ROFOs, ROFRs, and options are usually granted to a party (the “Holder”) as part of a larger transaction, such as a lease, a purchase and sale contract, or a joint venture agreement. Each preemptive right imposes a burden on the party granting it (the “Grantor”) and the real property it affects (the “Subject Property”). A simple explanation of each follows:
- ROFO: A right of first offer, also sometimes called a “right of first opportunity,” gives the Holder the opportunity to respond to an offer the Grantor is willing to make to the Holder (or the opportunity to make an offer to the Grantor).
- ROFR: A right of first refusal gives the Holder the right to match an offer received from a third party or made by the Grantor to a third party. With either a ROFO or a ROFR, the Grantor is ordinarily free to sell the Subject Property to others if the Holder does not exercise the right.
- Option: An option is a unilateral power granted to the Holder to exercise a right to purchase the Subject Property or, for a lease, to extend or shorten the term or to expand or contract the leased premises.
Pros and Cons—An Overview
ROFRs provide a good place to begin an assessment of preemptive rights because they occur so frequently in real estate transactions. What advantages account for the popularity of ROFRs? Theoretically, with a ROFR, the market sets the price because the Grantor must have a bona fide offer in hand. The Holder gets a cost-free preemptive right, and the Grantor can decide whether and when to trigger that right. But the mere existence of a ROFR makes marketing tough—a distinct disadvantage for the Grantor. Moreover, ROFRs are rife with the potential for disputes, which can take many different forms. See generally Carl J. Circo, Interpreting Stale Preferential Rights to Acquire Real Estate: Beyond the Restatement of Property, available at http://ssrn.com/author=622638 (forthcoming in the Villanova Law Review, 2017).
Some of the most common problems involve uncertainty about what triggers the right and disputes over whether the Holder’s attempted exercise adequately matches the third-party offer. For example, in recent cases involving property held by tenants in common, the question has been whether commencement of a partition action triggers the ROFR. See, e.g., Tuminno v. Waite, 972 N.Y.S.2d 775 (App. Div. 2013). Matching problems come up in many different contexts, such as when a third party’s offer includes a unique term (perhaps an agreement to subject the property to a use restriction or to use seller financing). See Del. River Pres. Co. v. Miskin, 923 A.2d 1177 (Pa. Super. Ct. 2007); Christian v. Edelin, 843 N.E.2d 1112 (Mass. App. Ct. 2006).
Is a ROFO a better device than a ROFR for managing an uncertain future? Of course, with a ROFO the Grantor is still not obligated to sell, and the Holder still gets a cost-free opportunity, so that much is unchanged. The cases suggest that ROFO disputes may be somewhat less common, but they still arise too frequently. Consider, for example, a Grantor’s offer that includes not only the price but also an agreement that the buyer will not oppose the Grantor’s development plans on adjoining property. See SKI, Ltd. v. Mountainside Props., Inc., 114 A.3d 1169 (Vt. 2015). Perhaps the most significant difference between a ROFR and ROFO is that, under a ROFO, somebody has to come up with a price without real help from the market—first offer strategies are tricky. Bottom line: the risks remain high.
The final preferential right of focus in this article is the purchase option, which features certain attributes that tend to reduce the risk of disputes. To arrive at an enforceable option contract, the parties must agree on the material terms of the potential sale, thereby leaving much less to be resolved when the Holder exercises the option. In addition, the controlling legal principles (offer, acceptance, contract formation) are simple and relatively clear. But the option is a one-sided deal—an irrevocable offer to sell no matter what happens in the market. For that reason, an option can produce an extreme case of seller’s remorse, as when an extraordinarily favorable and entirely unanticipated zoning change occurred during a relatively long option term. See Cornish Coll. of the Arts v. 1000 Virginia Ltd. P’ship, 242 P.3d 1 (Wash. Ct. App. 2010). Moreover, because the Grantor and the Holder must work out the material terms in advance, and because the market as well as the law call for an option price, transaction costs can be much higher than with ROFRs and ROFOs.
As these preliminary observations indicate, preemptive rights often foster disputes. The sections that follow consider some of the most common issues in greater detail.
The Waters Are Troubled
As transactional lawyers are all too aware, even the most straightforward real estate deal can end up in litigation. When expectations are frustrated and the stakes are high enough, typically someone is willing to file a lawsuit to enforce, to modify, or even to avoid the contract. Preemptive rights are frequently at the center of such disputes. Arcane feudal law, sketchy drafting, and less-than-perfect implementation frequently combine to create the litigator’s “perfect storm”—and the client’s worst nightmare.
