Right of First Refusal (ROFR) in Property in India:
Meaning, Benefits & Legal Implications
What is the Right of First Refusal (ROFR) in Property?
The Right of First Refusal (ROFR) is a legal and
contractual right that gives a person or entity the first opportunity to buy
a property before the owner sells it to someone else. It is commonly used
in joint ventures, housing societies, commercial properties, and co-owned
assets.
With ROFR, if a property owner receives an offer from a
third party, the person holding ROFR can choose to match the offer and
purchase the property on the same terms.
How Does ROFR Work in India?
Here’s a simple example:
- Mr.
Sharma owns a flat and has given Ms. Mehta a ROFR.
- Mr.
Sharma receives an offer of ₹1 crore from another buyer.
- Before
selling, Mr. Sharma must offer the flat to Ms. Mehta at ₹1 crore.
- Ms.
Mehta can either accept and buy or decline, allowing the
owner to sell to the third party.
ROFR ensures that the holder gets priority in property
acquisition.
Benefits of ROFR in Property Transactions
For Buyers:
- First
Priority to Buy: Ensures the holder can purchase before anyone else.
- Investment
Security: Helps protect investments in joint ventures or co-owned
properties.
- Better
Negotiation Power: Ability to match market offers without bidding
wars.
For Sellers:
- Smooth
Sale Process: Provides a structured way to approach buyers.
- Maintain
Relationships: Common in family-owned or society properties to avoid
disputes.
- Attract
Competitive Offers: Sellers may get better offers from third parties
knowing ROFR holders must match them.
Legal Implications of ROFR in India
ROFR is mainly governed under the Indian Contract Act,
1872. Though not directly part of property law, ROFR clauses are legally
enforceable if documented properly.
Important Legal Points:
- Written
Agreement: Must be clearly included in the sale deed, agreement, or
society by-laws.
- Defined
Terms: Price, notice period, and response time should be mentioned.
- Enforceability:
Violation allows the holder to seek specific performance in court.
- Ownership
vs. Right: ROFR gives purchase priority, not ownership.
Current Trends in India:
- Housing
societies frequently use ROFR to control property transfers.
- Courts
have upheld ROFR rights if agreements are well-drafted.
- ROFR
is common in commercial leases and corporate share transfers.
Key Considerations Before Signing a ROFR Agreement
- Clear
Terms: Define price, notice period, and method of sale.
- Time-bound
Acceptance: Specify the response time for the ROFR holder.
- Proper
Documentation: Include the clause in agreements and property records.
- Legal
Consultation: Seek advice from a real estate lawyer for
enforceability.
Conclusion
The Right of First Refusal (ROFR) is an essential
clause in Indian real estate. It provides security to buyers and flexibility
to sellers, promoting transparency in property transactions. Proper
drafting and understanding of ROFR can prevent disputes and safeguard your
investment.
For investors, developers, or buyers, knowing ROFR is crucial
for making informed real estate decisions in India.
