Under existing law in Montgomery County, Maryland, any time covered multifamily property is sold in the County, the County (acting through its Department of Housing and Community Development (DHCD)), the Housing Opportunities Commission and any tenant organization in place for the property must be afforded a right of first refusal (ROFR) to purchase the property.  

On February 13, the County Council (Council) enacted Expedited Bill No. 38-23, which principally allows the County to assign its ROFR to a “qualified entity.” 

Under the new legislation, an entity can be deemed a qualified entity by DHCD if it has determined the entity:

  • Has demonstrated experience acquiring, maintaining and managing rental and affordable housing;
  • Is a bona fide nonprofit or for-profit entity, or a governmental housing agency or authority, in good standing under the laws of the State at the time of the assignment;
  • Is registered and licensed to do business in Maryland;
  • Has committed in writing to maintain affordability of the housing acquired; and
  • Has committed in writing not to disclose information or documentation received under the ROFR law unless required by law.  The Rockville DHCD and Housing Enterprises, the Gaithersburg DHCD and Takoma Park DHCD (collectively, the “EQEs”) are all designated as qualified entities automatically under the law. 

Other changes implemented by the law include the following:

  1. Electronic delivery is now required, unless otherwise specified by DHCD, of the initial ROFR offer package to the County;
  2. The County must now send an electronic copy of the ROFR package to all “qualified entities”;
  3. The deposit paid when the ROFR is invoked is now capped at 5% of the purchase price; and
  4. If the ROFR is exercised but closing with the ROFR purchaser does not occur, the Seller can only sell the property to the original contract purchaser or another buyer within 1 year of the date of the initial ROFR offer, and only if the price is at least 90% of the original price. The law also, helpfully, exempts certain LIHTC transactions from the ROFR process. 

The legislation contemplates future Method 2 regulations to establish the process to qualify and select entities that can receive a ROFR assignment.

Until the earlier of the date those regulations are final, or May 13, the County can assign its ROFR if received after January 1, 2024 if the assignee:

  • Demonstrates it is a bona fide nonprofit or for-profit entity in good standing in Maryland or an EQE;
  • Certifies that for the past 10 years the individual or each principal complied with all laws related to acquisition, maintenance, and management of rental and affordable housing;
  • Demonstrates it has expertise and experience acquiring, owning, operating, managing and developing affordable multifamily projects in the last 5 years (including a certification that it has never been in financial default as borrower or guarantor or if so explaining the circumstances of the default);
  • Demonstrates proof of readiness to purchase the property; and (e) demonstrates a commitment to community engagement. 

If you have any questions about the new rules, you can reach Ashley Haun at [email protected] or 301-657-0152.