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SJC-12441

          HOMEOWNER'S REHAB, INC., & another1 vs. RELATED
                 CORPORATE V SLP, L.P., & another.2


          Suffolk.       February 6, 2018. - June 15, 2018.

        Present:   Gants, C.J., Lenk, Gaziano, Lowy, Cypher, &
                              Kafker, JJ.


Partnership, Limited partnership, General partner, Consent of
     limited partner. Housing. Real Property, Right of first
     refusal.



     Civil action commenced in the Superior Court Department on
December 5, 2014.

     The 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.


     Dennis E. McKenna for the defendants.
     Karen E. Friedman (David E. Lurie also present) for the
plaintiffs.
     The following submitted briefs for amici curiae:
     Henry Korman & Daniel M. Rosen for Citizens' Housing and
Planning Association & others.



    1   Memorial Drive Housing, Inc.

    2   Centerline Corporate Partners V L.P.
                                                                    2


     W. Bart Lloyd, Gregory M. Katz, & Jonathan Klein for
Preservation of Affordable Housing, Inc., & another.
     Stephen M. Nolan for Massachusetts Housing Investment
Corporation.
     Roberta L. Rubin, Special Assistant Attorney General, &
Bruce E. Falby for Department of Housing and Community
Development & others.
     Albert P. Zabin for Chinese Progressive Association, Inc.,
& another.
     Charles R. Bennett for Holland & Hart LLP.
     Christopher G. Caldwell, Michael D. Roth, & Kelly L.
Perigoe, of California, & William C. Jackson for Jonathan
Zasloff.
     Christopher G. Caldwell, Michael D. Roth, & Kelly L.
Perigoe, of California, & William C. Jackson for Bradley Myers.


    GANTS, C.J.   The 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
                                                                    3


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 summary judgment.3

     Background.   1.   The LIHTC program.   Because the limited

partnership here was formed for the purpose of participating in

the LIHTC program, we begin by describing the program.

     As set 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)

     3 We acknowledge the amicus briefs submitted in support of
Homeowner's Rehab, Inc., by Preservation of Affordable Housing,
Inc., and The Community Builders, Inc.; Citizens' Housing and
Planning Association, Greater Boston Real Estate Board, and
Massachusetts Association of Community Development Corporations;
Massachusetts Department of Housing and Community Development,
Massachusetts Development Finance Agency, Massachusetts Housing
Partnership Fund Board, and Community Economic Development
Assistance Corporation; Massachusetts Housing Investment
Corporation; and Chinese Progressive Association, Inc., and
Chelsea Collaborative, Inc. We acknowledge the amicus briefs
submitted in support of Related Corporate V SLP, L.P., by
Bradley Myers, Jonathan Zasloff, and Holland & Hart LLP.
                                                                   4


(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).4

     The 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


     4 In order to qualify for tax credits under the Low Income
Housing Tax Credit program, a property must meet one of two
criteria: either (1) at least twenty per cent of the units are
rent-restricted and occupied by tenants with incomes that are at
most fifty per cent of area median income (AMI), or (2) at least
forty per cent of the units are rent-restricted and occupied by
tenants with incomes that are at most sixty per cent of AMI. 26
U.S.C. § 42(g)(1).
                                                                   5


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).

    Developers 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).

    Section 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.
                                                                     6


§ 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).

    At the 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
                                                                   7


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 . . . ."

The "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,5 and

is typically below fair market value.   26 U.S.C. § 42(i)(7)(B).

See Khadduri et al., supra at 31.

     Section 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, 2007).




     5 Exit tax liability includes all Federal, State, and local
taxes attributable to the sale of the property. 26 U.S.C.
§ 42(i)(7)(B)(ii).
                                                                       8


     2.    The agreements.   The 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 (property interest).6

     Pursuant 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 deductions for expenses, including

depreciation expenses -- to the limited partners.

     The partnership agreement requires that, for the fifteen-

year compliance period, the property will comply with the

affordability restrictions and other requirements of § 42.        In


     6 The property, consisting of both the land and the
building, is owned by a charitable trust created by Homeowner's
Rehab, Inc. (nonprofit developer), which is the sole beneficiary
of the trust.
                                                                    9


addition, the property is subject to certain long-term

affordability restrictions negotiated with local and Federal

housing authorities.

    The partnership agreement also defines the rights and

obligations of the respective partners.   Section 5.1 vests

"[t]he overall management and control of the business, assets[,]

and affairs of the Partnership" in the general partner.    The

partnership agreement envisions only a limited managerial role

for the limited partners, providing that neither "shall take

part in the management or control of the business of the

Partnership."

    The parties also entered into another agreement (option

agreement) outlining two potential mechanisms by which the

nonprofit developer could acquire the property interest.      The

first mechanism is a right of first refusal, granted in

accordance with § 42(i)(7).   Under section 2 of the option

agreement, the partnership cannot sell its interest in the

property "without it first being offered" to the nonprofit

developer; specifically, the partnership must deliver to the

nonprofit developer a notice (disposition notice) that states,

among other things, the third party "to whom the Partnership

proposes to make such disposition," the price to be paid and

"all other terms of the proposed disposition," and "a statement

indicating whether the Partnership is willing to accept the
                                                                    10


offer."    Upon receiving the disposition notice, the nonprofit

developer can exercise its right of first refusal and acquire

the property interest at a purchase price equal to "the lesser

of" (1) the § 42 price, (2) the price that the third party would

have paid in the proposed disposition, or (3) the "Restricted

Market Price" (market price), meaning the fair market value,

subject to certain restrictions encumbering the property.

