About the Important Documents Involved in a Real Estate Transaction
Both the right of first refusal (ROFR) and right of first offer (ROFO) are important documents in a real estate transaction. Both of these documents involve a property owner making their property available for purchase or lease. They require the owner of a property to discuss the sale or lease of the property with the holder before selling to a third party.
There are, however, some key differences between the documents and the way they affect your real estate transaction. The main difference between the two documents is that they are triggered by a different event. With a ROFR, the owner of the asset is not prohibited from negotiating the sale of the assets. A ROFO, on the contrary, requires the owner to negotiate the sale with the holder before offering the property for purchase.
A right of first refusal is important because it assures the holder that they will not lose their rights to an asset if others show interest. It allows the buyer and seller to enter into an agreement in which the buyer is given the first chance to purchase a property when it is listed.
What You Need to Know About a ROFR
- It is an option contract that must be supported by sufficient consideration in order to be considered binding.
- It is considered a future right that is contingent on the property being placed on the market.
- A ROFR involves three parties: the property owner, the ROFR holder, and the individual who is interested in purchasing the property.
- It does not give the holder the right to purchase the property automatically. Rather, the option matures when the owner decides to sell the property or notifies the holder of a bona fide offer by a third party to purchase the property.
- A ROFR is subject to the statute of fraud. This means a ROFR must be signed in writing and contain the essential terms of the option. This usually includes a description of the property and the terms in which the option is triggered.
- The seller is not obligated to sell if the price and terms were not established when the ROFR was created.
Similarly, a right of the first offer is an obligation that allows the holder to purchase an asset before the owner attempts to sell it to someone else. This gives the holder the ability to acquire the property before the owner can consult with other buyers. A qualifying condition of a ROFO is that the parties must agree on the terms of the sale or lease. Otherwise, the holder of the ROFO can sell their property to a third party.
What You Need to Know About a ROFO
- The property owner is contractually obligated to sell (or lease) to the holder of the option before offering it to other parties.
- A ROFO is essentially a compromise between the ROFR and having no pre-emptive rights. Pre-emptive rights are meant to protect shareholders from the dilution of their holdings.
- The property owner is also obligated to negotiate exclusively and in good faith with the holder.
- If the option holder does not buy or lease the property, the owner typically has a limited amount of time to sell to a third party.
As you can see, real estate transaction documents can be a bit complicated, and it is important to make sure all of the necessary details are included. To work with a real estate attorney who can help you through this process, call Belushin Law Firm P.C. at (888) 918-9890 or contact us online.