A right of first refusal is a contractual clause that gives a specific party the opportunity to purchase a property before the owner can sell it to someone else. When the property owner receives an acceptable offer from a third party, the holder of the right of first refusal must be given the chance to match that offer on the same terms and conditions.
Often abbreviated as ROFR, this right appears in several real estate contexts. A tenant leasing a home or commercial space may negotiate a ROFR into their lease, giving them priority if the landlord decides to sell. Family members sometimes use them to keep property within a family. In condominiums, a ROFR may occasionally appear in a corporation's by-laws, allowing the condo corporation or an adjacent unit owner to match an offer before a sale to an outside buyer proceeds.
It is important to understand what a ROFR does not do. It does not give the holder the right to force a sale. The owner is under no obligation to sell, and the right only activates if the owner independently decides to accept a third-party offer. Until that happens, the ROFR remains dormant. The holder also has no ability to set the price or dictate terms. They can only accept or decline whatever terms the owner has agreed to with the outside buyer.
In Ontario, courts have consistently treated a ROFR as a personal contractual right rather than an interest in land. However, the holder can protect their position by registering a notice on title under section 71 of the Land Titles Act. This registration puts any prospective buyer on notice that the ROFR exists, which can be critical if the owner attempts to sell without honouring the clause.
Ontario courts also interpret ROFRs strictly. The holder must exercise the right exactly as the contract specifies, including meeting any deadlines for providing notice. A notable Ontario Superior Court decision, McMullen v. Dilawri Property Holdings Ltd., confirmed that once a ROFR is exercised, it is generally considered spent. If the resulting transaction falls through, the holder does not automatically get another chance unless the original agreement explicitly provides for reinstatement.
For buyers, a ROFR registered on title to a property you want to purchase can introduce delay and uncertainty. Your real estate lawyer should flag it during a title search. Whether you are a buyer, seller, or potential ROFR holder, legal advice is essential to understand how the clause will function within the broader terms of your agreement of purchase and sale.
