What Is Right of First Refusal?

Right of first refusal (ROFR) is a contractual agreement giving one person or organization the exclusive right to evaluate an offer for something (typically a piece of property) prior to others. Under a ROFR contract, the party with the right to refuse must be offered the same terms and conditions as those presented to a third party before any sale or transfer can happen.

A right of first refusal is sometimes referred to as a preemptive right or preemption. It prohibits someone from buying a particular asset unless they can match the terms and conditions of any other prospective buyers. In the context of real estate, for example, a right of first refusal might entitle the holder to buy a property at the same asking price offered to any other potential buyer. This is because the holder of the ROFR would be given the opportunity to match that offer and purchase the property instead.

Examples of Right of First Refusal

There are many possible scenarios in which a right of first refusal could be used. A common example is when a business owner is considering selling their company, they could give their partners the right of first refusal in order to give those partners the chance to buy a share in the company first, before any 3rd parties.

ROFR is also commonly used in employee contracts or on community boards. Employees may be given the right of first refusal for certain job promotions before the position is offered externally. Or, community boards might use ROFR to give current members the right to purchase land before it’s put up for sale publicly.

Advantages of Right of First Refusal

There are several advantages to using a right of first refusal agreement. For example, it can give an owner or shareholder the ability to prevent their company from being sold until a favorable opportunity arrives. They can also use this to protect their investments by allowing them to be the first party to negotiate a deal with potential buyers.

It can also serve as a backup or safeguard if the original agreement falls through. For instance, if the holder of the right of first refusal has agreed to sell a property at a certain price, but the buyer fails to meet the terms, the seller can go back to their ROFR agreement and offer to sell the same property to the other party at the same price.

Conclusion

In summary, a right of first refusal is a contractual agreement that gives one person or organization exclusive rights to evaluate an offer prior to others. It can be used in a variety of scenarios in the business world such as employee contracts, real estate negotiations, and business purchases. It can be a useful tool for protecting investments and ensuring the best deal is reached.