Also known under acronyms such as TOPA, a tenant opportunity to purchase an apartment, or TROFR (tenant right of first refusal) is a legislated mandate generally intended to, over time, take ownership of housing out of the private market and push it toward favored non-profit governmentally supported corporations; These non-profits and associated organizations lobby lawmakers heavily for privileged access to properties, capital and favorable tax treatment in order to inhibit the normal economic transfer processes, particularly targeting heirs and retirees during the critical times when properties must change hands.
This posting will be updated with background information and links to external references.
- District of Columbia Association of REALTORS® TOPA horror stories
- Massachusetts House Bill H3017
- Cambridge Massachusetts Policy Order 2018 #55
- Cambridge City Council Meeting Feb 26 including Policy Order 2018 #55
Some analysis from Skip Schloming
TOPA and TRFR are different names for the same thing. They would mandate that when an owner plans to sell one or more rental units, the affected tenants get the right to purchase their own unit or the whole building for themselves, before anyone else can buy it. How it works: first, the owner advertises the property and gets a signed purchase-and-sale agreement with a willing buyer at the market value of the property. This sale, however, gets stopped, and the tenant has a period of time – up to six months and possibly longer – to exercise his right to purchase the property at the same price as in the purchase-and-sale agreement. This arrangement supposedly ensures the owner of getting a market price for his or her property. But that “market price” will be lower if the city enacts this tenant right.
The consequences of this arrangement, however, are awful for owners. This tenant right means that the owner’s heirs will be cut out of the possibility of receiving that property through inheritance. It means that owner’s cannot directly sell their property, before death, even at a low price, to their family members or relatives, as many owners may want to do when they want to retire from managing their rental property. Because of these limitations on the right to sell your property to whomever you please, your rental property loses value, your sales price will be less than it would be without this tenant right, and your tenant gets the benefit of this lower price. If TRFR or TOPA is enacted, all rental property in the city will lose value (except owner-occupied two- and three-family properties, which would be exempt from it). That lower property value all across Cambridge on the affected properties will lower property tax revenue to the city, and push up property taxes for everyone so that the city can maintain its usual revenue level. Since tenants usually have less income in general, they won’t be able to buy large buildings, so this tenant right, if enacted, would hit hardest on the smallest owners.
Furthermore, the tenant also gets the right to pass his or her right of first refusal (TRFR or TOPA) on to any nonprofit housing organization, which can then buy the property and operate it as “affordable” housing, in other words, housing with lower, below-market rents. How often will this nonprofit transfer occur? No one knows. But we do know that, since nonprofits pay no taxes, every such sale will reduce property tax revenues to the city. To compensate for these lost revenues, the city will have to raise property tax rates to recover the lost revenue and maintain city services. All in all, TOPA or TRFR is an awful idea. Please contact Cambridge city councilors and urge them to oppose this idea.
A comment on the above analysis
Owner-occupied two- and three-family properties would lose the exception upon the death of the owner, obviously, since the properties would no longer be occupied by a natural person, so these properties would also lose some value due to the risk of death before a sale. Any new construction of 2 and 3 families is subject to the same kind of risk.
Pushing tenants into ownership because they are faced with a deal-too-good-to-refuse also risks passing properties to people who might be tempted to borrow too much money to make the purchase, and lack the working capital needed to deal with maintenance issues.
Using the following references I estimated that a reasonable estimate of the value that TRFR/TOPA will transfer from owners to tenants is around $500,000,000. Half a billion dollars, almost the yearly budget of the City of Cambridge. These costs will be passed along to tenants over time.
- Articles from Washington DC area mentioning payment amounts to tenants to either agree not to exercise their TOPA or to transfer it to a non-profit.
- Cambridge Property Information Report (PDF)
- Budget of City of Cambridge