What Is Right of First Refusal?
The Right of First Refusal, RoFR, is a contract-bound right enacted between two(2) parties- one being the owner of real estate or a business and the other being the holder of the right. The latter has the option to enter transactions involving the former’s business before anyone else.
It is also known as the ‘First Right of Refusal’, although the option to purchase is on the table, the rights holder is not obliged. A declined offer permits the obligor to entertain other deal propositions.
It also applies to other business interests, including sports, arts, and entertainment. Still, it is commonly used as a clause among lessees of real estate who get preferences for their residential buildings.
The RoFR only grants permission to property owners to proceed with business transactions with third parties when the RoFR holder declines the opportunity. Rights of first refusal are usually activated by individuals or organizations who want to see how things play out and gauge the security of the investment before committing to the venture. The holder of the rights shows interest in a later involvement rather than sticking their heads out from the outset, and RoFR has provisions.
There are options for variations to the standard contract with room for changes that specify the term of the contract (duration in which it holds), nominations for third-party purchases, exclusions, transactions that trigger the RoFR, time to respond, and so on.
Upon termination of the rights holders’ period, the seller is permitted to open negotiations with other buyers.
The upside of the RoFR is that it serves as a sort of insurance policy, giving security for the rights to the asset they are interested in.
On the flip side, it blocks the possibility for a bidding war between prospective buyers, thus keeping the price down.
Right Of First Refusal Example
Sure tenants request to be given the right of first refusal when signing a lease with a property owner to secure their residences. As such, in the event of the sale of the property, such tenants can wrap up the purchase before it becomes open to the public. Those who have settled in and love their neighborhoods thus do not have to relocate by this agreement.« Back to Glossary Index