My Tenant Is Asking for a Right of First Offer to Purchase My Property - Should I Agree?
If you’re a small commercial property owner, it’s not uncommon for tenants to express interest in buying the building they occupy. One way they might try to secure this opportunity is by asking for a Right of First Offer (ROFO) in the lease or a side agreement.
But what exactly is a right of first offer—and should you give one to your tenant?
In this post, we’ll explain what a ROFO entails, how it differs from a Right of First Refusal (ROFR), and the potential advantages and risks for landlords.
What Is a Right of First Offer (ROFO)?
A Right of First Offer gives the tenant the opportunity to make the first bid to buy your property before you market it to the public.
Here’s how it typically works:
You decide you want to sell the property.
Before listing it, you notify the tenant and invite them to make an offer.
If you accept the offer, you proceed with the sale.
If you decline the offer, you can then list the property—but often can’t sell it for less than what the tenant offered, at least for a certain period of time.
How Is a ROFO Different from a Right of First Refusal (ROFR)?
While both give the tenant purchase rights, a ROFR allows the tenant to match any third-party offer you receive. That means you market the property first, then loop back to the tenant before selling.
From a landlord's perspective, a ROFO is typically cleaner and causes less disruption to your sales process than a ROFR.
Pros of Granting a ROFO to Your Tenant
Stronger Tenant Relationship
Offering a ROFO can signal trust and partnership, which may encourage longer lease terms or better tenant retention.
Streamlined Sale
If your tenant is serious, a sale could happen quickly and privately—saving you time and costs associated with marketing the property.
Market Testing
Your tenant’s offer may give you a sense of what the market might bear—without having to go to market right away.
Cons and Considerations for Landlords
Restricts Your Flexibility
Even though a ROFO doesn’t obligate you to sell, it limits how you market and negotiate once you decide to sell. You’ll have to wait out the ROFO process before listing publicly.
May Deter Other Buyers
If buyers learn there’s a ROFO in place, they may be reluctant to spend time on due diligence, knowing the tenant could still end up with the deal.
Negotiation Power
ROFO terms can affect your leverage—especially if the tenant assumes they’ll get a discount or special treatment.
Valuation Disputes
If your tenant offers significantly below market value, and you reject it, but then later accept a lower third-party offer, you could trigger a dispute depending on how your ROFO clause is written.
Best Practices Before Granting a ROFO
Make the ROFO time-limited (e.g., 15-30 days to respond)
Clarify acceptable price ranges or sale terms
State clearly what triggers the ROFO (e.g., only voluntary sales, not transfers or estate sales)
Avoid granting the ROFO in perpetuity—tie it to the lease term or renewal periods
Final Thoughts
Giving your tenant a right of first offer can be a win-win if handled correctly—but it’s not without risk. Before agreeing to such a request, it’s critical to understand how the ROFO will work in practice and how it may impact your ability to sell or refinance in the future.
At Jade St. Realty, we help property owners throughout North Lake Tahoe and Truckee navigate these kinds of lease and sale provisions with clarity and confidence. Whether you’re fielding a request or considering a sale, we’re here to help you make informed, strategic decisions.
Contact us for landlord-focused advice tailored to small commercial property owners.