TOPA Is Back – But Still Unworkable at Its Core

Amir Shahsavari

Everyone agrees that we need to stimulate the housing market and increase supply to generate affordable housing.

Unfortunately for property owners, tenants, and other stakeholders concerned about lack of production, TOPA (short for the “Tenant Opportunity to Purchase Act”), also known as “tenant right of first refusal,” has resurfaced as an amendment to Gov. Maura Healey’s housing bond bill in the Massachusetts House of Representatives.

Wisely, Gov. Healey did not include right of first refusal as part of her housing package, likely because she knew it stifles housing production, as it did in the District of Columbia, the only jurisdiction where it is in place.

When owners wish, or need, to sell their properties, TOPA mandates that they provide a right of first refusal to their tenants, even when the tenant’s offer is not as strong as that of a potential buyer. This takes into account state-mandated contingencies such as appraisals, inspections, financing and a timeline.

Anyone who has ever bought or sold a property knows that time is essential during the closing process. This is why executing a sale on terms favorable to property owners and potential buyers becomes essentially impossible under TOPA. The first refusal process for tenants could potentially last more than 200 days.

That timeline would mean significant delays and uncertainty for potential buyers as they seek financing. These buyers would have to wait for the tenants who reside at the property to decide whether to match their offers. This long waiting game could result in property owners losing the highest purchase offers on their properties in the event that frustrated buyers withdraw, especially in situations where the process could drag out for six months.

Has Anything Changed Since Last Time?

This current TOPA bill contains the same concepts as the last time it appeared on Beacon Hill in 2022, but the wrapping is a bit different.

Proponents deserve credit for communicating with critics in their attempt to improve the bill. But despite their best efforts, TOPA remains unworkable, as it would still interfere substantially with the process of transferring a property. It still inserts government and unneeded regulations into the private transaction process between buyers and sellers, bringing harm to both parties, without helping tenants who wish to purchase the properties they rent.

Also, any proposed exemptions from TOPA would remain meaningless if small owners are still defined within the bill by the number of units they own, rather than the size of their businesses.

As before, TOPA will further diminish the availability of affordable housing, which is desperately needed, as small property owners, in particular, leave the market.

TOPA will redefine the sale of housing in Massachusetts, giving tenants unreasonable timeframes to establish tenant associations to purchase a property before it can be sold on the open market. The timeframes that would be permitted for forming these associations will force sellers to forgo cash buyer transactions, which is unworkable. These obstacles only diminish the sale value of properties.

Likewise, commercial banks and other lenders will have difficulty working within TOPA confinements. This would make the mortgage financing of properties unworkable, thus rendering any future financing of properties problematic. A climate of high interest rates and decreased liquidity requires qualified buyers. Thus, how would tenant association members qualify for loans?

TOPA Will Fail Everyone

The ambiguous and contradictory language within this TOPA bill will likely lead to endless legal challenges in the courts. In addition, the implementation of TOPA and tenant associations lay the groundwork for predatory lending practices favoring large corporate buyers from outside Massachusetts, while lowering market values for smaller owners. As a result, existing affordable housing will be taken offline. Under current market conditions, almost no new housing is being built. Therefore, reducing our housing stock further only exacerbates the problem.

Massachusetts and its anti-business proposals are demoralizing to business owners and discouraging future investment in our cities and towns. TOPA would further erode Massachusetts’ tax base, pushing owners and capital investment to other states.

As revealed after it was passed in Washington, D.C., TOPA tilts the playing field away from small property owners and towards larger corporate interests. Large corporate owners have abundant capital and can withstand lengthy timelines on transactions.

TOPA has not created more housing in Washington, D.C. – the lack of which is the root cause of the housing dilemma everywhere. Less than 5 percent of renters purchased the properties that they rented in that city under TOPA. The policy also interfered with 1031 exchanges, an important tool for owners in facilitating tax-advantaged property transfers.

As the Massachusetts Senate considers the housing bill this week, legislators should attempt to work with all stakeholders, including small property owners, instead of instituting punitive measures against owners who have invested in housing for decades. The goal should be to create all types of housing, including affordable housing, for our citizens and to help tenants seeking homeownership with vouchers and other options that would not infringe upon contract law or the rights of housing providers.

Amir Shahsavari is the vice president of the Small Property Owners Association.