Right of first negotiation: Overview, definition, and example
What is the right of first negotiation?
The right of first negotiation is a contractual provision that gives one party the exclusive right to enter into negotiations with another party before they engage in discussions or agreements with any third parties. Essentially, if the holder of this right is interested in a particular opportunity, they must be given the first chance to negotiate the terms before the opportunity is offered to others. This right is often used in business agreements related to acquisitions, real estate, partnerships, or sales of goods or services.
For example, if a company is considering selling a piece of property, the buyer with the right of first negotiation would have the opportunity to negotiate with the seller before the property is offered to other potential buyers.
Why is the right of first negotiation important?
The right of first negotiation is important because it provides the holder with a preferred position in securing a business opportunity, which can help them secure deals before competitors are involved. It creates an exclusive advantage by preventing the offering party from immediately seeking offers from other parties, giving the right-holder more time and negotiating leverage.
For businesses, this right can provide a strategic advantage, ensuring that they are given the first opportunity to negotiate terms that could benefit them. It also helps manage relationships between businesses by setting clear expectations and preventing disputes about competing interests.
Understanding the right of first negotiation through an example
Let’s say a technology company signs an agreement with a software supplier that includes a right of first negotiation. If the software supplier later decides to sell its business or release a new product line, the technology company has the right to negotiate the purchase or partnership first, before the supplier considers offers from other companies.
In another example, a landlord might grant a tenant the right of first negotiation for leasing additional space in the building. If the tenant is interested in expanding their business, they have the first chance to negotiate terms for leasing the additional space before the landlord offers it to other potential tenants.
An example of a right of first negotiation clause
Here’s how a clause like this might appear in a contract:
“The Parties agree that, before entering into negotiations with any third party, the Seller shall offer the Buyer the right of first negotiation for the purchase of [specific property or assets]. The Buyer shall have [X] days to initiate negotiations with the Seller, after which the Seller may consider offers from other parties.”
Conclusion
The right of first negotiation gives one party the exclusive opportunity to negotiate a potential deal before the offering party seeks out other interested parties. This provision is valuable in various business transactions, such as acquisitions, leases, and sales agreements, as it provides the holder with a preferential position to secure a favorable deal. By clearly defining this right in contracts, businesses can establish a competitive edge and ensure smooth negotiations for future opportunities.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.