A condo board typically retains the right of first refusal. It means the board has the right to purchase your condo unit and can deny your pending sales agreement. Although condo boards often have more flexibility than co-ops, this does not mean they are not interested in protecting their financial well-being.
Understanding how the right of first refusal works is essential for buyers to understand.
Why does the Right of First Refusal exist?Why does the Right of First Refusal exist?
The right of first refusal allows the condo board to step in and buy your unit at the same price the seller and buyer have agreed.
This right protects existing condo owners’ interests. It sets out to discourage well-below market sales to others, for instance, relatives/friends, which hurt current unitholders’ resale value since it provides a low comp sale. In addition, a unique insider deal could be blocked since the board has the right to pay the seller the same amount.
Additionally, the right of first refusal provides some protection when the provided financial information does not add up, or the board does not feel he/she is someone they want to live in the building. Condo boards typically do not require the potential buyer to provide the same detail, but sellers may hand over limited information on the buyers.
The board could also exercise its right if it wants the apartment for its purposes, such as for the superintendent.
Limited timeLimited time
The board’s right of first refusal does not extend in perpetuity. Typically, have a minimal time frame to exercise their power. A standard period is 30 days after the seller and buyer sign a contract. It does not mean the condo board cannot extend their time. They can request more information, which could delay the closing process. A condo board could do this to frustrate the buyer and have the deal fall through.
Rare occurrenceRare occurrence
While a condo board usually has the right of first refusal, they rarely exercise it. They typically do not want to expend that large a sum and then have to sell the unit to get it back. It also presents potentially unwanted litigation. There also might be procedural hurdles, such as two-thirds of the owners agreeing to invoke the right of first refusal.
Generally, the board only uses its right of first refusal when there is an egregious case. A buyer merely getting a good deal will not likely cause the board to act. A co-op board is a different matter. They have broader discretion to reject an application.
Final thoughtsFinal thoughts
One of the few weapons a condo board has at its disposal is controlling the buying process. As a result, the seller does not lose anything monetarily unless there were shady, under-the-table dealings. However, the buyer could lose out on the apartment, and, thus, your awareness of the existence of the board’s right of first refusal is helpful.
But, the board’s right of first refusal should not present a significant impediment, providing it is an actual arm’s length transaction, and you are not someone they would find objectionable.