first refusal

Contractual TermLegal glossary term

Legal Definition

First refusal is a contractual term that grants one party the exclusive right to choose or take over a specific asset, option, or opportunity first, before it is offered to another party. It establishes a priority right for the holder of the first refusal to decide whether to accept or reject a proposal.

Plain-English Translation

Imagine a situation where one person gets the first chance to say 'yes' or 'no' to something important, like a special deal or an option. This rule makes sure that the person who has the first right gets to decide before anyone else gets a chance to decide.

Context in Contracts

It matters because it dictates who gets the first chance to decide on a transaction, option, or asset. In legal documents, it clarifies the chain of rights and ensures that the party holding the first refusal has the exclusive right to make a decision regarding the subject matter.

Visual model

Understand first refusal fast

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01

A licensing agreement where Party A has the first refusal to decide whether to license the technology.

02

An option agreement where the holder of the first refusal has the exclusive right to exercise the option.

Document context

How first refusal shows up in legal documents

What is it?

First refusal is a contractual provision that grants one party (the first refusal holder) the exclusive right to accept, reject, or take over a specific asset, option, or opportunity before it is offered to any other party. It establishes a priority right for the initial holder to decide on the disposition of an item.

Why does it matter?

It matters because it dictates who gets the first chance to decide on a transaction, option, or asset. In legal documents, it clarifies the chain of rights and ensures that the party holding the first refusal has the exclusive right to make a decision regarding the subject matter.

When does it matter?

It usually appears in contracts related to options, licenses, leases, or specific business arrangements where one party has the initial right to decide whether to proceed with an action or transaction.

Where is it usually seen?

It is usually seen in commercial agreements, licensing agreements, option agreements, and joint venture agreements where exclusivity of choice is critical.

Who is affected?

The parties involved in a contract are affected; specifically, the party holding the first refusal has the exclusive right to decide, while other parties might be subject to the terms established by that initial decision.

How does it work?

In practice, it works by clearly defining the rights and obligations of the first refusal holder. The term dictates that if a specific option or asset is available, the party with the first refusal has the exclusive right to accept or reject it according to the contract's terms.

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Wikipedia

Right of first refusal

Right of first refusal (ROFR or RFR) is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third...

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Disclaimer: We do not provide legal advice. We translate legal language into plain English and help you prepare for a conversation with a lawyer.