Quick answer

A right of first refusal is a right, often granted to a lessee in a lease contract, to be given priority to buy the leased property if and when the owner decides to sell it, on the same terms offered to or by a third party. It is not the same as an option to buy: an option fixes a price and gives the holder the power to buy at that price within a period, regardless of whether the owner wants to sell; a right of first refusal, by contrast, does not fix a price and is conditioned on the owner's decision to sell in the first place, merely requiring that the holder be given the first chance to match a bona fide offer before the property is sold to another. For the right to be enforceable, it should be clearly stipulated, and its terms (such as how the offer is to be communicated) matter. The important consequence arises when the owner sells the property to a third person without first offering it to the holder of the right of first refusal, in violation of the stipulation. The Supreme Court has held that a sale made in violation of a valid right of first refusal is rescissible, and the wronged holder may seek rescission of the sale to the third party (especially where the third party was aware of the right) and may be substituted in place of the buyer, being allowed to buy the property under the same terms. Mere breach may also give rise to damages. So a right of first refusal gives a tenant a priority to purchase, and a sale that ignores it can be undone, protecting the tenant's preferential right.

What It Is

A right of first refusal gives the holder (often a lessee) priority to buy the property if the owner decides to sell, by matching a bona fide offer before it is sold to another.

Not an Option

It differs from an option: an option fixes a price and lets the holder buy regardless of the owner's wish to sell. A right of first refusal fixes no price and depends on the owner's decision to sell first.

Effect of a Violating Sale

A sale made in violation of a valid right of first refusal is rescissible. The holder may seek rescission of the sale to the third party (especially if the buyer knew of the right) and be substituted to buy on the same terms; breach may also give damages.

Practical Takeaways

Frequently Asked Questions

What is a right of first refusal? A right, often granted to a lessee, to be given priority to buy the property if the owner decides to sell, by matching a bona fide offer before the property is sold to a third party.

How is it different from an option to buy? An option fixes a price and lets the holder buy at that price within a period regardless of the owner's wish to sell. A right of first refusal fixes no price and depends on the owner first deciding to sell.

What happens if the owner sells without offering it to me first? A sale made in violation of a valid right of first refusal is rescissible. You may seek rescission of the sale, especially if the buyer knew of your right, and may be substituted to buy the property under the same terms.

Does a right of first refusal need to be in writing? It should be clearly stipulated to be enforceable, and its terms, such as how the offer is to be communicated, matter. A clearly written stipulation avoids disputes over its existence and scope.

This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.

If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.