This is a contractual right (not obligation) that gives the holder of this right priority over anyone else to enter into a transaction with a person or business. The parties involved usually include the seller, the holder of the right, and third party interested buyer. If the holder of this right declines the opportunity to enter into an agreement, then the other party may re-open bidding to other interested parties. RFR’s aren’t just present in real estate sales agreements but can also be present in the sale of any asset, like personal property, a patent license, a screenplay, and an interest in a business.
How Is This Used In Real Estate?
In real estate, the right of first refusal is a provision that often exists in a lease or another pre-standing real estate agreement. This right is usually given before a property is even on the market. It gives the holder of the right first dibs on a property before the owner offers it for sale to others.
Who Is RFR Relevant To?
This clause is relevant between a tenant and a landlord where the tenant is potentially interested in buying the property. If the tenant negotiates a right of first refusal clause into their lease agreement, then that gives them the opportunity to buy the house before anyone else if the landlord decides to sell. The landlord can market the property however they would like, but when it comes time to negotiate offers, the landlord must offer the property to the tenant first.
Others That Hold This Right
Homeowners associations and condo boards also hold this right sometimes. They use this as a tool to vet potential buyers before a seller can accept an offer. They do this to regulate sales prices to make sure the value of the community is not negatively impacted through a discount sale.
If you are the potential buyer, holding this right can be beneficial for you. If you enter your lease with this provision in place, it could give you time to adequately prepare for the purchase by getting your credit score up or saving more money for a down payment.