right of first refusal

Any words of wisdom, or suggestions, pros/cons regarding signing a right of first refusal agreement with an interested buyer? What can the seller expect, demand, etc.
In Selling Property - Asked by Katy S. - Oct 6, 2010
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Answer(s)

Chuck C.
Broker/Agent
Carlsbad, CA

A right of first refusal will almost always lessen the value of the property from a third party Buyer's perspective so you need to be very careful on its use and its language. If you want to call me at 760-730-9100 I can give you some pointers gathered from 33 years of commercial property experience.

Oct 6, 2010
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Michal B.
Broker/Agent
Miami Beach, FL

It definitely benefits buyer more then seller but the question is what are you getting in return for giving them this right. I agree with Chuck as other potential buyers might see it as less desirable. In general, I have seen this mostly done with condominium associations or tenants leasing their spaces who have a vested interest in the property.

Oct 7, 2010
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Evan L.
Broker/Agent
Millersville, MD

I'm assuming that you are talking about a lease with a right of first refusal on the purchase of the property (as opposed to a tenant with a ROFR on contiguous space). There is definitely a trade-off. Rights of First Refusal (moreso than Rights of First Offer) hamper your ability to make a deal with a third party. Every time the deal points change with the third party, you are obligated to go back to the tenant with the ROFR and offer them the same terms. That is time consuming, and it also makes the third party feel as though they have a greatly diminished chance of landing a deal. If you have to go that route in order to ink a tenant that you need for your property, I'd try to do a Right of First Offer. At least that way you only have to give them the terms that you are going to offer the property at, and then they can say yay or nay. That's far different than having to go back to them multiple times. Best of luck.

Oct 7, 2010
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Tom F.
Broker/Agent
Saugatuck, CT

Most buyers will not even give serious consideration to a property with a ROFR, because it usually means they do all the work and research, and when price / terms are agreed, the ROFR dude steps up and takes it off the table. In Kentucky, it's called a "stud horse." Offer a "first notice," which gives them a lead position, but not a dominate one.

Oct 7, 2010
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R.Calabrese A.
Broker/Agent
Waterbury, CT

If this is regarding a buyer and not a tenant and you want to move forward with them try an option to purchase over a ROFR. Typically a buyer purchases the right to the purchase option for a set period of time or pays you a monthly fee to retain the option. If for whatever reason you need to give the ROFR, make it for a specific period (as short of possible), for one time only and based soly on a letter of intent from the third party. In all cases hire an attorney who has done this before.

Oct 7, 2010
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Marty H.
Broker/Agent
Lenexa, KS

If you aren't talking about giving a right of first refusal to an existing tenant, the potential buyer is asking you to encumber the potential sale of your property by asking you to allow him to step into the shoes of anyone who does negotiate a sales contract with you.
Now if this is an existing tenant, who has already signed a lease, why would you want to give him something of value without being paid for it. Particularly when this right of first refusal is very likely to get in the way of a future sale transaction. If you tell me that you have given someone a right of first refusal, I'm going to be very reluctant to negotiate to purchase your property. Why would I want to spend the time to negotiate a contract if someone else will have the right to take over my position in the deal? In summary, unless there is some very compelling reason to grant a right of first refusal, don't do it.

Oct 22, 2010
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ROBERT E.
Property/Asset Manager
COLLEGE GROVE, TN

i dont see a problem specifically if ROFR time stated and is subject to the property being offered for sale or space being offered for lease by owner in writing ,then the time for respose must clear stated .week,days .
i use ROFR for getting the tenant in for long time since they have hope of future ownership .

Oct 28, 2010
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David D.
Broker/Agent
Arlington, TX

The largest problem with ROFR is when the landlord forgets that the in place tenant has the option and leases the space anyway to a new tenant.I have seen very expensive law suits end up with the tenant with the ROFR winning.Landlords beware of this option and tag your rent roll and make sure your Broker and Manager is on top of the game. David R Dunn SIOR CCIM

Oct 28, 2010
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John C.
Broker/Agent
Augusta, GA

Right of first refusal is a very negative clause for a Seller or Buyer, the only person that it serves, is the person being granted the "right of first refusal" This clause is a potential deal killer because you have to wait until the holder of the "right of first refusal" execises their option, usually ninty days. So simply put, you cannot get a solid contract to buy or sell until the option is off the table. I hope this helps

Oct 28, 2010
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JOSE R.
Owner/Investor
Callahan, FL

RIGHT OF FIRST REFUSAL
IF U HAVE PROP. THAT U LEASE WEATHER IT IS RAW LAND ,U RENT APARTMENTS,HOUSE'S WHAT EVER THE PROP. IS U CAN HAVE ROFR IF U WANT 2 BUY THE PROP IN ??? TIMBER COMPANY THAT'S WANT 2 SELL THE PROP. THAT IS LEASE OUT 4 HUNTING CLUB'S WILL GIVE THE HUNTING CLUBS ROFR.
JUST LIKE WHEN U RENT PROP. WITH THE OPISON 2 BUY U GIVE THEM ROFR. 4 THAT PROP. I MIGHT B WRONG BUT THAT'S HOW I READ IT

Oct 28, 2010
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Kathy S.
Broker/Agent
Petaluma, CA

Most of the answers are right on point. There isn't much of a "pro" to a ROFR. Make it an option to purchase and charge a substantial fee. Why would you encumber your property without a substantial payment? If the interested buyer is a prospective tenant who wants to be able to buy in the future but doesn't want to pay for an option, you can write a ROFR that gives them a one time only 3-day right to match a bona fide offer and prove financial ability to purchase. I prefer to let a tenant know prior to putting the property on the open market that I plan to sell and do they have any interest? This works better than giving them a unilateral right. IF you go the ROFR route with a tenant, be sure that the ROFR is only good while they are tenants --- it expires when their tenancy terminates.

Oct 28, 2010
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Kathy S.
Broker/Agent
Petaluma, CA

Most of the answers are right on point. There isn't much of a "pro" to a ROFR. Make it an option to purchase and charge a substantial fee. Why would you encumber your property without a substantial payment? If the interested buyer is a prospective tenant who wants to be able to buy in the future but doesn't want to pay for an option, you can write a ROFR that gives them a one time only 3-day right to match a bona fide offer and prove financial ability to purchase. I prefer to let a tenant know prior to putting the property on the open market that I plan to sell and do they have any interest? This works better than giving them a unilateral right. IF you go the ROFR route with a tenant, be sure that the ROFR is only good while they are tenants --- it expires when their tenancy terminates.

Oct 28, 2010
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Charles W.
Owner/Investor
San Diego, CA

As a lawyer and commercial real estate owner, I would never grant a right of first refusal to a tenant to purchase the property. It confers no benefit upon the owner, devalues the property and greatly complicates a sale to a qualified third party. I've seen tenants deliberately abuse the process to thwart a sale, especially where the tenant's NNN will increase (property taxes) following a sale. Instead, if the tenant is performing and a qualified buyer, I will inform them of my intention to sell before listing the property and explore a sale.

Oct 29, 2010
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