A Brief Primer on the Renters' Rights and Stabilization Act
Every state could be different but Lise came us with a great blog that she shared with us.
Last year the Montgomery County Council passed the Renters' Rights and Stabilization Act, which gave tenants of certain residential properties a 30 day right to make an offer on the property from the owner before the owner may sell the property to a third party. As you can imagine, this has complicated listing rental properties when the owner becomes tired of being a landlord. Here is some more information about what the new law requires.
Tenant Exclusive Negotiation Period/Right of First Refusal in Montgomery County Maryland
Q: What is the exclusive negotiation period and right of first refusal?
A: Under the Renters’ Rights and Stabilization Act, tenants of certain residential rental properties have the right to make an offer to purchase the property from the owner before the owner may sell the property to a third party.
Exclusive negotiation period:
If an owner of non-exempt property intends to offer the property for sale to a third party, the owner is required to notify tenants and give them an opportunity to make a good-faith offer to purchase the property before it may be listed or otherwise offered for sale to a third party. The owner may not offer or sell the property to a third party until the tenants’ “exclusive negotiation period” is terminated, either through the tenant or tenants declining to make an offer to purchase, or the tenant(s) and landlord being unable to agree on terms of sale, within 30 days of the owner notifying the tenant(s) of the impending sale.Right of first refusal:
If an owner of non-exempt property either receives an unsolicited offer to purchase the property or intends to accept an offer from a third party to purchase the property for at least 10% less than the lowest price previously offered to a tenant, the tenant or tenants have the opportunity to “match” the
third-party offer before the landlord may sell the property to a third party. If a tenant or tenants agree to match the purchase price in the third-party offer, the owner must sell the property to the tenant(s). If no tenant agrees to match the third-party offer within 30 days, the right of first refusal is terminated and the
owner may sell to the third party for the offered price.Q: To whom does the exclusive negotiation period and right of first refusal apply?
A: In general, tenants are entitled to an exclusive negotiation period and/or right of first refusal if they have been living in a 1-, 2- or 3-unit residential rental property for at least six months and are named on the lease.
Q: What transfers are exempt from the exclusive negotiation period/right of first refusal requirements?
A: The list of real estate transfers exempt from the requirements of this provision (meaning tenants have no exclusive negotiation period or right of first refusal) includes:
• Transfers to close family members of the owner (including a spouse, former spouse, domestic partner, child, parent, sibling, grandparent or grandchild);
• A transfer to a business entity wholly owned by the owner;
• Court-ordered transfers, such as tax sale, foreclosure sale, sale by a court-appointed trustee, or by court-approved settlement;
• A transfer through will or probate, including a transfer by a fiduciary in the course of estate administration, guardianship, conservatorship or trust;
• A transfer of title into a revocable trust, without consideration, if the owner is the beneficiary of the trust;
• A transfer of title to state or local government or a public housing authority;
• A transfer of title in lieu of foreclosure (such as a short sale);
• A transfer of title through order of a bankruptcy court or sale by a bankruptcy trustee or A debtor in possession;
• A gift transfer to a tax-exempt nonprofit organization; or
• Any transfer of a residential rental property with four or more dwelling units.Q: How long is the exclusive negotiation period?
A: A tenant has 30 days after delivery of the notice from the landlord to make an offer to purchase the property. If the tenant makes an offer that matches the material terms proposed by the landlord in the notice, the landlord is required to accept the offer. If the tenant’s terms do not match those proposed by the landlord, the landlord has 5 days to make a counteroffer, and the tenant then has 5 days after receiving the counteroffer to either accept or reject it.Q: What happens if a tenant makes an offer to purchase the home but declines the landlord’s counteroffer?
A: If a tenant declines or does not respond to the landlord’s counteroffer, the exclusive negotiation period and right of first refusal are terminated and the landlord may offer and/or sell the property to a third party.
Q: Are landlords required to sell their property to tenants for below market rate?
A: No. The RRSA only requires that a landlord sell their property to a tenant if the tenant can match the owner’s reasonable asking price or a fair market offer for the property. The owner is not required to accept a tenant’s offer to purchase for below asking price or below the price offered by a third party.
Q: What happens if a landlord violates a tenant’s right of first refusal?
A: Landlords are subject to fines of up to $1,000 per violation of the exclusive negotiation period or right of first refusal provisions.
Q: Can a tenant’s right of first refusal be waived or transferred?
A: No. The right of first refusal may only be exercised by tenants of the property who are named on the lease and have resided there for at least 6 months and may not be waived or assigned. Leases may not contain provisions that either waive or place conditions on a tenant’s exclusive negotiation period or right of first refusal.
CONCLUSION
If you have questions about how this new statute impacts your ability to sell your rental listing in Montgomery County, let's talk. This new statute will impose additional steps that you must take but the good news is that there is a date certain when the tenant's rights are extinguished whereas the DC Tenant Opportunity to Purchase Act seems to be a never-ending process. Another important distinction between the RRSA and TOPA is that the RRSA is limited to single units to a tri-plex, whereas the TOPA really kicks in with 4 units and larger.
I can be reached at 240-401-5577 or by email at lise@lisehowe.com.
You know there is more to the process than just picking a property and making an offer. You need to find the best location for your wants and needs, get a great price, and work with a lender who will make your life easier - not harder. Trust your search with a Realtor who is licensed in DC, MD and VA and really knows the city and all its secret neighborhoods.
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Lise Howe
Keller Williams Capital Properties
4646 40th St NW
Washington DC 20016
240-401-5577 (24 hour direct)
Licensed in DC, MD, and VA
Associate Broker, GRI, ABR, CRS
The Lise Howe Group
Howe Real Estate Should Be!
www.lisehowegroup.com
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