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In October 2001, law student Barry Weise was in his single-bedroom apartment at 1816 Kalorama Road NW when a team of visitors arrived. Management had notified tenants of all 21 apartments that a maintenance inspection was scheduled. Judging by the inspectors’ business attire, however, Weise sensed something amiss.
“In walked five guys dressed as though they were going on dates in Georgetown,” he says. “They didn’t look like they knew a wrench from a screwdriver.”
The inspectors took a lot of photographs, he says.
Months later, Weise and his neighbors would find out that their building had been sold without their knowledge. “We felt cheated,” says Weise, now president of the building’s tenants’ association.
The renters’ group sued. And lost. Though D.C. tenants are supposed to have the right of first refusal to buy their buildings, that law has been widely circumvented by property buyers through partial transfers of property.
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For $1.05 million, the new owners at 1816 Kalorama, for instance, had officially acquired 95 percent of the building—an overwhelming majority interest, but not enough to meet the District’s legal definition of a sale. According an affidavit filed by the Department of Consumer and Regulatory Affairs (DCRA) in another case, any “sale of less than 100% of the tenancy-in-common interests in a property does not constitute a ‘sale’ or ‘sell’ as those terms are defined in the [Rental Housing Conversion and Sale] Act,” which otherwise provides tenants their right of first refusal.
But this past December, the Kalorama tenants’ lawyers, Benny Kass and Richard Schmitt, asked the court to reconsider the case, following a separate ruling that called the DCRA’s legal interpretation into question.
On Nov. 24, D.C. Superior Court Judge Melvin R. Wright had sided with tenants from the Capital Park complex in Southwest, who had sued the partial-transfer buyer of their apartments. Judge Wright flat-out rejected that buyer’s no-sale argument, ruling: “[T]he clear legislative history and intent of the Sale Act were to treat any transfer of ownership interest as a ‘sale.’”
To suggest otherwise, Wright wrote, “…would be not only contrary to the legislative intent but would be absurd and would produce manifest injustice.”
Judge Wright’s decision stemmed from an October 2002 deal in which developer James J. Wilson and associates paid $38 million to acquire a 95 percent interest in the Capitol Park Plaza and Twin Towers apartments.
The DCRA had deemed the deal exempt from the law’s tenants-rights provisions. Capitol Park residents didn’t find out about the sale until their new landlord notified them of rent increases.
And Capitol Park purchase was nothing new. The DCRA has greenlighted plenty of similar deals, known as “95/5” transactions, over the past few years. In a signed affidavit, dated July 30, 2002, DCRA housing-regulation specialist Linda Harried admitted to writing numerous letters to buyers, specifically stating the administration’s policy that partial transfers don’t trigger tenants’ right to purchase.
The Common Denominator reported in November that the DCRA had issued 99 such “exemption” letters since September 2000.
In rendering his decision, Judge Wright cited e-mails, obtained during the discovery phase of the proceedings, that explicitly stated the Capitol Park buyers’ intent “to structure this deal so that it satisfies everyone without triggering the tenants’ right to purchase.”
Real-estate attorney Richard Luchs—who is credited with coming up with the partial-transfer strategy and structuring the Capitol Park deal—declines comment on the impact of Wright’s decision.
The ruling doesn’t automatically set a precedent for other cases, says Georgetown University Law Center professor Michael Diamond, because it’s a lower-court opinion in a pretrial motion.
But lawyers for tenants say it has strengthened their ability to challenge partial-transfer deals previously approved by DCRA. Wright’s ruling gives the Kalorama case “a new heart,” says Kalorama tenants’ attorney Schmitt. Other tenants’ cases are forthcoming, too.
“The opinion really calls into question the legality of these transactions,” says attorney Jonathan Tycko, who, alongside lawyer Steve Skalet, represents residents in the Capitol Park case.
Tycko and Skalet recently filed another suit challenging a similar ownership switch at 3737 Legation St. NW. The attorneys are preparing to file a third case, Tycko says, though he declines to discuss specifics. “And there may be more coming down the pike,” he adds.
Given the number of partial-transfers approved by the DCRA, litigation could snowball—if, that is, affected tenants find out about it.
“The whole purpose of these 95/5 transactions was to allow the owners to sell the buildings without telling the tenants,” Tycko says. “In a lot of the cases, the tenants don’t even know that they have a claim.” CP