First Refusal Defined. The "right of first refusal" is a provision sometimes found in condominium CC&Rs. If an owner desires to sell his/her condominium and receives a bona fide purchase offer from a qualified buyer, the right of first refusal allows the association to step into the shoes of the buyer and purchase the unit under the same terms and conditions as contained in the purchase offer. Following is a provision from a 1976 set of CC&Rs for a condominium highrise:
Right of First Refusal. Pursuant to the State of California Department of Real Estate Regulation 2792.25, as the same may be hereafter modified or amended, the Association shall have fifteen (15) days after the actual receipt of the owner's written notice of such proposed sale or lease, to notify the owner proposing to sell or lease his condominium that the proposed buyer or lessee does not have sufficient financial strength to discharge all applicable common expenses and other expenses attributable to the condominium to be sold or leased. If the Association has determined that the proposed buyer or lessee does not so qualify, the Association shall within fifteen (15) days, deliver to said owner at the apartment address of his condominium or at such other address as said owner may designate, a notice of non-qualification and appropriate escrow instructions (calling for a closing within ninety (90) days) for the purchase or lease of the condominium to be sold or leased, upon the same terms as offered to the proposed buyer or lessee. If the Association delivers to said owner such notice of non-qualification, but fails to deliver within said fifteen (15) day period the appropriate escrow instructions for the purchase or lease of said condominium, said owner may sell or lease his condominium to the proposed buyer or lessee upon the same terms as offered to the Association; provided that such sale or lease to the proposed buyer or lessee must be completed within one hundred five (105) days after the written notice of the proposed sale or lease was delivered to the Association. If the Association fails, within said fifteen (15) day period to notify said condominium owner whether his proposed buyer or lessee qualifies, or does not qualify, then said owner may sell or lease his condominium to the proposed buyer or lessee upon the same terms and conditions as offered to the Association.
Rarely Exercised. The right of first refusal is rarely, if ever, exercised. funds in an association's budget are fully allocated to operations and reserves, the board would need a special assessment approved by the membership to fund the transaction. If there were good reason to purchase the unit, such as for an onsite office, manager's apartment, or clubhouse, the membership might approve the special assessment.
Lenders Exempted. More often than not, CC&Rs will contain a provision exempting mortgagees (lenders) from the right of first refusal.
Often Removed. Members generally take a dim view of the provision since it could disrupt a below market sale of their unit to a relative. As a result, most associations remove it from their CC&Rs during a restatement.
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