MBE Rules · Real Property
Options and Rights of First Refusal
Options, ROFRs, and RAP
The rule
Options in gross and rights of first refusal are subject to the Rule Against Perpetuities in traditional jurisdictions, but options appurtenant to a lease exercisable during the term are exempt.
In plain English
Options in gross and rights of first refusal must comply with the Rule Against Perpetuities, meaning they cannot last indefinitely and must vest within a certain time frame. However, options that are tied to a lease and can be exercised during the lease term are not subject to this rule and can last for the duration of the lease.
Worked example
Alice leases a commercial property to Bob and includes an option for Bob to purchase the property at a set price during the lease term. Since this option is appurtenant to the lease and can be exercised while the lease is active, it is exempt from the Rule Against Perpetuities. Therefore, Bob can validly exercise his option to purchase the property without any time restrictions.
Memory hook
Options tied to leases are free from the shackles of perpetuity!
The trap
Examiners may present scenarios where students confuse options in gross with options appurtenant to leases, leading them to incorrectly apply the Rule Against Perpetuities. Be careful to identify the nature of the option in the question.
How examiners test it
This rule often appears in questions that involve a lease with an option to purchase, testing whether students can distinguish between appurtenant options and those that are not.
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