NHT Notches Important Win in Support of the Non-profit Right of First Refusal

With a nationwide shortage of 7.3 million rental homes affordable and available to renters with extremely low incomes¹ we must protect existing affordable housing from being converted to market-rate housing that is unattainable to low-income residents. That is why NHT is thrilled with the Massachusetts Supreme Judicial Court's latest ruling supporting 'Tenants' Development Corporation's (TDC) exercise of the non-profit Right of First Refusal (ROFR). National Housing Trust and 17 partner organizations submitted an Amicus Brief in support of TDC. This ruling will allow TDC to exercise its ROFR, fulfilling its promise to keep a housing community affordable for at least 30 years. This ruling sets further precedent to protect existing Low Income Housing Tax Credit (Housing Credit) communities.

Since 2018, NHT has been developing and promoting solutions that protect a non-profits' right to exercise the ROFR in both new and existing Housing Credit properties to protect these properties and the residents who call them home. As a direct result of NHT's leadership, at least 32 state and local Housing Credit allocating agencies – representing over $875 million of Housing Credit allocations in 2024 alone - have implemented policies and/or updated existing language based on recommended language in NHT's ROFR Toolkit that strengthens the ROFR and protects the long-term affordability of these properties.

However, challenges to exercise the ROFR exist for many existing Housing Credit properties. Profit-motivated investors seek to challenge the basic elements of the ROFR, making it litigious and sometimes even impossible for a non-profit to exercise their federally granted ROFR.

In early 2024, the Massachusetts Supreme Judicial Court requested Amicus Curiae in an appeal involving the non-profit ROFR in the Housing Credit program. The appeal involves TDC's right to buy out existing partners to outright own a Housing Credit property after the 15-year compliance period under the ROFR at the statutorily provided "minimum purchase price." The Superior Court's earlier ruling determined that "taxes attributable" to the ROFR sale should include limited partner exit taxes, and TDC appealed. The Massachusetts Supreme Judicial Court requested amicus briefs on the primary issue, as follows:

Where the Low-Income Housing Tax Credit (LIHTC) program provides in Section 42(i)(7), that, in connection with a right-of-first refusal, the purchase price must include "all Federal, State, and local taxes attributable to such sale," what taxes are deemed "attributable to" the sale? e.g., Do taxes resulting from a limited partner's “exit” from the partnership that was created for purposes of the LIHTC program constitute taxes “attributable to” the sale?

NHT and partners responded that the Superior Court’s decision to include the exit taxes of a limited partner investor as part of the ROFR minimum purchase price under the Housing Credit ROFR has the perverse effect of providing financial benefits to investors that extend beyond the parties’ initial agreement. If the lower court’s decision were to stand, the inclusion of the limited partner’s exit taxes as part of the ROFR minimum purchase price would, in many instances, become the primary driver of the cost to purchase Housing Credit projects. This would artificially inflate the ROFR minimum purchase price and elevate it above the property's fair market value. This would make it harder for mission-driven affordable housing providers to maintain the affordability of Housing Credit properties for the full minimum of 30 years as per federal regulations.

With its mid-January ruling supporting TDC’s right to exercise its ROFR, the Massachusetts Supreme Judicial Court adds case law to a growing trend by profit-motivated investors seeking to extract profits from Housing Credit properties beyond the original contractual agreements made at the time of credit allocation. The Massachusetts Supreme Judicial Court clearly recognizes the importance of a non-profit's ROFR rights and the need to support the long-term affordability of Housing Credit projects. NHT and our partners continue to champion preserving existing affordable housing through the Housing Credit program.

To learn more about NHT’s advocacy and research on the non-profit Right of First Refusal, check out our Preservation Infobrief here and our NHT Update on the non-profit ROFR here.

You can learn more about promoting preservation at Year 15 in the Housing Credit program here.

¹https://nlihc.org/gap