Right of First Refusal and Purchase Option Disputes in California

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

A right of first refusal is a contract right to buy property before the owner sells it to someone else, on the terms a third party has offered. In California it generally ripens when the owner decides to sell and receives a bona fide third-party offer. If the owner sells around the holder, the holder may sue the owner for breach and, where the buyer had notice of the right, may seek to purchase on the same terms. Kolmogorov Law, P.C. litigates these disputes in Orange County and Los Angeles.

Call (909) 235-6116 or contact us online to discuss a first-refusal right or purchase option that was ignored, or one being asserted against your sale.

Three rights that get confused

An option is the strongest of the three. The owner makes an irrevocable offer to sell at a stated or determinable price, and the holder alone decides whether and when to accept within the option period.

A right of first refusal is conditional. The holder cannot force a sale. The holder only has a preference over other buyers if the owner elects to sell. The right does not become an option until the owner voluntarily decides to sell and receives a bona fide offer from a third party. The contract terms dictate what triggers it.

A right of first offer usually runs in the other order. The owner must offer the property to the holder before marketing it, and if the holder passes, the owner may typically sell to others on terms no better for the buyer.

Leases, co-ownership agreements, and shareholder agreements use all three, sometimes under the wrong label. I read the operative paragraph, not the heading. When the right covers an interest in real property, it belongs in a signed writing. (Civ. Code, § 1624, subd. (a)(3).) Our statute of frauds page covers that rule.

What triggers a right of first refusal

The answer depends on the clause, and courts read it closely. In one Court of Appeal case, a lease gave the tenant a first-refusal right if the landlord obtained a bona fide offer from a third party. The owners instead transferred the property to family members as part of tax and estate planning. The court held that the transfer did not trigger the right. (Hartzheim v. Valley Land & Cattle Co. (2007) 153 Cal.App.4th 383.) It drew three lessons from earlier cases.

First, the contract language controls. Second, a clause tied to a bona fide third-party offer generally requires an arm's-length deal and a change in control of the property, so a gift or a transfer between entities with the same owners usually does not qualify. Third, courts look through the form of a transaction to its true nature, and will not tolerate a scheme designed to avoid the right. The court's example was a landlord who accepts an offer for a larger parcel that includes the burdened portion.

Portfolio sales, entity-level sales, and exchanges for non-cash consideration are where many of these disputes start.

Matching the offer

Once the owner accepts a third-party offer, the holder must usually match its price and terms within the period the clause allows. Problems arise when the offer includes something the holder cannot duplicate, such as an exchange property, seller financing tied to the buyer's credit, or a package of several buildings. A well-drafted clause says how those are valued. A thin one invites litigation.

The owner's notice matters too. Many clauses require written notice of the offer with a copy of its terms, and under clauses written that way the holder's time to respond usually does not start until a compliant notice is delivered.

Exercise deadlines are enforced strictly

This is where holders lose rights they thought were safe. An option can be accepted only on the terms and within the time it specifies, and California courts hold the holder to exact compliance. In one case a tenant gave notice of a lease renewal option 26 days late, through his own oversight. The court refused equitable relief and explained that when the time lapses, the right to exercise an option automatically expires. (Simons v. Young (1979) 93 Cal.App.3d 170, 182-183.) Relief remains possible where the owner waived the deadline or caused the delay.

The same discipline applies after a first-refusal right is triggered. Calendar the response date the day the notice arrives, and send the exercise in the manner the contract requires.

If the property was sold around you

Against the owner, the claim is breach of contract, and damages are generally measured by the bargain lost.

Against the buyer, the question is notice. An obligation concerning real property that could be specifically enforced against the owner can be enforced in the same manner against a later buyer, unless that buyer purchased in good faith and for value. (Civ. Code, § 3395.) That is why recording a memorandum of the lease or option is worth the small effort: an unrecorded interest can lose to a good faith purchaser who records first. (Civ. Code, § 1214.)

Money is presumed inadequate for breach of an agreement to transfer real property, and for commercial property that presumption affects the burden of proof. (Civ. Code, § 3387.) Our page on specific performance explains what else the holder must show. A holder who sues for the property should also record a lis pendens so the buyer cannot resell free of the claim. A buyer who knowingly helped the owner evade the right may face a claim for interference with contract.

If you are the owner or the buyer

Owners should find every preemptive right in the file before signing a letter of intent, and give the notice the clause requires even when the holder seems unlikely to exercise. Buyers should ask for tenant estoppel certificates and read every lease before closing.

First-refusal rights over shares or membership interests raise similar trigger and matching questions. Our page on buy-sell agreement disputes covers that setting.

What to bring to the first meeting

The lease or agreement containing the right, with all amendments.
Any recorded memorandum of lease or option.
The owner's notice of the offer, if one was given, and your response.
The deed, purchase agreement, or public record showing the transfer.
Emails or letters showing what the buyer knew about your right.

Frequently asked questions

My lease gives me a right of first refusal, but the landlord sold the building to someone else without telling me. What can I do?

You may have a breach of contract claim against the landlord and, if the buyer had notice of your right, a claim to buy the building on the terms the buyer received. California courts generally enforce a first-refusal right against a purchaser who took with notice. Act quickly, and consider recording a lis pendens with the lawsuit.

What is the difference between an option and a right of first refusal?

An option lets the holder compel a sale at a set or determinable price during the option period. A right of first refusal does not. Under California law it gives only a preference to buy if the owner decides to sell and receives a bona fide third-party offer, at which point it operates like an option on those terms.

Does a transfer to a family member or related company trigger a right of first refusal?

Usually not, if the clause requires a bona fide third-party offer. A California appellate court held that an intrafamily transfer made for legitimate tax and estate planning reasons did not trigger a tenant's first-refusal right. (Hartzheim v. Valley Land & Cattle Co. (2007) 153 Cal.App.4th 383.) The result can differ if the transfer was structured to evade the right.

I missed the deadline in my lease to exercise my purchase option by a few weeks. Is the option gone?

It may be. California courts hold option holders to exact compliance, and an option generally expires automatically when its time runs. In one reported case a tenant who was 26 days late through his own neglect was denied relief. (Simons v. Young (1979) 93 Cal.App.3d 170, 182-183.) Relief is possible if the owner waived the deadline or contributed to the delay.

Can I get the property back from the person who bought it?

Possibly. In California an obligation concerning real property can be specifically enforced against a later owner unless that owner bought in good faith and for value. (Civ. Code, § 3395.) If the buyer knew of your right, had reason to inquire about it, or it was recorded, you can ask the court to order a conveyance to you on the same terms. If not, your remedy is usually damages from the seller.

Talk to a California real estate litigation attorney

If your first-refusal right or option was bypassed, or a holder is challenging your sale, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located at 327 Magnet, Irvine, CA 92618, and represents businesses in Orange County, Los Angeles, and throughout California.

This page provides general information about California law and is not legal advice. Outcomes depend on the wording of the right, the notice given, the facts, and the court.