Right of First Refusal or First Offer…which is better?

When negotiating an office lease you need to ensure that you have enought space now as well as the ability to accommodate future growth—say for the next five years.  BYOBroker offers you a tool to make these calculations ( our SmartBuild program, which we’ll highlight soon), but you can also accomplish this through the skillful use of options.  The rights of First Offer (ROFO) and First Refusal (ROFR) both give their owners an option to pick up additional space, but in very different ways.  If your firm has a Right of First Offer on an adjacent space that becomes available, the landlord is obligated to offer it to you before he puts it on the market to the general public.  This is good for him, because if you pass on it he can lease it to another tenant at whatever rate the market will bear.  The Right of First Refusal however, obligates him to check with you before he enters into a lease with another tenant.  In the event that he is approached by another potential tenant and they negotiate a very aggressive deal, before he can go to lease with  them he must offer the space to you at the same terms, giving you the benefit of their negotiations.   Bottom line, ROFO is good but ROFR is better.