Real estate transactions in California sometimes have “OPTIONS” and “RIGHT OF FIRST REFUSAL” clauses granted to buyers or lessees.
A RIGHT OF FIRST REFUSAL is a preemptive right which gives the right-holder a contract right to buy the asset or real property if the owner decides to sell.
This RIGHT OF FIRST REFUSAL is different than an option because, under an option, the optionee/buyer can require the optionor/seller to sell the property.
The RIGHT OF FIRST REFUSAL only gives the buyer/lessee a chance if the owner decides to sell or lease.
The RIGHT OF FIRST REFUSAL is commonly granted to a tenant in a commercial lease. The Right is part of the consideration for the tenant’s covenants under the lease. The Right is triggered when the events stated in the contract occur. Usually, the contract requires that the seller receive a bona fide offer from a third party. It also usually requires the holder of the Right to buy (or lease) on the exact same terms and conditions offered by a third party. In the usual transaction, this can be accomplished and should be enforced. However, the third party offer may include terms that the holder of the right could never satisfy. In that situation the courts in California take a closer look at the offers.
This is for information only about RIGHTS OF FIRST REFUSAL according to law in California real estate and is not the providing of legal or tax services. You should always consult with a real estate lawyer in your area and state about OPTIONS and RIGHTS OF FIRST REFUSAL in real estate contracts.
By Harrison K. Long – Professional real estate representative, REALTOR and broker associate, HomeSmart Evergreen Realty – 949-701-2515 (phone) – ExploreProperties@gmail.com – CALBRE #01410855 – Now serving as an appointed director at the California Association of Realtors – also an attorney member of the California State Bar association #69137