Difference Between an Option & Right of First Refusal

Difference Between an Option & Right of First Refusal

What is the Difference Between an Option and a Right of First Refusal?

Option to Purchase

An option is a right that the owner of a real property (the “optionor”) gives to another person (the “optionee”) to buy certain property at a fixed price for a definitive duration.

An option is an offer that binds the optionor to sell, but does not obligate the optionee to purchase. Typically, during the option term the optionor usually cannot revoke or withdraw the option without the optionee’s consent.

Right of First Refusal

A right of first refusal obligates a real property owner to offer their property to the holder of the Right of First Refusal upon the same terms as the owner is trying to sell the property to another party. By choosing a right of first refusal versus an option, the owner of the property has more control over the sale of their property, whereas with an option the holder can force the sale at will. With a Right of First Refusal, the holder must wait until the owner decides to sell the property.

When the owner of property decides to sell their property, a right of first refusal becomes an option since the holder is not obligated to exercise the Right. If the holder does not exercise the Right of First Refusal, the owner is free to sell to the third party. If the holder of the Right of First Refusal exercises their right, the owner must sell to the holder on those terms.

Both Options and Rights of First Refusal must be in writing, signed, contain a legal description of the property, and have consideration to be legally enforceable. Sometimes they are included in lease contracts, or they may be drafted as a separate agreement.

If you would like assistance drafting a Right of First Refusal or an Option, please contact one of our Real Estate attorneys. We would love to help you.


*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.