Right of first refusal in a lease: what it means for tenants and landlords
A right of first refusal in a residential lease gives the tenant the first chance to buy the property if the owner decides to sell, usually by matching an offer the owner already has from an outside buyer. The owner never has to sell, and no price is set in advance.
An option to purchase is a different deal. It lets the tenant buy at a price fixed in the lease during a set window, and the tenant decides when to use it. A right of first refusal sits dormant until the owner chooses to sell. Then the tenant has to decide quickly, on terms that someone else negotiated. Our post on lease options and rent-to-own deals in Texas covers the option side in more detail.
| Question | Right of first refusal | Option to purchase |
|---|---|---|
| What starts it? | The owner decides to sell and receives an offer | The tenant decides to buy during the option period |
| Who sets the price? | The outside buyer, through the offer | The lease or option agreement, in advance |
| Can the owner decline to sell? | Yes, and the right never triggers | No, once the tenant exercises the option on time |
| Main risk for the tenant | A short deadline and terms written for another buyer | Paying for an option and never using it |
| Main risk for the owner | Buyers may walk away from a sale that must wait on the tenant | A locked price even if values rise |
A clear clause answers four questions. What counts as a qualifying offer? How does the owner deliver notice, and what goes in it? How many days does the tenant get, and how does the tenant accept? What happens if the tenant passes?
A qualifying offer is usually a signed purchase contract from a third party that the owner is willing to accept. The notice should include a copy of that contract, or at least the price, deposit, financing terms, and closing date. The tenant then accepts in writing on the same terms or lets the deadline pass. If the tenant passes, the owner may sell to that buyer at the same price and on terms no better for the buyer. If the deal falls apart or the price drops, a well drafted clause sends a fresh notice to the tenant.
Owners should also list the transfers that do not trigger the right, such as a gift to a spouse or child, a move into the owner's living trust, or a foreclosure. Without that list, a tenant may argue that any change in title counts as a sale.
A sample clause and a worked timeline
Right of first refusal. If Landlord receives a written offer to buy the Property that Landlord is willing to accept, Landlord shall deliver a copy of the offer to Tenant by hand or certified mail before accepting it. Tenant may buy the Property at the same price and on the same terms by signing and returning a purchase contract within 10 days after receiving the notice. If Tenant does not accept within that period, Landlord may sell to the offering buyer, at a price not lower than the offer price, within 120 days after Tenant received the notice. Any sale at a lower price, on materially different terms, or after those 120 days requires a new notice to Tenant. This right does not apply to transfers to Landlord's spouse, children, or living trust, or to a foreclosure, and it ends when this Lease ends.
Here is how that clause plays out on a rental house. The owner gets a $410,000 offer with a 5 percent deposit of $20,500 and a 45-day closing, and hands the tenant a copy on June 4. The tenant's 10 days run through June 14. If the tenant signs on June 12, the tenant must put down the same $20,500 and close within the same 45 days. If June 14 passes in silence, the owner can close with the outside buyer at $410,000 or more until October 2, which is 120 days after June 4. If that buyer backs out and a new buyer offers $395,000 in August, the tenant gets a new notice and a new 10 days.
A spoken promise of first refusal is hard to enforce. In Florida, section 725.01 of the statutes bars a lawsuit on a contract for the sale of land, or any uncertain interest in land, or a lease longer than 1 year, unless the agreement or a note of it is in writing and signed by the person being held to it. California Civil Code section 1624(a)(3) reaches the same result for an agreement for "the sale of real property, or of an interest therein" and for leases longer than one year.
Writing protects the tenant against the owner. Recording protects the tenant against a buyer. Florida section 695.01 says an unrecorded transfer of an interest in real property, or an unrecorded lease of 1 year or longer, is not good against creditors or later buyers who paid value without notice. A tenant who wants that protection can record a short memorandum of lease in the county's official records that names the right without disclosing the rent.
Where the law gives tenants the right automatically
In Washington, DC, the tenant opportunity to purchase law makes some of these rights automatic. D.C. Code section 42-3404.02(a) says that before an owner sells a housing accommodation, or issues a notice to vacate for demolition or discontinuance of housing use, the owner must give the tenant an opportunity to purchase at a price and terms that represent a bona fide offer of sale. Section 42-3404.08 then adds a true right of first refusal. The tenant or tenant organization gets 15 days after receiving a valid third-party sales contract from the owner to match it.
Single-family homes follow narrower rules under section 42-3404.09. Any owner who intends to sell must give the tenant written notice within 3 calendar days of receiving or soliciting a written offer. The full purchase rights apply only to elderly tenants and tenants with disabilities who meet the lease and move-in dates set in the statute. Those tenants get 20 days to deliver a written statement of interest, at least 25 more days to negotiate a contract, and at least 45 days after contracting to reach settlement. The owner must also send a copy of the offer to the Office of the Tenant Advocate, which then makes its best efforts to contact affected tenants within 4 business days.
Where no law like the District's applies, a tenant's right to buy exists only if the lease or a separate signed agreement creates it. Owners planning a sale during a lease should also read our guide on what happens when a landlord sells the building.
Sources
Frequently Asked Questions
What can a DC tenant receive for selling purchase rights on a single-family home?
Under D.C. Code section 42-3404.09(c)(6)(A), an elderly tenant or tenant with a disability may receive only one thing for assigning those rights: the right to stay in the unit for 12 months at the rent charged on the date of the offer.
Can DC tenants challenge the price in an offer of sale?
Sometimes. When a building with 5 or more units gets an offer before a notice to vacate for demolition or discontinued housing use, and no arm's-length third-party contract exists, a registered tenant organization may request an appraisal within 45 days.
Does an agent's signature satisfy California's writing rule?
Only with written authority. California Civil Code section 1624(a)(3) says a land sale or long lease agreement made by an agent is invalid unless the agent's authority is also in writing and signed by the party being held to the deal.
Jill Stradley covers landlord-tenant law, lease agreements, and the fine print that renters and landlords skip until something goes wrong. Her goal is to make state-specific rental law readable for people who aren't lawyers and don't want to become one. She lives in a rental herself and considers that a professional asset.
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