes the property with the ROFR still attached.
ROFR vs. ROFO vs. Option to Purchase: Knowing the Crucial Differences
Confusing a Right of First Refusal (ROFR) with similar-sounding rights is a frequent and costly mistake. Each one works differently and creates vastly different obligations for the estate and rights for the holder. Understanding these distinctions is critical for any executor.
An Option to Purchase is the most powerful of the three. It gives the holder the absolute right to force the estate to sell the property at a price that was set in advance. The holder controls the situation entirely.
A Right of First Offer (ROFO) is less aggressive. With a ROFO, the estate must first approach the holder and ask them to make an offer before putting the property on the open market. The estate can reject the offer, but it often cannot sell to someone else for a lower price.
| Right Type | How It Works | Who Has the Power? | |—|—| | Right of First Refusal (ROFR) | The estate gets an offer from an outsider. The holder can then match that exact offer. | The estate initiates by wanting to sell, but the holder can take over the deal. | | Right of First Offer (ROFO) | The estate must ask the holder to make the first offer before marketing the property. | The holder gets the first chance to negotiate, but the estate can reject the offer. | | Option to Purchase | The holder can force the estate to sell at a pre-agreed price, anytime they choose. | The holder has all the power to compel the sale. |
The Executor’s Tightrope Walk: Fiduciary Duties vs. Testator’s Wishes
An executor has a fiduciary duty, which is the highest legal standard of care. This means they must act with complete loyalty and good faith, putting the interests of the estate and its beneficiaries above their own. When a will includes a ROFR, this duty creates a difficult balancing act.
The executor’s primary job is to follow the instructions in the will. An executor cannot simply ignore a ROFR clause because it seems inconvenient or might result in a lower sale price. Ignoring a direct instruction in the will is a direct breach of fiduciary duty and can result in the executor being held personally liable for any damages.
The Central Conflict: Maximizing Value vs. Honoring the ROFR
At the same time, an executor has a competing duty to maximize the financial value of the estate for all beneficiaries combined. This is where the conflict arises. A ROFR can scare away potential buyers who don’t want to waste time and money on a deal that can be snatched away at the last minute. This “chilling effect” can lead to fewer offers and a lower final price, directly harming the other beneficiaries.
If the executor honors the ROFR and sells the property to the holder, the other beneficiaries might sue, claiming the executor didn’t get the best possible price. If the executor ignores the ROFR to chase a higher offer, the ROFR holder will sue for violating the will. This catch-22 means the executor’s only defense is a perfect, by-the-book process.
What Happens if an Executor Ignores the Right?
The consequences for an executor who violates a ROFR are severe. The holder of the right can go to probate court and ask a judge for several remedies.
The court can issue an injunction to stop the sale to the third party before it happens. If the sale has already gone through, a court might even have the power to reverse it. Most seriously, the court can hold the executor personally liable for any financial loss to the estate or the beneficiaries, meaning the executor would have to pay out of their own pocket. A judge can also remove the executor from their role for such a breach of duty.
A Step-by-Step Guide for Executors: How to Handle a ROFR Correctly
Following a strict, transparent, and well-documented procedure is the only way for an executor to safely navigate a ROFR. This process is not just about administration; it is the executor’s legal shield against lawsuits from unhappy beneficiaries.
Step 1: Find the ROFR and Notify the Holder
The first step is to carefully read the will and all related trust documents to find any ROFR clauses. Once confirmed, the executor must send a formal, written notice to the person who holds the right. This official notice acknowledges the right and creates a paper trail. It also gives the holder an early warning to get their finances in order, which can prevent delays later.
Step 2: Get a Professional Appraisal
Unless the will sets a specific price, the executor must sell the property for fair market value to be fair to all beneficiaries. To do this, the executor must hire a licensed, independent real estate appraiser to determine the property’s value. This appraisal is a critical piece of evidence that proves the executor is acting in the estate’s best interest.
Step 3: Secure a Third-Party Offer
With the appraisal in hand, the executor can seek offers from outside buyers. The process of getting a legitimate offer from a third party is what officially triggers the ROFR. The executor must find a buyer who makes a serious offer that the estate would otherwise accept.
Step 4: Formally Present the Offer to the Holder
Once a bona fide offer is received, the executor must immediately send another formal, written notice to the ROFR holder. This notice must include all the material terms of the third-party offer—not just the price, but also the closing date, financing contingencies, and any other important conditions.
The will should state how long the holder has to make a decision, known as the exercise period, which is typically 30 to 90 days. During this time, the executor cannot sell the property to the third party. To exercise the right, the holder must agree to match the third party’s terms exactly.
Step 5: Finalize the Sale Based on the Holder’s Decision
The ROFR holder has three options, and the executor must know how to respond to each one.
