Bulletin: MD2015003

Date:
January 13, 2015
To:
All Maryland Issuing Offices
RE:
UNDERWRITING - Tenant's Right of First Refusal in Baltimore City and Montgomery County

Dear Associates:

When dealing with rental properties in Baltimore City or Montgomery County, Maryland, you should be aware of City/County code provisions that provide a right of first refusal to the tenant or specified third parties. Lack of knowledge of these provisions could lead to a serious claim, including possible failure of title to an insured property.

1. Baltimore City Code, Article 13, Subtitle 6

Baltimore City’s right of first refusal can be found at the following link:

https://law.resource.org/pub/us/code/md/baltimore.code.article.13.pdf


Under Code §6-1, before title to any single-family residential rental property is voluntarily transferred, the tenant of that property shall have the opportunity to purchase the property on terms considered reasonable in the residential real estate market. 

Code § 6-4(a)(1) provides that a written offer of sale must be made by the landlord to the tenant, by first class mail. The offer must state the proposed sale price, and include suggested terms and conditions to be included in a contract of sale. The tenant has 30 days from the date of mailing to indicate his/her willingness to purchase the property, in the manner prescribed by Code § 6-4(a). 

Code § 6-5 specifies conditions to be included in offers and contracts for the property. The Commissioner of the Department of Housing and Community Development must be copied on all offers of sale to tenants.

A tenant may waive the time periods in Code §6-4 in writing, and permit the landlord to sell the property to a third party. Code §6-6(d). However, the tenant may not waive his/her right to receive an offer of sale or notification required by Article 13, Subtitle 6. Code §6-6(c).

There are various exceptions to the requirement to offer a right of first refusal. Code §6-7. Among these are landlord transfers to spouses, children, and certain other relatives; transfers made by will or inheritance; and transfers resulting from a foreclosure or a deed-in-lieu of foreclosure. Further, when a property is listed with a "bona fide third party licensed real estate broker", and the tenant is notified in writing, the transaction is also exempt. Code §6-7(11).

Criminal penalties apply, and injunctive relief may be obtained under Code §6-8.

2. Montgomery County Ordinances, Chapter 53A

Montgomery County’s right of first refusal provisions can be found at the following link:

http://montgomeryco-md.eregulations.us/code/coor_ptii_ch53a_sec53a-4


Within 5 days after an owner of "rental housing" enters into a bona fide contract of sale to sell rental housing, the owner must provide written notice of the sale:

  • to each tenant in the rental housing by first class mail;
  • by posting in the public areas of the rental housing; and
  • to the Department of Housing and Community Affairs with a list identifying each tenant and the tenant’s address. 

Code § 53A-3.

Additionally, the notice of sale must offer to sell the rental housing to a tenant organization, assuming one exists or can be created. Id.

The term "rental housing" is defined to mean "… a multiple-family dwelling, or a group of multiple-family dwellings operated as one entity, with a total of at least 4 rental units. Rental housing does not include a dwelling operated for a religious or charitable purpose." Code § 53A-3. 

Code § 53A-4 specifies how the right of first refusal should be implemented. The owner must offer the County, the Housing Opportunities Commission ("HOC") and any certified tenant organization the right to buy the property before selling the rental housing to a third party. This right exists for between 60-90 days after the offer is received. There are numerous requirements on the owner to provide information and supporting documentation with the offer, and to permit access to the property for inspections and testing.

The right of first refusal may be exercised in the following order:

  • By the County;
  • By the HOC;
  • By any tenant organization.

Code § 53A-4(d)(1).

Exceptions to the right of first refusal are set forth in Code § 53A-5.

When all requirements have been met, and the right of first refusal has not been exercised, the County will issue a certificate of compliance to the owner, the buyer, or any other interested party, in a document, which may be recorded in the land records. Code § 53A-7.

This Bulletin contains only a summary of the referenced code provisions.
Associates are advised to click on the provided links and/or to consult
with legal counsel if any  questions arise as to tenant rights of first refusal
 in Baltimore City and Montgomery County.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
None
Related Bulletins:
None
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None