JEANNE REARDON - Attorney at Law
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Real Estate Law Blog

The Right Of First Refusal In Condos

Anyone who has been in the market to purchase either a condo or co-op is acutely aware that it is easier to buy or sell a condominium than a co-op because transferring ownership of a co-op almost always requires the consent of building's board, while the transfer of a condo usually does not.

Since a co-op is not real estate, the board can control who lives in the building by controlling who is allowed to become a shareholder and proprietary leaseholder.  So long as the co-op board does not violate laws against discrimination, it is free to grant or withhold its consent to the sale "for any reason or no reason at all."

A condo, however, is considered to be real estate.  Under centuries-old English common law, it is not permissible to impose an "absolute restraint on alienation" when transferring ownership of real estate to someone else.  In other words, if the governing documents (bylaws) that create a condo allow the board to prohibit a unit owner from selling his or her apartment, that prohibition would most likely be considered an impermissible restraint on alienation.

However, virtually all condo boards can exert some measure of control over who becomes an owner in the building, through what is known as the board's "right of first refusal".  A right of first refusal basically means that the condominium association itself has the right to become the purchaser of the apartments being sold in the building.

Most condo governing documents give the board a right of first refusal when a condo unit is being sold and the ability to halt an impending sale by buying the apartment from its current owner.  The rationale for exercise of a right of first refusal by a condominium board of managers, as with a co-op board, is to secure a community of friendly, qualified and congenial condo owners while protecting the value of their apartments.  

The board must elect whether to exercise its right within a specified time period set forth in the bylaws (usually 30 days).  In the event the board fails to accept the offer within the designated time, in other words, decides not to block the sale, it will issue a waiver of its right of first refusal and the unit owner is free to consummate the sale.  

The board's right of first refusal usually does not apply to a conveyance by (a) a unit owner to adult family members, or a trust for their benefit, (b) the sponsor (with respect to unsold units), (c) the board or (d) parties in title as a result of a foreclosure.