From the Forum – Assigning TOPA Rights

topa
Photo by PoPville flickr user Dave Bloom

Assigning TOPA Rights

“Our landlord is selling our 8 bedroom, three-unit building. It’s a row house and we are the only occupied unit. It’s in a very desirable area. We are interested in assigning our TOPA rights and are trying to see if there are any developers or individuals out there who would be interested. If you are interested, please leave your email in a response and I can email you more details. Thanks!”

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93 Comment

  • You are exactly what is wrong with TOPA… this was not the intent of TOPA. Now you want to profit by assigning your rights to a lawyer/developer and completely screw up the sale.

    • Why shouldn’t a tenant be allowed to benefit from this? While most make a good chuck of change, lets not forget that a tenant displaced from a long term rental has a lot of hassle and costs as a result, and may not be able to secure accommodation at the same price elsewhere. I am genuinely interested in how much TOPA rights cost. I could be wrong, and they may go for ridiculous sums, but I suspect that’s not often the case.
      .
      Also, as I understand it, TOPA gives the right holder the right to match any offer the landlord receives. Its not an obligation to only go to the tenant/developer. So its not as if the landlord is getting hosed.

      • As someone that has dealt with TOPA a number of times, believe me the developer/landlord is getting hosed. It adds undue time delay and cost simply because the tenant wants to make a quick buck. This is America, and a LL has the right to make a profit when the opportunity exists. It is not the LL’s obligation to ensure that the TT is able to secure a similarly priced unit in an equally convenient location. The lease has a start and end date and the LL has an obligation to fulfill the requirements of the lease, nothing more, nothing less.

  • The ability to assign TOPA rights to developers is high up on the list of “things about DC that will almost make you into a Republican.” Why should a home owner have to the profit-seeking corporation of your choosing an enormous ransom just so that you vacate their property as required by your lease?

  • This seems like A) an abuse of the process since you are trying to sell to someone who is not a tenant, B) maybe illegal, and C) just crappy to do to a landlord. The purpose of the TOPA is that it gives the tenant an opportunity to purchase and stay in their home. If you want to profit, why don’t you buy the unit and then sell it instead of screwing the owner out of his earned potential profit?

    • Okay, that’s how I thought it worked. The tenant basically has “first dibs” on buying the house/unit? If that’s the case this is SO messed up and just a really nasty thing to do to the landlord.

    • Nope, totally legal and one of like 10,000 problems with TOPA

      • Easy solution, change the law to reflect the spirit of the law. These kinds of issues happened with FHA loans and the like until legislators realized how their poorly written laws were being abused and changed them.

        Put this on the list of things people should take to the city and demand be changed.

    • I don’t understand how the owner is screwed out of his potential profit. Doesn’t it work like this: Tenant sells TOPA rights to Developer, Owner lists property for sale, Potential Buyer submits offer that is acceptable to Owner, Developer has opportunity to match Potential Buyer’s offer (and is given like 60 days or whatever). If Developer matches, Owner sells to Developer. If Developer doesn’t match, Owner sells to Potential Buyer. In both cases Owner receives an offer that was deemed acceptable. The only downside I see is that the fact that a 3rd party owns a right of first refusal might cause Potential Buyer to not make an offer on the property since they don’t want to waste 60 days to see if Developer matches, thus chilling the market for the property. But I’m not sure that owner has to disclose to any Potential Buyer that there is a third party holding TOPA rights. Is this annoying and will this delay any sale by owner? Absolutely. Will this screw the owner out of his earned potential profit? I’m not really seeing it. What am I missing? Thanks.

      • The seller absolutely has to disclose the TOPA rights.

        • Okay, thanks. I didn’t know that. So going back to my original question, is that what reduces the potential selling price for the Owner? The fact that fewer potential buyers will consider making an offer on the property? It still seems to me like Owner will end up going through a longer sale process but won’t end up selling for less than market rate (I get that time is money, but I just don’t think this aspect of TOPA is terrible for Owner’s bottom line.)

