A buyer is purchasing a commercial property with an existing long-term oil and gas surface lease agreement in place. The lease agreement requires the operator to pay the surface owner an annual rent of $4,000, adjusted for inflation every five years, and includes a right of first refusal for the operator if the property is sold. As an assisting real estate professional, which of the following is the most critical action to advise the buyer regarding the right of first refusal (ROFR)?

Question: A buyer is purchasing a commercial property with an existing long-term oil and gas surface lease agreement in place. The lease agreement requires the operator to pay the surface owner an annual rent of $4,000, adjusted for inflation every five years, and includes a right of first refusal for the operator if the property is sold. As an assisting real estate professional, which of the following is the most critical action to advise the buyer regarding the right of first refusal (ROFR)?

Answer options:

• Advise the buyer that the ROFR is typically not enforceable in a property sale and can be ignored.
• Instruct the buyer to notify the operator of the intent to sell after the purchase agreement is binding, but before closing. ✅ Ensure the seller has properly offered the property to the operator in accordance with the ROFR terms, and obtained a waiver or refusal from the operator, before the purchase agreement with the buyer becomes firm.
• Suggest to the buyer that they can negotiate a higher annual rent with the operator after closing, irrespective of the ROFR.

Correct answer: Ensure the seller has properly offered the property to the operator in accordance with the ROFR terms, and obtained a waiver or refusal from the operator, before the purchase agreement with the buyer becomes firm.

Explanation: A right of first refusal (ROFR) is a significant encumbrance on title. The seller is legally obligated to offer the property to the ROFR holder (the operator) under the same terms as the bona fide offer from the buyer, and obtain a waiver or refusal, before a purchase agreement with a third party can become firm and unconditional. Failure to do so can invalidate the sale.