Bulletin: DC2018002

Date:
July 12, 2018
To:
All District of Columbia Issuing Offices
RE:
UNDERWRITING - TOPA Single Family Home Exemption Amendment Act of 2018

Dear Associates:

The purpose of this Bulletin is to advise agents that the District of Columbia’s TOPA (Tenant Opportunity to Purchase Act) Single Family Home Exemption Amendment Act of 2018 (D.C. Act 22-339; “2018 Amendment”) went into effect on July 3, 2018. 

Highlights of 2018 Amendment:

  • The 2018 Amendment only effects single family accommodations.
  • A new notice is required for all tenants living in a single family accommodation.
  • If a property is a single family accommodation, TOPA will only apply if the tenant(s) entered into a written lease by March 31, 2018, took occupancy by April 15, 2018, and the tenant is elderly or disabled.
  • The definition of a single family accommodation has changed.
  • The timeframes for a tenant to deliver a written statement of interest, negotiate a contract, and go to the settlement have changed for single-family accommodations.
  • A qualifying tenant will still have a 15 day right of first refusal.
  • The right for a qualifying tenant to assign his/her TOPA rights has been significantly curtailed.
  • The right for a qualifying tenant to receive consideration for waiving his/her TOPA rights is NOT affected by the 2018 Amendment.

For a more in-depth explanation of the changes to TOPA in the 2018 Amendment, see “Summary of the 2018 Amendment” below.

Guidance:

The new guidelines for determining TOPA compliance when the property is a single family unit are listed below. Additionally, the guidelines for title commitments and title policies remain the same as in Bulletin DC000018 issued January 10, 2006. Those guidelines are reprinted below.

          Single Family Accommodation Guidelines and Procedures. When reviewing a file involving a single family accommodation (see below for changes to the definition of single-family accommodation) that has been tenanted at any time within the six months prior to closing, please verify the following actions were taken or adhered to.

1. Within 3 calendar days of the owner receiving or soliciting, in writing, an offer to purchase the property, did the owner deliver (see delivery below for acceptable delivery methods) to the tenant(s) a Notice to Tenant of Landlord’s Receipt or Solicitation of an Offer to Sell the Accommodation? [1] 

2. Did the tenant(s) enter into a written lease by March 31, 2018?

a. If no, TOPA does not apply. You can stop here.

i. Please keep in mind that in the District of Columbia a lease will renew on a month to month basis. Thus, if the last written lease expired in 2010 and the tenant is still living in the property, then the tenant is considered to have entered into a written lease by March 31, 2018.

b. If yes, continue with the remaining steps.

i. Note: the 2018 Amendment requires that the tenant took occupancy by April 15, 2018. For underwriting purposes, we do not want to be involved in a contest of when the tenant actually took occupancy.

3. Did the owner deliver to the tenant(s) a Notice of Intent to Sell? [2]

a. If no, continue to step 4.

b. If yes, was the Notice of Intent to Sell delivered to the tenant more than 60 days prior the Offer of Sale being delivered to the tenant?

i. If yes, ignore the Notice of Intent to Sell and continue to step 4.

ii. If no:

1. Verify that the Notice of Intent to Sell contained:

a. a description of the rights and obligation of elderly and disabled tenants under TOPA;

b. a list of organizations from which the tenant may seek help with enforcing TOPA rights; and

c. that a copy of the Notice of Intent to Sell was delivered to the Mayor within 10 days after the owner delivered the Notice to the tenant.

d. If a-c above, were not complied with, ignore the Notice of Intent to Sell and proceed to step 4.

2. Provided a-c above were complied with, did the tenant(s) send a response to the owner claiming that the tenant(s) is elderly or disabled within 20 days after the date that the Notice of Intent to Sell was delivered?

a. If no, contact the Underwriter as the tenant may have waived his/her TOPA rights.

b. If yes, proceed with the steps below.

4. Did the owner deliver a written offer of sale to the tenant(s) and a copy of the written offer of sale to Office of Tenant Advocate (“OTA”)? [3]

a. If no, the owner is not in compliance with TOPA. Please contact the underwriter.

b. If yes, did the tenant(s) deliver to the owner a written statement of interest within 20 days after the date that the offer of sale was delivered to the tenant(s)?

i. If no, the tenant(s) may have waived his/her TOPA rights. Please contact the underwriter.

ii. If yes, did the tenant(s) deliver to the Mayor documentation of the tenant’s elderly or disability status no later than the date that the tenant’s written statement of interest was due to the owner?

1. If no, please contact the Underwriter.

2. If yes, proceed to step 4(b)(iii).

iii. If yes to 4(b) and 4(b)(ii), then the tenant’s 25 day negotiation period begins.

