What is First Right of Refusal in Real Estate: A Comprehensive Guide

Understanding the concept of "First Right of Refusal" in real estate is crucial for both buyers and sellers. This article aims to provide a simple and easy-to-understand explanation of what this term means, its benefits, and the conditions under which it can be used.

Key Points:

Definition and Meaning:
- First Right of Refusal (FROR) is a contractual agreement that grants a specific party the first opportunity to purchase a property before the owner can sell it to someone else.
- It gives the holder of the right the option to match any offer made by a third party and proceed with the purchase.
Benefits of First Right of Refusal:
- Protection for the Holder: The holder of the FROR is given an exclusive opportunity to buy a property, ensuring they won't lose out on a potential investment or a desired location.
- Control for Property Owners: Sellers can maintain a sense of control over the sale process by offering the FROR to a specific party of their choice before considering other offers.
- Enhanced Negotiating Power: The holder of the FROR can negotiate the terms of the purchase, including price, financing, and closing

For example, a commercial tenant may prefer to lease a location; however, he may buy the premises if it meant that he would be evicted if the property sold to a new owner. In such a case, the tenant would negotiate to have a right of first refusal clause incorporated into his lease.

Table of Contents

Is right of first refusal good or bad?

Is the right of first refusal a good idea? The right of first refusal can be a good idea in that it allows a potential buyer to have first dibs on a property, providing a sense of security and control. Sellers don't have to worry about listing the property and can save it for preferred buyers.

What is a first rights of refusal deal?

A right of first refusal is a fairly common clause in some business contracts that essentially gives a party the first crack at making an offer in a particular transaction. In real estate terms, the phrase “right of first refusal” operates similarly.

What does it mean to give first refusal?

If someone has first refusal on something that is being sold or offered, they have the right to decide whether or not to buy it or take it before it is offered to anyone else.

What is the difference between a ROFR and a Rofn?

Unlike a right of first offer (ROFO) or a right of first negotiation (ROFN), a ROFR requires a seller to actually offer the exact deal requested by an interested third party buyer to the holder of the ROFR – a very powerful option to have in M&A scenarios.

What is an example of the first right of refusal?

If a tenant wants a first right of refusal to buy your property, ask for a first right of refusal to buy their business.

“No, that would make my business much harder to sell. Lots of buyers would feel like they’re spinning their wheels and I’ll have less interest.”

Exactly.
— StripMallGuy (@realEstateTrent) July 16, 2023

What is the difference between right of first refusal and offer?

What Is the Difference Between Right of First Offer and Right of First Refusal? A right of first offer gives the holder the right to submit the first bid on the potential sale of a property. A right of first refusal gives the holder the right to match or refuse to match an offer that has been made to a seller.

Frequently Asked Questions

What does give first refusal mean?

If someone has first refusal on something that is being sold or offered, they have the right to decide whether or not to buy it or take it before it is offered to anyone else. The agreement gives the two co-chairmen first refusal on each other's shares.

What is first refusal in selling?

The Landlord and Tenant Act 1987 gives long leaseholders of flats in the building a right to buy the freehold or superior leasehold interest in their building in the event that the landlord or head leaseholder wishes to sell their interest.

FAQ

What is an example of a right of refusal?: For example, a commercial tenant may prefer to lease a location; however, he may buy the premises if it meant that he would be evicted if the property sold to a new owner. In such a case, the tenant would negotiate to have a right of first refusal clause incorporated into his lease.
What is the difference between a right of refusal and an option?: By choosing a right of first refusal versus an option, the owner of the property has more control over the sale of their property, whereas with an option the holder can force the sale at will. With a Right of First Refusal, the holder must wait until the owner decides to sell the property.