Real Estate – Quiet Title Action – First Refusal Right

Plaintiffs are not entitled to quiet title in a Richmond City property because, even if there is a cloud on the title, plaintiffs did not properly invoke the right of first refusal agreement so that a Richmond Circuit Court could find that defendant declined to exercise his rights.

On March 17, 2005, plaintiffs entered into a right of first refusal agreement giving defendant a right of first refusal on several properties, including the subject properties at Meadowbridge Road and at West Grace Street.

On June 28, 2005, the individual plaintiffs deeded the Meadowbridge Road property to 3303 Meadowbridge LLC, and also deeded the Grace Street property and a second Meadowbridge property to 3117 Meadowbridge LLC. The deeds were recorded on July 5, 2005. Defendant subsequently recorded the right of first refusal agreement on Aug. 5, 2005.

On March 21, 2007, one of the individual plaintiffs sent defendant a letter saying they were planning to sell the properties and asking defendant to advise him of his actions within 60 days. On April 8, 2007, not having received a response to the letter, plaintiff requested defendant to modify the recorded first right of refusal letter filed in the circuit court.

At trial, defendant argued there was no cloud to be removed because the right of first refusal agreement was not recorded until after the deeds to the LLCs were recorded. An attorney who testified as an expert witness for the defense testified that since the agreement was recorded after the deeds, it was outside plaintiffs’ chain of title and created no cloud on their title. The court agrees but finds such an analysis unnecessary because the relevant chain of title in this case is that of the LLCs.

Since the properties are owned by the LLCs, plaintiffs individually no longer have any interest in the properties. The court finds plaintiffs do not have standing and therefore are not properly before the court. The court dismisses plaintiffs’ claims against defendant. The LLCs remain as the only proper parties to this action.

In this case, the agreement was not recorded until after the LLCs received title. Nonetheless, the fact that the agreement was not recorded does not mean the LLCs did not actually have notice of the agreement. Because the individual plaintiffs transferred the properties to LLCs in which they have membership interests, it may be justly inferred that the LLCs knew of the right of first refusal agreement with defendant.

In light of the LLCs’ actual notice of the right of first refusal agreement, the court finds they took the properties subject to such agreement and are bound by its terms.

However, the relevant question is whether a purchaser could discover the agreement in a title search of the properties. In performing a title search, a potential purchaser would look backwards and learn that the LLCs derived their title from the individual plaintiffs, whom the purchaser would likely recognize as the owners of the LLCs. The court believes that, in light of this fact, a reasonably diligent title searcher using a modern computer system would likely examine other transactions entered into by the individual plaintiffs around the time the property was conveyed to the LLCs. Since the agreement was recorded a mere month after the deeds, it could be easily discovered.

Finding as such, the court holds there is a cloud on the titles of the properties. Further, the right of first refusal has not been properly invoked by the proper owner of the property. Analysis of whether defendant declined to exercise his rights is unnecessary if the offer was not properly made. Therefore, the LLCs have provided no basis for removal of any cloud from the title.

Garraghty v. French (Snukals, J.) No. CL07-4685, March 20, 2009; Richmond Cir.Ct.; D. Hayden Fisher, Bryan W. Horn for the parties. VLW 009-8-049, 4 pp.