Heard: February 6, 2018.
action commenced in the Superior Court Department on December
case was heard by Janet L. Sanders, J., on a motion for
summary judgment, and entry of judgment was ordered by her.
The Supreme Judicial Court on its own initiative transferred
the case from the Appeals Court.
E. McKenna for the defendants.
E. Friedman (David E. Lurie also present) for the plaintiffs.
following submitted briefs for amici curiae:
Korman & Daniel M. Rosen for Citizens' Housing and
Planning Association & others.
Bart Lloyd, Gregory M. Katz, & Jonathan Klein for
Preservation of Affordable Housing, Inc., & another.
Stephen M. Nolan for Massachusetts Housing Investment
Roberta L. Rubin, Special Assistant Attorney General, _&
Bruce E. Falby for Department of Housing and Community
Development & others.
P. Zabin for Chinese Progressive Association, Inc., &
Charles R. Bennett for Holland & Hart LLP.
Christopher G. Caldwell, Michael D. Roth, & Kelly L.
Perigoe, of California, & William C. Jackson for Jonathan
Christopher G. Caldwell, Michael D. Roth, & Kelly L.
Perigoe, of California, & William C. Jackson for Bradley
Present: Gants, C.J., Lenk, Gaziano, Lowy, Cypher, &
parties in this case are partners in a limited partnership
formed for the purpose of rehabilitating and operating an
affordable housing complex. The project was eligible for
financing under the Low Income Housing Tax Credit (LIHTC)
program set forth in the Internal Revenue Code, 26 U.S.C.
§ 42 (2012). Under the agreements executed in connection
with this project, the majority owner of the general partner,
a nonprofit organization, holds a right of first refusal to
purchase the partnership's interest in the property
"in accordance with" § 42(i)(7). The primary
issue in this case is when that right of first refusal may be
exercised under the terms of these agreements. The plaintiffs
contend that the right of first refusal can be exercised once
a third party makes an enforceable offer to purchase the
property interest. The defendants contend that the right of
first refusal cannot be exercised unless and until the
partnership has received a bona fide offer from a third
party, and has decided, with the consent of the special
limited partner, to accept that offer. The Superior Court
judge in this case agreed with the plaintiffs, and granted
their motion for summary judgment. We affirm the grant of
The LIHTC program.
the limited partnership here was formed for the purpose of
participating in the LIHTC program, we begin by describing
forth in the Internal Revenue Code, 26 U.S.C. § 42, the
LIHTC program is a Federal subsidy program designed to
promote the construction and rehabilitation of rental housing
that is affordable to low and moderate income households. It
is the most important source of financing for affordable
housing in Massachusetts and across the nation. See Joint
Center for Housing Studies of Harvard University,
America's Rental Housing: Expanding Options for Diverse
and Growing Demand 32-33 (2015) (LIHTC program now provides
more affordable rental units than are provided in public
housing or with Section 8 housing vouchers); Department of
Housing and Community Development, Low Income Housing Tax
Credit Program, 2018-2019 Qualified Allocation Plan 6 (since
1987, LIHTC program has helped finance over 67, 000
affordable rental units in Massachusetts and almost 3 million
nationwide). Under § 42, tax credits are allocated to
each State based on population; the States, in turn, allocate
the tax credits to "qualified low-income housing
projects" --that is, residential rental properties that
are rent-restricted and have a certain minimum share of
rental units set aside for low and moderate income
households. See 26 U.S.C. § 42(g), (h) (3) 
owners of these properties can claim the tax credits annually
over a period of ten years, thereby offsetting their tax
liability, but must continue to comply with rent
affordability restrictions for a period of fifteen years,
known as the compliance period, to avoid recapture of those
credits. See 26 U.S.C. § 42(a), (c)(2), (f)(1), (i)(1),
(j). For any LIHTC project allocated tax credits after 1989,
the owner must also agree to comply with the affordability
restrictions for an additional fifteen years, known as the
extended use period, so that the affordability restrictions
remain in place for a total of thirty years. See 26 U.S.C.
