Also known as: rights of first refusal · right of first refusals · ROFR
Written by attorneys · grounded in primary & secondary sources — see below
A contractual right that entitles its holder to purchase property or an interest on the same terms offered by a third party before the owner may sell to that third party. The right becomes operative only when the owner decides to sell and receives a bona fide offer. Reasonableness of price and exercise period determines whether the right constitutes an invalid restraint on alienation.
Select any source to read its text and confirm it supports the definition.
Rachel Ramirez devised her ranch to her nephew with a clause granting her longtime neighbor Ronald Reed a right of first refusal if the nephew ever offered the land for sale. The nephew received a third-party offer at market value and gave Reed thirty days to match it at the same price. Reed exercised the right within the period and purchased the ranch, preventing the sale to the outsider.
Rhea Reynolds held shares in a closely held corporation subject to a shareholder agreement giving the company and other shareholders a right of first refusal on any proposed sale to outsiders. When Reynolds received an offer from an unrelated buyer, she notified the company, which matched the price within the contractual window and acquired the shares. The transfer to the outsider was blocked.
Rebecca Ross, a director of Cellular Information Systems, learned of a wireless license opportunity that the company could have pursued under its existing right of first refusal on related assets. Ross acquired the license personally without presenting it to the board. The company later invoked its refusal right and claimed the license as its own opportunity.
Rosa Ruiz, a mixed-blood Ute shareholder, attempted to sell her UDC shares to an outside buyer. The corporation's articles granted the company a right of first refusal on such sales. The government argued it owed no duty to enforce the refusal right because the restriction arose solely from the corporate documents rather than federal termination statutes.
Riley Rivera purchased a condemned lot from the Hawai`i Housing Authority subject to a ten-year right of first refusal in favor of the Authority if Rivera later decided to sell. When Rivera received a market offer from a developer, the Authority matched the price within the contractual period and reacquired the lot for public use.
Regal Apparel conveyed property to Riverside Healthcare under a deed containing a right of first refusal exercisable at any time the healthcare system decided to sell. Years later the system received a third-party offer and gave notice. Regal Apparel attempted to exercise the right decades after the original conveyance, prompting litigation over whether the unlimited duration rendered the right unenforceable.
A right of first refusal is unreasonable if the price term is fixed below market value or the exercise period is excessively long, because either feature substantially impairs marketability. Courts balance the restraint's utility against its harmful effects on alienability. Short periods tied to third-party offers at market price are typically valid.
Supporting sources
…ownership. HHA is authorized to lend these tenants up to 90% of the purchase price, and it may condition final transfer on a right of first refusal for the first 10 years following sale. §§ 516-30, 516-34, 516-35. If HHA does not sell the lot to the tenant residing there, it may lease the lot or sell it to someone else, provided that…
…there can be no liability on the part of the United States for failure to restrain a sale. The petitioners' argument that the
…shareholders enter into a General Option Agreement (“GOA”). The GOA gave the Milliken family and then Milliken itself, a right of first refusal
…the opportunity in question was a block of stock in a closely held corporation, the holder of which was subject to a right of first refusal
Courts are split. Some treat the right as subject to the Rule because it may vest beyond lives in being plus twenty-one years. Others hold that a right of first refusal only marginally affects alienability and is therefore exempt when it requires matching a third-party offer rather than compelling a sale at a fixed price.
Supporting sources
An option gives the holder power to compel a sale whether the owner wishes to sell or not. A right of first refusal arises only after the owner decides to sell and receives a third-party offer. The holder may then match that offer but cannot force a sale on an unwilling owner.
Supporting sources
Admissibility turns on whether the lease is completely integrated. A consistent additional term such as a right of first refusal on adjacent space may be admissible if the parties did not intend the writing to exclude it, but a comprehensive merger clause in a sophisticated commercial lease usually bars the evidence.
Supporting sources