2019.10.08 WS Packet - Laserfiche WebLink

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10 A city considering an advance notice of sale requirement has to decide a number of issues. It makes most sense to apply such a policy just to NOAH properties, rather than to all properties including high end rental housing. However, this means the city has to be able to know when a building is NOAH (as the city defines it) or has to be comfortable with NOAH owners deciding to comply with the requirement on their own. Enforcement of the requirement can also be challenging, since if the property is sold without complying with the notice requirement, the sale can’t be undone as a practical matter and the city would be left imposing a penalty either on the seller who is no longer licensed by the city or on a buyer. It is probably reasonable to assume, however, that most owners would comply, since neither buyer nor seller would want to risk a potential cloud on title due to noncompliance with a legal requirement. Finally, defining what is considered a NOAH property is key. Most often buildings that are affordable to 60% AMI have been considered to qualify, but when buildings have a mix of rents above and below that line, it’s necessary to identify what share of the units at qualifying rents qualify the building. Finally, the size of the building is critical. In some suburban communities, most of the NOAH housing is in large complexes, whereas in the central cities and also in some older towns now considered exurban communities, NOAH buildings tend to be smaller properties. It’s important to understand that residential properties are typically sold in one of two ways: through bidding processes generally handled by brokers, and through informal “off market” negotiations where discussions are initiated privately by either the owner or a would-be buyer. Potential preservation purchasers like Aeon and CommonBond normally follow buildings for sale through the broker process, so advance notice is less important to them in those cases, but the off market sales, is where the advance notice requirement would have its greatest value. Even in the case of brokered sales, however, the advance notice provision throws a public light on potential sales and provides residents with an advance warning. The concern has been raised that an advance notice requirement could actually harm a preservation buyer by creating more competition from other bidders taking advantage of the notice. This is a valid concern but can be addressed by creating an exemption from the advance notice requirement in the case of a sale to a preservation buyer (that is, a transaction which will preserve affordability for the longer term). We’d suggest a process where cities would pre-qualify preservation buyers whose approach to potential sellers would then be exempt from the notice requirement. In order to so qualify the preservation buyers would have to contractually agree with the City on key terms of the sale and future operation of the property. Property owners have also voiced the concern that advance notice would slow down transactions and cause problems in some cases as a result. But in part the point is to slow down a market that moves too fast to make preservation work.27 Although some local cities, are considering an advance notice requirement, none have adopted it to date. As of this writing, it appears that an advance notice requirement will likely be introduced this fall by a city councilmember in Minneapolis. Related Legal Issues 27 Some have also argued that an advance notice requirement (and presumably ROFR and OTP) would violate private contract rights by interfering with the ability of a buyer and seller to negotiate a sale. But Minnesota courts have determined that a party’s constitutional right to contract will yield to a city’s legislative action as long as the city’s action is reasonable.