First And Last Rights Of Refusal For Australian Startups And SMEs

When you’re building a startup or small business, you’ll often find yourself balancing two goals at once: keeping momentum (moving fast) and managing risk (protecting what you’ve built).

A right of refusal clause can sit right in the middle of that balancing act. It can protect founders and existing stakeholders from unwanted “surprises” in ownership or deal-making - but it can also slow down fundraising, complicate exits, and limit your options if it’s drafted too broadly.

In this guide, we’ll walk you through what a right of refusal is in an Australian business context, how first and last rights of refusal clauses are commonly used in practice, where you’re likely to see them (shares, leases, supplier deals and more), and how to negotiate them in a practical way.

What Is a Right of Refusal (And Why Do Small Businesses Use It)?

A right of refusal (often called a “right of first refusal” or “ROFR”) is a contractual right that gives one party the opportunity to step in and do a deal before the deal is done with someone else.

In simple terms, it usually works like this:

• You receive an offer from a third party (for shares, assets, premises, or another commercial arrangement).
• Because a right of refusal exists, you must give the holder of that right the chance to match (or accept) the offer first.
• Only if they decline (or don’t respond within the agreed timeframe) can you proceed with the third party.

For Australian startups and small businesses, rights of refusal are often used to:

• Protect control and ownership: existing owners may want to prevent shares being sold to a competitor or someone who doesn’t align with the business.
• Preserve a relationship: a landlord might prefer an existing tenant (or neighbouring tenant) to take up extra space before offering it publicly.
• Reduce uncertainty: it can be a “stability” clause in commercial arrangements.

The key point is that a right of refusal isn’t “good” or “bad” on its own. It’s a tool. Whether it helps you depends on what it covers, how it’s triggered, how long it lasts, and how practical it is to use.

Right Of First Refusal Vs “Last” Rights: What’s The Difference?

You’ll commonly see two variations in discussion (and sometimes in drafting), although the terminology isn’t always consistent across Australian contracts:

Right Of First Refusal (ROFR)

A right of first refusal gives the holder the first opportunity to accept the deal when you’re ready to proceed with a third-party offer (or sometimes when you’re ready to sell, depending on drafting).

Typical trigger: you have a genuine third-party offer you want to accept. Before accepting it, you must offer the same deal to the ROFR holder.

What it means for your business: it can slow down a transaction because you can’t sign with the third party until the ROFR process has been run correctly.

“Right Of Last Refusal” / “Last Look” Rights

Some agreements refer to a right of last refusal (sometimes described as a “last look” right). This isn’t a universally standard legal term in Australia, but it’s commonly used to describe a mechanism where the holder gets a final opportunity to match the best deal you’ve negotiated with someone else at the end of the process.

Typical trigger: you negotiate with third parties, pick the best offer, and then must give the holder a final chance to match it before you can proceed.

What it means for your business: it can create uncertainty for third parties. For example, an investor may be reluctant to spend time and money negotiating if someone else can simply step in at the last moment and take the deal.

Which One Is “Stronger”?

Often, “last look” style rights can be more disruptive to deal-making because they can discourage genuine third-party offers.

That said, a right of first refusal can also be very restrictive if it’s broad (covers lots of transactions), long (runs for years), or poorly drafted (unclear process and timelines).

Where Rights Of Refusal Show Up For Startups And Small Businesses

A right of refusal isn’t just a “startup shares” concept. In Australia, we see these clauses across a range of commercial relationships.

1. Shares And Founder/Investor Deals

This is the classic startup scenario: a shareholder wants a right of refusal over the sale (or transfer) of shares.

Common reasons include:

• founders wanting to keep control within a trusted group;
• investors wanting to avoid new shareholders they didn’t agree to;
• keeping competitors off the cap table.

These terms are often set out in a Shareholders Agreement (and sometimes reinforced in the company’s constitution).

2. Commercial Leases (Space, Renewals, Expansion Rights)

If you operate from a physical premises (retail, hospitality, warehouse, office), you might come across rights of refusal during lease negotiations - but it’s important to distinguish them from other lease mechanisms.

For example, you might negotiate:

• an option to renew (which is usually different to a right of refusal, and typically gives you a contractual right to extend the lease if you meet certain conditions);
• a right of refusal to lease adjoining space if it becomes available (sometimes documented as a “first right to negotiate” or “first right of refusal”);
• a right of refusal to buy the premises if the landlord decides to sell (more commonly seen as a pre-emptive right in a sale process).

If you’re negotiating lease terms, it’s often worth having a lawyer review the Commercial Lease Review stage carefully, because the wording around rights, triggers and timeframes can have real operational consequences.

3. Business Sales And Exit Events

If you’re planning a future sale of the business (or you want that option), rights of refusal can affect how attractive your business is to buyers.

Buyers generally want certainty. If a buyer finds out a third party can step in late (for example, under a “last look” style mechanism), that can:

• reduce competitive tension in the sale process;
• reduce the price a buyer is willing to offer;
• increase the time and cost to complete the transaction.

This is why rights of refusal should be considered early - not just when you’re about to sell.

4. Supplier, Distributor, Or Strategic Partner Arrangements

Depending on your industry, you might see rights of refusal tied to:

• exclusive supply arrangements;
• distribution territories;
• manufacturing capacity (e.g. “first right” to book production runs);
• licensing of intellectual property.

For growing businesses, these clauses can be useful if they protect access to key inputs - but risky if they limit your ability to switch suppliers or scale quickly.

5. Intellectual Property And Brand Assets

If you’re licensing or assigning intellectual property (IP) - like a brand name, software, or product design - a right of refusal might be included so one party can buy (or obtain rights) before they are offered elsewhere.