          • It reduces the number of buyers interested in your property by dragging out the sale process and adding a level of uncertainty – fewer interested buyers = less demand= lower market price. It forces you to continue us to have carrying costs due to the longer sale period, which can have very real implications for a landlord especially from a tax point of view and from an investment point of view (ie certain kinds of exchanges). For a property that is not a slam dunk sell-above-asking expect-to-receive-10-offers on the first open house, it definitely can mean the property sits on the market- which will mean lower offers. And at a time like this, that impact is compounded (fewer buyers in the off season). Finally, real estate is cyclical and the law is fixed. TOPA really screws landlords when the market cools off.

          • Thanks for the thoughtful explanation. I was on the fence over whether this really mattered, but you’ve convinced me that it does.

  • Just curious. I understand what is in this for the tenant – throw a monkey wrench in the sale process and use that to leverage something from the landlord. But what would does a developer or any other purchaser get by buying a tenant’s TOPA rights?

    • Developer gets all the tenants’ rights like being able to match offers, etc. In a desirable area, that’s a particularly large winfall.

      • Can you further explain this? So say they find an interested developer…then what happens from there?

        • There is paperwork involved saying tenants give/sells topa rights to developer. From there, sale proceeds like normal as far as I know, but once they get an offer, developer has the right to review, match, etc…whatever rights topa gives them.

        • The developer signs a contract with the Landlord/seller on the same terms as the existing offer, gets financing and closes on the property

        • An even further wrinkle:
          Say you have an outside buyer who offers more than your TOPA tenant. You proceed with the deal and the TOPA tenant must stand-down.
          .
          If you lower the price by more than 10% of the original deal – say due to a major inspection issue – you must first go back and give first refusal again to the TOPA tenant. This prevents a landlord from colluding with a connected party (e.g. a relative) to force the tenant out of the building under the guise of an arms length-appearing sale.

  • This was not the intent of TOPA…

  • Man this is some serious BS.

  • According to the TOPA brochure:
    “Instead of purchasing the building outright, Tenants can assign or sell their rights to other groups. Using this right, Tenants can use their rights to negotiate better building conditions, limit rent increases or for other benefits.”
    So the tenant finds a party interested in buying the TOPA rights and then uses the prospect of transferring the TOPA rights to convince the landlord not only to keep the property but to put more money into it?
    I don’t get it.

    • The tenants don’t necessarily have to leave, so I guess they could convince the landlord to sign a new lease which would carry over with the new owner.
      Basically the landlord gets screwed by Crappy tenants who can’t afford to but it themselves.

    • In reading this, my interpretation is that it allows the tenant to essentially choose their next landlord. That is, assuming that you assign your rights and the new owner does all that you want plus allows you to move back in and resume your tenancy without raising your rent significantly.

      • A basic sales contract should make those things easily attainable.
        I think it’s a good intentions law that’s used by unscrupulous tenants.

    • HaileUnlikely

      I believe the intent of the law, which makes more sense in a multi-unit building with multiple tenants than in a rowhouse with one tenant, is for the individual tenants to be able to form a cooperative and assign their TOPA rights to the corporation, such that the corporation (rather than the 2 or 4 or 50 tenants individually) would be a party to the potential sale. Allowing third parties who previously had nothing to do with the property prior to the landlord’s trying to sell it is clearly not the intent of the law.

  • This sort of thing is exactly why the english basement in my row house is occupied by a treadmill, a bunch of boxes, and a model train, not a tenant. What a scumbag thing to do to your landlord. And what a stupid law.

    • TOPA doesn’t apply to a basement apt. in a house you own.

      • I also thought TOPA applied to basement apartments. That’s why mine is also occupied by a treadmill and a bunch of boxes. Every time I think about how complex it is just to rent it I just say to heck with it. I know I’m losing money but I just fear someone wrecking havoc on my life when and if I ever decide to sell.

        • I’m pretty sure it’s also covered by TOPA, if it’s a legit separate unit that is registered and has a C of O. If you have an illegal tenant while trying to sell, you’ve got much bigger problems on your hands than TOPA.

          • Even if it is a legit separate apt. with a C of O it is still part of your house. Can you sell off just part of your house without doing a condo conversion?

