Many net lease tenants, especially national brands like quick-service restaurants and pharmacies, negotiate a right of first refusal (ROFR) or right of first offer (ROFO) to buy the property. These clauses can add weeks to a sale, scare off buyers, and reduce the price you get. Knowing how they work before you buy or sell is critical.
ROFR vs. ROFO vs. Purchase Option
| Right | How it works | Impact on the owner |
|---|---|---|
| Right of first refusal (ROFR) | Once you have a signed offer from a third party, the tenant can match it and buy on the same terms | Most restrictive; buyers may hesitate to spend on diligence knowing they can be matched |
| Right of first offer (ROFO) | Before marketing, you must offer the property to the tenant first at a price you set; if the tenant declines, you can sell to others at or above that price | Moderate; adds time up front but less buyer chilling |
| Purchase option | Tenant can buy at a set price or formula during a set window | Can cap your upside if the price is below future market value |
Why ROFRs Can Lower Your Sale Price
- Buyer chilling: Serious buyers do not want to spend $20K to $50K on due diligence only to be matched by the tenant. Some simply pass.
- Timing risk: 1031 buyers working against 45-day identification and 180-day closing deadlines may avoid properties with an open ROFR window.
- Ambiguous terms: Poorly drafted ROFRs create disputes over whether a portfolio sale, entity transfer, or 1031 exchange triggers the right.
- Survival: Some ROFRs survive a sale and bind the next owner too, which follows the property into every future exit.
What to Check in the Lease
- Is it a ROFR, ROFO, or option, and what exactly triggers it?
- How long does the tenant have to respond, and what happens if it does not respond? (Silence should count as a waiver.)
- Does it apply to transfers of the ownership entity, portfolio sales, or sales to affiliates? Carve-outs for these are important.
- Is it a one-time right, or does it survive a sale and apply to future owners?
- If terms change after the tenant waives (for example, a price reduction of more than 5%), must you re-offer the property to the tenant?
Frequently Asked Questions
Which tenants commonly have ROFRs?
They are frequent in quick-service restaurant, pharmacy, bank, and auto service leases, and on ground-leased pads where the tenant built the building.
Does a 1031 exchange trigger a ROFR?
Selling the property in a 1031 is generally still a sale, so yes, unless the lease specifically excludes it. Transfers into a DST or between affiliates depend on the lease wording.
Can I sell if the tenant never responds?
Only if the lease says silence is a waiver, or you follow the notice process exactly. Get a written waiver whenever possible so title will insure the sale.
Bottom Line
A tenant purchase right is part of the price of the property. Read the clause before you buy, price in its effect on your future exit, and as a seller, deal with it at the very start of the sale process rather than after you have a buyer.
Educational content only, not legal, tax, or investment advice. Figures in examples are illustrative. Confirm specifics with your attorney, CPA, and lender before acting.