California Real Estate SalespersonContractsHard
A property owner grants a tenant a clause in the lease stating that if the owner ever decides to sell the property, the tenant must be given the opportunity to match any bona fide offer received from a third party before the owner can sell to that third party. This clause is best described as a:
- ANet listing requiring the tenant to pay any amount above a set minimum
- BOption to purchase, giving the tenant an irrevocable right to buy at a fixed price
- CRight of first refusal, which is triggered only if the owner decides to sell
- DExclusive right to sell listing between the owner and the tenant
Show answer & explanationAnswer & explanation
Correct answer: C. Right of first refusal, which is triggered only if the owner decides to sell
A right of first refusal (preemptive right) obligates the owner, only if and when the owner chooses to sell, to first offer the property to the holder on the same terms as a third-party offer. Unlike an option, it does not create an independent right to compel a sale at a fixed price; it merely requires the owner to give the holder the first chance to match a bona fide offer.
Why the other options are wrong
- A. Incorrect—a net listing involves a broker's compensation structure, not a tenant's purchase rights.
- B. Incorrect—an option gives an independent right to purchase at a set price regardless of whether the owner wants to sell.
- D. Incorrect—this is a lease clause between owner and tenant, not a listing agreement with a broker.
Right of First Refusal
A contractual right giving the holder the opportunity to match a bona fide third-party offer before the owner sells the property, but only if the owner decides to sell.
- Different from an option, which grants an independent right to purchase at a fixed price/time.
- Triggered only when the owner decides to sell.
- Common in leases to protect a tenant's interest in eventually purchasing the property.
Memory trick: An option lets you buy anytime; first refusal lets you buy first—if seller decides to sell.