Right of First Refusal
A contractual right giving the holder the option to match any offer a third party makes to buy or lease an asset before the owner can accept the third party's offer.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Right of First Refusal?
A right of first refusal (ROFR) is a contractual provision granting the holder the right to match any bona fide third-party offer to purchase or lease a specific asset before the owner accepts it. If the owner receives a qualifying offer, they must present it to the ROFR holder, who then has a specified period to elect to purchase on identical terms. If the holder does not exercise the right, the owner may proceed with the third party.
A right of first offer (ROFO) requires the owner to offer the asset to the ROFO holder first - before marketing to third parties. If the holder declines or the parties cannot agree on price, the owner may then approach third parties. A ROFR is triggered only after a third-party offer exists; a ROFO is triggered before any third-party marketing. ROFRs are generally more valuable to holders because they can see the market-validated price before deciding.
ROFRs appear in: (1) real estate leases - giving the tenant the right to buy the property if the landlord decides to sell; (2) shareholder agreements - giving existing shareholders the right to buy departing shareholders' shares before outside buyers; (3) M&A - giving a strategic partner the right to match acquisition offers; and (4) licensing - giving an existing licensee the right to acquire additional rights.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Trigger Event
The ROFR is typically triggered when the owner receives a bona fide third-party offer that the owner is willing to accept.Notice Requirement
The owner must give the ROFR holder written notice of the third-party offer, including all material terms.Exercise Period
The holder has a specified period (e.g., 15–30 days) to decide whether to exercise the right. Silence typically constitutes waiver.Matching Terms
The holder must match all terms of the third-party offer - not just the price. Non-cash or complex deal terms can make matching difficult.Real-World Example
A tech company has a ROFR on its office building. The landlord receives a $5 million purchase offer from an investor. The landlord must notify the tenant, who then has 20 days to elect to buy the building for $5 million on the same terms.
If the tenant exercises the ROFR, they buy the building for $5 million - matching the investor's terms. If they decline, the landlord can sell to the investor. The tenant's ROFR protects them from losing their location to a new, potentially hostile owner without having the chance to buy it themselves.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Right of First Refusal ClauseWatch Out For
ROFRs can complicate sales by chilling third-party interest
Sophisticated buyers are sometimes reluctant to make an offer on an asset subject to a ROFR, knowing their terms can be matched. This can reduce the pool of potential buyers and suppress the ultimate sale price.Non-cash offer terms may be difficult to match
If a third-party offer includes complex non-cash consideration (earn-outs, stock, contingent payments), it can be difficult or impossible for the ROFR holder to match exactly. Specify in the ROFR how non-cash terms are valued.Don't let right of first refusal deadlines catch you off guard
Key dates tied to right of first refusals - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Include clear triggering and notice provisions
Define precisely what constitutes a "bona fide offer" and how notice must be given. Ambiguity about whether the ROFR was properly triggered is a major source of disputes.Specify cash equivalent for non-monetary consideration
If the ROFR may be triggered by a non-cash offer, include a provision stating that the holder may satisfy the matching requirement with a cash payment equal to the fair market value of the non-cash consideration.Related Terms
Frequently Asked Questions
Can I sell to a third party for less than the ROFR price?
No - a standard ROFR clause prohibits selling to a third party on terms more favorable than those offered to the holder. If you accept a lower price from the third party, you must first offer those new terms to the ROFR holder.
Is a ROFR the same as an option?
No. An option gives the holder the right to buy at a pre-set price regardless of third-party interest. A ROFR only activates when the owner actually receives a qualifying third-party offer.