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Buy Back Clauses in Sales Contracts

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    Buy Back Clauses in Sales Contracts

    While procrastinating on Facebook, I came across an ad for what sounds like a nice horse for my husband. On a bit of further probing and some videos, he also looks to be a super horse for me for dressage. I asked around with a few people as he'd be quite recognizable in a small region and got some good feedback about the type of horse he is. He's at a very good price due to the owner injuring themself and needing to clear out some of their non breeding stock.

    The current owner bred him and sold him on, but then brought him back after the last home needed to get rid of him. From the sounds of it, he had a bit of a rough time and needed a soft landing.

    Due to this, his owner wants to put in the contract a first offer buy back clause in the sales contract. I've asked for a copy of the contract to see how it's exactly worded. I've never had to deal with this before and want to make sure everyone is going to be happy with it. I don't want to put all the work into him and turn him back into the competitive horse he was, get offered good money, and then lose it because the owner wants him back.

    Any had any dealings with these clauses? Thoughts? Would it make you walk away from a sale?

    Not my circus, not my monkeys!

    #2
    Originally posted by BrokenArrow View Post
    While procrastinating on Facebook, I came across an ad for what sounds like a nice horse for my husband. On a bit of further probing and some videos, he also looks to be a super horse for me for dressage. I asked around with a few people as he'd be quite recognizable in a small region and got some good feedback about the type of horse he is. He's at a very good price due to the owner injuring themself and needing to clear out some of their non breeding stock.

    The current owner bred him and sold him on, but then brought him back after the last home needed to get rid of him. From the sounds of it, he had a bit of a rough time and needed a soft landing.

    Due to this, his owner wants to put in the contract a first offer buy back clause in the sales contract. I've asked for a copy of the contract to see how it's exactly worded. I've never had to deal with this before and want to make sure everyone is going to be happy with it. I don't want to put all the work into him and turn him back into the competitive horse he was, get offered good money, and then lose it because the owner wants him back.

    Any had any dealings with these clauses? Thoughts? Would it make you walk away from a sale?
    Your concerns are valid.

    You are training and caring and paying all cost for the horse, you need to be the owner, not part owner with that requirement tacked on there.

    If the seller wants control, should lease, not sell the horse.

    In reality those contracts are rarely successfully contested, but why go there?

    Ask your attorney about this.

    What we do, we tell sellers to let us know if they need to move the horse and don't find a suitable buyer.

    A few have and we took the horse back and in some cases for full price, when the horse had devaluated, but for the horse's sake we did anyway.
    Once a lady bought a horse for local trail rides, six months later was diagnosed with cancer, DH called and we took horse right back.

    Legally, such contracts are not good ones, for the reason you indicate.

    Comment


      #3
      Forgot to add, maybe add to the contract you will let seller know if and when the horse may be for sale, but at the price the horse is at that time for sale.

      Comment


        #4
        I would agree to a buyback in the form of a 'right of first refusal'; that is, if you decide to sell the horse at some future date, you will first offer it to the previous owner at the price YOU determine, and they are free to accept your price or pass, at which point you can sell the horse to anyone who pays what you're asking. Unless I was buying a pasture pal or otherwise hard to move horse that I didn't intend to put any work into, I would not agree that I could only sell back to the previous owner, or where I had to first offer to sell back for the price I paid.
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          #5
          Agree with above. Also, would want a timeframe for them to decide if they're going to exercise their "right" of first refusal.
          "I'd rather have a horse. A horse is at least human, for god's sake." - J.D. Salinger

          Comment


            #6
            Originally posted by starhorse View Post
            Agree with above. Also, would want a timeframe for them to decide if they're going to exercise their "right" of first refusal.
            I agree with the need for a timeframe. Had a friend who had something like this in the sales contract, and when she went to sell, the previous owner threatened to take her to court because she didn't receive "adequate time" to consider the horse (she had 2 weeks and several emails - believed to be purposely slowing down the process and being a general PITA). Ultimately nothing came of it, but I think you can never be too concise in situations like this.

