right of first refusal

In a ruling that could benefit mineral owners who don’t regularly examine county deed records (to-wit, you?) the Supreme Court of Texas in Carl M. Archer Trust No. Three et al v. Tregellas held that the discovery rule delayed the running of the statute of limitations on behalf of the holder of a recorded right of first refusal to purchase mineral interests.

The trustees sued the Tregellases for buying the minerals without allowing the Trust to exercise its ROFR, contending that a contract was formed when they sued more than four years after the Tregellases’ purchase; the suit was their acceptance of the right to purchase the minerals, they said.

According to the Trellgases, the claim was barred by limitations because the suit was filed more than four years after the sale. The trustees responded that even if that were so, limitations should be delayed because they they had no obligation to search the county deed records.

The discovery rule described … Continue Reading Texas High Court Invokes the Discovery Rule

 

Question: Can a landowner enforce a right of first refusal bargained for by his predecessor? Answer: It depends. (Note to self: Why do you always say that in your posts?  Because, as Texas Rangers’ manager Ron Washington might say, “That’s the way the law go”.)  The answer in MPH Production Co. v. Smith et al, was yes, he can. But that’s not always the result.

The Horans owned land in Harrison County, Texas. In 1979, they sold their mineral rights in the property, but reserved a first right of refusal – the opportunity to purchase the rights on the same terms as any future prospective buyer. Two years later the Horans sold their interest in the surface to the Smiths.

Many years and many conveyances later, MPH purchased the minerals without first giving the Smiths the opportunity to match the offer. The Smiths attempted to enforce the right of first refusal and to purchase the minerals from MPH. MPH refused and the Smiths sued.

The issue was whether the first right of refusal was a covenant running with the land. If the right of the Horans – the original reserving party – to buy back the minerals was connected to the land, then the Smiths acquired the right when they acquired the surface.

The Law

In Texas, a covenant runs with land when:

(1) it touches and concerns the land,

(2) it relates to a thing in existence or specifically binds the parties and their assigns,

(3) it is intended by the original parties to run with the land,

(4) the successor to the burden has notice, and

(5) the parties are in privity of estate when the covenant was established.

Rights that do not run with land are personal to the parties to the agreement in which the rights were creted, and subsequent owners cannot enforce them.

The Law and This Case

The answer to the question depended on the intent of the parties in the 1979 deed, which did not state explicitly that the obligations of the grantees (MPH’s predecessors) would bind subsequent owners. Without this express reservation, the court had to rely on Texas case law implying restrictions by law. The court found that the Horans and the Smiths were in privity of estate, so that the Horans’ right of refusal was included in the “bundle” of rights transferred to the Smiths in the 1981 Deed. Thus, the answer to the question ws that the right of first refusal was a covenant running with the land.

The Takeaway:

If you are a party to a deed, say what you mean.  Courts look to the language of the agreement to divine the parties’ intent. If you want a reservation – or any other right or obligation – to be a covenant to run with the land, make your intent clear. Some lawyers would suggest that the parties specify that the rights apply to the grantor/ee, and their successors and assigns. Or that the deed say that it is the parties’ intention that this reservation be a covenant running with the land.

If you are buying minerals and see a right of first refusal in the chain of title, be mindful of this case.