Ask Habitat: How Does a Condo Board Use a Right-of-First-Refusal "Designee"?
May 19, 2014 — Almost all condominium bylaws allow boards to exercise their rights of first refusal. That typically means the condo board must call a unit-owners' meeting and get approval from a majority of within a fairly short period of time. Following that, the board can purchase an apartment on the same terms and conditions offered to the purchaser. It is not an easy procedure; nor is it often used.But many bylaws also allow the board's "designee" to exercise the board's right of first refusal, i.e., to purchase. How does that work? And what's in it for the board?
Using an actual case as the basis for an example, let's say an apartment-owner puts his or her condo up for sale. A potential buyer begins negotiating with the owner until the owner for whatever reason becomes irritated with the would-be buyer and decides not to sell to him. The owner subsequently signs a contract with another individual, and then duly notifies the board.The board decides to exercise its right of first refusal, with a slight twist: It will do so by its designee, on behalf of all the home-owners.Building Can Make Money This Way
in this case, the desginee is the first potential buyer, who had talked with the managing agent and proposed that the board exercise its right of first refusal and then assign the contract to him. He will then combine the units and incorporate a common hall, which the board would license to him for an amount based on the price-per-foot charged to other owners who incorporated hallway space.The right of first refusal is almost always in a condo's bylaws. And if nothing in the bylaws forbids assigning a designee, then a board may do so.In the real-life case, the board, by doing so, earned several hundred thousand dollars for the building by choosing a designee who wanted to make renovations, including privatizing common space, and agree to pay the board's price. The seller gets the same amount of money for the apartment, and the board reaps a windfall. Adapted from "Right of First Refusal with a Twist" by Richard Siegler, a partner in the New York City law firm of Stroock & Stroock & Lavan, and Dale J. Degenshein, a special counsel for that firm.Art by Liza Donnelly For more, see our Site Map or join our Archive >>