- The Holder Exercises the Right. The holder must give the executor a clear, written statement that they are exercising their right. The estate then abandons the deal with the third party and enters into a contract with the holder on the same terms.
- The Holder Waives the Right. The holder can decide not to buy the property and can sign a formal waiver. This written waiver is a crucial legal document that allows the executor to sell to the third party without any issues. Title insurance companies almost always require this signed waiver before they will insure the property’s title for the new buyer.
- The Holder Does Nothing. If the exercise period ends and the holder has not responded, their silence is treated as a waiver. The executor is then free to complete the sale to the third-party buyer.
Does the Right Survive Death? The Critical Question of Enforceability
An executor’s duty to honor a ROFR depends on one key question: does the right survive the death of the person who created it? The answer lies in whether the right is considered a personal right or a property right.
A personal right is tied to a specific person and dies with them. A property right, however, “runs with the land,” meaning it attaches to the property itself and binds all future owners, including the estate. Courts in many states presume a ROFR is personal unless the document that created it says otherwise. This is to prevent property from being tied up forever.
The magic words that turn a personal right into a property right are language stating the ROFR is binding on the grantor’s “heirs, successors, and assigns“. If this phrase is in the will or deed, the ROFR survives death and the estate must honor it. If those words are missing, the right likely died with the owner and is unenforceable.
How State Laws Create a Patchwork of Rules
While the general principles are similar, the specific rules for ROFRs can vary from state to state. This makes getting local legal advice essential.
- In Texas, a ROFR must be in writing to be valid under the Statute of Frauds. If an estate breaches a ROFR, Texas law automatically gives the holder an enforceable option to buy the property under the terms of the improper sale.
- In California, courts have ruled that a ROFR modifies a co-owner’s right to force a sale through partition. The co-owner must first follow the ROFR process before they can go to court to demand a sale of the property.
- Illinois takes a more structured approach in certain contexts, with state law sometimes defining the rules for a ROFR, which provides clearer guidance for parents and courts in custody agreements.
- In Florida, courts have made it clear that a ROFR cannot be defeated by a bulk sale. If an estate tries to sell a property as part of a larger package, it must determine a fair allocated price for the ROFR-encumbered portion and offer it to the holder.
Real-World Scenarios: How a ROFR Plays Out
Abstract legal rules make more sense when seen in action. These three common scenarios show how a ROFR works in real life and the direct consequences of an executor’s choices.
Scenario 1: The Family Farm Legacy
A father leaves his farm to his three children equally in his will. The farm is the main asset of the estate. His will gives his youngest son, who has worked the farm his whole life, a ROFR to purchase it. This is a common way to keep a legacy asset in the family while still treating all heirs fairly.
| The Executor’s Action | The Legal Consequence |
| The executor hires an appraiser to value the farm at $1.5 million. He then gets a $1.5 million offer from a developer. | This fulfills the fiduciary duty to establish fair market value and triggers the ROFR. |
| The executor formally presents the developer’s $1.5 million offer to the youngest son. | This correctly follows the ROFR procedure, giving the son the chance to exercise his right. |
| The son exercises his right, matches the $1.5 million offer, and buys the farm. | The estate receives the full market value, which is then divided equally among the three children. The son keeps the farm, and the other siblings get their fair share in cash. |
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Scenario 2: The Co-Owned Vacation Cabin
Two sisters, Maria and Sofia, inherit a vacation cabin as tenants in common. Their parents’ trust included a ROFR, requiring either sister who wants to sell her 50% share to first offer it to the other. Sofia wants to sell her share to her friend, David.
| Sofia’s Action | The Legal Consequence |
| Sofia gets a written offer from David for $100,000 for her 50% share of the cabin. | This is a bona fide offer that triggers the ROFR clause in the trust. |
| Sofia ignores the ROFR and signs a contract to sell her share to David. | Maria can sue Sofia for breach of the trust’s terms. A court could stop the sale or even reverse it, and Sofia could be liable for Maria’s legal fees. |
| Sofia correctly presents David’s $100,000 offer to Maria, who has 60 days to respond. | Maria can now choose to match the offer and buy Sofia’s share, keeping the cabin entirely in her control. If she declines, Sofia is free to sell to David. |
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Scenario 3: The Commercial Property with a Tenant
An estate inherits a small commercial building. One of the tenants, a local bakery, has a ROFR to purchase the building in their lease. The executor receives an offer from an investor to buy the building as part of a package deal with two other properties.
| The Executor’s Action | The Legal Consequence |
| The executor tries to argue that the bulk sale makes the bakery’s ROFR on a single building impossible to exercise. | This is incorrect. Courts, particularly in Florida, have ruled that a bulk sale does not extinguish a ROFR. The executor must honor the right. |
| The executor must determine the portion of the bulk price that applies to the bakery’s building and offer it to the tenant. | This is the legally required step. The executor cannot use a complex deal structure to get around the ROFR. |
| The executor fails to notify the bakery and sells the properties to the investor. | The bakery can sue the estate for damages and may be able to reverse the sale of their building. The executor is personally exposed to liability for this breach. |
Mistakes to Avoid: Common Errors and Their Painful Outcomes
Handling a ROFR is full of potential traps. Making one of these common mistakes can lead to lawsuits, personal liability for the executor, and lasting family conflict.