Because IP is often a startup’s core asset, it’s worth documenting ownership and licensing clearly (and aligning that with how your business is structured and governed via documents like a Company Constitution).

How A Right Of Refusal Can Help (And Hurt) Your Business

Rights of refusal are usually proposed as a “protective” clause - and sometimes they absolutely are. But from a business owner perspective, you want to understand both sides.

How A Right Of Refusal Can Help

• Stops unwanted third parties: particularly relevant for competitor risk or reputational concerns.
• Gives existing stakeholders confidence: investors or co-founders may feel safer knowing ownership won’t change unexpectedly.
• Creates a clear process: if properly drafted, it can reduce disputes over what happens when someone wants to exit.

How A Right Of Refusal Can Hurt

• Slows down deals: funding rounds move fast. A ROFR process can add friction and delay.
• Discourages third-party offers: especially with “last look” style rights, third parties may feel they’re doing “free work” for someone else to match.
• Reduces valuation tension: fewer bidders can mean lower value in a sale.
• Creates compliance risk: if you don’t follow the ROFR steps precisely, you can end up in dispute or breach.

In other words, a right of refusal can be a smart risk-management clause - but if it’s too broad, it can become a growth constraint.

How To Negotiate A Practical Right Of Refusal Clause

If a right of refusal is on the table (or you want to propose one), the goal is usually the same: keep the protection, but make it workable.

Here are the points we commonly recommend you focus on.

1. Be Clear About What Transactions Are Covered

Ask: what exactly does the right of refusal apply to?

• Share transfers only?
• New share issues as well (i.e. fundraising)?
• Asset sales?
• Changes of control (like selling a holding company)?

For startups, it’s common to separate “transfers” from “new issuances,” because fundraising generally requires flexibility. If the clause is too broad, it can become a blocker when you need to raise capital quickly.

2. Tight Timeframes (So Deals Don’t Stall)

A right of refusal process should have strict timelines:

• How long do you have to notify the ROFR holder?
• How long do they have to respond?
• If they accept, how long do they have to complete (pay, sign, settle)?

Timeframes that are too long can kill a deal. Third parties don’t like waiting around while another party “thinks about it.”

3. Define What “Matching” Means

Matching is not always straightforward.

For example, what if the third-party offer includes:

• non-cash consideration (like advisory services);
• earn-outs or milestone payments;
• conditions precedent (like due diligence);
• side letters or special rights.

If you don’t define what it means to match the offer, you can end up with disputes about whether the right was properly exercised.

4. Specify The Notice Requirements

A right of refusal clause should set out how notice is given, including:

• the form (email, registered post, both);
• who it must be sent to (a director, company secretary, solicitor);
• what must be included (full offer terms, draft agreements, deadline).

This seems “administrative”, but it’s often where things go wrong in practice.

5. Consider Carve-Outs For Common Situations

Depending on your business, it may be reasonable to carve out certain transactions from the right of refusal.

Common carve-outs include:

• transfers to related entities (e.g. a family trust or holding company);
• employee share schemes;
• internal restructures (where beneficial ownership doesn’t change);
• transfers on death or insolvency.

Carve-outs don’t weaken the clause - they often make it realistic, which is what protects everyone long-term.

What Legal Documents Should Cover Your Right Of Refusal?

If you’re relying on a right of refusal to protect your business, it needs to live in the right document (and be consistent across your broader legal setup).

Where we typically see rights of refusal documented includes:

• Shareholders Agreement: commonly covers transfer restrictions, ROFR processes, valuation, and dispute pathways. Many growing companies put these rules in a Shareholders Agreement to reduce ambiguity between owners.
• Company Constitution: may include or reflect transfer rules, particularly where you want these governance rules to be part of the company’s internal framework. A tailored Company Constitution can help align internal decision-making with your commercial objectives.
• Business sale or asset sale agreements: if the right relates to buying/selling a business or assets, you’ll want clear mechanisms around when the right is triggered and what happens if it’s exercised.
• Commercial lease: any rights of refusal relating to premises (for example, adjoining space or a sale of the premises) should be properly drafted in the lease itself, and you should separately confirm whether you have an option to renew (and on what terms). This is why a Commercial Lease Review can be crucial before you sign.

It’s also important to check for “accidental inconsistency.” For example, your Shareholders Agreement might say one thing about transfers, while your constitution says another. That’s where disputes can start (especially during a high-pressure funding round or exit).

If your right of refusal forms part of a broader agreement (for example, a long-term services or supply arrangement), it’s worth having the contract structure reviewed so the clause doesn’t unintentionally create operational bottlenecks.

Key Takeaways

• A right of refusal gives a person or business the opportunity to accept (or match) a deal before you can proceed with a third party.
• A right of first refusal generally operates when you have a third-party offer you want to accept, and the holder gets the first chance to take that offer.
• A right of last refusal is sometimes used as shorthand for “last look” rights, where the holder can match the final negotiated deal - which may discourage third parties from making offers.
• Rights of refusal commonly show up in startup share arrangements, some commercial lease negotiations (distinct from options to renew), business sales, and strategic supply/partner deals.
• The best right of refusal clauses are clear, time-limited, and practical - with tight timelines, clear matching rules, and sensible carve-outs.
• Document consistency matters: your Shareholders Agreement, constitution, and key contracts should align so you don’t create avoidable disputes later.

This article provides general information only and does not constitute legal advice. If you’d like a consultation on putting a right of refusal in place (or negotiating one that’s been proposed to you), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.