Homeowner's Rehab, Inc. v. Related Corporate V SLP, L.P.
99 N.E.3d 744
Mass.2018Background
- A limited partnership formed to rehabilitate/operate LIHTC-eligible affordable housing: nonprofit general partner (Memorial Drive Housing, majority-owned by Homeowner's Rehab) and investor limited partners (including Related Corporate V SLP, special limited partner).
- Contracts: a partnership agreement plus an option agreement granting the nonprofit a §42(i)(7) right of first refusal (ROFR) and a separate option to buy at market price; ROFR price = lesser of §42 price, third-party price, or restricted market price.
- Dispute arose after the 15-year LIHTC compliance period ended: nonprofit offered $1 + assumption of debt; limited partners rejected and argued ROFR could not be triggered without (1) a bona fide third-party offer and (2) the partnership having decided, with the special limited partner’s consent, to accept such an offer.
- Nonprofit solicited a third-party offer from Madison Park ($~42M). General partner issued a disposition notice stating the partnership was “willing to accept the offer subject to consent of the Partnership’s limited partner.” Special limited partner withheld consent; nonprofit asserted ROFR was triggered and sought declaratory relief.
- Superior Court granted summary judgment for plaintiffs (general partner and nonprofit): held ROFR could be triggered by an enforceable third-party offer (not necessarily bona fide), need not be accepted by the partnership prior to triggering, and the general partner could solicit offers and issue the disposition notice without the special limited partner’s prior consent; no breach of fiduciary duty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ROFR must be triggered by a bona fide third-party offer | ROFR need only be triggered by an enforceable third-party offer; bona fides unnecessary | ROFR requires a bona fide, honestly intended third-party offer | Held: Bona fides not required; an enforceable offer suffices given §42 context |
| Whether ROFR can be exercised before partnership decides to accept the offer | ROFR can be triggered by issuance of disposition notice upon receipt of enforceable offer | ROFR requires partnership decision to accept the third-party offer before holder may exercise | Held: ROFR cannot be exercised unless the partnership has decided to accept the offer (decision, not formal acceptance, is required) |
| Whether general partner may decide to accept (and issue disposition notice) without special limited partner consent | General partner has authority under partnership agreement to solicit offers and issue disposition notice (sales under Option Agreement exempt from consent requirement) | Special limited partner must consent before disposition notice or decision to accept can be made | Held: General partner may solicit offers and issue disposition notice and may decide to accept on behalf of partnership without prior consent; consent required only to make sale binding |
| Whether solicitation/notice breached fiduciary duty or implied covenant | Actions were authorized by contract; no fiduciary breach | Soliciting an offer to trigger ROFR without consent breached duties | Held: No breach; actions fell within contractual authority |
Key Cases Cited
- Roy v. George W. Greene, Inc., 404 Mass. 67 (mass. 1989) (ROFR triggers require receipt of an enforceable offer unless context dictates otherwise)
- Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376 (Mass. 2004) (distinguishes option to purchase from ROFR; ROFR is preemptive, not unilateral)
- Bortolotti v. Hayden, 449 Mass. 193 (Mass. 2007) (ROFR arises only when owner receives and is prepared to accept a bona fide offer)
- Frank Lyon Co. v. United States, 435 U.S. 561 (U.S. 1978) (economic-substance/ownership analysis governs tax consequences of transactions)