Does This 2017 Iowa Decision Affect Your Real Property Contract Rights?

Every homeowner’s association or property management group is subject to certain covenants and restriction found in the real estate contracts. There is often a right of first refusal included in these contracts, providing the original seller with the right to deny the buyer from selling the property. The right of first refusal must be renewed within 10 years of when the interest appears of record by filing a written statement of extension in the county land records.

The following is an explanation of recent case law in Iowa dealing with “the right of first refusal.” In this case, the court held that an extension must be filed at the expiration of the ten-year period, or the right of first refusal is no longer enforceable under Iowa Code section 614.17A (2016). Section 614.17A applies to the facts of this case because the scope of the statute is an “interest in” real estate.

Westlake Properties LC v. Greenspon Property Management

No. 16-1463 Filed September 27, 2017 Westlaw link

Facts of the Case

Westlake Properties LC and Greenspon Property entered into an agreement to set up Greenspon’s purchase of Westlake’s property in 1997. An addendum to the purchase agreement provided Greenspon with the right of first refusal to purchase an adjacent lot. The notice of the sale and the right of first refusal were properly recorded in 1997. Westlake held onto that lot and eventually filed a quiet title action in April of 2016 alleging that Greenspon’s interest should be extinguished in accordance with 614.17A because they did not file a verified claim on or before ten years after the original filing.

Greenspon alleges that section 614.17A should not apply to the facts of this case because the claim arises under contract law, not against real estate. This case is used to decide whether the right of first refusal is “an interest or claim to real estate” subject to 614.17A and should be extinguished after ten years if it is not renewed.

Iowa Code § 614.17A

Section 614.17A(1) states ‘after July 1, 1992, an action shall not be maintained in a court, either at law or in equity, in order to recover or establish an interest in or claim to real estate’ if: (1) the claim arose or had been in existence for more than ten years; (2) the action is against the record-titleholder to the real estate in possession; and (3) the record-titleholder and his or her immediate or remote grantors have held chain of title to the real estate for over ten years.

Section 614.17A(2) allows renewal of the ten year period by filing a verified claim

Other Relevant Law

Restatement 3rd of Property defines rights of first refusal as “servitudes that directly restrain alienation of interests in land.” A servitude is “a legal device that creates a right or an obligation that runs with land or an interest in land.”

The Rule Against Perpetuities applies to right of first refusal. In Trecker v Langel, the objective of the Rule Against Perpetuities is to keep property freely alienable. 298 N.W.2d 289 (Iowa 1980). Under Iowa Code section 558.68, the Rule Against Perpetuities applies to “nonvested interests in property.” And in In re Estate of Claussen, it is held that option agreements are executory interests in property. 482 N.W.2d 381 (Iowa 1992). Option agreements and rights of first refusal are similar.

The marketable title act’s goal of improving the system for transferring real property should subject first-refusal rights to 614.17A’s recording demands. The majority of jurisdictions treat the rights of first refusal as a property interest and not merely contract rights. In In re Estate of Hord, a claim involving a future interest arises or exists when the interest appears of record, not when it vests, becomes possessory, or becomes actionable. 836 N.W.2d 1 (Iowa 2013).

Conclusion

A right of first refusal falls within the scope of an “interest in” real estate and must be renewed through a verified claim within ten years of its original and respective filing dates.

Greenspon’s property interest arose when the parties reached a contractual agreement regarding the right of first refusal on the adjacent lot and Greenspon recorded it in 1997. Greenspon’s failure to renew its interest before 2007 (ten years after the initial filing) led to its expiration.

If you have any questions about this case or the relevant case law, or are concerned about preserving any of your interests in real estate, please contact Jason Laughlin or Jeff Perkins at (515)608-4797. You can also email them at Jason@laughlinlawfirm.com or Jeff@laughlinlawfirm.com.

Are you succeeding in creating a SUCCESSFUL company?

If ever there was an era for the all-around Do-It-Yourself entrepreneur, this must be it. Any bit of information seems available to anyone willing and able to do some research via Google. By now, this practice has already engrained itself in the realm of legal services, which, for better or worse, has created wonderful new opportunities in addition to a fair share of unwelcome problems.

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One such example that keeps recurring is the case of the limited liability company (“LLC”) with an ill-fitting Operating Agreement. A member will come to us seeking help when they want to add a member, remove a member, their liability shield is challenged, or perhaps they’ve found a lender or financier who is seeking more thorough documentation. What we generally find is that the Operating Agreement is contradictory, doesn’t allow for the required action without some significant procedural hoops, or is simply silent on the matter. At the least, this can result in a significant amount of expense to remedy, and at the worst may result in a nullification of the act or an opportunity for a third party to “pierce the corporate veil” and reach into the pockets of the member – the very eventuality the entrepreneur was seeking to avoid. And these are just a small sample of the situations we encounter where the right customization at the forefront would have saved company money, preserved member relationships, and limited personal liabilities, at the back-end.

Of course, the irony of all of this is that the more success an LLC realizes, the longer it survives, and the inevitability of these situations becomes all that more real.

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Again, we understand the appeal of forming an LLC independently–it is cheap at the outset and going it alone seems to be commonplace these days given the pages upon pages of unique resources that share pointers on the formative process.

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Rarely does an online service or competitor’s advice spare a thought on where one’s specific goals intersect with devices like LLCs. Remember, the objective isn’t to successfully form an LLC, the objective is to make a success out of the LLC that you’ve formed. Hence, we don’t just use these tools to simply match the formula, we make the formula match your goals.

That starts with taking care to assess the demands that may arise so you can maximize benefits as your venture encounters issues associated with interpersonal relationships, expansion, employees, taxes, governance, maintenance, distributions, procedures, industry rules and regulations, industry customs, rules and regulations on raising capital­, etc. These are the concerns of a thriving LLC that should be taken seriously from the beginning, which is exactly why we operate our firm in that manner.

Indeed, the space in which we’ve found ourselves as practitioners is to encourage you, the informed entrepreneur, and to augment your vision with a service that empowers success. Give us a call or send us an email and let’s talk about it.

*Let’s be honest, if you weren’t one of the intrepid ones, you probably would not be making the leap into entrepreneurship.