Today, we're launching a new series of "Tuesday Mornings for the Construction Industry," which we'll be devoting entirely to the right of first refusal. We'll discuss the most important statutory rights of first refusal encountered in real estate transactions. Understanding the cases in which these rights apply is crucial – failure to comply with the obligations related to the right of first refusal constitutes grounds for declaring a sales agreement that disregards this right invalid.

preemption actually is – it gives a person the privilege to purchase an item or right (e.g., company shares) first if its owner intends to sell it to a third party. Reserving a right of preemption means that the item (or right) to which the preemption applies can only be sold to a third party if the holder of the preemption right does not exercise it (the holder of the preemption right may, but is not obligated to, exercise their right). In summary, a right of preemption is a right that undeniably limits the owner's freedom to dispose of their item. Importantly, a reservation of preemption can arise from a legal act (e.g., a contract, a will) or directly from statutory provisions .

The right of first refusal is non-transferable – it cannot be transferred through a legal act. It is also – with the exception of a few rare cases – indivisible , meaning that it cannot be limited to a portion of the property being sold, for example, only one plot of land covered by a conditional agreement. Furthermore, if there are multiple parties entitled to the right of first refusal , failure to submit declarations of intent to exercise the right by all entitled parties does not invalidate the exercise of the right of first refusal. In such a situation, the right of first refusal is exercised in its entirety by the remaining entitled parties.

Preemptive rights are primarily encountered in transactions involving real estate – in most cases, these are statutory preemptions. Due to the fact that a property encumbered with a preemptive right can be sold to a third party only if the holder of the preemptive right does not exercise it, the sale transaction takes place in the following three stages:

1. first, the owner (or perpetual usufructuary) of the real estate concludes a conditional sales agreement with the potential buyer – it specifies that the parties will conclude a final agreement, i.e. transferring ownership (or perpetual usufruct rights) provided that the person entitled to pre-emption does not exercise his right,
2. after concluding the conditional sale agreement, the seller or notary notifies the entitled person about the conclusion of the conditional sale agreement and its content, asking whether he or she exercises his or her right of pre-emption (as a rule, the right of pre-emption to purchase real estate can be exercised within one month, unless a specific act provides for a different deadline),
3. then, in the case of:

• a response that the entitled party does not exercise the right of pre-emption or after the expiry of the statutory deadline for the party's response, i.e. the owner (or perpetual user) and the (no longer potential) buyer conclude an agreement in the form of a notarial deed in which they transfer the ownership (or the right of perpetual usufruct) of the real estate from the seller to the buyer, under the terms specified in the conditional sale agreement,
• if the entitled person exercises the right of pre-emption, i.e. submits a declaration of will in the form of a notarial deed, the entitled person assumes the rights and obligations of the buyer under the conditional sale agreement and concludes a real estate transfer agreement based on this declaration, by virtue of a unilateral legal act.

The consequences of violating the pre-emption provisions by ignoring the entitled party's pre-emption right depend on whether the pre-emption right was violated, either statutory or contractual. In the event of a breach of the statutory pre-emption right to real estate, the sales agreement is absolutely null and void. The disposal of the property will not be effective, and the entitled party will continue to have the pre-emption right.

overlapping preemption occur . These occur when several parties have cumulative preemption rights based on different legal bases (e.g., statute, contract). In the event of a conflict between a contractual right of preemption and a statutory right of preemption, the statutory right prevails. However, to date, there is no clear answer as to who has priority in the event of a conflict between statutory rights of preemption. As a general rule, legal literature indicates that the goals these rights serve should be decisive – this issue can be resolved depending on which of them is given priority.

Following this introductory article on the subject of pre-emption, we would like to invite you to the next "Tuesday Morning for the Construction Industry", in which we will discuss the pre-emption right that a municipality has under the Real Estate Management Act and its exclusions.

This article is for informational purposes only and does not constitute legal advice.

Legal status as of April 16, 2024

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