          • HaileUnlikely

            I’d like to hear from a lawyer with experience dealing with TOPA on this issue. What you say is clearly correct as stated (you can’t just sell part of your house without doing a condo conversion), however, it doesn’t necessarily follow that TOPA does not apply. An alternative scenario that would be messed up but still plausible is that the basement tenant would be entitled to right of first refusal on the whole house. That would be kind of crazy, but lots of things about TOPA are kind of crazy. (I’m not saying this is the case, but given what little I do know about TOPA, I’d want clear evidence that it is not, rather than just a reasoned argument as to why it doesn’t seem like it should be.)

          • HaileUnlikely

            A 5-minute search of real estate websites seems to indicate that yes, the tenant in the basement of a home that you yourself own and occupy, does have TOPA rights.

      • TOPA absolutely applies to tenants in basement apartments – the right is extended to the entire home. If you don’t know what you’re talking about, don’t parade around on the internet pretending you do.

    • lordscarlet

      Wait, someone else in the city with an interest in model trains? tell me more..

  • Please keep us updated on your progress. I currently live in an apartment in a nice, small mixed-use building and I’d love to buy my apartment if the building ever goes on the market. I’ve always wondered how such a transaction would be handled. There’s currently one other residential tenant and a restaurant tenant on the ground floor.

    • I believe topa is only residential so if he sold the bldg you and the other resident would have a right to buy. I’m curious what happens if you both wanna buy it but not together.

      • Yes, me too! That is an interesting prospect that I’ve wondered about. I’m guessing the landlord would just take the higher offer? That makes the most sense. Ideally, we’d come to an agreement to purchase our individual units and form a condo association. However, the ground floor real estate would require a hefty increase to the price (perhaps owned by the condo corporation to generate income?)
        .
        Also, the OP may just want to buy his individual unit. He could partner with a developer or landlord to buy the entire building, with the new owner controlling 2/3’s of the building. I’m not so quick to jump down the OP’s throat. Also, the TOPA law states in plain language that the OP should, in fact, use TOPA to extract concessions from the new owner. It’s plain as day.

        • Translation: Don’t hate the player, hate the game.

          • Pretty much. This is how business is done everywhere. Right of first refusal is an asset with a quantifiable value.

        • It says they CAN exercise their rights in that manner. This law is obviously geared toward bigger bldg which didn’t have such a great track record for being well maintained. I’m glad they brought the issue to the forefront. A lot of owners have no idea.
          Don’t sell with tenants!

          • “Don’t sell with tenants!”
            .
            This is the big take-away here. If you’re renting out your basement or condo, “take it back” through legal means a year before you plan to sell. If you’re a small time landlord, the law provides you with legit opportunities to re-possess your property from tenants for personal or family use with proper notice. Joe Homeowner isn’t get screwed by TOPA.

          • HaileUnlikely

            Well…Joe Homeowner can get screwed if he proceeds in good faith and doesn’t take legal means to screw his tenant by repossessing his property much sooner than should be necessary for the sole purpose of covering his @ss against getting screwed himself, not having the foresight to recognize that his tenant is able and willing to screw him.

        • “Also, the TOPA law states in plain language that the OP should, in fact, use TOPA to extract concessions from the new owner. It’s plain as day.”

          Yes, but just because it says that doesn’t mean you have to do it. Or even that it’s the right thing to do. There is nothing wrong with the owner wanting to sell something they own and I agree a tenant should have a right to buy the place, but extorting concessions or trying to make the sale harder? Well, that’s just disgusting.

          • The law does not say that. The people interpreting the law that want to help the tenant friendly contingent of voters around here say that is what the law says. That does not at all mean that was the intention of those who drafted the law.

          • tt

            Actually, that’s pretty much right. The intent was to ease the burden of displacement for lower income residents in a city that has had chronically high rents and a housing shortage.

            See page 2: http://www.openlims.org/public/L3-86.pdf

          • tt

            As clear as day, in black and white:

            Sec 102. Purposes.

            In enacting this act, the Council of the District of Columbia supports the following statutory purposes:

            (a) To discourage the displacement of tenants through conversion or sale of rental property, and to strengthen the bargaining position of tenants toward that and without unduly interfering with the rights of property owners to the due process of the law.

  • Reason #534 to rent out a place on Airbnb rather than a long-term tenant…

    • Dave G straight killing the TOPA game!!!!!!