    The second mechanism by which the nonprofit developer can

acquire the property interest is an option to purchase, which

exists separately and "[i]n addition to [the] Right of First

Refusal."   Under section 6 of the option agreement, for a period

of four years commencing at the end of the fifteen-year

compliance period, the nonprofit developer has an option to

purchase the property interest at the market price.

    The partnership agreement specifically references and

incorporates the option agreement, which, as defined in the

partnership agreement, is not limited to the option to purchase

but also includes the provisions governing the right of first

refusal.    Section 5.4 of the partnership agreement outlines the

procedure for the sale of partnership assets, stating:

    "Except as may be otherwise expressly provided . . . in
    this Agreement, the General Partner[] . . . [is] hereby
    authorized to sell . . . all or substantially all of the
    assets of the Partnership; provided, however, that except
    for a sale pursuant to the Option Agreement, the terms of
    any such sale . . . must receive the Consent of the Special
                                                                  11


    Limited Partner before such transaction shall be binding on
    the Partnership."

    That section further states:

    "The Partnership and [the nonprofit developer] agree that,
    with respect to the Option Agreement, it is their intention
    that the purchase price under the Option Agreement be the
    minimum price consistent with the requirements of
    [§] 42(i)(7) of the [Internal Revenue] Code."

Section 5.4 also sets forth an interpretation of certain terms

in § 42(i)(7) that will govern the exercise of the right of

first refusal "so long as [the nonprofit developer] provides

evidence reasonably satisfactory to the Partnership and the

Limited Partner that [such] interpretation[] will not adversely

affect, or cause any material risk of recapture of, any Credits

previously taken by such Limited Partner."

    The closing documents to the agreements include a

memorandum from the accounting firm Reznick Fedder & Silverman

(Reznick memorandum) providing financial projections for the

partnership over the fifteen-year compliance period.   The

Reznick memorandum also projected the return on investment the

limited partners would receive if the property interest were to

be sold at the end of the compliance period for a purchase price

of one dollar plus outstanding debt; it estimated that, after

cumulative tax savings of about $19 million, the limited

partners would stand to receive approximately $10 million, which

would be $3 million over their initial $7 million investment.
                                                                  12


    3.   The parties' dispute.     The following facts in the

summary judgment record are not materially in dispute.

    Over the fifteen-year compliance period, the limited

partners claimed approximately $7.5 million in tax credits and

over $24 million in tax losses through the partnership.     In

January, 2014, after the compliance period had ended, the

nonprofit developer offered to purchase the limited partners'

interest in the property for one dollar, plus the assumption of

outstanding debt, which it contended was the minimum price

consistent with § 42(i)(7).   In March, 2014, the limited

partners rejected the offer, claiming that the nonprofit

developer could purchase the property interest at the § 42 price

only if it were to exercise its right of first refusal, which it

could not do because the conditions for exercising that right

had not been satisfied.

    Despite further negotiations, the parties were unable to

agree upon a purchase price for the property interest, and were

also unable to agree on their interpretation of the right of

first refusal.

    In the fall of 2014, the nonprofit developer decided to

trigger its right of first refusal according to its own

interpretation by soliciting a third-party offer from Madison

Park Development Corporation (Madison Park), another nonprofit

developer of affordable housing.    Peter Daly, executive director
                                                                   13


for both the general partner and the nonprofit developer, asked

the chief executive officer of Madison Park, Jeanne Pinado, to

make an offer as a "favor" to him.   In November, 2014, Madison

Park submitted a written offer to purchase the property interest

for approximately $42 million.   Pinado understood that Daly had

solicited the offer in order to trigger the right of first

refusal.   She also knew that Madison Park's offer was subject to

the nonprofit developer's right of first refusal, which the

nonprofit developer was likely to exercise.   But Pinado

testified that Madison Park had made "a good offer" that was

"appropriate . . . for [the] property," and that, in the event

that the nonprofit developer did not exercise its right of first

refusal, Madison Park was willing and able to honor its offer.

    Having received Madison Park's offer, the general partner,

acting on behalf of the partnership, issued a disposition notice

to the nonprofit developer and to the limited partners, stating

that the partnership was "willing to accept the offer subject to

consent of the Partnership's limited partner."   The notice also

stated that the estimated market price for the property interest

was $46 million.   In response, the special limited partner

issued a notice stating that it did not consent to the proposed

sale to Madison Park and that the general partner therefore

lacked the authority to issue the disposition notice.

Undeterred, the nonprofit developer issued a notice informing
                                                                   14


the partnership that, having received the disposition notice, it

intended to exercise its right of first refusal to purchase the

property interest.

    4.   The action for declaratory judgment.   Because it was

apparent that the limited partners would continue to oppose the

sale, the nonprofit developer and the general partner commenced

an action against the limited partners in the Superior Court,

seeking a declaratory judgment as to the parties' rights under

the relevant agreements.   In their answer, the limited partners

asserted a counterclaim alleging that, by attempting to trigger

the nonprofit developer's right of first refusal without the

special limited partner's consent, the general partner had

committed a breach of its fiduciary duty to the limited partners

and the implied covenant of good faith and fair dealing.

    Following discovery, the plaintiffs moved for summary

judgment on their claims for declaratory relief and on the

limited partners' counterclaim.   The judge allowed the

plaintiffs' motion as to all claims.   The judge determined that

the option agreement should not be read in isolation, but must

instead be construed together with the partnership agreement, in

keeping with the intent of the parties, and in the context of

the statutory requirements of the LIHTC program.   The judge

concluded that under those agreements the general partner could

solicit a third-party offer and issue a disposition notice --
                                                                  15


thereby triggering the nonprofit developer's right of first

refusal -- without the consent of the special limited partner.

