- Message from the Steering Committee Cochair
- Tenant Opportunity to Purchase Act (TOPA): Considering the Successes and Failures of its Application
Message from the Steering Committee Cochair
Roy Kaufmann
There has been a flurry of recent legislation, both at the District and Federal levels, of concern to the real estate and title industries.
DC Bill 17-631 “District’s First Right of Refusal Amendment
Act of 2008” would confer upon the District a right of first refusal
to purchase certain residential property, similar to the TOPA rights
enjoyed by tenants. The District would be able to assign the rights.
Problems pointed out by the title industry[1]
focus on the proposed bill’s obfuscation of the “time
certain notice” provisions of the existing TOPA, and the failure
to require a protocol whereby the Mayor could advise whether the Mayor’s
right has been exercised.
DC Bill 17-515 “Housing Accommodation Owner Conversion Compliance
Amendment Act of 2007” would prevent the Mayor from issuing a
Certificate of Conversion (to condominium) if there are housing code
violations. The Bill seems to ignore the fact that the building may
be slated for complete renovation, making the requirement to repair
the building before it is gutted illogical. That having been said, the
title industry’s only objection was to any retroactive rescission
of a certificate for later-discovered factors.
DC Bill 17-530 “Rental Housing Conversion and Sale Amendment Act of 2007” would preclude all legislative and legal redress for aggrieved persons if a tenant association exercises a right to purchase. This drastic abridgment was opposed by the title industry.
DC Bill 17-640 “Tenant Opportunity to Purchase Notification Amendment
Act of 2008” would revisit the very thorough analysis and revisions
to TOPA that were passed in 2005. As in other legislation, the title
industry took issue with the weakening of the “time certain notice”
provisions of TOPA. For example, this Bill speaks of measuring
time from the date that tenants or the District receives notice, and
this date is almost impossible to ascertain. Similarly, the Bill’s
use of the concept of “providing” notice is at odds
with the structure set forth in the “time certain notice”
provisions. Notices must be sent to all tenants on the same day.
What happens if some are mailed the next day? Or if an envelope
is returned as undeliverable and then re-mailed to a correct address. Does
that invalidate the entire process?
DC Bill 17-267 “Tenant-Owner Voting in Conversion Election Clarification
Amendment Act of 2007” supposedly clarifies that heads of households
can vote, provided that they qualify under other sections of TOPA. This
legislation had no impact upon the interests of the title industry and
the DCLTA took no position on the legislation.
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Tenant Opportunity to Purchase Act (TOPA): Considering The Successes And Failures of Its Application
Landlord Perspective: Meridith H. Moldenhauer of Griffin & Murphy, LLP
Tenant Perspective: Richard Bianco of The Law Offices of Paul Strauss and Associates, P.C.
Landlord Perspective
Attempting to quantify the relative success of any regulatory
scheme one must start with the statute’s stated purpose. TOPA’s
main purpose is to discourage the displacement of tenants through conversion
or sale of rental property, and to strengthen the bargaining position
of tenants toward that end, with some limitation so as to avoid unduly
interfering with the rights of property owners and denying them due
process of law. See D.C. Code § 42-3401.02.
Tenant advocates asserts the success of TOPA and downplays the significant
negative effect TOPA has on Landlords. TOPA does not just become a critical
issue at the point-of-sale but rather is flawed on multiple fronts.
When evaluating the success, or rather failure, of TOPA, one must first
determine what standard the statute shall be measured by? Should the
standard of success be measured by the benefits to tenants, as my co-author
points out, or the unfairness to the landlord, equality of treatment
between tenants (for both those who join tenant associations and those
who do not); protection of low income rental properties; or the development
and enhancement of the city?
TOPA seeks to accomplish two conflicting purposes which cannot be attained
simultaneously and thus one will always take second place illustrating
TOPA’s inherent flaws. While TOPA enhances the bargaining power
of tenants, it creates undue burdens and hardship on landlords. Landlords
in the District of Columbia are continuously burdened by the prolonged
negotiation periods, extended financing periods permitted for tenants,
tenant associations, or their assigns, and prolonged settlement dates
over 240 days.
TOPA leaves landlords in the lurch while the associations search for
financing or a developer. Such a process cannot be deemed a success
when the burdens are suffered by only one side. Landlords are harmed
by the elongated process where they are forced to wait almost a year
to sell their properties, only to see the tenant association’s
contract fall through at the end, and the original third-party purchaser
may no longer be around, after having found another deal. The result
is the landlords also run the risk they may now have a below-market
contract price or that the purchaser may no longer be wiling to pay
the initial price where the price is now above-market.
If you look at the negative domino effect TOPA has on the local real
estate market, you will see that TOPA is far from perfection. Many people
do not even recognize the direct consequences TOPA has on the decreasing
number of rental properties in the District of Columbia. In order to
maintain low income rental property or rental properties in general,
private landlords are required to take the risk and embark on a business
venture in which they are constantly disfavored by the system. With
TOPA resulting in creating restrictions on rental properties and the
preferential treatment given to tenants under the law, landlords have
little to no initiative to invest, develop and maintain rental housing
in the District of Columbia. Landlords find that even when diversifying
their investment methods, TOPA applies and is triggered by the expanded
scope of what constitutes a sale.
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Tenant Persepective
Tenants and tenant organization advocates strongly believe that without question, TOPA has accomplished the goals of discouraging the displacement of tenants through conversion or sale of rental property, and strengthening the bargaining position of tenants toward that end, with limited interference on the rights of property owners. Thousands of working class lifelong tenants throughout the city, who, because of their limited income, education or other personal circumstances might never have been able to realize the dream of home ownership but for the benefits and opportunities provided for by TOPA.
In addition to accomplishing its legislative purpose TOPA has accomplished broader social purposes as well, namely, maintaining decent affordable housing for generations to come and keeping the rich tradition of the District’s diverse neighborhoods intact. To call TOPA a failure is to ignore the public school teacher, social worker or firefighter who was able to purchase homes for their families in the neighborhood which they grew up, and previously rented. The thousands of success stories like that, far outweigh Landlord complaints about slowing market velocity.
Landlords and their advocates are fast to criticize TOPA as chilling on the real estate market. However, that is true of every regulated commercial industry. Whether you trade in securities, alcoholic beverages or tenant-occupied real property, government regulation affects the speed of trade to meet other important public interests across-the-board. With appropriate planning and the assistance of competent professionals, landlords should be informed about the regulatory risks at the point-of-purchase rather than lamenting about them at the point-of-sale.
TOPA is far from perfect as it is more the product of political compromise between diametrically opposed positions rather than a linear path from a means to an end. In a changing real estate market, its meaning is constantly evolving even when the words on the page are not changing.
Both sides face many challenges: tenant associations must persevere despite lack of funding, resources, experience and a disproportionate understanding across their memberships; while, landlords must strive to remain profitable in spite of the always increasing rights of tenants and expansion of TOPA.
Is there a better way to obtain the goals of TOPA and reduce these burdens? These and many other questions will be answered at the May 23 program Seminar on TOPA to be held from 12-2 p.m. at the D.C. Bar Conference Center at 1250 H Street, NW, Washington, DC.
1. Keep in mind that the title industry’s position on legislation is very focused on issues such as being able to tell whether a particular right has been exercised or precluded, whether a tax is imposed and the calculation thereof, etc. The title industry generally does not enter the fray of public policy such as determining the basis for whether a tax should be imposed an in what amount, or what rights should be conferred.