    • This is why if I was the owner, I’d decide not to sell the place, wait until the tenants lease expired, then not let them renew their lease. Once the tenant was out I’d put the place on the market.

      • HaileUnlikely

        This is more complicated, legally, than you seem to realize, unless you can document failure to pay rent or move back into the unit yourself to use as your residence.

        • Exactly. Leases in DC never expire despite the date on the piece of paper. They continue forever as a month-to-month unless the tenant voluntarily moves out, the tenant violates the terms of the lease (which they can later correct), or you reclaim it to live in for a minimum of a year.

      • Leases don’t expire in DC. They run in perpetuity. Landlords have the right to raise the rent once every 12 months in line with local comps. But the tenant only is required to sign the lease once.

        • So once the lease goes month to month the land lord does not have the option to ask the tenant to leave? When I was living in a group home the landlord, who was living in the basement basically told me once my lease expired they wanted to rent to someone else (one of her friends) so I moved out. If you’re unwanted not sure why you’d want to stay. There’s plenty of places you can always find to rent. Not sure why the renter would want to create a toxic situation.

          • “So once the lease goes month to month the land lord does not have the option to ask the tenant to leave?”
            .
            Yes, that is correct. I agree that it would be miserable to be a “toxic environment” where you are unwanted. But you would have every right to stay in that house, if that’s what you really wanted to do.
            .
            Sharing of housing with a owner-occupier is a much murkier area of the law, w/r/t tenant’s rights. DC desperately needs to draft specific regulations for group house rentals.

  • Please send us an email – we have developed many properties like this. Thanks!

  • For the folks complaining about this feature of TOPA, it could be worse. I just read a NYT article about tenants in rent-controlled buildings in desirable areas of Manhattan sniffing at anything less a 7 figure payout to get them to move. There is a whole industry involving these kinds of negotiations. Apparently there is an industry in DC as well.
    I think it’s crazy for the law to give a tenant what is essentially an ownership interest in someone else’s private property but if that is what the law provides for, you can’t really blame the tenant for taking advantage of it. And you can’t blame private property owners for opting out of offering their property for rent because of a fear that they will never be able to get rid of a tenant.

  • As someone who has used TOPA myself, this is EXACTLY what the law is designed to do. This does not hurt the landlord in any way or cost the landlord a dime. This is how TOPA works:
    .
    1. Landlord notifies tenant of intent to sell. Landlord may, if they choose, buy the TOPA right directly from the tenant at this point, but doing so is stupid and rare. Tenant has a fixed period of time to notify the landlord if they intend to exercise the TOPA right. The landlord may already have a contract by this time, or may just be putting it on the MLS.
    .
    2. If the tenant exercises the right, they may buy the unit at the agreed upon price themselves, or they may sell the right to another party. That third party pays for the TOPA right – not the landlord. There is a fixed amount of time – 90 days, if I recall – to put up a portion of the sales price or void the TOPA right. The landlord must then negotiate to sell to that third party as if they are the tenant. The only possible person who is “screwed” here is the original buyer, who must then match the offer on the table or back off and let the new buyer proceed.
    .
    The purpose of being able to “sell” your TOPA right is to give you the money to be able to move elsewhere, or to negotiate to stay in your apartment (i.e., I’ll waive the right for free in exchange for a three year lease extension at the current price). Market rents may be hundreds more dollars a month over what you were paying, plus the cost of movers, etc. This is something that BUYERS, not sellers, pay in exchange for taking the opportunity to buy that unit away from the tenant. And the tenant may not be ABLE to buy – in my case, the selling price was way over market value for reasons that made sense to the buyer, and I didn’t have hundreds of thousands of dollars to put down and couldn’t get the place to appraise for what I would need the loan to be. So, I sold the right and used that to go somewhere else.
    .
    And no, these amounts aren’t usually obscene. To be sure, some tenants have been paid $100k+, because someone wanted *that* special unit and nothing else would do – maybe it was the only adjacent unit and they wanted to expand their condo, or a developer needed that one building to complete a collection of properties to build a bigger project in that block, but that is incredibly rare. Most TOPA rights are assigned for between $5k and $15k (certainly, some a bit higher and some a bit lower), which, after taxes, covers moving costs and a year or so of the difference in rent to go to a new market rate building. Nobody is making a living renting apartments and selling their TOPA rights. So, let’s calm down – this is the system working exactly as intended.

