Last Updated May 2026

A right of first refusal clause (also called a first right of refusal clause) gives the ROFR holder the inside track on the sale of a property they have an interest in — the owner can't accept an outside offer without giving the holder the opportunity to match it first.

If the holder declines or doesn’t respond within the required time, the owner is generally free to move forward with the interested buyer.

Knowing how a right of first refusal clause works — including notice requirements and deadlines — is important to both buyers and sellers considering signing an agreement.

What does it mean to have the right of first refusal?

Holding a right of first refusal means that if a property owner gets an outside offer to buy the property (or enter into a lease agreement) with someone else, the ROFR holder gets the chance to match the same offer first. Depending on the wording of the ROFR clause, the holder may or may not be required to accept the offer.

A similar provision called the right of first offer (ROFO) flips the script: the owner has to come to the ROFO holder first, before the property ever hits the market, and the holder gets to name the price.

Common scenarios where the ROFR clause is used

• Real estate. If you rent a home and your landlord decides to sell, an ROFR could give you the first shot at buying it. A homeowner might also negotiate one on a neighboring lot they’d like to own someday.
• Business ownership. When business owners draw up a partnership agreement, a right of first refusal clause can ensure that if one partner wants out, the others get to decide whether to buy that share before an outsider does.
• Leases. A commercial tenant who has built their business in a rented space may negotiate an ROFR so they have first dibs on renewing the lease or expanding before the landlord offers the space to anyone else.

What does it mean legally?

An ROFR is a legally binding contractual right. Once it’s part of a signed agreement, both parties are obligated to follow the process it outlines. Failing to honor a right of first refusal clause — for example, selling a property without notifying the ROFR holder — can expose the seller to legal liability, including potential lawsuits for damages or, in some cases, court orders to reverse the sale. The enforceability and specific requirements of ROFR clauses can vary by state and by how the clause is written. Consult a real estate attorney for advice before you include or agree to one.

How does the right of first refusal work?

The mechanics of an ROFR are fairly straightforward, but the details in any specific agreement matter a great deal. Here’s how the process typically unfolds:

Conditions that may trigger an ROFR

The clause is typically triggered only by a genuine market-rate offer from an unrelated third party, often called a bona fide offer. Some agreements may also specify circumstances that do — and don’t — trigger the clause, such as whether transfers to a family trust or between close relatives count. Reviewing the specific contract language is essential.

Right of first refusal vs. right of first offer: what’s the difference?

An ROFR and an ROFO are easy to mix up — both give one party priority access to an asset, and both show up in real estate and business contracts. But they kick in at different points in the process.

An ROFR gives you the right to match once a deal is made; an ROFO gives you the right to make an offer before any other offers can be sought. Buyers and tenants tend to prefer an ROFR because it guarantees they can match any deal the seller makes. Sellers often prefer an ROFO because it lets them find out early if the holder is interested and if not they can move ahead freely with the sale.

Advantages and disadvantages of the right of first refusal

Benefits for the ROFR holder (often the buyer or tenant)

• Priority access. The right of first refusal holder gets the first opportunity to buy, which can be especially valuable in competitive real estate markets. It can speed up the house-buying timeline.
• Security. Tenants or business partners can feel more secure knowing they won’t lose access to a property or business stake without a fair chance to act.

Potential risks and complications (usually for the seller)

• Reduced marketability. Buyers may be less interested in making an offer on a property that carries a right of first refusal clause.
• Negotiating friction. The process can slow down or complicate a sale, especially if the ROFR holder delays their decision or disputes the terms.
• Impact on property value. In some cases, an ROFR can make it harder to attract competing offers, which could affect the final sale price.

When to include the right of first refusal in contracts

Whether an ROFR makes sense depends on the relationship between the parties and the type of transaction.

Types of contracts that commonly include ROFR clauses

• Residential and commercial lease agreements
• Real estate purchase agreements
• Shareholder and partnership agreements
• Joint venture contracts

Things to consider before adding an ROFR clause

• How long will the ROFR remain in effect? Is it tied to a specific lease term or open-ended?
• What notice and response timelines are required?
• Will the clause cover all terms of a third-party offer or just the price?
• Could the clause limit the property’s marketability or affect its value?

If you’re considering adding an ROFR to a contract — or being asked to sign one — reviewing the language with a qualified attorney is considered a wise step, especially when buying your first home or making a major investment.

Examples of right of first refusal clauses

The specific language of an ROFR clause can vary depending on the type of transaction, the jurisdiction and what the parties have negotiated. Below are simplified examples illustrating different contexts.

Real estate example

“In the event Seller receives a bona fide offer from a third party to purchase the Property, Seller shall provide written notice of such offer to Holder. Holder shall have 10 business days from receipt of said notice to elect to purchase the Property on the same price and material terms as the third-party offer. If Holder does not exercise this right within the specified period, Seller may proceed with the third-party sale.”

Business ownership example

“Should any Shareholder wish to sell, transfer or otherwise dispose of their interest in the Company, they shall first offer such interest to the remaining Shareholders on a pro-rata basis at the same price and terms offered by any prospective third-party purchaser. The remaining Shareholders shall have 30 days to exercise this right.”

How clauses can be customized

Real-world ROFR clauses are often more detailed than these examples. They may specify exactly what constitutes a bona fide offer, how the notice must be delivered, what happens if terms change after the ROFR holder declines and how disputes are resolved. Working with a real estate attorney or legal professional to draft or review ROFR language helps ensure the clause is enforceable and reflects both parties’ intentions.

Four common misconceptions about the right of first refusal

The ROFR holder can set their own terms

An ROFR does not give the holder the right to buy at any price they choose. They can only match the terms of a legitimate third-party offer. If the third party offers $400,000, the ROFR holder generally must also offer $400,000 under the same conditions — not a lower amount.

Sellers can ignore the clause if they find a better offer

The ROFR is a contractual obligation. Selling a property without following the required notice process can expose the seller to legal consequences, including lawsuits for breach of contract or damages.

All property transfers trigger the ROFR

Many ROFR agreements include exceptions for certain types of transfers — such as transfers to a living trust or between immediate family members. Whether these exceptions apply depends on how the clause is written.

A right of first refusal is the same as an option to buy

An option to buy lets the holder purchase a property at a set price within a certain timeframe, regardless of other offers. An ROFR is different: It’s only triggered when the owner receives an outside offer, and the ROFR holder must match that offer — not simply exercise the option on their own timeline.

If you’re preparing to purchase a home, understanding the agreements you’re signing — including any ROFR clause — is one part of a larger process. Once you’re ready to close, homeowners insurance is another important step to have in place before or at closing.

The information contained in this page is provided for general informational purposes only. Read our editorial standards for Insurance Questions and other content. We make no representations or warranties of any kind, express or implied. This does not refer to any specific insurance policy and nothing herein is intended to replace or modify any terms in your actual policy.

Farmers may also provide information on topics that are not directly about insurance policies or coverage that we believe could be helpful to you. Information in such articles is not meant as professional advice, and any reliance you place on such information is therefore strictly at your own risk.

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