Summary of a Recent
Judicial Development in
Commercial Transactions

Right of First Refusal Must Be in Writing
Pursuant to the Statute of Frauds

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Bravo Farms, LLC v. Battin, No. 26550-1-III, 2008 WL 3867162 (Wash. Ct. App. Aug. 21, 2008), the Court of Appeals of Washington, Third Division, held that a party had no valid right of first refusal to purchase real estate because such right, which is basically an encumbrance on the property, must be in writing pursuant to the statute of frauds.

Background

In negotiating a lease agreement for farmland, Bravo Farms sought to include a right of first refusal to purchase the land if the landowners decided to sell. Id. at *1. The landowners rejected the provision, and following a telephone conversation, the two parties decided not to enter into a written lease agreement. Id. When another farming operation offered to purchase the land and submitted a bid, Bravo claimed that it had a right of first refusal and brought an action against the landowners requesting specific performance of the right. Id. The trial court found that Bravo had an oral right of first refusal based on the conduct of the parties, but there was no completed agreement to purchase the land because terms were left to negotiation, so there was nothing on which to exercise the right, and Bravo appealed. Id.

Arguments

Bravo argued that it had a valid oral right of first refusal. Id.

Analysis and Holdings

The real estate version of the statute of frauds mandates that contracts for the sale or lease of real property must be in writing, including, under Washington law, "the conveyance of real estate, or any interest therein, and every contract creating or evidencing any encumbrance upon real estate . . . ." Id. at *2. The court reasoned that because the right of first refusal is essentially a limitation on the use and enjoyment of property, it was required to be in writing like easements and other encumbrances. Id. The court concluded that because Bravo had not made "substantial and valuable improvements" to the land sufficient to constitute partial performance, that exception to the statute of frauds was not applicable. Id. at *3. The court therefore held that Bravo had no valid right of first refusal. Id.

The case was decided on August 21, 2008.