In a June 4, 2021, decision, the West Virginia Supreme Court of Appeals determined that the defense of “stranger to the deed” did not apply to invalidate rights of first refusal contained in deeds in West Virginia.
The common law concept of “stranger to the deed,” with feudal roots, invalidates any deed reservation or exception in favor of someone not identified as a grantor or grantee in that deed. For example, if a deed from grantor “Mr. Smith” to grantee “Ms. Jones” attempted to except and reserve all oil and gas rights in “Col. Drake,” that exception/reservation would not be valid and the oil and gas rights would be conveyed to Ms. Jones. However, the West Virginia Supreme Court of Appeals determined that a right of first refusal in a deed is not an exception or reservation and, thus, is not invalidated even if held by a stranger to the deed.
To reach that conclusion, the court determined that reservations and exceptions are provisions in the deed that convey or attempt to convey property interests. Acknowledging confusion and overlap in the use of “except” and “reserve,” the court noted that “[w]hat is clear, though, is that our cases have described exceptions and reservations exclusively in relation to interests in real property being conveyed.”
A right of first refusal, though, is a contract right, one that comes into play only if the holder of the property rights decides to sell the property. A right of first refusal is “defined as a ‘pre-emptive right’ that ‘involves the creation of the privilege to purchase [real property] only on the formulation of a desire on the part of the owner to sell; and the holder of the right must purchase for the price at which the owner is willing to sell to a third person.’ … A preemptive right, such as a right of first refusal, ‘does not give the preemptioner the power to compel an unwilling owner to sell; it merely requires the owner, when and if he decides to sell, to offer the property first to the person entitled to the preemptive right at the stipulated price[.]’”
That difference was enough: “Examining the differences between reservations and exceptions on the one hand, and preemptive rights such as a right of first refusal on the other, we agree with the plaintiff’s argument that rights of first refusal are exempted from the ‘stranger to the deed’ rule. Accordingly, we hold that a clause in a deed giving a stranger a right of first refusal is neither a reservation nor an exception to the granting clause of the deed. Hence, the clause may not be considered void under the ‘stranger to the deed’ rule … .” (citations omitted).
The plaintiff had asked the court, during oral argument, to abandon the “stranger to the deed” rule altogether. But, while noting there exists some “appeal to this position,” the court refused to address the argument as it was not raised in the court below. “In summary, but for the well-founded principle requiring parties to present arguments to the trial court in the first instance, this court might have been impelled to abolish the ‘stranger to the deed’ rule.”