TOPA Reform Update

As a follow-up to our recent TOPA Reform Alert (linked here), click here for the final version of the RENTAL Act. The enrolled bill will now be sent to the Mayor who has 10 days to sign or veto the RENTAL Act. If the Mayor does nothing, the RENTAL Act goes to Congress after 10 days. After that, Congress has 30 working days (i.e., in-session) to review. The expectation is that if all goes well, this law may become effective by December. Future Alerts will provide further details, but here are a few important items to note:

15-Year Blanket Exemption for New Buildings. This is the most important and impactful provision of the RENTAL Act. Once enacted, any sale of or transfer of interests in a new housing accommodation, completed within the 15 years prior to the date of sale, does not require an Offer of Sale. Consequently, a tenant association (TA) will not have a right to purchase a housing accommodation that qualifies for this exemption. One requirement for this exemption is for landlords to notify prospective tenants in their leases that the property is exempt. Also, housing accommodations that are excluded from the Offer of Sale requirement must provide written notice within 90 days of the RENTAL Act becoming effective to all tenants regarding the applicability of the exemption. Note that when an exempt property is sold, a Notice of Transfer must be sent to all tenants.

Notice of Transfer. In addition to a Notice of Transfer being required for new buildings eligible for the 15-year blanket exemption, a Notice of Transfer is still required for transfers that are otherwise exempt from the Offer of Sale requirement. Note that previously, a Notice of Transfer required an accurate description of the transfer containing all material facts, including whether the transfer will result in any changes in management, current rents, or any applicable affordability requirements for the housing accommodation. In the RENTAL Act, the requirement to provide a description containing all material facts has been deleted. A Notice of Transfer gives tenants 45 days to form a TA and file a notice of intent to challenge the Notice of Transfer as a sale.

Foreclosures Exemption Changes. Under current law, a lender foreclosing on a bona fide deed of trust or mortgage does not have to provide tenants or the Mayor with a Notice of Transfer. The RENTAL Act would slightly change this requirement, because the RENTAL Act requires all transfers that are not considered a sale to provide a Notice of Transfer to the Mayor, even if a Notice of Transfer is not required to be provided to tenants of the property. The RENTAL Act does not require lenders foreclosing on a property to provide tenants with a Notice of Transfer; however, a Notice of Transfer must be provided to the Mayor through the Department of Housing and Community Development (DHCD). It is unclear whether the 45-day waiting period described above will apply to foreclosures; however, DHCD has advised in the past that other non-sale transfers that do not require providing tenants with a Notice of Transfer still require a 45-day waiting period.

New Offer of Sale Requirements. For properties that are not exempt or excluded from the Offer of Sale requirements, Offers of Sale must now include (1) a notice that tenants are entitled to no-cost technical assistance and training regarding their TOPA rights, and (2) a list of all tenant support providers (see below) certified by the Mayor at the time of the offer. The Offer of Sale must inform such tenants of their rights and direct them to provide proof of tenancy within 15 days. Also under the RENTAL Act, Offers of Sale may now be sent via certified mail, a delivery service providing delivery tracking information, or hand delivery, which is a change from the current law, which only allows the Offer of Sale to be delivered by certified mail.

Tenant Support Providers. The legislation establishes tenant support providers, which will be certified through a process established by the Mayor through DHCD and based on a provider's ability to counsel tenants on TOPA matters. Certification is valid for four years and DHCD will maintain a list of providers.

Cooling-Off Period. Within five business days after the Mayor receives a valid Offer of Sale, the Mayor must provide copies of the offer to all tenant support providers and Qualified Purchasers (see below). A TA in a building with five or more units may not assign its TOPA rights to a third party before receiving a valid offer or during the first 45 days after receipt of the offer, unless the tenants have previously submitted TA registration materials to DHCD. These TA registration materials include information regarding the TA's officers, legal counsel, articles of incorporation, bylaws, and documentation that it represents a majority of occupied units. The TA must also provide proof that its members have received training on their rights from an approved tenant support provider, including date, time, number of units represented, and confirmation that a quorum was met.

Qualified Purchasers. The legislation creates a certification process for "Qualified Purchasers"–developers or organizations approved by the District to acquire TOPA properties. For the first four years after this section becomes effective, any entity previously designated as a Pre-Approved Developer under 14 DCMR § 2499 will automatically be granted certification as a Qualified Purchaser. Certification will remain valid for four years. DHCD is tasked with establishing criteria for selecting Qualified Purchasers.

Assignment of Rights and Consideration. The TA may assign its rights for any consideration at any point after the cooling-off period. If a third party receives an assignment of the TA's TOPA rights, the third party may only reassign those rights to a private or nonprofit entity. No consideration is allowed for secondary assignments of TOPA rights.

Requirement for Written Certifications and Notices. DHCD is required to provide, within five days of request, written certifications of any notices received pursuant to TOPA and copies of such notices, and in cases where DHCD has not received any notices, certifications of non-receipt.

Interference Prohibition. Anyone contacting tenants or TAs about an offer or negotiation must disclose the names and addresses of all individuals or entities with ownership or governance interests in the contacting entity and any financial interest they have in the property. Owners, purchasers, or agents with a financial or other interest in the housing accommodation may not interfere with tenants' rights under TOPA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.