Thought Leaders: Colorado legislature gives local governments first dibs on certain multifamily properties

While it is not unusual for surprises to pop up during due diligence reviews when buying or selling multifamily residential real estate, there will now be one more due diligence consideration to add to the list.

Effective August 7, 2024, Colorado House Bill 24-1175 will act to provide local governments with a right of first refusal or right of first offer on certain “Qualifying Property.”

A right of first refusal (“ROFR”) is when a property owner has granted another party the right to match a bona fide offer to purchase a piece of property that the owner would like to accept. A ROFR allows the party with the ROFR to step into the shoes of the third-party would be buyer. 

A right of first offer (“ROFO”) differs from a ROFR in that when a property owner decides to sell a property that is subject to a ROFO, the property owner must notify the beneficiary of a ROFO of the owner’s desire to sell and allow the holder of the ROFO to make a reasonable offer to purchase the property.

Generally ROFRs or ROFOs are the product of a written agreement between two parties to clarify the details related to topics such as the contents of notices between the parties, how such notice will be delivered, and timelines.

However, under House Bill 24-1175 local governments and housing authorities will have the benefit of either a ROFR or a ROFO on certain qualifying properties.

For the purpose of a ROFR under the new law defines “Qualifying Property” as multifamily residential or mixed-use rental property consisting of no less than five units of existing affordable housing. Mobile home parks, as defined in C.R.S. §38-12-201.5, are specifically excluded.

For the purpose of a ROFO under the new law defines “Qualifying Property” as a multifamily residential or mixed-use rental property that has between 15 units and 100 units.  Existing affordable housing and mobile home parks are specifically excluded.

The new law details the notice provisions and timelines of each of the ROFR and ROFO. Although these timelines are very specific, they do not appear to take into consideration the timing requirements for buyers and sellers looking to participate in a tax-deferred exchange.

Potential sellers of Qualifying Property should be aware that violations of this new law can result in an award of monetary damages.

If you are considering the sale or purchase of “Qualifying Property,” before you call your real estate broker, you should contact a real estate attorney to determine the impact of House Bill 24-1175 on the transaction and how to best address such impacts.