The right of first refusal (ROFR) in real estate is a crucial concept that has the potential to significantly impact property transactions. Whether you are a buyer, seller, landlord, or tenant, understanding this term and its implications is essential for making informed decisions in the real estate market. This article will break down the concept of the right of first refusal in real estate, explain how it works, and explore its advantages, disadvantages, and real-world applications.
What Is the Right of First Refusal in Real Estate?
The right of first refusal in real estate is a contractual agreement that gives a specific party the opportunity to purchase a property before the owner offers it to others. Essentially, it acts as a preemptive right, allowing the designated party—often a tenant, neighbor, or investor—to “refuse” the sale under the proposed terms before the property is made available to the general market.
In most cases, the ROFR is outlined in a lease or purchase agreement and is legally binding for a specified period. The agreement typically details how the right is triggered, the timeframe for exercising the right, and the terms of sale or lease.
How Does the Right of First Refusal in Real Estate Work?
The mechanics of the right of first refusal in real estate can vary depending on the agreement, but the general process follows these steps:
- Property Owner Receives an Offer: The property owner receives an offer from a third party to either buy or lease the property.
- Notification to the ROFR Holder: The owner notifies the party with the ROFR, providing details of the offer, such as the price and terms.
- Decision Period: The ROFR holder is given a specified amount of time—typically outlined in the agreement—to decide whether they want to match the offer.
- Outcome:
- If the ROFR holder exercises their right, they proceed with the transaction under the same terms as the third-party offer.
- If they decline, the owner is free to sell or lease the property to the third party.
This process ensures that the ROFR holder has the first opportunity to acquire the property before it is offered to others.
Common Scenarios Where the Right of First Refusal Applies
The right of first refusal in real estate is commonly found in the following scenarios:
1. Landlord-Tenant Agreements
In rental properties, landlords may grant tenants the right of first refusal to purchase the property if they decide to sell. This is particularly common in commercial leases or situations where the tenant has a long-standing relationship with the property.
2. Condominium or Homeowners’ Associations
In some condo or HOA communities, the association may retain the right of first refusal to purchase a unit before it is sold to an outside buyer. This ensures the association has control over who moves into the community.
3. Family Agreements
ROFR agreements are often used in family arrangements, such as when parents want to give one child the first opportunity to buy the family home before it is listed on the open market.
4. Business and Investment Partnerships
In partnerships involving real estate investments, partners may grant each other the right of first refusal to prevent external parties from acquiring ownership interests in the property.

Benefits of the Right of First Refusal in Real Estate
The right of first refusal in real estate can offer several benefits to all parties involved:
For ROFR Holders:
- Priority Access: They get the first chance to acquire a property they are interested in, potentially avoiding a competitive bidding process.
- Control Over Their Environment: Tenants, neighbors, or community members can maintain stability by preventing unwanted buyers from entering the picture.
- Potential for Favorable Terms: If the property is offered at a favorable price, the ROFR holder has the opportunity to secure a good deal.
For Property Owners:
- Attractive to Tenants or Partners: Offering a ROFR can make a lease or partnership agreement more appealing.
- Preserves Relationships: Owners can maintain goodwill with tenants, family members, or business partners by giving them the first opportunity to buy.
Challenges and Risks of the Right of First Refusal
While the right of first refusal in real estate offers advantages, it is not without its challenges and risks:
For ROFR Holders:
- Time Pressure: The decision period may be short, forcing the holder to act quickly.
- Financial Constraints: The holder must have the financial resources ready to match the offer.
- Market Dependency: If the property is offered at a high price, the ROFR holder may struggle to justify the purchase.
For Property Owners:
- Delayed Sales: The process of notifying the ROFR holder and waiting for their decision can delay the transaction.
- Limited Market Exposure: The property may not receive competitive bids, potentially resulting in a lower sale price.
- Legal Disputes: Misunderstandings or disagreements over the ROFR terms can lead to conflicts or litigation.
Key Considerations When Drafting a Right of First Refusal Agreement
A well-drafted ROFR agreement is essential to avoid misunderstandings and disputes. Key elements to include are:
- Triggering Events: Clearly define what events will activate the ROFR, such as receiving an offer or deciding to sell.
- Timeframe: Specify the time period the ROFR holder has to respond and complete the transaction.
- Terms of Sale: Outline whether the ROFR holder must match the exact terms of the third-party offer.
- Exclusions: Include any exceptions, such as transfers to family members or business mergers.
Consulting an experienced real estate attorney is highly recommended when drafting or entering into a ROFR agreement.
Real-World Examples of the Right of First Refusal in Action
Case Study 1: A Commercial Lease Scenario
A tenant leasing a commercial property was granted the right of first refusal. When the landlord received a competitive offer from a developer, the tenant exercised their ROFR, ensuring their business could continue operating in the same location.
Case Study 2: A Family Arrangement
Parents with a vacation home offered their children a right of first refusal. When the parents decided to sell, one child exercised their ROFR, allowing the home to stay within the family.
Conclusion: The Role of the Right of First Refusal in Real Estate Transactions
The right of first refusal in real estate is a powerful tool that can benefit both property owners and prospective buyers or tenants. It provides a layer of control and opportunity, ensuring that key stakeholders have a say in the property’s future. However, it is essential to approach ROFR agreements with careful consideration, as they can introduce complexities and potential conflicts.Whether you are drafting a right of first refusal agreement or considering exercising one, consulting with legal and real estate professionals can help ensure a smooth process. By understanding the nuances of the right of first refusal, you can make more informed and strategic decisions in your real estate endeavors.