Right of First Refusal - Variations

Variations

The following are all variations on the basic ROFR.

• Duration. The ROFR is limited in time. E.g. Abe must only make the offer to Carl for any proposed sale in the first five years. After that the right expires and Abe has no further obligation to Carl.
• Exceptions. Certain transactions are exempt. E.g. Abe may sell or transfer the property to a holding company, a trust, family members, etc., without first offering it to Carl. However, the new owners remain subject to the right.
• Transferability. Carl may assign his ROFR to Bo. Abe must now offer Bo an option to purchase the property instead of Carl. Not every ROFR is transferable; some are personal to the original holder.
• Extinguished on first sale. If Abe sells the property to Bo because Carl declines the right, the property is no longer subject to the right. Bo may re-sell it free of the ROFR.
• Extinguished on declined / failed exercise. If Abe proposes to sell the property to Bo and Carl declines, or if Carl accepts but is unable to complete the transaction, the right is extinguished whether or not Abe ultimately sells the property.
• Persistent. In contrast to the above two, in this case the right runs with the property and binds the new purchaser. E.g. Abe sells the property to Bo. Now Bo must offer the property to Carl first, just as Abe did, if Bo wishes to re-sell it.
• Offer and acceptance terms. Specific deadlines, procedures, and forms may be required. For example, Abe must give Carl a "notice of sale." Carl has thirty days to accept or reject, with failure to respond counting as rejection. Carl must then close the transaction within thirty days or else that counts as a failed attempt to exercise.
• Limited time period to close transaction. Abe offers the property to Carl under the ROFR and Carl declines. Abe now has 60 days to close the transaction with Bo. If it cannot close within 60 days Abe must offer it again to Carl before proceeding further with Bo.
• Substitute purchaser allowed. Abe offers the property to Carl, who declines. Abe is then free to sell it to Bo but that transaction fails. Abe may sell the property under the same terms to Erin instead without re-offering it to Carl.
• No pending transaction required. Abe wishes to sell the house for $1 million but has not yet identified a purchaser. He prepares proposed sales terms and offers it to Carl on those terms. If Carl declines, he may then shop around for a purchaser.
• Slight variations allowed in exercise. Abe enters an agreement with Bo calling for Bo to put down a 30% down payment, conduct certain inspections, and close the transaction in 20 days. He offers it to Carl at those terms. Carl accepts but is entitled to insist on a 20% down payment and a 30 day closing period.
• Slight variations allowed in sale. Abe offers the house for $1 million to Carl. Carl declines. Abe then enters a transaction with Bo but during the escrow Bo discovers a flaw in title and several defects. Abe is entitled to discount the price by $20,000 to close the sale with Bo without having to re-offer the house to Carl at $980,000.

Many other variations are possible. A fully drafted ROFR addresses all of these types of issues and more, and in the case of valuable or complex transactions is subject to negotiation and review by business transaction attorneys. However, many ROFR are not completely specified. Even the best drafted ROFR agreements suffer a high risk of dispute and litigation because they are anticipating future transactions and contingencies that are unknowable at the time the ROFR originates.