Right of First Offer / Right of First Refusal

What tenants should watch for

Scope of the right

ROFO vs. ROFR. Push for a ROFO over a ROFR where both are available. A ROFO is faster, lower friction, and avoids the antagonism of jumping ahead of a third-party bidder. A ROFR is more powerful only when the tenant has strong reason to believe the market will move against the tenant during the term and the landlord will receive favorable third-party offers.

Subject space. Define precisely. Adjacent space on the same floor, specified suites by reference to an exhibit, an entire floor, the entire building, or "any space in the Project that becomes vacant." Broader is better for tenant; narrower for landlord.

“Becomes available” definition. Landlord forms provide that space does not “become available” (and the ROFO therefore never triggers) if the existing occupant assigns or subleases its space, or re-lets it “by renewal, extension, or renegotiation.” The renegotiation carve-out can swallow the right entirely, because Landlord may restructure an existing occupant’s deal rather than market the space; strike the carve-out or narrow it to bona fide exercises of renewal rights existing on the lease date.

Recurring vs. one-time. Demand a recurring right that re-attaches each time the space becomes available. If landlord does not lease the space within a defined period (e.g., 9 months) after tenant declines, the ROFO/ROFR re-attaches. If landlord leases on materially less favorable terms to the third party than were offered to tenant, the ROFO/ROFR re-attaches.

Survival on Permitted Transfer. Landlord forms make the ROFO personal to the originally named tenant and void it upon any assignment or upon a sublet of any part of the Premises. Provide expressly that the right survives a Permitted Transfer and any transfer to which Landlord consents.

Mechanics of exercise

Triggering event. For a ROFO, the triggering event is landlord’s intent to market the space. For a ROFR, the triggering event is landlord’s receipt of a bona fide third-party offer to lease (a "Qualifying Offer"). Tenant should require landlord to deliver a notice with all material terms.

Response window. Demand at least fifteen (15) business days for a ROFR (to allow tenant to evaluate the offer and negotiate financing/internal approval) and thirty (30) business days for a ROFO. Shorter windows favor the landlord.

Terms mechanic. For a ROFO, the terms are negotiated between the parties; tenant should reserve the right to counter-offer. Specify a fall-back terms-determination mechanic (e.g., market-rent determination by an MAI appraiser if the parties cannot agree) to avoid an impasse that extinguishes the right. For a ROFR, the terms are those of the Qualifying Offer (tenant must accept those terms in full).

Measurement standard. Where the offer-space rent and pro rata share are computed from square footage “deemed by Landlord,” require a defined measurement standard (for example, the applicable BOMA standard) with Tenant’s right to verify.

Declines, carve-outs, and edge cases

Effect of decline. Tenant’s decline of one ROFO/ROFR opportunity should not extinguish the right as to other future events. The right should terminate only on the express terms (e.g., tenant declines and landlord leases within the defined re-attachment period).

Carve-outs. Negotiate the scope of carve-outs: (a) existing tenants’ exercise of their own renewal, expansion, or ROFO rights existing on the lease date; (b) leases of less than a small square footage and short term threshold (e.g., <3,000 SF and <12 months); (c) landlord-affiliate leases at market rates. Avoid broad carve-outs for "renewals and expansions of existing tenants and their successors."

Bundled and structured transactions. For a purchase ROFR, address multi-property and portfolio sales expressly. Landlords may package the covered property with other assets to force the holder to choose between abandoning the right and purchasing assets the right does not cover; courts applying the “bundling doctrine” treat the tactic as contractual sabotage and have permitted the holder to exercise against the covered parcel alone at its allocated price. Require a good-faith allocation of the purchase price to the covered property in any bundled offer and preserve the right to exercise as to that property alone. The right should also reach structured transactions: a transaction cast as a management agreement rather than a lease has been held not to trigger a lease ROFR (see Notable Cases).

One-time versus recurring right: drafting precision. Landlord counsel now drafts refusal rights as expressly one-time rights, forever lost if not exercised on the first offer, and bars assignment of the right without consent, because ambiguous “first instance of exercise” language has been held to leave open whether the right revives on each subsequent potential sale. The tenant-side lesson runs in the opposite direction: state expressly that the right is recurring, that it revives if a noticed transaction does not close or closes on materially different terms, and that it survives Permitted Transfers.

Expansion space: delivery remedies. Landlord-form expansion options require Tenant to accept the expansion space “as is” and “where is,” make time of the essence for the exercise notice, and disclaim Landlord liability for failure to deliver the space. Where an expansion option accompanies or substitutes for a ROFO, negotiate delivery remedies: per-diem rent credits for late delivery, an outside-date termination right as to the expansion premises, and Landlord’s affirmative obligation to recover possession from any holdover occupant.