    In reaching this conclusion, the judge pointed to two

specific provisions in the agreements.   First, the judge noted

that, under section 2 of the option agreement, the disposition

notice must state "whether the Partnership is willing to accept

the [third-party] offer" (emphasis added), indicating that "the

offer need not be accepted by the Partnership . . . in order to

trigger the [right of first refusal]."   Second, the judge also

noted that, under section 5.4 of the partnership agreement, the

general partner need not obtain the consent of the special

limited partner for a sale "pursuant to the Option Agreement."

The judge interpreted this to mean that the general partner need

not obtain such consent before soliciting an offer or before

issuing a disposition notice to trigger the right of first

refusal.

    The judge also rejected the limited partners' contention

that Madison Park's offer was not a bona fide offer and

therefore could not trigger the right of first refusal.

Emphasizing that the nonprofit developer's right of first

refusal was "not a typical right of first refusal but rather a

statutorily defined one designed to allow non-profit entities to

buy back property . . . at a preset price," the judge concluded
                                                                  16


that the right could be triggered by any enforceable third-party

offer and that Madison Park's offer qualified as such.

    The judge concluded that this interpretation "would not

deprive the defendants of the benefit of their bargain,"

finding, based on the Reznick memorandum, that the limited

partners' expected benefit from their investment was limited to

the tax credits and other tax benefits -- which they did receive

-- and did not include any residual value from the property in

the event of a sale.

    As to the limited partners' counterclaim, the judge

concluded that because the general partner's actions were

authorized by the agreements, there was no breach of fiduciary

duty or of the covenant of good faith and fair dealing.

    Accordingly, the judge issued a judgment declaring, inter

alia, that the general partner was authorized to solicit an

offer from Madison Park and to issue a disposition notice

without the special limited partner's consent, that this

disposition notice triggered the nonprofit developer's right of

first refusal, that the general partner was authorized to sell

the property interest to the nonprofit developer without the

special limited partner's consent, and that the general partner

did not commit a breach of its fiduciary duty to the limited
                                                                         17


partners.      The limited partners appealed.7   We transferred the

case to this court on our own motion.

       Discussion.     We review a grant of summary judgment de novo

to determine whether, viewing the evidence in the light most

favorable to the nonmoving party (here, the defendant limited

partners), the moving party (here, the plaintiff general partner

and nonprofit developer) is entitled to judgment as a matter of

law.       See Pinti v. Emigrant Mtge. Co., 472 Mass. 226, 231

(2015).      On appeal, the limited partners make three claims of

error.      First, they claim that the judge erred in her

interpretation of the agreements and that the right of first

refusal cannot be exercised without the consent of the special

limited partner.      Second, they claim that the judge

impermissibly relied on extrinsic evidence, specifically the

Reznick memorandum, in interpreting the agreements.         And third,

they claim that the judge erred in concluding that the general

partner had not committed a breach of its fiduciary duty to the

limited partners or the implied covenant of good faith and fair

dealing.

       With respect to the agreements, the parties here agree that

the partnership agreement and the option agreement incorporate



       On the limited partners' motion, the judge entered an
       7

order enjoining the general partner from selling the property
interest under the option agreement pending the outcome of the
limited partners' appeal.
                                                                    18


each other by reference, and must be read together as an

integrated whole.   See Phoenix Spring Beverage Co. v. Harvard

Brewing Co., 312 Mass. 501, 505 (1942) ("[W]hen several writings

evidence a single contract between the parties, they will be

read together in order to arrive at an interpretation of the

contract").   They also agree that these agreements were

carefully negotiated and crafted by sophisticated parties, and

that the language of these agreements is unambiguous -- although

each side contends that that unambiguous language favors their

own position.

    The limited partners contend that the right of first

refusal cannot be exercised unless triggered by a bona fide

third-party offer, and then only if the partnership, with the

special limited partner's consent, has agreed to accept that

offer.   The general partner and nonprofit developer contend that

the right can be triggered by any enforceable offer from a third

party, and can be exercised when the general partner decides to

accept it on behalf of the partnership, without the special

limited partner's consent.     There are therefore three discrete

issues that we must resolve:    first, whether the right of first

refusal can only be triggered by a bona fide third-party offer;

second, whether the partnership must decide to accept that offer

in order for the nonprofit developer to exercise the right; and

third, if so, whether the general partner is authorized to make
                                                                   19


that decision on behalf of the partnership without the consent

of the special limited partner.

     Where both sides agree only that the language of the

agreements is unambiguous, we must interpret that language in

the context in which it was written and "with reference . . . to

the objects sought to be accomplished," mindful that "a contract

should be construed [so as] to give it effect as a rational

business instrument and in a manner which will carry out the

intent of the parties."   Starr v. Fordham, 420 Mass. 178, 190,

192 (1995), quoting Shea v. Bay State Gas Co., 383 Mass. 218,

223 (1981), and Shane v. Winter Hill Fed. Sav. & Loan Ass'n, 397

Mass. 479, 483 (1986).    Here, that context is § 42 of the

Internal Revenue Code, which offers tax credits as an incentive

to invest in affordable housing.   The purpose of the

partnership, as stated in section 2.5.A of the partnership

agreement, is to "invest[] in real property and . . . provi[de]

. . . low income housing."   Participating in the LIHTC program

serves the interests of all the partners, enabling the general

partner to fulfil its mission of providing affordable housing,

while providing the limited partners with a return on their

investment, primarily in the form of tax credits allocated under

§ 42.

