Did you know... that purchasers can protect themselves from a tenant's unforeseen exercise of TOPA rights?
This is the last segment in our 3-part series on DC's Tenant Opportunity to Purchase Act ("TOPA"). Last week, we shared a couple of stories about what can happen when tenants decide to exercise their TOPA rights. In one story the purchaser bought a title policy with TOPA coverage and the title insurer, not the purchaser, has paid for the 10+ years of on-going litigation. In the other story, the purchaser bought a title policy which did not provide for TOPA coverage. Therefore, the purchaser had to resolve the matter with the tenants at his own expense.
For the last part of our series, we will focus on how you can help to protect purchasers who you represent when TOPA rights may be involved in the transaction. The very first thing you should do is ascertain whether a property has tenants or has recently had tenants. If tenants are living in the property when you show it to the potential purchasers, then you obviously know there are tenants with TOPA rights. Many times when the property is vacant, it is assumed that there are no tenants, and therefore, no one has TOPA rights. As we shared with you last week, that is not always the case. If your purchaser is going to write an offer on a vacant property, you should ask the listing agent the following questions:
- Were there tenants in the property when it was listed?
- How long ago did the tenants vacate?
- Was there a lease? If so, when did the lease terminate?
- Was there a sublessor?
- Were there individuals living there who were not on the lease?
- Where did the tenant go when he/she/they vacated?
When choosing a settlement company, your purchaser should ask whether the company has experience handling settlements involving TOPA and whether it is able to provide a title policy with TOPA coverage. There are two ways in which a policy will cover TOPA rights; either the underwriter will remove the "TOPA exception" from the title policy's Schedule B exceptions or the purchaser can purchase an endorsement to the title policy that provides affirmative TOPA coverage. The purchaser should ask to review the title commitment once the settlement company has prepared it. The exceptions (items that the policy will not cover) can be found on Schedule B 2 of the commitment. If the exceptions contain language similar to the following: "Rights of Tenants arising under the Rental Housing Conversion and Sale Act of 1980, as amended, and any and all regulations adopted thereunder," that means that TOPA rights are not covered under the policy. If the TOPA coverage is being provided through an endorsement, the language will remain in the exceptions and an endorsement should be provided to the purchaser for review. If TOPA coverage is being provided without an endorsement, the language should be removed from the exceptions.
Lastly, the title company should be sure that the seller has provided the tenant with the legally required "TOPA notices" and that these notices contain the information required by law and are delivered in the method required by law.