By WWLT
Purchasing a rental property can be a great source of income for any real estate investor, although it can come along with its share of headaches. As a landlord, your tenants have certain legal protections that govern the way you manage the property, and even what will happen when you go to sell the property in the future. If you have tenants, it is very important that you familiarize yourself with these laws so you can be in compliance.
One such law is known as tenants’ right of first refusal (ROFR), and if you are renting properties in a state where it exists, or if your rental contract contains a clause granting your tenants the right of first refusal, it could affect you when selling an occupied property.
Before listing a property for sale, landlords should review any active leases and consult with legal or title professionals to determine whether a right of first refusal applies. This step is critical to avoid potential delays or disputes during the sale process. Even if your state doesn’t mandate a ROFR, a clause in your lease agreement might still grant tenants this right, and ignoring it could result in legal complications. In some cases, tenants may also have rights under local ordinances that go beyond what’s stated in the lease.
It’s also worth noting that handling a ROFR properly may require additional time and paperwork. You may need to provide your tenants with a written offer and wait a set number of days before proceeding with another buyer. While this can be a hurdle, it’s a manageable one with the right guidance. Planning ahead by contacting World Wide Land Transfer for PA title insurance for a homeowner or a property owner.
When a rental contract contains a ROFR stipulation, or in states where the law requires it, the right of first refusal allows a tenant the first opportunity to make an offer on the property where they live if the landlord decides to sell it. Some states, including Maryland, have enacted laws requiring a tenants’ ROFR as a way of giving renters the opportunity to remain in their homes when their landlord sells, as long as they can make a competitive offer. In states where an ROFR is not required, landlords may still include this stipulation as a way of attracting renters who are interested in owning at some point in the future.
When selling an ROFR property, the landlord must notify their tenants before they will be allowed to negotiate or accept any other offers. At that point, the tenant can make their own offer, and if the landlord doesn’t receive any better offers, they will take over ownership of the property and can continue to live there. If the tenant does not want to make an offer, they can formally waive their ROFR in writing, at which point the landlord will be allowed to entertain other offers. In most cases, the ROFR will include a timeframe or expiration date; in that case, the tenant will need to make their offer within that timeframe or they will forfeit their right of first refusal.
Although, just like a title defect, a tenant’s ROFR can potentially delay the sale of a property, it is not considered a title defect. As long as the landlord complies with the terms of the ROFR, they can legally sell the property with no issues.
Of course, there are many other title defects that absolutely could affect the marketability of a property’s title, which is why we suggest every property owner, including landlords, purchase an owner’s title insurance policy as soon as possible. If a previously undiscovered title defect, like a public records error or unrecorded easement, were to come up in the future, it could seriously cut into your rental profits. If another party would come forward with a competing claim of ownership, you could even lose the property altogether.
If your property is subject to a tenant’s right of first refusal, it’s essential to follow the proper notification and response procedures before listing the home for sale or accepting any outside offers. This usually involves sending a formal notice to the tenant stating your intent to sell, along with the terms of the potential sale. If you fail to comply with these requirements, you could face legal consequences, including a delay or cancellation of the sale, or even a lawsuit from the tenant. Your real estate attorney or title company can help you prepare the appropriate documentation and ensure all deadlines are met.
Although a tenant’s right of first refusal is not a title defect, it can still impact the closing timeline and the overall transfer process. That’s why it’s important to inform your title insurance company early on if a ROFR exists. Title professionals will want to verify that the tenant has either waived their rights in writing or been given a proper chance to exercise them. This documentation becomes part of the title file to protect both the buyer and seller. Being transparent about any ROFR clauses can help avoid last-minute surprises and keep your transaction on track.
Need title insurance rates? Contact World Wide Land Transfer. By purchasing owner’s title insurance, you can protect yourself from these and many other types of title defects, all for a one-time premium that covers you for the entire time you own the property. If you want to protect your investment in real estate, we suggest getting in touch with a title agent at World Wide Land Transfer today.
World Wide Land Transfer is a service-oriented PA title company with offices in Philadelphia, New York, and Washington, D.C. With a record of going above and beyond, we are trusted to close everything from complex commercial transactions to residential refinance and purchase transactions.
