It's hard not to think of that famous quote from the movie The Godfather when reviewing the facts underlying Clifton Land Co. v. Magic Car Wash LLC:1 "I'm gonna make him an offer he can't refuse." That sums up the dilemma in Clifton, as ably chronicled by Robert Kantowitz in two separate articles in this Journal.2 In that case, a car wash operator hoped to buy another car wash from an owner who wasn't ready to sell, but who gave the hopeful buyer a Right of First Refusal (ROFR), putting it first in line to purchase the property if and when the owner changed its mind. Eventually the owner decided to sell to a third party and, under the ROFR, gave the holder the opportunity to buy the property under the same terms and price that the third party had offered the owner. But there was a catch: the third party's offer contained a provision that a car wash could no longer be operated on the property. In effect, the ROFR holder faced an offer it had to refuse, as its purpose in buying the property was to keep that car wash open. So the hopeful buyer took the owner to court.

Although the Appellate Division, Third Department eventually straightened things out by finding the seller had acted in bad faith, the question remains: Could this dilemma have been avoided and, if so, how? The answer is yes, and this article offers models that show how.3

A ROFR is an option, and an option is one of the most - if not the most - valuable of contracts. Unfortunately, as evidenced by Clifton, an option doesn't always get the respect it deserves, especially in the realm of real estate.

The basic rule in writing any option, not just one for real estate, is never to leave any detail open for negotiation. To leave open details is to build a playground for litigators, and the cost of litigation - wholly apart from its uncertainty - will far exceed the cost to prepare a proper option agreement. Not only should the option contain the entire contract of sale, it also should require that the down payment accompany the exercise.

Rights of first refusal come in two guises:

(1) a right of first refusal based on a bona fide offer from a third party, and

(2) a right of first refusal based on an offer by the owner.

I always advise against granting rights of first refusal because the procedures involved can result in loss of a sale or loss of a market, especially in the case a right based on a third party offer. Nevertheless, in case the client decides to shun this advice, following are samples for both types of the option. Note that in each case the option (A) specifies the requirements to which the offered price must conform, and (B) attaches as an exhibit the purchase contract which will govern the sale in case the option is exercised.

In a majority of jurisdictions, options (including rights of first refusal) to purchase real estate are subject to the rule against perpetuities. However, options contained in a lease of real estate, like the options that follow, are often excepted. See Options and Related Rights and the Rule Against Perpetuities, John C. Murray, N. Y.   Real Property Law Journal, Fall, 2014.

The models below are designed to be part of a lease as, for that context, they must treat a wide variety of contingencies so they can be adapted easily to other situations.4

A. Right of First Refusal -- Good Faith Offer by a Third Party

NOTE: ADJUSTMENTS TO THE MODEL BELOW MAY WELL BE REQUIRED TO CONFORM IT TO THE TERMS AND TERMINOLOGY OF THE APPLICABLE LEASE.

Owner will not sell all or any portion of the Property prior to the end of the lease term except as provided in this Section.

If Owner receives a "good faith offer" (as that term is hereinafter defined) to purchase the entire Property, Owner will promptly notify Lessee thereof, including with that notice a copy of that offer ("Notice of Offer").

A "good faith offer" is a contract signed by Owner and a buyer that is unrelated to and has no affiliation with Owner (the "buyer") providing for the sale of the Property to the buyer in its condition as of the date of the contract, [Consider/modify: ordinary wear and tear excepted], free and clear of all liens, claims, violations and other encumbrances, with the entire purchase price payable in cash, in U.S. dollars,5  at closing of title and with title to close not later than [specify number in words] ([specify number in figures]) days after expiration of the "Offer Period" (as hereinafter defined), with no provision for adjustment to -- or for reimbursement of any portion of -- the purchase price, with real estate taxes, transfer taxes and other fees, charges and costs pertaining to the sale or to the Property allocated between Owner and the buyer as provided in Sections [specify section numbers] of the Exhibit,6 and subject to the following conditions and to no other condition:

(i) Lessee's rights under this Lease, [as applicable (see the alternative provisions at the end of this form) including // excluding this Section];

(ii) conveyance to buyer of marketable title; and

(iii) if desired, buyer obtaining a loan secured by a mortgage on the Property to enable buyer to purchase the Property provided that such loan is at a then-current market rate of interest for that type of loan to a prospective mortgagee with a credit rating similar to that of the buyer and that the amount of the loan does not exceed [specify percentage in words and figures, but not more than 80%] of the purchase price.