5. If you have reached step 5 in this decision tree, please contact the underwriter for further guidance.

          Title Commitments. All Title Commitments issued in connection with the sale of ALL real estate in the District of Columbia must contain a requirement substantively similar to the following:

          The Company must be furnished proof that no portion of the Property is leased for residential purposes. If any portion of the Property is leased for residential purposes, Company must be furnished proof that the requirements of the Rental Housing Conversion and Sale Act of 1980, as amended, have been complied with and proof that Company's applicable requirements for the removal of an exception for the rights of tenants under the Rental Housing Conversion and Sale Act of 1980, as amended, have been complied with.

          Title Policies. If it is determined that any portion of the property has been leased for residential purposes in the six (6) months prior to closing, the Title Policy (both owner and lender) must contain an exception substantively similar to the following (unless Underwriter approval is given for its removal):

          Rights of tenants under the Rental Housing Conversion and Sale Act of 1980, and all amendment thereto and regulations thereunder.

Removal of this exception requires specific Underwriter approval. Factors which we will consider as to whether to eliminate the exception will include:

1. As a general rule, transactions under $5,000,000 will not be approved for removal of the exception unless strict compliance with TOPA can be proven.

2. For transactions above $5,000,000, we will consider removal of the exception. However, in order to approve this, we will require some or all of the following:

a. Evidence that appropriate notice was furnished to each tenant (both mail and posting) and the District of Columbia of the offer to sell the housing accommodation to the tenant(s).

b. Evidence of the proper formation and recognition of a tenant association for the purpose of exercising all of the tenants' rights under TOPA.

c. Evidence that the tenant association and all tenants have elected not to purchase the property including a specific written waiver of any and all rights under TOPA.

d. Evidence that the required right of first refusal was offered to each tenant and that each tenant has specifically elected not to exercise this right in the form of a written waiver.

e. Affidavit as to Compliance and Indemnity Agreement from the Seller, Purchaser and any designated guarantors with respect to all claims under TOPA.

f. Such other requirements as we deem appropriate based upon the facts and circumstances of the transaction.

Summary of the 2018 Amendment:

The purpose of the 2018 Amendment is to exempt most single-family accommodations from the provisions of TOPA. Elderly tenants and tenants with a disability living in single-family accommodations are still entitled to TOPA rights provided that they entered into a lease on or prior to March 31, 2018, and took occupancy by April 15, 2018. The 2018 Amendment also places new requirements on landlords. Below the specifics of 2018 Amendment are reviewed.

            Required Notice for ALL Single Family Accommodations. All tenants in a single family accommodation, regardless of whether the accommodation is exempt from TOPA or not, must receive a Notice to Tenant of Landlord’s Receipt or Solicitation of an Offer to Sell the Accommodation [4] within three (3) calendar days of the owner receiving or soliciting, in writing, an offer to purchase. Liability for failure to provide this notice lies solely with the owner and will not attach to the property that is the subject of the notice. Additionally, a tenant who brings an action against the owner for failing to provide this notice may not record a lis pendens.

            Change to Single Family Accommodation Definition. The Amendment defines a single family accommodation as a single family dwelling or a single family dwelling with one accessory dwelling unit. The accessory dwelling unit must be secondary to the principal single-family dwelling in terms of gross floor area, the intensity of use, and physical character. A single-family dwelling means a structure that contains a room or group of rooms forming a single living space which includes a kitchen. These changes to the definition of single-family accommodation mean, for example, that a rented row house with a separately rented English basement will be a single family accommodation; not a 2-4 unit accommodation under TOPA. Likewise, a home with several rooms being separately rented (e.g. a group home), but has only one kitchen will be considered a single family accommodation.

            Single Family Exemption. TOPA will no longer apply to single-family accommodations unless a tenant is elderly or a tenant with a disability who signed a rental agreement by March 31, 2018, and took occupancy by April 15, 2018. An elderly tenant is a tenant who is 62 years of age or older. See §42-3401.03(9A). A tenant with a disability is a tenant who has a disability as defined in section 3(1)(A) of the Americans with Disabilities Act of 1990. See §42-3401.03(19).

            Changes to Single Family Timeframes When TOPA Applies. Tenants will have 20days after the date of delivery of the written offer of sale to deliver a written statement of interest to the owner. The tenant must also deliver to the Mayor documentation of his/her elderly or disability status by the same date that the written statement of interest is due to the owner. If a tenant delivers a written statement of interest to the owner within 20 days, the tenant will have at least 25 days, after the date of delivery, to negotiate a contract of sale with the owner. If the tenant and the owner enter into a contract, the tenant will have at least 45 days after the date of contracting to go to settlement; however, if a lender states in writing that additional time is needed with respect to financing, the tenant may have up to 75days after the date of contracting to go to settlement. See below for timeframes concerning a qualifying tenant’s right of first refusal.

