Colorado HB24-1175 (2024): Does the local government have (a) a right of first refusal and/or (b) a right of first offer to purchase my multifamily property? Proposed initial steps to determine applicability.
I. Background
Colorado HB24-1175, signed into law in 2024, provides local governments (including towns, cities and counties) with two new, specific tools to use in attempts to acquire and provide more affordable housing units for their respective communities: (i) a right of first refusal (a “ROFR”), and (ii) a separate right of first offer (a “ROFO”) for certain types of multifamily properties in Colorado. Before discussing proposed first steps for owners of properties subject to these mechanisms, a brief look at the development of this new legislation is helpful.
The Colorado legislature’s Legislative Council Staff’s “Final Fiscal Note” dated July 10, 2024, provided the following statement about HB24-1175:
The bill gives a local government a right of first offer and a right of first refusal to obtain residential properties for long-term affordable housing. Long-term affordable housing means that the annual rent for any unit will not exceed the rent for households of a given size at the applicable area median income for a minimum of 100 years, and the local government agrees not to raise rent for any unit by more than the bill’s specified rent increase cap.
In its early versions, HB24-1175 caused concerns, if not fear, amongst developers and owners of and investors in multifamily properties within the State of Colorado, especially while the details of the new statutes were being hammered out by the legislature in Denver. Initial drafts of the bill were quite broad in scope and purported to give local governments rather broad powers to become involved in and “steal the deal” in purchase and sale transactions for certain types of multifamily properties with affordable housing components.
The legislature eventually passed a revised version of the, signed into law by Governor Polis on May 30, 2024, that took effect on August 7, 2024. The original version of HB24-1175 first introduced to the Colorado legislature on January 31, 2024, was arguably much broader in scope and more threatening to multifamily developers than the final one signed into law. This 29-page act added a new “part 12” to article 4 of title 29 of the Colorado Revised Statutes (“C.R.S.”):
II. What multifamily properties are subject to C.R.S. §§ 29-4-1201 through 29-4-1208?
The good news for many owners of multifamily properties is that a sizeable number of such projects probably do not fall within the category of those covered by these new statutes. So, how does an owner determine if their property is subject to HB24-1175?
The quick answer is that only an “Applicable Qualifying Property,” as defined in C.R.S. § 29-4-1201(2), must abide by the new statutes. It states that an Applicable Qualifying Property means either:
(a) a “Qualifying Property” as defined in C.R.S. § 29-4-1202(1) with respect to a possible right of first refusal (ROFR), or
(b) a “Qualifying Property” as defined in C.R.S. § 29-4-1203(1) with respect to a possible right of first offer (ROFO).
An important distinction to keep in mind is that a given Qualifying Property might be encumbered with both a ROFR and a ROFO benefiting the applicable local government, or it could be subject to a ROFR but not a ROFO, or vice-versa.
A. Definition of Qualifying Property subject to a ROFR
A multifamily property or mixed-use rental property may be classified as a Qualifying Property subject to a local government’s ROFR if it contains (5) or more units (not counting ADUs) of Existing Affordable Housing. The local government for the jurisdiction in which a Qualifying Property is located has a ROFR to purchase said Qualifying Property with a matched offer (as further defined and discussed in C.R.S. § 29-4-1202), and any purchase and sale agreement for the conveyance of a Qualifying Property by a seller is contingent upon first disposing of this ROFR. However, an owner despondent that their property meets the definition of “Qualifying Property” may still qualify for one of several statutory exemptions available to avoid the ROFR.
B. Definition of a Qualifying Proper subject to a ROFO
A multifamily property or mixed-use rental property may be classified as a Qualifying Property subject to a local government’s ROFO if it contains at least fifteen (15) units (not counting ADUs) but no more than one hundred (100) units. This new ROFO will not apply to projects with Existing Affordable Housing or those that are Mobile Home Parks. The local government for the jurisdiction in which a Qualifying Property is located has a ROFO to make an offer to purchase said Qualifying Property before it is listed for sale to third parties. The precise reach of the ROFO will depend on how parties—and, ultimately, the courts—interpret the definition of ‘Qualifying Property.’ As with the ROFR discussed above, even if a property meets the definition of a Qualifying Property subject to a ROFO, one or more statutory exemptions may apply.
III. Exemptions to the ROFR and the ROFO.
If an owner determines that her/his/its multifamily property meets the criteria to be classified as (a) a Qualifying Property subject to a ROFR and/or (b) a Qualifying Property subject to a ROFO, then the next step is to see if the Qualifying Property meets one of the multiple statutory exemptions.
Exemptions for both include, without limitation, (i) a change in the Qualifying Property’s ownership structure, (ii) the prospective purchaser is an “Affordable Housing Provider” and/or government, (iii) or there exist other rights of first refusal or first offer based on instruments recorded that predate the new laws, (iv) all or part of the Qualifying Property is subject to an eminent domain proceeding, or (v) the owner is refinancing the Qualifying Property.
Specific exemptions to the ROFO apply when the proposed sale, transfer or conveyance of the Qualifying Property will be made (i) pursuant to a court order, (ii) between joint tenants or tenants in common, (iii) when the first certificate of occupancy for the Qualifying Property was issued thirty (30) years or more prior to when it will be listed for sale, (iv) the Qualifying Property is comprised of multiple parcels with some outside the local government’s jurisdiction, (v) the proposed sale only involves the transfer of ownership interests, or (vi) the proposed sale does not involve all or substantially all of the Qualifying Property.
Conclusions
C.R.S. §§ 29-4-1201 through 29-4-1208 provide relatively clear, if dense, rules to determine if a given multifamily property may become subject to a new statutory ROFR and/or ROFO. If you need assistance understanding and adhering to these new laws, our firm can analyze your specific situation and guide you through the necessary steps to stay on track.