How the Right of First Refusal Works in a Condo

Ingrid Manevitz, Partner, Seyfarth Shaw

What it is. Typically in many condominium buildings, the right of first refusal works like this: when owners go to lease or sell their apartments, they provide a copy of the fully executed lease or fully executed contract of sale to the board, usually by certified mail. The board has a certain period of time in which to exercise its right of first refusal, which means to either purchase or lease the unit on the same terms and conditions that the prospective purchaser or lessee is offering. The procedures for this are in the condo’s bylaws.

The wrinkle. In order to exercise this right, many condo bylaws stipulate that a board needs unit-owner approval. The bylaws usually state a time period, often 20 or 30 days, to get this done. The clock starts as soon as the package gets submitted, usually to the management company, and doesn’t get to the board quickly. So if the time period is 20 days, it could really be 10 days before the package gets in front of the board. The board will then speak with its lawyer, and if it decides to proceed, it has to go out and get all the unit-owners or a majority of them to approve to exercise the right.

The workaround. The right of first refusal is usually done sparingly, often when there’s someone the board doesn’t want the apartment leased to or owned by. One way to make this process easier would be to amend the condo bylaws to eliminate the need to seek unit-owner approval. The board would then have sole discretion when to exercise this right.