The cases involving preemptive rights reflect judicial confusion over the applicable law, on how the various preemptive rights devices work, and even how to distinguish one from the other. In the courts’ defense, many provisions are not models of clarity. Frequently, these devices are included as an afterthought, or as a hastily prepared provision no one expects will ever be needed or used. In addition, it is not uncommon for preemptive rights to be long-lived. With the passage of time can come unforeseen (and unforeseeable) changes in circumstances that tilt the bargain in ways that were never intended. Parties who perceive their expectations are at risk grasp at anything that might leverage the deal into balance, and the small cryptic provision buried on page 56, for example, becomes the tail that wags the dog.
From a litigator’s perspective, however, a little more thought on the front end and a little more care on the back end can make a world of difference. You may not stay off the battlefield entirely, but your preemptive right can be more combat-ready.
Why Parties Do Not Always Get the Deal They Made
In preemptive rights litigation, whether anyone requests it or not, typically the judge makes a threshold determination as to what type of preemptive right (if any) is involved. Such “judicial labeling” is not always well informed. By way of example, it has been held that what appeared to be an option was really a contract of sale in disguise (and vice versa). See, e.g., Carter v. Smith, 184 S.W. 244, 245 (Tex. Civ. App. 1916), writ refused. It has likewise been held that what masqueraded as a right of refusal was actually an option. See, e.g., Overton v. Bengel, 139 S.W.3d 754, 757 (Tex. App. 2004) (“Right of First Refusal” granting right to purchase property for a fixed price within a set period is an option). Although preemptive rights have attributes in common, each device is structured to apply in certain circumstances and functions as expected only in those circumstances. For obvious reasons, the parties’ bargain may be skewed, or even frustrated entirely, when the court misapprehends, and therefore mislabels, the device before it.
To illustrate, there are cases in which a deal intended to be a contract of sale has been erroneously labeled as an “option” on the basis that the contract did not afford the remedy of specific performance. See, e.g., White v. Miller, 518 S.W.2d 383 (Tex. Civ. App. 1974), writ dism’d. This basis for distinguishing the two is nonsensical; both an option and a contract of sale can be specifically enforceable. Probus Props. v. Kirby, 200 S.W.3d 258 (Tex. App. 2006), pet. denied. More to the point, erroneous “labeling” deprives both parties of the benefit of the bargain they made. A purchaser who bargained for equitable ownership (and all that goes with it) may end up with only a contract right. A party who bargained for substantial compliance may be held to strict performance—and sometimes after the fact, when nothing can be done about it. A party who bargained for slight delays in performance may discover that time is essential. A party who bargained for a binding bilateral contract may end up with a contract that typically is revocable.
Such arbitrary results have prompted makeshift efforts by the courts to create a bright-line rule. Under the “modern rule,” for example, a contract is an option if it requires the seller to accept a stipulated sum in full settlement of its damages, as its sole remedy, should the buyer fail to perform. This is a danger zone. Many contracts of sale now include conditions and contingencies that make performance appear “optional.” Further, sophisticated parties often insist on excluding the remedy of specific performance for purely economic reasons. Neither of these choices actually converts a contract of sale into an option, but the courts have disagreed.
Do not leave room for “interpretation” when you can avoid it. State whether time is of the essence. Specify whether strict performance is required. State whether the right is assignable. Allocate the risk of loss before closing. Include “successors and assigns” language and record a memorandum if you want the right to run with the land. Recite that the contract is supported by consideration and, therefore, is irrevocable. See, e.g., 1464-Eight, Ltd. v. Joppich, 154 S.W.3d 101, 109–10 (Tex. 2004) (discussion of majority and minority rule). You get the idea: if a duck is what you want, give the court something with feathers, a bill, and webbed feet.
Other Potentially Troublesome Issues
Bona Fide Offer
Most ROFRs are triggered when the landowner receives a “bona fide offer” for “sale” of the property from a third party. At this point, the landowner is typically obligated to give notice. The Holder must in turn “use it or lose it.” Although this is a pivotal event, the line is not always bright.
