A Section 8 building owner’s ultimatum that low-income tenants come up with $250 million or face eviction violates the D.C. law requiring a “bona fide offer of sale” prior to tearing down a building, a judge has ruled.
Last June, the Williamsburg, Va.-based Bush Companies notified residents of the Museum Square Apartments at 401 K St. NW that Bush planned to tear down the aging apartment building. Under the Tenant Opportunity to Purchase Act, Bush was required to give the residents a chance to buy the property. It did so, but set the price at $250 million—-a heavy lift for the 302 households at Museum Square, who are all low-income and mostly Chinese, many with a limited command of English.
Two members of the D.C. Council found that sum exorbitant and introduced legislation to limit the price that building owners can charge under TOPA. The tenants also thought it violated the law and filed suit in October. Bush responded by filing its own suit against the city for legislation drafted by then-Councilmember David Catania and then-Mayor Vince Gray that, Bush alleged, unfairly targeted the company.
Yesterday, the tenants scored a major victory in the case, as D.C. Superior Court Judge Stuart G. Nash issued a summary judgment in their favor. Bush (operating under the name of its affiliate for Museum Square, Parcel One Phase One Associates, L.L.P.), Nash found, had failed to demonstrate a reasonable basis for determining that $250 million constituted a bona fide offer of sale.
The term “bona fide” is not defined in D.C.’s housing law. In most TOPA cases, it’s determined by the market: Before an owner sells a property, he or she must give the tenants a chance to buy it, with the price typically set by whatever a third party is willing to pay. But in the case of demolition, there’s no market force determining a price, and so it’s up to the owner to come up with a fair offer.
There isn’t an exact legal precedent for defining “bona fide,” but Bush, in its argument in this case, relied on the closest thing that exists. In 1999, the Phillips Collection bought an apartment building adjacent to its 21st Street NW museum for $1.4 million. Two years later, Phillips issued the tenants a notice to vacate so it could demolish the building and construct a Center for the Study and Appreciation of Modern Art. Accompanying the notice was a TOPA offer, setting the price of the building at $7.8 million. Phillips said that was the amount it would cost to find a comparably suitable building nearby for its art study center; the tenants countered that it wasn’t a bona fide offer; and the matter went to court. The Superior Court and Court of Appeals both ruled in favor of Phillips, finding that the unique intended use of the property meant that Phillips shouldn’t have to set the price at the existing market value of the apartment building.
But Nash determined that the specific circumstances of the Phillips case didn’t apply more broadly to residential properties like Museum Square. (Bush intends to rebuild the property as 825 apartments and condos.) “The problem with Parcel One’s interpretation is that, if market value is removed as the basis for ascertaining whether an offer has been made in good faith, there is no readily identifiable alternative,” he wrote in his ruling.
Because Nash was weighing the tenants’ motion for a summary judgment—-a ruling without going to trial—-he had to find their case overwhelmingly persuasive in order to rule in their favor. And he did. In order to justify its $250 million offer, Bush relied on its calculations for the future value of the property, after redevelopment. Nash rejected that methodology, leaving Bush without a remaining argument in its favor and the tenants victorious.
“It is beyond dispute that the methodology adopted by the defendant was neither designed to, nor did, achieve a reasonable estimate of the property’s current market value,” Nash wrote. “Accordingly, the Court finds that no reasonable fact finder would be able to return a verdict on behalf of the defendant.”
Just as a ruling in favor of Bush could have set a profound precedent, allowing property owners in increasingly high-demand areas to tear down their properties without giving tenants a chance to buy them for a price they could possibly afford, the ruling against Bush could likewise set a legal basis for future TOPA cases. Nash was explicit about reining in the applicability of the Phillips case to other properties.
“This Court interprets Philips [sic] to carve out an exception to the general rule,” he wrote. “Market value need not always be the measure of whether a property owner’s offer of sale is bona fide or made in good faith. There may be special circumstances, as were present in Philips, in which a property owner is justified in valuing its property higher than the market value, and extending an offer of sale consistent with that higher valuation. However, the default position, in the absence of proof of such special circumstances, is that market value is the essential touchstone in assessing whether an owner has made a bona fide offer.”
The parties in the case will return to court next Wednesday to discuss the relief that will be granted to the residents of Museum Square.
Photo by Darrow Montgomery