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Buyers Week: What is the Right of First Refusal?

by UrbanTurf Staff

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It may not seem like it, but the start of spring is just a few days away, which means that the housing market will soon be in full swing. To get buyers ready, UrbanTurf is running a series of articles (new and old) this week to help educate readers on the process.

From the offer to the down payment to the mortgage, we’ll touch on every facet of the home buying process and more.

In DC’s famously tenant-friendly system, renters have the first shot to buy the home they are living in should the owner decide to sell. This article explains how the process works.

Established by the Tenant Opportunity to Purchase Act (TOPA), DC tenants get the right of first refusal, which means that they have the opportunity to match an offer that the owner is considering. However, there are a few other steps associated with the process, which we outline below. Thanks to Joel Cohn, the Legislative Director at DC’s Office of the Tenant Advocate for the specifics.

1. First, the owner of the property must send the tenant a letter declaring their intent to sell and an “Offer of Sale.” The letter also needs to include the listing price and information about the property, including details like monthly expenses. The stated listing price has to be fair; if the owner ends up selling the house to another buyer for more than 10 percent below the price quoted to the tenant, they are required to come back to the tenant with a new offer.

2. Once the letter is received, the tenant must make their interest in purchasing the home known (in writing). The amount of time to do so depends on the number of units in the building. For a single unit, the tenant has 30 days to respond. For 2 to 4 units, the tenants have 15 days to respond jointly, and an additional 7 days to respond individually. For 5 or more units, only a tenant association has the right to purchase the building. If an association already exists, it has 30 days to respond. If not, then the tenants must form an association and also, through the new association, respond to the Offer within 45 days. Then there is a negotiating period with the landlord. The negotiating period for a single unit is 60 days. For 2 to 4 units, it is 90 days. For 5 or more units, it is 120 days. The tenant(s) are given an additional period to secure financing for the purchase. This time period is the same as the negotiating period for each building size.

3. If the time period passes without the tenant making his/her interest in purchasing known, the seller can move forward with putting the property on the market.

4. That is not the end of the process, though. If the offer to the tenants has been made without a third-party contract in place, but an offer subsequently comes in that is acceptable to the owner, then, the tenant has another chance to purchase: the owner has to give the tenant 15 days to match the offer (here is the form letter than can be used by owners to make this offer). This is technically what is known as the right of first refusal. If the tenant decides not to purchase, and the unit is sold to someone who wants to live in the unit, then the tenant must be given 90 days notice to move out.

Needless to say, this entire process adds an element of risk for a buyer making an offer on a tenant-occupied home. Have other questions? Email us at editor2015@urbanturf.com.

Related Buyer Week Articles:

See other articles related to: first-timer primer, buyers week 2015

This article originally published at http://dc.urbanturf.com/articles/blog/first-timer_primer_what_is_the_right_of_first_refusal/7484

10 Comments

  1. Justin S said at 5:48 pm on Wednesday August 21, 2013:

    This is great! Thanks for the explanation.

    related:

    I’ve been noticing that a few houses in the area have gone up for sale while rented. The one I most recently found had a section 8 tenant. The kicker? It was a a 2-unit building that needed a C of O, but didn’t have one.

    Could you guys do an article about what happens when you buy a house that’s being rented illegally? Is there a way to remedy the situation, or is this a scenario that should be avoided at all cost?

  1. xmal said at 10:34 pm on Wednesday August 21, 2013:

    I think that two-unit houses in DC are considered “duplexes” and are treated as single-family homes and therefore do not need a C of O, just a BBL. At least that’s how I read the following DCRA pages:
    http://dcra.dc.gov/DC/DCRA/For+Business/Apply+for+a+Business+License/Residential+Housing+Rental+License+Information/Get+a+One+Family+Rental+License
    http://dcra.dc.gov/DC/DCRA/For+Business/Apply+for+a+Business+License/Residential+Housing+Rental+License+Information/Get+a+Two+Family+Rental+License

    But I’ve heard conflicting things, so would also be interested in a clarification.

  1. mona said at 11:53 am on Saturday March 22, 2014:

    Nope, that duplex is two units and you need a C of O just like anything else.

  1. helphelp said at 6:22 am on Monday March 30, 2015:

    What do you do if the no lease/no rent/ no water associate is in your property and will not leave nor give you your keys until you pay them in exchange for a TOPA release?

  1. Friendship Heights Landlord said at 1:00 pm on Saturday May 30, 2015:

    Very helpful - thank you! Can someone help me with this question: My renters just gave me a notice that they would like to exercise their rights under the DC “right to purchase” law. I suspect they don’t really want to buy the house but rather want to stall the process and have additional time while they are looking for house to buy. If I offer a house for sale to them - it seems that they have 30 day to respond and 60 days to “negotiate” - all without “earnest money”?  How do I know that they are doing this in good faith? I really appreciate your advice!

  1. Lark Turner said at 4:59 pm on Sunday May 31, 2015:

    Hi Friendship Heights Landlord—

    TOPA (the Tenant Opportunity to Purchase Act) gives your tenants the right to proceed with this process, so from your perspective unfortunately their motive for pursuing the purchase isn’t relevant—you have to treat them the same as you would treat a tenant you believed really wanted to buy the property. I would encourage you to consult with a landlord-tenant attorney for more information on how to comply with TOPA, but here is a good starting point.

    The tenants have at least 60 days to negotiate with you once the negotiation period opens. That period can be extended if you don’t comply with requirements under TOPA, so the better you understand the law, the quicker the process may be for you.

    I hope that is helpful!

    Lark

  1. Richard said at 11:44 pm on Sunday July 12, 2015:

    I am selling a rental house for which I have a contract and a tenant has expressed interest in purchasing the property. 
    I find most explanations of TOPA inadequate. Lark’s response above states that the negotiation period can be extended if you don’t comply with requirements under TOPA.  The TOPA law states that the negotiation period can be extended whether you comply with the law or not.  In fact, it can be extended indefinitely.  Is there any way of terminating the negotiation period short of agreeing to whatever the tenant asks?

  1. Cindy Cerquitella said at 12:41 pm on Thursday June 2, 2016:

    This seems to imply that the owner may not list the unit until after the 30 day Offer of Sale window. Is this correct? This part of the law seems unclear.

  1. Penn Quarter Landlord said at 10:17 am on Sunday July 24, 2016:

    As the owner/landlord of a 1 bdrm unit in a multi-story condominium, does TOPA apply to me as well?

  1. Nena Perry-Brown said at 12:32 pm on Sunday July 24, 2016:

    @Penn Quarter Landlord

    If you are renting out the condo unit that you own and wish to sell that unit, then you are required to offer your tenant the right to purchase the unit.

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