A “bona fide offer” is typically defined as one made in good faith that is capable of being accepted. Some courts have added: “so as to ripen into a valid and binding contract that could be enforced by any party to it.” Thus, even a nonbinding letter of intent may be a bona fide offer that triggers the right. Electric Reliability Council of Texas, Inc. v. Met Center Partners-4, Ltd., No. 03-04-00109-CV, 2005 WL 2312710 (Tex. App. 2005), at *8, no pet. Further, as discussed below, an offer that includes “extra” terms may be a bona fide offer. Examples include a requirement for governmental approval or an agreement to restrict the covered property. To be in good faith, however, the offer must be made with the actual intent to purchase on the stated terms.
The term “sale” has been interpreted broadly and may include the transfer of the landowner’s equitable title. Gifts, foreclosure sales, transfers ancillary to divorce, and partitions generally have not been considered “sales.” In Tenneco, Inc. v. Enter. Prods. Co., 925 S.W.2d 640 (Tex. 1996), the Texas Supreme Court held that a stock sale by one participant did not trigger a preemptive right in a joint operating agreement, principally because a stock sale (unlike an asset sale) would not transfer title to real property.
“Package deal” typically refers to an offer or notice that includes more than what is covered by the preemptive right. In general, neither party can force the other into accepting a “package.” As noted above, however, a limited exception has been recognized. Offers and notices may include other assets and terms, provided they are commercially reasonable, imposed in good faith, and not designed to defeat the right. For example, a “package” might include condominium units other than the unit identified in the right or additional acreage adjacent to the covered property.
“Package” offers and notices cannot be disregarded because they can trigger the right. In some jurisdictions, the Holder has a duty to investigate terms the Holder considers uncertain or unclear and bears the risk of failing to do so. If the right has or may have been triggered, the Holder must respond in time to preserve the Holder’s right and may be required to make a proper tender of the applicable price.
“Package deals” can be contractually managed. “Extra” terms or conditions can be expressly prohibited. The contract may provide the Holder the right to purchase only what the Holder chooses and to reject “extra” terms without losing that right. Alternatively, the contract may expressly require the Holder to purchase everything included in the offer. Price is another variable to consider. If you allow something extra to be included, provide a formula or other mechanism by which to revise the price.
A few blackletter rules come up regularly in preemptive rights litigation. First, the statute of frauds applies and will often prevent a party from proving that the document—poorly drafted or not—does not reflect the intentions of the parties. See Rappaport v. Estate of Banfield ex rel. Hoguet, 924 A.2d 72 (Vt. 2007). Second, the rule against perpetuities rears its charming head regularly, albeit sometimes in useless desperation when a Grantor grasps at every technical straw to escape a preemptive right that has become less desirable with the passage of time. See, e.g., Pew v. Sayler, 123 A.3d 522 (Me. 2015); Jarvis v. Peltier, 400 S.W.3d 644 (Tex. App. 2013). Section 3.3 of the Restatement (Third) of Property: Servitudes flatly says the rule does not apply to options, ROFOs, or ROFRs. Restatement (Third) of Property: Servitudes § 3.3 cmt. (2000). That may be a sufficient answer for a law school exercise but not necessarily for a court. Check the law in the jurisdiction, and remember that preemptive rights will sometimes predate the relaxed statutory rule against perpetuities adopted in many states. Even if the rule against perpetuities does not apply, preemptive rights may sometimes constitute illegal restraints on alienation. Section 3.4 of the Restatement (Third) of Property: Servitudes applies the rule against unreasonable restraints on alienation, giving it teeth in the case of options. But the Restatement’s view is that ROFOs and ROFRs are such insignificant restraints on the Grantor’s right to transfer that even those of indefinite duration may be legal as long as, once triggered, they must be exercised within a reasonable time. Insignificant restraints? Perhaps in theory, but in practice, as we have seen, a ROFO or ROFR seriously impairs marketability.
Finally, an especially arcane rule of law in this area is one that rarely comes up in the cases but that played a central role in a particularly entertaining dispute over a proposed development in the Hamptons that featured some of Long Island’s rich and famous—the stranger to the deed rule. A deed with a reservation or exception in favor of a third party—a stranger to the deed—does not create a valid interest in the third party. See Peters v. Smolian, 12 N.Y.S.3d 824 (Sup. Ct. 2015). But is a ROFO or ROFR a reservation or an exception or something else? Those who are interested in one court’s answer may find Peters v. Smolian a case worth reading.
Strict Compliance . . . or Not?
