Right of First Refusal (ROFR)

A Right of First Refusal (ROFR) gives an existing tenant the contractual right to lease adjacent or available space by matching a bona fide third-party offer that the landlord has received and intends to accept. A ROFR is a reactive right - the tenant waits for the landlord to surface a real offer before the ROFR is triggered - distinguishing it from a Right of First Offer (ROFO), where the tenant receives the first look before the landlord markets the space at all. Lextract AI flags ROFR exercise windows as critical dates requiring calendar alerts in lease administration systems.

How a ROFR Is Triggered

• Bona fide third-party offer: The landlord must receive and intend to accept an arm's-length offer from a third party for the ROFR space before the existing tenant's right is triggered.
• Landlord's written notice: Upon receiving a qualifying offer, the landlord must deliver written notice to the tenant containing all material terms: proposed rent, lease term, tenant improvement allowance, rent commencement date, and any free-rent period offered to the third party.
• Exercise window: The tenant typically has 5 to 10 business days after receiving the landlord's written notice to either exercise the ROFR (by written notice matching the third-party terms) or allow the right to lapse for that specific transaction.

Key Drafting Issues and Tenant Risks

The most contested ROFR drafting question is whether the tenant must match all terms of the third-party offer - including lease term length, build-out specifications, and tenant improvement allowance - or only the economic terms (rent per square foot and free-rent period). A third-party offer that includes $80/RSF in tenant improvement allowances for a 10-year term may be impractical for an existing tenant who only needs 3 years. Tenants represented by brokers at CBRE, JLL, or Cushman and Wakefield typically negotiate "economic terms only" ROFR matching to avoid this trap.

• Discouraging third-party negotiations: Third parties are reluctant to spend time and legal fees negotiating a lease knowing an existing tenant can match the final terms and take the space, which reduces competition for the landlord and can suppress market rent discovery.
• Anti-waiver provisions: Tenants should negotiate language stating that a single failure to exercise a ROFR does not permanently extinguish the right - otherwise the first declined offer voids the ROFR for all future transactions.
• ROFR vs. ROFO distinction: A ROFO is proactive - the landlord must offer the space to the existing tenant before marketing it, giving the tenant more leverage and certainty. A ROFR is reactive, giving the landlord full freedom to negotiate, which is why institutional landlords and REIT portfolio managers generally prefer granting ROFOs over ROFRs.

Impact on Property Sales and Lender Underwriting

ROFRs create complications when a landlord sells the entire property rather than just leasing space, because some ROFR clauses are drafted broadly enough to cover property sales as well as lease transactions. Institutional lenders and CMBS loan servicers scrutinize ROFR provisions during underwriting because an unexercised or poorly documented ROFR can cloud title and delay a sale closing. Tenant representatives negotiating expansion rights on behalf of growing companies should request that Lextract extract ROFR space descriptions, trigger conditions, and exercise deadlines as tracked critical dates in the lease abstract.