Legal Alert

Howard County’s New ROFR Law: Same Name, Different Game

by the Mixed-Use, Condominium, and Multifamily Development Group

December 16, 2020

Summary

The new right of first refusal (ROFR) law in Howard County, Maryland, differs significantly from similar requirements in Prince George’s County and Montgomery County, Maryland, as well as the District of Columbia. Early indicators suggest that the Howard County Housing Commission may take a close look at purchasing ROFR properties.

The Upshot

Sellers of multifamily properties are required to notify the Howard County Department of Housing and Community Development (DHCD) and the Howard County Housing Commission (Commission) of their intent to sell no later than three days after an offering or listing for sale (Offer Notice). In addition, within 10 days of entering into sales contracts sellers must provide notices of the proposed sale and a ROFR to the Commission and DHCD on substantially similar terms and conditions (Contract Notice). Neither tenants nor tenant organizations are afforded ROFR rights; however, tenants are entitled to the Offer Notice and the Contract Notice.
The Commission and DHCD are required to notify sellers within seven days after the Contract Notice if they do not intend to exercise the ROFR. However, there is no obligation to notify sellers within this timeframe in the event there is interest in—or indecision about—exercising the ROFR. Unless the Commission and DHCD waive their rights sooner, the ROFR must remain open for 45 days after the Contract Notice. If the ROFR is exercised, the applicable ROFR party must close within 180 days of the Contract Notice, unless the seller agrees to extend. If both the Commission and DHCD decline their ROFR or fail to submit a contract within 45 days or close within 180 days, all ROFR rights lapse.
Unlike the ROFR processes in neighboring Maryland counties, the law does not currently contemplate any Howard County agency issuing a certificate of compliance at the end of the ROFR process. Instead, sellers must deliver certificates of compliance to the County. In light of title insurance concerns with this procedure, our lawyers are proactively discussing alternatives with the Howard County authorities.

The Bottom Line

Multifamily sellers, buyers, lenders, title companies and Howard County authorities are all grappling with the new law. While there are currently no plans to adopt regulations, we expect processes and procedures to be refined in the future. Although the new law was previously untested, our lawyers submitted ROFRs for two separate properties earlier this month. DHCD notified us that they did not intend to purchase either property, but we have yet to receive similar notices from the Commission.

FULL ALERT

Since 2007, sellers of multifamily properties of five or more units in Maryland’s Howard County—or a majority interest in the indirect ownership thereof—within a 12-month period have been required by law to provide notice of their intent to sell to the Commission and DHCD. This was merely a notice of intent to sell, and no right of first refusal (ROFR) was required. As a practical matter, some sellers may have been unaware of this requirement and/or title companies may have been willing to insure transactions without conclusive evidence of compliance. However, amendments to Title 13, Subtitle 14 of the Howard County Code effective as of September 6, 2020 (as amended, the ROFR Code) now require sellers to also provide a ROFR to the Howard County Department of Housing and Community Development (DHCD) and the Howard County Housing Commission (Commission and together with DHCD, collectively, the ROFR Parties).

The ROFR Code retains the existing requirement that sellers provide notice to the ROFR Parties of their intent to sell within three days of any offering or listing (the Offer Notice) and, despite the fact that tenants and tenant organizations do not have rights to purchase under the new ROFR Code, requires concurrent notice be provided to all tenants at the property. If the seller executes a contract with a buyer, the seller must provide each of the ROFR Parties with a ROFR; deliver notice of the proposed sale to each of the ROFR Parties, all tenants, any tenant organization for the property (if applicable), and the Howard County Department of Licenses, Permits and Inspection; and post notice of the proposed sale conspicuously at the property—in each case within 10 days of entering into a bona fide contract of sale (the Contract Notice). The lag between the Offer Notice and the Contract Notice is intended to afford the ROFR Parties with advance notice of the pending ROFR.

While the ROFR Parties are required to notify sellers if they do not intend to exercise their ROFRs within seven days of the Contract Notice, the ROFR Parties otherwise have up to 45 days after the Contract Notice to exercise their ROFR (the ROFR Expiration Date). As a result, while the ROFR Parties may indicate interest by actions such as requesting additional information about the property or access to the property for further investigation, it is possible that sellers may not obtain official confirmation of the intentions of a ROFR Party prior to the ROFR Expiration Date. If a ROFR offer is exercised, the applicable ROFR Party must complete the sale within 180 days of the Contract Notice (the ROFR Outside Date). Alternatively, if the ROFR Parties decline their ROFR, fail to exercise their ROFR prior to the ROFR Expiration Date, or fail to settle by the ROFR Outside Date, all ROFR rights lapse and the seller may proceed to closing.

In Prince George’s County and Montgomery County following the waiver or lapse of ROFR rights, governmental authorities issue certificates of compliance. These certificates are relied upon by sellers, buyers, lenders, and title companies as conclusive evidence of compliance with ROFR laws. Unlike its neighboring counties, the new ROFR Code does not currently contemplate official certification by any Howard County department or agency. In fact, under the new ROFR Code, sellers must deliver certificates confirming compliance with the ROFR Code to the ROFR Parties (with respect to notice compliance) and the Howard County Department of Finance (with respect to compliance generally); copies may be recorded with the deed transferring title. We are currently exploring alternatives with the Howard County authorities that will provide more certainty to all parties.

We expect that the interpretations and implementation of the ROFR Code will continue and evolve.

The Ballard Spahr Mixed Use, Condominium, and Multifamily Team will continue to proactively engage in the evolution of this law and process and will remain available to assist multifamily property owners and investors with complying with the requirements of the new ROFR Code and addressing questions that may arise.

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.