Washington DC Real Estate Attorney TOPA

Multi-Family and Apartment Investing
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Washington DC Real Estate Attorney TOPA

Thomas Addison
Member since 2019 · 5 posts · 3 votes

I am looking to purchase a multi family in Washington DC and need to understand the Tenant Opportunity to Purchase Act. Does anyone have experience they can share?

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y

@Thomas Addison

Tenants in the subject property have the right to purchase the property. Timelines are a little different if it is 2-4 units verse 5+ units. TOPA no longer applies to 1 unit properties. (I was actually heavily involved in getting 1 unit properties exempted).

If the tenants enact their rights (or sell them to a third party) then the process can take many months. I would personally not make an offer on a property unless the tenants had already waived their TOPA rights. Although I did help someone buy last year where the transaction took in total about 6 months in part because of TOPA, at least on the sellers end. The TOPA issue caused multiple contracts to fall apart as the tantants tried to hold out for payment, then we eventually were the 4th contract to come in on it and wait them out.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    @Thomas Addison

    Tenants in the subject property have the right to purchase the property. Timelines are a little different if it is 2-4 units verse 5+ units. TOPA no longer applies to 1 unit properties. (I was actually heavily involved in getting 1 unit properties exempted).

    If the tenants enact their rights (or sell them to a third party) then the process can take many months. I would personally not make an offer on a property unless the tenants had already waived their TOPA rights. Although I did help someone buy last year where the transaction took in total about 6 months in part because of TOPA, at least on the sellers end. The TOPA issue caused multiple contracts to fall apart as the tantants tried to hold out for payment, then we eventually were the 4th contract to come in on it and wait them out.

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  • Thomas Addison
    OP
    Member since 2019 · 5 posts · 3 votes
    7y
    Thanks Russell, that was my concern. I am looking at a portfolio of properties and not certain I want the headache.

    0Reply
  • Michael Randle
    Aurora, CO · Member since 2016 · 158 posts · 118 votes
    7y

    @Russell Brazil,

    Quick questions since I generally refer to you as the DC expert on here. I am looking at buying a 4-plex right now in DC. Before I can buy it, the current renters have right to buy the property first? (This is kind of what I assumed looking into the market before hand). At what rate do the tenants have to purchase the property, list price, contract price, some random price the LL decides? And Generally how long does the TOPA process take, is there a 'if no response in 60 days then rights are forfeited'? And does this apply to all size properties, a 100-unit building would need TOPA from them all?

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    @Michael Randle

    Yes tenants have the right to buy the property, or sell those rights to a third party. Landlord gets an offer of sale, then they have to let the tenants match that offer. I never can remember the exact timelines, in part because the timelines are different for the 3 different unit poolings, and are consulted....but its something like 7 days to get the contract to the tenants, another 7 days to review, 15 days to match the offer, 90 days of negotiation, 120 days for financing. Something to that effect.  When Im dealing with it, I usually have to reference the TOPA forms and right the applicable dates up on my whiteboard to keep them straight.

    It is pretty rare for someone to actually enact TOPA successfully...usually it is about extorting money from the buyer or seller. So there are some serious soft costs often involved in buying these properties. The one we closed last year, the tenants were initially looking at trying to get $25k each on a 4 unit property. But those guys had scared off other potential buyers. We just waited them out

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  • Thomas Addison
    OP
    Member since 2019 · 5 posts · 3 votes
    7y

    Michael, check out this article: https://www.washingtonpost.com...  From the article,

    For example, if you live in a building with two to four units, all renters must express an interest in buying to trigger TOPA. If not everyone is interested or if 15 days elapse since the TOPA notice was given by the owner, any tenant can assert his right to buy his home, but he must do so within seven days thereafter.

    The tenant (or tenants) have 90 days to negotiate a contract to buy, and if a contract is entered into, the buyer has another 90 days to go to closing. If a lending institution notifies the tenants in writing that it needs more time, the settlement can be extended for another 30 days.

