Option vs Right of First Refusal – What’s the Difference?
Imagine thinking you have the right to buy a property—only to discover later you actually don’t. It’s a common misunderstanding we see all the time.
In this short video, Ross Millen explains the crucial difference between an “Option to Purchase” and a “Right of First Refusal”—and why getting it wrong could cost you dearly.
If you’re negotiating property, shares, or any kind of asset deal, you’ll want to be clear on this distinction. The good news is, we can draft and review your agreements to make sure your rights are properly protected.
VIDEO TRANSCRIPT
Ross Millen:
Hi. I had a client the other day that said, "Oh, I'm renting a property and I've got an option to buy it." And I said, "Oh, that's great. You've got the option." And then when I spoke to the other side, what they'd actually said that they wanted to give him was a right of first refusal. And so I explained to the client what the difference was, and it seemed to me that perhaps this is a common misunderstanding. So when you have an option to purchase, you're the one that chooses. You say, "Hey, I'd like to buy this property," whether it's a land property, or maybe it's shares in a company, or any other asset. If you've got an option, the option agreement will set out what the process is for you to say, "I want to buy it," how to set the price, what are the terms, and make a deal. And in that case, if you've got an option over a piece of land, you can lodge a caveat at the title's office to warn everyone you've got that interest. But what is a right of first refusal? Instead, that's where if the owner decides to sell, and they may never decide to sell, but if they decide to sell, they must first offer it to you so you get the first go at buying it. Now what happens though in a well-drafted right of first refusal is they might say, "Oh, well I want $50 million." And you say, "That's ridiculous. I'm not paying that." Does that mean your right of first refusal is over? Well, if it's well drafted, it won't be, it'll just say that they can't go and sell it to someone else at a better price. So if they say, "Well, now we're willing to accept $500,000," you get another right to match or another right to say, "Okay, I'll buy it at that price." And again, to be enforceable, you want to make sure it sets out all the terms of when you pay the deposit, when you settle, what the terms and conditions are, what warranties there are. So either an option to purchase or a right of first refusal has to be well drafted to protect your rights. So remember, if you're looking at buying anything or having such a right, contact us, we can draft the documents. We can make sure that they protect all of your interests. I'm Ross Millen from Millens.
