Right of first refusal (ROFR): Overview, definition and example
What is a right of first refusal?
A right of first refusal (ROFR) is a contractual right that gives one party the first opportunity to enter into a transaction before the other party can sell or transfer an asset to someone else. Essentially, if the seller decides to sell or lease an asset, the party with the ROFR can match the terms of the offer and buy or lease it first.
Why is a right of first refusal important?
A right of first refusal is important because it provides a business or individual with the opportunity to secure an asset or opportunity before anyone else. It ensures that they have the chance to purchase or lease the asset on the same terms as any third party. For businesses, it can be a strategic tool to prevent the loss of assets or opportunities to competitors, while also ensuring that the terms of a deal are favorable before making a decision.
Understanding a right of first refusal through an example
Let’s say you own a commercial property and you have a lease agreement with a tenant. The lease includes a right of first refusal clause, which means that if you decide to sell the property, the tenant has the first chance to buy it before you sell it to anyone else. If you get an offer from a third-party buyer, you must present that offer to the tenant, who then has the option to purchase the property on those same terms. If the tenant declines, you’re free to sell the property to the third party.
An example of a right of first refusal clause
A typical ROFR clause might look like this:
"If the Landlord receives a bona fide offer from a third party to purchase the Property, the Tenant shall have the right to purchase the Property on the same terms as the third-party offer. The Tenant shall have 30 days from the receipt of the offer to exercise this right."
Conclusion
A right of first refusal allows a party to secure an opportunity to buy or lease an asset before anyone else, protecting their interests in cases where the asset might otherwise be sold or transferred to a third party. It’s a valuable tool in many business agreements, especially in real estate and partnerships, as it provides a safeguard against losing important assets.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.