A right of first refusal (″ROFR″) gives you the right to lease additional space on the same terms as those contained in a bona fide offer the landlord is willing to accept from a 3rd party.
A ROFR, however, offers a growing tenant less certainty than a fixed expansion option since the lease does not specify when, if at all, the space is to be made available under the ROFR.
Tenants with negotiating leverage will attempt to supplement their expansion options with ROFRs, while tenants with less leverage, and unable to extract fixed options from the landlord, will look to negotiate ROFRs as a substitute.
Checklist for negotiating a ROFR
- Do you have a continuous ROFR throughout the term of the lease or for only some portion of the lease term? Or do you only have a one-time ROFR?
- Do you have a ROFR as to space anywhere in the building? Or only as to space that is in the same elevator bank, the same floor, or contiguous to the initial premises? Is the ROFR space specifically identified?
- What ″bona fide offer″ from a 3rd party triggers the requirement that you exercise, or not exercise, your ROFR? A written offer, a fully executed letter of intent, a negotiated lease?
- Length of time you have to exercise your ROFR after being presented with the terms of the 3rd party’s offer?
- Do you have the right to inspect the space before having to accept or reject the offer?
- If you reject the landlord’s offer and the ROFR space is then leased to the 3rd party, do you retain a pre-emptive ROFR superior to any renewal right contained in the 3rd party’s lease? Is the landlord required to give you advance notice of the approaching expiration of the 3rd party’s lease?
- Length of time you have to review and sign a lease amendment after receipt of same from the Landlord?
- Must you accept the offered terms, or may you vary them so that the lease term for the ROFR space is coterminous with the lease term of the original premises, but with a prorated reduction in the construction allowance and other concessions? Or is the term of the original lease extended to match the term of the 3rd party ROFR offer? Does the landlord’s offer address other pro-rata entitlements and concessions, such as parking?
- Can you vary the size of the space taken under your ROFR from that which was specified in the landlord’s notice?
- If you exercise your ROFR during the first __ years of your initial lease term, is the per square foot rent for the ROFR space to be at the same rental rate as paid for the rest of your space under the current lease? Or instead, at the rental rate specified in the bona fide offer received by the landlord?
- If you take the ROFR space, do you have the same renewal rights for it that you have for the original premises?
- So long as you continue to lease at least __% of the original premises, do you retain the ROFR despite having previously sublet or assigned a portion of the original premises?
- So long as there is no material Tenant default that has occurred and continued beyond any applicable notice and grace period, do you retain your ROFR?
- Has Landlord granted rights to other tenants that will be superior to your ROFR?
- May your assignee or subtenant exercise the ROFR or is it personal to you?
Don Wenig
Blackacre Advisors LLC
info@blackacreadvisors.com
312-345-4778
DISCLAIMER. Our writings are from a real estate transaction perspective and for informational purposes only. Nothing herein shall be considered legal, accounting, tax, or architectural advice. Please consult with the appropriate professional(s).