Commentary

Rights of First Refusal: What You Need to Know

Rights of First Refusal: What You Need to Know

The best way to ensure that a right of first refusal is honored is to have a written contract clearly stating the right of first refusal, along with exactly how it will be executed.

Photo: Anne M. Eberhardt/The Horse

At Equine Legal Solutions, we are frequently asked about rights of first refusal in horse sales.

These inquiries typically come from former owners who are upset because they weren't notified before a horse was resold or otherwise transferred to a new owner. They want to know if they can get the horse back, but the answer is almost always no.

There are two main reasons why:

  • The right of first refusal wasn't in writing. Often, the original horse sale was conducted without anything in writing. Other times, the buyer received a simple bill of sale that doesn't include a right of first refusal. Either way, a verbal agreement will be very hard to enforce, particularly if there were no emails or other evidence supporting the existence of a right of first refusal.
  • The horse is already sold before the former owner finds out. In most states, when the horse has been sold to a third party who is unaware of the right of first refusal, the former owner has no legal case against the horse's new owner and, therefore, no way to obtain possession of the horse. Instead, the former owner has a legal case for damages against the person who granted the former owner the right of first refusal.

    However, damages are based solely on the monetary injury suffered by the former owner when the right of first refusal was breached. Emotional damages are generally not recoverable in such cases, so the basis for damages is the difference between what the former owner would have purchased the horse for under the right of first refusal versus what the horse's market value was at the time the right of first refusal was breached. Usually, the right of first refusal would have entitled the former owner to buy the horse at the same price the horse was offered to another buyer, so the monetary damages for breaching the right of first refusal would be zero.

The best way to ensure that a right of first refusal is honored is to have a written contract clearly stating the right of first refusal, along with exactly how it will be executed. For example, how much notice of a pending sale does the horse owner have to give the former owner? How long does the former owner have to respond? At what price can the former owner buy the horse under the right of first refusal?

A good right of first refusal clause also provides for liquidated damages in the event the right is breached. Liquidated damages represent a dollar amount the parties agree the breacher has to pay the rights holder if the right of first refusal is breached. Liquidated damages eliminate the problem of having to prove actual damages as described in the second scenario mentioned above.

If you are considering selling your horse and you want to ensure you retain some control over the horse's future, a long-term lease (with the terms put in writing!) might be a better option. That way, you retain ownership of the horse and, if you are dissatisfied with how your horse is being cared for, you can terminate the lease.

About the Author

Rachel Kosmal McCart

Rachel Kosmal McCart is the founder and principal attorney of Equine Legal Solutions, PC (ELS), an equine law firm based near Portland, Ore. McCart is a graduate of the Duke University School of Law and licensed to practice in four states: California, New York, Oregon, and Washington. She is also admitted to practice before the U.S. District Court for the District of Oregon. ELS represents clients in litigation, helps resolve equine disputes, drafts customized equine contracts, represents clients in horse industry disciplinary hearings, and incorporates equine businesses. Learn more at www.equinelegalsolutions.com.

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