At the request of County Executive Marc Elrich, the County Council President introduced Expedited Bill 38-23 to modify the Montgomery County, Maryland (County) right of first refusal (ROFR) law to permit the County to assign its ROFR rights to a “qualified entity.” Under existing law, when the owner of a multifamily rental property contracts to sell its property or transfer a majority of its ownership interests, it must provide a ROFR to the County, the Housing Opportunities Commission of Montgomery County, and any certified tenant organization (each, a ROFR Party). Current law provides that only a ROFR Party can acquire a multifamily property via ROFR exercise. Bill 38-23 would allow any “qualified entity” to be assigned ROFR rights by the County.

Bill 38-23 lists minimal requirements for what constitutes a “qualified entity” (including experienced nonprofit and for-profit rental and affordable housing providers) and defers to future regulations to establish a process for qualifying and selecting entities that may receive an assignment of ROFR rights. As Bill 38-23 is currently drafted, such regulations are to be promulgated by the County Executive and do not require approval of the County Council.

Bill 38-23 borrows the ROFR assignment concept from Prince George’s County where such assignments have become more common. However, Montgomery County’s proposed legislation fails to include other provisions under Prince George’s County ROFR law that facilitate the ROFR assignment process, including a requirement that the County make an initial evaluation of ROFR exercise within seven business days following receipt of an offer of sale, and express language confirming that an assignment does not otherwise extend statutory ROFR periods.

Bill 38-23 caps the contract deposit in connection with ROFR exercise at 5 percent of the purchase price and makes such deposit fully refundable in the event of a “good faith failure” by the ROFR buyer to perform under the contract. There are a number of internal inconsistencies in Bill 38-23 that will complicate compliance if they are not addressed.

If this Bill is adopted in its present form it may lead to an increase in ROFR exercise, as well as delays in the ROFR process. It will be increasingly important for sellers and purchasers to address ROFR implications in their contracts. We are seeking meetings with councilmembers to address some of these issues under this proposed Bill.

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