- Ignoring the “Successors and Assigns” Language.
- The Mistake: Assuming a ROFR dies with the original owner because you don’t see the magic words “heirs, successors, and assigns.”
- The Negative Outcome: If a court decides the intent was for the right to survive, selling the property without honoring it is a breach of duty. This could lead to the sale being reversed and the executor being sued.
- Accepting a Lowball Offer from the Holder.
- The Mistake: To keep peace in the family, the executor sells the property to the ROFR holder for less than its appraised market value without getting a third-party offer.
- The Negative Outcome: The other beneficiaries can sue the executor for breaching the duty to maximize the estate’s value. The executor could be personally liable for the difference between the sale price and the fair market value .
- Failing to Give Proper Notice.
- The Mistake: The executor casually tells the ROFR holder about a third-party offer over the phone or fails to include all the important terms in the written notice.
- The Negative Outcome: Improper notice does not start the clock on the exercise period. The holder can argue they were never given a real chance to exercise their right, potentially stopping or reversing a sale to a third party.
- Getting the Timelines Wrong.
- The Mistake: The executor doesn’t follow the exercise period specified in the will (e.g., giving the holder only 15 days when the will says 30).
- The Negative Outcome: A court will likely rule that the holder’s rights were violated. The sale to a third party could be invalidated, and the estate may be stuck in limbo until the process is done correctly.
Pros and Cons of a Right of First Refusal in an Estate Plan
For those creating a will or trust, deciding whether to include a ROFR requires weighing its benefits against its significant drawbacks.
| Pros (The Benefits) | Cons (The Drawbacks) |
| Keeps Property in the Family: It provides a clear path for a specific person, like a child who runs the family business, to keep a legacy asset. | Lowers Property Value: The existence of a ROFR can scare away potential buyers, leading to fewer offers and a lower final sale price. |
| Provides Fairness: It can balance the goal of keeping property in the family with the need to be fair to other heirs by ensuring the property is sold at market value . | Causes Delays: The ROFR process, with its notice periods and waiting times, adds significant delays to settling an estate. |
| Gives the Holder Security: The person with the right knows they will have a chance to buy the property before it is sold to a stranger. | Creates Family Conflict: It can create tension between the holder and other beneficiaries, who may feel the process is unfair or is costing them money . |
| Avoids a Forced Public Sale: It offers a private way to handle the sale of a co-owned property instead of going to court for a partition sale . | Complicates the Sale Process: The executor must follow a rigid, complex procedure, increasing the risk of mistakes and legal challenges . |
| Can Be Flexible: A ROFR can be drafted in many ways, such as setting a fixed price or a price based on an appraisal, to meet the family’s specific goals. | Can Lead to Litigation: Ambiguous wording or improper handling of the ROFR process is a common source of expensive and emotional lawsuits. |
FAQs: Must an Estate Honor a Right of First Refusal on Property?
Q1: Can an executor refuse to honor a ROFR? No. An executor is legally bound to follow the instructions in the will. Ignoring a valid ROFR is a breach of fiduciary duty and can lead to personal liability for the executor .
Q2: Does a ROFR mean the holder can buy the property at a discount? No. Unless the will specifically sets a fixed price or formula, the holder must match the fair market value offer made by a third party. Selling for less would be unfair to other beneficiaries.
Q3: What if the person with the ROFR can’t be found? The executor must make a diligent, documented effort to find them. If they cannot be located, the executor should ask the probate court for instructions on how to proceed, which may include notice by publication.
Q4: Is a ROFR passed down to the holder’s children if they die? It depends. If the ROFR includes language making it binding on “heirs and assigns,” then it can be inherited. If not, courts often presume the right is personal and dies with the holder.
Q5: Can a ROFR stop a property from being transferred into a trust? No. Transferring property to a trust for estate planning is not a “sale” and does not trigger the ROFR. The trust simply becomes the new owner, and the property remains subject to the ROFR.
Q6: What if the third-party offer includes non-cash items, like a land swap? This can be tricky. A well-drafted ROFR will have a clause that allows the value of non-cash items to be determined by an appraisal, which the holder can then match with cash.