Definition
The Right of First Refusal (ROFR) is a contractual agreement that gives a specific party the first opportunity to purchase a property before the owner sells it to someone else. If the property owner decides to sell, the party holding the ROFR has the right to match any offer before the property is sold to another buyer.
Explanation
ROFR is commonly used in:
✅ HOAs & Condos – Homeowners’ associations may have ROFR on units to control who moves into the community.
✅ Tenant Agreements – Renters may negotiate a ROFR clause to buy the home before the landlord sells to an outside buyer.
✅ Family or Business Partnerships – Allows family members or business partners to retain ownership of a property by matching an offer.
How ROFR Works:
- The property owner decides to sell and receives an outside offer.
- The holder of the ROFR is notified and given the chance to match or decline the offer.
- If the ROFR holder matches the offer, they purchase the property.
- If the ROFR holder declines, the owner is free to sell to the outside buyer.
Example of Right of First Refusal
A tenant signs a lease with an ROFR clause stating they have first dibs on buying the home if the owner ever sells.
- The landlord receives an offer for $350,000.
- The tenant is notified and has 30 days to match the offer.
- If the tenant agrees, they buy the property for $350,000.
- If the tenant declines, the owner sells to the outside buyer.
Pros & Cons of ROFR
✅ Advantages for Buyers (ROFR Holders):
- Secures a chance to buy a desirable property before it hits the market.
- Helps tenants transition into homeownership.
- Allows family members or partners to retain ownership within a group.
❌ Disadvantages for Sellers:
- Limits flexibility, as the property must first be offered to the ROFR holder.
- Can delay sales if the ROFR holder needs time to arrange financing.
- May deter outside buyers, who don’t want to enter a deal that could be taken away.