Bona Fide Offer Legal Definition
A bona fide offer legal definition involves preemptive rights commonly used by real estate lawyers.3 min read
A bona fide offer legal definition involves preemptive rights commonly used by real estate lawyers. You'll find these in a number of different contexts, including office and retail leases, residential condos and co-ops, ground leases, planned communities, joint ventures, and franchise agreements. Every preemptive right imposes a burden on the party granting the bonafide offer and the property at stake.
What Is a Bonafide Offer?
The right of first offer (ROFO), or right of first opportunity, allows the holder an opportunity to reply to an offer that the grantor was willing to make.
Meanwhile, the right of first refusal (ROFR) allows the holder an opportunity to match an offer received from a third-party or made to the grantor.
In either circumstance, the grantor is typically free to sell the property in question to others if the holder does not exercise his right.
ROFOs and ROFRs are usually given to the holder as part of a larger transaction, such as a lease, sales contract, or joint venture agreement.
A bonafide option provides unilateral power to the holder, allowing him to exercise his right to purchase the property. In the case of a lease, it can also shorten or extend the terms.
Most ROFRs occurs when a landowner receives a bonafide offer from a third-party. When this happens, the landowner is usually required to give notice. The holder must then use it or lose i
What's Included in a Bonafide Offer?
A bonafide offer is generally made in good faith and able to be accepted. Even a nonbinding letter of intent can serve as a bonafide offer. Any offer that includes "extra" terms may be considered a bonafide offer. Examples include government approval or an agreement to restrict the property in question.
The term "sale" is interpreted broadly but may transfer the landowner's equitable title. Gifts, foreclosures, ancillary transfers from a divorce, and partitions are not usually included in the term "sale."
What Is a Bonafide Error?
A bonafide error is an unintentional mistake that can be corrected without legal recourse. Since bonafide literally means "in good faith," a bonafide error occurs when one party doesn't follow the law to collect a debt. An error in legal judgment does not usually fall under a bonafide error.
A bonafide error may occur if a creditor continues to try to collect a debt that's already been paid. If the payoff wasn't recorded properly due to a clerical or systematic error, the collector may claim a bonafide error during prosecution.
Family Members as Bonafide Business Transactions
Taxable gift transfers occur when a property is transferred to another party for less than the full consideration of its worth. The amount by which the value is exceeded is deemed a gift. Such a transfer of property for full consideration does not constitute a gift for tax purposes.
Treasure regulations make it clear that the gift may not be applied to a transfer for an adequate and full consideration. Rather, the gift tax depends on the facts relating to the transfer and the circumstances surrounding the giving, as opposed to the motive of the donor.
This makes the intent on the part of the donor an irrelevant element in such an application.
Regardless, a transfer of property within a family will always garner close inspection. A transfer will be viewed as something that took place throughout the ordinary course of business. It will be considered adequate consideration if it satisfies the regulations described above. There are the three primary requirements. The transfer must be:
- bona fide
- transferred at arm's length
- free from any intent on the part of the donor
To be considered bona fide, each party needs to be settling an actual dispute, not merely colluding to make the transaction look like something it's not.
To be transferred at an arm's length, the transfer must occur in the exact same manner as it would if you were dealing with a stranger.
To remain free from any intent on the part of the donor, the transfer cannot be spurred from a place or love or affection, or any other motive that would prompt the giving of a gift.
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