A right of first refusal is a contractual right, common in commercial leases, that lets a tenant match a third party's offer to buy the property or lease additional space before the owner accepts it. The owner markets freely and negotiates a deal, then must present those exact terms to the holder, who chooses to match or pass.
How Does a Right of First Refusal Work?
A right of first refusal works reactively. The owner is free to market the property and negotiate with any outside party. Once a bona fide third party offer is on the table, the owner must present it to the holder, who then has a set period to match its price and terms or step aside. The holder acts only after the market has set the price.
The right turns on exact matching. Per Kaplan and Cruz, a matching offer must mirror the third party's terms, not just its price. If a third party offers $5.0 million with no financing contingency, a $5.0 million offer from the holder subject to obtaining financing is not a match. Courts have required exact matching absent language allowing alternatives, so the holder must meet the offer as written.
Step | What happens |
Marketing | Owner markets the property and negotiates freely |
Third party offer | Owner receives a bona fide offer from an outside party |
Notice | Owner presents the exact offer terms to the ROFR holder |
Election | Holder matches within the set window, or the third party proceeds |
Why a Right of First Refusal Matters
A right of first refusal matters because it protects a tenant's ability to control its space or building without forcing the owner to sell, but it does so at a cost to the owner's marketability. The tenant gains a safety net; the owner gains a discouraged buyer pool. Both effects flow from the same reactive structure.
The drawback is the deterrent effect on bidders. Per the Boulos Company, a right of first refusal can discourage third party buyers who do not want to spend on due diligence and negotiation only to be displaced at the last moment by a matching holder. The quotable point for an operator: a right of first refusal is powerful for the holder precisely because it is a burden on the owner, since serious bidders may walk rather than set a price the holder can simply match.
Example
A tenant holds a right of first refusal to buy the building it leases. The owner markets the property and secures a third party offer of $6,000,000, all cash, with a 30-day close. The lease gives the holder 15 days to match after receiving notice of the offer.
Fact | Value |
Third party offer | $6,000,000, all cash, 30-day close |
Holder's match window | 15 days from notice |
To match | $6,000,000, all cash, 30-day close, no added contingencies |
If holder passes | Owner sells to the third party on those terms |
The holder must meet the offer as written. If it can close all cash in 30 days at $6,000,000, it buys the building and displaces the third party. If it needs financing that pushes the close past 30 days, that is not a matching offer and the owner may sell to the third party. The exact terms, not the headline price alone, decide the outcome.
Variations and Edge Cases
A right of first refusal varies in what it covers and how strictly it must be matched, and each variant changes its value to the holder. The table below covers points an operator should confirm before relying on a ROFR, because a poorly drafted one can be defeated or lost.
Variant | Treatment |
Purchase vs lease | ROFR may cover buying the building or leasing additional space |
Exact-match standard | Absent contrary language, the holder must match all terms, not just price |
One-time vs continuing | The right may expire after one waived offer or survive multiple offers |
Notice and window | A short window, often days, forces the holder to be ready with financing |
Recording | An unrecorded ROFR may be defeated by a bona fide purchaser without notice |
The common failure is missing the response window. Because the holder must match within a short, strict period and on exact terms, a holder without financing lined up can lose the right to buy even when it wants the property, so readiness matters as much as the right itself.
Right of First Refusal vs Right of First Offer
A right of first refusal is often confused with a right of first offer, but they fire at opposite moments. A right of first refusal is reactive: the owner markets, gets a third party offer, then the holder matches it or passes. A right of first offer is proactive: before marketing, the owner must offer the space to the holder first, who accepts or declines.
The distinction is who names the price and when. Under a right of first refusal, the market sets the price and the holder matches it. Under a right of first offer, the owner and holder negotiate first, and only if they fail to agree does the owner go to market. A ROFR gives the holder the last word; a ROFO gives it the first.
Frequently Asked Questions
What is a right of first refusal in a commercial lease?A right of first refusal is a tenant's right to match a third party's offer to buy the property or lease additional space before the owner accepts it. The owner markets freely, receives a bona fide offer, then must present those exact terms to the tenant, who chooses to match the offer or let the third party proceed.
Does a matching offer have to match every term?Yes, absent language allowing alternatives. The holder generally must match the third party's full terms, not just its price. An offer at the same price but with a financing contingency or a later closing is usually not a match, and courts have required exact matching unless the agreement provides otherwise, so terms matter as much as price.
What is the difference between ROFR and ROFO?A right of first refusal is reactive: the holder matches a third party offer after the owner has marketed and negotiated it. A right of first offer is proactive: the owner must offer the space to the holder before marketing it. ROFR gives the holder the last word; ROFO gives the holder the first opportunity.
Related Terms
Right of First Offer
Renewal Option
Purchase and Sale Agreement
Letter of Intent
Estoppel Certificate