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On May 16, 1983, Mayor Marion Barry sent a letter to D.C. Councilmember John Ray about some pending Council business. The letter concerned the city’s latest rental housing law, and several proposed amendments. Barry was supportive of the legislation and most of the amendments, but there was one provision with which he took issue. He wrote:
The law in question was the 1980 Tenant Opportunity to Purchase Act, which gave tenants the right to buy their building when it was put up for sale. It was an important tenant protection at a time when sales and condo conversions routinely displaced low-income residents, and it gave tenants substantial bargaining power that allowed them to secure rent freezes and building improvements.
But there was a hitch: the definition of “sale.” Over the next three decades, that word would cause the Council, and the city’s renters, all sorts of headaches. In the 1990s and early 2000s, buyers and sellers of apartment buildings—-aided by clever lawyers, particularly a man named Richard Luchs—-took advantage of a loophole in the definition of “sale” that allowed them to transfer up to 99.99 percent of the interest in a building without triggering the tenants’ TOPA rights. In 2005, the Council closed that loophole. Then Luchs and co. tried a different tack: They created trusts and holding companies that owned buildings, and then sold those shell companies, arguing that the sale of a controlling entity didn’t constitute the sale of a building. The courts ended up rejecting that reasoning in two cases in 2010 and 2011.
And now, as I detail in this week’s Washington City Paper cover story, Luchs has found yet another loophole. This time, he argues that by bundling multiple properties together under an LLC, an owner can sell them without giving tenants the right to purchase them. That’s because TOPA governs a sale of a property-controlling entity only if a housing accommodation constitutes the “sole or principal asset” of the entity. If there are multiple assets, no single accommodation is the principal one, Luchs claims, and so TOPA doesn’t apply.
The case is now before the D.C. Superior Court. Later this year, we may get a ruling that would either close this loophole or make it official, potentially prompting the Council to act again.
But much of the litigation of the past decade could probably have been avoided if the 1983 amendment that the late Barry opposed had become law. The cases decided in 2010 and 2011, which had dragged on for years before arriving at a decision, concerned exactly this question. And the current case involves similar issues. Yet at the time, Barry wrote, the loophole had not yet been discovered and exploited, so there was no reason to close it.
Two years earlier, the D.C. government had missed another opportunity to close a TOPA loophole. The excerpt below comes from a March 1981 letter from the Harrison Institute for Public Law at Georgetown University to Carol Thompson, the special assistant to the director of the Department of Housing and Community Development and the future city administrator.
Again, this language might seem obscure and minute. But try telling that to the residents of the Museum Square Apartments at 401 K St. NW. Last year, the owner of the complex informed the Section 8 tenants that the building would be demolished unless they could come up with $250 million.
TOPA states that before demolishing an apartment building, the owner must provide tenants with a “bona fide offer of sale”—-a fair price that they can pay to buy the building. Museum Square’s owner, aided by Luchs, claimed that $250 million was a bona fide offer. And because the law doesn’t define “bone fide,” the building’s future remains uncertain, despite Council efforts to ban excessive sale prices like this one.
Once again, this all might have been avoided if the language 34 years ago had been preserved. Of course, it’s easy to say that with the benefit of hindsight. But it’s a worthwhile lesson for current D.C. lawmakers as they craft the laws whose ambiguities might lead to exploitation and lawsuits three decades in the future.
Photo by Darrow Montgomery