    The TOPA process involving buildings with more than five units is even more complex. After the tenants receive a TOPA notice, they have 45 days to form a tenant organization with the legal capacity to hold property. They then have 120 days to enter into a contract, and another 120 days to take title. Once again, if a lender needs more time, the landlord must extend the deadline in accordance with the lender’s estimate of how long it needs.

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  • Michael Randle
    Aurora, CO · Member since 2016 · 158 posts · 118 votes
    7y

    Thank you both for the explanation and the article.

    Not to get too far into the weeds and feel free to drop out of the thread. But if the tenants can sell their TOPA rights to a third party, why wouldn't some savvy investor buy those rights and swoop in to pick up good deals etc? I mean that is a vast oversimplification of what the process would look like I assume, but if I was back in Denver and I could potentially get a decent deal on every multifamily by buying TOPA rights it seems like at least another avenue of attack.

    0Reply
  • Thomas Addison
    OP
    Member since 2019 · 5 posts · 3 votes
    7y
    A DC attorney is way ahead of you, seeking out the tenants and representing them. https://www.nbcwashington.com/...
    0Reply
  • Michael Randle
    Aurora, CO · Member since 2016 · 158 posts · 118 votes
    7y

    So in the end, unless it is a 1-unit expect a process much longer than 60 days to close on a property?

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  • Thomas Addison
    OP
    Member since 2019 · 5 posts · 3 votes
    7y

    that is what I see based on my checking. I am seeking a DC attorney to help with my deal, which will likely be long if I move forward.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    You should reach out to @Tom Gimer. He is a title attorney in DC.

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  • James Young
    Member since 2020 · 6 posts · 1 vote
    6y

    My group is lookin at a potential investment property in DC with 15 units. Assuming that we purchase it, I’m concerned about our exit strategy. Is it possible to reorganize the property on paper as 15 individual condos to avoid the TOPA issue when/we sell? After all, single condos are exempt from what I understand. Thanks in advance for any insight. 

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    @James Young

    You would have the condo conversion tax upon sale. 5% of the sales price of each unit.

    Id also be wary of a 15 unit in DC because its subject to rent control.

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  • Arthur C.
    Flipper/Rehabber · Washington, DC · Member since 2018 · 66 posts · 7 votes
    6y

    @Russell Brazil

    Thought I’d jump in that conversation as I am contemplating about doing a condo conversion of two condo units from a single family home in Trinidad.

    Here’s what I found online below. It seems there are a couple of ways to get an exemption from the 5% conversion fee upon sale of each unit. However, I am not as clear to the first bullet, which it indicates that the property has to be previously owned by a sole owner for at least 12 months. Does this mean the owner of a property has to own and live in it for at least 12 months before doing the condo conversion in order to get an exemption in other words? Is that also your understanding?

    CONVERSION FEES

    The owner must make a Conversion Fee payment of 5% of each unit sales price to the DHCD within 30 business days of the settlement date (§ 42–3402.04 of the Code of District of Columbia).

    However, exemptions can be granted if the property meets at least one of these qualifications:

    -Was previously owned by a sole owner or registered vacant for at least 12 months

    -Sold to a low-income household (80% or less of median household income)

    -Sold to a person 62 years of age or older

    -Sold to a disabled person (as defined by the ADA)

    -Sold to a tenant who lived in the property for at least 12 months prior to the condo conversion

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Arthur C.:

    @Russell Brazil

    Thought I’d jump in that conversation as I am contemplating about doing a condo conversion of two condo units from a single family home in Trinidad.

    Here’s what I found online below. It seems there are a couple of ways to get an exemption from the 5% conversion fee upon sale of each unit. However, I am not as clear to the first bullet, which it indicates that the property has to be previously owned by a sole owner for at least 12 months. Does this mean the owner of a property has to own and live in it for at least 12 months before doing the condo conversion in order to get an exemption in other words? Is that also your understanding?

    CONVERSION FEES

    The owner must make a Conversion Fee payment of 5% of each unit sales price to the DHCD within 30 business days of the settlement date (§ 42–3402.04 of the Code of District of Columbia).