[Add any other mutually acceptable conditions]

Within [specify number in words] ([specify number in figures]) days after Lessee receives the Notice of Offer (the "Offer Period"), Lessee will notify Owner whether it will purchase the Property at the price for the Property specified in the good faith offer. If Lessee notifies Owner that it elects not to purchase the Property, or if Lessee does not notify Owner of its election within the Offer Period, or if Lessee's election is not made in accordance with the requirements of this Section, Lessee's rights in respect of that good faith offer will terminate, and Owner may sell the Property to the buyer in accordance with the terms of that good faith offer, within [specify number in words] ([specify number in figures]) days after expiration of the Offer Period,7 and

[select: without amendment to the good faith offer // with only such amendments to the good faith offer that do not preclude the sale under the next paragraph].

If Owner does not sell the Property to the buyer in accordance with the provisions of the preceding paragraph, including within the time period specified in that paragraph, or

[as applicable:

if the good faith offer is amended, //

if the price for the Property under the good faith offer is [consider: reduced // changed], or if any other arrangement is made that would have the effect of [consider: reducing // changing] that price (including, without limitation, any arrangement with regard to payments on account of taxes, fees, charges and costs respecting the Property or its sale),]

then Owner may not sell the property to the buyer or any other buyer except by complying with the provisions of this Section in respect of any new good faith offer or in respect of the changed good faith offer as if it were a new good faith offer subject to the provisions of this Section.

If Owner does sell the Property to the buyer, Owner will promptly notify Lessee of the date title closed, including with that notice a statement [consider: under oath] that the sale was made entirely in accordance with the provisions of this Section.

If, however, Lessee notifies Owner within the Offer Period that it elects to purchase the Property, Owner will sell the Property to Lessee and Lessee will purchase the Property from Owner at the price for the Property under the good faith offer and pursuant to the terms of the contract of sale attached hereto as an Exhibit. To be effective Lessee's notice of its election to purchase must be accompanied by payment by bank check of the down payment specified in the Exhibit. Notice by Lessee to Owner in accordance with this paragraph will constitute execution by Lessee and Owner of the contract set forth in the Exhibit, and the date of that contract will be the date of the good faith offer.8

If Lessee elects to purchase the property

(i) the term of this Lease will end on closing of title, but if title does not close at or before the end of lease term, the term of this Lease will be extended to the closing of title or until termination of the contract of sale, whichever is the first to occur, and

(ii) if the contract of sale is terminated before the end of the term of this Lease, this Lease will, nevertheless, remain in effect until the end of its then stated term.

If the term of the lease is extended under item (i) above, Lessee [Consider: will continue to pay rent and other amounts owing under the Lease as the terms relating to rent and other amounts exist immediately prior to the extension period // will not be required to pay rent and other amounts owing under the Lease during the period of the extension].

Closing of title will be without prejudice to rights and obligations accrued under this Lease to the time title closes.

If Lessee's right to exercise the option to purchase the Property has accrued, and if before Lessee exercises the option and before the option expires, the Property suffers damage, Lessee may exercise its option to purchase the Property at any time up to and including the later of (i) the last day on which Lessee may exercise the option (excluding this paragraph), or (ii) the tenth business day after all amounts payable under Owner's insurance in respect of the damage are agreed in writing with the insurers. Owner will permit Lessee and/or its insurance advisor to attend any discussions and negotiations with Owner's insurers respecting the amounts payable on account of the damage. If this paragraph applies and if Lessee exercises its option, all property insurance proceeds payable with respect to the damage will be paid to Lessee notwithstanding any other provision in this Lease, and Owner and Lessee will make appropriate arrangements to assure those proceeds are paid to Lessee.9

Lessee's rights and Owner's obligations under this Section will terminate on proper termination of this Lease due to Lessee's default. However, if this Lease terminates or is terminated for any other reason after Lessee's right to exercise the option has accrued and before Lessee has exercised the option, Lessee's rights and Owner's obligations under this Section will remain in full force and effect and Lessee's right to exercise the option will terminate after the expiration of [specify number of days in words and figures] following termination of the Lease; but if termination is due to damage to the Property, the provisions of the preceding paragraph dealing with exercise of the option and insurance will apply.

Time is of the essence.

Select one of the Following Alternatives

A

Lessee's rights under this Section will also terminate upon sale of the Property to a buyer in accordance with the provisions of this Section.

