In the News
Shelterforce: Giving Tenants the First Opportunity to Purchase Their Homes
By Julie Gilgoff
As state and local economies attempt to reopen, and eviction moratoriums expire, millions of Americans once again face losing their homes. While these moratoriums have temporarily protected renters who may be unemployed and unable to pay rent due to the COVID-19 pandemic, elected officials are waking up to the reality that additional, far-reaching legislation is necessary to prevent widespread eviction, homelessness, and another foreclosure crisis.
Along with legislation that cancels rent and forgives debts, we need policies that remove land from the speculative market and preserve existing affordable housing. With real estate moratoriums lifted, landlords could seek to evict tenants who are unable to pay back rent, and property owners could sell distressed properties to the highest bidder. Waves of mass evictions would be spurred by the conversion of rentals to luxury condos. Large investment firms like Blackstone Group are already poised to buy and flip distressed properties around the country, which would eliminate affordable housing options for middle- to low-income renters.
Laws that would enable tenants to purchase a property before it’s put on the market have the potential to further protect renters. Versions of a law known as the Tenant Opportunity to Purchase Act (TOPA) are currently being proposed in reconvened legislative sessions in New York and California; and in the cities of Oakland and Berkeley, California. Massachusetts is considering state enabling legislation (H.1260/ S.786), which would give all Massachusetts cities the ability to opt in to TOPA. Boston and Somerville, Massachusetts, are trying to get versions of TOPA passed through local home-rule petitions. A version of TOPA was also introduced on the federal level by Rep. Ilhan Omar, in her Emergency Rent and Mortgage Cancellation Act, which would give affordable housing developers the first right of purchase when a multi-family unit goes up for sale. Although it is unlikely that Omar’s bill will pass, the inclusion of this right in her federal bill represents widespread awareness that TOPA has the potential to help prevent another mass foreclosure crisis.
TOPA bills promote the transfer of property ownership into the hands of tenants and affordable housing developers by enabling tenants to exercise a first right of purchase. The process is outlined in various TOPA bills: landlords are required to give notice to tenants, and then allow a specified amount of time for tenants to express interest, make an offer, and secure funding.
The first TOPA bill was enacted in Washington, D.C., in 1980 to give tenants at risk of eviction a pathway to ownership and control over their homes. A 2013 report from the D.C. Fiscal Policy Institute found that TOPA helped preserve nearly 1,400 units of affordable housing in the District between 2003 and 2013, at just a fraction of a cost of building new affordable units. TOPA and Washington, D.C.’s Housing Production Trust Fund have led to the creation of 4,400 limited-equity co-op units across 99 buildings. D.C. TOPA was successful in part because a funding source, the Housing Production Trust Fund, was created about 10 years after the law’s enactment. Advocates of current TOPA proposals are similarly calling for expanded funding streams to make the first right of purchase attainable for low-income tenants.
In recent years, cities and states around the country have worked on versions of the TOPA bill that build on the D.C. law. Advocates see TOPA as an answer to keep Wall Street out of their neighborhoods, and protect communities’ affordable housing stock, especially now, in light of pandemic-related housing insecurity.
TOPA in the Works
TOPA bills that have been, or will soon be introduced, bear marked similarities with one another, but also reflect policymakers’ diverging priorities. For instance, the East Bay Community Law Center, a drafter of the Berkeley bill that also provided legal research for the Oakland and New York proposals, studied what has worked with D.C.’s law, and what could be improved.
D.C.’s TOPA law does not have a permanent affordability requirement, meaning that tenants who collectively purchase a property through TOPA using private funds could resell that property at market-rate prices without resale caps. However, if tenants utilize public subsidies or subsidized loans offered by the Department of Housing and Community Development to purchase the property, affordability restrictions (resale caps or rent limits) are triggered. Although D.C. policymakers may have intended to allow for tenants to build equity, this aspect of their TOPA bill does not accomplish other policymakers’ goals of reusing public subsidies to preserve the units of affordable housing in perpetuity.
In light of this, the East Bay Community Law Center decided to mandate permanent affordability to any property that is acquired through TOPA, which would be accomplished through deed restriction. Their system would still allow for very modest equity-building while still preserving affordability longterm.
New York State Sen. Zellnor Myrie will soon introduce a proposal for a statewide TOPA bill. Advocates of the New York bill hope that many of the properties acquired by tenants through this program will be converted into limited-equity co-ops or affordable rentals with tenant oversight. “We are looking to TOPA as one necessary tool to stabilize neighborhoods, preserve affordable housing permanently and create shared equity through tenants taking collective control of their buildings,” says Akilah Browne of New Economy Project, one of the groups helping to shape the bill.
