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How A Right Of First Refusal Clause Works

By Elizabeth R. Elstien

Are you a residential tenant? You may have a right of first refusal clause. If you don't have one, you may want to have the clause added to your next lease agreement. Should the owner decide to sell, this clause gives the tenant an option to purchase the home. It may be a separate addendum or a part of the lease agreement. Here I'll discuss how this clause works.

Activation

The clause is activated when the owner decides to sell to a third party and presents the tenant with written notification of their decision along with the terms of the third-party sale. The tenant can then decide to pursue the sale, in which case the owner pursues the sale with the tenant, or refuse the sale and the third party can purchase the property.

Time frame

Once activated, the tenant has a certain time frame, as set forth in the right of first refusal clause or addendum, to decide to purchase the home they are renting. If the tenant does not exercise their option within the time frame, the owner can sell to the third party using the exact same terms presented to the tenant.

Termination

The clause is dependent on the tenants living in the property known as right of occupancy. It is automatically terminated upon vacancy of property.

Reinstatement

The clause may be reinstated if the owner provides different terms to the tenant based on the third-party sale negotiations. It may also be reinstated if the owner fails to sell the home within the time frame stated in the first refusal clause/addendum. The time frame is based on written notice of sale to tenant.

Breach

If the owner does not offer the tenant the right of first refusal, there is a breach of contract. The tenant may pursue legal action against the owner, but may not get more than damages.

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About The Author

Elizabeth R. Elstien has worked in real estate for over 15 years as a real estate...

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