Right of First Offer

Right of First Offer (ROFO)

A Right of First Offer (ROFO) is a contractual right that gives a designated party the opportunity to make the first offer to buy an asset—commonly real estate or a business—before the owner markets it publicly. The ROFO does not obligate the holder to buy; it simply requires the seller to solicit an offer from the holder before seeking third-party buyers.

Key takeaways

• ROFO lets the holder submit the initial bid before the asset is listed for sale.
• It typically favors the seller because the seller can negotiate freely with the holder and then market to others if the holder declines.
• ROFOs are common in leases (tenant/landlord), joint ventures, and shareholder agreements.
• Terms often include timelines, information rights, price constraints, and good-faith negotiation obligations.

How a ROFO works

1. Owner decides to sell and notifies the ROFO holder as required by the contract.
2. Owner provides relevant information (price guidance, documents) to allow the holder to evaluate the asset.
3. Holder has a specified period (commonly 30–60 days) to submit an offer.
4. Seller can accept or reject the offer. If rejected, seller may sell to third parties under any agreed restrictions in the ROFO.
5. If a third-party sale fails or falls within restricted parameters, the seller may be required to re-offer to the ROFO holder.

Both parties are generally expected to act in good faith during information exchange and negotiation.

Typical provisions to negotiate

• Notice: how and when the seller must notify the holder of intent to sell.
• Information rights: what documents and disclosures the seller must provide.
• Response window: how long the holder has to make an offer.
• Price constraints: limits on what the seller can accept from third parties after rejecting a holder’s offer.
• Exclusivity and marketing: whether the seller may solicit or accept third-party offers immediately or only after a waiting period.
• Assignment: whether the ROFO can be transferred to another party.
• Term and expiration: how long the ROFO remains in force.

Sale price constraints — example

Contracts often limit the seller’s ability to accept third-party offers below a threshold to protect the ROFO holder. Example:
* Holder offers $1,000,000 and seller declines.
* Contract stipulates seller cannot accept a market offer within 5% of that bid.
* Seller can only accept a third-party offer of $1,050,000 or higher; otherwise the holder typically has the right to match or submit a new offer.

ROFO vs. Right of First Refusal (ROFR)

• ROFO: Holder gets the first chance to make an offer before the asset is marketed. Favors the seller because the seller sets the process and may still seek other buyers.
• ROFR: Holder gets the right to match any bona fide third-party offer the seller receives. Favors the holder and can deter third-party buyers.

ROFRs can make assets harder to sell because buyers face the risk their offer will be matched by the holder.

Practical considerations

• For tenants: a ROFO can provide stability by offering a chance to purchase their premises if the landlord decides to sell.
• For sellers: a ROFO can speed up sale process and reduce marketing and brokerage costs, but may limit pricing flexibility if constraints are stringent.
• Due diligence: sellers should supply sufficient information promptly; holders should act quickly and prepare financing contingencies.
• Drafting clarity: be explicit about timelines, what constitutes an “offer,” notice methods, and remedies for breach to avoid disputes.

Typical timeline

• Notification to holder: immediate once seller decides to explore a sale.
• Holder response period: often 30–60 days (varies by agreement).
• Follow-up: if holder’s offer is rejected, seller’s ability to accept third-party offers and any re-offer obligations kick in per contract terms.

Frequently asked questions

Q: Does a ROFO require the holder to buy?
A: No. It only gives the holder the right to submit the first offer.

Q: How long does a ROFO last?
A: Duration varies by contract; it can be for a fixed term or tied to a lease or ownership period.

Q: Can a seller accept a lower third-party offer after rejecting the ROFO holder?
A: Contracts often include price constraints to prevent this; whether the seller can accept a lower offer depends on the specific terms.

Q: Can the ROFO be transferred?
A: Transferability depends on the agreement language—some ROFOs are assignable, others are not.

Conclusion

A ROFO balances interests between owners and prospective buyers by enabling a streamlined first opportunity to purchase without immediately exposing the asset to the open market. Clear, specific contract terms—on notice, timelines, information, price restrictions, and remedies—are essential to reduce disputes and protect both parties’ expectations.