By Benny L. Kass
Saturday, May 12, 2007
Tenants' rights in the District take priority over other rights, including those of subsequent owners of buildings, according to a recent ruling by the D.C. Court of Appeals.
The Wilson Courts Tenants Association represented the tenants in a 20-unit building in Southeast Washington. On June 21, 2004, the building was sold to a limited liability company, but the tenants did not learn of the sale until six days later.
The association sued the new owner, saying it didn't get a chance to exercise its rights under D.C. law to try to buy the building. Under the District's Tenant Opportunity to Purchase Act, referred to as TOPA, before a landlord can sell rental property, the tenants must be given a written copy of the offer of sale, and they have the right to negotiate to purchase the property themselves.
The language of the D.C. statute reads in part: "Before an owner of a housing accommodation may sell the accommodation, . . . the owner shall give the tenant an opportunity to purchase the accommodation at a price and terms which represent a bona fide offer of sale."
The landlord must send each tenant -- and the mayor -- a written copy of the offer of sale by first-class mail. The landlord must also post a copy of the offer of sale in a conspicuous place in common areas of the housing accommodation if the property consists of more than one unit.
Furthermore, even should the tenant (or the tenant organization) not be able to negotiate a sales contract, before the landlord can sell the property to a third party, the tenants have a 15-day right of first refusal to match any third-party contract.
In this case, the buyer, a limited liability company, argued that the burden of providing the TOPA notices rested with the landlord and not the contract purchaser. The buyer also tried to argue that it was a bona fide purchaser, without knowledge of any irregularities regarding TOPA, and thus the case against it should be dismissed. (The tenants had also sued the seller, but that party could not be found.)
The trial court, D.C. Superior Court, agreed with the buyer and held: "There is nothing in the statute that puts any obligation on the current owner. Therefore, taking all the facts even in a light most favorable to Plaintiff, Defendant . . . could not have violated the statute as it was the subsequent owner and not the seller of the property."
The Court of Appeals disagreed. In its May 3 ruling in Wilson Courts Tenants Association Inc. v. 523-525 Mellon Street LLC, the court affirmed the superiority of tenants' rights in the District of Columbia.
After reviewing the legislative and judicial history of TOPA, the court concluded that the clear intent of the law reflects "the absolute priority of the tenants' rights . . . and the conditional nature" of a third-party purchaser's rights. According to the court, the D.C. law contains two pivotal policies:
The case was sent back to the trial court.
Over the years, TOPA has allowed many tenants the opportunity to own their homes. But it has critics. Although some tenants refer to the law as a "tenant capitalism" measure, many landlords complain that it is nothing more than "tenant blackmail." (I have represented parties on all sides of such transactions -- tenants, property owners and buyers.)
The law provides different time frames in which the tenants can negotiate and go to settlement from the date of receipt of TOPA notice. For example:
Clearly, these delays can have a chilling effect on real estate transactions. However, some landlords -- recognizing that time is money -- have avoided entering into third-party contracts, working instead with the tenants or their association, and have successfully sold their property to the tenants in a much shorter time.
"The case affirms the priority of tenant rights and is consistent with experience and common sense," said Eric M. Rome, the D.C. lawyer who represented the tenants. "A purchaser needs to look very closely when it is represented to it that the tenants have failed to organize and assert their rights in a multifamily building. The message is that a purchaser cannot turn a blind eye and later claim that the tenants may not enforce their rights against it directly since it cannot claim innocence."
It would appear that the tenants may be on their way to homeownership, which is the underlying goal of the District law.
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, www.kmklawyers.com.
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