Sec. 53A-2. Definitions.

*Editor's note-Section 1 of 1990 L.M.C., ch. 34, amended ch. 53A to read as set out in §§ 53A-1--53A- 10. The chapter formerly consisted of §§ 53A-1--53A-13 and was derived from 1981 L.M.C., ch. 32, § 1; 1982 L.M.C., ch. 2, §§ 2, 3; 1983 L.M.C., ch. 55, § 3; 1984 L.M.C., ch. 24, § 52; 1984 L.M.C., ch. 27, § 35; 1985 L.M.C., ch. 39, § 2; 1986 L.M.C., ch. 86, § 20, §§ 1, 2; 1987 L.M.C., ch. 41, § 1; and 1989 L.M.C., ch. 32, § 1.

Cross references-Condominiums, ch. 11A; cooperative housing, ch. 11C; group residential care facilities, ch. 23A; moderately priced housing, ch. 25A; landlord-tenant relations, ch. 29; rental assistance, ch. 41A; transient lodging facilities, ch. 54.

Sec. 53A-1. Legislative findings.

The County Council finds that:

(a) there is a continuing severe shortage of low and moderate-income rental housing in the County;

(b) tenants often experience significant hardship when they are displaced by conversion of rental housing; and

(c) it is in the best interests of public health, safety, and welfare to regulate the conversion of rental housing in the County. (1990 L.M.C., ch. 34, § 1; 2001 L.M.C., ch. 32, § 1.)

Sec. 53A-2. Definitions.

(a) Convert and conversion mean:

(1) (A) changing the use of rental housing to nonresidential use;

(B) demolishing at least one-third of the units in rental housing in a 12- month period;

(i) raising rents; or

(ii) preparing to rehabilitate the rental housing; or

(D) any other act that ends the use of the property as rental housing.

(2) Conversion does not include establishing a condominium or cooperative.

(aa) County assignee means a qualified entity that has accepted in writing an assignment of a right of first refusal by the County Executive or the designee of the County Executive.

(b) Department means the Department of Housing and Community Affairs.

(d) Owner means a person holding title to rental housing.

(e) Qualified entity means a legal entity that:

(1) is designated under 53A-4(g) as eligible to accept an assignment of a right of first refusal by the County Executive.

(2) The following are designated qualified entities: Rockville Department of Housing and Community Development and Rockville Housing Enterprises of the City of Rockville; the Division of Housing and Community Development of the City of Gaithersburg; and the Department of Housing and Community Development of the City of Takoma Park.

(f) Rental housing means a multiple-family dwelling, or a group of multiple-family dwellings operated as one entity, with a total of at least 4 rental units.

(g) (1) Sale, sell, or selling mean:

(A) transfer of title to rental housing;

(B) transfer in a 12-month period of a majority interest in owner; or

(2) These terms do not include entering into a contract for the sale of rental housing that gives the County, HOC, a tenant organization, or a County assignee a right of first refusal under this Chapter.

(h) Tenant means an individual who lives in a rental housing unit with the owner’s consent and is responsible for paying rent to the owner.

(i) Tenant organization means an association of tenants of rental housing that:

(1) represents tenants of at least 30 percent of the occupied units in the rental housing; and

(2) is certified by the Department according to Executive regulations.

(j) Title means:

(1) a legal or equitable ownership interest in rental housing; or

(2) a legal, equitable, or beneficial interest in a partnership, limited partnership, corporation, trust or other person who is not an individual, that has a legal or equitable ownership interest in rental housing. (1990) L.M.C., ch. 34, § 1; 1996 L.M.C., ch. 13, § 1; 2001 L.M.C., ch. 32, § 1; 2024 L.M.C., ch. 5, § 1.)

Sec. 53A-3. Notice of sale.

(a) Notice required.

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

(A) to each tenant in the rental housing by first class mail;

(B) posted in the public areas of the rental housing; and

(2) The notice of sale must offer to sell the rental housing to any tenant organization under Section 53A-4, and include any other information required by Executive regulations.

(b) Tenant organization. If there is no certified tenant organization for the rental housing when the notice of sale is due under subsection (a), then a tenant organization may be formed to exercise the right of first refusal if the Department certifies the organization within 45 days after the owner provides notice to the tenants under subsection (a).

(2001 L.M.C., ch. 32, § 1.)

Editor’s note—Former § 53A-3, was amended and divided into two new sections, numbered §§ 53A-4 and 53A-5, pursuant to 2001 L.M.C., ch. 32, §1.

Sec. 53A-4. Right of first refusal to buy rental housing.

