Romer Debbas, Partner
The client’s tale. We were working as the attorney for two gentlemen from Greece who were potential buyers of a condominium unit. As we performed our due diligence, we found no additional requirements for foreign nationals, and none were mentioned in the application. A week before closing, however, the board informed us that it required two years of common charges held in escrow, unilaterally, and would not issue the waiver of the right of first refusal until that was agreed upon.
The lawyer’s take. Our issue was that this rule seemed to have been created just for our clients and hadn’t been disclosed. There’s also a gray area concerning whether a condo board could place restrictions on the waiver of rights. We objected to this on procedural grounds, not on the substance. We actually thought that the rationale behind the request was reasonable. If there’s any default in common charges, it would be very difficult to go after a foreign national. What’s at question here was how it was implemented. If you’re going to do it, you have to vote on it and pass a formal rule, apply it to all foreign nationals so there’s no discrimination, and disclose the rule in the sales application so it’s not sprung on the buyers at the last second.
We explained this to our condo clients, suggesting that it might be wise to put such a rule in place (but only if they determine that they have the authority to do it after inspecting its operating documents). Boards that exceed their legal scope of authority expose themselves to a significant amount of liability. Any such requirement must be passed through a formal vote to protect the board.
Case closed. Condo boards must be very conscientious in placing restrictions on the issuance of the waiver of right of first refusal. A board’s ability to do so is limited and must be done with care.