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first refusal

What is a First Refusal?

A first refusal, or as it’s more commonly known, the right of first refusal, typically gives the right holder the power to buy an asset on the same terms that the grantor would receive from any other legitimate, prospective bidder.

The right of first refusal is a contractual guarantee that one party to a business deal can match any offer that the other side later receives for the item or issue being negotiated. It can be a useful negotiating tool for both buyers and sellers.

Here’s how a right of first refusal might work. Suppose you’re a landlord negotiating an apartment lease with a prospective tenant. You want to maintain the ability to sell the apartment in the future. Your prospective tenant, meanwhile, wants a commitment to rent the apartment for as long as she wants. The solution might be to offer the tenant a right of first refusal—the right to match any legitimate third-party offer for the apartment. In this manner, the tenant gains the opportunity to avoid the disruption of a move, and you preserve your flexibility to sell to the highest bidder.

While this negotiation tactic can help create win-win situations, it’s important to understand that it can also backfire if a deal isn’t strategically negotiated.

As the prospective right holder, you should know precisely what a proposed right of first refusal will give you. Many deals that seem to guarantee a right of first refusal are, in fact, murky about the consequences that could arise.

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The following items are tagged first refusal:

How To Avoid a Business Contract Bidding War

Posted by & filed under Business Negotiations.

Back in 2014, Nike was the undisputed king of superstar endorsements, dominating the field by paying top talent millions for the right to sell lines of collectible shoes in their names. But sportswear and footwear supplier Under Armour made a bold play to change the landscape. Basketball star Kevin Durant, then of the Oklahoma City … Read How To Avoid a Business Contract Bidding War

Compensation Negotiation Tips: Lessons from Broadway

Posted by & filed under Salary Negotiations.

Compensation negotiation tips often revolve around encouraging job candidates to ask for a higher salary and teaching them how to frame their salary requests. But negotiators who take a broader approach to evaluating a job offer may be able to set themselves up for much greater long-term earnings. A negotiation initiated by the original cast … Read More

Right of First Refusal: A Tool to Negotiate with Care

Posted by & filed under Negotiation Skills.

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 … Read More

In Business Negotiations, Capitalize on a Right of First Refusal

Posted by & filed under Business Negotiations.

As dealmakers look for more sophisticated ways to reduce risks and increase returns, a right of first refusal—a contractual guarantee that one side can match any offer that the other side later receives—has become a common and useful tool to add to your business negotiation skills.

Negotiation Skills

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Build powerful negotiation skills and become a better dealmaker and leader. Download our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.

When the mergers-and-acquisitions (M&A) boom began in 1993, many deals … Read More

A Tale of Two Matching Rights

Posted by & filed under Business Negotiations.

In March 2005, German powerhouse SAP agreed to buy Retek, a small company that offered information management software, for $8.50 a share. The deal included a matching right in which Retek committed to negotiate exclusively with SAP for five days if it received a “superior offer.” The matching right didn’t scare away Oracle, SAP’s archrival, … Read A Tale of Two Matching Rights

Expand the Pie with Matching Rights

Posted by & filed under Daily, Negotiation Skills.

Adapted from “Create Value with Matching Rights,” first published in the Negotiation newsletter. The problem: You and your counterpart have different ideas about how much freedom you should have to negotiate with others and/or how long your agreement should last. The tool: Matching rights (sometimes known as rights of first refusal) are a contractual guarantee between negotiators … Read Expand the Pie with Matching Rights

Know your rights!

Posted by & filed under Business Negotiations, Daily.

Adapted from “Matching Rights: A Boon to Both Sides,” by Guhan Subramanian (professor, Harvard Business School and Harvard Law School), first published in the Negotiation newsletter. As dealmakers look for more sophisticated ways to reduce risks and increase returns, a matching right—a contractual guarantee that one side can match any offer that the other side … Read Know your rights!