(a) Right of first refusal. An owner must offer the County, HOC, and any tenant organization the right to buy rental housing before selling the rental housing to another party, except as provided under Section 53A-5.

(b) Requirements for offer. An offer required by subsection (a) must:

(1) be in writing;

(2) be sent electronically to the Department or, at the discretion of the Director, be sent by an alternative delivery method to the Department if electronic delivery would cause an undue burden to the owner, within 5 business days after:

(A) the execution of a bona fide contract of sale, for the County, HOC, and any existing tenant organization; or

(B) the Department certifies a tenant organization, for a new tenant organization formed under Section 53A-3(b);

(3) include substantially the same terms and conditions as a pending bona fide contract of sale from a third party to buy the rental housing; and

(4) remain open for:

(A) 60 days after it is received by the County and HOC; and

(B) 90 days after it is received by any tenant organization, including a new tenant organization formed under Section 53A-3(b).

(5) The County must send an electronic copy of the offer to all qualified entities.

(1) any information about the rental housing relevant to exercising the right of first refusal, such as architectural and engineering plans and specifications, and operating data; and

(2) access to the rental housing to inspect the property and conduct reasonable tests at reasonable times after reasonable notice.

The County, HOC, any tenant organization, and any County assignee must pay the owner a reasonable deposit for any architectural and engineering plans that the owner provides. The owner must refund the deposit when the plans are returned to the owner. The County Executive must issue regulations to implement this subsection.

(d) Exercise of right of first refusal.

(1) The County, HOC, any tenant organization, or any County assignee may exercise the right of first refusal by accepting the offer within the applicable period under subsection (b)(4). The County, County assignee, and HOC may accept an offer to buy rental housing in a municipality only if the municipality approves.

(2) The owner must sell the rental housing under the right of first refusal if the acceptance includes substantially the same terms and conditions contained in the owner’s bona fide contract of sale with the third party, including any contract term that provides for a bona fide real estate commission payable to an independent broker. Notwithstanding this general requirement or any term of the contract, the County, HOC, any tenant organization, or any County assignee may condition its acceptance on obtaining financing at any time before the deadline in paragraph (4) for completing the sale.

(3) The County, HOC, any tenant organization, or any County assignee must not be required to pay to the owner a deposit of more than 5 percent of the contract price to accept the offer and exercise its right of first refusal. The deposit is refundable in the event of a good faith failure of the County, HOC, any tenant organization, or any County assignee to satisfy the financing contingency under paragraph (2).

(4) The owner and the County, HOC, tenant organization, or County assignee must complete a sale under this subsection within 180 days after the County, HOC, or tenant organization receives the owner’s offer unless the owner agrees to extend the 180-day period. If the County, HOC, tenant organization or County assignee exercises the right of first refusal and fails to close within the 180 day deadline, then the owner, without first providing a new offer, may transfer the rental housing to any purchaser within 365 days following the date of the offer, provided that the purchase price is not less than 90 percent of the purchase price set forth in the original offer under subsection (a).

(5) Before a tenant organization completes a sale under paragraph (4), a majority of all tenants must ratify the purchase.

(6) The right of first refusal applies in the following order of priority:

(A) the County or County assignee;

(B) HOC; and

(7) The Executive must issue regulations that establish procedures and guidelines for exercising the County’s right of first refusal.

(e) Expiration of right of first refusal. If the County, HOC, any tenant organization, and any County assignee do not exercise their rights of first refusal within the applicable period under subsection (b)(4), the owner may sell the rental housing to the third-party buyer under substantially the same terms and conditions offered to the County, HOC, and any tenant organization.

(f) Immunity. The County, HOC, any tenant organization, and any County assignee are not liable for any damages incurred by the owner, a third-party buyer, a tenant, or any other person in connection with a decision to exercise or not exercise a right of first refusal under this Section.

(g) Assignment.

(1) The County Executive may assign the right of first refusal, or a contract to purchase rental housing, to an entity qualified by the Department to receive such assignment under this subsection. The Department may designate an entity as a qualified entity if the Department determines that the entity:

(A) has demonstrated expertise in acquiring, maintaining, and managing rental and affordable housing;

(B) is a bona fide nonprofit, a for-profit entity, or a governmental housing agency or authority, in good standing under the laws of the State of Maryland at the time of assignment;

(D) commits in writing to maintain the affordability of housing acquired under this subsection; and

(E) commits in writing that it must not disclose any information or documentation it receives from an owner pursuant to this Chapter unless required by law.

