Right of First Refusal

What It Means

A right of first refusal (ROFR) is a contractual provision in a Co-ownership Agreement that gives remaining co-owners the first opportunity to purchase a departing co-owner's share before it can be offered to an outside party. It is one of the most important protective mechanisms in co-ownership governance.

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When a co-owner decides to exit, the ROFR requires them to notify the remaining co-owners and offer their share on specified terms — typically at fair market value as determined by an agreed-upon valuation method — before seeking an external buyer.

How It Works

A typical ROFR provision defines several key parameters: the triggering events that activate the right, the method for determining the share's value, the notice period required, the timeframe within which remaining co-owners must respond, and the financing terms for the Buyout. These parameters vary by agreement but are essential to making the provision enforceable and practical.

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If no remaining co-owner exercises the right within the specified period, the departing co-owner is generally free to sell to a third party — subject to any additional conditions in the Co-ownership Agreement.

Why It Matters for Co-owners

Co-ownership is both a financial partnership and a living arrangement. A ROFR protects remaining co-owners from being forced into a partnership with an unknown third party. Without this provision, a co-owner could sell their share to anyone, fundamentally changing the dynamics of the arrangement without the consent of other co-owners.

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A ROFR also creates a more orderly exit process. Combined with a Buyout provision and a defined Exit Strategy, it gives all parties clarity on what happens when someone wants to leave.

Key Points

• Gives remaining co-owners the first opportunity to buy a departing co-owner's share
• Prevents unwanted third parties from entering the co-ownership arrangement
• Typically requires fair market value pricing through an agreed valuation method
• Includes defined notice periods and response timeframes
• Works alongside buyout provisions and exit strategies to create orderly transitions