The Canadian Bar Association

First refusal rights a sore point for separating spouses

Separating couples should stop asking courts to give them a right of first refusal over jointly held property, Toronto-area family lawyer Ella Aiaseh writes in The Lawyers Daily.

In the article, Aiaseh, an associate with Hummingbird Lawyers LLP in Vaughan, Ont., points out that the province’s top court ruled 25 years ago that it has no jurisdiction to grant such a right because both spouses are entitled to fair market value for their share of the property.

“If there are no disputes over ownership or prejudice to a party’s rights under the Family Law Act, family law litigants should accept that it is futile to oppose the sale of a jointly held matrimonial home,” she writes.

Still, Aiaseh says it’s not unusual for parties to fight, even when one spouse wants to buy the other out, giving them an apparently common goal. The dispute usually boils down to valuation, she adds.

The traditional solution to the problem has been for the selling spouse to put the house up for sale, and then force the buying spouse to match or better the highest bid from third parties. However, the volatility of the current real estate market has thrown a spanner in the works of that plan, Aiaseh notes.

“This formula can fail in a rapidly fluctuating market, such as the one found in parts of the country over the past year, including the Greater Toronto Area and Vancouver, where property prices rise 30 per cent a month in the winter and spring and then fall about 10 per cent a month the following summer. In these circumstances, a certified appraisal of the matrimonial home will likely not be an accurate reflection of its fair market value, as appraisals are retroactive and look at past sales,” she writes.

One older case involving a wife who listed the property at an unrealistic price and stymied the real estate agent’s efforts to sell, demonstrates the problems that can arise when the market is plunging, Aiaseh says.

The judge in the case ruled that the wife couldn’t make her own offer to purchase the home without giving the husband the same right, as that would amount to an effective right of first refusal. But she also acknowledged that the husband’s better financial position would allow him to beat her offer out of vindictiveness.

In the end, the judge ordered that, without an agreement, the home should be sold to an arm’s-length third party and barred both spouses from bidding without the consent of the other.

Aiaseh says family law litigants should take three lessons from the case:

  • Orders for the sale of a matrimonial home “should not include the ability of one party to meet or beat the best offer because such a detail must be disclosed to all potential third-party buyers,” skewing the market, she says
  • The court’s inability to grant a right of first refusal can cause one party to “try to frustrate the sale process to effectively gain that right by beating the best third-party offer at an opportune time.” In these cases, detailed orders that outline parties’ specific rights and obligations can help avoid further litigation, Aiaseh says.
  • Buying spouses who adopt a “logical approach to negotiating a fair and reasonable deal with the other spouse” stand the best chance of success, since first refusal can only be achieved with the consent of the other party.

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