{"id":1308,"date":"2020-12-23T15:10:22","date_gmt":"2020-12-23T05:10:22","guid":{"rendered":"http:\/\/nz.legalvision.com.au\/?p=1308"},"modified":"2021-03-23T12:56:03","modified_gmt":"2021-03-22T23:56:03","slug":"first-right-of-refusal","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/property-and-leasing\/first-right-of-refusal\/","title":{"rendered":"What Is the First Right of Refusal in New Zealand?"},"content":{"rendered":"\n

The first right of refusal refers to a clause in a lease agreement which gives the tenant a priority position when the landlord seeks to sell the property. Before the landlord can sell to any other party, the tenant can choose to either purchase it themselves or \u2018refuse\u2019 to do so. <\/span><\/p>\n\n\n\n

This article will set out:<\/span><\/p>\n\n\n\n

  1. how a first right of refusal works in practice;<\/span><\/li>
  2. the perspective of both a tenant and a landlord in terms of a first right of refusal; and<\/span><\/li>
  3. the difference between a \u2018first right of refusal\u2019 and an \u2018option to purchase.\u2019<\/span><\/li><\/ol>\n\n\n\n

    How a First Right of Refusal Works in Practice<\/span><\/h2>\n\n\n\n

    A first right of refusal refers to a clause in a lease agreement<\/a> that gives a tenant a priority position to purchase when the landlord goes to sell the property. There are different ways of drafting this kind of clause. The most common kind works in the following way:<\/span><\/p>\n\n\n\n

    1. the tenant and landlord negotiate a lease agreement with a first right of refusal;<\/span><\/li>
    2. a few years later, the landlord would like to sell the property;<\/span><\/li>
    3. honouring the right, the landlord must first \u2018offer\u2019 the sale to the tenant, who has a set period to consider the offer;<\/span><\/li>
    4. if the tenant opts to purchase, they can do so, and the landlord cannot instead choose to sell to another party; and<\/span><\/li>
    5. if the tenant \u2018refuses\u2019 the purchase, then the landlord can sell to other parties, so long as the sale is on \u201cno less favourable\u201d terms than the offer to the tenant (that is, the landlord must offer their best price to the existing tenant).<\/span><\/li><\/ol>\n\n\n\n
      \n

      Another form of drafting the first right of refusal could, for instance, be that the purchase price, if the landlord would like to sell, is decided by a third party, like a registered valuer. <\/span><\/p>\n<\/div>\n\n\n\n

      Why Would Tenants Want a First Right of Refusal?<\/span><\/h2>\n\n\n\n

      Particularly with large-scale commercial leases<\/a>, such as for offices, tenants may make a significant investment in terms of customised furniture or fit-out. A first right of refusal gives a tenant additional flexibility to purchase if the landlord wishes to sell the property, which provides greater security of tenure.\u00a0<\/span><\/p>\n\n\n\n

      There is essentially no downside for a tenant to have this right, as t<\/span>here is no obligation to buy the property. It just strengthens their position and grants them priority status if they are in a position to purchase when the landlord comes to sell. This has other advantages. For instance, a tenant may not be in a position to buy when first leasing the property, but expects to be in that position in a few years. Negotiating the refusal will help the tenant purchase the property at that later point.<\/span><\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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