Title Tip: Does Your HOA Have a Right of First Refusal Clause?

How would you like to be first in line to purchase a property that someone else has negotiated to buy? What if you could review any offers on the property and decide if you want to buy it at the same price?

If you’re a Homeowners Association with a Right of First Refusal, you can do just that. 

What is Right of First Refusal?

The Right of First Refusal (ROFR) is a clause that gives the HOA the right to purchase a property before the seller accepts another offer. The seller can market the home but before they can actually sell to a potential buyer, the HOA must be given notice and an opportunity to buy the property.

Not all HOAs have a right of first refusal clause written into their governing documents. However, many do and this phrase allows the HOA to take priority over other offers.

“I typically see the First Right of Refusal clause in high rises or condominium complexes,” says Michelle Unwin of Ebby Halliday Realtors. “Even when an HOA retains a right of first refusal, they rarely exercise it. In fact, there is usually a mechanism in place for releasing the clause.”

While the governing documents for HOAs differ, the ROFR clause typically sets out specific conditions. Generally, when the owner receives a written offer, they must contact the HOA and offer them the right to purchase the unit for the same price and with the same terms offered by a buyer.

Then the HOA can decide if they want to match both the price and the terms of the offer. If the HOA declines the opportunity or does not employ their right within a specific time, the seller may sell to their buyer.

Who Uses The ROFR Clause?

Most HOAs are not interested in getting involved with buying and selling units and therefore waive their ROFR.  They are more interested in collecting dues, maintenance, and operations of the property. However, there may be a few reasons why the HOA could opt to carry out their right.

“The benefit to a right of first refusal is that it allows an HOA some degree of control over the transfer of units,” says Unwin. “Most communities use the Right of First Refusal to prevent a below-market, discounted sale that would lower the value of the other units. For example, an HOA board might exercise its ROFR to prevent a below-market sale that would affect the appraisal value of comparable units.”

The HOA could have other reasons to invoke a ROFR.

“It offers an HOA the chance to purchase a unit to make a community room or a guest apartment or the property manager’s apartment,” Unwin adds. “This provides the HOA opportunities to enhance the community’s functionality in an ever-evolving marketplace.”

A few Dallas area HOAs have clauses in their documents that require the potential buyer to complete a disclosure, an application or even submit to an interview when considering its right of first refusal. While more unusual, it allows the HOA to exclude undesirable buyers from their community. Although the HOA governing documents may allow a broad right of first refusal, it cannot be used for illegal or discriminatory reasons.

Each association is unique in its rules, requirements and goals for the property and its residents. Check with yours before you agree to sell your property.

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The opinions expressed are of the individual author for informational purposes only and not for legal advice. Contact an attorney for any particular issue or problem.