Another recurring area of dispute is whether the Holder has properly exercised the right and whether the parties have otherwise performed in accordance with the terms of their agreement. At least one recent case suggests that strict compliance applies to the exercise of a right but that a substantial compliance test should apply to other issues. See Pack 2000, Inc. v. Cushman, 89 A.3d 869 (Conn. 2014). Thus, the option Holder who gives timely notice but fails to follow a procedure for timely confirmation by registered mail as specified in the agreement may be out of luck. Casey v. Nat’l Info. Servs., Inc., 906 So. 2d 710 (La. Ct. App. 2005). Yet a tenant who defaults under an ancillary lease obligation may be forgiven even if the option provision explicitly conditions the right on the absence of any lease defaults. Cornish Coll. of the Arts v. 1000 Virginia Ltd. P’ship, 242 P.3d 1 (Wash. Ct. App. 2010). The cases are inconsistent on such questions as whether a Holder who ignores an arguably minor term of an offer forfeits the right and what to do about nonmonetary terms of an offer. See Fienberg v. Hassan, 928 N.E.2d 356 (Mass. App. Ct. 2010); Roeland v. Trucano, 214 P.3d 343 (Alaska 2009); Jones v. Stahr, 746 N.W.2d 394 (Neb. Ct. App. 2008). These problems become more perplexing when one or both parties seem to be maneuvering disingenuously for strategic advantage—behavior that is not in the least uncommon in these cases.
The strict compliance question comes up in many situations, especially when the underlying issue is matching. Consider the Grantor who, after having negotiated a ROFR with a Holder who would only want the Subject Property for development purposes, solicits an offer from a third-party buyer who is willing to accept a severe use restriction. See Del. River Pres. Co., Inc. v. Miskin, 923 A.2d 1177 (Pa. Super. Ct. 2007). Or what about the ROFO Holder who has no interest in the seller financing that is integral to the proposed first offer? Should that Holder have the opportunity to purchase at a higher cash price that gives the Grantor the commercial equivalent of the investment and tax benefits of the installment sale? Finally, when questions of strict compliance arise, some of the opinions seem to give real teeth to the obligation of good faith and fair dealing, while others hold that what constitutes good faith simply depends on what the agreement explicitly says. A noteworthy case in the latter category holds that the Grantor of a last right of refusal was free to use the Holder as a stalking horse in a series of third-party offers featuring escalating prices, especially because the court believed the Holder was trying to manipulate the circumstances to pick which of the several offers should count as the last one. See Jeremy’s Ale House Also, Inc. v. Joselyn Luchnick Irrevocable Trust, 798 N.Y.S.2d 416 (App. Div. 2005).
Enforcement Through Litigation Can Be Risky
In general, a Holder seeking to specifically enforce a preemptive right must prove a valid and existing right and must have complied with all conditions of the contract. Actual tender also may be required. Frequently, there is a dispute as to whether the right has been triggered and, therefore, whether either party was required to act. There also may be disputes as to whether the right is still in effect, whether it has been waived in whole or in part, and exactly what compliance is required and by whom. Typically, these involve fact disputes that must be determined through a trial.
If specific performance is not available, a Holder may be entitled to recover damages. Direct damages are generally measured by the “benefit of the bargain” (difference between market value and preemptive price, for example) or by total “out of pocket,” or reliance, amounts. Consequential damages may include lost profits expected from a later sale of the property, provided the same are reasonably foreseeable and not too speculative.
In drafting, avoid the complex and byzantine. Just keep it simple, and make sure your process actually works. In the performance, dot every “i” and cross every “t.” And it is never too early to hire a litigation lawyer if the deal starts sliding sideways. Trial counsel can help manage the circumstances to preserve your client’s rights and remedies. Your client may still end up on the battlefield, but he need not be a casualty of the war.
Effect of Preemptive Rights on Title
Before agreeing to grant a preemptive right, the Grantor should consider that the right will burden title to the Subject Property. The Grantor may have difficulty financing, selling, leasing, or otherwise dealing with the Subject Property as a result of the preemptive right. If the Subject Property is burdened by a vague or poorly drafted preemptive right, a title insurer may require a waiver of the preemptive right to insure a transaction other than the execution of that preemptive right. For example, if triggering language of a ROFR refers to a generic “transfer” and does not define “transfer” in the agreement, a “transfer” could include the grant of an easement or the grant or foreclosure of a mortgage, as well as the conveyance of fee title. The Grantor is limited severely in the rights in the Subject Property it may grant without getting a waiver of the ROFR and may face an even worse problem if the ROFR is exercised.
