Right of First Offer (ROFO) in Contracts Explained
What Is a Right of First Offer?
A right of first offer (ROFO) requires the selling party to give the holder the first opportunity to make an offer before marketing the asset to third parties. If the holder's offer is rejected or they decline to make one, the seller can then negotiate with outside parties.
ROFO vs. Right of First Refusal
These two rights are often confused but work differently:
- Right of first offer (ROFO) — the holder gets to bid first, before the seller seeks outside offers
- Right of first refusal (ROFR) — the holder gets to match or beat an offer the seller has already received from a third party
A ROFO is generally considered less restrictive on the seller because the holder bids without knowing what the market would pay. A ROFR is stronger for the holder because they can see the third-party offer before deciding.
Where It Appears
- Real estate leases — a tenant has the first chance to buy the property before it is listed
- Shareholder agreements — existing shareholders can offer to buy a departing member's shares first
- Joint ventures — one partner gets the first opportunity to acquire the other's interest
Key Terms to Negotiate
- Notice requirements — how the seller communicates their intent to sell
- Response window — how long the holder has to submit an offer (typically 15-60 days)
- Price floor — whether the seller can reject any offer below a minimum price
- Consequences of declining — how long the seller can market to third parties before the ROFO resets
When to Consult a Lawyer
Consider seeking legal advice if you are granting or receiving a ROFO, as the specific procedural requirements can significantly impact its practical value.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.