Right of First Refusal in Residential Property Sales in Maryland

What is the Right of First Refusal?

The Right of First Refusal gives a tenant or a group of tenants the opportunity to purchase the property they are renting before the owner can sell it to someone else. If the property owner receives an offer from a third party, the tenant(s) are given a chance to match that offer under specific conditions.

When Does the Right of First Refusal Apply?

The tenant or group of tenants has the right of first refusal if:

  1. The Owner Receives a Third-Party Offer 10% Lower Than a Previous Offer: If the owner receives an offer that is at least 10% lower than the price offered to the tenant(s) in any previous notice, offer, or counteroffer during the exclusive negotiation period.
  2. The Owner Receives an Unsolicited Offer: The right of first refusal also applies if the owner receives an unsolicited offer to purchase the property from a third party, even if the property was not listed for sale.

Steps the Owner Must Take Before Selling the Property

Before accepting an offer from a third party under either of these circumstances, the property owner must follow these steps:

  1. Provide Written Notice to the Tenant(s):
    • The owner must notify the tenant(s) in writing that they have the Right of First Refusal to purchase the property. The notice must:
      • Be delivered via First Class mail with a certificate of mailing, or by a delivery service offering tracking and confirmation of delivery.
      • Outline the terms the owner would be willing to include in a formal contract of sale with the tenant.
      • Clearly state that the notice serves as an offer to purchase, not a legally binding contract of sale.
      • Specify the deadline by which the tenant must submit an offer to purchase, including the length of the tenant’s exclusive negotiation period.
      • Also be sent to the Office of Tenant and Landlord Affairs (OTLA).
  2. Allow 30 Days for Tenant Response:
    • After receiving the written notice, the tenant(s) have 30 days to decide whether to exercise their right to match the third-party offer.

Tenant’s Right to Match the Offer

Once notified, the tenant(s) have the opportunity to:

  • Match the Third-Party Offer: If the tenant(s) choose to exercise their right, they must match the terms of the third-party offer, including the purchase price and any other terms specified in the offer. If the owner submits a counteroffer, the tenant must respond to counteroffer within 5 days. The tenant may accept or reject the counteroffer. If the tenant does not respond within 5 days, the counteroffer is considered rejected, and the owner must notify OTLA.
  • Owner Must Accept the Tenant’s Offer: If the tenant matches the third-party offer, the owner must accept the tenant’s offer and proceed with the sale.

What Happens if Multiple Tenants Submit Offers?

If more than one tenant submits an offer to purchase the property, the owner has the discretion to select the most favorable offer.

When is the Right of First Refusal Waived?

The Right of First Refusal is considered waived under the following circumstances:

  1. Tenant Does Not Deliver an Offer: If the tenant fails to submit an offer to purchase the property during the 30-day period, the right is waived, and the owner can proceed with the third-party offer.
  2. The Tenant’s Contract is Terminated: If the owner accepts the tenant’s offer but the contract is terminated before settlement, the tenant’s right to purchase is waived.

Owner’s Responsibility to Notify OTLA

If any of the above conditions result in the Right of First Refusal being waived (e.g., tenant fails to act, or the contract is terminated), the owner is required to notify the Office of the Tenant and Landlord Assistance (OTLA) to inform them of the change in circumstances.

Exclusions

A tenant’s rights of an exclusive negotiation period and first refusal do not apply to the following:

  • transfer of title to a family member of the owner;
  • transfer of title to a business entity wholly owned by the owner;
  • transfer of title through a court order (including foreclosure, tax sale, sale by court-appointed trustee, etc.);
  • transfer by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust;
  • transfer of title through a will, trust instrument, or inheritance;
  • transfer of bare legal title into a revocable trust;
  • transfer of title to the State or a local government;
  • transfer of title in lieu of foreclosure of a mortgage or deed of trust;
  • transfer of title through a court order, receivership, or court-approved settlement;
  • transfer of title through a bankruptcy court order or sale by a bankruptcy trustee or debtor in possession;
  • gift transfer of title to a tax-exempt nonprofit organization, or
  • transfer of title by a public housing authority.
  • residential rental property with four or more individual dwelling units

Key Points to Remember:

  • The Right of First Refusal gives tenants the opportunity to purchase the property before the owner sells it to a third party.
  • Tenants must be notified in writing and given 30 days to respond.
  • If multiple tenants submit offers, the owner can select the most favorable one.
  • If the tenant fails to act, the right is waived, and the owner can proceed with the third-party sale.
  • The owner must notify OTLA if the contract is terminated or the tenant’s right is waived.

Resources:

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