Right of First Refusal Clause

A "Right of First Refusal (ROFR) clause" in contracts grants a party the opportunity to match the terms of a third-party offer before the asset or property subject to the offer is sold to that third party. It provides the party with a preemptive right to purchase.

 The key elements of a right to first refusal clause in a commercial contract include:

• Notice Requirement: It specifies conditions under which the party with the ROFR must be notified when the asset is offered to a third party.
• Matching Terms: It defines the terms and conditions under which the party with the ROFR can match the offer made by the third party.
• Timeframe for Matching: It establishes the duration within which the party with the ROFR must decide to match the third-party offer, facilitating timely decision-making.
• Exclusivity Period: It may include a provision granting the party with the ROFR an exclusive period to negotiate and match the terms before the seller engages with the third party.

Examples of right to first refusal clauses in a commercial contract include:

• In a real estate contract, a ROFR clause may allow a tenant to match the terms of a third-party offer before the owner sells the property to that third party.
• A shareholder agreement might include a ROFR clause, giving existing shareholders the right to match the terms of an external offer to purchase additional shares.
• In an IP license agreement, a ROFR clause may provide the licensee the right to match the terms of a third-party offer to purchase the licensed intellectual property.

The Right of First Refusal clause provides a preemptive right for a party to match the terms of a third-party offer. With clear notice requirements, matching terms, timeframe, and potential exclusivity, it ensures a structured and fair process in asset transactions.

To understand more about right to first refusal, here is an interesting follow up read: https://www.virtuslaw.com/2019/03/18/right-of-first-offer-vs-right-of-first-refusal-which-generates-a-more-fair-result/ 

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