Definition
A Right of First Refusal (ROFR) is a contractual right that allows a specified party to match a third-party offer before the property owner can complete a sale or transfer.
How It Works
- Owner receives a bona fide third-party offer.
- Owner notifies the ROFR holder.
- ROFR holder has a limited time to match the offer.
- If matched, the ROFR holder purchases the property.
- If declined, the owner may proceed with the third party.
Where It Appears
- Commercial leases (tenant ROFR).
- Joint venture agreements.
- Partnership agreements.
- Adjacent property arrangements.
Why It Matters
- Protects strategic interests of tenants or partners.
- Provides expansion rights for anchor tenants.
- Offers investment protection in partnerships.
- May reduce marketability of property.
ROFR vs Right of First Offer (ROFO)
- ROFR: Triggered after third-party offer is received.
- ROFO: Holder gets first chance before property is marketed.
Impact on Transactions
- May delay closing timelines.
- May discourage third-party bidders.
- Can complicate underwriting and valuation.
- Often requires formal notice procedures.
Negotiation Considerations
- Time period to exercise right.
- Scope of assets covered.
- Transfer exclusions (e.g., affiliate transfers).
- Assignment rights.
Example
A retail tenant has a ROFR on adjacent space. When the landlord receives an offer from another tenant, the original tenant may match the terms and secure the expansion opportunity.
Common Pitfalls
- Ambiguous notice requirements.
- Unclear definition of “bona fide offer.â€
- Failure to properly trigger exercise timeline.
- Overly broad restrictions limiting liquidity.
Investor Checklist
- Identify existing ROFR obligations during due diligence.
- Assess impact on exit strategy.
- Review notice procedures carefully.
- Model potential delays in disposition.