Current Legislative Developments; Right of First Refusal

Developers and members of community associations should be aware of two recent legislative and policy changes pertaining to the controversial “right of first refusal”.

First, House Bill 155 was introduced in the 96th Illinois General Assembly. The Bill provides that a condominium association cannot exercise a right of first refusal or an option to purchase a unit because the purchaser’s financing is guaranteed by the Federal Housing Authority. House Bill 155 was signed into law on August 11, 2009, by Governor Patrick Quinn as Public Act 96-0228.

Second on June 12, 2009, the U.S. Department of Housing and Urban Development issued its Mortgagee Letter 2009-19. This Letter also revised government policy on the right of first refusal. The new HUD Policy is that a right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act. The Fair Housing Act prohibits discrimination in housing on the basis of certain protected classifications such as race, color, religion, sex, familial status, national origin or handicap.

The end result of these two legal developments is two-fold:

1. It may not be necessary for associations to amend their declarations and by-laws to eliminate the right of first refusal, since the mere presence of that option will not prevent a prospective buyer from obtaining FHA insured financing.
2. We advise developers not to insert that right in documents, because it will inevitably lead to complications and issues for prospective buyers.