A ruling by a D.C. Superior Court judge this week dealt a severe blow to tenants trying to buy their buildings from landlords who are reluctant to sell to them, local attorneys specializing in tenant conversions say.
D.C. Superior Court Judge William E. Stewart Jr. ruled against the tenants in a court case involving the 800-unit Columbia Plaza apartment complex in Foggy Bottom.
The judge's decision cleared the way for a partnership of two Canadian corporations involved in international development to buy the five-building complex for $50 million. They plan to convert the complex to condominium ownership. The units will range in price from $53,000 to $247,000, according to documents filed with the city. Rents at Columbia Plaza currently range from about $250 to nearly $800 a month.
Stewart ruled at the end of a five-day trial that the owners of the complex negotiated in good faith with the tenants, who were trying to buy the project, but that no sales agreement was reached within the time the judge felt was provided under city law.
Current city law requires landlords to offer a building for sale to tenants before selling to an outside contract purchaser. On the afternoon of the last day before a 90-day deadline, Columbia Plaza tenants made a contract offer similar to the one the landlord had signed last March with the two Canadian firms, the Daon Corp., which is based in Vancouver, and the Cadillac Fairview Corp., based in Toronto.
But Columbia Plaza's owners, including parking magnate Dominic F. Antonelli Jr., investor Edward Mernone and surgeon and real estate entrepreneur Laszlo Tauber, refused to accept the eleventh-hour offer. Negotiations continued, however.
Both the contract purchaser and the tenants took the landlord to court, fighting over who had the right to buy the complex.
Stewart said that third-party contracts are not binding on landlords negotiating with tenants. The outside contract simply acts as a blueprint for negotiation, he said.
The judge also said that city law requiring landlords to negotiate with tenants "at least 90 days" means that 90 days is the ceiling.
"In the absence of an agreement to the contrary by all parties, including the third-party purchaser, the tenants have no right to a 91st day of negotiation," Steward said.
Daon-Cadillac signed a unique contract to buy the complex, one that allows the current owners to retain the land -- leasing it to the Antonelli group for about $600,000 a year -- as well as the commercial parking spaces.
Columbia Plaza consists of five buildings located at 2400, 2440, and 2450 Virginia Ave. NW; 2301 E. St. NW and 500 23rd St. NW. Established condominium developers here say they are encouraged by the judge's decision.
Condominium specialist G. V. "Mike" Brenneman said that Stewart's ruling is "very encouraging" to developers. "It finally looks like the pendulum is swinging back to fairness," Brenneman said. "We were pleased with the judge's specificity. He appears to say to tenants that they have to live up to the letter of the law.
"Tenants who get into the development arena are not entitled to special treatment and must be subject to the same interpretation of the laws that govern developers and owners," Brenneman added.
Attorney Benny Kass, who acted as general counsel to the Columbia Plaza tenants and who has worked with a number of tenant groups that have bought buildings, said he believes that an estimated half the city's landlords who want to sell their buildings don't care whether they sell to tenants or to established developers, as long as they have a sale.
But the other half "would just as soon give their friends the deal rather than the tenants," he added. Tenants in that situation could be hurt by Stewart's decision, he indicated.
"I'm troubled that the unwilling landlord who doesn't want to deal with tenants will just sit back for the statutory period and say, 'Make me an offer, it doesn't matter what it is,' and then go ahead and not accept it," Kass said. Another lawyer called the ruling "an absolute disaster" for tenant groups and contended that the ruling "guts the law."
Richard Aronoff, the attorney for the partnership that won the right to buy Columbia Plaza, said that he doesn't feel the judge's decision was particularly favorable to landlords or third-party purchasers. He maintains that it actually may help tenant groups.
"The bottom line is that the case will help tenant groups because it provides much clearer guidelines than the statutes," Aronoff said. "The bottom line is: Don't wait until the end of the period. Start early to get contract terms agreed to. . . . It clearly sets out what responsibilities tenant associations have in order to effectively purchase their property."
With the judge's ruling, the Daon-Cadillac Fairview partnership finds itself with the right to buy Columbia Plaza but not the right to convert it immediately to condominium ownership. Last week, the city ruled that Daon-Cadillac Fairview was not exempt from the current city moratorium on conversions.
Marelyn Tank, president of the Columbia Plaza tenant group, noted with irony that tenants, in effect, can now convert their buildings but not buy them. Columbia Plaza tenants voted unanimously Monday night to appeal Stewart's decision.
Tenants also voted to continue to talk and negotiate with Daon-Cadillac Fairview, and a lawyer involved in the case said discussions that may lead to a resolution are being held.
One way a developer can convert a project despite the moratorium is to have the support of the tenants. Aronoff said that Doan-Cadillac Fairview hopes to reach an amicable solution soon that could involve substantial discounts for tenants who want to buy condominiums and relocation benefits for those who want to move.