As of October 1, 2024, Maryland’s Tenant Opportunity to Purchase Act (TOPA) is officially in effect. Signed into law by Governor Wes Moore, this legislation aims to protect renters from displacement while offering them the chance to become homeowners. Modeled after D.C.’s TOPA, Maryland’s version includes stricter timelines, but it’s important for both buyers and sellers to understand how this new law may impact real estate transactions.
What is TOPA?
TOPA grants tenants the right of first refusal when the property they are renting is put on the market. This means landlords must offer tenants the first opportunity to buy the property before it can be sold to anyone else. Unlike the D.C. version, tenants in Maryland cannot transfer this right to third parties, like cooperatives or nonprofits. The law applies to properties with 1 to 3 rental units.
Tenants have 30 days to make an offer, followed by a 5-day window for landlords to accept or counter. If negotiations don’t result in a sale, the property can then be listed on the open market. However, there are no specific limits on how many counteroffers can be exchanged between the tenant and landlord, which could lead to extended negotiations.
Key Differences Between Maryland and D.C. TOPA
Maryland’s law stands out for its stricter timelines and the prohibition on assigning tenant rights to third parties. These changes aim to minimize the delays that have been a common issue in D.C., where transactions can sometimes be held up for months. In Maryland, the process is designed to be faster and more predictable, though difficult negotiations could still cause delays.
What Does TOPA Mean for Buyers?
Tenants Looking to Buy Their Rental Property: If you’re a tenant, TOPA gives you the first right to purchase the property you’re renting. You’ll have 30 days to submit an offer, and the landlord will have 5 days to respond. While this gives you a valuable opportunity to become a homeowner, be prepared for potential negotiations with your landlord if they counter your offer.
Buyers Looking to Purchase a Property: For traditional buyers, TOPA won’t directly impact your ability to make an offer in most cases, as the tenant’s rights must expire or be resolved before the property hits the market. However, this process could further limit inventory in an already low-inventory market. Properties that would otherwise be listed may take longer to become available while tenants exercise their right of first refusal.
What Does TOPA Mean for Sellers?
For sellers, TOPA introduces a set of challenges that could affect both the timeline and the final sale price:
Potential Delays: While the law is designed to streamline the sales process compared to D.C., there is still potential for delays if a tenant decides to prolong negotiations. The law provides a 30-day window for tenants to submit an offer, followed by 5-day periods for counters. However, without limits on the number of counteroffers, a difficult tenant could drag out the process, leading to extended delays.
Off-Market Deals and Lower Sale Prices: TOPA could lead to off-market deals, where tenants negotiate directly with landlords without full market exposure. This limits competition and could result in lower sale prices, especially if the parties negotiates without the involvement of a real estate agent. Without competitive bidding or professional representation, sellers may accept offers that are below market value, missing the opportunity to maximize their returns.
Because of these potential challenges, it’s essential for sellers to consult with a real estate agent or attorney before discussing the sale with their tenants. If there’s any concern that a tenant might attempt to delay the process or frustrate the sale, professional guidance early on can help you strategize and avoid unnecessary complications. Planning before bringing up the sale with your tenant will ensure you’re prepared to navigate the TOPA process smoothly and minimize any potential setbacks.
What Should You Do Next?
For buyers, if you’re a tenant looking to purchase, TOPA gives you the first right to buy the property you’re renting. If you’re a traditional buyer, TOPA may not directly impact your offer process since the tenant’s rights must be resolved before the property hits the market. However, it’s important to recognize that TOPA could further reduce inventory in an already low-inventory market.
For sellers, if your property is tenant-occupied, be sure to plan for the possibility of extended negotiations and strategize around the tenant’s offer window. Consulting with an agent or attorney before discussing the sale with your tenant will help you avoid unnecessary delays and ensure the best possible outcome.
Want more information on how TOPA could affect your real estate plans? Subscribe to my Substack or reach out to me directly for personalized guidance on navigating Maryland’s new housing law.
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