Difference Between Right of First Offer & Right of First Refusal

Both rights give you a chance to buy a building you occupy.
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Frequently used in leases to allow tenants the right to buy the units in which they live, the right of first offer and the right of first refusal have very different impacts. One gives you the first shot at the deal, while the other lets you match any deal that comes along. The latter gives tenants a good deal of power, if you can negotiate for it.

Right of First Offer

Sometimes also called a right of first negotiation, a right of first offer means that you get the first chance to buy a property. If you have this clause in your lease, the owner of the property has to let you know that she's thinking about selling the property, and give you a chance to buy it. If you can't come up with a price that you can both agree on, she can then sell the property to whoever she wants at whatever terms she wants without following up with you.

Right of First Refusal

In a right of first refusal, the owner doesn't have to tell you if he's going to sell the building or your unit. He doesn't have to let you know what his listing price is, either. However, once he negotiates with a buyer who has an offer on your unit or building and finds a price, he has to stop that negotiation and give you the offer. If you can match the price and terms, you get to buy the building. This has the effect of making it harder to sell the building, since any purchase gets tied up waiting for you to respond. In fact, if you don't want this right, you might even be able to get the owner to pay you to give it up.

Exercising Your Right

If your lease contains one of these provisions, read it very carefully. Frequently, your rights have a time limit. When the owner lets you know she is thinking about selling, or gives you an offer, you won't be able to sit on it forever. While you might have a month to negotiate a deal, it's equally likely that you'll only have a few days to respond. As such, it can also be wise to proactively contact the owner and try to negotiate before your rights even come into play.

Other Considerations

Not every right of first refusal is written the same way. Instead of requiring you to match an offer, your contract could require you to beat it. It may also require the owner to notify you in a certain way, or require you to provide your offer through a certain means. Even rights of first negotiation can vary. Some have language that require the owner to give you a price or even get an appraisal to pre-establish a price at which you can buy it.

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