            Comment


              #7
              Agree to structure this as a ROFR rather than "buy back", where the former owner can match the offer in hand, or decline. Give them a very short window to decide, it's not fair to keep the other buyer waiting too long. I would:

              1. Provide advance notification to former owner-- say 14 day-- that the horse will be up for sale at $xx listing price. This is essentially a courtesy to give them time to make arrangements if they are pretty sure they want to buy him back.
              2. Let's say you find a buyer. You present the former owner a written bona fide offer, with 5-day timeline to match offer. Talk to your lawyer to determine best way to structure this, to make sure they have skin in the game. (in other words, how do you make sure they are making a binding commitment to purchase vs just killing the sale to the other person, and then the former owner withdraws offer. leaving you stuck with no money and no buyer).
              3. Former owner has ZERO say in your selection of buyer. Their decision is strictly limited to whether to match the dollars or not.

              Comment


                #8
                Originally posted by HungarianHippo View Post
                Agree to structure this as a ROFR rather than "buy back", where the former owner can match the offer in hand, or decline. Give them a very short window to decide, it's not fair to keep the other buyer waiting too long. I would:

                1. Provide advance notification to former owner-- say 14 day-- that the horse will be up for sale at $xx listing price. This is essentially a courtesy to give them time to make arrangements if they are pretty sure they want to buy him back.
                2. Let's say you find a buyer. You present the former owner a written bona fide offer, with 5-day timeline to match offer. Talk to your lawyer to determine best way to structure this, to make sure they have skin in the game. (in other words, how do you make sure they are making a binding commitment to purchase vs just killing the sale to the other person, and then the former owner withdraws offer. leaving you stuck with no money and no buyer).
                3. Former owner has ZERO say in your selection of buyer. Their decision is strictly limited to whether to match the dollars or not.
                If OP has to sign to something like this in the sales contract, this above would work.

                I would shorten the time, as selling a horse is time sensitive.
                You may have someone make an offer even when the horse is not on the market and decide to take it and there is not much time to decide right then.
                I would maybe just give three days from notification confirmation, but then, what if you can't find the previous seller to contact quickly, phone not working, a change of number or address or email, etc.?

                I would first try to leave such off the contract.
                If not possible, see if some plan B about how to manage that seller's request could be acceptable to you.

                Comment


                  #9
                  I am one to cringe at things like a seller insisting on buy back rights but in the situation the OP describes it sounds like the seller is simply being responsible for a horse that they have already had to rescue out of a bad spot once. I am betting that a simple conversation with them and some of the good wording mentioned above and all will be fine.

                  Comment


                    #10
                    I think their intentions are good, they want to make sure this gelding that they bred never ends up in a bad place. But I understand your concerns as well. Instead of a buy back, it should be phrased as a 'right of first refusal AT FAIR MARKET VALUE' - ie, you can sell him on but need to offer them first dibs on buying him back at worth market value deems he is worth. Then when your buyer signs the contract, the same clause will be in there, that his breeder will get first right of refusal at market value.

                    Comment


                      #11
                      On the plus side, this could mean if he doesn't work out or comes up sore, you might have a ready retirement home for him. With how fragile horses are, I would consider the benefit of having a ready soft landing to be of more value than potentially not being able to profit from a sale (but I do see your point as well).

                      I would wait and see what they put in the contract before worrying too much. You may not want them to think you are taking him to flip him, as they might not want to sell him to that sort of home if they already had to "rescue" him once. They might simply want you, or any future owners, to know to contact them if he should need a home.
                      Freeing worms from cans everywhere!

                      Comment


                        #12
                        Tell the previous owner that you are going to sell at $$$ and give them the opportunity to buy or not. If they don't buy, the horse goes on the market and the previous owner had nothing to do with it. That is my understanding of Right Of First Refusal.

                        IME, usually a verbal contract.

                        If the previous owner can't make up their mind when the offer is first made, tough. No one expects to umm and ahh about a car, or a plant in the nursery, or booking a hotel room and then get the same deal weeks later.
                        "Good young horses are bred, but good advanced horses are trained" Sam Griffiths

                        Comment

                          Original Poster

                          #13
                          Thanks everyone.

                          I've backed out of the sale as she won't budge on the contract which states she can buy him back at the sale price if we decide to no longer keep him. Considering he might be a mid 5 figure horse when back in work, on top of the fact I was leaning towards having him as a flip project, I don't think it's worth the hassle. Now I know why he's been for sale for so long at a rock bottom price.

