how a right of first refusal works
right of first refusal clauses are similar to options contracts in that holders are granted rights but not obligations with an rofr the right holder has the right but not the obligation to match or decline to match an offer already made on an asset by another party the person who owns the asset is obligated to notify the right holder that they ve received an offer for their property so if a shareholder wants to sell their share and is subject to an rofr they must find someone willing to make an offer for that share once they have an offer they then must notify the right holder who can exercise their option to match that offer and purchase the share or refuse to match it and let another party purchase it rights of first refusal are usually requested by individuals or companies who want to see how an opportunity will turn out the right holder may prefer to get involved later rather than make a financial outlay and commitment right away a right of first refusal allows them to do so however the right holder generally only has a specified time before the seller can accept another offer moreover the right is also only valid with the seller with whom they contracted right of first refusal clauses can be customized to create variations of the standard agreement the parties involved can incorporate changes such as specifying how long the right is valid or allowing a third party nominated by the buyer to make the purchase a right of first offer rofo is different from the rofr it gives the holder the right to make an offer on an asset before the seller sells it to someone else under an rofr contract the seller must have an offer from another party and then notify the contract holder of that offer advantages and disadvantages of rights of first refusalrofr contracts usually favor buyers but these agreements also have cons special considerationsin the business world rights of first refusal are commonly seen in joint venture situations the partners in a joint venture generally possess the right of first refusal to buy out the stakes held by other partners who leave the venture rights of first refusal are a common feature in many other fields from real estate to sports and entertainment for example a publishing house may ask for the right of first refusal on future books by a new author 