Maryland’s Mandatory Tenant Right of First Refusal (ROFR)

The Tenant Right of First Refusal Provision of the Renters’ Rights and Stabilization Act (“Act”) went into effect on October 1, 2024. It both established a tenant right to purchase/right of first refusal for 1-, 2- and 3-unit residential rental properties and established the Office of Tenant and Landlord Affairs(“OTLA”) in Maryland, among other things. This law impacts 1-, 2- or 3-unit residential rental property located anywhere in Maryland. Under this new law tenants are entitled to an exclusive negotiation period and/or right of first refusal to purchase the property before the owner may list the property for sale and sell the property to a third party if the tenant has been living in a 1-, 2- or 3-unit residential rental property for at least six months and is named on the lease.

There are many disclosures and mandatory time frames for sending notices and responses which owners/landlords and tenants must adhere to. The information and forms can complex to digest. Here we share a few important take aways:

The Act places certain time sensitive obligations on the owner of the non-exempt property including providing the tenant with an exclusive negotiation period under which the owner is required to notify tenants and give them an opportunity to make a good faith offer to purchase the property before it may be listed or otherwise offered for sale to a third party. The owner may not offer or sell the property to a third party until the tenants’ “exclusive negotiation period” is terminated, either through the tenant or tenants declining to make an offer to purchase, or the tenant(s) and landlord being unable to agree on terms of sale, within 30 days of the owner notifying the tenant(s) of the impending sale.

If an owner of non-exempt property either receives an unsolicited offer to purchase the property or intends to accept an offer from a third party to purchase the property for at least 10% less than the lowest price previously offered to a tenant, the tenant or tenants have the opportunity to “match” the third-party offer before the landlord may sell the property to a third party. If a tenant or tenants agree to match the purchase price in the third-party offer, the owner must sell the property to the tenant(s). If no tenant agrees to match the third-party offer within 30 days, the right of first refusal is terminated and the owner may sell to the third party for the offered price.

A tenant has 30 days after delivery of the notice from the landlord to make an offer to purchase the property. If the tenant makes an offer that matches the material terms proposed by the owner in the notice, the owner is required to accept the offer. If the tenant’s terms do not match those proposed by the owner, the owner has 5 days to make a counteroffer, and the tenant then has 5 days after receiving the counteroffer to either accept or reject it.

If a tenant either affirmatively declines to make an offer to purchase the home or does not respond to the notice of exclusive negotiation period or right of first refusal within 30 days, the tenant’s exclusive negotiation period and right of first refusal are terminated. If all tenants decline to make offers or fail to respond to the notice(s), the landlord may sell to a third party.

Multiple tenants may make offers to purchase the property, and the owner may select the more favorable offer, without liability to any other tenant.

This Act does not require that an owner sell their property at a lower sales price. It only requires that an owner sell their property to a tenant if the tenant can match the owner’s reasonable asking price or a fair market offer for the property. The owner is not required to accept a tenant’s offer to purchase for below asking price or below the price offered by a third party.

The right of first refusal may not be waived or assigned. Leases may not contain provisions that either waive or place conditions on a tenant’s exclusive negotiation period or right of first refusal.

The provisions of the Act pre-empt local laws and ordinances that govern the right of first refusal or opportunity to purchase residential rental property with 1, 2 or 3 dwelling units. However, it does not pre-empt local legislation governing residential rental properties that are exempt under the Act such as a property with 4 or more dwelling units. There are many jurisdictions in Maryland which have laws affecting a tenant’s right of first refusal or even the local government’s right to purchase for other types of property and a lease or contract may specifically contain such a right.

The Act carries penalties for owners who violate its provisions. It also allows tenants the option to file an injunction in a local court to prevent the sale if they believe the owner hasn’t complied with the requirements. This can delay or even stop a sale, making it essential for owners to understand and follow all of the steps closely.

Last, owners may be required to execute affidavits at closing attesting that they have complied with these provisions of the Act. Understanding and complying with the provisions of this Act can be complex. If you have questions about the new law or how it may impact your transaction, contact Lakeside Title Company today. We’re committed to supporting our clients and helping them achieve a seamless real estate experience.