          Notice of Intent to Sell. In advance of selling (demolishing or discontinuing the housing use of) the property, an owner of a single family accommodation may determine whether the tenant(s) is elderly or disabled by sending the tenant a Notice of Intent to Sell. [1] The owner may not send the Notice of Intent to Sell more than 60 days prior to delivering to the tenant an Offer of Sale. The Notice of Intent to Sell must include a description of the rights and obligations of elderly tenants and tenants with disabilities and a list of organizations that can help the tenant exercise his/her rights. The tenant has 20 days after the date of delivery of the Notice of Intent to Sell to assert in writing whether the tenant is elderly or disabled. Failure of the tenant to respond in writing to the owner within 20 days after the date that the Notice of Intent to Sell is delivered to the tenant results in the tenant waiving his/her TOPA rights.

          Changes to Tenant’s Right to Assign their TOPA Rights - Applicable to Single Family Dwellings ONLY. The only consideration that a qualifying tenant in a single family accommodation may receive for assigning his/her TOPA rights is the right to immediately use and occupy the single-family accommodation for a period of 12 months following the sale of the single-family accommodation at the rate of rent in effect at the time the Offer of Sale was delivered to the tenant. The recipient of a tenant’s assignment of TOPA rights may only further reassign the tenant’s TOPA rights without consideration to a private or nonprofit corporation or a partnership of which the assignee is an owner, managing member, or officer who can legally bind the entity. Further, a bargain in which a tenant receives consideration to vacate the tenant’s unit before the 12-month period ends so that the owner may use or occupy the unit shall constitute a willful violation of TOPA.

            Proof of Tenants Elderly or Disability Status. A tenant must deliver documentation of his/her status as an elderly or disabled tenant to the Mayor by the same date the tenant’s written statement of interest is due to the owner. The tenant only needs to provide the minimum documentation necessary to establish status as an elderly or disabled tenant. The Mayor shall make a determination of a tenant’s elderly or disability status within 30 days after receiving documentation from a tenant. A title company conducting a closing transferring the ownership of the accommodation or real estate agent representing the owner in the sale of the accommodation may request from the Mayor a determination of the tenant’s elderly or disability status. The tenant is not required to share any documentation regarding his/her status as an elderly or disabled tenant with anyone other than the Mayor.

Examples of documentation to prove elderly status:

  • Passport;
  • Birth certificate; 
  • District issued driver’s license or ID card; or
  • Other documentation the Rental Conversion and Sale Administrator deems sufficient.

Examples of documentation to prove disability status:

  • Award letter for disability benefits from the U.S. Social Security Administration;
  • Letter from a physician stating that the tenant is a tenant with a disability; or
  • Other documentation the Rental Conversion and Sale Administrator deems sufficient.

            Copies of Communications to the Mayor. Within 10 days of initiating delivery of documents to a tenant, owner, or OTA regarding the written offer of sale and subsequent negotiations or to the determination of whether a tenant is elderly or disabled, copies of those documents must be delivered to the Mayor with written evidence of the date of delivery of the original documents.

            Delivery. Documents related to single family accommodations ONLY may now be delivered by first class mail, a delivery service providing delivery tracking confirmation (FedEx, UPS, etc.), certified mail, or by hand. For single-family accommodations only, all timeframes will begin from the date of delivery; not the date that the tenant receives the document. PLEASE NOTE: Stewart will NOT accept first-class mail delivery with the exception of documents that the tenant(s) sends by first class mail. 

        Right of First Refusal. A tenant in a single family accommodation who qualifies for TOPA rights will still have a 15 day right of first refusal which runs after the expiration of the negotiation period. If a purchase-sale contract is not entered into between the tenant and owner, then the right of first refusal begins to run after the expiration of the 20 days that tenant has to deliver a written statement of interest.

            Waiver. The waiver provision of TOPA (§42-3404.07) remains untouched by the 2018 Amendment. If a tenant in a single family accommodation qualifies for TOPA rights, an owner shall not request and the tenant may not grant a waiver of the right to receive an offer of sale. Further, an owner cannot require that the tenant waive any other TOPA right except in exchange for consideration which the tenant, in the tenant’s sole discretion, finds acceptable. Please pay attention to the use of waivers especially for single-family accommodations. While assignments have been more popular in the past, now that consideration for an assignment of TOPA rights in single-family accommodations is extremely limited, we may see the use of waivers for monetary payouts to the tenant become more common.

_________________

[1] Note: The District of Columbia Department of Housing and Community Development has yet to publish forms that coincide with the 2018 Amendment. The names of forms used in this guidance are subject to change.

[2] See note above.

[3] Note: Forms A, B, and C on DC’s Department of Housing and Community Development’s (“DHCD’s”) website for Single Family Accommodations are NOT in compliance with the 2018 Amendment as of the writing of this Bulletin. If the owner sent an offer of sale using the forms on DHCD’s website on or after July 3, 2018, but prior to DHCD updating Forms A, B, and C, contact the Underwriter.  

[4] Note: The District of Columbia Department of Housing and Community Development has yet to publish forms that coincide with the 2018 Amendment. The names of forms used in this guidance are subject to change.   

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:
DC000018 Tenant Opportunity to Purchase Act
Underwriting Manual:
None
Exceptions Manual:
None
Forms:
None