Question 1

What is a right of first refusal?

Accepted Answer

A right of first refusal (ROFR) gives the holder the right to enter a transaction on the same terms as a proposed transaction with a third party before the owner can complete that transaction. The ROFR: applies to real property sales, lease renewals, and business interest transfers. The holder does not initiate: they react to a third-party offer. If the holder matches the offer: they acquire the property or interest. If they decline: the owner proceeds with the third party on the offered terms.

Question 2

What are the advantages and disadvantages of a ROFR?

Accepted Answer

Advantages: protection (the holder can acquire the property when it becomes available), price certainty (the holder matches a market-tested price), and no upfront commitment (the holder is not obligated to purchase). Disadvantages: chilling effect (third parties may not make offers knowing they can be matched), delays (the ROFR period delays the transaction), valuation manipulation (the owner may solicit artificially high offers to discourage the ROFR holder), and uncertainty (the holder does not know when or if the ROFR will be triggered).

Question 3

How is a ROFR different from an option?

Accepted Answer

Distinction: ROFR (the holder matches a third-party offer; the holder does not set the price; the ROFR is triggered by a third-party offer). Option (the holder has the right to purchase at a pre-set price; the holder sets the terms; the option is exercised at the holder’s discretion, not triggered by a third-party offer). The option: gives the holder more control (they can purchase at any time at the pre-set price). The ROFR: gives the holder protection but less control (they must wait for a third-party offer and match it).

Right of First Refusal

Right of First Refusal (ROFR)

How It Works

Pros and Cons

vs. Option

Related Terms

Barnes Walker Real Estate

Ready to Get Started?