Q I own a single-family house in the District of Columbia, and have just entered into a contract to sell that property. I do not live in the house, but have rented it for a number of years to a nice family. I have been advised that I must give my tenants some sort of right to purchase, but I thought that because I am exempt from rent control, these tenants rights do not apply. Can you help me to understand the law?
A If you own four or fewer rental units (or houses) in the District of Columbia, and if you file an exemption form with the Rental Accommodations Office, you are exempt from some of the provisions of the rent-control law. But the law giving tenants the so-called "right of first refusal" has nothing to do with rent control. The D.C. City Council enacted the Rental Housing Conversion and Sale Act several years ago. Subchapter IV of that act is entitled "Opportunity to Purchase."
This act applies to all owners of rental property in the District of Columbia, with some exceptions that are not relevant here.
If you intend to sell your single-family house, you must provide your tenants with an opportunity to purchase. There are two ways to accomplish this. You can find a potential purchaser, and then give your tenants the statutory time in which to negotiate their own contract. Or, if you prefer, you can send your tenants a notice indicating that you would like to sell the property, and give them time in which to negotiate their own contract without having to go through the process of obtaining a third-party contract.
I often have been asked whether an owner should deal first with the tenants, or find a third-party contract and then give the tenants their opportunity to purchase.
From my point of view, depending on the relationship you have developed with your tenants -- and, of course, their own financial abilities -- you probably would find it more advisable to deal directly with the tenants. Needless to say, you have to work with them anyway, and if you discuss this opportunity with them first, you at least will get a sense of their interest. You also might save a real estate commission if your tenants purchase the property directly.
Whichever approach you take, the law requires that the owner of property shall afford the tenants a reasonable period to negotiate a contract of sale, which is defined as not less than 60 days from the time they receive the notice in which to commence these negotiations. The tenants have the right to request certain information from the owner if it is available and applicable. This includes a floor plan of the building, an itemized list of monthly operating expenses, utility consumption rates, and capital expenditures for each of the two proceeding calendar years.
If the tenants request this information and it is available, the landlord must provide it within seven days of receiving a written request. The negotiating period is extended by one day for each day that the landlord delays in providing the information.
If the owner signs a contract with a third party, the tenants still have the right to conclude their negotiations within the 60-day period. Additionally, all tenants in the District of Columbia have the absolute right of first refusal for 15 additional days in which to match the third-party contract.
The law requires the tenant and the owner to bargain in good faith. It lists these indications of a lack of good faith:
* The failure of an owner to offer the tenant terms at least as favorable as offered to a third party.
* The failure of an owner to make a contract with the tenant that substantially conforms with the price and terms of a third-party contract.
* The intentional failure of a tenant or an owner to comply with the provisions of the D.C. law.
However, a Court of Appeals case decided in 1983 (Columbia Plaza Tenants Association v. Antonelli) makes it quite clear that the landlord can take into consideration the financial ability of the tenant. If, for example, the landlord were to contract to sell the property and the owner was prepared to take back a significant amount of financing from that buyer, this does not mean that the owner would have to take back the same amount of financing from tenants who cannot demonstrate their financial ability to make the monthly payments.
It should also be pointed out that District law prohibits the landlord from taking a good-faith earnest-money deposit of more than 5 percent of the contract's sales price.