§ 42(h) (6) .
of affordable housing projects frequently use the tax credits
available under the LIHTC program as an incentive to attract
capital from private investors. Because these projects rarely
generate enough tax liability for the developers to claim the
full value of the credits themselves, and because many of
these developers are nonprofit organizations and therefore
tax-exempt, the tax credits are of little value to them. By
syndicating the project, however, these developers can
"sell" the tax credits to private investors -- in
most cases corporations with substantial and predictable tax
liability --in exchange for an equity investment in the
project. See J. Khadduri, C. Climaco, & K. Burnett,
United States Department of Housing and Urban Development,
What Happens to Low-Income Housing Tax Credit Properties at
Year 15 and Beyond?, at 2 (2012) (Khadduri et al.); M.I.
Sanders, Joint Ventures Involving Tax-Exempt Organizations
949-951 (4th ed. 2013).
42 requires each State to set aside at least ten per cent of
its allocable tax credits for projects developed and operated
by qualified nonprofit organizations. 26 U.S.C. §
42(h)(5). In a typical project of this kind, the property is
owned by a limited partnership, formed solely for that
purpose, in which the general partner is a nonprofit
organization holding only a nominal equity interest (one per
cent or less) and the limited partners are private investors
who hold almost all of the equity (ninety-nine per cent or
more). The nonprofit general partner is responsible for the
day-to-day management of the property. The investor limited
partners contribute capital and, in return, are allocated the
tax benefits flowing from the project, including the LIHTC
tax credits, deductions for depreciation, and other tax
losses. See Khadduri et al., supra at 11, 25;
Mittereder, Pushing the Limits: Nonprofit Guarantees in LIHTC
Joint Ventures, 22 J. Affordable Hous. & Cmty. Dev. L.
79, 83 (2013) (Mittereder).
end of the fifteen-year compliance period, when all tax
credits have been claimed and are no longer subject to
recapture, most investor limited partners will seek to leave
the project, usually -- but not always -- by selling their
interest to the nonprofit general partner. See Khadduri et
al., supra at 29-31; Mittereder, supra at
83. Section 42 specifically contemplates such sales, allowing
nonprofit organizations to hold a right of first refusal to
purchase the property at the end of the compliance period at
a statutorily prescribed minimum price, and protecting
investors against the risk that their tax credits will be
disallowed or recaptured for that reason. Title 26 U.S.C.
§ 42(i)(7)(A) states:
"No Federal income tax benefit shall fail to be
allowable to the taxpayer with respect to any qualified
low-income building merely by reason of a right of [first]
refusal held by the tenants ... or resident management
corporation of such building or by a qualified nonprofit
organization ... to purchase the property after the close of
the compliance period for a price which is not less than the
minimum purchase price . . . ."
"minimum purchase price" (§ 42 price) is an
amount equal to the outstanding debt on the property,
excluding debt incurred in the five years preceding the sale,
plus exit tax liability,  and is typically below fair market
value. 26 U.S.C. § 42(i)(7)(B). See Khadduri et al.,
supra at 31.
42 does not mandate that nonprofit organizations be granted a
right of first refusal, but the Internal Revenue Service has
issued guidance indicating that, in order to qualify for
tax-exempt status, a nonprofit organization participating as
a general partner in a LIHTC partnership must secure a right
of first refusal to acquire the property at the end of the
compliance period. Memorandum from Robert S. Choi, Director
of Exempt Organizations, Internal Revenue Service, Income
Housing Tax Credit Limited Partnerships 1, 3-4 (July 30,
parties here are partners in a limited partnership
(partnership) created in 1997 to rehabilitate and operate an
affordable housing complex in Cambridge (property) under the
LIHTC program. The general partner is Memorial Drive Housing,
Inc., a corporation that is majority-owned and controlled by
Homeowner's Rehab, Inc. (nonprofit developer), a
nonprofit organization that specializes in the development of
affordable housing. The investor limited partners are
Centerline Corporate Partners V L.P., as limited partner, and
Related Corporate V SLP, L.P., as special limited partner.
The partnership owns a ninety-nine-year lease of the property
to the partnership agreement, the limited partners made
capital contributions of approximately $7 million. The
partnership agreement allocates 99.99 per cent of the tax
credits -- as well as the profits and losses of the
partnership, with some exceptions, and ...