What Is The Difference Between A ROFO And ROFR?

What Is The Difference Between A ROFO And ROFR?

A Right of First Offer (“ROFO”) and a Right of First Refusal (“ROFR”) are contractual obligations commonly seen in real estate transactions. Both rights restrict the owner from selling or leasing an asset without first offering it to the holder of the ROFO or ROFR. The key difference between the two lies in the triggering event that activates each right.

With a ROFO, the owner must negotiate the sale or lease with the holder before involving third parties, while a ROFR is a “last-look” right that comes into play when the owner receives a bona fide offer from a third party. Under a ROFR, the owner must first offer the asset to the holder before selling or leasing it to a third party.

It is important for holders to understand the differences between a ROFO and a ROFR as they often come with strict timeframes for exercise. Consultation with an attorney is recommended to review the contractual rights under these rights.

Key Takeaways:

• A ROFO and a ROFR are contractual obligations commonly seen in real estate transactions.
• A ROFO requires the owner to negotiate the sale or lease with the holder before involving third parties.
• A ROFR is a “last-look” right that comes into play when the owner receives a bona fide offer from a third party.
• Under a ROFR, the owner must first offer the asset to the holder before selling or leasing it to a third party.
• Holders should consult with an attorney to review their contractual rights under these rights.

The ROFO Explained

A Right of First Offer (ROFO) is a contractual obligation commonly used in real estate transactions. It gives the holder of the ROFO the first opportunity to negotiate the sale or lease of a property with the owner before the asset is offered to third parties. This means that the holder has the advantage of a “first look” and the ability to enter into negotiations before anyone else.

When a ROFO is in place, the owner of the property is legally bound to engage in negotiations with the holder of the ROFO before entertaining offers from other potential buyers or lessees. This ensures that the holder has an opportunity to present their offer and potentially secure the property before anyone else.

It is important to note that if the holder of the ROFO fails to exercise their right within the specified timeframe, or if the negotiations between the owner and the holder do not result in an agreement, the owner is then free to sell or lease the property to a third party. Therefore, timing and effective communication between the parties involved are crucial in order to maximize the benefits of a ROFO.

ROFOs can offer a significant advantage to the holder by providing an exclusive opportunity to acquire or lease a property. By engaging in negotiations before third parties, the holder can potentially secure a favorable deal and avoid competition. However, it is essential for both parties to clearly understand their rights and obligations under the ROFO agreement, as well as the specified timelines for exercising those rights.

In summary, a ROFO grants the holder the right to be the first to negotiate the purchase or lease of a property, providing them with an advantage over other potential buyers or lessees. It is an effective tool for securing exclusive opportunities and minimizing competition in real estate transactions.

The ROFR Explained

The ROFR, or Right of First Refusal, is a “last-look” right activated when the owner of an asset receives a bona fide offer from a third party. Unlike the ROFO, the owner is not prohibited from marketing or negotiating the sale or lease of the asset. However, before finalizing the sale or lease with a third party, the owner must first offer the asset to the holder of the ROFR, allowing them the opportunity to match the terms of the third party’s offer.

If the holder cannot meet the terms within the given timeframe, the rights under the ROFR are forfeited, and the owner can proceed with the sale or lease to the third party. The key distinction is that under a ROFR, the third party dictates the terms of the transaction, whereas under a ROFO, the terms are determined between the owner and the holder without the interference of a third party.

Understanding the ROFR is crucial, as it gives the holder the chance to acquire or lease the asset on the same terms as the third party. This right offers a level of security as it prevents the owner from conveying the asset to someone else without first giving the holder an opportunity to match the offer. However, it’s important to note that the holder must be prepared to act quickly within the specified timeframe to exercise their right.