Together We Win

What’s the right of first refusal in a real estate deal?

On Behalf of | Apr 25, 2022 | Real Estate Law |

The “right of first refusal” is a clause in a real estate contract that landlords often see in their commercial contracts, although residential renters may also ask for this in their contracts if they particularly love the property they’re renting. 

In essence, the right of first refusal is the grown-up equivalent of calling “dibs” on a piece of real estate.

How does the right of first refusal work?

The right of first refusal (ROFR) can be a bargaining chip that allows landlords to entice dedicated renters. When an ROFR is in place, that gives the party holding the ROFR the right to make a bid on the property before that property is sold to anybody else.

Renters love ROFRs because they don’t have to worry that a property where they live or have built their business will be sold out from underneath them without any kind of notice or chance to buy. In many cases, the price they must pay will be pre-negotiated. (In others, only the method for determining the price will be part of the deal.)

ROFRs don’t trap landlords into a never-ending situation, either. While they would have to give their tenants a chance to buy before they can sell the place to someone else, there’s usually only a short window of time built into the ROFR. If the tenant isn’t able to secure funding in that time or just fails to make up their minds, the agreement is void.

In real estate, there are all kinds of things that are negotiable. When there’s big money on the line, make sure that you have experienced legal guidance.