ROFR Law, HID Tax Abatement, Rent Control Laws and Regulations, and SCOTUS Update

Our recent Alert included details and updates on new Montgomery County rent control regulations, an expanded right of first refusal (ROFR) process, and our related advocacy efforts. Here are links to our most recent Alerts (February 1 ǀ February 7). Below are some further updates on local and national developments affecting multifamily properties:

Montgomery County Expanded ROFR Law

As mentioned in our prior Alert, the Montgomery County Council introduced Expedited Bill 38-23 (Bill), which was enacted on February 13, 2024. The Bill allows the County to assign ROFR rights to “qualified entities,” similar to the ROFR law in Prince George’s County. The housing agencies and authorities for the cities of Rockville, Gaithersburg, and Takoma Park are designated as “qualified entities” and others may be designated if the Department of Housing and Community Affairs (DHCA) determines that the entity:

1. has demonstrated expertise in acquiring, maintaining, and managing rental and affordable housing;
2. is a non-profit, for profit, or governmental housing agency or authority in good standing under Maryland law;
3. is registered and licensed to do business in Maryland
4. commits to maintain the affordability of the acquired housing; and
5. commits not to disclose information received in connection with the ROFR process.

In addition, the Bill limits deposits to 5% of the purchase price for ROFR contracts and provides that if there is a ROFR exercise and no closing under the ROFR contract, then the owner can proceed with the sale without providing a new offer, as long as (i) the purchase price is not less than 90% of the original offer, and (ii) the transfer occurs within 365 days of the original offer. The Bill becomes effective when the County Executive signs it and applies retroactively to any ROFR received by the County after January 1, 2024. These changes to the ROFR law are likely to result in additional delays, costs, and complications for multifamily transactions in the County.

Prince George’s County Rent Control

The emergency rent control law enacted last year in Prince George’s County expires in April of this year. The Rent Stabilization Work Group has been meeting regularly to explore alternatives after this law expires. Separately, we understand that legislation could be introduced that would extend the 3% cap when the existing law expires, either temporarily or without a sunset date. Some clients have inquired about challenging the law if such legislation is introduced since the premise for the existing 3% cap was a rental housing emergency and drastically escalating rents, which are no longer the case. We will provide updates when available. 

DC Housing In Downtown (HID) Tax Abatement Program

On Friday, January 26, 2024, the District Deputy Mayor for Planning and Economic Development (DMPED) proposed regulations to accompany the HID Tax Abatement law, as discussed in our prior Alert. The HID Tax Abatement Law and proposed regulations provide three incentives: (i) a 20-year tax abatement and exemptions from the (ii) Tenant Opportunity to Purchase Act (TOPA) and (iii) First Source Agreement requirements — for property owners converting all or part of their commercial properties to residential uses. Eligible properties must yield a minimum of 10 housing units during the abatement period and be located in portions of DuPont Circle, West End, Foggy Bottom, Penn Quarter, Chinatown and East End. Additionally, eligible properties, for the duration of the abatement period, must make either 10% of the housing units affordable to families earning 60% of the median family income, or 18% of the housing units affordable to families earning 80% of the median family income. The proposed regulations limit the total amount of tax abatements that the Mayor can approve, subject to the availability of appropriated funding, cannot exceed $2.5 million for each of fiscal years 2024, 2025, and 2026; $6.8 million for fiscal year 2027; $41 million for fiscal year 2028; and 104% of the prior fiscal year’s cap for each succeeding fiscal year after 2028. Property owners who receive the tax abatement will be exempt from TOPA for the first sale of the property within 10 years after the certificate of occupancy for the development has been issued, and exempt from the First Source Agreement requirement for construction and development of the property. For those wishing to comment before the comment period ends on February 26, 2024, go to the DC regulations page here. You can also send your comments to DMPED by mail or email at Olivia.Jovine@dc.gov.

Montgomery County Rent Control Regulation Advocacy

As a follow up to our recent meeting with Montgomery County Council President Andrew Friedson, we hosted a meeting of some 30 multifamily stakeholders to discuss a collective approach to the proposed rent control regulations in Montgomery County. Following a lively discussion, there was a consensus that we should pursue a re-write of the proposed rent control regulations to DHCA, followed by outreach to key Councilmembers, seeking to delay the adoption of these regulations unless our concerns are addressed. If there is sufficient interest in this initiative, we will review and then circulate a draft mark-up and hold a work session to get comments from represented stakeholders. Unless, extended, the public comment period on the proposed regulations runs through the end of February, so time is of the essence. If you have not already done so, please let us know if you want to be part of this Regulation Advocacy effort. Once we know the number of participants, we will have a better idea of the anticipated per-participant cost. 

SCOTUS NY Rent Control Cases

We finally received direction from the U.S. Supreme Court (SCOTUS) regarding the constitutional challenges to the New York City ordinance. The Court denied certiorari in the two New York cases that were pending for several months. As is customary, SCOTUS did not give reasons for the denial. Nonetheless, Justice Thomas wrote separately to explain that he believes the limitations on eviction in the New York City law could raise a constitutional claim if specific, as opposed to general, allegations were presented. Consistent with the direction we have received from the 32 members of our Rent Control Coalition, we continue to explore potential legal actions to challenge or minimize the effect of the Rent Control Law, including its regulations. Although SCOTUS could have provided a road map regarding certain claims if it had agreed to review the New York City cases, there are a number of other potential theories we continue to explore. One theory is that the Rent Control Law is arbitrary in its application only to properties that were built 23 or more years ago. Another theory is the application of rent control to vacant units. A third theory would involve a pre-enforcement challenge to the regulations. Last week, the Ninth Circuit held that a challenge to a California rent control ordinance could be maintained even before the statute was enforced against the plaintiff. Peace Ranch, LLC v. Bonta, No. 22-16063 (9th Cir. Feb. 13, 2024). While the rent control ordinance there appeared tailored to apply to a single mobile home park, the case creates an opening for bringing a pre-enforcement challenge. Finally, we could potentially challenge the regulations once they are finalized and applied to one or more property owners in a manner that results in actual economic harm. A virtual meeting is scheduled for Tuesday, February 27, 2024, at 11AM. If you are not already a member of the Rent Control Coalition but would like to join and participate in this meeting, let us know.

Delegate Active on Tenant Issues Sued Three Times for Failure to Pay Rent

The following was posted this week on a local real estate blog. This may shed some light on the political support for rent control.

National and State Politics and Policies

We have reported previously on the Blueprint for a Renters Bill of Rights and other initiatives at the federal and state level. (Several multifamily regulatory bills are pending in Maryland.) Last week, former Maryland Governor Hogan announced that he is running for Maryland’s US Senate seat. Because of prior client interactions with him on real estate and business issues when he was Governor, some clients have expressed an interest in meeting with him about his US Senate candidacy. If that is of interest to you, please let us know.

We will continue to provide updates to these and other relevant industry initiatives and issues. Should you have any questions or would like to join the Regulation Advocacy and/or the Rent Control Coalition efforts, please respond to this email or CondoMultifamilyTeam@ballardspahr.com.

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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.