     This mutuality of interest is reflected in the language of

the agreements.   The partnership agreement makes clear that the
                                                                     20


amount of the limited partners' capital contributions was tied

to the amount of tax credits allowable under § 42, which were

allocated almost entirely to the limited partners.     Many

provisions in the agreement reflect the critical importance of

ensuring that the limited partners obtain those credits.      For

example, section 5.2.B requires the general partner to "operate

the [property] . . . in such a manner that [it] will be eligible

to receive" tax credits with respect to a certain minimum

percentage of units, while section 5.5.B(xv) prohibits the

general partner from taking any action that would result in a

disallowance or recapture of credits unless it obtains the

special limited partner's consent.   Other provisions reflect the

importance of providing affordable housing in a manner that

complies with all requirements of the LIHTC program.    Section

2.5.A(v) authorizes the partnership to rent units "in accordance

with applicable Federal, [S]tate[,] and local regulations, in

such a manner so as to qualify for [tax credits]," while

section 4.1.A requires the general partner to act in compliance

with all applicable laws during the compliance period to ensure

the allowance of tax credits and avoid their recapture.

    We therefore examine the agreements with these mutual

interests in mind.   As earlier stated, the option agreement

outlines two separate mechanisms by which the nonprofit

developer can acquire the partnership's property interest:     the
                                                                      21


right of first refusal, and the option to purchase.       At common

law, the distinction between these two forms of purchase rights

is well established.   See, e.g., Bortolotti v. Hayden, 449 Mass.

193, 201 (2007); Uno Restaurants, Inc. v. Boston Kenmore Realty

Corp., 441 Mass. 376, 382 (2004).   An option to purchase

entitles the holder to purchase the property from the owner at a

specific price; the holder can exercise it unilaterally, thereby

compelling even an unwilling owner to sell.     See Uno

Restaurants, Inc., supra at 382 & n.3.   See also 25 R.A. Lord,

Williston on Contracts § 67:85, at 502 (4th ed. 2002).       In

contrast, a right of first refusal is only a preemptive right,

prohibiting the owner from selling the property to a third party

"without first offering the property to the holder . . . at the

third party's offering price."   Uno Restaurants, Inc., supra at

382.   The holder of the right may then decide whether to

purchase the property by matching that price.    Id. at 383.      Also

unlike an option to purchase, a right of first refusal cannot be

exercised unilaterally, but can only be exercised where two

conditions are met.    First, the right of first refusal must be

triggered by "a bona fide and enforceable offer to purchase" the

property, Roy v. George W. Greene, Inc., 404 Mass. 67, 69

(1989), meaning an offer that is made "honestly and with serious

intent."   Uno Restaurants, Inc., supra at 383, quoting Mucci v.

Brockton Bocce Club, Inc., 19 Mass. App. Ct. 155, 158 (1985).
                                                                    22


Second, the owner of the property must have decided to accept

that third-party offer.   See Bortolotti, supra at 204 (right of

first refusal "arises only when a property owner receives, and

is prepared to accept, a bona fide offer"); Roy, supra at 71

(right of first refusal can be exercised "only when the owner

has decided to accept" third-party offer).     See also Williston

on Contracts, supra ("[A] right of first refusal has no binding

effect unless the offeror decides to sell").

    The limited partners contend that, in granting the right of

first refusal, the agreements here incorporate these common-law

limitations on its exercise.   What they fail to acknowledge is

that the right of first refusal in this case is not purely a

creation of the common law but, as stated in the preamble to the

option agreement, was granted "in accordance with [§] 42(i)(7)

of the Internal Revenue Code," and must be understood in the

context of agreements designed to secure tax credits under the

LIHTC program.   Section 42(i)(7) provides that tax credits will

not be withheld "merely" because a nonprofit organization holds

"a right of [first] refusal . . . to purchase the property after

the close of the compliance period for a price which is not less

than" the statutorily prescribed, typically below-market § 42

price.   26 U.S.C. § 42(i)(7)(A).   Section 42(i)(7) provides a

safe harbor for property owners, allowing them to grant such

rights without disqualifying them from the tax credits that are
                                                                    23


the key economic incentive for their investment in affordable

housing.

    This safe harbor is necessary because of a long-standing

principle of tax law that limits the tax benefits attributable

to property ownership -- including tax credits -- to the true

owner of that property.    See Frank Lyon Co. v. United States,

435 U.S. 561, 572-573 (1978).    Under the economic substance

doctrine, "the objective economic realities of a transaction,"

rather than its legal form, determine who is an owner for tax

purposes.    Id. at 573.   See, e.g., Rev. Rul. 72-543, 1972-2 C.B.

87 (in sale-leaseback arrangement where "burdens and benefits of

ownership" remain with seller, seller deemed owner for tax

purposes).   Traditionally, one of the core benefits of property

ownership has been the right to profit from appreciation in

value.   See Dunlap v. Commissioner of Internal Revenue, 74 T.C.

1377, 1436-1437 (1980), rev'd and remanded on other grounds, 670

F.2d 785 (8th Cir. 1982).    Thus, in many contexts, an option to

purchase property at a below-market price -- which shifts the

right to appreciation from the legal owner to the option holder

-- is deemed to transfer ownership to the option holder, thereby

disqualifying the legal owner from tax benefits.    See, e.g.,

Rev. Rul. 55-540, 1955-2 C.B. 39, § 4.01(e) (transaction is

sale, not lease, where there is "a purchase option at a price
                                                                  24


which is nominal in relation to the value of the property").8

Against this background, § 42(i)(7) serves to clarify that,

notwithstanding traditional principles of tax law, a nonprofit

organization's right of first refusal to acquire the property at

the typically below-market § 42 price will not deprive the

property owner of tax credits.9

     By creating this safe harbor, § 42(i)(7) also furthers one

of the key policy goals of the LIHTC program, which is to ensure

that affordable housing remains affordable in the long term.

