Right of First Refusal in an Office Lease, Compared With a Right of First Offer

How a right of first refusal works for a company that wants the space next door

The sequence starts with someone else. The landlord negotiates with another prospect for the space your right covers, reaches terms it would accept, and must then show those terms to you. You can take the space by matching them inside the response window, or decline and let the other deal go ahead.

So a ROFR gives you the last look and strong protection on price, since a real bidder set the terms. It does not let you call for the space when you need it. If nobody else bids, nothing is triggered.

ROFR against ROFO: who moves first

• Right of first offer. The landlord moves first. When the space comes free it sends you its terms before going to market. If you pass, the landlord may go to market, but generally cannot give another tenant a materially better deal than the one you turned down without returning to you.
• Right of first refusal. A third party moves first. You see a deal already negotiated and decide whether to match it.

Landlords resist the ROFR more. A prospect who knows an existing tenant can match its offer has less reason to bid, which makes the space harder to lease. A ROFO costs the landlord little, so it is the easier right to win. A ROFO depends on the building having space to offer, so it comes more easily in a larger building. ROFRs are rarer. Lease options sets the two beside the other four.

An expansion option is firmer than either first right

A first right depends on something happening: space coming free, or another tenant bidding. An expansion option depends only on you. It names the space, the dates on which you can take it and the terms, including the rent and the condition in which the space is handed over. Because the landlord must keep that space available, this right too is easier to win in a larger building.

A common arrangement for a company between rounds is a floor sized for the midpoint of the plan, plus first offer rights on the floor beside it. The Series A to Series B guide shows how that covers the stretch case without paying for empty desks.

The response window, and what silence costs

Once the landlord's notice arrives, the clock is short. If you do not answer in time, the right usually lapses for that space and the landlord is free to lease it. Whether the right comes back later or is used up by one pass depends on the wording. Settle three points before signing:

• A response period that leaves room for a test fit and a board vote.
• Whether other tenants hold earlier rights to the same space, which can leave yours empty in practice.
• Whether the right survives a first pass.

Your attorney drafts and confirms these.

If the neighboring space never comes up

A first right is a hope, not a plan. If the adjacent space stays occupied, growth means a move, and the move should be priced before the team runs out of desks. The block of live floors here is cut for a team of about 60, inside the range a company usually reaches by Series B. Keep them in view while the first right is live, so that passing on the neighbor's space is a choice.