How can you use a right of first refusal to expand your leased space or prevent competitors from moving in?

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If you are leasing a commercial space, you may want to secure a right of first refusal (ROFR) clause in your contract. This gives you the option to rent or buy any additional space in the same building or complex before the landlord offers it to anyone else. This can help you expand your business, prevent competitors from moving in, or negotiate better terms. But how can you use a ROFR effectively? Here are some tips and strategies to consider.

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Shreyansh S.

LLB & LLM in Constitutional & Administrative Law || Lawyer at District Court || Associate Partner at Shree Legal…

1 Know the difference

A ROFR is not the same as a right of first negotiation (ROFN). A ROFN only requires the landlord to notify you of any available space and negotiate with you before marketing it to others. You still have to agree on the price and terms, which may not be favorable to you. A ROFR, on the other hand, allows you to match any offer that the landlord receives from another party and take the space on the same conditions. This gives you more leverage and certainty.

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Shreyansh S.

LLB & LLM in Constitutional & Administrative Law || Lawyer at District Court || Associate Partner at Shree Legal Associate || Head Editor & Founder at LAWLOVELEGAL || Experienced in Commission Sales || Passionate Blogger
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The key points for using a right of first refusal (ROFR) to expand your leased space or prevent competitors from moving in: 1. Understand the ROFR clause in your lease agreement. 2. Monitor the availability of adjacent or nearby spaces. 3. Promptly notify the landlord of intent to exercise ROFR. 4. Negotiate terms for additional space, leveraging your tenant status. 5. Strategically evaluate expansion opportunities and act accordingly. By proactively monitoring leasing opportunities, communicating with your landlord, and strategically exercising your ROFR, you can effectively expand your leased space or prevent competitors from moving in, strengthening your position in the market and securing your business interests.

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2 Define the scope

A ROFR clause should clearly define the scope of the space that you can claim. For example, you may want to specify the location, size, floor, and configuration of the space that you are interested in. You may also want to limit the ROFR to certain types of space, such as office, retail, or warehouse. This can help you avoid triggering the ROFR for space that you do not need or want.

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Amber Stucke

Associate at C&A Friedlander | Corporate Commercial | General Litigation | Notary Public | Founder of PLUM
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In navigating the strategic use of a Right of First Refusal (ROFR) to expand leased space or thwart competitors, clarity is key. The ROFR clause must meticulously delineate the parameters within which it operates. Define the scope comprehensively, specifying location, size, floor, and configuration of desired space. Consider limiting the ROFR to specific types of space—be it office, retail, or warehouse—to prevent unnecessary triggers. This precision not only safeguards against unwanted obligations but also empowers proactive expansion strategies tailored to your precise needs and ambitions.

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3 Set the terms

A ROFR clause should also spell out the terms and conditions of exercising the right. For example, you may want to include the duration of the ROFR, the notice period, the expiration date, and the consequences of waiving or declining the right. You may also want to negotiate the rent or purchase price, or at least a formula or method for determining it. This can help you avoid disputes and delays with the landlord.

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4 Consider the trade-offs

A ROFR clause can be a valuable asset, but it may also come with some trade-offs. For example, the landlord may ask for a higher rent, a longer lease term, or a larger security deposit in exchange for granting you the ROFR. The landlord may also limit your ability to sublease, assign, or terminate the lease. You may also face some risks, such as losing the ROFR if you default on the lease, or being obligated to take the space even if your business needs change. Therefore, you should weigh the costs and benefits of a ROFR carefully.

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5 Monitor the market

A ROFR clause can only work if you are aware of the market conditions and opportunities. You should keep an eye on the supply and demand of commercial space in your area, and compare the prices and terms of similar properties. You should also maintain a good relationship with the landlord and communicate your interest and expectations regularly. This can help you anticipate and respond to any offers or changes that may trigger the ROFR.

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6 Seek professional advice

A ROFR clause can be complex and nuanced, and may have legal and financial implications for your business. Therefore, you should seek professional advice from a lawyer, an accountant, or a broker before signing or exercising a ROFR. They can help you understand the risks and rewards of a ROFR, draft and review the contract, and negotiate and execute the deal. They can also help you protect your interests and rights in case of any disputes or conflicts with the landlord.

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How can you use a right of first refusal to expand your leased space or prevent competitors from moving in?

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1 Know the difference

2 Define the scope

3 Set the terms

4 Consider the trade-offs

5 Monitor the market

6 Seek professional advice

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