Right of Prior Refusal – A Primer img

Right of Prior Refusal – A Primer

calender icon 6/12/2023    poster icon  Mark Goodman

A right of first refusal poses risk because that right is vested in a third party who has, much like an option to purchase, a prior right to purchase the subject property.

Unlike an option to purchase, which establishes the terms and conditions of the optionee’s purchase agreement with the optioner, a right of first refusal allows the party holding the right the first opportunity to purchase the affected property in the event it is offered for sale.  The holder of the right of first refusal may choose to purchase the property for the amount a third party is willing to purchase it, or may otherwise refuse to exercise its right to purchase, in which case the right has been terminated.  A right of first refusal, therefore, allows the identified right holder to step into the shoes of a prospective purchaser who has made an offer to purchase the subject property.  Much like an option to purchase, if right of first refusal is not addressed prior to a sale transaction, or disposed of as part of that transaction, the first refusal right remains vested in the party identified as the holder of that right and that party may exercise its right at a later time, potentially eliminating a subsequent purchaser, and any interests that flow from that purchaser’s title, from title.

A right of prior approval of a future purchaser or occupant is a right vested in a third party that extends the right holder the ability to approve or deny a prospective purchaser or prospective occupant of the land. If a purchaser or occupant (such as a lessee) takes possession of land affected by such a right, and the prior approval of the party vested with that right of prior approval has not given its consent, the right holder may later decline to approve the purchaser or occupant, thereby forcing that party off of the subject property.