Dealing With The First Right Of Refusal In Property Business

By Author: William King
Total Articles: 365
Comment this article

When you hold an FROR (First right of refusal) on a real estate property (or any other asset for that matter), it basically means the current owner of the property is obligated to offer you the property (to purchase) whenever he/she decides to sell the property. In case the owner sidesteps the person holding First right of refusal, and sell it to another buyer, the FROR holder can take them to court for reparation.
To understand how FROR works, let's have a look at this example. Mr. A owns an apartment and rents it out to Mr. B. After living there for some months, Mr. B develops an interest in purchasing that apartment, for some reasons the transaction cannot take place straight away. However, Mr. B asks for an FROR agreement and Mr. A agrees. Now, once the agreement is signed by Mr. A, he is now restricted to offer this apartment to Mr. B before he finalizes the deal with any other party. For example, when he's approached by a third party with an offer of say, $450,000 USD, and he is willing to accept, he must first contact Mr. B and make an offer for him to buy this apartment for the same amount ($450,000). It is only ...
... after Mr. B refuses to buy, when Mr. A will be free to sell the property to the third party. Remember, Mr. A can not ask for a better price, he must offer the property to Mr. B for the same price, which was being offered to him by the third party.
Question is why a seller in his /her right mindset would agree on presenting someone with an FROR contract. Answer is, because it doesn't really hurt the seller in anyway. However, there are some minor plus and minuses attached to this contract. For example, seller can ask for a small amount as a fee for an FROR contract, also such contract may add a little value to the property. Coming to the negative side, real estate agents are reluctant to deal with such properties, in case the holder of FROR accepts the offer and make a purchase; the agent will be deprived of any commission whatsoever. However, the best thing about First right of refusal is that it doesn't have some predefined clauses or terms, seller and buyers are free to negotiate and jot down their own specific conditions.

There are some modified versions of FROR as well, one of them is Right of First Offer, in which seller has to approach the holder before putting the property on sale.

William King is the director of UAE Dubai Property & Dubai Real Estate Properties Portal: http://www.bayut.com , Pakistan Real Estate & Pakistan Property Portal: http://www.zameen.com and Property & Real Estate Directory: http://www.propertydir.com. He has 18 years of experience in the marketing and trading industries and has been helping retailers, entrepreneurs and startups with their product sourcing, promotion, marketing and supply chain requirements.

First, right, refusal, FROR, real estate, property