B

While this Lease remains in effect, a sale of the Property to a buyer will not extinguish the provisions of this Section: Lessee's rights under this Section will obtain in respect of any purchaser of the Property.

B. Right of First Refusal: Owner's Offer

NOTE: ADJUSTMENTS TO THE MODEL BELOW MAY WELL BE REQUIRED TO CONFORM IT TO THE TERMS AND TERMINOLOGY OF THE APPLICABLE LEASE. ALSO NOTE THAT THIS RIGHT OF FIRST REFUSAL CAN BE USED IN LIEU OF THE ONE BASED ON A GOOD FAITH OFFER.BY A THIRD PARTY.

Owner will not sell all or any portion of the Property prior to the end of the lease term except as provided in this Section.

If Owner wishes to sell the entire Property, Owner will first offer Lessee the right to purchase the Property in accordance with the contract of sale attached hereto as an Exhibit. Owner will give Lessee written notice of that offer stating in the notice the price for the Property ("Notice of Offer").

Within [specify number in words] ([specify number in figures]) days after Lessee receives the Notice of Offer (the "Offer Period"), Lessee will notify Owner whether it will purchase the Property at the price specified in the Notice of Offer. If Lessee notifies Owner that it elects not to purchase the Property, or if Lessee does not notify Owner of its election within the Offer Period, or if Lessee's election is not made in accordance with the requirements of the following paragraph, Lessee's right to purchase the Property in accordance with Notice of Offer will terminate, and Owner may, within [specify number in words] ([specify number in figures]) days after expiration of the Offer Period, sell the Property to a buyer at the price set forth in the Notice of Offer and under a contract of sale in the form attached hereto as an Exhibit without amendment thereto except to add the price set forth in the Notice of Offer. As used in the preceding sentence "sell" means execution of the contract of sale and closing of title thereunder.

If Owner does not sell the Property to a buyer in accordance with the provisions of the preceding paragraph, including within the time period specified in that paragraph, then Owner may not sell the Property without first complying the requirements of this Section.

If Owner does sell the Property to a buyer in accordance with the provisions of the second preceding paragraph, Owner will promptly notify Lessee of the date title closed, including with that notice a statement [consider: under oath] that the sale was made entirely in accordance with the provisions of this Section.

If, however, Lessee notifies Owner within the Offer Period that it elects to purchase the Property, Owner will sell the Property to Lessee and Lessee will purchase the Property from Owner at the price for the Property stated in the Notice of Offer and pursuant to the terms of the contract of sale attached hereto as an Exhibit. To be effective Lessee's notice of its election to purchase must be accompanied by payment by bank check of the down payment specified in the Exhibit. Notice by Lessee to Owner in accordance with this paragraph will constitute execution by Lessee and Owner of the contract set forth in the Exhibit, and the date of that contract will be the date of the Notice of Offer.10

If Lessee elects to purchase the Property

(i) the term of this Lease will end on closing of title, but if title does not close at or before the end of lease term, the term of this Lease will be extended to the closing of title or until termination of the contract of sale, whichever is the first to occur, and

(ii) if the contract of sale is terminated before the end of the term of this Lease, this Lease will, nevertheless, remain in effect until the end of its then stated term.

If the term of the lease is extended under item (i) above, Lessee [Consider: will continue to pay rent and other amounts owing under the Lease as the terms relating to rent and other amounts exist immediately prior to the extension period // will not be required to pay rent and other amounts owing under the Lease during the period of the extension].

Closing of title will be without prejudice to rights and obligations accrued under this Lease to the time title closes.

If Lessee's right to exercise the option to purchase the Property has accrued, and if before Lessee exercises the option and before the option expires, the Property suffers damage, Lessee may exercise its option to purchase the Property at any time up to and including the later of (i) the last day on which Lessee may exercise the option (excluding this paragraph), or (ii) the tenth business day after all amounts payable under Owner's insurance in respect of the damage are agreed in writing with the insurers. Owner will permit Lessee and/or its insurance advisor to attend any discussions and negotiations with Owner's insurers respecting the amounts payable on account of the damage. If this paragraph applies and if Lessee exercises its option, all property insurance proceeds payable with respect to the damage will be paid to Lessee notwithstanding any other provision in this Lease, and Owner and Lessee will make appropriate arrangements to assure those proceeds are paid to Lessee.11

Lessee's rights and Owner's obligations under this Section will terminate on proper termination of this Lease due to Lessee's default. However, if this Lease terminates or is terminated for any other reason after Lessee's right to exercise the option has accrued and before Lessee has exercised the option, Lessee's rights and Owner's obligations under this Section will remain in full force and effect and Lessee's right to exercise the option will terminate after the expiration of [specify number of days in words and figures] following termination of the Lease; but if termination is due to damage to the Property, the provisions of the preceding paragraph dealing with exercise of the option and insurance will apply.

