In Van Leeuwen v. Blodnikar, the D.C. Court of Appeals upheld the trial court’s determination that assignees of tenants’ rights under the D.C. Tenant Opportunity to Purchase Act of 1980 (“TOPA”), D.C. Code § 42-3404.01, et seq., could validly accept an Owner’s offer to sell certain real property, even though they failed to include the earnest money deposit, as referenced in the offer. However, the Court held that new tenants may make a competing offer, even after the initial TOPA offer was accepted. Thus, the Court remanded the case for further proceedings to determine whether the new tenants were bona-fide, the timeliness of the parties’ acceptance, and their resulting rights.
A copy of the opinion is available here.
Background
Under TOPA, “[b]efore an owner of a housing accommodation may sell the housing accommodation or issue a notice to vacate for purposes of demolition or discontinuance of housing use, the owner shall give the tenant an opportunity to purchase the housing accommodation at a price and terms that represent a bona fide offer of sale.” D.C. Code § 42-3404.02. “Under TOPA, a tenant (or, as here, the assignee of a tenant) can create a binding contract by accepting the material terms of an owner’s offer of sale. . . . After such an acceptance, the parties may negotiate over non-material terms, prepare a final contract, and proceed to settlement.” Op. at 5 (citations omitted).
Here, Owner of a multi-unit residential property provided his tenants an offer to sell the property under TOPA, affording them an opportunity to buy the property for $480,000 (the “First TOPA Offer”). The First TOPA Offer also provided for a five percent earnest money deposit, with the balance of the purchase price due at settlement.
Two weeks later, Owner entered into a contract to sell the property to third-party purchasers (“Purchasers”) who were not tenants at that time, for $538,000.
Two tenants thereafter assigned their TOPA rights to Assignees, who proceeded to accept the original First TOPA Offer, but failed to include the earnest money deposit as provided for in the offer.
Thereafter, Owner sent tenants a second offer of sale, with an increased sale price of $538,000. Assignees responded by claiming that, because they had accepted the First TOPA Offer, Owner could not sell the property to Purchasers.
Within weeks, one of the tenants was evicted, and Owner leased the vacant unit to the same persons who were the purchasers under the contract for sale, i.e., the Purchasers. Owner then sent a third offer to sell the property to its tenants, and Purchasers submitted an intent to purchase the property.
Purchasers subsequently filed a lawsuit against Assignees in the Superior Court, seeking a declaration that their contract with Owner to purchase the property was valid. Assignees filed a cross-complaint seeking a declaration that they had validly accepted the First TOPA Offer. The trial court held that Assignees’ initial acceptance of the First TOPA Offer constituted a valid acceptance, even though it failed to provide for the earnest-money deposit, and refused to allow new tenants (i.e. the Purchasers) rights under TOPA. Purchasers appealed.
Discussion
I. Acceptance of the First TOPA Offer
As an initial matter, the Court determined the Assignees validly accepted the First TOPA Offer’s material terms, even though their acceptance did not include the earnest money deposit. According to the Court, under TOPA, after a tenant accepts the Owner’s offer of sale, the parties may negotiate over non-material terms, prepare a final contract, and proceed to settlement. Op. at 5.
Here, the Court found the earnest money deposit provision, which stated “5% earnest money deposit with a contract, and the balance at settlement” to be “unclear as to precisely when the deposit must be made.” Op. at 5. Specifically, the Court explained:
[S]everal provisions of the first offer of sale state that tenants could respond by a ‘written statement accepting the owner’s offer to sell.’ The absence from these provisions of any reference to payment of earnest money tends to imply that contemporaneous deposit of earnest money was not a condition of acceptance. Similarly, the first offer of sale explicitly contemplates a process of post-acceptance negotiation to finalize a ratified contract. The subsequent reference to payment of a deposit 'with a contract' is thus more naturally read as referring to the ratified contract mentioned in the preceding paragraphs of the offer of sale.
Op. at 6-7.
Because the terms of the First TOPA Offer did not require that a contemporaneous deposit of earnest money was a condition of acceptance, the Court held, the reference to payment of a deposit when read as a whole, “is better understood to require payment of the deposit at the time a [full] contract is ratified, not at the time of the initial acceptance.” Op. at 7.
II. Competing Offer of New Tenants (Purchasers)
The Court then considered whether Purchasers, who subsequently became tenants, were entitled to make a competing offer after the Assignees’ valid acceptance under TOPA. The Court noted that in some circumstances, TOPA allows a subsequent competing offer by one tenant to pose an obstacle to the completion of a sale to another tenant who had previously accepted an offer of sale from the owner. Op. at 8. Specifically, the Court noted, under the TOPA provisions applicable to two-to-four-unit buildings (D.C. Code § 42-3404.10), even if an individual tenant accepts an offer of sale, thereby creating a potentially binding contract, the owner and that tenant “are not necessarily in a position to go forward immediately with a sale of the building.” Op. at 8. Rather, if another tenant timely submits an expression of interest, the owner must afford each tenant who did so a period of at least ninety days to negotiate over the sale of the building. Id. At the end of that period, the owner is not required to honor an acceptance that was submitted first and instead may choose a competing bid that the owner prefers. Id.
Consequently, the Court vacated the trial court’s judgment in favor of Assignees, because it “appeared to imply that tenants whose tenancy begins after an offer of sale has been accepted have not rights under section 42-3404.10.” Op. at 8. The appellate court disagreed with such premise, explaining that if section 42-3404.10 applies in the present case, then the owner arguably was free to enter into a contract with the Purchasers – as tenants – for the purchase of the building notwithstanding the Assignees' acceptance of the offer of sale. “Nothing in the text of section 42-3404.10 suggests that the new tenant … has no rights under TOPA. Moreover, a general provision of TOPA points in the opposite direction.” Op. at 9 (citing D.C. Code § 42-3404.06 (exercise of TOPA rights ‘may occur at any time in the process provided by the subchapter)).
However, the Court of Appeals determined that there were unresolved questions as to whether Purchasers were bona fide tenants under TOPA, whether the parties' acceptances and responses were timely, and their resultant rights. Accordingly, the Court of Appeals remanded the case to the trial court for further proceedings to address such issues. Op. at 9-10.