Brief Fact Summary. A condominium unit holder attempted to purchase another unit but the condominium board exercised its right of first refusal and so prevented the sale.
Synopsis of Rule of Law. A condominium association’s officers and board members must exercise its right of first refusal in a reasonable manner. They also owe a fiduciary duty to members of the association, so they must act in a manner reasonably related to that duty, and failure to do so will result in liability for the association as well as individual members.
This fiduciary duty requires board members to act in a manner reasonably related to the exercise of that duty, and the failure to do so results in liability for the board and its individual members.View Full Point of Law
Issue. When exercising the right of first refusal, must a condominium board act in a way that is reasonably related to the association’s interests?
A board must exercise its right of first refusal reasonably upon consideration of the purchaser’s application in light of the economic and social reasons, which justify the right of refusal. There is an implication that this right of first refusal must be exercised reasonably. The test for reasonableness has two parts: whether the exercise of the right is rationally related to the protection, preservation or proper operation of the property and whether the power was exercised in a fair and nondiscriminatory manner.
Condominium association officers and board members become fiduciaries to the members of the association when they take office. A fiduciary is bound to act in good faith with regard to the interests of the other and must act in a manner reasonably related to the exercise of that duty. Failure to do so will result in liability for the association and the individuals. There is a duty to strictly comply with the condominium declaration and bylaws.
Discrimination based on sex or marital status is explicitly prohibited by the city’s ordinance.
Discussion. The exercise of the right of first refusal by a condominium board must be done reasonably. Otherwise it would be an unreasonable restraint on alienation and would also be a breach of the fiduciary relationship between the board and the association members.