What is Right of First Refusal? Plain English Explanation
Definition
A right of first refusal (ROFR) gives one party the right to match any offer before the other party can accept it from a third party. It is commonly found in real estate, partnership agreements, and employment contracts.
Why It Matters in Contracts
A ROFR can slow down deals, reduce competitive bidding, and give one party outsized control over transactions. If you are the one granting the ROFR, it limits your ability to sell or negotiate freely.
Real-World Example
A co-owner of a business wants to sell their share. The partnership agreement gives the other partners a right of first refusal. The selling partner gets an offer for $500,000, but must first give existing partners the chance to match it, potentially delaying the sale for months.
What to Watch For
- 🔴Broad scope covering all transactions, not just specific ones
- 🔴Long matching periods that delay deals
- 🔴No expiration date on the ROFR
- 🔴ROFR that applies to indirect transfers as well as direct sales
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Disclaimer: This glossary entry is for educational purposes only and does not constitute legal advice. Consult a qualified attorney for guidance on your specific situation.