Duhaime's Law Dictionary


Right of First Refusal Definition:

A right given to a person to be the first person allowed to purchase a certain object if it is ever offered for sale.

Also known as:

  • Preemptive right;
  • Preemptive option;
  • First right to buy;
  • Right of Preemption;
  • First Privilege to Purchase; or
  • First Right and Option.

The owner of this right (called the pre-emptioner or the optionee) is the first to be offered the sale if the item is ever to offered for sale.

Or, the right may confer upon the holder the right to match and purchase the property on terms set in the original contract, if any, or offered by another.

For example, in Phipps v CW Leasing Inc. (Court of Appeals of Arizona, 1996):

"A right of first refusal is ... a contractual right to require the owner when and if he desires to sell the premises, to first offer them to the person given the right of first refusal at the same price offered by the third person.

"If the person given this right refuses to meet the bona fide offer, the owner can sell the property to the offeror. The owner must give some notice to the person who has this right of his intention to sell and the terms of the offer.

"The right of first refusal, thus, is a pre-emptive right which becomes an option to purchase when the owner has elected to sell.

"A property owner is liable for damages if he conveys to a third person without honoring the right of first refusal. Moreover, a buyer with actual or constructive notice of the right of first refusal takes the land subject to the right of first refusal and may also be subject to damages or specific performance."

In Tadros v. Middlebury Medical Center, these words form part of the opinion of Justice Norcott of the Supreme Court of Connecticut:

"A right of first refusal is known more technically as a preemptive option, as a right of preemption, or simply as a preemption.

"A right of pre-emption is a right to buy before or ahead of others.

"Thus, a pre-emptive right contract is an agreement containing all the essential elements of a contract, the provisions of which give to the prospective purchaser the right to buy upon specified terms, but, and this is the important point, only if the seller decides to sell. It does not give the pre-emptioner the power to compel an unwilling owner to sell."

The most important element of the legal definition of right of first refusal was articulated by Justice Hays of the Supreme Court of Arkansas in Estate of Johnson v. Carr (emphasis added):

"This option to repurchase is not strictly an option, but is what is usually referred to as a preemptive right or a right of first refusal. The right creates an option based on a condition precedent and ordinarily promises that before offering the property for sale or accepting an offer from another, the owner will first offer the property to the optionee at the offered price or at some predetermined price.

"The wording of these contracts, however, is critical and will vary from contract to contract, thereby affecting the specific right the option holder has."

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