What is Right of First Refusal (ROFR)?

The Right of First Refusal (ROFR) is a contractual provision that grants one party the opportunity to purchase specific assets, goods, or services before the owner can sell or offer them to a third party. This provision is commonly used in various business arrangements to give a particular party the first option to acquire certain rights or assets if the owner decides to sell or transfer them.

Key points about the Right of First Refusal (ROFR) in business agreements include:

1. Asset Sale: ROFR can be applied to the sale of business assets, such as equipment, real estate, intellectual property, or other valuable resources. It allows a designated party to match the terms of a proposed sale before the asset is sold to an outside buyer.

2. Equity Transactions: In the context of equity transactions, ROFR may be included in shareholder agreements or operating agreements, giving existing shareholders the first opportunity to purchase additional shares before they are offered to new investors.

3. Contractual Services: ROFR can also be relevant in the context of contract-based services, where a client or partner is given the first chance to renew a service contract before the provider can offer it to other parties.

4. Notification Process: Typically, the owner of the asset or the party initiating the sale is required to notify the party with the ROFR about the proposed terms and conditions of the sale. The party with the ROFR then has the option to accept or decline the offer within a specified time frame.

5. Price Matching: In many cases, if the owner receives an offer from a third party, the party with the ROFR has the right to purchase the asset at the same price and under the same terms offered by the third party.

6. Legal Considerations: ROFR clauses in business agreements are subject to specific legal considerations and regulations. They must be clearly defined and outlined in the initial agreement to avoid any potential disputes or misunderstandings.

The inclusion of a ROFR in a business agreement can provide a sense of security and priority to the designated party, ensuring that they have the first opportunity to acquire specific assets or rights if the owner decides to sell or transfer them. However, it is essential to carefully consider the implications and potential limitations of a ROFR, as it may affect the owner’s flexibility and ability to pursue other business opportunities. Consulting with legal professionals is recommended to ensure that the ROFR is structured appropriately and complies with relevant legal requirements.