Right of First Offer vs Right of First Refusal

Your Contract Could Make or Break Your Deal

When negotiating contracts, especially in real estate and business sales, two rights often come into play: the right of first offer and the right of first refusal. While they might seem similar, they function very differently and can dramatically impact buyers and sellers. If you don’t fully understand how these rights work, you could be leaving money (and control) on the table.

The right of first refusal gives a potential buyer the ability to match any offer a seller receives from a third party. The right of first offer, on the other hand, lets the buyer make the first move before the seller seeks outside bids. If the seller rejects that offer, they are free to shop for better terms.

If you’re entering into a contract, these rights can shape the outcome of your deal. At Horn Wright, LLP, we help clients structure contracts that align with their financial and strategic goals. Whether you’re looking to secure your purchasing power or maintain flexibility as a seller, our business attorneys can guide you through the process.

Right of First Refusal: The Power to Match or Walk Away

The right of first refusal grants a designated party the option to match any offer a seller receives before finalizing a sale. If the seller gets an offer from a third party, they must present it to the holder of this right first. If the holder chooses to match the terms, they secure the deal. If they decline, the seller is free to proceed with the third-party buyer.

Where It’s Used

A favorite in joint ventures and private company equity sales.
A powerful tool in real estate, especially when tenants want a shot at buying before an outsider steps in.

Why Buyers Love It

Provides an opportunity to purchase without getting into a full-blown bidding war.
Lets buyers see real offers before committing, offering a competitive advantage.

Why Sellers Hate It

Limits the seller’s ability to negotiate freely and maximize their offers.
Can scare off potential buyers who don’t want their offers used as bargaining chips.

Right of First Offer: Your Shot to Set the Terms First

With the right of first offer, the designated party gets the first crack at making an offer before the seller entertains bids from other buyers. This means the buyer has an exclusive window to negotiate directly with the seller, potentially securing a deal before outside parties enter the picture. It allows the buyer to establish a baseline price and start negotiations on their own terms.

However, the seller is under no obligation to accept this offer. If they reject it, they can freely pursue other offers, sometimes securing better terms elsewhere. For buyers, this means they must carefully consider their first offer—too low, and the seller may walk away; too high, and they could overpay unnecessarily.

Where It’s Used

Common in real estate deals where sellers want to gauge interest before going to market.
Frequently seen in private business sales when an existing investor or partner wants first dibs on additional equity.

Why Sellers Love It

Provides flexibility. Sellers aren’t locked into a deal unless they choose to accept the first offer.
Encourages competitive bidding since there’s no guarantee the first buyer will walk away with the deal.

Why Buyers Need to Be Cautious

Allows buyers to set the baseline for negotiations, but that doesn’t mean they’ll win.
If the seller rejects the offer, the buyer has no guaranteed second chance.

Ultimately, the right of first offer gives buyers a valuable opportunity, but it doesn’t offer the same level of security as the right of first refusal. While it enables them to take the lead in negotiations, there’s always the risk that the seller will pass on their offer and strike a better deal elsewhere. Having one of the best law firms in America by your side to know the details of a deal can save you in the long run.

The Big Showdown: Right of First Offer vs. Right of First Refusal—Which One Works Best for You?

If You’re a Buyer…

The right of first refusal offers better protection by giving you the last say in a deal—you either match the best offer or walk away.
The right of first offer gives you a first shot at buying, but no guarantee the seller won’t find a better deal elsewhere.

If You’re a Seller…

The right of first refusal can create headaches by discouraging competitive bidding and limiting your negotiating power.
The right of first offer allows you to entertain an initial bid while keeping the door open for better options.

A Real-World Scenario: Private Company Equity Sales

Imagine a business founder who built a successful company over decades. They’ve decided to sell a portion of their stake to free up capital or transition into retirement. However, two investors have rights that could change how the sale plays out:

Investor A holds the right of first refusal: If the founder secures an offer from an outside buyer, Investor A can step in and match it dollar for dollar, taking the deal for themselves.
Investor B holds the right of first offer: Before the founder can seek offers elsewhere, they must allow Investor B to submit a bid. If the bid is rejected, only then can the founder negotiate with third parties.

For the founder, these rights mean everything. If the right of first refusal is in place, they might struggle to attract serious outside buyers who know their offer could simply be matched. If the right of first offer applies, they may get a fair initial bid, but they aren’t locked in and can still test the market for better options. In either case, these contractual clauses directly impact the sale’s success and final price.

Right of First Offer Versus Right of First Refusal—Which Side Are You On?

Neither right is universally better than the other—it all depends on your strategy and objectives. Buyers looking for certainty prefer the right of first refusal since it gives them a chance to control the outcome. Sellers who want maximum flexibility tend to favor the right of first offer, allowing them to explore competitive bidding.

In the end, what matters most is how these rights are structured in your contract. A poorly written agreement could cost you thousands or even derail your entire deal. Whether you’re a buyer or a seller, working with experienced legal counsel can help you navigate these complexities and protect your interests.

At Horn Wright, LLP, we specialize in crafting airtight contracts that put our clients in the strongest position possible. If you’re negotiating a deal involving the right of first offer versus right of first refusal in New York, don’t go in unprepared.