                          It's a little disappointing especially after my farrier did a little more digging for me and found out some more information. He's a super horse, competitive 1.15m - 1.2m jumper, that was just in the wrong hands before the owner took him back. But ultimately if the owner is going to be difficult, then I don't want the headache.
                          Not my circus, not my monkeys!

                          Comment


                            #14
                            on top of the fact I was leaning towards having him as a flip project,
                            well then I agree with the present owner about their first right of refusal and their contact wording .... it appears to have done the intended job of deflecting a flipper

                            Comment


                              #15
                              DId you investigate whether or not that aspect of a contract is enforceable?

                              Comment

                                Original Poster

                                #16
                                Originally posted by seriously? View Post
                                DId you investigate whether or not that aspect of a contract is enforceable?
                                No, I haven't. It's the owner's choice that she wants him to not go somewhere else where he may end up sold. I respect that. She had to get him out of a rough place already and I know how I'd feel if that was one of the babies I had bred.

                                But for me and the area I live in, horses of his jumping capability sell for good money. I still have some contacts from when I took horses on consignment that do a regular ask around of "Hey I need XXX for a client, got or know of anything?" So having the ability to have a horse I can move, if I needed to, is very beneficial. Especially when looking at buying our own acreage soon. No matter how much I like this horse, I'm not going to pull a dodgy move on a breeder who's only looking out for her horse's best interest. It doesn't suit my needs so I'll keep looking.
                                Not my circus, not my monkeys!

                                Comment


                                  #17
                                  Good ideas above. So many of these clauses are unworkable because nothing is said about price, or how long the former owner has to give an answer.

                                  Also add something that it is up to the seller to keep the buyer updated as to any changes in their contact information. The new owner is only required to attempt to contact through the latest information. The new owner is not required to launch an investigation to find the former owner and offer ROFR.

                                  An interesting aspect of such clauses is that if the former owner does decline to exercise a ROFR and the horse is sold on, the former owner technically loses contact with the horse. The next new owner has no obligation to ever offer the horse to them, or to contact them at all if the horse is sold again.

                                  So regardless of clauses, a sale is a sale, and the former owner is no longer in control of the horse's fate. I've always thought that sellers who want ROFR clauses should keep ownership of the horse and arrange leases instead. They can't have the money from the sale *and* rights over the horse, too. It's one or the other, practically speaking. That's what a sale is.

                                  Another alternative for the former owner is to put a note in the folder with the horse's papers to contact them if a future owner ever needs to hand this horse off to a soft landing. I know one case where this did happen, and a small pony spent his last years back at his original peaceful grassy home.

                                  Comment


                                    #18
                                    Originally posted by seriously? View Post
                                    DId you investigate whether or not that aspect of a contract is enforceable?
                                    What do you mean by "enforceable"?

                                    There is no contract police to hunt down the current owner and make an arrest if said owner sells the horse without honoring the ROFR clause.

                                    ROFR clauses can vary a great deal, so there is no universal answer of how valid one is, and it will depend on how it is written. But the realistic answer is that it is rarely ever *practical* to 'enforce' it. And such clauses are routinely ignored, with no consequences, often not even awareness by the previous owner that the horse has been sold again.

                                    To 'enforce' the clause, the former owner would have to first discover that a sale occurred. Then they would need to find hard evidence that the owner/seller did not try hard enough to reach them and offer the ROFR (perhaps they tried unsuccessfully to reach the previous owner). How could one prove anything when the owner/seller declines to share that information, one way or the other? Then they would have to write all this up in legal form and file it in the proper court, and perhaps pay an attorney $300-whatever an hour to do this. Then they have to follow up and follow up - or pay the attorney to do it. And so on ... and on ....

                                    And in the end, how is the court to fix the situation? How will the aggrieved former owner show a court what monetary damages they suffered? And so on ... and on ...

                                    Theoretically, some people with deep pockets could use the courts to cause subsequent owners a lot of anxiety and trouble. But, realistically, very few people will expend that much money and time to *attempt* to pursue some sort of remedy. Practically, ROFR clauses are a firm request to offer one, and that's all.

                                    Comment


                                      #19
                                      Originally posted by OverandOnward View Post

                                      What do you mean by "enforceable"?
                                      "If you took the issue to small claims or civil court, depending on the amount involved, would a judge find the contract legally enforceable?"