    • No one said the owner pays for the assignment. The issue is that TOPA rights limit the interest and thus, the value of the property because willing purchasers do not want to deal with it. Why would a developer want to negotiate some huge deal for a property to develop only to have it swept out from under you? To win, you have to overpay to the point that the TOPA-right holding developer won’t match (spoiler alert: won’t happen).

      • In my case, it certainly didn’t diminish the value one bit. And in the one you provide, it doesn’t diminish the value either. Let’s use the example I went through – if you own an apartment and the owner of the adjacent unit wants to pay $600k to buy it, and your tenant sells the TOPA right to a developer who wants to “flip” the apartment for $12,000, that developer still has to match (or beat) the $600k offer you already have on the table. You don’t have to sell the apartment to them for $200k or some other obscenely low number just because they have the TOPA right. If they can’t, or won’t, match the price, you just wait till the right expires and then you sell the apartment to your first buyer like it was vacant. If they *will* match the price, then you make the exact same amount of money, just with a different buyer across the table at closing.

        • That’s a rare example where the value of the unit to the owner who wants to expand is great than it would be to the market (he can only have that unit, but others can just look elsewhere). Also, that is an offer to buy before it was put on the market. If you don’t have an offer like that and try to sell, potential buyers will be scared away by TOPA. Why do you think the developers will pay for the TOPA rights? It’s because they think they will get a good deal on the property. This is an owner selling a building that can be developed not a unit in a building.

          • “Why do you think the developers will pay for the TOPA rights? It’s because they think they will get a good deal on the property.”
            .
            I disagree. Developers will pay for the TOPA right because it guarantees that they get the last and final offer. There’s not enough properties for developers and landlords to buy; demand is INSANE right now due to a global savings glut. No developers are getting an artificially depressed deal that is below-market value.

    • Agreed. This is exactly in keeping with TOPA. Tenants are to have the right to purchase or assign their purchase rights to someone else, thereby having the greatest chance of not being displaced.
      It’s not like the seller is the one losing out here- they are going to get top dollar from either the tenants or whoever the tenants find to buy. If not, they are free to proceed with their original contract, though there is potentially a 90 day delay in the sale while the various provisions associated with TOPA expire.
      I’m a fan of the law because I used it to purchase a home that the landlord offered to me at twice my final purchase price long after they stopped doing basic maintenance. Really. Landlord offered it to me for $465k and I ended up exercising TOPA rights on someone else’s contract at $223k
      Tenants should appreciate this and the other protections dc offers.

    • While I disagree with most of what you say here regarding market incentives, one part LEAPS out at me. You state: “in my case, the selling price was way over market value”. Do you understand that the definition of a market value is what the market will pay for it? By definition, the selling price was exactly the market price.

      • The price a developer will pay – purely for potential conversion to multi-unit or tear down and rebuild – can often be more than what a bank will appraise the property at for an owner-occupier relying on traditional financing. This may be especially the case if the original property is run-down. Hence, “paying above market” isn’t an incorrect statement. Joe Homeowner who is relying on an FHA conforming mortgage exists in a completely separate market from Joe Flipper who can pay cash.

      • HaileUnlikely

        That is usually but not always true, and there is not sufficient information to tell whether it is the case here. Market value is what some hypothetical rational buyer would be willing to pay, not the highest amount that any buyer would pay. Given the phrasing of the original, “…for reasons that made sense to the buyer…,” I don’t know if your notion of market value applies here. Let’s say a rich guy wants to buy his childhood home, which is assessed at $349K and would probably fetch $409K in today’s market under normal circumstances, but the current owner doesn’t want to sell it, so the rich guy offers him $4M. That does not make the market value $4M.

        • Actually, that does make the market value $4M – at the time of the purchase. After that, it’s the highest amount the next buyer would pay, which is probably not going to be $4M. The “market” includes both rational and irrational buyers.

