If you have purchased a commercial space that you are renting out to one or more tenants, you may be looking for ways to make signing a lease agreement more lucrative. One way to do this is by offering tenants a “right of first refusal” or a “right of first offer” in the event that you ever choose to sell the property. But what is a right of first refusal, what is a right of first offer, and how do these two deals differ from one another when it comes to commercial real estate? We explore the answers to these questions in today’s blog.
Right Of First Refusal And Right Of First Offer
Both a right of first refusal and a right of first offer are techniques that may be used to incentivize a tenant to sign a lease at your commercial space. While the two types of deals are similar, they vary slightly, and knowing the difference between the two will be helpful:
- Right Of First Refusal - Giving a tenant the right of first refusal means that they have the option to match an offer that comes in when the owner decides to sell a property.
- Right Of First Offer - A right of first offer is slightly different, and it is triggered the moment that the property owner decides to list the property on the market.
In general, a right of first offer tends to favor the seller. It allows them to get their asking price if the tenant agrees, it cuts down on other expenses related to listing and marketing the property, and it leads to a more predictable sale process since you and the buyer are familiar with one another. A right of first refusal tends to favor the tenant. The tenant doesn’t need to make any decisions until someone else has come in and showed an interest in acquiring the property for a specific price, at which time they can choose to match the deal.
Knowing that a property has a right of first refusal associated with it can also dissuade potential buyers, as they’ll know that any offer they make can be matched by the tenant, and all their efforts will be for naught. That said, they can still be beneficial for the seller, as a right of first refusal allows them to get an acceptable offer and work with a tenant that they are already familiar with during the sale process.
If you’d like to learn more about either of these lease options, or for more information about commercial real estate investing, connect with the team of experts at Commercial Partners. We’ll make sure that your interests are protected and that you develop a lease agreement that is beneficial for you and lucrative for potential tenants. For more information, give the team at Commercial Partners a call today at (612) 337-2041.