A right of first refusal, often abbreviated ROFR, is a contractual right that gives its holder the first opportunity to purchase property if the owner decides to sell. It is common in commercial leases, condominium and cooperative communities, family owned land, and business partnerships. Paralegals handling real estate transactions need to recognize these rights during title review and understand how they can affect a closing.

What Is a Right of First Refusal?

A right of first refusal does not force an owner to sell. Instead, it provides that if the owner decides to sell, and receives a bona fide offer from a third party, the holder may match that offer and buy the property on the same terms. The owner must notify the holder of the offer, and the holder has a specified period to elect to purchase. If the holder declines or fails to respond in time, the owner may sell to the third party, usually on terms no more favorable to the buyer than those offered to the holder.

ROFR vs. Option to Purchase

These two rights are often confused, but they differ in important ways.

Option to purchase: gives the holder the power to buy at a set price or by a fixed formula within a stated time, whether or not the owner wants to sell. The holder controls when the sale occurs. An option usually requires consideration to be binding.
Right of first refusal: is triggered only if the owner decides to sell or receives an offer. The price is determined by the third party offer, not by an agreed amount in advance.

A related concept is the right of first offer, in which the owner must offer the property to the holder first, before marketing it to others, and the parties negotiate terms. If they cannot agree, the owner may sell to others, though often not at a lower price than the last offer to the holder.

Where ROFRs Commonly Appear

Commercial Leases

A tenant may negotiate a ROFR on the building or adjacent space to protect its investment in a location. It can also apply to expansion space within the building if it becomes available.

Homeowner Associations, Condominiums, and Cooperatives

Governing documents may give the association or other owners a right to buy a unit before it is sold to an outsider. Fair housing laws limit how such rights may be used, since they cannot be used to discriminate.

Family and Partnership Arrangements

Co-owners of land or family members who inherit property may agree that anyone wishing to sell must first offer the interest to the others, which helps keep property within the family.

Government and Nonprofit Programs

Affordable housing programs and land trusts frequently use ROFRs to preserve affordability or to maintain community ownership. Some statutes give tenants or local governments the right of first refusal in certain circumstances.

The Process Step by Step

The owner receives a bona fide third party offer that it is willing to accept.
The owner gives written notice to the holder, including the price and all material terms, in accordance with the notice provisions of the ROFR.
The holder has a defined period to elect, often between ten and thirty days. The election must usually be unconditional and made in the manner required.
If the holder exercises, the parties proceed to closing on the same terms offered by the third party, within the time allowed.
If the holder does not exercise, the owner may sell to the third party. Many agreements require the sale to close within a set time period and at the same or a higher price. If the terms change materially, the right may revive.

Enforceability and Legal Issues

Rule Against Perpetuities

Some courts have applied the rule against perpetuities to rights of first refusal and options, which could make rights that may vest too far in the future void. Many states have statutes exempting commercial ROFRs or limiting application of the rule. Paralegals should confirm which rule applies in the governing jurisdiction.

Restraints on Alienation

Because a ROFR restricts the owner's freedom to sell, it must be reasonable. Courts generally uphold ROFRs that are limited in duration, price, and scope. Rights that unreasonably restrain alienation may be void.

Recording and Notice

To bind a subsequent purchaser, a ROFR should be recorded in the land records, usually by recording the agreement or a memorandum of it. A buyer with notice of an unrecorded ROFR can also be bound. A title search that overlooks a recorded ROFR can lead to disputes, delayed closings, or litigation.

Statute of Frauds

A ROFR affecting an interest in real property must be in writing and signed by the party to be charged. The description of the property should be adequate.

Remedies

If an owner sells in violation of a ROFR, the holder may seek specific performance to force the sale to the holder, injunctive relief, or damages. Courts often grant specific performance because real property is considered unique. A buyer who purchased with notice of the right may be required to convey the property to the holder.

Drafting Considerations

Define what triggers the right: a sale, a transfer of any interest, a lease, or a change of control of an entity owner.
Address non cash consideration, since matching an offer that includes other property or unusual terms can be difficult.
Specify the notice method and deadlines, and whether the holder may assign the right.
Clarify whether the right applies to a package sale of multiple parcels.
Exclude transfers to family members, affiliates, or by foreclosure, if appropriate.
State whether the right is personal to the holder or runs with the land.
Identify the duration and what happens if the property is not sold.

The Paralegal's Role

In practice, paralegals identify ROFRs during title and lease review, draft notice letters, track response deadlines, prepare memoranda of the right for recording, coordinate with title companies, and make sure the closing checklist includes waivers or releases from the holder. A signed waiver or estoppel certificate from the holder is often required by the buyer and lender before closing.

Frequently Asked Questions

Can the holder of a ROFR negotiate a lower price?

Generally no. The holder must match the third party offer on the same terms. Negotiations would be a separate agreement.

Does a ROFR apply to a gift or inheritance?

Often not, because those are not sales for value. The language of the agreement controls, so drafting should state whether such transfers are covered.

Can a ROFR be assigned?

Only if the agreement allows it or if the right is clearly meant to be assignable. Many are personal to the original holder.

What happens if the owner never sells?

Nothing. A ROFR is dormant until the owner decides to sell, which is why it differs from an option.

Prepare with Confidence

Real estate exam questions often ask you to distinguish between related rights and interests. Sign up for a free account, test yourself with our flashcards, and visit the pricing page for access to every practice resource.

Understanding Right of First Refusal in Real Estate: How It Works