OFF THE TOPA MY HEAD
Do you know about TOPA? If you are a landlord or tenant in the District of Columbia, or contemplating gaining this status, you should! TOPA restricts a landlord’s right to sell residential property and proscribes a tenants’ right to purchase the leased property.
The Tenant Opportunity to Purchase Act (“TOPA”) is found in the Title IV of D.C. Act 3-86, the Rental Housing Conversion and Sale Act of 1980. Born of concerns that the District’s rental housing stock was being depleted and to protect tenants in the event of a sale of their rental homes, TOPA confers on tenants, or a tenants’ association, a first right of purchase in connection with any sale or demolition of residential real property. As such, if a residential landlord wants to sell the property, then that landlord must give notice of the proposed sale by issuing an Offer of Sale to the tenant. The tenant then has thirty days to provide the landlord and the Condominium and Cooperative Conversion and Sales Branch of the District of Columbia Department of Consumer and Regulatory Affairs with a written statement of interest in purchasing the property. If the tenant fails to provide the written statement within the thirty-day period then the tenant’s rights under the Offer of Sale expire, except as to the tenant’s right of first refusal. If the tenant does submit a written statement of interest, then the tenant has a minimum of sixty days to negotiate a sales contract. This sixty-day negotiation period does not include the thirty-day response time period. The Offer of Sale must state the sale price of the property, the tenant must be informed of financing arrangements acceptable to the selling landlord, and disclose other material terms of sale. The deposit required from the purchasing tenant cannot be more than 5% of the contract price, and will be refundable in the event of a purchasing tenant’s good faith inability to perform under the contract. The purchasing tenant will have a minimum of sixty days to secure financing and go to settlement. If a lending institution or agency estimates that a financing decision will be made within ninety days of contract ratification, then the landlord is to provide the tenant with an extension of time consistent with the lender’s written estimate. If applicable, the selling landlord is to provide the purchaser tenant with information regarding the property including operating income and expenses, capital expenditure, and recent rent rolls.
If the seller has contracted to sell the property to a third party, then a copy of the contract must be provided to the tenant and the tenant is given a fifteen-day right of first refusal period to match the contract. The tenant’s right of first refusal applies even if the tenant did not submit a statement of interest or declined to negotiate a sales contract. If the landlord signs a contract with a purchaser that is more than ten percent less than the price offered to the tenant, or upon other terms that would constitute bargaining without good faith, then a new Offer of Sale notice must be issued to the tenants. Further, if the property has not been sold within 180 days from the date of the Offer of Sale then the landlord must again comply with the Act if it desires to sell the property. Although a tenant cannot waive its right to receive an Offer of Sale, a tenant can assign its rights for consideration.
Forms have been printed in English and Spanish to implement these procedures and these forms, as well as information about landlord obligations or tenant rights under the Act, can be obtained form the District of Columbia Condominium and Cooperative Conversion and Sales Branch at 941 N. Capital St., NE, Room 7100, Washington, D.C. 20002; telephone number 202-442-4610.
The foregoing are TOPA considerations at their simplest. For example, if the property being sold is a multiunit building (i.e. – an apartment building) then each tenant has his or her own TOPA rights. As a result, in TOPA transactions, there can be two or more claims made by tenants, with each claiming a superior right of purchase. Buildings with 5 or more rental units must form a tenant’s association and register same within a certain time period. Is a transaction exempt? A transfer, even though for consideration, by a decedent’s estate to a member of the decedent’s family, or an inter-vivos transfer between husband and wife, parent and child, domestic partners, siblings, and grandparent to grandchild is exempt. Other exemptions are too numerous to state in this article. Certain exemptions require a Notice of Transfer, others do not. Selling landlords have tried to come up with scenarios in which the Act does not apply. For example, an owner of an apartment building sold 95% of the interest in the building, retaining 5% and contended that a sale within the purview of the Act was not effected. Although a D.C. Regulatory Agency issued a letter ruling confirming the inapplicability of the Act, the Superior Court of the District of Columbia held that the agency was without authority to issue such a ruling and that the sale was governed by the Act. To conclusively resolve such matters the District of Columbia council thereafter
amended the Act to , among other things, broaden the definition of the word “sale.” See New Capitol Park Plaza Tenants Association et al., vs. D.C. et al (Superior Court No. 04-CA-7465). In Allman v. Snyder, decided December 15, 2005, the District of Columbia Court of Appeals held that, under TOPA, a tenant has an unrestricted right to assign his or her rights and the assignment does not lapse if the tenant moves out of the property.
As you can see from the above, tenants have substantial purchase rights which must be fully satisfied before a sale to a third party can be consummated. A landlord wishing to sell a tenant occupied real estate interest in D.C. needs to be prepared to meet tenant obstacles and consider same in structuring a sale contract. Conversely, tenants should realize the value of their TOPA rights and appropriate value for them. Further, a third party interested in purchasing tenant occupied real estate in the District of Columbia needs to consider the impact TOPA rights can have on the purchase transaction and on any future sale. It should be noted that title insurance to cover potential TOPA claims may not be readily available and instead offered on a special risk basis.
The foregoing article is merely the beginning and not the end of the TOPA discussion. Consequently, we recommend our clients contact us prior to purchasing or selling property in the District of Columbia or when presented with tenant rights issues. Our firm is available to assist with title and escrow responsibilities serving as “the title company” and closing transactions.