Time is of the essence.

Select one of the Following Alternatives

A

Lessee's rights under this Section will also terminate upon sale of the Property to a buyer in accordance with the provisions of this Section.

B

While this Lease remains in effect, a sale of the Property to a buyer will not extinguish the provisions of this Section: Lessee's rights under this Section will obtain in respect of any purchaser of the Property.

C. CONCLUSION

Enough???!!! Well, you'll be happy to know

Th... th... th... that's all for now folks.


  • Clifton Land Co. v. Magic Car Wash, LLC, No. 526319 (Third Dep’t, Oct. 18, 2018 (hereafter “App. Div. Slip Op.”).
  • Ruff! Ruff! ROFR!, 90 N.Y. St. B.J. 26, June 2018; ROFR Redux: Its Bite Is as Effective as Its Bark, 91 N.Y. St. B.J. 36, May 2019.
  • This article is based, in part, on an article by the author, Options to Purchase Real Estate, that appeared on the November 2018 (Vol. 48) of the Uniform Commercial Code Law Journal and materials from Chapter 12 of Commercial Agreements – A Lawyer’s Guide to Drafting and Negotiating (Thomson Reuters).
  • For additional treatment of and models for other types of options, please see Chapter 12 of Commercial Agreements – A Lawyer’s Guide to Drafting and Negotiating.
  • Lest the third party offer specify a type of payment that the option holder cannot match or might not want to match, like a specific Picasso painting or a batch of a cryptocurrency.
  • This exhibit is the form of contract – referenced later in the model – between the owner and lessee in the event the lessee exercises its option to buy the property. With regard to the allocation between owner and lessee of taxes and other fees, charges and costs pertaining to the property: In the case of a net lease, the lessee pays those items, so they would not be allocated. But transfer taxes and other fees and charges pertaining to the sale must be addressed. Also add, as appropriate under the circumstances, any other terms that a good faith offer must contain.
  • The number of days here should be the same as the number of days in the definition of a “good faith offer” (third paragraph of this model).
  • The contract of sale between owner and lessee as set forth in the exhibit should state that on closing of title the condition of the property will – absent any special provisions regarding damage – be its condition as of the date of the contract, subject to ordinary wear and tear and to any other mutually acceptable changes. Hence, the option provides that the date of the contract between owner and lessee will be the date of the good faith offer – that is, the date of the contract between owner and the third party buyer. In addition, the exhibit should state: (i) the price for the property will be the price as determined under the applicable section of the lease, and (ii) the percentage of that price required for the down payment. Provision should also be made on how to complete any blank spaces. Nothing should be left to negotiation. See 12:1 of Commercial Agreements, supra.
  • The price has been determined by the third party’s offer before the damage occurs. Hence the provisions regarding insurance. If the option has been exercised before the damage, the contract of sale, which is attached as an exhibit and which is deemed signed on exercise, will govern. The lease will contain other provisions dealing with the effect of damage to the property, including damage prior to accrual of the right to exercise the option and the possibility of termination.
  • The contract of sale between owner and lessee as set forth in the exhibit should state that on closing of title the condition of the property will – absent any special provisions regarding damage – be its condition as of the date of the contract (to wit, the date of the Notice of Offer), subject to ordinary wear and tear and to any other mutually acceptable changes. In addition, the exhibit should state the price for the property will be the price as determined under the applicable section of the lease. The exhibit will state the percentage of that price required for the down payment. Provision should also be made on how to complete any other blank spaces, though there should be none. Nothing should be left to negotiation.
  • The price has been determined by the owner’s offer before the damage occurs. Hence the provisions regarding insurance. If the option has been exercised before the damage, the contract of sale, which is attached as an exhibit and which is deemed signed on exercise, will govern. The lease will contain other provisions dealing with the effect of damage to the property, including damage prior to accrual of the right to exercise the option and the possibility of termination.