All of the new proposals will allow tenants to assign their right to purchase to a third party who could help with financing and oversight in the acquisition and renovation process. Third-party entities may be able to help tenants acquire funding for the purchase of their property, having familiarity with available tax exemptions and credits, and with existing relationships with local banks and credit unions to leverage in securing mortgage loans.
In Berkeley, Oakland, and other jurisdictions, the third-party organizations must be vetted by the city, which will maintain a list of qualified affordable housing organizations. In order to qualify, organizations must show commitment to permanent affordability and democratic residential control. The D.C. TOPA bill leaves it up to tenants whether they assign their rights to a for-profit or nonprofit developer, and even gives the option to sell their rights to the highest bidder, which has been criticized as a practice that runs counter to the intent of the bill. Berkeley TOPA drafters learned from the D.C. bill, and chose to exclude tenants’ option to sell their rights.
Some questions up for debate among TOPA policymakers are how to ensure that a landlord accepts a good-faith offer made by tenants or affordable housing developers, and is not purposely refusing their offer in order to accept a higher bid.
Another major point where the various bills differ is whether TOPA rights are triggered for all rentals put up on the market by a landlord, or just multi-family units. D.C.’s TOPA law previously applied to single-family accommodations (SFAs), but in 2019 the law was amended to exclude certain SFAs. Berkeley’s proposed bill will apply to all rental properties in the city, including SFAs, with a number of exceptions and safeguards against the undesireable consequences of including SFAs in D.C. Oakland’s proposed bill, authored by Council Member Nikki Fortunato Bas and supported by the Oakland Opportunity Coalition, offers an exemption to transfers within families upon the death of a family member, as would Berkeley.
The timeframe given to tenants to exercise their right to purchase also varies by jurisdiction, and depends on the type of property (i.e., single-family home, duplex, multi-unit building). Each bill specifies deadlines for tenants to submit a statement of interest, make an offer, and then to secure financing and close on the property. In general, the time allotted increases for properties with five or more units, since mortgages for collectively owned properties are typically difficult to obtain, and tenants of multi-family units of five or more must organize into a tenant association to execute their right if one is not already in place.
Berkeley’s bill is opposed by a coalition called STOP TOPA (Taking Our Property Away), which claims the bill is an attack on private property. STOP TOPA represents real estate lobbyists and landlord lobbying groups. One of the main organizers for the Berkeley STOP TOPA contingent is from Bridge Association of Realtors.
In response to the opposition group circulating incendiary information about the proposal, supporters created their own campaign, Yes2TOPA. This group’s website includes justifications for the bill, including a statistic gathered from an Urban Displacement Project study that in all of Berkeley’s low-income tracts, households are either at risk of displacement, undergoing displacement, or experiencing advanced gentrification.
Outlook for the Future
Mayor Jesse Arreguín of Berkeley strongly supports the TOPA bill, which was proposed only weeks before California executed its shelter-in-place order. The COVID-19 crisis diverted the city’s attention to emergency responses, but now that the initial shock of the pandemic is subsiding, coalitions are beginning to revive momentum with community partners and electeds. “We’re hopeful about the outlook,” says Hewot Shankute of the East Bay Community Law Center.
David Tisel, project manager at Somerville Community Corporation (SCC) in Massachusetts, is likewise optimistic about the passage of TOPA bills in Boston and Somerville. Tisel has been instrumental in petitioning the Massachusetts state legislature to grant a home-rule petition to allow Somerville to pass TOPA. Boston housing advocates have done the same. Both jurisdictions are pursuing state-enabling legislation, which would allow any city or town in Massachusetts to pass a version of the bill. “I think TOPA has an even greater chance of passing in this environment of pandemic-related housing insecurity,” Tisel states. “We don’t want another housing crisis like what happened in 2008, and we need measures like TOPA to prevent that from happening.”
Each jurisdiction’s iteration of TOPA has differing prospects for passage, and falls along varying timelines. According to a spokesperson from Housing Justice for All, a leader in the New York State push for TOPA, it’s not yet clear whether NY TOPA will be introduced in the special summer session of 2020 or at the start of the new session in January 2021.
The Berkeley bill went to the The Land Use, Housing & Economic Development Committee in early March, but hasn’t been visited publicly again since COVID.
The Somerville city council unanimously passed a local Home Rule Petition with the mayor’s approval in December 2019. The Home Rule Petition was assigned to the House’s Joint Committee on Housing where it received a favorable report in late May, but there are still many more hurdles to go through before passage of a statewide Massachusetts or local TOPA bills.