TL;DR: A right of first offer (ROFO) clause requires a party contemplating a sale to first offer the asset to the ROFO holder before soliciting offers from or negotiating with third parties. The holder has a defined period to make an offer, which the seller may accept or reject. If the seller rejects the offer (or the holder declines to make one), the seller may then market the asset to third parties, typically subject to a floor price or other conditions. Key variables include the trigger event, the offer period, the negotiation window, the price floor on subsequent third-party sales, and the duration of the right.
What Is a Right of First Offer (ROFO)?
A right of first offer gives the ROFO holder a priority opportunity to purchase an asset before the seller opens the sale process to the broader market. The mechanics work in sequence: the seller notifies the holder of its intent to sell, the holder submits an offer within a specified period, the parties negotiate, and if they cannot agree, the seller is free to sell to third parties.
The ROFO is the less restrictive cousin of the right of first refusal (ROFR). Under a ROFR, the seller must first obtain a third-party offer and then allow the holder to match it. Under a ROFO, the holder makes the first offer without knowing what the market might pay. This distinction matters: sellers generally prefer ROFOs because they do not chill the market the way ROFRs do. A potential buyer who knows that a ROFR holder can simply match any offer has less incentive to invest time and expense in making one.
ROFOs appear in commercial real estate (tenant's right to make the first offer on the building), joint ventures (partner's right to bid on the other's interest), shareholders' agreements (existing shareholders' right to offer on departing shares), and IP licensing (licensee's right to bid on additional IP before it goes to market).
Related terms include "right of first negotiation," "right of first bid," "preemptive right," and "preferential purchase right." Some practitioners use "right of first negotiation" and "right of first offer" interchangeably, though a right of first negotiation may involve a broader obligation to negotiate in good faith rather than simply the right to submit an offer.
Why It Matters
ROFOs balance the competing interests of sellers (who want maximum flexibility and price) and holders (who want priority access to assets they value strategically).
Key Elements of a Well-Drafted ROFO Clause
Market Position & Benchmarks
Where Does Your Clause Fall?
Market Data
Sample Language by Position
Holder-Favorable: "If Owner contemplates a Sale of the Property at any time during the Term, Owner shall deliver written notice to Tenant (the 'ROFO Notice') before marketing the Property or engaging in discussions with any third party. Tenant shall have forty-five (45) days from receipt of the ROFO Notice to deliver a written offer to purchase the Property (the 'ROFO Offer'). If Tenant delivers a ROFO Offer, the parties shall negotiate in good faith for thirty (30) days. If Owner does not accept Tenant's ROFO Offer within the negotiation period, Owner may sell the Property to a third party, provided that the sale price is not less than the price set forth in the ROFO Offer and the sale closes within six (6) months."
Market Standard: "Prior to marketing the Property for sale or engaging a broker, Owner shall notify Tenant in writing of Owner's intent to sell (the 'ROFO Notice'). Tenant shall have thirty (30) days after receipt of the ROFO Notice to submit a written purchase offer. If Owner and Tenant do not execute a purchase agreement within fifteen (15) days after Tenant's offer, Owner may market and sell the Property to third parties at a price not less than ninety-five percent (95%) of Tenant's offer. If Owner does not close a third-party sale within nine (9) months, the ROFO right shall reset."
Seller-Favorable: "If Owner receives a bona fide written offer from a third party to purchase the Property, Owner shall notify Holder of the material terms. Holder shall have fifteen (15) days to submit a competing offer. If Holder does not submit a competing offer or if Owner does not accept Holder's offer within ten (10) days, Owner may proceed with the third-party transaction or any other sale on any terms."
Example Clause Language
These examples show ROFO provisions across different transaction types.
Commercial Lease (Tenant ROFO): "If at any time during the Lease Term, Landlord decides to sell the Building, Landlord shall first offer Tenant the opportunity to purchase the Building by delivering written notice to Tenant stating Landlord's intent to sell and Landlord's proposed asking price, if any. Tenant shall have thirty (30) days after receipt of such notice to deliver a written offer to Landlord. If Landlord accepts Tenant's offer, the parties shall execute a purchase and sale agreement within thirty (30) days. If Landlord does not accept Tenant's offer, Landlord may sell the Building to any third party at a price not less than ninety percent (90%) of Tenant's offer. This ROFO shall not apply to transfers to Landlord's affiliates, transfers by operation of law, or sales pursuant to foreclosure."
Joint Venture Agreement: "If any Party (the 'Selling Party') intends to transfer all or any portion of its JV Interest to a third party, the Selling Party shall first offer such JV Interest to the other Parties (the 'Remaining Parties') by written notice specifying the percentage interest to be sold. Each Remaining Party shall have twenty (20) business days to submit a written purchase offer for its pro rata share (or all) of the offered interest. If the Remaining Parties do not collectively offer to purchase the entire offered interest, the Selling Party may transfer the offered interest to third parties on terms no less favorable to the Selling Party than the best offer received from the Remaining Parties."
IP License Agreement: "If Licensor develops or acquires additional intellectual property within the Field of Use during the Term, Licensor shall notify Licensee and provide Licensee with a thirty (30) day period to submit a written offer to license such intellectual property before offering it to any third party. The parties shall negotiate in good faith for fifteen (15) days following Licensee's offer. This right of first offer shall not apply to intellectual property developed under a separate sponsored research agreement or acquired in connection with an acquisition of a third-party business."
Common Contract Types
Negotiation Playbook
Key Drafting Notes
Common Pitfalls
Jurisdiction Notes
United States: ROFOs are enforceable contractual rights under state contract law. Unlike ROFRs, which face occasional scrutiny as unreasonable restraints on alienation, ROFOs are generally viewed as less restrictive and face fewer enforceability challenges. Delaware courts enforce ROFO provisions as written, requiring strict compliance with procedural requirements. California courts similarly enforce ROFOs, though they may apply the implied covenant of good faith and fair dealing to prevent sellers from circumventing the ROFO process. In real estate, ROFOs may be subject to the Rule Against Perpetuities in jurisdictions that still apply it, though most modern statutes have exempted commercial transactions.
United Kingdom: English law enforces rights of first offer as contractual obligations, subject to the requirement that the obligation must be sufficiently certain to be enforceable. A ROFO that fails to specify the offer period, the terms of the notice, or the consequences of non-compliance may be challenged as an "agreement to agree," which English courts have historically refused to enforce. The Land Registration Act 2002 permits registration of rights of pre-emption (which include ROFOs) over registered land. Once registered, the ROFO binds successors in title.
Canada: Canadian courts enforce ROFO provisions in both real estate and corporate contexts. The leading decision in Chase Manhattan Bank of Canada v Sugarman (Ontario) confirmed that ROFO obligations are specifically enforceable, provided the terms are sufficiently certain. Provincial real property statutes govern recording and enforceability against subsequent purchasers. In Alberta and British Columbia, caveats or charges may be registered against title to protect the ROFO holder's interest.
Related Clauses
This content is for informational purposes only and does not constitute legal advice. Market data represents general trends and may vary by industry, jurisdiction, and deal size. Consult qualified legal counsel for specific contract matters.
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