One DC building, three TOPA processes

The Barclay, a 56-unit rent controlled apartment building near Dupont Circle, was sold three times in the last 20 years—most recently in 2021. I wanted to see if and how tenants used the District’s Tenant Opportunity to Purchase Act (TOPA) during these sales. Did they convert to condo/co-op, maintain affordability, or modernize their building?

To find out, I spoke to Cathy Schneider, a tenant who’s lived there for thirty years. I discovered that tenants used TOPA to receive cash compensation (more on that below), but were never able to convert to condo/co-op, guarantee building-wide affordability, or get major repairs done.

A quick primer on TOPA

When a multi-family rental property in DC is contracted for sale, TOPA allows tenants the right to refuse the sale and with the help of a third-party developer buy the building at the contracted sale price. Tenants can choose to convert to condo (or co-op) or remain rental and choose their new landlord.

The original 1980 Rental Housing Conversion and Sale Act (of which TOPA was a part) was written to address a shortage of rental housing in the 1970s. The statute’s authors attributed the shortage to a wave of condo/coop conversions, noting in the bill’s finding that 8,000 units had been converted in the prior 3 years and 6,000 more were pending. With this context in mind, the act identified three main goals: preventing displacement (especially for the elderly), preserving affordable rental housing, and encouraging tenant organization.

I went through a TOPA process in 2003 and wrote a book about TOPA in 2016. From my research I discovered some common trends in TOPA processes:

1) Tenants have power. If tenants have more than one developer interested in working with them, they are in a position to make demands. In older buildings tenants usually want building upgrades, like new plumbing, and amenities, such as keyless entry and rooftop decks. And, whether they’re in old or new buildings — and whether they convert or stay rental — tenants don’t want their housing costs to increase.

2) Developers have leverage too. They usually want empty units. In DC’s rent controlled buildings you can raise rents at higher rates in empty units than in occupied ones, and it’s easier to renovate a building if you don’t have to step around tenants. To get those coveted empty units, developers can entice tenants to leave by offering buyouts—a payment in exchange for agreeing to move out.

3) Bidding wars. Although both parties have leverage, tenants tend to have the upper hand when multiple developers are in the mix. If conditions are right, they can spur a bidding war among them.

4) When tenants negotiate affordability, it doesn’t always include new tenants. In-situ tenants often negotiate for continued affordability in their units by allowing developers to raise rents in (or prices for) empty units.

Barclay’s first (would-be) TOPA process

The Barclay’s first TOPA experience was over before it began. In 2004 the Barclay’s owners, the Bernsteins, sold their building and 10 others in a portfolio sale to Carmel Partners, but used a loophole in the statute (since closed) to avoid giving tenants a TOPA notice (a statutory requirement that landlords notify tenants when they contract to sell so tenants have an opportunity to refuse the sale).

In 2004 the TOPA statute defined a sale as a 100% transfer of property. To avoid giving tenants TOPA notices in a hot market, some landlords started selling 95% of their property and putting the remainder into a trust. These sales came to be known as 95/5 transfers. The Bernsteins took this dodge to its extreme, selling 99.99% of the portfolio and putting .01% into a trust.

Barclay tenants found out their building was sold when the new landlord, Carmel Partners, showed up. The tenants tried to get the DC government to undo the sale, but were unsuccessful. Then they turned to a pro bono lawyer.

Barclay’s second TOPA process

The Barclay’s tenants would spend years seeking restitution. The first step was to demonstrate standing to sue. The tenants’ lawyer had to track down at least 50% of tenants who lived in each building at time of the sale. Given high turnover rates, he could only demonstrate standing for six buildings.

The lawyer argued the 95/5 transfer was a sale and tenants should have received a TOPA notice. Unfortunately, tenants lost all six cases. The court found they had not demonstrated standing and/or rejected the argument that the transfer was a sale. The tenants’ lawyer appealed and changed the argument, saying instead the initial transfer was fraudulent because the entire property had in fact been transferred to Carmel Partners.

In April 2011, a circuit court judge agreed, but said only two buildings had demonstrated standing. The Barclay and one other building went into court-ordered mediation with the defendants. When that failed, the case went back to the judge.

After months without a ruling, Carmel Partners reached out to the Barclay’s tenants. They wanted to sell and promised to negotiate if tenants agreed not to invoke their TOPA rights. The tenants’ association countered—they would forgo TOPA if Carmel paid them $3.9 million. Carmel initially balked, but eventually agreed to just over $4 million.

The Barclay’s tenants then devised a process for distributing the money. Every tenant got something, but those who lived in the building at the time of the sale and supported the tenants’ legal efforts received the highest amount ($72,000).

Barclay’s third TOPA process

In 2020 the Barclay was sold again. The tenants invoked their TOPA rights and received five offers. After a round of winnowing, tenants voted on three offers. They had several things in common:

• None of the offers included an option to convert to condo or co-op;
• Every offer included a $42,000 buyout, a number reached as a result of a bidding war between the would-be buyers;
• And all offers were from for-profit developers.

Schneider, the tenant I interviewed, wanted a non-profit option, but when she raised the issue with the tenants’ association’s lawyer, she says he replied “no non-profit is going to give tenants $30,000 buyouts [the amount on the table at the time].”

The main difference came down to what the developers’ plans were for the building’s future. Two developers, Petra Development and District Growth, planned to fill units emptied via buyouts with tenants eligible for DC’s housing voucher program — some developers like housing vouchers because they pay above market rates. The third developer, Willow Creek, planned to turn the building into more high-end housing.

Cathy told me the tenants chose Willow Creek because they offered better repairs. Willow Creek promised to upgrade the building’s electric and plumbing systems; Petra and District Growth did not. For Cathy, this was a deal breaker. After three TOPA processes, she said, “I still can’t run my microwave and coffee percolator at the same time.” Cathy said Willow Creek was also the only one that offered elevator repairs in its initial proposal, a big concern as most of the tenants staying put are elderly and/or disabled. Although the other companies put elevator improvements in their final proposals, tenants believed Willow Creek was more likely to follow through — because, as Cathy explained, they believed tenants in a “luxury” building would be more likely to demand a working elevator and get it than tenants on vouchers. Wealthy tenants can vote with their feet; tenants on vouchers can’t since few landlords accept vouchers.

How did TOPA help tenants and how did it fall short?

TOPA is an imperfect vehicle for helping tenants in a gentrifying city. The Barclay’s tenants finally got restitution for the initial sale that avoided the TOPA process, but tenants in nine other buildings never did. And, what tenants received — cash — didn’t guarantee affordability or prevent displacement. Cash has its advantages. Lots of groups make money from gentrification — landlords, developers, city government — but tenants aren’t usually among them. In DC, tenants can sometimes see a payout too.

But even hefty buyouts won’t allow a low-income tenant to cover higher rent for long. And DC’s dearth of affordable housing means low-income tenants will leave the city.

Schneider told me that when she first moved into the building in the 1990s it was mixed income. Today, with the exception of a few long-time tenants, most people are young and cycle in and out fairly quickly. The building’s TOPA processes didn’t stop rent increases. Indeed, frequent turnover means rents are at or near market rate in units not occupied by long-term tenants (recall landlords in DC can raise rents at higher rates in empty units than in occupied ones).

The economic cushion a buyout provides is good, but TOPA’s original goals remain important — and still out of reach for many.