Right of First Refusal

Term of the Day - 25 January 2024

Today’s Term is “Right of First Refusal”.

The "Right of First Refusal" (ROFR) is a contractual arrangement prevalent in business transactions. This legal provision affords a specified party the primary opportunity to accept or decline an offer before the seller can extend the same offer to other potential buyers.

Essentially, if the holder of the ROFR is presented with an offer to purchase a particular asset or property, they possess the privilege to match the exact terms of that offer and proceed with the transaction based on those terms. In the event that they opt not to exercise their right, the seller is then at liberty to finalize the sale with a third party.

ROFR agreements are commonly employed in various contexts, such as partnerships, real estate, and business agreements. For instance, in a business partnership, if one partner intends to sell their ownership stake, the other partners may hold a ROFR, allowing them the opportunity to acquire the stake before the seller engages with an external buyer.

The inclusion of ROFR clauses in contracts serves to provide the holder with a degree of control and the chance to retain or acquire assets, albeit at the potential expense of limiting the seller's flexibility in exploring alternative buyers. These clauses are meticulously negotiated and drafted to delineate the specific terms and conditions governing the exercise of the right.