A right of first offer is a contractual right, common in commercial leases, that requires the owner to offer the property or additional space to the holder before marketing it to anyone else. The owner names price and terms first, the holder accepts or declines within a set window, and only on a decline may the owner go to market.
How Does a Right of First Offer Work?
A right of first offer works proactively. Before the owner can list the space or take outside offers, it must present the holder with an offer stating price and material terms. The holder has a set period to accept or decline. If the holder declines, the owner is free to market the space to third parties, often on terms no better for the buyer than those the holder refused.
The right turns on a short response window. Per LoopNet and Suburban Real Estate, the tenant typically has 5 to 10 days, sometimes stated in business days, to accept or decline before the owner may go to market. The window is set in the lease, so a holder should keep comparables and financing ready to move inside it.
Step | What happens |
Trigger | Owner decides to sell or lease the covered space |
Offer | Owner presents price and terms to the ROFO holder first |
Election | Holder accepts or declines within the window, often 5 to 10 days |
Marketing | On decline, owner may market to third parties |
Why a Right of First Offer Matters
A right of first offer matters because it gives the holder the first chance to control space before the market ever sees it, while leaving the owner freer to sell than a right of first refusal does. The holder gets a head start; the owner keeps a marketable asset. The trade-off between the two is the whole point of choosing one clause over the other.
For the owner, a right of first offer preserves value that a right of first refusal erodes. Because bidders know the holder gets first crack but cannot simply match their negotiated deal, the property does not carry the same deterrent to serious buyers. The quotable point for an operator: a right of first offer favors the owner's marketability, while a right of first refusal favors the holder's certainty, so the choice of clause is a deliberate allocation of leverage.
Example
A tenant holds a right of first offer on the building it leases, with a 10-day acceptance window. The owner decides to sell and, as required, offers the building to the tenant first at $6,000,000 with a 45-day close. The tenant must accept or decline within 10 days.
Fact | Value |
Owner's first offer | $6,000,000, 45-day close |
Holder's acceptance window | 10 days |
If holder accepts | Tenant buys at the offered terms |
If holder declines | Owner markets to third parties |
If the tenant accepts within 10 days, it buys the building at $6,000,000 before any outside buyer sees it. If the tenant declines, the owner takes the property to market. Unlike a right of first refusal, the tenant does not get a later chance to match whatever a third party ultimately offers, so a decline here is usually final.
Variations and Edge Cases
A right of first offer varies in what it covers and how a decline is treated, and each variant changes its value. The table below covers points an operator should confirm before relying on a ROFO, because the drafting decides whether the holder gets a real second look or none at all.
Variant | Treatment |
Purchase vs lease | ROFO may cover buying the building or leasing expansion space |
Price floor on resale | Some ROFOs bar the owner from later selling below the price the holder declined |
Reset on lower price | If the owner drops the price after a decline, the holder may get a fresh offer |
Response window | Often 5 to 10 days; a missed acceptance lets the owner go to market |
One-time vs continuing | The right may end after one decline or revive on each new sale decision |
The common tenant error is treating the offered price as negotiable indefinitely. Because the window is short and a decline typically frees the owner to market, a holder that stalls to negotiate can lose the first-offer right and end up bidding against the open market it hoped to preempt.
Right of First Offer vs Right of First Refusal
A right of first offer is often confused with a right of first refusal, but they fire at opposite moments. A right of first offer is proactive: before marketing, the owner must offer the space to the holder, who accepts or declines. A right of first refusal is reactive: the owner markets and negotiates a third party deal, then the holder matches it or passes.
The distinction is who names the price and when. Under a right of first offer, the owner names the price first and the holder responds before the market is involved. Under a right of first refusal, the market sets the price and the holder matches it. A ROFO gives the holder the first opportunity; a ROFR gives the holder the last word.
Frequently Asked Questions
What is a right of first offer in a commercial lease?A right of first offer is a tenant's right to receive an offer for the property or additional space before the owner markets it to anyone else. The owner must present price and terms to the tenant first, and the tenant accepts or declines within a set window. Only if the tenant declines may the owner go to market.
How long does a tenant have to respond to a right of first offer?The lease sets the window, but it typically runs 5 to 10 days, sometimes stated in business days. Within that period the tenant accepts or declines the owner's offer. Because the window is short, a tenant should keep comparables and financing ready so it can act before the owner is free to market the space.
What is the difference between ROFO and ROFR?A right of first offer is proactive: the owner must offer the space to the holder before marketing it. A right of first refusal is reactive: the holder matches a third party offer after the owner has marketed and negotiated it. ROFO gives the holder the first opportunity; ROFR gives the holder the last word.
Related Terms
Right of First Refusal
Renewal Option
Letter of Intent
Purchase and Sale Agreement
Estoppel Certificate