The path to homeownership is frequently not a straight line. Instead, it may take sharp curves in response to unexpected life changes. People who suddenly lose their jobs may need to wait a year or two before they can qualify for a mortgage again. Divorce or the death of a loved one can also potentially complicate the home-buying process.
Many people end up renting until they can secure financing and find the right home for their families. The problem with renting residential real estate is that tenants are at constant risk of the current owner selling to someone else. The buyer might decide that they don’t want to be a landlord but might instead intend to occupy the property. The tenants may have very limited time in which to find new housing and move in such cases.
Some tenants who like the properties they rent may ask a landlord to extend them the right of first refusal in case they ever list the property for sale. In such cases, a landlord selling to an outside buyer without first talking to the tenant could lead to legal challenges.
What is the right of first refusal?
The right of first refusal is a specialty clause integrated into contracts. It extends certain opportunities to the party that holds the right before the other party can offer that opportunity to outside parties. In a residential real estate lease, the right of first refusal typically relates to property listings.
Tenants ask to have the first chance to make an offer on the home before the landlord lists the property with an agent or entertains offers from others. Having the right of first refusal included in a lease can be valuable for landlords.
They can sometimes avoid the cost of hiring a real estate agent because they don’t need to list or stage their property to attract buyers. They simply need to negotiate terms with the current tenant. The situation can be beneficial for the tenants turned buyers as well, as they can ensure the stability of their living arrangements.
Unfortunately, sometimes landlords make assumptions about whether tenants can qualify for mortgages or intend to make use of the right of first refusal. They may violate the rights of their tenants by listing the property or arranging for a private sale with someone else who they know directly. Tenants facing the termination of a lease or a massive increase in rent because a landlord sold the property may have certain rights under the law.
Reviewing a lease and securing help from a skilled legal team while evaluating the situation could help tenants challenge a pending real estate transaction and make use of their rights. In some cases, tenants might be able to secure financing and purchase the home that they currently rent despite a landlord initially ignoring the terms included in their lease.
