First Right of Refusal

What is a first right of refusal in a lease or a purchase of real estate? This law is applicable in Jalisco. 

The legal code addressing this right applies to different kinds of businesses. We know it applies to leases and offers to buy and sell real estate properties in Jalisco.

I am told the reason for first right is to recognize the efforts and money invested by a business owner occupying a property he does not own. If the owner wants to sell the building, the first right of refusal to purchase is a right of the lessee, who has been in the property for more than a short time.

The owner is to offer the right to purchase to the lessee in recognition of the time and money the lessee has spent on the property.  The informed owner knows this right exists. The lease he offers waives the first right of refusal as one of its conditions. It must be clearly stated so the lessee sees and agrees to this as part of the lease.

Condos and homes are in the same legal situation. If a renter is long-term, whether she has signed a lease or not, this code of the law applies.  

The importance to you as a landlord or owner is of high concern.  If you as a lessor do not know or have not exercised the right of refusal waiver when writing a lease, the lessee will have first right of refusal to waive or give his intent to buy the property. This sounds straight forward doesn´t it?  This is to the contrary. 

Possession gives the possessor very many rights.  What can happen is the tenant of the condo, house or commercial space can refuse to move and not sign the waiver. This is a big situation the owner must solve if he has not taken care of it in the lease.  The occupant may refuse to move, and if they pay their rent, they are not easily going to be required to vacate the property.  Evictions are very slow and expensive.

An owner cannot offer his property for sale and give possession until this situation is cleared up. The tenant must be out of the property. The first right must be no longer applicable to the tenant.

When it comes to putting properties in a proper MLS database, it should not be allowed.  The reason is the listing agent will have to notify agents there is a first right of refusal with the current tenant and he has refused to sign a waiver. 

No agent is going to have their offer ¨shopped¨ or used to give a tenant the right to buy the property for the amount the agent is offering. There is a catch. The seller will not pay commission so the innocent buyer making the offer will be used by the seller to have the tenant buy and the owner does not pay a commission.

This situation should result in this property not being in the MLS at all. And if for some reason it is overlooked, the agent not being transparent has violated at the very least, ethics standards of not being professional nor understanding this law.

The other situation we have seen is the occupant will stay in the property and not buy it, but he will negotiate being paid to leave. The seller is going to be paying money to the renter to leave. And only after the tenant is out, can straight forward offers and negotiations occur. 

How long should the first right be offered to the renter?  Attorneys tell me different time frames. If the first right was not first handled in the lease, the first rights for the occupant still apply. Offering the first right to purchase should be a reasonable or verified time per your attorney´s advice. 

If you, as the owner, do not understand this right should be settled as quickly as possible,  you will have to wait to offer the property to the public. If you do not have a signed waiver, this right to buy can complicate other offers and cause problems of misrepresentation as well as the possibility of renters demanding money for damages to vacate. 

This article is based upon legal opinions, current practices, and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas.  I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review.  


  • Harriet Cochran Murray

    Harriet was born and raised in Louisiana. She has a BA in Art Education and has lived in Vallarta since 1996, founding Cochran Real Estate a year later. She is also a Certified International Property Specialist and a long-time Realtor who travels the world to attend courses and give presentations.

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