How a Right of First Refusal Protects Family Farmland

One of the biggest challenges in farm estate planning is ensuring that farmland stays in the family for future generations. A key tool that can help us accomplish this is a Right of First Refusal (ROFR). At Wagner Oehler, Ltd., we incorporate this strategy into many of our farm estate plans to give farming heirs or other family members the first opportunity to purchase land if anyone wants to sell.

What Is a Right of First Refusal?

A Right of First Refusal is a legal provision that allows a designated individual—such as a farming heir or co-owner—the opportunity to buy a piece of property if the current owner decides to sell. This prevents farmland from being sold to third parties without giving family members a chance to keep it within the family.

When Should You Use a Right of First Refusal?

A ROFR is especially useful in farm estate planning when:

• A non-farming heir inherits farmland but may want to sell it later.
• Multiple siblings co-own land, and there is a concern that one may decide to sell their share.
• A farm transition plan needs to ensure that the farming heir has a viable path to ownership.
• You’ve inherited farmland and your sibling, niece, or nephew is farming and you’d like to make sure they get a chance at it if your children decide to sell.

Key Considerations When Drafting a ROFR

A well-drafted ROFR should include:

1. Who Can Exercise the Right – Specify which family members or co-owners have the option to purchase the land first.
2. Timeframe to Act – Clearly define how long the designated buyer has to match an offer or initiate a purchase.
3. Pricing Terms – Decide whether the price will be set by a third-party offer, an appraisal, or a pre-determined formula. Decide if there should be a family discount.
4. Payment Structure – Outline whether the purchase must be paid in full or if financing options (such as a contract for deed) are available.
5. Restrictions on Resale – Consider whether restrictions should be placed on the buyer to prevent an immediate resale at a higher price.

Family Value vs. Fair Market Value

One of the biggest mistakes in farm succession planning is assuming fair market value is always the best way to set the purchase price. In reality, family value—a price that ensures the farming heir can afford to keep the land—often works better and reflects the reality of legacy farmland. Using a discounted price or alternative valuation methods (such as tax-assessed value) can provide a more practical solution for family transitions. In so many cases, the land has been held in the family for generations. Prior generations seldom paid full fair market value to transfer the land from one generation to the next. Why should we suddenly impose it on the next generation?

How to Ensure a Right of First Refusal Works for Your Family

A Right of First Refusal should be carefully structured to align with your family’s goals and values. At Wagner Oehler, Ltd., we help farm families create customized estate plans that protect their land and provide smooth transitions for the next generation.

If you’re interested in learning how a right of first refusal can fit into your farm succession plan, contact Wagner Oehler, Ltd. today to schedule a consultation.

To learn more about farm succession and estate planning, keep an eye on our Events page located at: https://www.wagnerlegalmn.com/events/.

Want to stay informed? Subscribe to our quarterly newsletter for updates.

#FarmLawyer #EstateTax #FarmingMatters #WagherOehler #FarmEstatePlanning #MinnesotaFarmer