In the Spotlight: Negotiating a Meaningful Right of First Offer, First Refusal

If a tenant is successful at obtaining rights of either first offer or refusal, it is very important for the tenant to make sure that in the event that it does lease any additional space, the term of the lease for such space is co-terminous with its original premises. For example, a tenant with a lease term that expires on July 31, 2008 may be presented by its landlord with an offer for contiguous space for a 5-year term commencing Nov. 1, 2005. The tenant may wish to expand into this additional space, but is faced with the very real, practical problem that it must make a commitment to the additional space that extends well beyond its lease term for the original premises. Unless the landlord is willing to be flexible in this situation, the tenant does not have a meaningful way to exercise its rights. A savvy tenant will insist that, notwithstanding any other terms of the landlord's offer, the term of the lease for the contiguous space must be co-terminous. This will obviously create issues for the landlord, as it may effectively be granting the original tenant the right to turn a 5-year deal with a third party into a 3-year deal with the original tenant. May the party with the most leverage (and competent representation) prevail.

Rights of first offer and first refusal are frequently sought by tenants, especially for space contiguous to the original leased premises, in order to give tenants a combination of flexibility and leverage when dealing with their potential expansion requirements. Landlords are understandably reluctant to grant such rights, as they may interfere with the landlord's ability to accommodate the future needs of existing or prospective tenants.

If a tenant is successful at obtaining rights of either first offer or refusal, it is very important for the tenant to make sure that in the event that it does lease any additional space, the term of the lease for such space is co-terminous with its original premises. For example, a tenant with a lease term that expires on July 31, 2008 may be presented by its landlord with an offer for contiguous space for a 5-year term commencing Nov. 1, 2005. The tenant may wish to expand into this additional space, but is faced with the very real, practical problem that it must make a commitment to the additional space that extends well beyond its lease term for the original premises. Unless the landlord is willing to be flexible in this situation, the tenant does not have a meaningful way to exercise its rights. A savvy tenant will insist that, notwithstanding any other terms of the landlord's offer, the term of the lease for the contiguous space must be co-terminous. This will obviously create issues for the landlord, as it may effectively be granting the original tenant the right to turn a 5-year deal with a third party into a 3-year deal with the original tenant. May the party with the most leverage (and competent representation) prevail.