Did you know… that even when a building is vacant, a former tenant may be entitled to tenant rights in the District of Columbia?
In keeping with our theme from last week, today we want to focus on how difficult it can be to determine who is tenant under the Tenant Opportunity to Purchase Act (TOPA). The definition of a tenant under TOPA is “tenant, subtenant, lessee, sublessee, or other person entitled to the possession, occupancy or benefits of a rental unit within a housing accommodation…” The last part of the definition, “other person entitled to possession [or] occupancy,” makes identifying who is a tenant difficult. To illustrate this point, we want to share with you two cases.
The first case involves a property that was vacant and uninhabitable. It was known that some time ago there had been tenants in the property, but it had since been vacant for a number of months, possibly a year or more. The real estate agent listing the property for sale had no reason to believe there were any individuals entitled to TOPA rights; and neither did the settlement company handling the transfer of the property to new owners. After a smooth settlement, while the purchaser was renovating the house, he was approached by individuals that claimed they had TOPA rights. If these individuals were successful in establishing those rights, it would entitle them to set aside the transfer and purchase the property themselves. These individuals produced an order from an administrative hearing which stated that their TOPA rights remained intact while they were relocated due to the house’s poor living conditions. The order from the administrative hearing, or that there even was an administrative hearing, was not part of the public record. The seller, who was a party to the administrative hearing, knew, but he was not forthcoming. Without the seller coming forward, there was nothing that anyone could have done to discover that there were tenants with TOPA rights. The buyer had the unfortunate experience of learning that his title insurance policy did not cover the rights of tenants under TOPA and had to resolve the matter on his own.
The second case involves a four-unit building worth somewhere between $175,000 and low to mid $300,000s. Prior to the March 2005 sale of the building, there had been a substantial fire, and the building appeared burned out and vacant. After the property was transferred to new owners, three individuals appeared claiming to have TOPA rights, even though there were no leases. Legal proceedings in three different court systems eventually commenced. Two individuals were found to have TOPA rights; the court found one person had a sublease from the prior property manager and one had the right to return to her unit upon completion of repairs. This case is still being litigated and is not expected to conclude until 2016 or possibly 2017. Fortunately, the buyer’s title insurance policy did cover TOPA rights and the buyer has not had to pay for the past ten years of litigation.
Next week, we’ll wrap up our mini-series on TOPA rights with a tidbit on how to protect your buyer. In the meantime, we are available to answer your questions about TOPA and other real estate matters.