What is Right of First Refusal ?

right of first refusal

WHAT IS RIGHT OF FIRST REFUSAL ?

Sometime ago, I was working on a residential lot in a residential subdivision and was given the exclusive authority to sell by the property owner.  I then of course did my usual procedure of assessing the property by visiting the site, taking photos, and getting all necessary figures ( orientation, neighborhood, comparison of property values, etc … ).  I also asked other associate networks that specialize in the area to confirm my figure ( selling price ) so i could submit a computation of expenses to the property owner.  As we may all know and should be aware of, it is what’s NET to the property owner that is important when all is said and done.

Now this is where the issue of Right of First Refusal ( ROFR ) came in.  For most that have been in the Real Estate Business, we All know that in most high end Condominium developments ( Pacific Plaza Towers, One Salcedo, Two Salcedo, Three Salcedo, One Roxas Triangle, Essensa Towers,  to name a few ), and Sale of Country Club Shares, ROFR is standard so it’s nothing to be excited about when a Property Owner gives you an Authority to Sell ( exclusive or non-exclusive ) as a letter first has to be posted in the Administration Office and All existing unit owners have to be informed that a condominium unit in that development is out in the market at a given price and all that needs to be done is to match the offer and the rightful existing unit owner has all the Legal Right to purchase the said unit without any resistance from both the Seller and the Buyer.

What pursued  on this Residential lot is something I never experienced before as ROFR never usually is a practice on Residential lots.  The Property Owner who is a friend, overlooked the fact the since the property was donated to them had a ROFR not on the Deed of Donation of the property but was a clause on the Deed of Absolute Sale of the adjoining Property which was sold to party several years ago.

A few weeks after I placed the property on the market, an associate took his client to the property and liked what they saw and immediately made an offer.  The potential Buyer then asked me what the final price was so we can finalize and move on with the sale.  I told them and made an written offer in their behalf and submitted to the property owner.  The property owner then thanked me said they will get back to me on the documents as I needed to get Certified True copies of the pertinent documents.  They easily found the Transfer Certificate of Title, Tax Declaration, Certificate of Non-Improvement and official receipts of annual taxes paid for the property.

They then told their Donor that they finally have a Buyer for the property and was then told that an ROFR existed on the Deed of Sale on the previous property owned by the Donor.

A Right of First Refusal  in a real-estate contract is typically a mechanism that gives to a specific party the right to be the first allowed to purchase a particular property if it’s offered for sale. The holder has the right to refuse to buy the property.  An ROFR is a future right, and it is contingent on the property being put on the market.

The terms of an ROFR can range from vague and non-binding to very specific and very binding. An ROFR can easily mean different things to different parties, so it’s essential that both know precisely what each means by an ROFR when it’s first being discussed.  In this particular case, it was only when the Property Owner told their Donor that they were selling their property, they were told that the current owner of the Donor’s property gave a Right of First Refusal to the adjacent lot.

One type of ROFR is essentially an option to buy the property before it’s sold to any other buyer. The seller and holder / buyer may or may not agree at the time the ROFR is negotiated to bind themselves to a specific price and other terms. The option may or may not end at some specific date in the future. The seller is not obligated to sell if price and terms have not been established when the ROFR was set up.  At the time the Donor sold their property there was no specific time frame nor price, it was then assumed that the ROFR will exist to run when the property is finally on the market.

So what’s the moral lesson to this experience ?  It’s another part of “Due Diligence” and validates two claims i always believe in and that is to expect the unexpected and that a sale in never over until it’s over.  At the end of the day, I am glad that the property was sold at a good price and I was able to help my friends / property owner in achieving their goal of selling their property within a specific time we all agreed upon.

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Thank you.

robert
Robert G. Sarmiento Properties
Professional Affiliation :
Philippine Association of Real Estate Boards
Member, City of Taguig Real Estate Board 2016 – 2017
Real Estate Broker’s Association of the Philippines 2000-2015
President, Greenhills Chapter 2008, 2009
Philippine Association of Real Estate Brokers
San Juan Mandaluyong Chapter 1998, 1999
PRC # 6569
PRC Lecturer’s License # 0294
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