Imagine you’re an investor excited about purchasing a rental property in Texas, only to discover that the lease includes a tenant’s ‘Right of First Refusal.’ Suddenly, questions pile up—Does this mean the tenant gets to buy the property instead of me? Can the deal even go through? These situations are more common than you think, and they don’t have to be deal-breakers.

Whether you’re a seasoned investor or just starting out, understanding how the ‘Right of First Refusal’ (ROFR) works is vital to avoid costly mistakes.

At Pathways Property Lawyers, we have helped countless real estate investors in Houston avoid costly mistakes when purchasing property. Our Houston real estate lawyers know how to make tenant-involved property sales work in your favor.

What Is the ‘Right of First Refusal’?

In Texas, the ‘Right of First Refusal,’ or ROFR, is basically a tenant’s safety net when landlords decide to sell their rental property. Here’s how it works. If you, the owner, plan to sell the property, the tenant with ROFR gets the first opportunity to buy it before anyone else. Think of it like calling “dibs” on a house!

For the tenant, it’s a way to stay in their home. For the landlord—or buyer like you—this clause can add delays or complications to your deal. However, ROFR doesn’t mean the tenant can just jump in and buy whenever they want. The property has to hit certain conditions, like having an offer from a third-party buyer, before the ROFR kicks in.

Legal Requirements for ROFR in Texas

ROFR agreements have very specific rules in Texas. To be valid, these agreements must be in writing and signed by all involved parties, and they must include details like the property description and terms that trigger the right.

But there’s more to it. For example, these rights can only be enforced under Texas law if they meet the “Statute of Frauds,” which requires clear written agreements in real estate deals. Skipping these requirements could land both buyers and sellers in hot water legally.

A typical ROFR doesn’t include a fixed price for the property. Instead, it allows the tenant to match the price of a legitimate third-party offer. If the tenant exercises ROFR, they must match the exact terms of the third-party offer. They cannot negotiate a lower price. Also, they must exercise their rights within a specific time frame. The timeline for tenants to exercise their ROFR depends on the agreement’s terms. Some contracts allow days, while others give weeks.

It is important to know that ROFR clauses are not automatically included in Texas leases. Landlords must agree to them in writing, and terms vary by contract.

Common Challenges (and How to Handle Them)

ROFR clauses sometimes lead to disputes. Here are a couple of common scenarios and how to tackle them as an investor or seller:

• When the Tenant Decides Not to Buy
  Say you’ve presented the offer to the tenant, but they don’t exercise their ROFR. Great news for you! At this point, you’re free to proceed with your sale to a third party.
• When Sells Happen Without Notice
  If the owner forgets to notify the tenant and sells directly to a third party, the tenant could sue to enforce their right. And if proven, the tenant might end up buying the property under identical terms.

To avoid these headaches, always follow the outlined steps in the ROFR agreement and have everything in writing.

Practical Tips for Investors

1. Check Leases Before You Buy
   Before purchasing a tenant-occupied property, carefully review the lease for clauses like ROFR. Trust us—just one overlooked line in a lease document can cause problems later.
2. Notify Tenants Properly
   If you find a property you want to buy, make sure the seller has notified the tenant of your offer. Clear, documented communication protects everyone involved.
3. Consult a Real Estate Attorney
   Texas ROFR laws can feel like walking a legal tightrope. Hiring an experienced attorney will help ensure everything is done by the book, saving you from future disputes.
4. Have Patience and Plan for DelaysTransactions involving ROFRs often take extra time. Bake that into your timeline if you’re financing the property or planning renovations.
   

   ROFR Isn’t the End of the World: We Can Help

If you’re staring at a lease with ROFR language, don’t panic. These rights are manageable with a little bit of planning and the right team by your side. For tenants, it’s about creating a layer of protection; for investors like you, it’s about playing by the rules to complete your deal without surprises.

Buying tenant-occupied properties can still be an incredible investment—they just come with a few extra steps.

Navigating Texas real estate laws can be complex, especially when dealing with Right of First Refusal clauses, tenant-occupied properties, or contract disputes. Whether you’re an investor, buyer, or seller, having an experienced Houston real estate attorney by your side ensures your transactions are legally sound and protected from costly mistakes.

Call our real estate law firm at 832-364-6234 or fill out our confidential contact form to learn more about your legal options.

Roger G. Jain

As long as I can remember, I have been inspired by courtroom drama. The story, regardless of who was fighting and for what cause, always came down to the very basic human traits of greed, jealousy, vengeance, deceit, ego, and pride. The skilled lawyer, always a good listener, could always find the heart of the case and convey it simply and eloquently to the jury and help the jury reach a just verdict. Read more here.