Opinion ID: 2585381
Heading Depth: 1
Heading Rank: 16

Heading: Fundamental Attribute of Property Ownership

Text: In the present case, the Park Owners believe that a valuable property right has been taken. Before engaging in a takings analysis, however, it must first be determined if property has actually been taken. William B. Stoebuck, Nontrespassory Takings in Washington § 1.7, at 7 (1980). As the Park Owners point out, `Property in a thing consists not merely in its ownership and possession but in the unrestricted right of use, enjoyment and disposal. Anything which destroys any of these elements of property, to that extent destroys property itself. The substantial value of property lies in its use. If the right of use be denied, the value of the property is annihilated and ownership is rendered a barren right.' Ackerman v. Port of Seattle, 55 Wash.2d 400, 409, 348 P.2d 664 (1960) (emphasis added) (quoting Spann v. City of Dallas, 111 Tex. 350, 355, 235 S.W. 513 (1921)), overruled on other grounds by Highline Sch. Dist. No. 401 v. Port of Seattle, 87 Wash.2d 6, 548 P.2d 1085 (1976). Washington courts have consistently recognized that the right to possess, to exclude others, or to dispose of property are fundamental attribute[s] of property ownership. Guimont, 121 Wash.2d at 595, 854 P.2d 1; Robinson v. City of Seattle, 119 Wash.2d 34, 50, 830 P.2d 318 (1992); Presbytery, 114 Wash.2d at 329-30, 787 P.2d 907. This notion is not unique. The United States Supreme Court has long held property consists of a group of rights inhering in the citizen's relation to the physical thing, as the right to possess, use and dispose of it. United States v. General Motors Corp., 323 U.S. 373, 378, 65 S.Ct. 357, 89 L.Ed. 311 (1945). Similarly, other jurisdictions recognize [t]he constitutional guaranty securing to every person the right of `acquiring, possessing, and protecting property,' ... includes the right to dispose of such property in such innocent manner as he pleases.... Ex Parte Quarg, 149 Cal. 79, 80, 84 P. 766 (1906); Tennant v. John Tennant Mem'l Home, 167 Cal. 570, 575, 140 P. 242 (1914); Laguna Royale Owners Ass'n v. Darger, 119 Cal.App.3d 670, 681, 174 Cal.Rptr. 136 (1981). Although a right of first refusal has no binding effect unless the offeror decides to sell, at such time it then legally constrains the owner. A right of first refusal to purchase is a valuable prerogative, limiting the owner's right to freely dispose of his property by compelling him to offer it first to the party who has the first right to buy. Northwest Television Club, Inc. v. Gross Seattle, Inc., 26 Wash.App. 111, 116, 612 P.2d 422 (1980), rev'd in part on other ground by, 96 Wash.2d 973, 634 P.2d 837 (1981) (citing 11 Samuel Williston, A treatise on the law of contracts § 1441A, at 949-50 (3d ed.1968)). Cases from other jurisdictions are also instructive. For example, a right of first refusal contained in by-laws of a condominium was deemed a property interest sufficient to constitute a covenant running with the land. Anderson v. 50 East 72nd St. Condominium, 129 Misc.2d 295, 296, 492 N.Y.S.2d 989, 990 (1985); see also Taormina Theosophical Community, Inc., v. Silver, 140 Cal.App.3d 964, 968, 190 Cal.Rptr. 38, 40 (1983) (striking down a right of first refusal in covenants as illegal restraint on alienation). A right of first refusal between joint owners was a sufficient interest in land to constitute a covenant running with the land which could be enforced against the co-owner's successors in interest so long as joint owner continued to own his interest in the property. HSL Linda Gardens Props., Ltd. v. Seymour, 163 Ariz. 396, 788 P.2d 129 (1990). Although a right of first refusal to purchase property is a preemptive right it has nonetheless been held to be an interest in property as well. It [a right of first refusal] is an interest in property, and not merely a contractual right, whereby the preemptioner acquires an equitable right in the property, which vests only when the property owner decides to sell. Ayres v. Townsend, 324 Md. 666, 674-75, 598 A.2d 470, 474 (1991) (citing Ferrero Constr. Co. v. Dennis Rourke Corp., 311 Md. 560, 565, 536 A.2d 1137 (1988)). In noting the practical effects of a right of first refusal, the Ferrero court observed: The third type of right of first refusal permits the preemptioner to purchase the property at a price equal to any bona fide offer that the owner, his heirs or assigns desire to accept. In this situation, however, many prospective purchasers, recognizing that a matching offer from the preemptioner will defeat their bids, simply will not bid on the property. This in turn will depress the property's value and discourage the owner from attempting to sell. Ferrero, 536 A.2d at 1144. That a right of first refusal, even one created by statute, can create an interest in property is illustrated by the case of Crowell v. Delafield Farmers Mut. Fire Ins. Co., 463 N.W.2d 737, 740 (1990). Minnesota created a statutory right of first refusal for owners of farms to protect them against a sale by a creditor enforcing a debt by requiring the creditor agency or corporation to give notice to the former owner and permitting that owner to meet the