Right of First Offer
Candlefocus EditorRFOs are most commonly used in real estate and business sales, as difficulty or disruption can often be caused when a third party attempts to purchase an asset that one party has a vested interest in. This system ensures that the right holder is not taken by surprise and given the chance to protect its interest in the sale. It also provides a sense of security to the right holder that they can re-negotiate a price or terms of sale to stay afloat.
RFOs are used to protect the right holder’s best interests by giving them a first chance to purchase the asset or service. For example, if a tenant holds an RFO on a property they are living in and the owner attempts to sell the property to a third party, the tenant gets the right to make an offer on the property first. This ensures that the tenant is not forced out to make room for somebody else and can make arrangements on how to protect their dwelling. However, the RFO does not guarantee the tenant the purchase of the property or the chance to counter offer a higher price.
In contrast, a Right of First Refusal (RFR) grants the right holder the ability to match any offer the seller has received from a third party. This gives the right holder greater power to influence the deal, as they have the opportunity to accept or outbid any offer the seller has received from a third party.
In conclusion, RFOs are a contractual mechanism which protect the right holders’ interests by granting them the right to buy or bid on an asset or service before the owner attempts to sell it to a third party. Moreover, an RFO favors the seller, while an RFR favors the buyer. It’s important to understand the differences between these two contractual mechanisms before entering into any agreement to ensure that the desired protection is given to the right holder.