You’re sitting on a gold mine. Maybe it’s a tech startup you helped build from a garage, or perhaps it’s a sleek commercial building in downtown Chicago. Then, out of nowhere, your partner or landlord decides they want out. They want to sell. If you have a right of first offer, you aren't just a bystander watching a "For Sale" sign go up. You’re the first person in line.
It’s powerful. It’s also wildly misunderstood.
Most people confuse this with the Right of First Refusal (ROFR), but they are totally different animals. Think of the right of first offer (often called ROFO) as the polite, proactive cousin. In a ROFO agreement, the seller has to come to you before they even talk to the open market. They name their price. You say yes or no. If you say no, they can go elsewhere, but usually with a catch.
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The Gritty Details of How a Right of First Offer Actually Works
So, how does this actually play out in a lawyer's office? Usually, it starts with a "Trigger Event." This is just a fancy way of saying the owner decided to sell. Under a right of first offer, the owner (let's call them the Seller) sends a formal notice to the holder of the right (the Holder).
This notice isn't just a "hey, I'm thinking of selling" text. It’s a formal offer with a specific price and specific terms.
Here is where it gets interesting. The Holder usually has a ticking clock—maybe 30 or 60 days—to decide if they want to bite. If you’re the Holder, you’re basically looking at a "take it or leave it" deal. If you accept, you’ve got yourself a deal without ever having to outbid a billionaire developer or a rival firm. But if you pass? The Seller is free to list that property or business on the open market.
There is a massive safety net for the Holder, though. Most ROFO contracts state that the Seller cannot sell to a third party for a lower price than what they offered you. Imagine the Seller offered you a building for $10 million. You said no. If they then try to sell it to someone else for $8 million, they typically have to come back to you and offer it at $8 million first. You can’t just be bypassed because the Seller got desperate and lowered the price.
Why ROFO is Often Better Than ROFR (The Secret Perspective)
Landlords and sellers actually tend to prefer a right of first offer over the more famous Right of First Refusal. Why? Because ROFR can be a total deal-killer.
In a ROFR, the seller goes out, finds a buyer, gets a signed contract, and then has to ask the holder if they want to match it. No serious buyer wants to spend $50,000 on due diligence and legal fees just to have the rug pulled out from under them at the last second because a tenant decided to match their price. It chills the market.
ROFO is cleaner.
It lets the seller know exactly where they stand before they spend a dime on marketing. From a business perspective, it keeps things moving. If you’re a tenant in a commercial space, having a right of first offer gives you a seat at the table without making your landlord hate you for ruining their future sale prospects.
Real-World Stakes: When ROFO Saved (and Cost) Millions
Look at the world of professional sports or major corporate mergers. These clauses are everywhere. In commercial real estate, specifically in "Class A" office spaces in cities like New York or London, a ROFO is often the only reason a small but growing firm can guarantee they won't be kicked out if the building changes hands.
Take a hypothetical (but very common) tech hub scenario. A startup is leasing two floors. They have a right of first offer on the third floor. The landlord wants to liquidate. Because of that ROFO, the startup can snatch that third floor at a fair market valuation before a massive conglomerate even knows the floor is available. It’s about control. It’s about the "inside track."
But there are risks.
If you’re the Holder, you have to be ready to move. Fast. You need the financing lined up. If you have a ROFO but no cash, the right is essentially worthless. You’ve just used up your one chance to buy the asset, and now the seller is heading to the open market where you'll have to compete with everyone else—and likely lose your leverage.
Negotiating the "Fair Market Value" Trap
One of the biggest headaches in a right of first offer is determining what the price should be. Sellers want the moon. Buyers want a bargain.
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Often, these contracts include a "Fair Market Value" (FMV) provision. If the two parties can't agree on a price, they bring in the appraisers. Sometimes three of them. One for the buyer, one for the seller, and a third "neutral" appraiser to break the tie. It sounds like a headache. It is.
But it’s a necessary headache. Without a clear mechanism to define the price, a ROFO is just a piece of paper that leads to a lawsuit. Expert negotiators like those at major firms—think CBRE or JLL in real estate—spend weeks just hammering out the definition of "market value" in these clauses. They look at "comparable sales," "capitalization rates," and even "replacement costs."
Common Misconceptions You Should Ignore
- "A ROFO means I get a discount." Nope. Not at all. It just means you get to be first. You’ll still likely pay market price.
- "I can wait until they find another buyer." Wrong. That’s ROFR. In a right of first offer, if you pass, your "first" status is usually gone for that specific sales cycle.
- "It applies to every type of transfer." Usually, ROFOs have exceptions. If the owner dies and leaves the property to their kids, or if they transfer it to a subsidiary company, the ROFO might not trigger. You have to read the fine print.
Key Differences at a Glance
Instead of a boring chart, let's just talk through the logic.
In a ROFO, the ball starts in the Seller's court, moves to the Holder, and then goes to the public. In a ROFR, the ball starts with the Seller, goes to the Public, and then hops back to the Holder at the very last second.
The ROFO is more "seller-friendly" because it doesn't scare away third-party buyers. The ROFR is more "holder-friendly" because the holder gets to see exactly what the market is willing to pay before they commit a single dollar.
Strategy: How to Use ROFO to Your Advantage
If you are a business owner leasing a space, or a minority shareholder in a private company, you want this clause. Period.
It provides a level of "defensive ownership." Even if you don't think you want to buy the whole company or the whole building today, you don't know where you'll be in five years. Having the right of first offer ensures that the future of your physical location or your equity isn't decided behind a closed door without your knowledge.
When negotiating, try to keep the "exercise period" as long as possible. Thirty days is standard, but sixty is better. Buying a multi-million dollar asset takes time. You need to call your bank, check your debt-to-equity ratios, and maybe cry a little bit over the interest rates.
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Also, pay attention to the "re-offer" clause. If the seller goes to the market and can't find a buyer at their original price, make sure the contract forces them to come back to you if they drop the price by even 5%. This prevents them from "pricing you out" on purpose with a high initial offer only to sell it cheaper to a buddy later.
Actionable Steps for Business Owners and Investors
If you're looking at a contract right now and seeing those four words—Right of First Offer—here is exactly what you should do.
First, check the trigger. Does it only apply to a "sale," or does it apply to "any transfer of interest"? You want it to be broad. If they lease the building to someone else for 99 years, that’s basically a sale, and you want to be part of that conversation.
Second, define the "Notice." It shouldn't just be a phone call. It needs to be a written document with the exact price and all material terms (closing date, contingencies, etc.).
Third, look at the "sunset provision." Does this right expire in two years? Five years? Ideally, it should last as long as you have an interest in the property or company.
Finally, get an attorney who actually does this for a living. Not a generalist. You want someone who has seen these clauses fail in court. They will know the "gotchas" that a standard Google search won't tell you.
The right of first offer is essentially an insurance policy for your future growth. It doesn't guarantee you a bargain, but it guarantees you a choice. In the world of high-stakes business, having a choice is often the most valuable asset you can own. Take the right seriously, negotiate the terms like your business depends on it, and always be ready to act when that notice hits your desk.