The Colorado Local Right of First Refusal bill takes effect on August 6, 2024 and stays in effect through 2029. It grants to local governments either a Right of First Refusal or First Offer on certain property sales. Noncompliance may result in civil penalties of $10,000-$100,000.

Right of First Offer

• Qualifying Properties: Applies to multifamily residential or mixed-use rental properties in Colorado consisting of 15 – 100 units, excluding existing affordable housing (i.e., properties subject to affordable housing restrictive use covenants or agreements which did not expire before June 1, 2024), mobile home parks, and accessory dwelling units.
• What it Permits: Local governments in Colorado (or their assignees) may make a first offer to purchase a qualifying property before it is listed for sale to third parties, with the expectation that it will be converted to long-term affordable housing.
• Notice: The local government may post notice on its website that it will 1) waive its right of first offer on all qualifying properties; or 2) assign its right to a local or state housing authority.
• Seller Obligations: Seller must:
  • Provide notice of intent to sell before entering into a listing agreement with a broker or otherwise listing the property on MLS. Following that, the government may, within 7 days, either waive their right of first offer or request due diligence from the seller.If the government requests due diligence, seller has five days to provide required property information. The government will sign an NDA agreeing not to disclose the property information.
  • Once required information is received, the local government has 14 days to make an offer, which the seller must accept or reject within 14 days.
• Government Obligations: Local governments must record a certificate of compliance within 14 days after receipt of the above referenced notices or within 14 days after the acceptance or rejection by a seller of an offer from the local government.

Right of First Refusal

• Qualifying Properties: Applies to multifamily residential or mixed-use rental properties with 5+ units that are or were subject to affordable housing restrictive use covenants or agreements on or after June 1, 2024.
• What it Permits: Local governments in Colorado (or their assignees) may purchase qualifying properties by matching an existing offer, with the expectation that they will maintain them as long-term affordable housing.
• Notice: The local government may post notice on its website that it will 1) waive its right of first refusal on all qualifying properties; or 2) assign its right to a local or state housing authority.
• Seller Obligations:
  • Seller must notify the Colorado Housing and Finance Authority and local governments when:
    • a property’s affordability restrictions will expire in less than two years, and again when restrictions will expire in less than six months;
    • seller lists the property;
    • seller conditionally accepts a third party offer;
    • seller signs a letter of intent, option, or other conditional agreement to sell the property;
    • seller reduces the price by 5% or materially changes terms and conditions; OR
    • seller otherwise plans to sell.
      • Notices must include property descriptions, contact information, existing offers, listing information, price, terms, and/or required conditions for sale.
  • Seller is also required to:
    • negotiate with the local government in good faith and cannot consider the proposed closing period, type of financing or payment method, or certain contingencies when considering the government’s offer;
    • explain reasoning for rejecting the local government’s offer, with the terms and conditions under which they would accept the offer, and then allow the local government 14 days to make a subsequent offer; AND
    • notify property residents of a sale to the government.
• Government Obligations: Local governments have 14 days from seller’s notice to state their intent to exercise their right of first refusal, then 30 days to make an offer. Sales must close within 60 days of seller’s acceptance unless seller has a cash offer with a shorter closing period. Local governments must record a certificate of compliance within 14 days after receipt of the above referenced notices or within 14 days after the acceptance or rejection by a seller of an offer from the local government.

Exceptions: The law does not apply to:

• sales within legal entities;
  • sales to public entities, such as state agencies;
  • sales made pursuant to a foreclosure action;
  • properties where a third party has an active, preexisting right of first refusal or offer;
  • properties where the first certificate of occupancy was issued within 30 years preceding the date that the residential seller will list the qualifying property for sale; OR
  • properties sold in a multi-property transaction involving at least one other property located in a different jurisdiction.

Should you have any questions about the content of this Legal Alert, please contact Chris Kinsman, Ryan Wilcox, or a member of the Davis Graham Real Estate Group.