Nonprofit organizations are more likely to continue to operate

properties as affordable housing, even after the affordability

restrictions are lifted, because it is their mission to do so.

See Khadduri et al., supra at 41.   Congress therefore designed

§ 42 to encourage nonprofit involvement, first by requiring at

least ten per cent of tax credits to be allocated to projects

     8 For other examples where a below-market purchase option is
deemed to transfer ownership for tax purposes, see 26 C.F.R.
§ 1.761-3(d) (2017) (where option to purchase partnership
interest is "reasonably certain to be exercised," for example
because of below-market strike price, option holder should be
treated as partner); and Rev. Rul. 85-87, 1985-1 C.B. 268, 269
(where strike price is below fair market value of stock, put
option is "in substance a contract to acquire stock").

     9 This clarification is especially important given that the
Internal Revenue Service has stated in its regulations
interpreting 26 U.S.C. § 42, that the tax credits available
thereunder "may be limited or disallowed under . . . principles
of tax law," including the "'economic substance' analysis" and
the "'ownership' analysis" articulated in Frank Lyon Co. v.
United States, 435 U.S. 561 (1978). 26 C.F.R. § 1.42-4(b)
(2017).
                                                                  25


involving nonprofit organizations, 26 U.S.C. § 42(h)(5), and

second by facilitating the transfer of properties to nonprofit

organizations through § 42(i)(7).    Allowing the transfer of

properties at below-market prices frees up cash flow, which

nonprofit organizations can then use to preserve the properties

as affordable housing into the future.    See Khadduri et al.,

supra at 30.

     The legislative history of § 42(i)(7) confirms that it was

intended to facilitate the inexpensive transfer of properties to

nonprofit organizations.    See Report of the Mitchell-Danforth

Task Force on the Low-Income Housing Tax Credit 19 (Jan. 1989)

(Mitchell-Danforth Report).    Lawmakers were concerned that

properties financed under the LIHTC program would not remain

affordable in the long term, because their owners would convert

them to market-rate housing -- or sell them to third parties who

would -- as soon as the affordability restrictions were lifted.

See id. at 13.   Their proposed solution was to make it easier

for nonprofit organizations to purchase the properties.    See id.

at 19.    Indeed, an earlier version of § 42(i)(7) would have

allowed a nonprofit organization to hold an option to purchase

the property at a below-market price.10   S. 980, 101st Cong., 2d


     10The 1989 amendments to § 42 were based in large part on
the recommendations of the Mitchell-Danforth Task Force on the
Low-Income Housing Tax Credit, which was formed to review the
LIHTC program and make recommendations for its improvement.
                                                                   26


Sess. (1989) (§ 2[y] of proposed bill).   However, this version

was rejected, apparently due to concerns that a below-market

purchase option would, in substance, render the nonprofit

organization the owner of the property and thereby run afoul of

traditional rules of tax law.   See Kaye, Sheltering Social

Policy in the Tax Code:   The Low-Income Housing Credit, 38 Vill.

L. Rev. 871, 893 (1993).11   Instead, Congress chose to enact a

safe harbor only for a right of first refusal.   See Pub. L. No.

101-239, Title VII, Subtitle A, § 7108(q), 103 Stat. 2321

(1989).12   In so doing, Congress understood that a right of first



These recommendations became the basis for the Low-Income
Housing Tax Credit Act of 1989, S. 980, 101st Cong., 2d Sess.
(1989), which would have allowed nonprofit organizations to hold
a below-market option to purchase. See Kaye, Sheltering Social
Policy in the Tax Code: The Low-Income Housing Credit, 38 Vill.
L. Rev. 871, 883-885 (1993) (Kaye).

     The proposed language would have amended § 42(i) to include
the following subsection (7): "[T]he determination of whether
any qualified low-income building is owned by the taxpayer shall
be made without regard to any option by a qualified nonprofit
organization . . . to acquire such building at less than fair
market value after the close of the compliance period . . . ."
S. 980, 101st Cong., 2d Sess. (1989) (§ 2[y] of proposed bill).

     11Professor Tracy A. Kaye, who served as tax legislative
assistant to Senator John. C. Danforth, one of the leaders of
the Mitchell-Danforth Task Force, later explained the decision
to reject this initial version of § 42(i)(7), writing: "There
was congressional concern that the grant of a below-market
option . . . was a substantial enough relinquishment of one of
the benefits of ownership such that true ownership was at
issue." Kaye, supra at 871, 893.

     12As originally enacted in 1989, § 42(i)(7) (then
§ 42[i][8]) allowed only tenants to hold a right of first
                                                                    27


refusal -- in contrast to an option to purchase -- could not be

exercised unilaterally by the holder.    In the accompanying House

committee report, the right of first refusal in § 42(i)(7) was

described as a right to "purchase the building, for a minimum

purchase price, should the owner decide to sell (at the end of

the compliance period)."     H.R. Rep. No. 101-247, 101st Cong.,

1st Sess., at 1195 (1989).    See Kaye, supra at 897 (Congress did

not give nonprofit organizations "the power to compel an

unwilling owner to sell").    Although in other contexts Congress

has abrogated the traditional rule that tax benefits must follow

ownership, in this case it chose not to make an exception.    See

id. at 893-894.13

     Section 42(i)(7) therefore represents a compromise,

facilitating the inexpensive transfer of property to nonprofit

organizations, but in a way that does the least violence to the

traditional rules of tax law.    The right of first refusal

described in § 42(i)(7) is not a typical right of first refusal,


refusal. Pub. L. No. 101-239, Title VII, Subtitle A, § 7108(q),
103 Stat. 2321 (1989). Congress later amended the provision to
also allow tenant cooperatives, resident management
corporations, and qualified nonprofit organizations to hold a
right of first refusal. Pub. L. No. 101-508, Title XI, Subtitle
D, § 11407(b)(1), 104 Stat. 1388-402 (1990). See Pub. L. No.
101-508, Title XI, Subtitle G, § 11701(a)(10) 104 Stat. 1388-
507.