  • My husband and I were buying a home in capitol hill last year, after putting offers on 20+ homes over 2-3 years and constantly getting outbid. After our offer was accepted, one of the other 8 people who put an offer approached the tenant and asked her to sell her rights to buy our property to him (a developer). I was 7 months pregnant, gone through so many homes over so many years and thought we finally found our home, only for this to happen. We convinced the tenant not to screw us by letting her stay an extra year at the same rent. If I were the owner, i’d wait for your selfish self to finish the lease, kick you to the curb, then sell. He has a bad realtor.

    • Actually, you just provided a great illustration of the value of TOPA rights. The tenant used her rights to extract an extra year of renting at the same price point. She let you off easy – she could have asked for a discount.
      As stated above, and as you may already know from being a landlord, getting rid of a tenant is not as easy as kicking him or her to the curb once the lease is over. Unless you are taking over the space or the tenant violates the lease, you are stuck with a month-to-month tenancy until the tenant decides to leave.

  • DC’s Topa law is the major reason I would not develop rental properties there. It scares the s* out of me.

    Big developers or slum lords who are as nasty as the bad tenants can keep their game on.

  • And here I was worried “TOPA” was a new terrible neighborhood portmanteau name

  • tt

    To those who say it wasn’t the intent of the council, the record isn’t on your side. It was the intent. The intent was to ease the burden of displacement for lower income residents in a city that has had chronically high rents and a housing shortage. See page 2: http://www.openlims.org/public/L3-86.pdf

    OP, if you line up a developer that’s willing to buy your rights, you’re going to need a lawyer on your side. There are some in DC that will actually do it without cost to you. They’ll act as the realtor and get their fees from the sales commission of the home — better yet, you can even get a portion of those sales fees too (part to the lawyer to cover their fees, and the balance to you + whatever you negotiate with a developer for your TOPA rights).

    Ignore those that try to demonize you. This is how the game in DC works. No landlord worth their salt enters into the landlord game in DC without an understanding of TOPA. All kinds of industries have different regulations from jurisdiction to jurisdiction. It’s part of the cost of doing business.

    • Marion Barry is still pissing off people, even from the grave. Sometimes you just gotta laugh at the brass balls of the man.

  • Well I just went through this process and good thing I had a great relationship with my tenants. I told them 5 months in advance that I’d be selling the place. They were under a lease through April- but I told them if they were to start looking and find a place anytime between now that they can go ahead and move out. Well they found a place in 2 weeks and just moved out. Though I’m now covering the holding costs on a vacant property- it was worth it to me to NOT have any issues down the road when it came time for closing. I still sent the TOPA docs to both the tenant and the city- because the title company can ask for it at closing and if you don’t have it they may not want to close on your deal.

  • I’ll throw in one other element to this issue – I have a LOT of friends who rent nice enough condos that haven’t been renovated yet in good or up-and-coming areas, who probably couldn’t afford to buy them if they came up for sale. I’ve let every single one of them know that if the landlord sends over a TOPA notice, CALL ME! There is a HUGE advantage to an individual buyer in buying a TOPA unit: you only have to match the best offer on the table. That means you can avoid the bidding war – just let the apartment go on the market, let the highest bid come in, and then offer to buy the TOPA right and match that offer. Especially if you’re buying the right from someone you know, it makes it easier to complete the transaction without headaches, and you get a chance to often buy an off-market property, but at worst to know the best and final offer before you structure your own bid. It can be incredibly beneficial!

    • Do you know if TOPA accounts for escalation clauses? Or are those de facto not considered when someone makes a “best and final offer”?

      • tt

        What do you mean account for? TOPA gives the renter the right to match the final, accepted offer, regardless of how it was reached (with or without an escalation clause). You’re literally scratching out the name of the “winning” buyer and replacing it with yours. Generally, all the terms that the original buyer offered are carried over to you (e.g., time to closing, financing terms etc). Of course, part of the strength of TOPA is that you can negotiate with the landlord to perhaps sweeten the deal a bit for you — the incentive being that they don’t have to have their sale tied up in a potentially long process. Used to its fullest, TOPA can easily delay a transaction for six months or more. When people above note how TOPA reduces the value of a property, that’s accurate and this is why. However I’d respond, as I did above, that that is just part of a landlord’s cost of doing business and should have been accounted for when they invested in a rental property.

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