                                      Even if you sign it, it doesn't matter if the clause in question isn't legal, and I honestly don't think in most states a clause forcing you to sell your property back to a prior owner at the same price you purchased it for regardless of your having increased its fair market value is going to be considered valid. If you purchased it, the court doesn't care if it's a horse or a house--the OWNER, not the previous owner, is in control of the property and can sell for their price. (Even ones "requiring" you offer the horse back at a price you the NEW owner set are a little dubious, but less likely to wind up in litigation.) Now most people are probably not going to go to court over a horse unless we're talking at least high five figures, but if you cal it a sale, you can't expect to demand that the person who took the green bean you bought out of the feed lot and turned them into a solid 3'6" packer with a show record may ONLY ever sell their horse back to you for the $1500 they paid you for it when the fair market value would require at bare minimum adding a zero. If you sold the horse, admit you sold the horse, and didn't do a long-term lease or a loan, at the end of the day you no longer can dictate what the new owner does.

                                      I mean, if you buy a plot of land with scrub and a single-wide that's falling apart for $20,000, clear it, build an energy-efficient two-story house with a landscaped yard and a pool, would you be okay signing a contract requiring that if you ever want to sell it, you have to contact the old owner and offer it to them at $20,000 before you can market it? Would you consider that owning the property in the first place? Would a court consider that a sale?

                                      And again, if you have someone sign a contract, a count can simply find it invalid. This has happened in cases where someone signed a non-compete agreement, and the court found the restrictions were illegal (you can't set unreasonable restrictions, like a two hundred fifty mile radius for your non-compete or a lifetime or unreasonably long time period like twenty or thirty years.)

                                      Sure, the buyer has the option not to buy. But the seller needs to consider that what they're offering isn't really a sale at that point. They want to maintain control, though not care and expense, so what they really want is a long-term lease where they refund the fee on termination.
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                                        #20
                                        Originally posted by danceronice View Post

                                        "If you took the issue to small claims or civil court, depending on the amount involved, would a judge find the contract legally enforceable?"

                                        Even if you sign it, it doesn't matter if the clause in question isn't legal, and I honestly don't think in most states a clause forcing you to sell your property back to a prior owner at the same price you purchased it for regardless of your having increased its fair market value is going to be considered valid. If you purchased it, the court doesn't care if it's a horse or a house--the OWNER, not the previous owner, is in control of the property and can sell for their price. (Even ones "requiring" you offer the horse back at a price you the NEW owner set are a little dubious, but less likely to wind up in litigation.) Now most people are probably not going to go to court over a horse unless we're talking at least high five figures, but if you cal it a sale, you can't expect to demand that the person who took the green bean you bought out of the feed lot and turned them into a solid 3'6" packer with a show record may ONLY ever sell their horse back to you for the $1500 they paid you for it when the fair market value would require at bare minimum adding a zero. If you sold the horse, admit you sold the horse, and didn't do a long-term lease or a loan, at the end of the day you no longer can dictate what the new owner does.

                                        I mean, if you buy a plot of land with scrub and a single-wide that's falling apart for $20,000, clear it, build an energy-efficient two-story house with a landscaped yard and a pool, would you be okay signing a contract requiring that if you ever want to sell it, you have to contact the old owner and offer it to them at $20,000 before you can market it? Would you consider that owning the property in the first place? Would a court consider that a sale?

                                        And again, if you have someone sign a contract, a count can simply find it invalid. This has happened in cases where someone signed a non-compete agreement, and the court found the restrictions were illegal (you can't set unreasonable restrictions, like a two hundred fifty mile radius for your non-compete or a lifetime or unreasonably long time period like twenty or thirty years.)

                                        Sure, the buyer has the option not to buy. But the seller needs to consider that what they're offering isn't really a sale at that point. They want to maintain control, though not care and expense, so what they really want is a long-term lease where they refund the fee on termination.
                                        No one suggested that the clause would be "at the same price".

                                        That's one of the major problems with those clauses. No price is mentioned. The current owner tends to be uncomfortable and uncertain about what they are expected to do, re the price for "buyback" or "right of first refusal". It's easier just to ignore the whole thing, and most of them seem to do just that.

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