Nov. 12, 2025

This piece is sponsored by Woods Fuller.

By Emalee V. Larson-Sudenga, Woods Fuller attorney

In the context of selling or leasing real estate, property owners and tenants often negotiate contractual rights that grant one party a preferential position in the event of a sale. Two of the most common forms of these preemptive rights are the right of first refusal, or ROFR, and the right of first offer, or ROFO. Although they may appear similar, these rights operate in distinct ways, and the differences between them can have significant implications for both the property owner and the holder of the right.

Right of first refusal

The primary distinction between a ROFR and a ROFO lies in timing. A right of first refusal can be exercised only after the property owner receives a bona fide offer to purchase from a third party on terms and conditions acceptable to the owner. At that point, the owner must present the third-party offer to the holder of the ROFR, who then has a limited period to either match the offer or decline it. If the holder chooses not to exercise the right, the owner may proceed with the third-party transaction.

Example:

A commercial landlord receives an offer from a third party to purchase a retail building for $1.2 million. The lease agreement with the current tenant includes a ROFR clause. The landlord must present the offer to the tenant, who then has 30 days to decide whether to match the $1.2 million offer. If the tenant declines, the landlord may proceed with the sale to the third party.

Because the holder can wait to see what the market produces before making a decision, a ROFR can offer a strategic advantage. However, this benefit may come at a cost to the seller. Third-party buyers may be hesitant to submit offers, knowing their proposal could be used merely to set the terms for someone else. Sellers also risk delays if the holder takes time to decide, potentially losing motivated buyers. Additionally, market fluctuations during the waiting period may affect the property’s perceived value.

Right of first offer

A right of first offer often is used as a more flexible alternative to a ROFR. Under a ROFO, once the property owner decides to sell, they must first present an offer to the holder of the right before marketing the property to third parties. If the holder declines the offer, the owner is free to seek other buyers. However, any subsequent offer or agreement with a third party must be on terms no more favorable than those initially offered to the ROFO holder.

Example:

The tenant of the retail building has a ROFO clause in their lease. When the property owner decides to sell the building, they must first offer it to the tenant — say, for $950,000. If the tenant declines, the owner can market the property to others but cannot accept an offer below $950,000 or with more favorable terms than those offered to the tenant.

With a ROFO, property owners initiate the negotiation process on their own terms, allowing them to gauge tenant interest before entering the broader market. This proactive approach can streamline transactions, reduce delays and preserve goodwill with long-term tenants without sacrificing the ability to market the property if an agreement isn’t reached.

Conclusion

Whether you are drafting a lease, negotiating a sale or evaluating your rights as a tenant or property owner, it is important to consider carefully how these rights align with your goals. Clear terms and thoughtful negotiation can help avoid delays and ensure that both parties understand their obligations.

If you have questions about preemptive purchase rights or need assistance structuring your real estate transactions, Woods Fuller’s experienced attorneys are here to help.