Rights of First Refusal, Rights of First Offer, Options to Purchase: Key Provisions for Clarity and Enforceability

Description

Real estate lawyers use ROFOs, ROFRs, and purchase options in several contexts, including all types of commercial leases (office, retail, industrial, warehouse), ground leases, condominiums and planned developments. Purchase rights can have far-reaching impact on the grantor, holder, and subject property but are often an afterthought in the underlying transaction. They must be drafted with care, taking into account potential changes in parties and circumstances which may occur years later.

We will discuss best practices for drafting purchase rights, including the following considerations. The agreement that includes a purchase right should state the conditions for exercising the right to purchase and include a "time is of the essence" clause. All notices and other documentation must be in writing and the parties should be identifiable. The parties should specify whether the preemptive right is a one-time right or a continuing right, whether the agreement requires strict compliance in exercising the right, and whether it is assignable.

The grantor should consider the burden on the title to the property. The grantor may have difficulty financing, selling, or leasing the property as a result of the purchase right. Lenders typically require subordination of an existing right before making a mortgage loan. Purchase rights should contain precise subordination language that addresses financing and foreclosure contingencies so that no further subordination is required.

Listen as our authoritative panel discusses the nuances of ROFOs, ROFRs, and purchase options, as well as key provisions to include in each. The panel will also review title ramifications of preemptive purchase rights and their impact on future financing and sales transactions.