Right of First Refusal: A Comprehensive Guide
This comprehensive guide provides an in-depth look at the right of first refusal agreement and how it works when buying or selling a home. Explore scenarios, potential use cases, and learn about common amendments.
What Is Right of First Refusal?
Right of first refusal (ROFR), also known as preemptive right, is a contractual clause that allows individuals or businesses to have priority when negotiating the acquisition of an asset. This right may be exclusive, meaning that if the current owner wants to sell or lease their asset, they are first required to offer it to the holder of the right or it could be nonexclusive in which case the sale is offered to the public but subject to the rights of the holder.
How Does Right of First Refusal Work?
Under the law, this clause gives the potential buyer the right to “match” any offer for the asset, meaning they can purchase it at the same terms and price as the original offer. The original owner must inform the holder of the right of first refusal of the proposed offer which will then allow them to exercise their right and purchase the asset before anyone else. It's important to note that the clause may be limited in time and does not give the holder any pre-emptive right over the asset.
What Are the Benefits of Right of First Refusal?
There are several benefits of a right of first refusal agreement, including giving the holder the chance to acquire an asset at a great price whether it's a home, business, or other tangible asset. It also allows the holder to maintain control of the asset and prevent competitors from entering the picture. Additionally, it can provide a safety net for those who may not otherwise have the financial resources to acquire the asset. Finally, the clause can help parties ensure that the terms of any sale are agreeable.
What Should Parties Consider Before Entering an Agreement With Right of First Refusal?
Before entering a contract with a right of first refusal clause, it's important to consider the implications of such an agreement. You should carefully consider the timeframe for any proposed offer and set a time limit on how long the original owner has to notify the holder of the clause about any offers they have on the table. Additionally, parties should be aware of the differences between an exclusive and non-exclusive clause and understand exactly what rights the holder of the right will have with each type.
Conclusion
Right of first refusal can be an effective way for those looking to purchase or lease assets to secure their rights before other interested parties have the chance. However, parties should carefully consider the terms of the agreement before entering into a contract and be aware of both the benefits and potential drawbacks.