Right of First Offer (ROFO) — Meaning & How It Works in Real Estate
Right of First Offer (ROFO) explained: what it is, how it works, differences from ROFR, contract points to negotiate, sample clauses, and practical tips.
Primary: ROFO, right of first offer. Secondary: ROFR, lease clause, real estate negotiation, preemptive rights.
A Right of First Offer (ROFO) is a contract term giving a designated party the first opportunity to make an offer to buy or lease a property before the owner markets it to others.
ROFO matters because it gives a holder—often a tenant, neighbor, investor or conservation group—the chance to negotiate privately and potentially secure a property without competing in an open market. It doesn’t force the owner to accept the holder’s offer, but it can speed transactions, preserve relationships, and affect pricing, marketing and financing decisions for both sides.
Most ROFO clauses require written notice to the holder specifying intent to sell or lease, basic terms contemplated, and a deadline for response. Delivery methods commonly include certified mail, email with receipt, courier or personal delivery; exact methods and date-of-delivery rules should be spelled out in the clause.
Procedure typically: (1) seller gives notice with asking price or target terms; (2) holder has a limited window (commonly 15–45 days) to submit an offer; (3) seller may accept, reject, or counter that offer; (4) if rejected, seller is free to market the property—often subject to certain limitations in the clause.
ROFO: holder receives notice and opportunity to make the first offer based on seller’s stated terms; holder proposes terms; seller can accept or decline before marketing widely.
ROFR: seller negotiates with third parties first; holder has the right to match any bona fide third‑party offer. Practically, ROFR often gives the holder stronger leverage to secure market terms but can chill bidding and complicate closings.
Right of First Negotiation obligates owner to negotiate exclusively with the holder for a limited period before marketing; it’s similar to ROFO but emphasizes a negotiation phase rather than a single startup offer.
| Feature | ROFO | ROFR | First Negotiation |
|---|---|---|---|
| Who sets first price | Owner states asking price/terms | Third party sets price; holder matches | Negotiation between owner & holder |
| Timing | Holder acts before market | Holder acts after market offer | Holder negotiates during exclusive window |
| Seller flexibility | High after holder declines | Limited—must present bona fide offers | Moderate—negotiation requirement |
| Market impact | Less chilling than ROFR | Can chill bidding or complicate closings | Depends on exclusivity length |
Define whether ROFO applies to entire property, specific parcels, leasehold assignments, or minority interests. Narrow scope to limit future encumbrances or expand it if you want broader protection.
Specify what the notice must include (price, material terms, identity of third‑party buyers if applicable) and acceptable delivery methods. Require copies of third‑party offers if later relevant.
Common windows: 15–45 days. Holders should request sufficient time for due diligence; sellers should push for shorter windows to preserve liquidity. Include one automatic short extension for good‑faith negotiation or due diligence.
Price can be owner’s asking price, an appraisal-based formula, or a cap related to recent offers. Holders may want appraisal fallback; sellers may insist owner’s asking price to retain control.
Decide whether seller can accept an outside offer only if it is materially better than the holder’s offer and whether seller must give holder an opportunity to match the final outside offer within a set period.
Clarify whether holder can assign the ROFO (useful for investors) or whether it’s strictly personal. Sellers often restrict assignment to prevent speculative transfers; holders seek free assignability or notice/consent mechanics.
Specify term (years, until sale, or perpetually). State whether the ROFO “runs with the land” (binding successors/assigns) and events that terminate it (foreclosure, sale to affiliate, bankruptcy).
Negotiate carve-outs for transfers to lenders (e.g., foreclosure), intra-group reorganizations, court-ordered sales, or bulk portfolio dispositions. Be explicit to avoid “back-door” circumvention.
Include confidentiality obligations for offers and due diligence materials and consider co-tenancy or non-compete clauses when a tenant-holder seeks expansion.
Agree on remedies for breach: specific performance (common in ROFO/ROFR disputes), damages, or liquidated damages. Consider adding short cure periods and escrow mechanics to minimize litigation risk.
ROFOs can slow time-to-sale, reduce pool of bidders, and potentially lower valuation. Sellers risk anti-circumvention disputes if they try to sidestep the holder or craft affiliate sales to avoid triggers.
Holders gain first access and potential cost savings but risk being underpowered by short response windows, limited financing time, or inadequate due diligence ability. Where assignable, ROFOs can have tradeable value.
Brokers must disclose the ROFO to prospective buyers, coordinate timing to preserve rights, and document offers and notices carefully to avoid disputes and to comply with brokerage duties.
Lenders often require ROFOs to be subordinated, waived, or consented to in loan documents. Preemptive rights can affect liquidity and appraisal values and may limit the pool of acceptable collateral.
Courts frequently allow specific performance for breaches of preemptive rights because equitable relief can restore the holder’s opportunity. Damages are also available but may be harder to quantify when market opportunities are unique.
Frequent disputes arise when owners fail to give proper notice, sell to affiliates without triggering the ROFO, or accept offers without giving the holder the agreed window. Documentation and timing are often central to litigation.
