I had a 6 unit apartment building under contract in Washington, DC that requires that tenants be given the first right to purchase (referred to locally as TOPA).
The seller contacted me 3 weeks prior to close and said that he still had two tenants that had signed statements to vacate but were still residing in the property. He was concerned that merely having a signed purchase contract without offering them the right to purchase would put him in violation of the law and open him to civil/criminal penalties. He suggested I release him from the contract and then once they moved out on the agreed upon date and the property was 100% vacant we would sign another contract. This sounded reasonable and I asked my RE attorney to draw up a release.
Once the tenants moved out and the time to re-sign the PA came around the seller informs me "I'm sorry, I have another for $250k more, all cash". I found out later that this purchase was made by my competitor.
Should my attorney have placed language in the release in order to protect me from something like this happening? I thought that's what I was paying him for. I hired him to look out for my interest.
I have no desire to take any legal action but now this same attorney is claiming that I still owe them $1800 in fees from this deal I believe they had a hand in sinking.
While reading your post, the first thought I had when you mentioned the seller wanted to cancel the contract, then resign later, was that he already had a higher offer, and he just talked you into letting him out of your contract. Perhaps your attorney should have pointed out this possibility, but he couldn't have prevented it. Your contract should have simply stated, or been amended to say, it was contingent upon the state mandated right of first refusal to applicable tenants. Then, give the tenants whatever notice/opportunity is required by law. You got played, live and learn.
Bummer deal @Jacob Chaney ! Welcome to the battlefield. I do not have any experience in dealing with TOPA legally how that all works but any time you "release" another party from a contract, you open yourself up to some risk. I am not a lawyer but I do not see how to write up a release that would protect you from this situation. Reading between the lines, I am guessing your seller had another buyer lined up (before you signed the release) and used you for leverage against his other buyer. Sounds like you need to find a good real estate lawyer (ask around on BP for a referal) so you are prepared in the future when something like this happens again. Best of luck.
Thanks for the responses @Paul T. and @Wayne Brooks. This definitely was a lesson for me. The seller and I had negotiated and operated in good faith up until that point and I had no reason to believe he wouldn't honor our agreement.
This would have been my first multi-family purchase so I guess these kinds of lessons are learned through experience and the hard way.
I was just wondering if my attorney who knew the situation would normally inserted language in to the contract release to prevent this sort of thing from happening. I wonder if other RE attorneys would have insisted on some language to prevent this.
You said, "I asked my attorney to draw up a release."
You didn't say, "I spoke with my attorney and we discussed the Seller goals and how to protect me as a Buyer moving forward."
To me it seems like the attorney did what you asked and you owe him the money.
If you asked for a release, I'm not sure how it could be written that the seller was required to sell to you after the tenants moved. That's sounds more like an amendment to the existing contract rather than a release. You said you asked for a release. Sounds like it was under false pretenses because you had an oral agreement, but it was a release nonetheless.
Without knowing the exact communication between you and your attorney, it cannot be determined whether the attorney failed to do what they were hired to do. As stated by @Steve L. if you asked them to draft a release and they drafted a release, they did right by you and you should pay for the work. The question is whether you told the attorney the story and explained what you wanted to happen (i.e. get a new contract).
That being said, I do not believe what you wanted was legally achievable. I am not intimately familiar with TOPA, but from my brief reading on the subject, it appears that any time an owner wants to sell, the owner is required to notify the tenants. So, TOPA was violated already because the owner entered into a contract with you and did not notify the tenants. The only way around the situation (from what I can see) is to have delivered the proper notice to the tenants and waited the time for them to decide -- if they were agreeing to move out, most likely they would not have jumped through the hoops to purchase and you would postpone closing approx. 2 months. I do not see how releasing the contract would change that at all. If you entered into an agreement saying that the owner would agree to a sale contract after the tenants moved out, I think TOPA would still be triggered -- agreeing to agree to sell would probably be considered the same as agreeing to sell.
I will say one thing that I think I see more errors from than anything.
Using a GP ( general practice) attorney to do a specialists job. This is where I see most of the errors happening.
If you use for instance an attorney that only does commercial real estate they will run into these issues and many more on a daily basis Their level of knowledge will tend to be highly sophisticated in this one area of contracts.
I have no clue what could have been changed. We weren't there so as mentioned it's hard to speculate.
The bottom line is the property is gone. You need to try to find another property to purchase. If this attorney and you do not gel you need to find another attorney you have confidence in.
No legal advice.
Pay the lawyer and chalk it up as a bad deal.
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