What is The Right of First Refusal?

A right of first refusal (ROFR) is a contractual obligation given by an owner of a property to offer to sell the property in question to the beneficiary of the contract.

Depending on the terms of the contract, this obligation will come into effect either should the owner of the property choose to market and sell the property or should an offer to purchase the property be received from a legitimate third party. Unlike an option agreement, a ROFR does not give the beneficiary the right to require the sale of the property to them on demand, only in the event that the owner of the property wishes to sell.

Additionally, unlike an option agreement where there is usually a fixed price for the purchase of the property, a ROFR will likely require that the beneficiary of the right either matches the third party offer to purchase the property or the market value of the property at the time of the purchase.

There are a variety of reasons why someone would want to hold a ROFR over a property. Sometimes sellers of properties, often councils or local authorities, wish to retain a right to purchase the property in the future. In order to do this, a clause is often drafted into the transfer of the property from the council to the new purchaser requiring that they have ROFR over any sale. This clause is then lodged as a restriction on the property at the Land Registry and a certificate is required from the council on any sale confirming to the Land Registry that they did not wish to purchase the property and have waived their rights.

Alternatively, a tenant of a commercial lease may wish to hold the right to purchase the property they rent should their landlord ever decide to sell. This allows tenants an element of control in who may be their landlord in the future. In such circumstances, a clause can be drafted into the lease setting out this right and note of the same lodged on the title for the freehold property.

On occasion, however, a company may be the tenant of the lease and the shareholders of the company may wish to be the beneficiaries of the ROFR. In this case, the right could not be drafted into the lease as the shareholder is not a party to that document and therefore the shareholder would need to enter into a separate Pre-Emption Agreement between them and the property owner. This document will then be noted against the property at the Land Registry protecting the beneficiaries’ interest in the property.

If you require legal advice on gaining a Right of First Refusal or on a dispute involving one, please get in touch with our specialists at Farleys. You can call us on 0845 287 0939 or contact us by email.