A condo board typically retains the right of first refusal. This means they have the right to purchase your condo unit and can deny your pending sales agreement. Although condo boards often have more flexibility than a co-op’s, this does not mean they are not interested in protecting their financial well-being.
Understanding how the right of first refusal works is important for buyers to understand.
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Why it exists
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 upon.
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. A special 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 in cases where 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 level of 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 own purposes, such as for the superintendent.
The board’s right of first refusal does not extend in perpetuity. Typically, they have a very limited time frame to exercise their right. A standard period of time is 30 days after the seller and buyer sign a contract.
This does not mean the condo board cannot extend their time. They can request more information, which could delay the closing process. A board could do this in order to frustrate the buyer and have the deal fall through.
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 their 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 wider discretion to reject an application.
This is one of the few weapons at a condo board’s disposal where they can control the buying process. 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 major impediment, providing it is a true arm’s length transaction and you are not someone they would find objectionable.