    However, exemptions can be granted if the property meets at least one of these qualifications:

    -Was previously owned by a sole owner or registered vacant for at least 12 months

    -Sold to a low-income household (80% or less of median household income)

    -Sold to a person 62 years of age or older

    -Sold to a disabled person (as defined by the ADA)

    -Sold to a tenant who lived in the property for at least 12 months prior to the condo conversion

     Basically properties without tenants for the previous 12 months are exempt. So owner occupant only, or vacant. Vavant properties in DC have a real estate tax rate of 5% as opposed to the standard 0.85%. 

    And for what its worth, vacant and blighted have a tax rate of 10%. 

    So with a condo conversion taking roughly 2 years to complete, to get the exemption, you are looking at a 3 year process with year 1 being vacant.

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  • James Young
    Member since 2020 · 6 posts · 1 vote
    6y

    Russell and Arthur, thanks for the good info. I got the idea (of changing the status from apt to condo) from another DC property we’re looking at. The sellers did that and now they’re selling the entire building as a group of 10 “condos” but they said it’s no different than buying an apartment building. Seems there’s more than meets the eye. Are there intricacies to condo ownership that I are different from apartments? Should I stay away from the condos and look for apartments instead? Head is swimming. First time looking at DC. 

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @James Young:

    Russell and Arthur, thanks for the good info. I got the idea (of changing the status from apt to condo) from another DC property we’re looking at. The sellers did that and now they’re selling the entire building as a group of 10 “condos” but they said it’s no different than buying an apartment building. Seems there’s more than meets the eye. Are there intricacies to condo ownership that I are different from apartments? Should I stay away from the condos and look for apartments instead? Head is swimming. First time looking at DC. 

     Not it isnt as simple as that.  If all the condos are owned by the same person, then those condos are nonwarrantable. That means that Fannie Mae will not lend on those units. Once a condo becomes nonwarrantable, the prices on the asset plummet since your potential buyers are limited to all cash purchases.  I also imagine a typical commercial lender who would loan on an apartment building may be weary of lending on a group of nonwarrantable condos instead of an apartment building. 

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  • James Young
    Member since 2020 · 6 posts · 1 vote
    6y

    Russell, thank you.

    0Reply
  • James Young
    Member since 2020 · 6 posts · 1 vote
    6y

    Russell, mind if I ask another question? What are your thoughts on commercial condos in DC? There’s a retail condo we’re looking at and it’s already leased out. Unlike the 10 residential condos I mentioned above, this one requires no renovation. (The other one was pretty run down.) We’ve crunched the numbers on condo fees and other costs, and the cap rate seems to be higher than for other non-condo retail properties. Am I not seeing some pitfall about condos? Thanks. 

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @James Young:

    Russell, mind if I ask another question? What are your thoughts on commercial condos in DC? There’s a retail condo we’re looking at and it’s already leased out. Unlike the 10 residential condos I mentioned above, this one requires no renovation. (The other one was pretty run down.) We’ve crunched the numbers on condo fees and other costs, and the cap rate seems to be higher than for other non-condo retail properties. Am I not seeing some pitfall about condos? Thanks. 

     You paying cash or financing? Commercial you are typically looking st a 20, maybe 25 year amortization instead of 30 with residential.

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  • James Young
    Member since 2020 · 6 posts · 1 vote
    6y

    We’re paying cash for half of it and financing the rest. Never owned a condo before, and interested in your (and this group’s) opinions on condos in DC vs fee simple ownership.

    0Reply
  • James Young
    Member since 2020 · 6 posts · 1 vote
    6y

    To specify, I mean retail condos. Thanks all. 

    0Reply
  • Brendan Mullenholz
    Real Estate Agent · Washington, DC · Member since 2025 · 157 posts · 77 votes
    1y
    Quote from @Thomas Addison:

    I am looking to purchase a multi family in Washington DC and need to understand the Tenant Opportunity to Purchase Act. Does anyone have experience they can share?


    KVS title has several attorneys well versed in TOPA.
    1Reply
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