What Is A Right Of First Refusal? (2026 Updated)

If you’re buying into a business, taking on a new investor, or even selling a key asset, you might hear someone say, “We’ll need a right of first refusal.”

It sounds straightforward (and it can be), but a right of first refusal can also create real pressure points in negotiations if it’s drafted loosely or bolted on at the end.

This guide is updated for current New Zealand business practice and explains what a right of first refusal is, when it’s used, and what to watch out for so you stay protected from day one.

What Is A Right Of First Refusal (ROFR)?

A Right of First Refusal (often shortened to ROFR) is a contractual right that gives one party the opportunity to enter a deal before the seller can accept the same deal with someone else.

In plain terms, it usually works like this:

• You (the “grantor”) want to sell something (like shares, a business asset, or property), or enter into a transaction with a third party.
• Someone else (the “holder”) has a ROFR.
• You must offer the holder the chance to match (or accept) the same terms first.
• If the holder declines (or doesn’t respond in time), you can proceed with the third party deal (often on those same terms, or sometimes no better terms).

ROFR clauses are common in New Zealand commercial arrangements because they’re seen as a “fair” way to balance competing interests:

• The seller keeps flexibility (you can still sell to a third party if the holder doesn’t want it).
• The holder gets protection (you can’t be cut out of a deal you care about).

ROFRs often sit inside a broader agreement, like a Shareholders Agreement or an investment deal, rather than being a standalone document.

When Do You Usually See A Right Of First Refusal In New Zealand?

Rights of first refusal show up across all sorts of NZ business transactions. The key is that they’re used when someone wants to control (or at least influence) who the owner or counterparty might be in the future.

Share Sales And Company Ownership Changes

This is the classic ROFR scenario: a shareholder wants to sell shares, and other shareholders (or the company) want first dibs before an outsider comes in.

A ROFR in a shareholder context can:

• help keep ownership “within the group”;
• reduce the risk of ending up with an unknown or difficult co-owner;
• protect minority shareholders from being sidelined by surprise transfers.

In addition to a ROFR, many companies also rely on documents like a Company Constitution to set internal rules about issuing and transferring shares. These documents should align (otherwise you can end up with inconsistent processes).

Commercial Leasing And Business Premises

In some leasing arrangements, a tenant might negotiate a ROFR to renew the lease or take additional space before it’s offered to someone else. Conversely, a landlord might want a ROFR if a tenant is transferring or assigning a lease in certain circumstances.

ROFRs can also appear in more formal leasing documents and processes (for example, when negotiating an Heads of Agreement before the full lease is signed).

Business And Asset Sales

If you’re selling a business (or part of one), a buyer might ask for a ROFR over:

• related assets you keep (like IP, equipment, or customer lists);
• future opportunities (like a second location); or
• a right to purchase more of the business later.

ROFR clauses need to be handled carefully in sale contexts because they can affect deal value and how “clean” the sale really is.

Partnerships And Joint Ventures

In partnerships or joint ventures, a ROFR can be a practical way to manage exits. If one party wants to sell their interest, the other party gets the first opportunity to buy it.

This often sits alongside (or complements) a tailored Partnership Agreement, particularly where you want clear rules about valuation, exit timing, and dispute resolution.

How Does A Right Of First Refusal Work In Practice?

There isn’t just one “standard” ROFR process. The clause needs to spell out the steps clearly, otherwise the parties can end up arguing about what should have happened.

That said, a well-drafted ROFR often follows a structure like this.

Step 1: A Genuine Third-Party Offer Appears (Or The Seller Intends To Sell)

Usually, the ROFR is triggered when:

• the seller receives a bona fide offer from a third party, and wants to accept it; or
• the seller decides they want to sell and invites offers (depending on the drafting).

This trigger point matters a lot. If it’s unclear, you can get disputes like: “Was that an offer?” “Was it serious?” “Were the terms final?”

