ROFR (Right of First Refusal)

An owner must offer the County the right to buy multifamily rental housing before selling the property to another party.  The multifamily housing must include four (4) or more units to trigger ROFR requirements.  “Selling” means either 1) transfer of title, 2) transfer of a majority interest in an owner in a 12-month period, or 3) lease of a rental housing for more than seven (7) years.

The Code provides certain exemptions from ROFR submission.

• If the seller enters into an agreement with DHCA at least 30 days prior to the sale that maintains the property's affordability under the terms of County Code Section 53A-5(a).
• If the sale is:
  • Under the terms of a bona fide mortgage or deed of trust; 
  • To a mortgagee instead of foreclosure;
  • Under a court order;
  • From one co-tenant to another co-tenant by operation of law;
  • Under a will or intestate distribution;
  • To the State or a local government;
  • Of a minority title interest; or
  • One of certain LITHC transfers under County Code Section 53A-5(c).

A.How to Become a Qualified Entity
The Code allows the County to assign its Right of First Refusal to qualified entities.  To become a qualified entity, the organization must apply to DHCA (using the application form provided in the forms section below) and submit all necessary supporting documents.  DHCA will review the application and submit a recommendation to the County Executive for final approval.  Applications will be accepted on a rolling basis.
 Qualified entities will remain qualified for five (5) years unless that entity is disqualified during that time upon a finding by DHCA that:

• The entity has violated any provision of 53A; or
• The entity fails to complete the purchase of rental housing using ROFR for reasons other than good faith failure to secure financing.

 
B.How a Qualified Entity Receives Assignment of ROFR
Should the County assign the right of first refusal to purchase rental housing to a qualified entity, that entity must enter into an assignment agreement with the County and a covenant will be recorded on the property at closing.  Such agreement will require the assignee to implement certain restrictions, including:

• A landlord must not evict a tenant from a rental unit, notwithstanding the expiration of the tenant’s lease or rental agreement, except:
  • Where the tenant has breached the lease or caused damage to the rental unit or other areas of the property and refuses to pay for damages or correct the breach of the lease within 30 days after notice;
  • Where the tenant fails to pay rent required per the lease, provided that nonpayment of late fee may not be the basis for eviction;
  • Where the tenant disturbs the peace of other tenants despite receiving notice from the landlord;
  • Where the tenant engages in illegal activity on the property and
  • Where the tenant refuses without reasonable cause to allow the landlord onto leased premises to repair or inspect the property.
• A landlord must provide existing tenants the right to return to their unit or an equivalent unit at the same rent level after any rehabilitation or redevelopment that requires relocation and
• A landlord must limit rent increases to no more than the Voluntary Rent Guidelines (VRG) for 15 years unless the units are covered by other agreements that ensure the long-term affordability of greater than 15 years or as otherwise required by law.

A template of such agreement is provided in the Related Documents section below.

C.Currently Approved Qualified Entities
The following entities have been reviewed and approved as Qualified Entities for purposes of potential ROFR assignments.
53A-2 automatically designates the following as qualified entities:

• Rockville Development of Housing and Community Development
• Rockville Housing Enterprises of the City of Rockville
• Division of Housing and Community Development of the City of Gaithersburg
• Department of Housing and Community Development of the City of Takoma Park 

The following organizations have applied for designations as a Qualified Entity and have been approved by DHCA:

                          

Step 1 – Purchase Contract Executed and Owner Sends DHCA ROFR Packet.
When an owner of multifamily rental housing of four (4) or more units enters into a contract for sale with a contract purchaser, they must send DHCA a complete ROFR packet within five (5) days of executing that contract.  DHCA and an assignee of the County’s ROFR rights have 60 days to determine if ROFR will be executed after receiving the packet. 
Expedited Bill 38-23 requires any offer for ROFR consideration to be sent to DHCA electronically to the Department. DHCA is creating a portal to allow for the upload of ROFR documents.  Until such portal is operational, DHCA requests that all ROFR submissions be submitted by email to:
 

[email protected]

The ROFR packet must include any information about the rental housing relevant to exercising the right of first refusal, such as a copy of the pending purchase and sale contract, architectural and engineering plans, specifications, and operating data.  A complete list of documents to be included in the ROFR packet and relevant regulations is provided in the Code.   
 
Step 2 – DHCA Receives the Packet and Forwards It to Qualified Entities.
DHCA will forward the ROFR packet to any previously approved qualified entity. The Qualified Entity section above provides information on how to become a qualified entity and who DHCA has designated as such.
 
Step 3 – DHCA and Qualified Entities Review Property
If requested, the owner will provide DHCA access to the rental housing to inspect the property and conduct reasonable tests at reasonable times. DHCA will coordinate with all potential assignees who are qualified entities to complete a site inspection. DHCA maintains that it will coordinate with the various parties to reduce the burden of this step on the owner, to the best of its ability.

Step 4 –
A.If Interested in Assignment, DHCA Requests Interest from Qualified Entities
If the County wishes to assign the ROFR for the property, DHCA will request qualified entities submit their interest in purchasing that property. Qualified entities have 45 days to alert DHCA of their interest in pursuing ROFR. All submission requests must include information required under Section 53A.00.01.05.6 of the Code of Regulations of Montgomery County. If more than one qualified entity is interested, DHCA will select among them based on the parameters in Section 53A.00.01.05.5.7 of the Regulations.  The County will then move to step 5.
B.If Not Interested in Assignment, DHCA Executes Certificate of Compliance
If ROFR is not executed, DHCA will issue a certificate of compliance for rental housing to the owner, the buyer, or any other interested parties to the purchase and sales transaction in a form appropriate for recordation in the land records.  The certificate is conclusive evidence of compliance with the Code.  No additional steps are needed.
 
Step 5 – Execution of Assignment and ROFR
If the County chooses to pursue its ROFR through an assignment of its ROFR rights, it will execute an assignment agreement with a designated qualified entity before the 60-day timeframe to exercise ROFR expires. More information on the County-Assignee agreement is provided above.  If executed, the County will give the property owner a copy of the agreement within three (3) business days.
If DHCA or the County assignee choose to exercise ROFR, they will do so by accepting the owner’s offer within 60 days of when the County receives the ROFR packet.  The acceptance will be in the form of a written contract that includes substantially the same terms and conditions contained in the owner’s bona fide contract of sale with the third party. 

• Sale will be completed within 180 days of DHCA receiving the ROFR packet unless the owner agrees to extend the period.
• Such acceptance may be conditioned on the County or County assignee, as applicable, obtaining financing at any time before the deadline for completing the sale.

The County, HOC, any tenant organization, or County assignee must not be required to pay more than 5% of the contract price as a downpayment.