A right of first refusal (ROFR) is a contractual right that lets a tenant, partner, or other holder match a bona fide third-party offer to purchase or lease the property. When the owner receives an outside offer they would accept, they must first present it to the ROFR holder, who then has a stated window (typically 30 to 60 days) to step into the offer on the same terms or decline. ROFRs are common in long-term leases, joint ventures, and ground leases.
ROFRs differ in important ways from rights of first offer (ROFOs). A ROFR is reactive — the owner finds a buyer first, then the ROFR holder gets the right to match. A ROFO is proactive — the owner must give the ROFO holder the chance to bid before marketing the property externally. ROFRs are stronger protection but more disruptive to the marketing process; ROFOs are easier on the seller but weaker for the holder. Sophisticated agreements often combine both.
The economic effect of a ROFR on the owner is real. Sophisticated buyers discount their offers on properties with ROFRs because they know the deal might collapse at the last minute when the ROFR holder steps in. Some ROFR-encumbered properties trade at noticeable discounts to comparable unencumbered assets. Owners considering granting a ROFR should understand they may be impairing future liquidity in exchange for whatever consideration the ROFR was granted to obtain.
Litigation over ROFRs is common because the trigger conditions are sometimes ambiguous. Does a sale of the parent entity that owns the property trigger the ROFR? Does a partial sale? Does a contribution to a joint venture? Carefully drafted ROFRs spell out exactly what counts as a 'sale' and what doesn't. The drafting matters: a one-line ROFR clause can become the most expensive provision in a lease if the parties later disagree about when it applies.
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