right of first refusal
What is the Right of First Refusal?
As dealmakers look for more sophisticated ways to reduce risks and increase returns, a right of first refusal, has become a common and useful tool to add to your business negotiation skills.
The right of first refusal is a contractual guarantee that one side can match any offer that the other side later receives. This is perhaps most well-known in real estate negotiations.
For example, a tenant negotiating an apartment lease with a prospective landlord could imagine bidding on the apartment down the road if the landlord ever decides to put it up for sale. Before signing the lease, they might ask the landlord for a right of first refusal—the right to match any legitimate third-party offer she receives for the apartment if she puts it up for sale. In this scenario, negotiating real estate right of first refusal could be a win-win for the tenant and the landlord.
But these matching rights, as they are sometimes called, may happen in other settings, as well. For many decades, Broadway plays have been developed and refined in workshops. Performers, producers, stage managers, and the creative team meet to rehearse for about a month, reports Michael Paulson in the New York Times. If all goes well, the producers stage the show for potential investors.
Under the Actors’ Equity union’s standard agreement, workshop participants received a salary of about $600 per week plus benefits, a right of first refusal to play their role on Broadway, and a share of 1% of any future royalty pool for 18 years.
That’s just one example of how negotiation techniques can transfer across situations.
Discover how to refine your negotiation skills with this free special report, Salary Negotiations: How to Negotiate Salary: Learn the Best Techniques to Help You Manage the Most Difficult Salary Negotiations and What You Need to Know When Asking for a Raise, from Harvard Law School.
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