A right of first offer (ROFO) obligates the landlord or seller to offer a property or space to the ROFO holder before marketing it to any third party. The landlord must notify the ROFO holder, typically stating the price and terms they intend to seek, and give the holder a specified period, often 10 to 30 days, to elect to purchase or lease on those terms.
If the holder declines or fails to respond within the window, the landlord is free to market to others, typically with a constraint that any third-party deal must be at a price equal to or above the offered price for the ROFO to remain inactive.
A ROFO differs from a right of first refusal (ROFR) in the sequence and the nature of the holder's right. Under a ROFR, the landlord is free to market the property and negotiate a deal with a third party; once a deal is struck, the ROFR holder has the right to step into the transaction and purchase on the same terms the third party negotiated.
The ROFR holder benefits from the market having done the price discovery work, but exercises their right after the deal is done. Under a ROFO, the holder acts first, before any third-party marketing, but the offered terms are the landlord's proposed terms rather than market-validated terms.
Landlords strongly prefer ROFOs because they do not chill third-party marketing or require that a deal be restructured to accommodate a matching right.
In leasing contexts, ROFOs are most commonly granted to existing tenants on adjacent or contiguous space, giving the tenant the first opportunity to expand into that space before the landlord leases it to a new occupant. The ROFO is valuable to a growing tenant who needs optionality on additional space without committing to an expansion lease immediately; it is correspondingly costly to a landlord who may give up a higher-priced opportunity tenant in favour of the ROFO holder's right to match a lower price.
The economic cost of a ROFO depends heavily on market conditions: in a tight market with competing demand, the ROFO holder may exercise frequently; in a soft market, the right may be rarely triggered.
In investment sale contexts, ROFOs are negotiated by anchor tenants, institutional co-investors, or operating partners who want the first opportunity to acquire a property if the current owner decides to sell. A ROFO in a sale context typically specifies a notice and election period, a mechanism for determining the terms (the seller's proposed price, or sometimes an agreed appraisal process if the parties cannot agree), and the consequence of the holder's failure to exercise, which is usually that the seller may complete a third-party sale above the offered price within a specified window.
Properly drafted ROFOs survive ownership changes; poorly drafted ones can be extinguished by a transferee who argues the ROFO was personal to the original holder.
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