Right of First Offer – Definition

Cite this article as:"Right of First Offer – Definition," in The Business Professor, updated December 11, 2018, last accessed November 26, 2020, https://thebusinessprofessor.com/lesson/right-of-first-offer-explained/.

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Right of First Offer Definition

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.

A Little More on What is the Right of First Offer

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.

References for Right of First Offer

https://www.investopedia.com/terms/r/rofo.asp
https://en.wikipedia.org/wiki/Right_of_first_refusal
https://www.lawinsider.com/clause/right-of-first-offer

Academic Research on The Right of First Offer (ROFO)

  • 路聽聽聽聽聽聽 Drafting a Fair聽Right聽of聽First Offer聽Lease Option (with Form), Goldman, G. (1995). Prac. Real Est. Law.,聽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.
  • 路聽聽聽聽聽聽 It Seemed like a Good Idea at the Time: Rights of聽First Offer聽and聽First聽Refusal, Stein, J. (2014). Prac. Real Est. Law.,聽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.
  • 路聽聽聽聽聽 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.
  • 路聽聽聽聽聽聽 Accordion Lease: Building Flexibility into Your Office Lease, The, Bailey, J. (1994). Legal Mgmt.,聽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.
  • 路聽聽聽聽聽聽 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.
  • 路聽聽聽聽聽聽 Guide to Due Diligence of Commercial Contracts, A, Hollander, S. J. (2011). NY St. BAJ,聽83, 22. This research paper is basically explaining the diligence of commercial contracts and a guide was provided to explain this process.
  • 路聽聽聽聽聽聽 Real Estate Venture Exit Strategy Provisions, Carey, S. A. (2017). Prac. Real Est. Law.,聽33, 41. This paper establishes the real estate venture exit strategy provisions as well as the processes involved in this process.
  • 路聽聽聽聽聽聽 Living with Leases (Templates for Landlord’s Counsel), Stein, J. (2016). Prac. Real Est. Law.,聽32, 43. The main aim of this research thesis is to explain the templates for the landlord鈥檚 counsel. This paper explains the methods involved in the processes of living with lease and this process was well developed in this research thesis.
  • 路聽聽聽聽聽聽 Purchase Options, ROFRs, and ROFOs: Theory and Practice, Circo, C. J. (2016). 聽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.
  • 路聽聽聽聽聽聽 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.
  • 路聽聽聽聽聽 Ancillary Agreements in Real Estate Transactions, Berman, A., Hines, B., & Ward, E. (2017). 聽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.

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