     13In fact, Congress is currently considering an amendment
to § 42(i)(7) that would replace "a right of [first] refusal"
with "an option." S. 548, 115th Cong., 1st Sess., Title III,
§ 303 (2017).
                                                                    28


for the obvious reason that it favors the nonprofit organization

with a statutorily prescribed, often below-market price.      At

common law, a right of first refusal allows the holder to

purchase the property only by matching the price offered by a

third party.   See Bortolotti, 449 Mass. at 201.   In contrast, a

right of first refusal under § 42(i)(7) allows the holder to

purchase the property at the § 42 price, even if it is far below

the third-party offer.   See Bortolotti, supra (distinguishing

between typical right of first refusal and "fixed price right of

first refusal").   Yet, a right of first refusal under § 42(i)(7)

is not completely unanchored from its common-law meaning.     In

enacting § 42(i)(7), Congress relied on the common-law

distinction between an option to purchase, which can be

unilaterally exercised, and a right of first refusal, which

cannot.   Congress specifically chose to allow one but not the

other, recognizing that a right of first refusal -- which cannot

be exercised until the owner decides to sell -- is for that very

reason a less serious curtailment on ownership rights.

    With this statutory background in mind, we now turn to the

right of first refusal at issue here.    It is important to

remember that, although § 42(i)(7) permits a nonprofit

organization to hold a right of first refusal, it does not

mandate such a right.    Here, the parties specifically chose to

include a right of first refusal in the option agreement.     It is
                                                                     29


also important to note that the right of first refusal here is

even more generous to the holder than § 42(i)(7), because it

allows the nonprofit developer to acquire the property at a

price equal to the lesser of the § 42 price, the price offered

by the third party, and the market price.     Consequently, in the

event that the third-party price or the market price is lower

than the § 42 price, the nonprofit developer can purchase the

property at the most favorable price.

      1.   Bona fide offer.   The first issue we must consider is

whether the right of first refusal can only be triggered by a

bona fide offer.   Although the agreements are silent on this

issue, we conclude that such a limitation would be inconsistent

with the statutory scheme of § 42 and with the specific terms of

the agreements.    See Roy, 404 Mass. at 70 (term "right of first

refusal" understood to require bona fide offer "unless the

context of the agreement dictates otherwise").     Because a right

of first refusal granted under § 42(i)(7) -- like the one here -

- allows the nonprofit organization to purchase the property at

a below-market price, even if it is lower than the price offered

by the third party, it is difficult to imagine why a third party

would make a bona fide offer for the property, knowing that the

nonprofit organization has this right and is likely to exercise

it.   See Bortolotti, 449 Mass. at 204 (fixed-price right of

refusal "would burden the property by discouraging bona fide
                                                                      30


offers").    With a typical right of first refusal, a third party

can still prevail against the holder by overbidding -- that is,

by offering a price so high that it cannot be matched.       But a

right of first refusal under § 42(i)(7) eliminates even that

possibility, because the holder need not match the third-party

price.     To condition the right of first refusal on a bona fide

offer, then, would mean that it would almost never be triggered.

We decline to interpret the agreements in a way that would so

obviously contravene the purpose of § 42(i)(7).     We therefore

conclude, as the judge did, that the right of first refusal here

need not be triggered by a bona fide offer, and requires only

that the partnership have received an enforceable offer from a

third party.    See Roy, supra (right of first refusal not

triggered until "owner has received an enforceable offer").      We

also agree with the judge that there is nothing in the

agreements that bars the general partner from soliciting such

offers.

    2.     Partnership's decision to accept the offer.   The second

issue we consider is whether, having received an offer from a

third party, the partnership must decide to accept that offer in

order for the nonprofit developer to exercise its right of first

refusal.     Section 2 of the option agreement states that, before

the right of first refusal can be exercised, the partnership

must deliver to the nonprofit "notice of an offer to purchase"
                                                                    31


from a third party.   This disposition notice must state, among

other things, "whether the Partnership is willing to accept the

offer" (emphasis added).    The judge interpreted this language to

mean that the partnership need not have decided to accept the

offer in order to trigger the right of first refusal.      We

disagree with this interpretation because it effaces the common-

law distinction between a right of first refusal and an option

to purchase, which, as discussed, Congress relied upon when it

enacted § 42(i)(7).   A right of first refusal cannot be

exercised unless the owner of the property (here, the

partnership) has decided to accept the third party's offer.      The

decision to accept does not constitute an acceptance of the

offer -- it need not be communicated to the third party -- but a

decision must be made.     See Roy, 404 Mass. at 71.   This is why a

right of first refusal does not run afoul of traditional tax

principles, and why Congress chose to allow a right of first

refusal rather than an option to purchase.    Where the agreement

was intended to operate "in accordance with" § 42(i)(7), we must

interpret its provisions consistently with Congressional intent,

and Congress intended for nonprofit organizations to exercise

their right of first refusal only when "the owner decide[s] to

sell."   H.R. Rep. No. 101-247, supra at 1195.    We therefore

conclude that the right of first refusal here cannot be
                                                                   32


