In the world of real estate, the term “right of first refusal” (ROFR) reflects a scenario that can significantly impact the buying and selling process of a home. Whether you currently own your home and are considering selling your property, you’re a tenant interested in purchasing the home you’re renting or you’re a potential buyer negotiating a deal, understanding how the right of first refusal works is going to be important.
The right of first refusal is a contractual agreement that gives a specific party—usually a tenant, neighbor or an interested buyer—a legally enforceable right to purchase a property that is being sold before its owner can sell it to someone else. Essentially, if a homeowner decides to sell their property, the holder of an ROFR has the opportunity to act before the sale can proceed.
This right is often outlined in leases, agreements between neighbors or contracts involving co-owners of a property. The key benefit of the ROFR is that it allows the holder to have a first crack at purchasing a property under the same terms that would be offered to a third party. Additionally, this right allows the holder to avoid the stress of having to compete with multiple bidders in a traditional sale scenario.
How does a right of first refusal work?
If a homeowner decides to sell their property, they must first present the terms of the sale to the holder of the right of first refusal. The holder then has a specified period, usually outlined in a contract, to decide whether to exercise their right and purchase the property on the same terms or to decline to exercise that right.
If the holder chooses to exercise their right, the sale proceeds with them as the buyer. If they decline or fail to respond within the allotted time, the homeowner is free to sell the property to another buyer under the same terms.
Given its potential impact on real estate transactions, it’s important that ROFR agreements are clearly drafted and legally sound. Ambiguities in a contract can lead to disputes, delays or even litigation. As a result, whether you’re considering entering into a ROFR agreement or you’re a property owner facing a sale, seeking legal guidance is ultimately wise.