U.S. Court of Appeals for the Sixth Circuit Gives Statutory Context to Affordable Housing ROFRs
Real estate and tax credit attorneys Alan Cohen, Jessica Early and Edward Hickey co-authored an article for Thomson Reuters' Real Estate Finance Journal analyzing a federal appellate case regarding the right of first refusal (ROFR) to acquire a low-income housing tax credit (LIHTC) project. The federal LIHTC program is the largest driver of affordable housing in the United States, and to help keep projects as affordable as possible, Congress created a safe harbor that granted certain entities, including nonprofits, the ROFR to acquire LIHTC projects after a 15-year compliance period at a statutory, below-market minimum price (Nonprofit ROFR). More recently, for-profit investors have challenged the validity of Nonprofit ROFRs, and in May 2022 the U.S. Court of Appeals for the Sixth Circuit issued the first federal appellate decision on their exercise. The Sixth Circuit reversed and remanded the district court's ruling, finding that the ROFR contemplated by the LIHTC program "varies markedly" from an ROFR in a typical real estate transaction. Because of that, the court concluded, imposing common law definitions of "right of first refusal" and "bona fide offer" would go against congressional intent in creating the safe harbor. This article review both the district court's and appellate court's decisions as well as offers practical considerations to keep in mind.
The authors also published a Holland & Knight alert when the Sixth Circuit decision was initially issued.