terms of a third party offer. Minn.Stat. Ann. § 500.24, subd. 5, at 568 (West 1990). The right of first refusal was a sufficient interest in land to provide the basis of an insurable interest for a debtor holding over even after expiration of the period of redemption. Unlike the present case, the Minnesota statute does not implicate takings because it regulates a creditor-debtor relationship. The diverse array of cases above clearly demonstrates that a right of first refusal, although a preemptive right for the grantee, can also constitute a property interest even as to a grantee. For the grantor, the power to grant a right of first refusal is part and parcel of the power to dispose of property. Until granted, such right remains indivisible from the bundle of sticks representing the valuable incidents of ownership along with the right to possess, use and exclude others. Relying on Robroy Land Co. v. Prather, 95 Wash.2d 66, 622 P.2d 367 (1980), the State attempts to avoid the inevitable conclusion that the right of first refusal in the hands of the property owner is a valuable property right. The State's reliance on Robroy is erroneous for three reasons. First, unlike the present case, the right of first refusal in Robroy was voluntary and given for consideration. 95 Wash.2d at 67, 622 P.2d 367. Second, the holding of Robroy deals with the definition of property for purposes of the rule against perpetuities. 95 Wash.2d at 69-70, 622 P.2d 367. It is inapplicable to a takings question. Third, Robroy analyzes the right of first refusal in the hands of the grantee, which is inapplicable when analyzing the grantor's property rights. Distinguishing a right of first refusal in the hands of a grantee is important because such a right is generally regarded as only preemptive. However, the right to grant first refusal is a part of the bundle of sticks [10] which the owner enjoys as a vested incident of ownership. As Philip Nichols explains, in The Law of Eminent Domain, property is often used to describe the corporeal object that is the subject of ownership, as well as the aggregate rights that an owner possesses in or with respect to such a corporeal object. 2 Nichols on Eminent Domain § 5.01[2][d], at 5-10 (3d rev. ed.1999) (footnote omitted). Property is not one single right, but is composed of several distinct rights, which each may be subject to regulation. [T]he right of property includes four particulars: (1) right of occupation; (2) right of excluding others; (3) right of disposition, or the right of transfer in the integral right to other persons; (4) right of transmission.... Nichols, supra, § 5.01[5][b], at 5-30 to 5-31 (citing Jeremy Bentham, The Principles of Morals and Legislation 248 (1948)). In holding the owner of an unexercised option to purchase land possessed a compensable property right, the Supreme Court of California observed: `[T]he right to compensation is to be determined by whether the Condemnation has deprived the claimant of a valuable right rather than by whether his right can technically be called an `estate' or `interest' in the land.' County of San Diego v. Miller, 13 Cal.3d 684, 691, 532 P.2d 139, 119 Cal.Rptr. 491 (1975) (quoting United States v. 53¼ Acres of Land, 139 F.2d 244, 247 (2d Cir.1943)); cf. Spokane Sch. Dist. No. 81 v. Parzybok, 96 Wash.2d 95, 633 P.2d 1324 (1981) (holding optionee suffered a loss of propertybe it only a contract rightand was therefore entitled to share in condemnation award). In Gregory v. City of San Juan Capistrano, 142 Cal.App.3d 72, 191 Cal.Rptr. 47 (1983), [11] several mobile home park owners challenged an ordinance which required owners planning to sell mobile home parks to first offer it to the residents. Finding this provision in the ordinance constituted an impermissible taking, the court reasoned: This part of the ordinance effects an outright abrogation of well-recognized property rights. The ability to sell and transfer property is a fundamental aspect of property ownership. Property consists mainly of three powers: possession, use, and disposition. ( U.S. v. General Motors Corp., supra., 323 U.S. [373] at 377-378 [65 S.Ct. 357, 89 L.Ed. 311 (1945) ].) ... This part of the ordinance simply appropriates an owner's right to sell his property to persons of his choice. City has thus `extinguish[ed] a fundamental attribute of ownership,' in violation of federal and state Constitutions. ( See Agins v. Tiburon, supra, 447 U.S. [255] at 262 [100 S.Ct. 2138, 65 L.Ed.2d 106 (1980)]). In addition, this part of the ordinance appropriates the owner's legally recognized right to sell a right of first refusal or preemptive right in the mobilehome park. It is well established that a preemptive right is a valuable property right which may be bought, sold, and enforced in a court of law. Capistrano, 142 Cal.App.3d at 88-89, 191 Cal.Rptr. 47 (some citations omitted). Viewed in the context of an owner's rights, it is apparent that Robroy should not control the outcome of this case. It is irrelevant whether the tenants gain a vested interest in the property. The question is not what the tenants gain, but what the park owner loses. Here, the statute deprives park owners of a fundamental attribute of ownership.