exercised unless the partnership decides to accept an offer from

a third party.14

     3.    Authority of the general partner to decide to accept

the offer.   The third issue is whether the general partner has

the authority to decide to accept the third-party offer on

behalf of the partnership, without the limited partners'

consent.   The limited partners contend that the general partner

does not have such authority, and that the special limited

partner must consent before the partnership can decide to accept

an offer or issue a disposition notice that would trigger the

right of first refusal.    In effect, this would mean that the

nonprofit developer cannot exercise its right of first refusal

without the limited partners' consent.    If this were the case,

one would expect that the limited partners would withhold their

consent unless they were willing to sell the property interest

at the § 42 price.   But, if they were in fact willing to sell

the property interest at that price, they would have no reason


     14While it is true that the disposition notice must state
"whether the Partnership is willing to accept the offer," not
that it is, we note that this is not the only instance where the
parties chose to use the word "whether," when the word "that"
would have been more appropriate. For example, section 4 of the
option agreement states that, in order to exercise its right of
first refusal, the nonprofit developer must issue a "Purchase
Notice" stating, among other things, "whether the [nonprofit
developer] intends to exercise the Right of First Refusal"
(emphasis added) -- even though there would be no need to issue
a "Purchase Notice" unless the nonprofit developer did, in fact,
intend to exercise the right.
                                                                   33


to wait for a third-party offer to trigger the right of first

refusal; they could simply sell to the nonprofit developer at

that price.   Consequently, if we were to interpret the right of

first refusal to require the consent of the special limited

partner, the nonprofit developer could be denied any meaningful

opportunity to acquire the property interest at the § 42 price.

In cases where the limited partners are unwilling to sell at the

§ 42 price, the nonprofit developer would be able to purchase

the property only by exercising its option to purchase at the

market price.   Moreover, because both the right of first refusal

and the option to purchase were set to expire four years after

the end of the fifteen-year compliance period, the nonprofit

developer would have had to exercise its option to purchase

before then or lose the right to purchase the property interest

at any price without the consent of the special limited partner.

    The limited partners contend that this is precisely what

was agreed to and expressed in the unambiguous language of the

agreements, which would mean that -- contrary to the

congressional intent behind § 42(i)(7), to facilitate the

inexpensive transfer of properties to nonprofit organizations --

the parties had negotiated an agreement that could bar the

nonprofit developer from ever purchasing the property at a

favorable price.   But that is not what is reflected in the

language of the agreements.
                                                                    34


    As stated, the partnership agreement confers broad powers

on the general partner, while circumscribing the powers of the

limited partners.     The partnership agreement identifies only a

few actions that the general partner cannot take without the

consent of the special limited partner.    Of relevance here,

section 5.5.B(iv) prohibits the general partner from "sell[ing]

all or any portion" of the property, "except with the Consent of

the Special Limited Partner."    This prohibition is "subject to

the provisions contained in Section 5.4," which grant the

general partner the authority to sell "all or substantially all

of the assets of the Partnership; provided, however, that except

for a sale pursuant to the Option Agreement, the terms of any

such sale . . . must receive the Consent of the Special Limited

Partner before such transaction shall be binding on the

Partnership."

    The limited partners concede that, under section 5.4, the

special limited partner need not consent to the terms of a sale

if the sale is pursuant to the option agreement, for example

where the nonprofit developer has exercised its right of first

refusal.   The limited partners nevertheless contend that the

special limited partner must consent to the terms of a sale if

the sale is to a third party, which is what triggers the right

of first refusal, before the general partner can issue a

disposition notice.    But section 5.4 states only that the
                                                                  35


special limited partner must consent to the terms of a sale

"before such transaction shall be binding on the Partnership."

As stated, the decision to accept a third-party offer does not

itself constitute an acceptance of the offer.    Thus, the mere

issuance of a disposition notice does not bind the partnership

to sell to the third party or even to accept its offer if the

nonprofit developer were for some reason to fail to exercise its

right of first refusal.    Section 5(a) of the option agreement

provides that, if the nonprofit developer fails to exercise its

right of first refusal, the partnership "may thereupon

consummate the sale to the [third party] upon the terms of the

offer" (emphasis added).   Section 5(a) specifically recognizes

the possibility that the partnership will not consummate the

sale, and provides in such an event that the nonprofit

developer's right of first refusal would then apply to any

subsequent third-party offer.   To be sure, the partnership could

not consummate a sale to a third party without the consent of

the special limited partner, but that does not mean that the

special limited partner must consent to the terms of an offer

before the disposition notice can be issued.

    Because the issuance of the disposition notice does not

bind the partnership to sell to a third party, and because a

sale pursuant to the option agreement is specifically excluded

from the requirement of consent by the special limited partner,
                                                                     36


we look to other provisions of the partnership agreement to see

if there is any restriction on the general partner's authority

to issue the disposition notice.    The only relevant restriction

is contained in section 5.5.B(xv), which prohibits the general

partner from taking any action that would threaten the limited

partners' tax credits.   In order to secure the tax credits, the

partnership must continue to own the property interest

throughout the compliance period.   Moreover, the safe harbor

under § 42(i)(7) provides that the right of first refusal can be

exercised only "after the close of the compliance period."      26

U.S.C. § 42(i)(7)(A).    Thus, although the option agreement

allows the nonprofit developer to exercise its right of first

refusal at any time during the first nineteen years of the

project, including during the compliance period, section

5.5.B(xv) effectively prohibits the general partner from

triggering that right during the compliance period.    Once the

compliance period has ended, however, there is nothing in the

partnership agreement that restricts the general partner's

authority to issue a disposition notice, or that requires it to

obtain the consent of the special limited partner before issuing

such notice.

