Right of First Offer - Explained
What is the Right of First Offer?
Written by Jason Gordon
Updated at July 8th, 2021
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Table of Contents
What is the Right of First Offer?How does the Right of First Offer Work?Academic Research on The Right of First Offer (ROFO)What is the Right of First Offer?
Right of First Offer is a contractual right that obligates the owner of an asset to offer it to the right holder before selling it to any third party. However, if the right holder refuses the offer or they fail to negotiate an agreement the owner is free to offer the asset to a third party. Here the right holder has the right to purchase the asset before it is being offered to someone else.
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How does the Right of First Offer Work?
This right is generally attached to a lease agreement for real estates or part if partnership agreement for businesses. If this right is included in the tenancy agreement or the partnership agreement the owner or a partner first need to negotiate the selling with the tenant or partner. If the tenant or the partner rejects the offer, then the owner is free to offer it to anyone else. Similarly, if the seller and the rights holder fail to reach an agreement about the terms of the sale the seller may sell the asset to someone else. The Right of first offer is associated with the Right of first refusal, where the Right of First Offer is advantageous for the seller, the Right of first refusal serves the prospective buyers. The holder of the Right of First Offer needs to offer a deal to the seller within a specific time period after which the seller may offer it to others. The seller may accept the terms of the offer or may reject it and start negotiating with other prospective buyers. If the seller cannot find another buyer or if the seller fails to reach an agreement with another buyer, he or she can come back to the right holder. Then the right holder can make a new offer with same or changed terms. The right holder may want to lower the previously offered price. Failure of finding another buyer puts the right holder in an advantageous position in the negotiation. The strategy of including this right in the agreement reduces the transaction cost of the seller. Usually, the process of selling an asset is costly and time-consuming. It may need to involve agents, lawyers, accountants, and advisers. It takes a lot of time and effort to find a suitable buyer for the asset and this strategy saves both.
Academic Research on The Right of First Offer (ROFO)
- Drafting a FairRightofFirst OfferLease Option (with Form), Goldman, G. (1995). Prac. Real Est. Law.,11, 79. This paper explains the process of drafting a fair right of first-order lease option with the use of a form. The fair right of the first order is in the form of an agreement that has now been drafted in written form to make the implementation of policies more rigid.
- It Seemed like a Good Idea at the Time: Rights ofFirst OfferandFirstRefusal, Stein, J. (2014). Prac. Real Est. Law.,30, 43. This research paper understands and explains the relationship between the rights of the first offer and the first refusal. This study explains the process behind these two factors and how they affect the economy at large.
- On the Use of Preferential Rights in Intellectual Property Agreements, Bellemare, A. (2016). This research paper explains the four major types of preferential right options. The right of the first offer, rights of first refusal and the right of the first negotiation. This study also discusses the main uses, limitations and benefits in the agreement of intellectual property.
- Accordion Lease: Building Flexibility into Your Office Lease, The, Bailey, J. (1994). Legal Mgmt.,13, 35. This paper basically explains the accordion lease. It was established in this paper based on the recent assumptions made in time past regarding this situation. The building flexibility into the office lease was well explained in this academic paper.
- FAM Real Estate Investment Trust, Ontario Securities Commission. (2013). This research paper explains the real estate investment trust and the processes involved in improving the government assumptions on real estate management.
- Guide to Due Diligence of Commercial Contracts, A, Hollander, S. J. (2011). NY St. BAJ,83, 22. This research paper is basically explaining the diligence of commercial contracts and a guide was provided to explain this process.
- Real Estate Venture Exit Strategy Provisions, Carey, S. A. (2017). Prac. Real Est. Law.,33, 41. This paper establishes the real estate venture exit strategy provisions as well as the processes involved in this process.
- Living with Leases (Templates for Landlord's Counsel), Stein, J. (2016). Prac. Real Est. Law.,32, 43. The main aim of this research thesis is to explain the templates for the landlords counsel. This paper explains the methods involved in the processes of living with lease and this process was well developed in this research thesis.
- Purchase Options, ROFRs, and ROFOs: Theory and Practice, Circo, C. J. (2016). This academic paper explains the contract and real estate law principles governing the right of first refusal, right of the first order and the purchase options. This paper is divided into two sections. The first section of this thesis explains how the property law and the contract law principles and how it addresses the issues facing lawyers. The second section of this study explains what the economics literature, laws and game theory which were offered to lawyers dealing with the right of first offer and right of first refusal.
- A primer on real estate options, Gosfield, G. G. (2000). Real Property, Probate and Trust Journal, 129-195. This paper explains a premier on the real estate options. This research thesis also explains the various methods involved in this study.
- Ancillary Agreements in Real Estate Transactions, Berman, A., Hines, B., & Ward, E. (2017). According to the academic research carried out in this study, various ancillary but yet important documents in a bid to explain the two common real estate transactions was explained. Most importantly, this study explains the current case laws and the drafting considerations regarding estoppel documents, subordination, non-disturbance agreements (SNDAs) and certified rents. This paper also explains the due diligence problems for the buyers and lenders.