A right of first refusal (“ROFR”) is a legal arrangement where the right to buy a property is held by a specific party that is not the owner of the property. If the owner of the property decides to sell the property, then the party with the ROFR can choose to buy it, and the owner will have to sell it to that party.
A ROFR is often seen in condominium associations. If an owner wants to sell a condominium unit and the association has a ROFR, then the association has the right to purchase the property from the seller before the seller can sell the property to anyone else.
If an association has a ROFR, it will be found in the association’s governing documents. Form contracts in Florida require the seller to indicate whether the association has a ROFR. Whether the association has a ROFR can usually be found in standard condominium riders used in Florida.
The purpose of the ROFR for associations is so associations can exercise control over the transfer and leasing of condominium units. More specifically, associations use ROFR to:
- Prevent sales to undesirable buyers.
- Prevent units from being sold below value. A below value sale could affect future appraisals and therefore affect the whole building.
- Purchase a unit for association/condominium purposes, such as, converting the unit into an office or community room for the building.
For a unit in a condominium complex to be sold, some associations require that the association evaluate whether the ROFR will be exercised or not before the property can be sold. The association may be required to provide a letter signed by the President or some other officer of the association indicating that the ROFR will not be exercised, and the letter is then recorded with the deed at closing after the property is sold.
Although associations may have a ROFR, it is rarely exercised because it is difficult to achieve. For instance, associations are often required to exercise their ROFR within a specific time laid out in the association’s bylaws, the association needs enough cash on hand to make the purchase, the association needs to hold a unit owner meeting to exercise the ROFR, and the association needs a majority of unit owners to vote to approve the ROFR purchase.