Among many useful negotiation skills and strategies, a right of first refusal can often benefit negotiators. In a right of first refusal, the right holder is typically given the power to buy an asset on the same terms that the grantor would receive from any other legitimate, prospective bidder, according to Harvard Business School and Harvard Law School professor Guhan Subramanian.
Take the simple example of a landlord negotiating lease terms with a prospective tenant. The landlord wants to be able to sell the apartment in the future, while the prospective tenant wants a commitment to rent the apartment indefinitely. To bridge this difference, the landlord might offer the tenant a right of first refusal—the power to match any legitimate third-party offer that the landlord might receive. This would give the tenant the chance to stay put and the landlord the ability to sell.
Among many types of negotiation skills, a right of first refusal can enable value creation and avoid impasse. Yet it must be negotiated with care, as a story from the world of fine art illustrates.
An Underpriced Asset
Over the centuries, the circa 1497 painting Michele Marullo Tarchaniota by Italian Renaissance master Sandro Botticelli was owned by a “Who’s Who of European royalty,” according to the New York Times, including relatives of Napoleon and Czar Nicholas I of Russia. In 1929, exiled Catalan politician, businessman, and art collector Francesc Cambó bought the portrait of the Greek soldier, poet, and scholar. Upon his death, all of Cambó’s art collection was bequeathed to museums—except for the Marullo portrait, which is owned by 14 of his heirs.
From 2004 to 2017, the Guardans-Cambó family loaned the painting to the Prado Museum in Madrid, then decided to put it up for sale and divide the proceeds. Italian gallerist Carlo Orsi, hired to navigate the sale, decided to display the painting in its own booth at the 2019 Frieze Masters art fair in London.
The price was 27.3 million euros—less than half the painting’s value, which the Spanish government assessed at 60 million euros in 2016. Why such a low price? Because significant constraints, including a right of first refusal, limited the pool of buyers.
Hoping for a Sale
Given that the Marullo portrait is the last Botticelli painting in Spain, in 1988, the Spanish government officially declared it an Asset of Cultural Interest. That designation prohibits the painting from being permanently exported (though it can be loaned abroad temporarily), according to Catalan News. Moreover, Spain has a right of first refusal on the painting: Before accepting a buyer’s offer, the painting’s owners must give the government the opportunity to buy it, a process that could take months, according to the Times.
The sellers told Orsi that the government had declined to purchase the painting at that time, he told Catalan News. Orsi hoped a Spanish art collector would “fall in love” with the portrait at the Frieze Masters fair and donate it to a Spanish museum. But although the painting attracted attention, it failed to attract a buyer.
In 2021, the Guardans-Cambó family signed an agreement to loan the portrait to the Museum of Fine Arts in Valencia, Spain, for three years. The family negotiated to be able to show the painting in international exhibitions during this time, according to El País. One family member, Francesc Guardans-Cambó, acknowledged that they still hoped to sell the portrait. “For that reason, it is much better that the work is in view, that people keep it in mind, that it is not locked up in a warehouse,” he told El País.
Fight for Your Right
In this situation, a right of first refusal may be deterring bidders who fear the Spanish government will swoop in and assert its claim. The requirement that the Marullo painting remain in Spain further reduces the pool of potential buyers.
The Guardans-Cambó family may have had little negotiating leverage with the Spanish government regarding the right of first refusal after it designated the painting a cultural asset. But the story highlights that it can be disadvantageous to grant a right of first refusal to a party who, for whatever reason, is likely to narrow the pool of bidders.
The story further illustrates the importance of negotiating how long the holder of a right of first refusal will have to decide whether to match a third-party offer. In most cases, the right holder will want ample time to put together a bid, while the right grantor will prefer a shorter-term that gives another bidder the chance to deliver an exploding offer.
What advice do you have for those negotiating a right of first refusal?