Usually, the language about a right of first refusal is in the condominium’s bylaws. However, you always need to check other documents, as well – possibly, the declaration and the offering plan – to learn everything about it. You don’t want to miss anything when you’re trying to figure out what your rights are.
A right of first refusal is a tool that gives the condo board some control over how people can transfer and rent their units. In a co-op, you have to go through board approval, and boards have an enormous amount of power, including the power to reject a sales package without giving a reason. Many people buy a condo because the sale and rental of the unit is easier.
The right of first refusal was intended to protect the condo. If owners are selling their units for too little, that could affect future sales by lowering the appraised value of the property. If that value is artificially low, it could affect the ability of other unit-owners to secure financing for an appropriate amount, or to sell it at a market price.
Having the right of first refusal for a sale gives the board the ability to get a package of information about who the buyer is and what the price is, and also to see the contract. Simply stated, if the board doesn’t like the price, it can buy that unit on behalf of all the unit-owners at the discounted price and then, in theory, sell it on behalf of the community and put the profit in the community’s reserve fund. Wonderful concept.
The problem that needs to be addressed, however, is that the language for first refusal rights in many of the original plans doesn’t give the board much authority to make these purchases. They give the board the right and yet make it extremely difficult for the board to ever exercise the right.
It’s frustrating. In many plans – though not all of them – in order for the board to exercise that right and purchase an apartment for resale, it has to go back to the unit-owners and get a vote of approval. But that’s not very easy to do. More than a majority of the buildings that I represent – particularly condos – find it very hard to get a quorum at an annual unit-owner meeting. Getting a quorum could be even harder on a meeting for an esoteric subject.
One of the things that I suggest is a change in the form of an amendment to the bylaws. If the board wants to be proactive and if the community is willing to give the board a little bit more authority, they should change the bylaws to allow the board, when they see a deal, to take it. Maybe there could be some additional language that gives the board some financial authority, in addition to a “just stepping into the shoes of the buyer,” and buying. Authority so that the board wouldn’t have to go to the unit-owners if they wanted to get financing for the acquisition of the unit. You might change the bylaws to say that if the board is looking to borrow for the acquisition of the unit, it is at the board’s discretion.