Definition:
The right of first refusal (ROFR) is a contractual agreement that gives a person or group the first opportunity to buy a property before the owner can sell it to someone else.
Example:
Anna rents a condo from her landlord, who includes a right of first refusal in the lease. When the landlord decides to sell the condo, he receives an offer from another buyer. Before accepting it, he must give Anna the chance to buy the condo under the same terms. If she declines, the landlord can sell to the outside buyer.
Explanation:
A right of first refusal is commonly used in lease agreements, homeowners’ associations (HOAs), family-owned properties, or between business partners. It does not guarantee a purchase—it simply means the holder of the right gets the first chance to buy the property if the owner decides to sell.
Here’s how it typically works:
- The property owner receives an offer from a third party.
- The owner must then notify the person with the ROFR.
- That person has a set time to accept or decline the offer under the same terms.
- If they refuse or miss the deadline, the owner is free to proceed with the other buyer.
In some cases, the ROFR can also apply when a property is transferred through inheritance or gifting.
Why is Right of First Refusal Important in Real Estate Transactions?
The right of first refusal can give tenants, neighbors, or business partners an edge in purchasing property they’re already connected to. For buyers, it’s a valuable opportunity to secure a property before it goes on the open market. For sellers, it may limit flexibility but can build goodwill or fulfill prior agreements. Understanding ROFR ensures all parties are prepared if the property becomes available.