Best practice: require mediation/arbitration, short cure periods, and escrow of proceeds pending resolution. Holders and sellers often use escrow to lock in deals while legal disputes are resolved.
Local property and contract law matters. Recording statutory regimes may affect priority against subsequent purchasers; some jurisdictions construe preemptive rights narrowly—consult local counsel for enforceability and recording practices.
Lenders commonly require ROFOs to be subordinated, limited in duration, or waived on default/foreclosure. They may insist on notice and consent rights before a sale. Expect lender redlines to protect collateral marketability.
Appraisers may reduce value to reflect transfer restrictions or marketability limitations caused by a ROFO, which can lower loan-to-value capacity or require conservative underwriting adjustments.
Options include getting the holder to execute a lender‑friendly subordination/waiver, carving out lender‑initiated transfers, or obtaining standstill periods to permit foreclosures and workouts without triggering the ROFO.
Track notices, delivery receipts, drafts, offers, and communications. Keep due diligence materials, appraisals, proof of funds, lender consents and negotiation records in a dated file.
Common concessions: monetary consideration for the ROFO, buyout/termination fee to remove the ROFO, shortened duration, and narrowing of scope in exchange for higher rent or purchase price adjustments.
Upon Owner's decision to sell, Owner shall deliver written notice to Holder describing the proposed transaction and material terms. Holder shall have thirty (30) days to deliver an offer. If Owner rejects Holder’s offer, Owner may not consummate a sale to a third party for terms more favorable than those offered to Holder without first offering those identical terms to Holder and providing Holder ten (10) business days to accept. This Right is assignable by Holder and shall run with the land.Prior to listing or soliciting offers, Owner will notify Holder of Owner’s intent to sell, provide basic terms, and permit Holder twenty (20) days to submit a binding offer. If Owner rejects Holder’s offer, Owner may market the Property; however, Owner agrees not to sell for materially less favorable terms to a third party for ninety (90) days without first offering the Holder the opportunity to match those terms. Holder may assign with Owner’s consent, not to be unreasonably withheld.Owner will notify Holder of intent to sell and provide Holder fifteen (15) days to present an offer. If Holder declines or fails to respond, Owner may sell to any third party without restriction. This Right expires upon assignment of the Property to any affiliate or upon foreclosure.Tenant holds a ROFO in its lease. Landlord decides to sell and delivers written notice stating asking price $2.5M. Tenant has 30 days to make an offer. Tenant conducts quick due diligence, submits an offer of $2.25M. Landlord counters with $2.4M. After a short negotiation Tenant increases to $2.35M but Landlord declines, believing an outside buyer will pay more. Landlord markets property and receives a $2.6M offer. Depending on the clause, Landlord either must present that offer to Tenant to match (if a matching obligation exists) or is free to proceed. Outcome: Tenant either matches, buys at market terms, or loses opportunity and may later claim breach if Landlord improperly marketed before the ROFO period ended.
Clear timing, documented notices, and financing readiness are decisive. Tenants should secure short financing commitments or pre-approval before relying on ROFOs. Landlords should ensure the ROFO’s trigger and notice requirements are precise to avoid disputes.
It usually delays rather than blocks a sale. ROFO obligates owner to offer the property to the holder first, but owner retains ultimate ability to sell if holder declines or the clause allows sale after refusal.
Typically 15–45 days; 30 days is common. Timeframes depend on transaction complexity and negotiated protections.
Possibly—unless the clause expressly covers affiliate transfers. Good drafting will include affiliate and related‑party transfers as triggers or carve them out only in limited circumstances.
Yes, by mutual agreement. Assignment depends on clause language—holders often negotiate assignability; sellers may resist assignment to speculative parties.
The holder can pursue contractual remedies—often specific performance or damages—depending on the clause and jurisdiction. Early dispute resolution is advisable to preserve remedies.
Pre‑negotiation: transactional attorney + broker. Pre‑acceptance: lender counsel and valuation expert. Dispute: litigation attorney or mediator with real estate experience.
Copies of the ROFO, notices sent/received (with proof of delivery), offers and counteroffers, third‑party bids, appraisal reports, financing commitments, and any correspondence about affiliate deals.
I can draft sample ROFO clauses tailored to holder‑friendly, balanced, or seller‑friendly positions—plus notice templates, acceptance forms, and an anti‑circumvention addendum.
For more detail, see related glossary entries: Right of First Refusal (ROFR) and search local statutes and case law for jurisdictional variations.
Link anchors to use on site: "Right of First Refusal" → https://www.turbohome.com/glossary/right-of-first-refusal; "lease negotiation guide" → /lease-negotiation-guide (add per site structure); "sample clause library" → /sample-clauses (add per site structure).
Use concise FAQ Q&A headings such as "What is a ROFO?", "ROFO vs ROFR — what's the difference?", and "How long does a ROFO response take?" to optimize snippet and FAQ schema.
