Messages in Bottles: Writing Now to Plan for Year 15. "... read something that you can't understand, ... be sure that it was drawn up by a lawyer." . Legal Document Checklist. Right of First Refusal & Options Puts, Forced Sales, and Qualified Contracts
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"... read something that you can't understand,
... be sure that it was drawn up by a lawyer."
WORST ROFR Trigger Language:
2. Grant of Refusal Right. In the event that the Partnership receives a bona fide offer to purchase the Apartment Complex (other than under the circumstances described in paragraph 1), which offer the Partnership intends to accept, Grantee shall have a right of first refusal to purchase the Apartment Complex (the “Refusal Right”) for a period of twelve (12) months (the “Refusal Right Period”) following the close of the Compliance Period, on the terms and conditions set forth in this Agreement and subject to the conditions precedent to exercise of the Refusal Right specified herein. In addition to all other applicable conditions set forth in this
Better ROFR Trigger Language:
in the event that the Partnership determines to sell or receives an offer to purchase the Project, which offer the Partnership intends to accept (the “Offer”), Grantee or City shall have a right of first refusal to purchase the Project (the “Refusal Right”) [and CHECK LPA for Investor rights to consent to sale]
Best ROFR Trigger Language (2 options):
1. Grantor grants to Sponsor a right of refusal (the " Right of Refusal"), commencing on the expiration of the Compliance Period with respect to the Project, as defined in Section 42(i)(I) of the Internal Revenue Code (the "Code"), and terminating on the fifth (5th ) anniversary thereof, to purchase the Property in the event Grantor proposes to sell, transfer, assign or ground lease all or substantially all Grantor's interest therein.
2. Grant of Refusal Right. Commencing on December 31 of the 15th year of the Compliance Period and for a period of thirty-six (36) months thereafter (the “Refusal Right Period”), in the event that the Partnership determines to sell or receives an offer to purchase the Project, which offer the Partnership intends to accept, or receives any bona fide third party offer to Purchase the Project (the “Offer”),
Time to Exercise
Time to Close
Other Terms (of a purchase agreement)
Worst—“Purchaser's exercise of the right of first refusal granted herein is contingent upon any Affiliate of Purchaser not being in default of its obligationsunder the Operating Agreement.”
Better—“The right of first refusal granted under this paragraph 1 shall terminate in the event of the removal of the General Partner.”
Best—“The right of first refusal granted under this paragraph 1 shall terminate in the event of the removal of the General Partner and any continuing event of default that may prevent the Beneficiary from exercising the Refusal Rights may be cured by the General Partner during the ROFR Period.”
What does the Internal Revenue Code allow?
(A) In general. No Federal income tax benefit shall fail to be allowable to the taxpayer with respect to any qualified low-income building merely by reason of a right of 1st refusal held by … to purchase the property after the close of the compliance period for a price which is not less than the
minimum purchase price …
What is the Property?
Worst—“WHEREAS, the Partnership was formed for the purpose of acquiring, owning or leasing, developing, constructing and/or rehabilitating, leasing, managing, operating, and, if appropriate or desirable, selling or otherwise disposing of a residential project located in Alexandria, Virginia (the “Project”) on the land described on the attached Exhibit A; and”
Better—Include language in the LPA allowing release of reserves or the GP to use reserves to pay debt, improve property, pay ROFR price
Best—“WHEREAS, the Partnership was formed for the purpose of acquiring, owning or leasing, developing, constructing and/or rehabilitating, leasing, managing, operating, and, if appropriate or desirable, selling or otherwise disposing of a residential project, including all reserves established therefor, located in Alexandria, Virginia (the “Project”) on the land described on the attached Exhibit A; and”
Worst—no right to purchase interests other than option at FMV
Better—“Alternative Purchase of Partnership Interests. In addition to the foregoing, if the Internal Revenue Service hereafter issues public authority to permit the owner of a low-income housing tax credit project to grant a “right of first refusal to purchase partnership interests” pursuant to Section 42(i)(7) of the Code as opposed to a “right of first refusal to purchase the Project” without adversely affecting the status of such owner as owner of its project for federal income tax purposes…
Best—“…to purchase the Property or the interests of the Limited Partner and the interests of the special limited partner of the Owner, if any (collectively, the "Interests of the Limited Partner"), in the event Owner proposes to sell…”
2. Refusal Right Purchase Price. The purchase price for the Project (the “Refusal Purchase Price”) pursuant to the Refusal Right shall be the lesser of
(i) the price in the Offer or the proposed sales price, provided such price is not less than the fair market value of the Project subject to all restrictive covenants or other agreements regarding use of the Project as affordable housing, any such appraisal to be made jointly by two independent appraisers, one selected by the Partnership and one selected by Purchaser. If the appraisers are unable to agree on the fair market value of the Project, they shall jointly appoint a third appraiser. The decision of a majority of such appraisers shall be final and binding. Each party shall pay the cost of its own appraiser and shall evenly divide the cost of the third appraiser, if necessary, or
(ii) the sum of the principal amount of outstanding indebtedness secured by the Project (other than indebtedness incurred within the 5-year period ending on the closing on the sale of the Project) and all Federal, state and local taxes projected to be imposed on the Partners of the Partnership to such sale including federal income tax liability incurred as a result of the payment of purchase price. The purchase price shall comply with and be interpreted and calculated consistently with the provisions of Section 42(i)(7)(B) of the Code. In the absence of formal IRS guidance or legal precedents to the contrary, the phrase “principal amount of outstanding indebtedness” shall exclude any accrued interest owed. In the event that accrued interest is determined to be included in the phrase “principal amount of outstanding indebtedness,” then, in the absence of formal IRS guidance or legal precedent to the contrary, the phrase “other than indebtedness incurred with the 5-year period ending on the Closing Date” shall include any accrued interest incurred in the 5-year period ending on the Closing Date that remains unpaid as of that date. The Partnership agrees to accept Purchaser’s computation of the amount described in this clause (ii) if the method of computation is supported by an opinion of a national or regional law firm with recognized expertise in matters relating to Section 42 of the Code.
Best—“Notwithstanding the foregoing provisions of this Section, after the fifteenth (15th) anniversary of the Conversion Date, Beneficiary shall consent to sale, conveyance or transfer of the Property in its entirety to any person or entity provided…”
Best—“Notwithstanding any other provisions of this Agreement to the contrary, the County Board will not have the ability to exercise the County Refusal Right until _____, including any affiliate or successor thereof that has a right of first refusal, has first had the opportunity to exercise its right of first refusal/purchase option…”
Redevelopment or Realigning
ERIK T. HOFFMAN | 1275 K Street, NW | Suite 1200 | Washington DC 20005
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