On Friday, June 4, the Supreme Court of Appeals of West Virginia modified the “stranger to the deed” rule by holding in Klein v. McCulough, No. 19-0888, 2021 WL 2284071 (W. Va. Jun. 4, 2021) that the “stranger to the deed” rule does not apply to a right of first refusal provided to a non-party in a deed because such a right is neither a reservation nor an exception.

Background

Grounded in common law, the “stranger to the deed" rule, is strongly adhered to in most jurisdictions. The purpose of the “stranger to the deed” rule is to preserve the idea that deeds conveying land are between a grantor and a grantee, placing distrust in any attempt to convey interests to a third party “stranger” not party to the deed.

In the 1935 case Beckley Nat'l Exch. Bank v. Lilly and the 1950 case Erwin v. Bethlehem Steel Corporation, the Supreme Court of Appeals of West Virginia recognized the rule holding that neither a reservation nor an exception in favor of a stranger to the instrument can create a right or interest in the property conveyed. The Court recognized that a reservation of a right or interest in real property, to be valid, must only be made to one of the grantors of the deed. The Court has since clarified that a “stranger to the deed” is anyone not named in the premises or granting clause of a deed.

Modification to the Rule

In Klein v. McCullough, the Supreme Court of Appeals of West Virginia, modified their interpretation of the “stranger to the deed” rule finding that the rule does not apply to rights of first refusal. In Klein, a grantor conveyed a parcel of land to a grantee, however, there was a right of first refusal clause in the deed to a third-party. The land was later conveyed to two other individuals, without offering the third-party to the deed a chance to purchase the property. The Court found that rights of first refusal are exempted from the “stranger of the deed” rule and enforceable because such rights are neither a reservation nor an exception to the granting clause in a deed.

The majority in Klein expressed a willingness to abolish the “stranger to the deed” rule altogether because the rule has outlived the very reason behind why it was first established, but the issue was not an issue presented to the Court on appeal. Justice Armstead and Justice Wooten, in a concurring opinion, expressed resistance to abolishing the “stranger to the deed” rule in toto to protect certainty in title to real property and providing protection to bona fide purchasers. 

Looking Forward

Other courts have chosen to abolish the “stranger to the deed” rule in favor of a more modern approach in which the court looks to the intent of the parties in order to interpret deeds. The Supreme Court of Appeals of West Virginia’s opinion in Klein suggests that West Virginia is likely to follow suit in the future.

Rachel Ramezan, a Summer Associate with Steptoe & Johnson, contributed to this alert.