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Lacascata Homeowners Association, Inc. v. Riiff

2005 WL 2860558 (N.J. Super. App. Div. 2005) (Unpublished)

RIGHT OF FIRST REFUSAL; PUBLIC AUCTIONS — A right of first refusal is effective against a buyer at a public auction, even one conducted by a governmental agency.

A municipal housing authority owned three properties in a condominium development. The deeds for the property granted the condominium association a right of first refusal. The housing authority sought to sell the properties by auction pursuant to the New Jersey’s public bidding laws. It contacted the condominium’s homeowner’s association about the association’s right of first refusal for the properties. The housing authority then published notice of the public auction in the local newspapers. The successful bidder for two of the units tendered the deposit and a closing was scheduled. Prior to the closing, the association informed the housing authority that it wished to exercise its right of first refusal for the properties and that it would purchase the properties for the prices established at the auction. The housing authority ignored the association’s request to exercise its first refusal right. The association then filed an action against the housing authority and the successful bidder. The association requested that the lower court restrain the housing authority from conveying title to the properties and allow the association the right to exercise its right of first refusal. The lower court permitted the sale to go forward on the condition that the buyer assume any risk of an adverse judgment. It also dismissed the housing authority from the case after the properties were transferred. Following oral argument, the lower court ruled that the association had retained the right of first refusal and ordered the properties to be sold to the association at the auction prices. The buyer appealed, asserting that the association’s right of first refusal was only enforceable against the housing authority as the seller of the properties and not against him. He also argued that the association’s right of first refusal was void as against public policy.

The Appellate Division affirmed the lower court’s decision. It reviewed the right of first refusal clause in the property deeds and concluded that it applied to all owners seeking to sell their condominium units, including the housing authority. The Court further found that the buyer effectively stepped into the shoes of the housing authority when he agreed to the dismissal of the housing authority from the case. Once the housing authority was dismissed, the buyer became the only party against whom the association could enforce its right of first refusal. The Court also rejected the buyer’s assertion that the association’s right of first refusal was void because it was against public policy. The buyer was claiming that the right contradicted New Jersey’s public bidding law because it permits someone other than the highest bidder to purchase property at a public auction. The Court rejected this argument finding that, prior to the auction, all of the bidders, including the successful bidder, were placed on constructive notice of the right of first refusal because this information was contained in the housing authority’s resolution authorizing the sale of the properties.

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