CRE glossary
Right of first offer (ROFO)
A right of first offer (ROFO) gives the tenant the first chance to lease a defined space, before the landlord markets it to anyone else. When the landlord intends to lease the space, the landlord first proposes terms to the tenant. If the tenant accepts within a defined window, they get the space. If not, the landlord can market externally, but only at terms no better than what was offered to the tenant.
ROFO is stronger than ROFR for the tenant because it operates earlier in the leasing process. The tenant negotiates the terms; if they decline, the landlord can pursue third parties but is anchored at the proposed rent. This protects the tenant from a 'race to the bottom' where the landlord could otherwise discount the space heavily to a third party.
ROFO clauses live or die on the proposal terms. Tenant-friendly ROFOs require the landlord to propose terms 'commensurate with then-current market rate' or with a defined methodology (recent comps in the building, broker opinion of value, etc.). Tenant-unfriendly ROFOs let the landlord propose whatever they want, with no obligation to be reasonable, making the right effectively meaningless.
Negotiate three things at LOI: (1) the methodology for setting the proposed rent, a defined comp methodology beats 'landlord's reasonable judgment,' (2) the time the tenant has to respond, 15–30 business days for evaluation, longer than ROFR, (3) what happens if the landlord can't lease at the proposed rent and wants to discount, most ROFOs require the landlord to come back to the tenant if the third-party offer is more than X% below the original ROFO terms.
Example
- Landlord receives lease tail on Suite 1850
- Adjacent to tenant
- Landlord proposes terms to tenant
- $60/SF, 5-year term, $80/SF TI
- Tenant has 20 business days to respond
- Either accept or decline
- Tenant declines, landlord markets externally
- Must offer terms no better than $60/SF, $80/SF TI
- Best third-party offer comes in at $55/SF
- Landlord must return to tenant before accepting
Broker perspective
ROFOs are harder to win than ROFRs. Landlords resist because they constrain the leasing process, every prospective tenant has to wait for the existing tenant's decision. Push for ROFO on suites the tenant strongly wants for expansion (e.g., the suite they share an HVAC zone with). Settle for ROFR on aspirational suites.
Frequently asked
People also ask
ROFO vs ROFR, what's the difference?
ROFO triggers when the landlord wants to lease the space (before marketing). ROFR triggers when a third party makes an offer (after marketing). ROFO is stronger; ROFR is more common.
How is the rent set under ROFO?
Negotiate the methodology at LOI, defined comp set beats 'landlord's judgment.' Without methodology, ROFO is weak.
Does ROFO survive landlord refinancing?
Should. Confirm in the SNDA, the new lender / new landlord should be bound by the ROFO.
Can I trade ROFO for cheaper rent?
Sometimes, if you don't think you'll exercise it. But the option value is usually higher than the discount the landlord will offer to drop it. Keep it.
Related terms
Right of first refusal (ROFR)
Tenant's right to match any third-party offer for a defined space, most common for adjacent expansion premises.
Renewal option
Tenant's contractual right to extend the lease at predefined terms, usually exercised 9–12 months before expiration.
Letter of intent (LOI)
A non-binding outline of the major business terms, rent, term, TI, options, that becomes the basis for the binding lease.
See right of first offer (rofo) extracted from a real lease.
Drop a 60-page lease, get a 38-field abstract in 90 seconds, every value cited back to the source page.