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What is the right of first refusal in a commercial lease?

On Behalf of | Oct 21, 2021 | Commercial Landlord Tenant Law, Real Estate Transactions |

When a landlord and tenant enter into a lease agreement in Arizona, the lease will typically cover many issues including duration, rent, maintenance, and insurance. With many commercial real estate leases lasting anywhere from three to five years, there is a strong possibility that the tenant will seek to expand their business during that time. This is why some commercial leases include a Right of First Refusal (ROFR) to give tenants the first right to lease additional space on the premises. However, the tenant will need to make sure the terms of the ROFR are clearly defined to ensure their rights are protected.

What is a ROFR?

Generally, if there is property adjacent to or near your current property becomes available for lease, and you have a ROFR in your lease, the landlord must offer the option to lease the property to you first before entertaining offers from third parties. The landlord may market the property to others, but you as a tenant should have the right to match any offers that come in.

What should be covered in a ROFR?

Tenants will need to make sure that their ROFR agreement covers all ground and does not leave room for misunderstanding. An ROFR should answer the following questions:

  • When does your ROFR expire? Will you be able to exercise it again?
  • Is your ROFR transferrable to another party?
  • What transactions need to occur for the ROFR to come into play?
  • When an offer has been made, how long does the tenant have to exercise their ROFR?

Negotiating a right of first refusal can be difficult, as they are not part of the standard lease and landlords are not always willing to agree to them. However, an attorney specializing in commercial real estate can help ensure that your lease incorporates clauses that benefit you and your business.