Condo Owners: What is the PURPOSE for giving other co-owners Right of First Refusal on sale of other units?

Question

This scenario pertains to a group of condominium owners under a home owners association (HOA). When our HOA was formed 30 years ago, the HOA was given the right to purchase any condo that came up for sale at the same price and under the same terms that any other buyer outside the HOA might make in a firm offer to an existing owner. This is a fairly common "Right of First Refusal" although it is not necessarily standard in all HOA agreements.

Not having been there at the time of this HOA formation, my question is -- "What would be the most typical REASON for affording the existing co-owners that Right of First Refusal?"

I believe it would be because the ones who bought in first are thought to have superior rights of ownership since they have been investing in that condominium community. Therefore, if they like what's been happening economically and they want to preserve their priority position, they can accumulate more of the same property in an advantaged position.

This advantaged position does not mean, however, that existing owners get to buy at a cheaper price than the market would bear. No. They must pay the market rate negotiated as evidenced in a firm offer from an outside buyer.

Another reason for the Right of First Refusal might be to provide a "catch plate" to prevent one owner (perhaps in financial straits) from letting their property be sold at such a deep discount that it would impare the comparable market value of the other surrounding condominium units. Note however that if a co-owner bought at that deeply discounted price under their Right of First Refusal, then that might still affect the market price for all the other surrounding units. However, some safety or support may be afforded by virtue of the property falling into "friendly hands" versus someone engaging in predatory real estate practices.

Which of the above two reasons might be the most plausible or for writing in a Right of First Refusal to existing co-owners

As to the theory that a Right of First Refusal is just a ploy to keep certain people out, I note first that this is a PRIVATE housing association and not a PUBLIC one. Therefore, I believe that under a PRIVATE association, the HOA co-owners CAN dictate standards for who they may allow in, as long as it is not discriminatory on the basis of race, religion, age, gender, or sexual orientation. I would sense that the HOA COULD extablish certain FINANCIAL guidelines and credit standards as to who is allowed to buy. That is, one might require that the new owner cannot buy in with a mortgage that is more than 95% loan to value unless further evidence is given that their mortgage payments combined with all debt payments do not exceed 33% of their Net Income. Given that in an HOA there are monthly Maintenance Fees, Group Insurance, Special Assessments, Taxes, etc, then have a minimum credit standard seems reasonable to protect the financial integrity of the group. Not illegal, yes?

Additional Data Point: This HOA has a history of allowing owners of various ethnic minorities so the charge that this Right of First Refusla is purely discriminatory on the basis of race cannot stand unless there is subsequent action to discriminate on the basis of race. Just because something "might" be done in the future doesn't mean it has occurred. And the history will evidence that discrimination on the basis of race has never occurred or has even been contemplated.

Since writing this question a few hours ago, my attorney opines that my first hypothesis as to they typical reason for Right of First Refuslal (i.e. to reward existing owners with the ability to increase their land holdings within the HOA by virtue of their longer-standing investment) -- is the most likely reason for it's inclusion.

And indeed, when our HOA agreement was first generated, this was a largely undeveloped area & there was speculative buying so the argument for "first dibs" on this land makes sense

Answer 1

It would allow them to have family move in or eventually buy up all units so control the HOA entirely.
It may also have been to keep out people they didn't like.

Answer 2

It's too keep people out. Think of it like this . . . it gives the current owner's the right to discriminate if they can come up with the cash. It's basically stating, that the HOA has the right to purchase at the same price of contract if they don't like the contract. Most condo's have "soft" exclusionary policies.

Answer 3

so why did you buy there?
you don't like it now?
if you don't like the scene/rules then don't buy it?

don't move in or buy in..you will be miserable.

i personally love "gated communities"..
lots of famous people do not want the public up and driving by their home. (unlike Elvis' home or Warren Buffet's or Bill Gates).

you either like the rules or not..