A right of first refusal is a right to be given the first opportunity to buy a property, on the same terms, before the owner sells it to anyone else. It is commonly given to a lessee in a lease contract. If the owner sells to a third party without first offering the property to the holder of the right on the same terms, the sale can be rescinded and the property offered to the holder, especially where the third-party buyer knew of the right. It is not an option to buy at a fixed price; it activates only when the owner decides to sell.
“If you ever sell, I get the first chance to buy” — that promise is a right of first refusal, and it is more enforceable than many owners assume.
What It Is
A right of first refusal gives its holder the right to be offered the property first, on the same terms the owner is willing to accept from others, before the owner sells to a third party. It is a common clause in lease contracts, protecting a tenant who has invested in a business at the location, and it appears in co-ownership and commercial arrangements.
What It Is NOT: An Option
A right of first refusal must be distinguished from an option to buy. An option fixes a price and gives the holder the power to compel a sale at that price within a period. A right of first refusal does not fix a price and does not let the holder force a sale; it only activates when the owner decides to sell, and then requires the owner to offer it to the holder first on the terms the owner would give a third party. If the owner never decides to sell, the right lies dormant.
Is It Enforceable?
Yes, when validly granted. Although a right of first refusal is not a perfected sale by itself, the Supreme Court has recognized that it is a valid, enforceable right, particularly when it forms part of a larger contract like a lease (supported by the same consideration). Its violation is not without remedy.
The Remedy for Violation
If the owner sells to a third party without first honoring the right, the usual remedy is rescission of the sale to the third party, so the property can be offered to the holder of the right on the same terms. This remedy is especially available where the third-party buyer knew (or should have known) of the right of first refusal — such a buyer is in bad faith and cannot claim the protection of an innocent purchaser. Where rescission is not feasible, damages may be awarded. The point is that the owner cannot simply ignore the right by selling to someone else.
Practical Advice
- Holders (often tenants): put the right of first refusal in writing, ideally with the terms of how it operates (notice, matching period), and consider annotating your interest so third-party buyers are on notice and cannot claim good faith.
- Owners: if you granted a right of first refusal, you must offer the property to the holder first on the terms you would give a third party before selling elsewhere; ignoring it exposes the sale to rescission.
- Buyers: check whether a lease or annotation carries a right of first refusal — buying in the face of a known right is risky.
Frequently Asked Questions
What is a right of first refusal? The right to be offered a property first, on the same terms the owner would accept from others, before the owner sells to a third party. It is common in lease contracts.
Is it the same as an option to buy? No. An option fixes a price and lets the holder compel a sale within a period. A right of first refusal does not fix a price and activates only when the owner decides to sell, requiring the owner to offer it to the holder first.
Is a right of first refusal enforceable? Yes, when validly granted, especially as part of a larger contract like a lease. Its violation gives a remedy, so it is not merely a courtesy.
What happens if the owner sells to someone else instead? The sale to the third party can be rescinded so the property is offered to the holder on the same terms, especially where the third-party buyer knew of the right. Where rescission is not feasible, damages may be awarded.
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 your right of first refusal was ignored, or you want one drafted properly, our firm can help. 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.