Seller Beware! DC gives tenants first right of refusal

Say, you’ve got a rental property in DC and it’s been renting to a nice tenant. Say, now that the market is doing a little better and you’ve outgrown your landlord persona, you want to sell and start a catering business (or not). What’s next? Of course, you call your trusty realtor who will HOPEFULLY tell you that you MUST give your tenant the first right of refusal.

In DC, tenants must receive a notice of intent to sell or offer of sale. The form can be obtained from DCRA and must be submitted and followed very carefully a copy of which should be returned to DCRA for recordation. The tenant then has 30 days to respond (if it’s a one unit dwelling). If your tenant chooses to leave, they probably won’t do anything and that’s great for you. But, in the event they do decide to “exercise” their right to purchase, the following needs to occur:

  • As soon as your tenant registers his/her interest, you then resume with negotiating the contract.
  • No more than 60 days is given to negotiate the contract.
  • Tenant must put up an earnest deposit.
  • Landlord cannot require the tenant to prove financial ability to purchase before entering into a contract. But note that if there is a financing contingency, and that should the contingency expire, you, as the landlord, can collect on that as damages.
  • The tenant has 60 days from the time you have come to an agreement on the contract (ratified a contract) to go to settlement.

A tenant can choose not to purchase at the time you offered the sale WITHOUT a third party contract. HOWEVER, they may change their mind AFTER you get a third party offer/contract. At this point you must submit another notice to your tenant, disclosing the terms of the contract and essentially allowing your tenant 15 calendar days to match the offer. If nothing happens, then you’re home free and you can proceed with the sale. The only caveat (and this is more for the third party purchaser) is that they are now inheriting the tenant and the lease terms. You, as the landlord, will have to amend the lease with the tenant and name the new owner as the landlord and transfer their security deposit and collected rent (with written consent from your tenant) to the new owner. Be very careful about giving your tenant the notice to vacate since this could be at odds with their right to purchase. Preferably, the tenant should get the notice to vacate from the new owner and not you, after the sale has occurred and property has transferred.

If your tenant does decide to purchase after being given the 15 day notice with a third-party contract, you will have to adhere to the timeframes allowed in the established guidelines for tenant purchases which are obviously very lengthy.

In short, there is absolutely nothing short about selling a property with a tenant in it. It can be a treacherous road but one that can be easily navigated if you’ve got a pro on your side who knows the in’s and out’s of DC tenant law, you are above board with your tenant and maintain a good relationship, and get every single thing in writing. All of this is, of course, alleviated if your tenant agrees to a lump sum payment in exchange for moving. Tenants and landlords should consult an attorney if this is an option agreeable by all parties.

For more guidance, please contact us at info@citylightsrealtygroup.com and one of our professional realtors will help you through this process.