     Examining the language of the agreements in their

statutory and practical context, we conclude that the general

partner is authorized to trigger the nonprofit developer's right
                                                                  37


of first refusal by soliciting an enforceable offer from a third

party and, upon receipt of such an offer, issuing a disposition

notice if the general partner has decided, on behalf of the

partnership, to accept the offer.   In reaching this conclusion,

we emphasize that we are only interpreting the language of the

agreements that the parties executed here.   We are not declaring

that every partnership participating in the LIHTC program must

permit a right of first refusal that can be exercised under

these circumstances.   We have stated that, unless otherwise

negotiated between the parties, a right of first refusal granted

in accordance with § 42(i)(7) can only be exercised, consistent

with congressional intent, when the owner of the property has

made a decision to accept an enforceable third-party offer.

Where the owner of the property is a limited partnership, how

the partnership makes that decision is a matter of contract.

The parties are of course free to negotiate a different

allocation of rights under their partnership agreement, or a

different mechanism for triggering the right of first refusal.15




     15Of course, any such agreement would have to conform to
the requirements of § 42 and related regulations in order to
ensure the allowance of tax credits. The limited partners and
amici have suggested that, if a nonprofit organization were to
hold a right of first refusal that it could exercise
unilaterally, this would raise doubts about the ownership of the
property and potentially preclude the investor limited partners
from receiving their tax credits. We do not express a view as
to whether this is true. Our task here is to interpret the
                                                                 38


For example, they may include language in their agreements

requiring the consent of the investor limited partners before

any right of first refusal is triggered.16   The parties here did

not include any such language in their agreements, and we must

enforce the language they chose.

     We also note that we reach this conclusion without any

reference to the Reznick memorandum.   Because our review of a

decision to grant summary judgment is de novo, we need not

determine whether the judge erred in considering that

memorandum.   We recognize that a court may consider extrinsic

evidence only when the meaning of the contract is ambiguous,

because "extrinsic evidence cannot be used to contradict or


agreements before us, not to opine on the risk of unintended tax
implications.

     16We doubt that parties will often negotiate such
provisions, because nonprofit developers will be reluctant to
accept provisions that would effectively deny them a meaningful
opportunity to acquire the property at a favorable price.
Moreover, it is usually in the investor limited partners'
economic interest to leave the project at the end of the
compliance period. The primary economic benefit to the limited
partners is in the form of tax credits, and most LIHTC
properties, because they are subject to long-term affordability
restrictions, have little residual value beyond debt. 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 31
(2012). Unsurprisingly, studies have shown that in the majority
of LIHTC projects, the limited partners willingly leave at the
end of the compliance period by transferring the property to the
general partner, often for little or no consideration over
outstanding debt. See id. at 29-31; Mittereder, Pushing the
Limits: Nonprofit Guarantees in LIHTC Joint Ventures, 22 J.
Affordable Hous. & Cmty. Dev. L. 79, 83 (2013).
                                                                    39


change the written terms, but only to remove or to explain the

existing uncertainty or ambiguity."    General Convention of the

New Jerusalem in the U.S. of Am., Inc. v. MacKenzie, 449 Mass.

832, 836 (2007).

       Finally, we also conclude that the judge correctly granted

summary judgment to the plaintiffs on the defendants'

counterclaim alleging that the general partner committed a

breach of its fiduciary duty to the limited partners as well as

the implied covenant of good faith and fair dealing.    Because

the contours of fiduciary duties are defined with reference to

the terms of the contract, there can be no claim for a breach of

fiduciary duty where a partner's "contested action falls

entirely within the scope of a contract" between the partners.

Fronk v. Fowler, 456 Mass. 317, 331-332 (2010), quoting Chokel

v. Genzyme Corp., 449 Mass. 272, 278 (2007).    Nor can the

covenant of good faith and fair dealing "be invoked to create

rights and duties not otherwise provided for in the existing

contractual relationship."    Uno Restaurants, Inc., 441 Mass. at

385.   The only contested action here was the solicitation of an

offer from Madison Park and the issuance of the disposition

notice.   Because the general partner was authorized to take

these actions under the terms of the agreements, we conclude

that these actions, without more, cannot constitute a breach of
                                                                40


fiduciary duty or of the covenant of good faith and fair

dealing.17

     Conclusion.   The judgment arising from the allowance of the

plaintiff's motion for summary judgment is affirmed.

                                   So ordered.




     17In so holding, we emphasize that the general partner here
sought to trigger the right of first refusal only so that the
nonprofit developer could purchase the property interest at a
price not less than the § 42 price. This was in line with the
parties' intention, which, as stated in the partnership
agreement, was for the purchase price under the option agreement
to be "the minimum price consistent with the requirements of [§]
42(i)(7)." However, the option agreement also allows the
nonprofit developer to purchase the property interest at the
price offered by the third party if it is lower than the § 42
price or the market price. Reading the option agreement in
isolation, this would mean that the general partner could
theoretically solicit a third-party offer at an artificially
discounted price, lower even than the § 42 price, and that the
nonprofit developer could then exercise its right of first
refusal at that discounted price. In such cases, the general
partner may be constrained by its fiduciary duty to the limited
partners. Here, however, there is no allegation that the offer
from Madison Park was artificially discounted. Moreover, the
nonprofit developer has stated that, in exercising its right of
first refusal, it intends to purchase the property interest by
assuming the total amount of outstanding debt, for an amount
that exceeds both Madison Park's offer and the § 42 price.
