What is a right of first refusal?
A right of first refusal, often referred to as ROFR, is a contractual or statutory right that gives a designated person or entity priority to purchase an asset before it is sold to a third party. In Polish legal terminology, it is commonly associated with the concept of prawo pierwokupu. The right does not usually force the owner to sell. Instead, it becomes relevant when the owner decides to sell the asset and receives an offer or agrees terms with another buyer, depending on the source and wording of the right.
In practice, a right of first refusal creates a controlled sale process. The owner may enter into a conditional sale agreement with a third party, but the entitled party must be notified and given the opportunity to purchase the same asset on the same terms. If the entitled party exercises the right correctly and within the applicable deadline, a sale is generally concluded with it on the same terms.
The right of first refusal may apply to shares, real estate, enterprise assets, intellectual property rights or other transferable assets. It is frequently used in shareholders’ agreements, articles of association, investment agreements, joint venture arrangements, lease structures and real estate transactions. Its purpose is to protect the entitled party against an unwanted change of ownership or to preserve strategic control over an asset.
What does a right of first refusal cover?
The scope of a right of first refusal depends on its source and wording. It may arise directly from legislation or from a contract. Statutory rights of first refusal are usually subject to mandatory rules. Contractual rights give the parties more flexibility, but they must be drafted precisely to avoid uncertainty and disputes.
A properly structured right of first refusal should specify at least the asset covered, the person entitled to exercise the right, the event triggering the right, the notification procedure, the deadline for response, the required form of the declaration and the consequences of breach. In corporate transactions, it should also clarify whether the right applies to all transfers or only to sales. This distinction is important because gifts, exchanges, contributions in kind, mergers or intra-group transfers may fall outside a narrowly drafted clause.
Under the Polish Civil Code, unless a different deadline is provided, a right of first refusal concerning real estate may be exercised within one month, and in relation to other things within one week from receipt of notice of the content of the sale agreement (Polish Civil Code, Article 598 § 2). The declaration exercising the right should generally be made in the form required for the sale of the relevant asset. For example, real estate transactions require notarial deed form, which affects both the sale structure and the exercise of the right.
In share transactions, a right of first refusal is often combined with other transfer restrictions, such as consent requirements, lock-up clauses, tag-along rights, drag-along rights or pre-emption rights. Although these mechanisms may appear similar, they serve different functions. A right of first refusal typically reacts to a proposed sale to a third party, while a pre-emption right may give priority before the seller is free to negotiate with external buyers. The legal effect depends on the governing law and the exact wording of the documents.
When should legal advice be sought in relation to a right of first refusal?
Legal support is advisable whenever a right of first refusal is being created, exercised, challenged or bypassed. For private individuals, this may be relevant in real estate sales, co-ownership arrangements, family property planning or the sale of valuable assets. For entrepreneurs and companies, it often appears in M&A transactions, shareholder exits, venture capital investments, succession planning, corporate reorganisations and disputes between business partners.
A seller should verify whether the planned transaction is subject to a right of first refusal before signing binding documents with a third party. Failure to observe the right may delay closing, expose the seller to claims, undermine the transaction or create uncertainty as to the effectiveness of the transfer. A buyer should also assess whether the asset can be acquired free from third-party priority rights. This is particularly important in due diligence, where transfer restrictions may affect valuation, deal structure and closing conditions.
The entitled party should act promptly after receiving notice. Missing the deadline, responding in the wrong form or attempting to modify the proposed terms may result in loss of the right. In disputed cases, the key issues often concern whether proper notice was given, whether the third-party offer was genuine, whether the terms were sufficiently disclosed and whether the transaction was structured to avoid the right.
An early consultation with a lawyer can help prevent formal mistakes, transaction delays, corporate disputes, liability for breach of contract and financial loss. It is usually easier to structure the sale process correctly in advance than to repair an ineffective notice or challenge a completed transaction.
Legal support in matters involving a right of first refusal
Support from a law firm in relation to rights of first refusal may include in particular:
- drafting and reviewing right of first refusal clauses in contracts, shareholders’ agreements and corporate documents;
- assessing whether a planned sale triggers a statutory or contractual right of first refusal;
- preparing notices, declarations and transaction documents required to exercise or waive the right;
- advising sellers, buyers and entitled parties on transaction structure and legal risk;
- conducting legal due diligence of transfer restrictions affecting shares, real estate or business assets;
- representing clients in negotiations and disputes concerning breach or circumvention of a right of first refusal;
- coordinating notarial, corporate and closing formalities in transactions subject to priority rights.
Need assistance with a right of first refusal? Contact us.
See also
- Commercial Law
- Share transfer
- Shareholder rights
- Real Estate Law