Condo board not issuing waiver of right of first refusal

[velma]

I have a good friend on the Upper East who is trying to sell her condo apartment. I believe it's the first sale in their building, as it was sold as new construction a few years back. Besides it being the first sale, I'm pretty sure none of the board members have experience with running a condo or co-op board before, or even know the difference between a condo and a co-op.

The first surprise was that the managing agent produced this massive board package, something that you would see being required for a nightmare co-op building. 9 sets of reference letters (personal and professional) per applicant. Multiple collated copies with page dividers and tabs. That sort of thing. So miraculously, the buyer went through with it, despite being shocked that a condo building would have such an onerous application (a red flag to me at least). Keep in mind condo applications, if there even is one, are typically one page or two at most, and are basically light registration forms.

Now that the purchase application has been completed and delivered to the managing agent, the condo board is apparently hemming and hawing about whether to approve the buyer. One of them looked up the buyer online and found an unfavorable news article about the buyer, some sort of past litigation. Other board members are chiming in and saying that their source of funds looks fishy. Meanwhile, this buyer is paying all cash for a multi-million dollar apartment...

Can you believe this? As someone who has lived in both a condo and a co-op, it's very clear that these folks don't understand that they live in a condo, not a co-op.

A condo does not have the right of approval, unlike a co-op. A condo board has two choices. Either issue a waiver of their right of first refusal, or pony up the cash to buy the apartment at the same terms.

Any suggestions on what to do? Thank you!

[aslan]

Hi Velma, I'm so sorry to hear about this. Fortunately, this issue is easily resolved by looking in your condo's bylaws for the exact language around the condo board's responsibility to issue a waiver of their right of first refusal. Typically, the bylaws will say that the condo board has 30 days from the date that a complete purchase application has been submitted to either issue a waiver of their right of first refusal, or to pony up the cash to buy the apartment at the same terms as the buyer (i.e. exercise their right of first refusal).

If a condo board does nothing and 30 days go by after the complete purchase application has been submitted, the condo board is typically deemed to have effectively waived its right of first refusal.

The only danger I see is sometimes condo boards will try to be sneaky if they really don't want a sale to happen by continually asking for more information, or claim that things were missing from the application before the 30 day time limit is up. If this do this on say day 28, and ask for more dubious information, then the 30 day clock would reset. The condo board could conceivably do this indefinitely, which could frustrate the buyer into walking away at some point.

I've included a link below to a good article on what the right of first refusal is, and how it works. Good luck, I'm sure you'll figure it out!

[showtime]

If they still don't agree to dutifully follow the condo bylaws and waive or exercise their right of first refusal, and start playing games (very unlikely) by asking the applicant for more information to keep resetting the 30 day clock, you can always have your lawyer send a letter to them. It doesn't need to be nasty, it just needs to lay out the facts. This usually will do the trick if all else fails.

I mean, you could be nasty and let them know that no part of the condo bylaws permits the board to exceed the powers given to them, and for them to exceed the powers given to them could subject them to personal liability.

Dear Condo Board,

On 4/1/2019 we sent you the completed purchase application in order to get a waiver of the board's right of first refusal per the Condominium Bylaws Section 12.5a.

On 5/1/2019 the managing agent requested additional information because of [x reason]. We have since submitted additional documentation on 5/3/2019 to demonstrate the buyer's strong financials, despite this not being requested in the original purchase application instructions.

The managing agent has also inquired about our family background and expressed concerns about our previous work history. Please be reminded that according to Federal, State and Local Fair Housing Laws, housing cannot be denied for any discriminatory reason whatsoever. Moreover, the applicant's background and work history has nothing to do with the board's responsibility of either waiving its right of first refusal, or buying the apartment.

We look forward to getting this transaction completed in good faith, and we look forward to receiving the board's waiver of first refusal by 6/2/2019 (30 days from when we submitted additional documentation) as required by Section 12.5a of the condominium's bylaws.

We expect and trust that the condo board will prudently exercise the powers given to it by the condominium's bylaws in good faith.

Thank you.

[velma]

By the way, just found out that the waiver is issued to the seller, so if the seller doesn't fight back, then the buyer is stuck and out of luck.

Also, having done quite a bit more research just now, it definitely seems that most condo bylaws will state that if the condo board doesn't exercise its rights within a certain period of time, then that right is deemed to be waived.

And it seems that it's extremely unlikely and difficult for a condo board to actually exercise its right of first refusal. First, a special meeting of all owners is required and most buildings will require 2/3 of all owners to approve. If approved, the board will notify the buyer that they are out because the building is buying the apartment at the same terms. Then the board must come up with the cash to substitute the buyer's downpayment. Then a closing must happen within the time frame stipulated by the bylaws. Very difficult to pull through!