Estate and mortgageNavigating The Rent Control Morass
(Editor"s Note: Rent control is illegal in 31 states, and yet rent control is also practiced in more than 100 jurisdictions, according to William Tucker with the Cato Institute. Rent control requirements vary by jurisdiction, and in recent years there has been a trend away from such regulations. How does rent control work? In the article below, attorney Benny Kass looks at rent control as now practiced in Washington, D.C.)
Question: We have owned a house in the District for many years which we used for investment purposes. We finally decided to sell it, and have signed a Purchase and Sales contract. We know that our tenants have certain rights, but need clarification as to exactly what we have to do to comply with the District law.
Answer: Tenants in the District of Columbia have very strong rights. Oversimplified, even when the tenant"s lease expires, they have the absolute right to remain in the property -- on a month-to-month basis, and cannot be asked to leave (or be evicted) unless certain things occur.
There are only ten grounds for evicting a tenant in the District of Columbia, the most common being (l) non-payment of rent, (2) violating the terms of the lease, and having been given 30 day written notice (in English and Spanish) of an opportunity to cure the violation, and (3) the owner -- or a subsequent purchaser -- wants to take personal possession of the property. In the later case, the tenant must be given 90 days notice (again in English and Spanish) and the person claiming personal use and occupancy cannot rent the property for a full year following possession.
Tenants also have significant rights when the owner/landlord wants to sell. Although the law differs slightly when there are 2-4 rental units in a building and when there are more than 4 rental units, this article will address only the situation where there is only a single family house.
First, you must determine whether you are exempt from rent control. If you own four or fewer rental units in the District -- and you have filed an exemption form with the Housing Regulation Administration of the District"s Department of Consumer and Regulatory Affairs (DCRA) -- you will be exempt. If you own more than four rental units in the District, or if the property is held by a corporation or a partnership, you must register the property with this same government agency.
While exemption from the rent control laws has no real bearing on your ability to sell the property, it is always advisable to comply with the registration/exemption laws. It is a measure of extra precaution which may make your life a little easier should you get involved in a dispute with your tenants.
Another agency within the DCRA has published easy-to-use and understand forms, which are available in Room 7238, 941 North Capitol Street, NE. These forms literally walk you -- and your tenant -- through the process. If you own a single family home (which would include a condominium or a cooperative unit), you should obtain two forms:
1. Offer of Sale & Tenant Opportunity to Purchase with a Third party contract, and
2. Offer of Sale & Tenant Opportunity to Purchase without a Third party contract.
Since you have already obtained a third-party contract, the first form would be applicable to your situation.
Although the process is relatively easy, there are significant time periods which must be met by every landlord. First, your tenant should be given (preferably by certified mail return receipt requested and also regular mail), a copy of the form, completely filled in and signed. You, as owner, can sign the form, or you can ask your attorney or your real estate broker to sign as your agent. A copy of the sales contract must accompany the form.
Second, the tenant has thirty days from the date the form is received in which to provide you with a written statement indicating that the tenant is interested in purchasing the property. If the tenant does not provide such a written statement within this 30 day period, his/her rights to negotiate a sales contract expire. However, as will be discussed later in this column, tenants still have an absolute 15 day right of first refusal.
Let us assume that the tenant -- within the 30 days -- advises you of his interest in purchasing your property. The tenant then has a minimum of another 60 days in which to attempt to negotiate a sales contract with you. As landlord, you are obligated to negotiate in good faith.
However, unless the tenant makes an offer which is identical in all respects to the terms and conditions of the third party contract, you are not required to enter into a contract with your tenant. Clearly, the law does not require you to take less for your property than you would get from the third party contract purchaser.
It should be noted that D.C. law makes it very clear that the rights of any third-party contract purchaser are subordinate to the rights of the tenant. In other words, even though you have a binding contract with that third party, you have the absolute right to negotiate -- and ultimately enter into a contract -- with your tenant.
If you and the tenant do reach an agreement, you should sign another contract with your tenant. The earnest money deposit cannot exceed more than five percent of the selling price. And once such a contract is signed, the tenant has a minimum of 60 additional days to secure financing and go to settlement. If a lending institution proposing to make a loan to the tenant needs additional time to evaluate your house and the credit worthiness of your tenant, you must extend the time for settlement for another 30 days.
Finally, and regardless of whether the tenant advises you of his interest to purchase within the first 30 days from receiving the form, all tenants in the District of Columbia have an absolute 15 day right of first refusal. That means that if the tenant matches -- term for term -- the third-party contract, the tenant has the right to buy your house.
It should be pointed out that tenants have the right to bring in outside investors who can either buy the property directly from you (using the tenant as a conduit) or enter into a form of partnership with the tenant to assist him in going to closing.
Thus, as you can see, tenant rights are strong. You -- or your agent -- should document your efforts to comply with this law, which is referred to as the Tenant Opportunity to Purchase Act (TOPA). At settlement, the settlement attorney will ask you to sign an affidavit that you have fully complied with TOPA.
Now let"s get to the final step. Your tenant does not want to purchase and you have fully complied with all of the legal TOPA requirements. However, your tenant does not want to leave the property either. What do you do?
As stated earlier, one of the legal grounds for asking a tenant to leave is where you -- or your contract purchaser -- intends to personally live in the property. Your tenant must be given 90 days notice -- in English and in Spanish -- and this notice should be accompanied by an affidavit from the potential purchaser affirming under oath that the use will be personal. A copy of the notice must be sent to DCRA.
If at the end of the 90 day period the tenant has still not moved out, you have the right to file a lawsuit for possession in the Landlord-tenant branch of the Superior Court. The Court will generally be supportive of your position, so long as you have fully and faithfully complied with all of the legal requirements.
Many years ago, the Council of the District of Columbia considered repealing TOPA for single family houses. Tenant activists protested and the Council backed down. While there is merit for a TOPA act for large tenant buildings (over 4 units), this columnist believes that TOPA must be repealed for the hundreds of single family houses (including condominium units and cooperatives) that we have in the District. All too often, TOPA has been used by tenants as leverage to obtain cash payments to induce them to vacate before their time limits are up. That was not the intent of TOPA. TOPA was enacted to ensure adequate rental housing stock in the District, not to enrich the pockets of tenants at the expense of District homeowners.
For more articles by Benny Kass, please press here.
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Copyright 2001 Benny Kass. Posted by Realty Times with permission.
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