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Experience:  Litigation Attorney
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what does a paper for first right of refusal ...

Customer Question

what does a paper for first right of refusal mean
Submitted: 6 years ago.
Category: Legal
Expert:  Roger replied 6 years ago.
The right of first refusal is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party (anyone else). In brief, the right of first refusal is similar in concept to a call option.

An ROFR can cover almost any sort of asset, including real estate, personal property, a patent license, a screenplay, or an interest in a business. It might also cover business transactions that are not strictly assets, such as the right to enter a joint venture or distribution arrangement. In entertainment, a right of first refusal on a concept or a screenplay would give the holder the right to make that movie first. Only if the holder turns it down may the owner then shop it around to other parties.

Because an ROFR is a contract right, the holder's remedies for breach are typically limited to recovery of damages. In other words, if the owner sells the asset to a third party without offering the holder the opportunity to purchase it first, the holder can then sue the owner for damages but may have a difficult time obtaining a court order to stop or reverse the sale. However, in some cases the option becomes a property right that may be used to invalidate an improper sale.

An ROFR differs from a Right of First Offer (ROFO, also known as a Right of First Negotiation) in that the ROFO merely obliges the owner to undergo exclusive good faith negotiations with the rights holder before negotiating with other parties. A ROFR is an option to enter a transaction on exact or approximate transaction terms. A ROFO is merely an agreement to negotiate.

Expert:  Roger replied 6 years ago.
Please let me know if you have any additional questions. If not, please click "Accept" so I may receive credit for my time. Thanks.

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