Legal Definitions - first option to buy

A first option to buy, also commonly referred to as a right of preemption, is a contractual agreement that grants a specific person or entity the exclusive opportunity to purchase an asset before the owner can offer it for sale to anyone else. If the owner decides to sell the asset, they are legally obligated to first offer it to the holder of this right, typically under agreed-upon terms (such as a specific price or market value). Only if the holder declines to purchase the asset can the owner then proceed to sell it to a third party, often under terms no more favorable than those initially offered to the preemption holder.

• Example 1: Commercial Property Lease

  Imagine a small bookstore that has been renting its retail space for many years. Their lease agreement includes a clause stating that the tenant (the bookstore owner) has a "first option to buy" the building. If the landlord decides to sell the property, they must first present the bookstore owner with an offer to purchase it, outlining the price and terms. The bookstore owner then has a specified period to accept or reject this offer. If they decline, the landlord is then free to list the building on the open market and sell it to another buyer.

  This illustrates the term because the bookstore owner receives the initial, exclusive opportunity to buy the property they occupy before it becomes available to anyone else, fulfilling the "first option" requirement.

• Example 2: Business Partnership Agreement

  Consider two friends who co-founded a successful software startup. Their partnership agreement includes a "first option to buy" clause regarding each other's shares in the company. If one partner decides to retire and sell their ownership stake, they are contractually required to first offer their shares to the other founding partner. This prevents an unknown third party from acquiring a significant portion of the company without the existing partner's consent and helps maintain control within the original founding group.

  This demonstrates the term by showing how one partner has the priority right to purchase the other's shares, ensuring they get the first opportunity to maintain their ownership percentage before the shares can be offered externally.

• Example 3: Collectible Items

  A passionate collector of vintage comic books has a standing arrangement with a specialized comic book dealer. Their agreement includes a "first option to buy" any rare, first-edition comics from a particular series that the dealer acquires. When the dealer manages to source a highly sought-after comic from that series, they are obligated to contact this specific collector first and offer them the opportunity to purchase it at an agreed-upon price or market value, before advertising it to their wider customer base or other collectors.

  This example highlights the term by showing how the collector receives preferential treatment and the initial chance to acquire a specific item, ensuring they have priority access to new inventory that matches their collecting interests.