(2) The County Executive must adopt regulations under Method (2) to establish a process for qualifying and selecting entities to receive an assignment under this subsection. The regulations must establish:

(A) a process that provides entities a fair opportunity to demonstrate to the County Executive or the County Executive’s designee its qualifications to receive an assignment;

(B) factors that an entity must demonstrate to be deemed a qualified entity;

(C) affordable housing restrictions that a qualified entity must commit in writing to maintain, if selected as a County assignee; and

(D) criteria the County Executive or the County Executive’s designee must use for selecting County assignees from among qualified entities.

(3) An assignment by the County Executive of the County’s right of first refusal must be accomplished by a written agreement with the assignee that includes an assignment and assumption of the County’s rights and obligations under this Chapter as to its right of first refusal. The County must provide an owner with a copy of the assignment and assumption agreement within 3 business days of execution. The County’s option to assign its right of first refusal to a qualified entity must not extend the 60 day exercise period under Section 53A-4(b)(4) or the 180 day closing deadline under Section 53A-4(d)(4). (1990 L.M.C., ch. 34, § 1; 1996 L.M.C., ch. 13, § 1; 2001 L.M.C., ch. 32 , § 1; 2024 L.M.C., ch. 5, § 1.)

Editor’s note—2024 L.M.C., ch. 5 , §§ 2, 3 and 4, state: Sec. 2. Expedited Effective Date. The Council declares that this legislation is necessary for the immediate protection of the public interest. This Act takes effect on the date on which it becomes law and applies retroactively to any right of first refusal offer of sale received by the County after January 1, 2024.

Sec. 3. Transition. As to any offer of sale received by the County after January 1, 2024, and prior to the effective date of Method (2) regulations adopted by the Council under this Act, the County Executive, by executive order, may assign to an entity qualified by the Department the right of first refusal if the entity:

(a) demonstrates that the entity is either a bona fide nonprofit or for-profit entity in good standing under the laws of the State of Maryland, or a designated entity under Section 52A-2;

(b) certifies in writing that for the past 10 years the person or each principal in the entity has complied with all laws related to the acquisition, maintenance, and management of rental and affordable housing;

(c) demonstrates that the entity has expertise and experience acquiring, owning, operating, managing, and developing multi-unit affordable rental housing projects in the last five years, including a certification that the entity has never been in financial default as either a borrower or guarantor, or if to the contrary, explaining in complete detail all the circumstances;

(d) demonstrates proof of readiness to purchase the property; and

(e) demonstrates a commitment to community engagement, such as working with community-based organizations or tenant counseling organizations on anti-displacement activities.

Sec. 4. Sunset. Section 3 must sunset, and must have no further force or effect, 90 days after this Act becomes law.

Former § 53A-3, was amended and divided into two new sections, numbered §§ 53A-4 and 53A-5, pursuant to 2001 L.M.C., ch. 32, §1.

Sec. 53A-5. Sales not requiring right of first refusal.

(a) Agreement not to convert.

(1) An owner may sell rental housing without providing any right of first refusal under Section 53A-4 if the Department approves a written agreement that:

(A) prohibits the buyer from converting the rental housing for at least 5 years after the sale;

(B) the Department received from the prospective buyer at least 30 days before the sale; and

(C) except as provided in paragraph (2)(B), requires the buyer to follow the voluntary rent increase guidelines published annually under Section 29-53 during:

(i) the first 3 years of the agreement, for all tenants who resided in the rental housing when the Department approved the agreement; and

(ii) the last 2 years, for each of these tenants who qualifies as a low- or moderate-income tenant under Department regulations.

(2) The Department may:

(A) approve or reject an agreement with the buyer under this subsection only after considering the:

(i) physical condition of the rental housing, including any rehabilitation necessary to correct dangerous defects;

(ii) tenants' ability to afford rent increases; and

(iii) need to preserve low- and moderate-income rental housing in the County;

(B) allow the buyer to increase rents above the limits in paragraph (1)(C) only when the Department decides that a greater increase is justified by:

(i) unforeseen circumstances beyond the buyer’s control; or

(ii) rehabilitation or renovation to the rental housing.

(3) The Department annually must verify the buyer’s compliance with the rent increase limits required by this subsection.

(b) Other exceptions. An owner also does not have to provide a right of first refusal for a sale:

(1) under the terms of a bona fide mortgage or deed of trust;

(2) to a mortgagee in lieu of foreclosure;

(3) under a court order;

(4) from one co-tenant to another co-tenant by operation of law;

(5) under a will or intestate distribution;

(6) to the State or a local government;

(7) of a minority title interest; or

(8) under subsection (c).

