Definition
A Right of First Offer (ROFO) gives a specified party the opportunity to make the first offer to purchase a property before the owner markets it to third parties.
How It Works
- Owner decides to sell the property.
- Owner notifies the ROFO holder.
- ROFO holder submits an offer within a specified period.
- If accepted, transaction proceeds.
- If rejected, owner may market the property to others.
ROFO vs ROFR
- ROFO: Holder makes first offer before market exposure.
- ROFR: Holder matches a third-party offer.
ROFO is generally viewed as less restrictive than ROFR because it does not require matching an outside offer.
Where It Appears
- Joint venture agreements.
- Partnership buy-sell agreements.
- Commercial leases.
- Adjacent land development arrangements.
Why It Matters
- Provides acquisition opportunities to strategic partners.
- Encourages early negotiation.
- Maintains relationship alignment.
- May streamline private transactions.
Negotiation Considerations
- Time allowed to submit offer.
- Definition of “fair market value.â€
- Exclusions for affiliate transfers.
- Reset or re-offer provisions.
Transaction Impact
- May delay marketing timeline.
- Can reduce competitive bidding tension.
- Provides preemptive negotiation leverage.
Example
A joint venture partner holds a ROFO. Before listing the property, the managing partner must allow the ROFO holder to submit an offer. If declined, the asset can then be publicly marketed.
Common Pitfalls
- Ambiguous valuation methodology.
- Unclear notice procedures.
- Failure to define offer expiration timelines.
- Misalignment with partnership agreements.
Investor Checklist
- Identify ROFO rights during due diligence.
- Understand timing obligations.
- Evaluate effect on liquidity strategy.
- Confirm legal enforceability.