What is a Right of First Refusal (ROFR) and can it be used nefariously?
In: Economics
Can you provide more specific context? But in general, it means that somebody or some entity has to first be offered something before being offered for general sale.
Say you have partners who own a business. If there’s a Right of First Refusal clause of the partnership agreement, then if one partner wants to sell their portion of the business, the other partner would have the right to buy the half they don’t yet own before the selling partner could approach anybody else to buy or list for sale on the general open market. Only when the other partner declined to but the rest of the company can it be sold to somebody else.
Right of first refusal is usually a contract stipulation that says if you are going to sell your stake in something then you need to first offer it to someone that is a party to the contract. If they refuse (hence, ‘first refusal’) then you can sell to someone else.
Say I form an LLC to purchase a nice big house with my sister because otherwise we couldn’t afford it otherwise. In our partnership I would stipulate a right of first refusal between us. So if she wants to sell her stake, she has to first offer it to me and vice versa.
The reason I would want this is I truly want to own the whole thing and in the future I might have that ability, so if the opportunity comes up I want to have first crack at it instead of having to deal with a new partner I don’t know and don’t like.
In real estate, a Right of First Refusal is typically an option to match (or beat) the best offer to buy a property. It could have monetary value.
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