Caution advised with Rights of First Refusal

When selling a Childcare business where the owner also owns the property, it is common for the new business owner to try and negotiate a Right of First Refusal to purchase the property in future within the Deed of Lease.

This is a decision that should not be taken lightly. It will have future consequences that need to be carefully considered before this condition is accepted in the negotiation of the Lease.

For the Childcare business owner (tenant) holding the right of first refusal it is a benefit to them and an insurance policy that they will have the opportunity to buy the property in future.

Conversely, the right of first refusal is a hindrance for the property owner since it does, in fact, limit their ability to sell in future, in some cases it can result in a lower value being achieved in the market place.

It may be difficult to attract buyers if they know that the current tenant will likely meet any offer made. In addition to this, once an offer is made, the Tenant has a timeframe that they have the right to consider the opportunity before making a final decision to proceed to purchase or decline the sale at the agreed price.  

Depending on the timeframe granted within the Lease, this can leave the buyer and property owner hanging while the ROFR process works through on every offer made.

Where the tenant has a less than positive relationship with the landlord, the ROFR can, and in our experience has, been used to delay the sale. An example was the full 15 working day ROFR being used twice during a property negotiation, yet the tenant did not have the funds or any desire to purchase the property.

The ROFR can also influence the future property value. If the tenant wants to buy the property in future, it may not be in their interest to keep the maintenance up to standard in an attempt to devalue the property. Likewise, they may not be amenable to property inspections during the sale process and ensuring your asset is presented to the highest level of presentation.

When selling your business, and becoming a new landlord, be cautious about the terms and conditions you accept. Offering the right of first refusal may not be in your best interests.

Consult your legal advisor but also an experienced Childcare sales specialist who can provide practical advice based on many years’ experience working specifically in the Childcare Sector.


Linda Harley

Childcare Sales Specialist.