HOA Right of First Refusal: Read Before You List

The closing date is set. The buyer has cleared their financing contingency. The inspection is behind you. And then the homeowners association sends a letter informing all parties that it intends to exercise its right of first refusal to purchase the property at the agreed contract price.

This is not hypothetical. It has happened. It has generated litigation. And it is entirely preventable — if the seller reads their CC&Rs before listing.

What a Right of First Refusal Is

A right of first refusal (ROFR) is a contractual right granting a specified party — in the HOA context, the association or its designee — the option to purchase a property on the same terms a seller has negotiated with a third-party buyer. When a qualifying sale event occurs, the holder of the ROFR has a defined period to exercise or waive it. If exercised, the third-party buyer’s contract is effectively displaced by the ROFR holder stepping into their position.

ROFRs in HOA governing documents are recorded with the county clerk and constitute encumbrances on the property’s title. They are not hidden — they are in the CC&Rs that every owner in the community received at closing. They are also, in my experience, among the least-read provisions in those documents.

How ROFRs Get Embedded in CC&Rs

The purposes behind HOA ROFRs vary by community type and origin. In age-restricted communities, the ROFR is often a mechanism for ensuring that buyers meet the community’s demographic requirements — the HOA’s ROFR can be used to block a sale to an unqualified buyer by exercising the right and either purchasing or designating a qualified purchaser. In cooperative-adjacent communities and some planned developments, the ROFR is designed to give the association control over who joins the community without requiring a co-op board’s full approval rights.

In California, the Davis-Stirling Common Interest Development Act (Cal. Civil Code § 4000 et seq.) governs common interest developments and their governing documents. CC&Rs recorded under Davis-Stirling that include ROFRs are enforceable as recorded instruments. Community Associations Institute guidance on ROFR clauses notes that notice obligations, exercise periods, and purchase price calculation methods vary significantly by document.

What Happens When the ROFR Is Triggered — and Ignored

Terraces of Mont Claire Homeowners Association v. Sundowner Ridge, LLC (California Court of Appeal) is one of the more instructive published decisions in this area. The case involved a seller who proceeded through a transaction without providing the required ROFR notice to the HOA. The court’s analysis addressed both the validity of the ROFR and the remedies available to the association when its right was bypassed — including the possibility of voiding the conveyance.

This is the exposure most sellers don’t anticipate. The buyer in a transaction where the seller failed to provide required ROFR notice can find themselves in a dispute not about money, but about whether they actually own the property they closed on.

New York’s Landscape

Long Island’s HOA communities are governed by various instruments — some by New York’s Not-for-Profit Corporation Law, others by the Homeowner Association Act where applicable, and many by CC&Rs recorded decades ago that predate current statutory frameworks. CC&Rs are public records filed with the county recorder and verifiable by any title company, real estate attorney, or motivated seller.

In Long Island’s planned communities — including some of the North Shore’s townhome and condominium developments — ROFR provisions are present but inconsistently disclosed in listing conversations. The title commitment will identify the CC&Rs as an exception. It will not analyze the ROFR clause embedded in them.

The Pre-Listing Checklist

Before listing any property in a community governed by CC&Rs, a seller should locate the full governing documents — CC&Rs, bylaws, and any recorded amendments — and review them for ROFR language. Specifically:

What triggers the right. Most ROFRs are triggered by any arm’s-length sale. Some are triggered only by specific transaction types — sales to non-residents, sales below a certain price, or sales that would constitute a “change in use.”

What notice is required. Most ROFR provisions require the seller to provide written notice to the HOA of the proposed transaction’s material terms — price, contingencies, closing date — within a specified period after contract execution. Failure to provide notice does not extinguish the ROFR. It compounds the seller’s exposure.

How long the HOA has to respond. Exercise periods typically run from 10 to 30 days. During that period, the transaction with the third-party buyer is effectively in suspension.

What happens if the HOA exercises. The HOA steps into the buyer’s position on the same terms. The original buyer’s contract is terminated — typically with earnest money returned — but the buyer has lost the property and the time they invested in the transaction.

This review takes an hour with a real estate attorney and costs a fraction of what ROFR litigation costs. It should be standard practice before any listing in an HOA community goes live.

This post is for informational purposes only and does not constitute legal advice. HOA governing documents and ROFR provisions vary significantly by community and jurisdiction. Consult a licensed real estate attorney before listing any property subject to CC&Rs.

Sources:

Terraces of Mont Claire Homeowners Assn. v. Sundowner Ridge, LLC (California Court of Appeal)
Davis-Stirling Common Interest Development Act, Cal. Civil Code § 4000 et seq.
Community Associations Institute Right of First Refusal guidance: https://www.caionline.org
New York Not-for-Profit Corporation Law

You Might Also Like: For a complete overview of everything involved in selling on the North Shore — pricing, staging, legal obligations, and closing — see The North Shore Seller’s Guide.