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What should be included in a Right of First Refusal Agreement?

Introduction

A Right of First Refusal (ROFR) Agreement is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party. In Kenya, such agreements are often used in real estate transactions, business partnerships, and other commercial dealings. The legal framework governing these agreements can be found in various statutes, including the Law of Contract Act, the Land Act, and the Companies Act, among others.

Table of Contents

  1. Legal Framework

    • Law of Contract Act

    • Land Act

    • Companies Act

  2. Key Elements of a Right of First Refusal Agreement

    • Identification of Parties

    • Description of the Subject Matter

    • Terms and Conditions

    • Notice Requirements

    • Time Frame

    • Price and Payment Terms

    • Transferability

    • Governing Law

    • Dispute Resolution

  3. Conclusion

1. Legal Framework

Law of Contract Act

The Law of Contract Act (Cap 23) provides the general principles governing contracts in Kenya. It outlines the requirements for a valid contract, including offer, acceptance, consideration, and the intention to create legal relations.

Land Act

The Land Act (No. 6 of 2012) governs land transactions in Kenya. It includes provisions on the sale, lease, and transfer of land, which are relevant to ROFR agreements involving real estate.

Companies Act

The Companies Act (No. 17 of 2015) regulates corporate entities in Kenya. It includes provisions on the transfer of shares and other corporate transactions, which may be subject to ROFR agreements.

2. Key Elements of a Right of First Refusal Agreement

Identification of Parties

  • Parties Involved: Clearly identify the parties involved in the agreement. This includes the grantor (the owner of the asset) and the grantee (the holder of the ROFR).

  • Legal Capacity: Ensure that all parties have the legal capacity to enter into the agreement, as required by the Law of Contract Act.

Description of the Subject Matter

  • Asset Description: Provide a detailed description of the asset or interest subject to the ROFR. This could be real estate, shares, or any other property.

  • Legal Description: For real estate, include the legal description of the property as per the Land Act.

Terms and Conditions

  • Conditions Precedent: Outline any conditions that must be met before the ROFR can be exercised.

  • Conditions Subsequent: Specify any conditions that must be met after the ROFR is exercised.

Notice Requirements

  • Notice of Intent: Specify the manner and timeframe in which the grantor must notify the grantee of their intent to sell or transfer the asset.

  • Acceptance Period: Define the period within which the grantee must accept or decline the offer.

Time Frame

  • Duration of ROFR: State the duration for which the ROFR is valid. This could be a specific period or until a certain event occurs.

  • Extension Provisions: Include any provisions for extending the duration of the ROFR.

Price and Payment Terms

  • Pricing Mechanism: Outline how the price will be determined. This could be a fixed price, a formula, or a third-party valuation.

  • Payment Terms: Specify the terms of payment, including any deposit requirements, payment schedule, and financing conditions.

Transferability

  • Assignment: State whether the ROFR can be assigned to another party. If so, outline the conditions under which assignment is permitted.

  • Subsequent Transfers: Address whether the ROFR applies to subsequent transfers of the asset.

Governing Law

  • Applicable Law: Specify that the agreement is governed by Kenyan law, referencing the relevant statutes such as the Law of Contract Act, Land Act, and Companies Act.

Dispute Resolution

  • Arbitration Clause: Include a clause specifying that any disputes arising from the agreement will be resolved through arbitration, in accordance with the Arbitration Act (No. 4 of 1995).

  • Jurisdiction: State the jurisdiction in which any legal proceedings will be conducted, typically Kenyan courts.

Conclusion

A Right of First Refusal Agreement is a crucial legal instrument that provides the holder with the opportunity to enter into a transaction before the owner can engage with third parties. In Kenya, such agreements must comply with the provisions of the Law of Contract Act, the Land Act, and the Companies Act, among other relevant statutes. Key elements to include in a ROFR agreement are the identification of parties, description of the subject matter, terms and conditions, notice requirements, time frame, price and payment terms, transferability, governing law, and dispute resolution mechanisms. By ensuring these elements are clearly outlined, parties can protect their interests and minimize potential disputes.

Answered by mwakili.com