Understanding a Tenant’s Right of First Refusal

• March 8, 2019
• Contract Disputes
• Landlord Law

Our Maryland lawyer can help you with the complex issues involving the first right of refusal in a rental agreement in Baltimore City and the City of Takoma Park in Montgomery County.

The concept behind the right of first refusal is fairly straightforward: Contractually, it’s a right granted to Entity A to enter into a business transaction with Entity B before anybody else is able to. If Entity A decides not to take part in the transaction, Entity B is then free to negotiate with other potential buyers. Often, this concept appears in real estate transactions, where the seller grants a certain party the right to purchase a property before anybody else can. Many leases executed between tenants and landlords contain a right of first refusal clause. If you find yourself navigating through the complexities of such agreements, seeking advice from a seasoned Maryland real estate attorney can provide invaluable assistance in understanding your rights and responsibilities. In Baltimore City and the City of Takoma Park, however, a tenant’s right of first refusal is on the legal books, established in Subtitle 6 of Article 13 of the Baltimore City Code and Chapter 6.32 of the City of Takoma Park’s Municipal Code. To make sure that your interests are protected, that everything is done correctly, and that you don’t run into legal issues and make costly mistakes with your leases, contact Lusk Law at (443) 535-9715.

FAQs About Tenants’ Right of First Refusal

What Does the Law Say?

The Tenant’s Right of First Refusal (TROFR) in Baltimore City maintains that “before the owner of a single-family residential rental property sells or transfers the property to another, the current tenant has the opportunity to purchase the property on commercially reasonable terms.” TROFR also guarantees that landlords “shall not be unreasonably impeded in selling their properties nor required to accept unreasonable terms of sale.” While The City of Takoma Park’s Tenant Opportunity to Purchase (TOTP) was created “in the interest of providing home ownership opportunities to the City residents and to promote the conversion of rental facilities to owner-occupied housing, including condominiums and housing cooperatives, it is necessary and appropriate to require that the owners of rental facilities in the City offer the tenants, tenant association, and the City an opportunity to purchase the rental facility before the rental facility may be sold to a third-party purchaser.” Unlike Baltimore City, TOTP applies to all rental facilities and not just single family homes.

What Does It Mean?

If you’re living in a single-family rental property in Baltimore City, or a rental facility in the City of Takoma Park, and your landlord wants to sell or transfer it, he must first give you a chance to buy it at a reasonable rate. In many cases, the landlord may have already agreed to sell to a third party (i.e., not the tenant). But if the landlord does sell to a third party and specifics of TOTP and TROFR are not followed to the letter, the sale be invalid.

How the First Right of Refusal in Maryland Works

TOTP and TROFR outlines a few steps that must be taken, involving some back-and-forth between the landlord and the tenant. These are:

The Offer:

Typically, the landlord will send the tenant a written offer of sale, stating the sale price as well as the terms and conditions of the sale being agreed to by the landlord and a third party. The landlord must send the notice with postage prepaid first-class mail, and in Baltimore City the landlord must get a receipt from the post office (i.e., a Certificate of Mailing) that the notice was sent. At the same time, for Baltimore City the landlord must also send a copy of the offer to Baltimore’s Department of Housing and Community Development. In the City of Takoma Park, the landlord needs to also make an offer of sale to the City.

Accepting the Offer:

In Baltimore City, the tenant has 30 days after the offer was mailed to accept the offer. The acceptance must also be sent via prepaid first-class mail, with the tenant obtaining a Certificate of Mailing, which will prove that it was mailed before the 30-day deadline. If the tenant plans to use a government program to assist in the purchase, he must specify that in the acceptance of the offer. In Takoma Park, for a single family home once a written offer of sale is provided to the tenant, they have seven calendar days to deliver a written statement of interest to the owner and to the City Manager. Unlike Baltimore City, in Takoma Park if the tenant of a single family home has not submitted a statement of interest, the City of Takoma Park shall have seven additional calendar days to personally deliver or send by first-class mail a written statement of interest to the owner. “The statement of interest must be a clear expression of interest on the part of the tenant or the City to exercise the right to purchase the rental facility as specified in this chapter. The tenant or the City may accept the offer of sale by submitting a written contract within 14 calendar days after the date of the written statement of interest. The contract must include substantially the same terms and conditions contained in the owner’s third-party contract of sale, if any, including any contract term that provides for a reasonable real estate commission” TOTP varies depending on how many units are in the rental facility.

Third-party Offers:

In Baltimore City if the landlord has already entered into an agreement with a third-party buyer, either before he mailed the offer to the tenant or within the 30-day period after mailing it, he must mail a notice of the contract to the tenant (again, with first-class prepaid mail and a Certificate of Mailing). The tenant then has 30 days after that mailing to notify the landlord of his intent to accept the offer for at least as much as the amount stated in the contract. The City of Takoma Park only gives a minimal amount of time to negotiate a contract of sale and for settlement under TOTP law. TOTP allows the owner to give the tenants, city and tenant association a “reasonable extension of time to purchase the rental facility, without liability under a third-party contract.”

After the 30 Days in Baltimore City:

If the 30-day period has expired in Baltimore City, and the landlord enters into an agreement that is less than the original offer to the tenant (or otherwise more beneficial to the buyer), he then must notify the tenant again and give him the right of first refusal. The tenant has either 15 or 30 days to accept, depending on how long it has been since the original offer and how much lower the second offer is.

The Contract in Baltimore City:

If the tenant accepts the offer, the landlord then has 10 days to offer a signed sales contract, and the tenant has 10 days to sign and return it, along with a deposit. The settlement must happen within 60 days, and the contract must include the right of the tenant to be released from the purchase if he can’t obtain the necessary financing.

Contract in Takoma Park:

Depending on how many units are in the rental facility TOTP regulation may vary. For a single family home the contract of sale shall have a reasonable period between the execution of the contract and settlement, in which the tenant is able to secure financing. TOTP requires that this time be no less than 30 days. Unless the tenant is obtaining financing through “a government or other loan program for low- or moderate-income persons or for first-time homebuyers and the government agency or lender estimates in writing that a decision with respect to financing will be made within 60 calendar days after the date of the contract.” Then the owner shall afford an extension of time consistent with that written estimate. If 6 months passes from the date an owner has given notice of an offer of sale to a tenant and the City of Takoma Park under TOTP, and the owner has not gone to settlement on the sale of the rental facility, the owner shall start the process from the beginning with the provisions of TOTP. Seeking guidance from a knowledgeable Landlord and Tenant Attorney in Maryland can be invaluable in understanding and navigating the intricacies of such legal processes.

Get Help with the Right of First Refusal Clause in Leases

Right of first refusal clauses are complicated by the fact that TOTP and TROFR do contain several exceptions. For instance, the landlord does not have to offer the right of first refusal if he is transferring or gifting the property to family members or a government agency. The concept of right of first refusal may be simple, but the laws in Baltimore City and the City of Takoma Park are not. For a successful sale or purchase of rental property, the buyer and seller should both have the advice of an attorney knowledgeable in the law. The legal team at Lusk Law are advocates for life’s obstacles and opportunities and have helped Maryland rental property owners and tenants comply with TOTP and TROFR. If you need legal advice about buying or selling a rental property or help drafting a lease agreement, contact our office soon for a consultation at (443) 535-9715.