October 28, 2016
(TOPA) short for Tenants Opportunity to Purchase Act has always been an exhausting and drawn out process for landlords. Any landlord that has been through this process or considering selling with a tenant in their property is not in for a quick sale. With these rights tenants gain the first right of refusal to purchase the property along with the ability to sell their rights for as little as a penny to a third party.
Working in property management I have found TOPA once understood to be a formality that I run into a lot due to my business of property management. In a nut- shell it’s basically a time line for tenants to act on the opportunity to purchase. For specific questions feel free to contact me at email@example.com. Building owners do have a bit more complex set up for TOPA as they have to initiate the paperwork to every tenant in the building followed by a different set of timelines and rules.
As TOPA laws continue to affect the ability to go to settlement an agent must understand the proper procedure of filling out the paperwork as well as how the forms are delivered. Tenants can actually make this process long and strung out if they want to. Tenants have the ability to hold up the sale up as much as 180 days if all their rights are used. As stated above they can also sell their rights.
However more and more tenants are finding this loophole as the title of this blog states. That is CASH FOR KEYS. Over 11 years of managing property and brokerage I heard of some owners trying this, but I never really thought it was kosher. Well I learned something new. After speaking with a DC representative in the office that represents/advocates for landlords (202-442-4407) I was actually taken back that it is ok. I specifically asked if it is legal and the representative said yes. As I researched this a bit more I was finding articles, and forums online that tenants were making a good amount of money on this. Not shocked there.
I pose the following questions to DC Housing?
1. Should there be a max amount that is regulated by DC that a tenant can ask for?
2. Is this giving tenants too much power and leverage on a property they don’t even own?
The process is as follows.
A tenant is still issued TOPA rights as normal. However during the TOPA process the owner can offer tenants a cash buyout to sell their rights back to the owner in turn for a set move out date and return of keys. The TOPA rights then become null and void. I asked if there is a ceiling on the amount of money the tenants can ask for and I got a simple “nope” from the representative. As long as both parties agree to the amount it is considered a deal.
Remember landlords that if you have roommates or a group house each tenant must be issued TOPA rights. So if there is more than one tenant in a property the cash offer must be issued to each individual. Not a group deal. Once the tenants agree with the landlord on a price the tenants must issue a brief statement in writing to the landlord indicating they agreed to cash for keys and are selling their rights back to the owner for the agreed amount. This voids out TOPA and creates a firm move out date.
Can a tenant make some extra money on the deal? Absolutely! For a landlord to consider a buy out he or she would have to weigh the cost of the buyout vs. selling with a tenant in the property. If the owner knows that renovations need to be done, staging placed, and knows the chances of a sale increase dramatically when vacant then yes it could very well be worth buying out a tenant.
My advise to any landlord is to make sure you have an experienced agent/broker representing you when tenants are still living in your property. Most major settlement companies in DC are asking to see the TOPA forms to be able to settle the sale of a property. I have heard horror stories of clients being at the settlement table when the attorney would not close the deal because TOPA was not issued. You can only imagine how the buyer and seller reacted to that. Remember DC does have a 30 day notice to move out. TOPA does not guarantee that the tenant has to be out at time of settlement. TOPA is purely for the tenants right to purchase. Not a notice to vacate.
So how do you get the tenant out of the property?
I plan on going into more depth on how to sell effectively with a tenant in a property and going over the actual forms one by one in a later blog post.
Going over TOPA FORMS A,B,C.
For any questions please feel free to contact me directly Barry@bclmgt.com or by phone at 202-255-0045.
Visit us online at www.bclmgt.com