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The Hard Truth About a Condo Board’s Right of First Refusal

Dale J. Degenshein in Co-op/Condo Buyers on August 26, 2019

Williamsburg, Brooklyn

First Refusal

A condo board's right of first refusal can override a sales contract (illustration by Liza Donnelly).

Aug. 26, 2019

Victor Efremenkov, a unit-owner and member of the condo board at the 262 North 9th Street Condominium in Brooklyn, listed his apartment for $949,000. He then entered into a contract to sell the apartment to Ronen Segev for $850,000. The condo board regarded the sale price as too low, and it exercised its right of first refusal, moving to buy the apartment for the agreed-upon price of $850,000. Segev sued. 

This case illustrates an important difference between how co-op boards and condo boards can act when they believe a price is so low that it will have a negative impact on future sales. In co-ops, in most cases, the board has the power to accept or reject a buyer, and it can reject a sale because the price is below the unit’s market value. Condo boards, however, do not accept or reject purchasers. Instead, they often have a right of first refusal, which means that a condo board has the right to purchase the apartment on the same terms and conditions set out in the contract with an outside buyer. And that is precisely what happened here. 

In his lawsuit, Segev claimed that the board failed to comply with its bylaws and that it tortiously interfered with his contract with the seller. Segev also claimed that it was improper for Efremenkov, the seller, to participate in the board vote. (To be clear, the Efremenkov voted in favor of the board purchasing the apartment, and his vote in either direction would not have changed the outcome.) 

But Segev’s lawsuit had a problem. His contract specifically provided that it was subject to the condo board’s right of first refusal. Even so, Segev chose to challenge the board’s decision. He first complained that the decision to exercise the right of first refusal and to purchase was not done in accordance with the bylaws, which required a vote of unit-owners. Segev was not a unit-owner, however, and thus had no standing to sue if the board breached the bylaws. 

He also asserted that Efremenkov should not have been part of the board’s decision-making process, and that he had an obligation to recuse himself. Here, the court found that whether the seller/board member voted was irrelevant, since the board decision to exercise its right of first refusal was unanimous. Therefore, Segev was not harmed by the seller’s vote. 

Segev’s claim of tortious interference with his contract was also dismissed. The board acted within its rights under the bylaws, which Segev acknowledged the contract was subject to. Finally, Segev asserted that the board conspired with the real-estate broker/defendant (who, Segev claimed, breached her fiduciary obligations to Segev) to manipulate public information concerning the contract price. He claimed that the real reason the board didn’t want him to purchase the apartment was so that it could claim the sale price was the listed $949,000, not the contracted $850,000. The court ruled that there was insufficient evidence to show that the board conspired to breach the broker’s duty. 

The theory behind a condo board’s right of first refusal is that the seller, a unit-owner to whom the board owes a fiduciary duty, is in no different a position if the apartment is sold to the buyer or to the building. It is thus the buyer – with whom the building has no contractual relationship – who takes the risk that the building will purchase the apartment. However, the theory Segev advanced here – tortious interference with the contract by the board – has previously been rejected by the courts in the context of a co-op board’s rejection of a purchaser. The conclusion is that any contract to purchase a co-op or condominium apartment is subject to the board’s rights under its respective governing documents. Every prospective purchaser signs on to the rules of the building and is required to adhere to them. 

Dale J. Degenshein is a partner at the law firm Armstrong Teasdale.

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