The right of first refusal (ROFR) is a powerful tool used in real estate transactions, granting a specific party the initial chance to purchase a property before it's offered to the general market. This clause can be included in various situations, including:

  • Seller and Existing Tenant: A landlord might offer a tenant the right of first refusal if they decide to sell the property.

  • Co-Owners: Co-owners selling their share of a property might grant the remaining owner(s) the right of first refusal.

  • Estate Planning: An inheritance might be structured with ROFR clauses, giving certain beneficiaries the first opportunity to purchase the property.

Understanding the ROFR Clause:

The specific terms of an ROFR clause can vary significantly. It's vital to carefully review and understand the details outlined in the agreement, such as:

  • Trigger: The clause outlines the event that triggers the ROFR. In Maryland, this could be a formal listing, a signed purchase agreement with another buyer, or simply the seller's decision to sell the property.

  • Notification Timeline: The party with ROFR (tenant, co-owner, beneficiary) must be notified according to the terms of the clause. This typically involves a written notification and includes details like the asking price and any deadlines.

    • Intent to Sell: Clearly state your intention to sell the property.
    • Asking Price: Include the asking price or the terms of any existing offer (if applicable).
    • Deadlines: Inform the party with ROFR of the deadline for exercising their right (typically 30-60 days).

  • Matching Offer Requirements: The ROFR clause might specify if the party with ROFR needs to match the exact terms of another offer or allows for negotiation.

  • Inspection Rights: Some clauses might grant the right to conduct inspections during the ROFR period to assess the property's condition.

  • Respect the ROFR Window: Refrain from accepting offers from other buyers until the ROFR window closes. This ensures the party with ROFR has a fair chance to decide whether to purchase the property.

  • Respond to Decisions: Once the deadline for exercising ROFR has passed, you can proceed based on the party's decision:

    • Exercise of ROFR: If the party with ROFR submits a matching or counteroffer within the timeframe, carefully review it. You can choose to accept, negotiate, or reject the offer based on your own terms.
    • Waiver of ROFR: If the party with ROFR declines to purchase the property within the deadline, you can then proceed with marketing the property to the general market or accepting offers from other interested buyers.

Additional Considerations:

  • Seek Professional Guidance: For complex ROFR clauses or potential disputes, consulting with a real estate attorney is highly recommended.

  • Maintain Documentation: Keep copies of all notifications, communications, and offers related to the ROFR process for your records.

Consequences For Not Honoring ROFR

The consequences of not honoring a right of first refusal (ROFR) depend on the specific wording of the clause and the state's laws. It isn’t clear yet what the repercussions will be if a Landlord does not honor the ROFR for a tenant under the Renter’s Sustainability Act of 2024. However, there are potential repercussions a seller might face if they breach the ROFR agreement.

Here are some possibilities:

  • Lawsuit: The party with ROFR could potentially sue the seller for breach of contract. If the court finds in their favor, the seller might be ordered to:

    • Compensate the party with ROFR: This could involve financial compensation for the lost opportunity to purchase the property at a potentially lower price.
    • Sell the property to the party with ROFR: In some cases, the court might order the seller to sell the property to the party with ROFR at the originally proposed price, even if it's lower than what another buyer might offer.

  • Specific Performance: Depending on the wording of the clause, the party with ROFR might be able to seek "specific performance" through the court. This would force the seller to complete the sale with them according to the terms outlined in the ROFR clause.

  • Reputational Damage: A lawsuit can be a lengthy and expensive process. Even if the seller prevails, the legal battle can damage their reputation in the real estate market.
    The right of first refusal can be a valuable tool in real estate transactions, offering both advantages and considerations for buyers and sellers. By understanding the terms of the clause, following the outlined steps, and maintaining open communication, all parties involved can navigate the process effectively and reach a mutually beneficial outcome.

If you have questions or would like to discuss property management services for your investment property, give us a call at 443.252.3385 or email us at info@bluedoor-pm.com today!

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