Step 2: The Seller Must Give A ROFR Notice

The seller typically must provide written notice to the ROFR holder setting out the proposed deal terms. A good notice process includes:

• the price and payment terms (including deposits and settlement timelines);
• what exactly is being sold (shares/asset/property and any exclusions);
• conditions (for example, due diligence, finance, or board approvals);
• any “non-price” terms that materially affect value (like warranties, restraints, earn-outs).

It’s common to require the seller to attach the third party offer (or the proposed sale agreement) so there’s no ambiguity.

Step 3: The Holder Has A Limited Time To Accept (Or Match)

The ROFR should specify a timeframe for the holder to respond. If it doesn’t, you may end up with an argument about what is a “reasonable” time, which is not where you want to be when a deal is on the table.

Time periods vary depending on the transaction, but it’s common to see something like:

• 5–10 business days for straightforward share transfers; or
• longer for complex assets or where funding is needed.

Step 4: If The Holder Accepts, The Parties Complete The Deal

If the holder exercises the ROFR, the parties proceed to documentation and settlement. Depending on how your documents are structured, there may already be a template transfer agreement or pre-agreed terms to speed things up.

Step 5: If The Holder Declines, The Seller Can Sell To The Third Party (With Limits)

If the holder says “no” (or doesn’t respond in time), the seller can usually sell to the third party, but often only:

• on the same terms as were offered to the holder; and/or
• within a set period (for example, within 60–90 days), otherwise the ROFR process must restart.

This “same terms” requirement is a big deal in practice. Without it, a seller could offer the holder unattractive terms, get a decline, then quietly do a better deal with a third party.

Right Of First Refusal Vs Pre-Emptive Rights Vs Right Of First Offer

A lot of people use these terms interchangeably, but they can be quite different in operation. Getting the label wrong (or relying on a template clause) can create a mismatch between what you thought you negotiated and what the contract actually does.

Right Of First Refusal (ROFR)

• Usually triggered by a third-party offer the seller wants to accept.
• The holder gets the chance to match/accept those terms first.
• The seller retains flexibility to shop the asset/interest, subject to the ROFR process.

Pre-Emptive Rights

Pre-emptive rights often appear in shareholding contexts and usually mean shares must be offered to existing shareholders (or the company) before they can be transferred to outsiders, sometimes at a price determined under a set valuation method.

They can be more “internal” than a ROFR, and may not require an external offer to exist first.

Right Of First Offer (ROFO)

A right of first offer typically means the seller must approach the holder first and invite them to make an offer before the seller negotiates with third parties.

ROFOs can feel less restrictive for the seller, but they can also be less protective for the holder because there’s no third-party benchmark offer to match.

If you’re not sure which mechanism suits your situation, it’s worth getting advice early. A clause that’s “almost right” can cause the most headaches later, especially when a transaction is time-sensitive.

What Should A Right Of First Refusal Clause Include?

A ROFR clause is only as good as its detail. In New Zealand, disputes often come down to “process” issues: who had to give notice, what information had to be included, and whether the holder genuinely had a chance to act.

Here are the key items you’ll usually want to cover.

1. What Exactly Is Covered?

Be specific about the subject matter:

• Shares in a particular company (and which class of shares)?
• A specific asset (equipment, intellectual property, customer book)?
• Real property or lease rights?

If the ROFR is meant to cover indirect transfers (like selling the holding company rather than the shares directly), that needs to be spelled out as well.

2. Who Has The ROFR (And Can They Transfer It)?

Define the holder clearly. You might also need to cover whether the ROFR can be assigned to:

• a related company;
• a trust; or
• a new shareholder.

In shareholding arrangements, it’s common to require new shareholders to sign a Deed of Accession so they become bound by (and benefit from) the same shareholder rules, including ROFR mechanics.

3. What Events Trigger The ROFR?

This is where you reduce ambiguity. Common triggers include:

• receipt of a bona fide third-party offer that the seller intends to accept;
• intention to sell (with or without a third-party offer);
• transfer due to death or relationship property changes (sometimes carved out);
• internal restructures (often excluded, but not always).

4. Notice Requirements And Timeframes

Your clause should say:

• how notice must be given (email, physical address, both);
• what must be included in the notice (full terms, agreements attached, etc.);
• how long the holder has to respond;
• what happens if the holder asks questions or needs clarifications (does time pause?).

