Essential rental agreement clause advised by a property investor: "Always include this clause or forgo the lease"
In the world of long-term property rentals, understanding the Right of First Refusal (ROFR) clause is crucial for both tenants and landlords. This clause grants tenants the contractual opportunity to purchase the property before the landlord sells it to third parties, enhancing tenant security and control over their occupancy.
Jordi Martínez, a renowned real estate investor expert, emphasises the importance of reviewing legal aspects before signing any property contract. Recently, he discussed this topic on TikTok, highlighting the potential benefits and challenges that come with the ROFR clause.
For tenants, the ROFR clause provides protection against arbitrary displacement by allowing them to match any bona fide offer from external buyers. This promotes residential stability and protects long-term occupancy rights. It also gives tenants a priority option to buy before the property is offered to outsiders, potentially enabling investment opportunities or continuity of tenancy.
However, for landlords, this clause means they must notify tenants of any genuine offers and give them a timeframe to decide. This may delay or complicate sales, as landlords cannot immediately sell to higher bidders without first offering tenants the chance to match offers. However, it also secures relations with reliable tenants and may help ensure the property remains in trusted hands.
Properly negotiating the ROFR clause ensures clear terms on notification procedures, matching timelines, pricing methods, and expiration dates to avoid indefinite obligations or legal uncertainties. Ambiguous or overly broad ROFR terms can lead to disputes or business inefficiencies.
In some jurisdictions and contexts, such as social housing or redevelopment projects, ROFR clauses can include discounted rental rights or purchase options for tenants to encourage affordable housing and tenant protection during transitions.
Conversely, overregulation of such clauses can push landlords out of markets, reducing affordable housing availability and negatively affecting management responsiveness, as demonstrated in some ordinance cases imposing ROFR without fair business considerations.
If you're the owner and you don't include the clause about waiving the right of first refusal, you'll need the tenant's written consent when you want to sell. Similarly, if you're the tenant and the owner doesn't include the clause about waiving the right of first refusal, the owner will need your written consent when they want to sell.
In profitability sales, the final price is often lower than the market price, potentially allowing tenants to acquire the property at favorable conditions. However, a common mistake when signing a property contract is not checking for a clause about waiving the right of first refusal.
Sergio, another real estate expert, advises that you should never sign a contract without checking if there is a clause about waiving -or not- the right of first refusal. By doing so, you can ensure a balanced agreement that protects both your interests and maintains a harmonious landlord-tenant relationship.
- Sergio, another real estate expert, underlines the significance of verifying if the contract includes a clause on waiving the right of first refusal, as this could impact an investor's financial opportunities in real-estate, such as buying the property at favorable conditions during profitability sales.
- In the realm of finance and investing, understanding and negotiating the right of first refusal clause can have a significant impact on property transactions, as it can either provide tenants with investing opportunities or delay landlords' sales, affecting both art and real-estate markets.
