A continuing right of first refusal, or “ROFR,” referred to in the business, is the tenant’s right to first lease space under the same terms and conditions as a third party. It benefits tenants by providing a first opportunity to take the space at the terms and conditions a prospective tenant has agreed to. A landlord usually allows a specified period for the tenant to respond to the ROFR regarding interest in taking the space. The “continuing” portion of a right of first refusal means that the right reinstates itself if (i) the tenant has elected not to lease the space on the prospect’s terms and (ii) the space continues to be available over some time, such as 180 days.
What are the Pros & Cons For Tenants?
This standard provision is added in multi-tenant spaces because it allows the tenant to take space before removing it from the market. However, there are caveats to this provision that a tenant should know. It is not the right to lease space unconditionally at any time. It is only available under the terms and conditions of the third party.
This can present a problem in scenarios where a prospect needs to take more space, more space, or has, in the tenant’s view, a bad deal. It also doesn’t necessarily match your existing lease term. Therefore, you could be taking a longer-term deal than your existing space has left.
Tenant Pros:
First Look: Protection against losing expansion space nearby and the first look at a space being taken at post-negotiated terms
Multiple Protections: A reinstating right if the space is still available (if “continuing” and not a one-time right)
Tenant Cons:
No Flexibility: No flexibility on terms and conditions
No Right To Expand At Will: Only applicable when a prospect is planning to take space and not a right to lease at any time
What are the Pros & Cons For Landlords?
The right of first refusal is usually an easy concession for a landlord because it doesn’t restrict them from leasing to other prospects and provides an existing tenant another chance to take space at the same terms. A landlord might prefer to work with an existing tenant if exercised because it may be an opportunity to re-extend existing space in the building and keep that existing tenant happy.
The downside for landlords is that it encumbers the space. Some prospects looking at multiple options may not like that the deal they’ve worked on may be taken from underneath them or restricted to such right if they try to expand on any other defined space.
Landlord Pros:
Good Bargaining Chip: An easy concession to provide to tenants to get a new lease signed with limited downside
Same Terms & Conditions: A way to appease existing tenants and entice them to expand and potentially re-extend their existing terms
Landlord Cons:
Re-Occurring Right: If it is a continuing right, it will be reinstated continuously if the space becomes available
Encumbered Space: Encumbers the expansion space, which may dissuade prospects’ interest. If a tenant believe their terms might get taken by an existing tenant, then they may not pursue the building further.