These details feel “administrative” until the day you’re trying to close a deal quickly.

5. What Does “Match The Offer” Mean?

Not every deal is just about price. A third-party offer might include:

• vendor finance or deferred payments;
• special conditions (like due diligence or finance);
• restraints of trade;
• warranty and indemnity protections;
• earn-out structures tied to performance.

A well-drafted ROFR clause anticipates this and explains whether the holder must match:

• all terms (price and non-price terms);
• only “material” terms; or
• price only (less common, and can lead to disputes).

6. “No Better Terms” And A Sale Window

To keep things fair, the ROFR should usually prevent the seller from doing a “better deal” with the third party after the holder declines. Typical protections include:

• a “no better terms” restriction (seller can’t sell on more favourable terms than those offered to the holder);
• a time limit to complete the third-party sale (otherwise ROFR must be re-offered).

7. Confidentiality And Information Handling

A ROFR process often involves sharing sensitive terms (like valuation and buyer details). You’ll usually want confidentiality obligations, especially in closely-held companies or competitive markets.

Where the ROFR is embedded in broader business relationships, confidentiality is often covered by a standalone NDA, or provisions inside a services or investment agreement.

What Are The Risks And Common Mistakes With Rights Of First Refusal?

A ROFR can be a great protective tool, but it can also become a deal blocker if it’s poorly drafted or misunderstood. Here are the issues we commonly see business owners run into.

ROFRs Can Slow Down A Sale Or Scare Off Buyers

From a third party buyer’s perspective, a ROFR can feel like they’re doing the work (negotiating terms) only to have the holder step in at the last minute and take the deal.

That doesn’t mean you shouldn’t have a ROFR, but it does mean you should:

• keep the process tight and time-bound; and
• be upfront in negotiations so third parties understand the timeline.

Ambiguous “Trigger” Events Lead To Disputes

If your clause doesn’t clearly define what triggers the ROFR, the seller and holder can end up in conflict about whether the ROFR even applies.

This can be particularly messy where:

• there’s an internal restructure;
• shares are being transferred to a family trust;
• there’s a mixed transaction (part sale, part gift, part debt forgiveness).

Price Manipulation And “Side Deals”

One common concern is whether a third-party offer is structured in a way that makes it difficult for the holder to match (for example, by bundling other assets or including side agreements).

This is why ROFR clauses often include protections around:

• disclosure of all material terms; and
• restrictions on selling on better terms after a decline.

ROFRs Don’t Replace Good Governance Documents

A ROFR is one piece of the puzzle. If you’re using a ROFR to manage ownership or control, you should also look at:

• who can approve transfers;
• director and shareholder decision-making;
• dispute resolution processes.

In practice, this is why many companies put their transfer rules in both a Shareholders Agreement and a Company Constitution, so the commercial deal and the legal framework are aligned.

Enforcement Can Get Costly If Things Go Wrong

If someone ignores a ROFR and sells anyway, the holder may need to enforce their rights. Depending on the circumstances, that could mean seeking court orders, damages, or other remedies.

The best way to avoid that pain is to get the clause drafted clearly and make sure everyone understands the process before any sale comes up.

Key Takeaways

• A right of first refusal (ROFR) gives the holder the chance to enter a deal first, usually by matching the terms of a third-party offer.
• ROFRs are common in NZ for share transfers, business/asset sales, partnerships, and some leasing arrangements where control over the counterparty matters.
• A good ROFR clause clearly defines the trigger event, notice requirements, response timeframes, and whether the holder must match all material terms (not just price).
• Include practical protections like “no better terms” restrictions and a time window to complete a third-party sale after the holder declines.
• ROFRs work best when they’re consistent with your wider legal setup, including documents like a Shareholders Agreement, Company Constitution, and (where relevant) Deeds of Accession.
• If the clause is vague or treated as an afterthought, a ROFR can cause delays, disputes, and expensive enforcement issues later.

If you’d like help drafting or reviewing a right of first refusal (for shares, a business sale, or another commercial arrangement), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.