(1) Definitions. For purposes of this subsection, the following terms have the meanings indicated.

Low Income Housing Tax Credit or LIHTC means a low income housing tax credit program under:

(A) section 42 of the United States Internal Revenue Code of 1986, as amended; or

(B) a comparable County or State of Maryland low income housing tax credit program with occupancy, rent, and income requirements at least as restrictive as those under section 42 of the United States Internal Revenue Code, as amended.

LIHTC transfer means:

(A) a transfer of interest in a partnership or limited liability company that owns rental housing as its sole or principal asset, if the sole purpose of the transfer is to admit one or more limited partners or investor members who will make capital contributions and receive tax benefits under the LIHTC;

(B) a transfer of interest in an entity that owns rental housing, or a transfer of title to rental housing, if each of the following conditions is satisfied:

(i) the credit period for the rental housing under the LIHTC has ended;

(ii) immediately prior to the transfer, the rental housing is subject to an extended low-income housing commitment under the LIHTC;

(iii) before and after the transfer, the owner of the rental housing is controlled, directly or indirectly, by the same person or entity; and

(iv) immediately following the transfer, the rental housing must, for a term of not less than 10 years, remain subject to, or become subject to, an extended low-income housing commitment under the LIHTC;

(C) a transfer of interest in a partnership or limited liability company that owns rental housing as its sole or principal asset, if the sole purpose of the transfer is to allow for the exit of one or more limited partners or investor members who have made capital contributions and received tax benefits under LIHTC; or

(D) a transfer of interest in an entity that owns rental housing as its sole or principal asset, or a transfer of title to rental housing, if the sole purpose of the transfer is to qualify for and enter into a new credit period under the LIHTC for purposes of the rehabilitation of the rental housing if, before and after the transfer, the owner of the rental housing is controlled, directly or indirectly, by the same person or entity.

LIHTC transfer notice means the notice under paragraph (2)(C).

(2) LIHTC transfer notice – required. An owner may sell rental housing without providing any right of first refusal under Section 53A-4 if:

(A) the property is financed or to be financed by the LIHTC;

(B) the sale or transfer is a LIHTC transfer; and

(C) not less than 90 days prior to the projected transfer date of the property or interest in the property, the owner provides written notice to the Department of such transfer, which notice must contain:

(i) the draft transfer agreement;

(ii) the existing low income tax credit covenant recorded on the property or, if none is recorded on the property, the draft low income tax credit covenant to be recorded on the property; and

(iii) the proposed date of closing.

(3) Agreement not to convert for LIHTC. Upon receipt of the LIHTC transfer notice, the Department must have 30 days to approve or deny the LIHTC transfer under the notice. If the Department denies the LIHTC transfer, the owner may pursue an agreement not to convert as set forth in Section 53A-5(a).

(4) Properties funded by LIHTC and the County – no additional notice required. An owner may sell rental housing without providing any right of first refusal under Section 53A-4, and without providing a LIHTC transfer notice, if:

(A) the property is financed or to be financed by the LIHTC; and

(B) either:

(i) the sale or transfer is a LIHTC transfer and, immediately prior to the transfer, the rental housing is subject to a regulatory agreement or deed of trust with the County that requires the owner to provide the County with notice and approval rights over any transfer; or

(ii) the sale or transfer is a LIHTC transfer and, simultaneously with the transfer, the rental housing will become subject to a regulatory agreement or deed of trust with the County that requires the owner to provide the County with notice and approval rights over any transfer. (1990 L.M.C., ch. 34, § 1; 1996 L.M.C., ch. 13, § 1; 2001 L.M.C., ch. 32 , § 1; 2007 L.M.C., ch. 6, § 1; 2007 L.M.C., ch. 11, § 1; 2024 L.M.C., ch. 5 , § 1.)

(a) demonstrates that the entity is either a bona fide nonprofit or for-profit entity in good standing under the laws of the State of Maryland, or a designated entity under Section 52A-2;

(d) demonstrates proof of readiness to purchase the property; and

(e) demonstrates a commitment to community engagement, such as working with community-based organizations or tenant counseling organizations on anti-displacement activities.

Sec. 4. Sunset. Section 3 must sunset, and must have no further force or effect, 90 days after this Act becomes law.

Former § 53A-3, was amended and divided into two new sections, numbered §§ 53A-4 and 53A-5, pursuant to 2001 L.M.C., ch. 32, §1. Former § 53A-5, which was derived from 1990 L.M.C., ch. 34, § 1, was repealed pursuant to 2001 L.M.C., ch. 32, § 1.

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