Right of first refusal
A friend of mine, who is not my client, had a transaction fall through last week because of a “right of first refusal.” Her closing got delayed and delayed again because of it. She and her husband gave up on this place, they lost their apartment, they moved to another rental, and are about to go back to house-hunting.
I get a call about “right of first refusal” every couple of years from one of my condo-owning clients. Usually, someone else in the association is selling and the prospective buyer needs a sign-off from my client.
So, what is it? Here’s a hypothetical example:
There is a condo association with three units. The deeds were drawn up so that if a unit went up for sale, the other owners would have first crack at buying them. In this example, the owner of Unit A put the condo up for sale and got an offer of $335,000. The owners of Units B and C need to sign off that they exercise or waive their right to buy it for $335,000.
Why does this matter? The prospective buyer should care, since the seller of Unit A cannot sell it to them until the owners of Unit B and Unit C have their chance to buy it. The lender cares, since the deed is not clear until the other unit owners waive their right to buy it. The wording of “right of first refusal” clauses vary from deed to deed. A lawyer can tell you what is involved in getting the correct paperwork.
Why would a condo deed be set up with a right of first refusal? Many of the ones that I know about were drawn up by condo owners who were related or somehow committed to one another. The right of first refusal gives the remaining owner more control over who moves in.
One case I know of was a two-family home that was converted to condos by some friends. The guy downstairs was transferred to the West Coast. The couple upstairs bought him out, using their right of first refusal. They have run the house as a two-family ever since.
Another case involved a client who bought into a three-unit association that was originally established by an extended family. Her unit was bought by someone outside the family and it was up for sale again. Her attorney had to get paperwork showing that the other two owners waived their right to first refusal before it could close. A couple of years later, the middle unit was for sale; my client waived her right to buy it.
In the case of my displaced friend, the person who needs to sign off on the right of first refusal is either hard to find or refusing to sign.
Did a “right of first refusal” interfere with your closing? Would you avoid buying a condo that still has a covenant of “right of first refusal?”
