Title: Homeowner's Rehab, Inc. v. Related Corporate V SLP, L.P.

State: massachusetts

Issuer: Massachusetts Supreme Court

Document:

NOTICE:  All slip opinions and orders are subject to formal 
revision and are superseded by the advance sheets and bound 
volumes of the Official Reports.  If you find a typographical 
error or other formal error, please notify the Reporter of 
Decisions, Supreme Judicial Court, John Adams Courthouse, 1 
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
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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 
                                                          
 
 
7 On the limited partners' motion, the judge entered an 
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 
                                                          
 
 
10 The 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). 
 
 
11 Professor 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. 
 
 
12 As 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. 
 
 
13 In 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 
                                                          
 
 
14 While 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  
                                                          
 
 
15 Of 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. 
 
 
16 We 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. 
                                                          
 
 
17 In 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.