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What’s the right of first refusal in a commercial lease?

On Behalf of | Jul 3, 2020 | Real Estate

As a commercial lessor, you want to pair the right tenant with the optimum property in order to ensure its success – and you, a tidy profit.

 A lot of commercial tenants are hedging their bets when they find a place to rent for their business, so they’ll ask for a clause that gives them the right of first refusal. If you’re leasing your commercial property, here’s what you need to know.

 What does a right of first refusal entail?

 Essentially, it’s an agreement within your contract that gives your tenant “first dibs” on the building if you try to sell it. A similar clause can also give them the right to rent any adjacent spaces to their rental that become available before you put them on the open market.

Is it a good idea to give a commercial tenant this right?

Maybe. It can make a forward-thinking tenant more willing to come to the negotiation table on price or other issues. However, you need to be very careful about the language that you use in the agreement.

 Depending on the wording of the agreement, the clause could obligate you to sell the property to the tenant for its appraised value, if the tenant so desires. Or, it could merely give the tenant the right to match any other offer you get and preempt that sale.

Are there alternatives?

You may be more comfortable giving a right of first offer on the property. If you decide to sell, you’re only obligated to let the tenant know and make a good-faith effort to come to an agreement on a price before you offer it elsewhere.

The complexities of commercial leases can be vast. That’s why it’s generally wisest to have an experienced legal advocate assist you as you negotiate with prospective tenants.