The Disappearing Right of First Refusal and Potentially Other Property Interests

Iowa Court of Appeals Rules That Rights of First Refusal In Real Estate (And Potentially Other Property Rights) May Be Unenforceable Under Certain Circumstances

West Lakes Properties, L.C. vs Greenspon Property Management, Inc. has the potential to be one of the more unsettling Iowa court decisions affecting real property contract rights in a very long time. This recent Iowa Court of Appeals case affirmed a district court ruling that interpreted the 10 year marketable title statute set forth in Iowa Code section 614.17A to operate to render a contractual Right of First Refusal (“ROFR”) unenforceable.

Code Section 614.17A generally bars any action seeking 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 10 years;

2. The action is brought against the record-titleholder in possession; and

3. The record-titleholder and his/her immediate or remote grantors have held chain of title to the real estate for over 10 years.

To preserve a claim beyond the 10-year period, the claimant must timely file a written statement of extension every 10 years in the county land records.

As a direct result of the West Lakes decision, any and all holders of contractual ROFRs should be sure to timely file written statements extending the period of enforcement with the appropriate county recorder. Be aware that ROFRs may be contained within real estate contracts, leases, deeds, wills and even trust agreements.

While the West Lakes decision narrowly applied 614.17A to bar certain contractual rights of first refusal in property, the express code language is quite broad and again states that it applies to “any interest in or claim to real estate, legal or equitable, against the holder of the record title to the real estate in possession”. Moving beyond the specific ruling on ROFRs, this decision may be borrowed in subsequent cases challenging a plethora of “interests” and “claims” to real estate.

Does the West Lakes decision have any impact on the ability to bring an action related to real estate mortgages, assignments of leases and rents, long-term leases, easements, boundary agreements?

Only time will tell…

The Iowa Supreme Court declined further review of the Iowa District Court’s decision in West Lakes, and thus there will be no immediate clarification by the Iowa Supreme Court as to the true scope of this decision. This decision may likely prompt legislative action to provide property owners, interest holders, and their attorneys clarification as to the true scope of Iowa Code section 614.17A.

Again, the impact of the West Lakes precedent creates uncertainty as to currently existing and future contractual rights in real estate in Iowa. In an abundance of caution, it would likely be prudent to timely file verified claims  preserving all interests in property until the courts or legislature provide additional clarity on these items. If you have questions as to any steps necessary to preserve any interest or claim in real estate be sure to contact Ben Bruner of the Dickinson Law Real Estate Law Group as soon as possible. 

The material in these presentations is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.The opinions expressed in these videos are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

- Ben Bruner