Can the Grantor avoid providing the title insurer a written waiver from the Holder? Many grants of preemptive rights provide that a failure of the Holder to respond within 30 days after receipt of notice is deemed a waiver. At first glance, this may seem to be a brilliant way to handle the problem of a Holder who refuses to respond to a notice. If the Holder does not respond, the preemptive right is waived, and the seller can close the potential transaction. The problem is establishing that notice was given properly and that the Holder did not exercise the preemptive right—proving a negative. Without verification, a title insurer may not rely on the failure of the Holder to respond as evidence of a waiver of the right. When drafting a grant of a preemptive right, think about ways you can provide independent verification of compliance with the terms of the preemptive right, such as requiring representations in tenant estoppels.
If the language setting forth the preemptive right as a “use it or lose it” right is unclear, the title insurer will show the preemptive right as an exception on the policy, even if a waiver is obtained for a particular transaction, because the Holder may claim that the preemptive right is a continuous right. A purchaser may not want to acquire the property with that continuing burden because of the previously mentioned chilling effect on the ability to market the Subject Property.
Most lenders require subordination of an existing preemptive right before recording a mortgage because the pre-existing preemptive right would have priority over the mortgage. If not subordinated, and the agreement creating the interest does not expressly exclude a foreclosure or deed-in-lieu as triggering events, the Holder may argue that a foreclosure or deed-in-lieu triggers the preemptive right. Even if the agreement creating the interest clearly excludes a foreclosure or deed-in-lieu as a trigger of the right, if not subordinated properly, the Subject Property would continue to be encumbered by the preemptive right after a foreclosure. To protect a Grantor, counsel can include self-subordinating language in the agreement creating the right so the Grantor is not “held hostage” by the Holder when the Grantor wants to refinance the Subject Property. Self-subordinating language is not a guaranty the Grantor will not need to obtain a subordination in the future. Whether or not a title insurer will rely on such self-subordinating language will depend on the language itself, the facts and circumstances of the proposed transaction, the law of the jurisdiction in which the property is located, and the underwriting guidelines of the title insurer.
Title Insurance Coverage for a Preemptive Right
When representing the Holder of a preemptive right, you usually want to obtain title insurance to protect that interest, if you can. For example, a client may purchase an outparcel in a shopping center with an option on an adjacent parcel for anticipated expansion of its business. The client is spending money and making business plans based on the ability to acquire the adjacent parcel. A title insurance policy gives the client assurance and insurance that the option is valid and subject only to acceptable existing title objections.
Not all preemptive rights are insurable. Whether a preemptive right is insurable depends on the laws of the jurisdiction where the Subject Property is located, the facts of the transaction, and the underwriting guidelines of the insurer. The first hurdle is to establish that the preemptive right is an interest in real property because title insurance primarily insures interests in real property. That means ROFOs and ROFRs are usually not insurable because they are considered contractual rights. An option may be insured if it constitutes an interest in real property under the law of the jurisdiction in which the Subject Property is located. Many title insurers require that the option or a memorandum of option be recorded in the real property records to insure the interest. This usually is not an issue because most Holders want to ensure that third parties are on notice of the option.
The most common way to insure an option is with an owner’s policy for an insured amount equal to the consideration paid for the option and identifying the insured interest as an option to purchase the land (as set forth in Schedule A of the policy). If the option is contained within a lease, it may be insured as part of the tenant’s leasehold owner’s policy. An insured option may trigger additional exceptions to title and modifications limiting the measure of loss or damage under the policy.
There is a theory that preemptive rights are rarely consummated in accordance with their terms. Either a different deal is struck between the Grantor and the Holder or the Grantor pays the Holder to relinquish the right. For that reason, many practitioners do not take proper care in drafting preemptive rights clauses. The better the drafting, however, the more likely the Holder will get what it wants (or at least a better buyout price). Remember, for the Holder, exercising the right is optional; a poorly drafted preemptive right works against the Holder only if the Holder wants the Subject Property. On the Grantor’s side, a poorly drafted preemptive right can hurt the Grantor every time it is triggered or arguably triggered.
Do Not Try to Write a Preemptive Right Provision from “Whole Cloth”
Use a form—a good one, of course.
