The continuing struggle between Washington landlords and tenants over the city's complex and controversial condominium conversion law is moving off the streets and into the courts.
At least five cases brought by tenants are pending and others -- where landlords have refused to negotiate with tenants for the purchase of their buildings -- are expected to be filed. A group of Washington developers has also challenged the condominium law, in a major case that is expected to be heard next month.
Much of the litigation stems from confusion over the law, which has been subject to a number of interpretations.
Owners and tenants at such projects as McLean Gardens and 2800 Wisconsin Ave. NW have been at odds over the statutory rights recently granted people who live in prospective condominium buildings. That new amendment of the Rental Housing Accommodations Act, one of the most hotly debated provisions ever enacted by the D.C. City Council, requires landlords who want to sell their buildings to notify tenants, in writing, of their right to buy them.
If tenants are organized as an association with the legal capacity to purchase a building, they have at least 90 days to make an offer to the landlord that is mutually agreeable. If the tenants aren't organized, they have an additional 30 days.
But as landlords and tenants across the city will testify, this has raised many problems and legal issues. The Tenants
To begin, the tenant organization must be capable of dealing with the complex social, legal and economic problems required for this endeavor. Organizing such an association can be a major hurdle.
Rumors about the landlord's intentions will have spread for several months and some tenants will swear that they have learned first hand that the landlord intends to demolish the building, or turn it into a hospital, hotel or embassy. Those rumors must be ignored, however.
The next 30 days of organizing are often marked by in-fighting. Political campaigns develop, with apartments on each floor headquarters for favored tenant leaders. Democracy aside, if tenants can't get their act together within 30 days, they may end up having to hold their last hurrahs out on the street.
It becomes critical for tenants to organize into a nonprofit corporation as soon as possible, leaving the politics for later. Dues must be collected from each tenant, floor captains and building representatives must begin to meet and a strategy must be developed to negotiating with the landlord.
Generally, landlords don't give notice to tenants until a prospective outside buyer has signed a contract indicating that he will purchase the building if the tenants don't within 90 days.
Once the tenant organization has been formed, the landlord is required to give a 90-day offer to sell to the tenants. As any tenant organizer knows, and as was recently reported by the city's Commission on Condominium Conversion, 90 days is just not enough time in which to put together a development package. Tenants are also concerned about the prices of they will have to pay for their own apartments if they buy the building themselves.
The question of buying the buildings themselves -- or cutting a deal with the prospective buyer already waiting in the wings -- is one of the most significant issues facing tenants. Often, that third-party buyer offers to sell tenants their units for very attractive prices -- as was done recently at Cathedral Towers in Northwest -- with a eye toward setting higher prices on apartments sold to outsiders.
Often, however, the contract purchaser makes an unfavorable offer or no offer at all, giving tenants no alternative but to attempt to purchase their buildings.
Tenants in this situation suddenly find that they are becoming developers.
Competent engineering and architectural resources must be retained, along with legal counsel and a sympathetic management company. Surveys and appraisals must be purchased, and this costs a lot of money.
Tenants must make formal presentations to lenders for the acquisition loan as well as the permanent condominium loan (known as an "end loan). But most lenders in this area are still skeptical of the ability of tenants to buy their own properties.
Perhaps the most difficult hurdle facing tenants is dealing with tenants who don't plan to buy their units. Should these tenants be continued as members in the tenant association? Should these tenants be given relocation benefits, and if so, how much? The Landlords
Landlord attitudes have also become a significant problem for many tenant organizations. In fairness to the landlords, many have genuinely attempted to negotiate the sale of their buildings to the tenants. But many landlords have presented major obstacles, requiring tenant groups to take to the courts for interpretation of their rights.
In a recently decided case in Superior Court, brought by tenants of a building at 520 E. St. NE, Judge Peter Wolf ruled that the tenants must be given 90 days from the date they receive a "bona fide" offer to sell. In that case, the tenants had been offered the building for $400,000, while the contract purchase price with a third party was $350,000.
In another Superior Court case recently decided, Judge James A. Belson ruled that the city's condominium law did not give tenants of a building at 2800 Wisconsin Ave. NW the right of first refusal. Rather, he said, it created a legal obligation for the landlord and the tenants' organization to bargain in good faith to attempt to enter into a contract for the sale of the property.
While these cases may yet be appealed -- and no definitive Court of Appeals decision has spelled out the rights and responsibilities of landlords under the city law -- the fact remains clear that tenant and landlord rights in the District depend as much on the attitudes of the parties as the statute itself.
Where there is a willing landlord and a willing tenants organization, a contract can be entered into, and the tenants can successfully purchase their complex. Where the landlord would prefer not to deal with the tenants, or where the landlord raises obstacle after obstacle in the bargaining process, tenants' rights remain clouded.
Should a landlord give a copy of the third-party contract to the tenant organization? Here too, the law is unclear. Most landlords are willing to show the contracts at least to the tenants' representatives, usually their attorneys.
But where a landlord refuses to show the contract, the law is vague as to the responsibilities. A recent opinion by a hearing examiner at the Rental Accommodations Office suggests that the contract need not be shown to the tenants, but the final decision must, of course, rest with the courts.
Another major issue landlords face is whether tenants have the right to bring in outside consultants or developers to assist them in purchasing their buildings.
McLean Gardens in Northwest was the first legal battleground of this issue, but when the matter was settled -- with the tenants given until Oct. 1 to purchase their project -- the legal issue was unresolved.
The landlord's lawyers in that case argued that the law gives tenants the right to purchase their building but not the right to bring in an outside developer who would make a significant profit on the units tenants don't purchase.
The tenants' lawyers argued that their right to purchase becomes meaningless if they have to buy sizeable properties by themselves. Lenders want guarantees in the event of default, but most tenants are reluctant or unable to give such a guarantee.
Tenants do not always have the expertise to develop a building into a condominium or cooperative. It is commercially reasonable to bring in outside developers and consultants to assist the tenants in their conversion process, and yet the issue hangs over everyone as a threat to successful purchase.
In the next few weeks, District courts will be called upon to interpret many other aspects of the city's unique tenant law, including whether the City Council has the authority to enact emergency legislation rather than waiting for the congressional review called for in the Home Rule Act.