The Prince George’s County Council recently enacted legislation that will affect the transfer of any multifamily rental facility having 20 or more units that is located in a designated area of the County (“MRF”). The legislation is not yet fully implemented and no areas have been designated, but certain notice requirements are in effect now. A December 2, 2013, Right of First Refusal Interim Advisory Notice (“Interim Advisory Notice”) provides that the Director of the Prince George’s County Department of Housing and Community Development (“DHCD”) will promulgate implementing regulations by January 1, 2014, and will offer a list of proposed designated areas to the Council by July 1, 2014. As of January 2, 2014, the implementing regulations have not been released; however, DHCD has confirmed that they are in the final stages of review.
When fully implemented, the owner of a MRF will have an obligation to grant the County an assignable right of first refusal to purchase the MRF (“ROFR”) soon after the owner has entered into a qualifying sale of the MRF (as described below). There are statutory exceptions to the ROFR. Among them is a written agreement with the purchaser, approved by DHCD, affirming that the MRF will remain rental housing, and will not be converted to a condominium or a non-residential use for a period of at least 3 years after the sale. The County may assign its ROFR rights to a non-profit, governmental agency, tenant organization, or other third-party entity.
For purposes of the ROFR, a qualifying “Sale” occurs when (1) the owner enters into a bona fide contract to sell the MRF to a third party; (2) there is a transfer of a majority interest in the owner in a 12 month period; or (3) the owner leases the MRF for a term of more than 7 years. Within 5 days of entering into a contract for the sale of a MRF, the owner must give DHCD a written offer to purchase the MRF on substantially the same terms and conditions as those given to the third party. Within 7 business days after its receipt of the offer, DHCD must notify the owner if it elects to exercise the ROFR, and DHCD must close on the purchase within 180 days. Additionally, within 5 days of entering into a contract for the sale of a MRF, the owner must (1) provide written notice of the sale to each tenant by hand or certified mail, return receipt requested; (2) post notice of the sale in public areas of the MRF; and (3) provide written notice of the sale to DHCD by certified mail, return receipt requested. The notice to DHCD must be in the form of a Notice of Sale Affidavit supplied by the County which must include copies of the sales contract, the notices that were served to tenants, and the rent roll of the MRF. If DHCD is satisfied with the owner’s submissions, within 7 days following submission of the information DHCD will issue a certificate of compliance, in recordable form to the owner, the purchaser or any other interested party establishing compliance with the legislation.
According to the Interim Advisory Notice, until full implementation of the law, the County will not enforce the offer requirement of the ROFR; but, owners must comply with the notice requirements of the ROFR, as set forth above. Thus, because the County has not yet designated the areas to which the law will apply, an owner who is entering into a contract for the sale of a MRF that is located anywhere within the County must follow the notice requirements. Failure to comply could result in a penalty of $100 per unit, per day for each violation.
The Council enacted the ROFR with the aim of preserving rental housing for low to moderate income residents by preventing the conversion of rental housing to condominiums or non-residential uses, and giving the County the ability to purchase and rehabilitate rental housing in areas of the County as a means of revitalization. However, the law itself does not establish such conversions as a trigger for the ROFR obligation. Rather, all sales of rental housing are subject to the ROFR.
We will continue to monitor the implementation of this law.