Draft from the Perspective of “Extremes”
Imagine the right being exercised in a circumstance of maximum adversity between the Grantor and the Holder. The strength of any preemptive right is measured by what the Grantor can get away with under the terms of the preemptive right if the Grantor does not want the Holder to get the deal and the Holder really wants the deal to close on the terms of the preemptive right. For example, think of a ROFO or ROFR being offered by a Grantor who has a great deal (for much more space or property than is subject to the right, for example) with a third party that is contingent on the right being waived and, from the Holder’s side, that the Holder desperately wants the Subject Property. For an option, imagine that the Holder’s exercising the option is very detrimental to the Grantor (the exercise price is far below the value of the Subject Property, for example), and, again, the Holder really wants the Subject Property.
Cover the Basics
Make clear the type of preemptive right you are creating: ROFO, ROFR, or option. Recite consideration for the preemptive right. Require everything to be in writing—avoid creating a statute of frauds issue. Make sure the parties that can exercise the right (that is, the Holder) are always identifiable. Never make a preemptive right last forever. If the time for exercising the preemptive right is indefinite or endures for a long time, add a rule-against-perpetuities savings clause. Make clear whether the preemptive right is a one-time right (use it or lose it) or a continuing right. Make sure the preemptive right contains all the terms necessary for it to be enforced. Always state that “time is of the essence.”
Specify whether strict compliance in exercising the right is required; whether the right is assignable; whether the right benefits and is binding on “heirs, personal representatives, successors and assigns,” just the original Holder, or only the current owner of the Subject Property; whether the right is to be a covenant running with the land (either as to the burden or the benefit, or both); whether specific performance to enforce the right is available to the Holder; whether evidence of the right may be recorded in the real estate records; and, if the right is granted in another agreement, how a default under the preemptive right affects the rights and obligations of the parties under the underlying agreement, as well as how a default under, or the termination of, the underlying agreement affects the preemptive right.
Preemptive Rights Are Inherently “Squishy”—Don’t Make Things Worse
In preemptive rights clauses, terms like “bona fide,” “good faith,” “material,” “prompt,” “substantially,” and “reasonably” are common, each of which has an inherently subjective element to it. One has to be practical, navigating between a preemptive right that contains so many subjective elements that one or both of the parties will not get what it wants and a right that looks like it has been “over-lawyered.”
Avoid words such as “immediately,” “exactly” (in relation to matching terms of a contract, for example), and “simultaneously,” which, as a practical matter, cannot be performed and invite disputes.
Define words that have multiple meanings, such as “transfer,” “affiliate,” “fair market value,” “value,” “independent,” “adjacent,” and “contiguous.” The more precise the meaning, the less likely the word will be the subject of a dispute.
Watch out how you use the word “or.” “Or” can mean either “or” or “and.” Don’t think “and/or” solves any problems; using it mostly means you are too lazy to think through which you mean.
Avoid using the word “of” in relation to days. It can mean either “before” or “after” (consider, for example, “within 10 days of completion”), so use “before” or “after.”
A Preemptive Right Needs a Clearly Defined, “Tight” Procedure for Every Step
Every step in the process should be stated in terms of who does what, when, and how. The agreement should be crystal clear about when and how each notice is to be delivered, what happens if delivery is refused, and, most importantly, when a notice becomes effective (which ought to be objectively verifiable).
Use reasonable time frames. Ridiculously short time frames (for example, “immediately”) invite disputes, as do imprecise time frames (for example, “promptly”). Consider games that might be played with the time frames you choose. The time period for exercising an option, for example, should be chosen with consideration of the consequences of its being exercised when it first can be exercised and when it last can be exercised. (For example: Does an early exercise affect the option price? Does the latest time to exercise leave the Grantor with enough time to make other plans if the right is waived?)
Use sensible procedures for resolving disputes (for example, time frames, type of valuation, method of choosing).
Avoid any clause that might require a party to prove, whether to a title company or a court, a negative, such as whether the right to exercise has been waived by the lapse of time or a notice has not been received.
If the Holder is granted multiple preemptive rights, ensure they work together. For example, if a ROFR and an option are granted, address which takes precedence if both can be exercised.
Write a clause that is suitable for the transaction. Choosing the appropriate level of detail is one of the hardest parts of drafting a preemptive rights provision. An “air tight” clause will be a very long clause. See, e.g., Joshua Stein, Model Right of First Offer, N.Y. Real Prop. L.J., Fall 2014, at 20. A simple clause may be short, but it can be very dangerous.
If there is any message from this article, it is that careful drafting is essential to get what the client wants, to get it insured by a title insurer, and to avoid getting too close to the litigators. How easy it is to draft a bad clause; how hard it is to draft a good one.