Maryland Renters’ Rights and Stabilization Act of 2024

October 11, 2024

What Every Residential Landlord Needs to Know Before You Sell

By Kiana I. Taylor, Esq.

The Maryland Renters’ Rights and Stabilization Act of 2024 (the “Act”) represents a major legislative initiative to address housing affordability and support tenants’ pathways to homeownership. While the primary focus of the Act is on safeguarding renters, it also establishes the Office of Tenant and Landlord Affairs (OTLA) and introduces new obligations for landlords, especially regarding the sale of residential rental properties. One of the most impactful provisions for landlords, effective October 1, 2024, is the statewide establishment of a Tenant Right of First Refusal (ROFR) to purchase residential property containing three (3) or fewer units.

How the Tenant Right of First Refusal (ROFR) Works
 
Notice to Tenants. Before a landlord lists its residential property for sale to the public or enters into a contract of sale with a third party, the landlord must provide written notice to its tenant, who has occupied the leased property for at least six (6) months and is named as a tenant in the written lease, of its right to deliver an offer to purchase the property. The notice must:
  • Be commercially reasonable;
  • Be in the form specified by the Department of Housing and Community Development;
  • Be delivered by first class mail with a certificate of mailing or via a delivery service providing delivery tracking and confirmation;
  • Include material terms, such as:
    • the sale price,
    • settlement date,
    • any contingencies, and
    • other terms the landlord is willing to include in a sale contract.
  • Clearly state that this is a solicitation of an offer to purchase and is not a binding contract of sale;
  • Specify deadlines for tenants to submit an offer, including details about the duration of their exclusive negotiation period; and
  • Not impose restrictions on financing methods or the right of inspection.

Tenant Exercise of ROFR; Exclusive Negotiation Period. Under the Act, a tenant has thirty (30) days after receipt of the landlord’s notice to submit a written offer to purchase the property. If the tenant (or group of tenants) affirmatively declines the landlord’s offer of sale or fails to respond to the notice within the thirty (30) day period, the ROFR is waived, allowing the landlord to proceed with listing the property for sale or selling it directly to a third party. 

If the landlord receives an offer to purchase from the tenant, the landlord must, within five (5) days:

  1. Accept the offer, if the offer contains the same or more favorable material terms as those contained in the landlord’s notice, or
  2. Deliver a counteroffer to the tenant with an explanation of the differences in material terms.

If the landlord and tenant enter into a contract of sale, but it is terminated before settlement, the ROFR is considered waived. Additionally, if after notice and expiration of the negotiation period, no purchase contract is executed between the landlord and tenant, the landlord may enter into a contract with a third party or list the property for sale. However, if the landlord intends to accept a purchase offer from a third party for an amount that is at least 10% lower than the purchase price offered to the tenant in any previous notice from the landlord or counteroffer during the exclusive negotiation period, then the tenant retains the ROFR. In this case, the landlord must reoffer the property to the tenant at the lower purchase offer. It should be noted that the tenant’s right under the Act is not assignable, and cannot be waived by the tenant.

Exceptions and Exemptions Under the Act

Under the Act, the ROFR does not apply in certain circumstances. Below are examples of transfers that don’t trigger a tenant’s ROFR:

  • Transfers to family members (e.g., spouse, sibling, children).
  • Transfers to a business entity wholly owned by the landlord.
  • Transfers through court orders (e.g., foreclosure, tax sale).
  • Transfers for estate planning (e.g., via a will or trust).
  • Transfers to the state or local government.
  • Transfers in lieu of foreclosure.
  • Transfers under court-approved settlements or bankruptcy proceedings.
  • Transfers by public housing authorities.
  • Transfers of property consisting of four (4) or more dwelling units.

Impact of the Act on Landlords

Compliance with the Act introduces several changes for landlords, significantly impacting how they manage, sell and invest in rental properties.

Required Disclosures to OTLA. In addition to meeting all of the timing requirements in the Act, throughout the ROFR process, landlords are required to make certain disclosures. These include:

  • mailing a copy of the landlord’s offer to purchase provided to tenants to OTLA;
  • providing notice to OTLA when the tenant accepts, denies or fails to respond to the landlord’s offer to purchase; and
  • landlords are obligated to notify prospective purchasers of the existence of a tenant’s right of first refusal pursuant to the Act.

Impacts on Sale Timeline. The ROFR process will have an impact on the timing of the sale of the landlord’s property, including protracted negotiations with tenants and possible concessions that might not have been necessary with other prospective buyers.

Impact of Act on Lease Terminations Before Sale. Although the full impact of the Act is unknown, landlords should be careful to prevent forcing out a tenant for the sole purpose of facilitating the landlord’s desire to sell the property to avoid compliance with the ROFR process. Although landlords in Maryland retain the right to terminate a tenancy where the lease term has expired and the landlord desires to recover possession of the property, and to enforce such termination by an action against a tenant holding over, the timing and circumstance of such a termination and subsequent listing for sale of the property may lead to a former tenant’s complaint or an independent inquiry by the OTLA.

Failure to Comply. If the landlord fails to comply with the provisions of the Act, the landlord is subject to a maximum $1,000 fine. In addition, although failure of the landlord to comply with the Act does not attach to the property and a tenant has no right to file a notice of lis pendens, a tenant does have a right to sue the landlord personally for violations of the tenant ROFR.

Preempted County Laws

The Act specifically preempts any existing local laws governing a tenant’s right of first refusal as such local laws apply to three (3) or fewer residential dwelling units. For instance, Baltimore City’s Tenant Opportunity to Purchase Act is entirely preempted by the Act.

If you would like to speak with one of our attorneys about the Maryland Renters’ Rights and Stabilization Act of 2024, please contact Kiana I. Taylor at ktaylor@sgrwlaw.com or (301) 634-3199.

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