A tenant in the basement used to be the single scariest word in a District listing agreement. Not because tenants are difficult. Nixon Peabody explains that, under the District's Tenant Opportunity to Purchase Act, a tenant in a two-to-four-unit building could trigger a legal process that could run past a year before a sale closed. Sellers who owned a duplex, triplex, or fourplex, the kind of building common on Capitol Hill and in rowhouse blocks across the city, found that out the hard way. As of December 31, 2025, most of them no longer have to.

The change came from the Rebalancing Expectations for Neighbors, Tenants, and Landlords Act, known around title offices and settlement companies simply as the RENTAL Act. It rewrote large sections of TOPA, and for anyone selling or buying a small rental building in DC this year, the rewrite matters more than the median price on any listing.

What TOPA actually required, and why a basement apartment was the wrinkle

TOPA dates back to 1980, part of the District's response to a wave of condominium conversions that were pushing renters out of their homes. The law gave tenants in a building up for sale the right to buy it first, either as individuals, as a cooperative, or by assigning that right to a developer of their choosing.

In 2018, the Council carved out an exemption for single-family homes, reasoning that TOPA had rarely produced actual tenant homeownership in that segment. That exemption covered a single-family house with an accessory dwelling unit attached, the kind of basement apartment or carriage house common in rowhouse neighborhoods, as long as the tenant wasn't elderly or disabled under a lease that predated the amendment.

What that 2018 fix did not touch was the legally distinct category of two-to-four-unit buildings. A duplex is not a single-family home with an ADU. It's a small multifamily building, and under the old rules it carried the full weight of TOPA: an Offer of Sale sent to every tenant, to the Department of Housing and Community Development, and to the Office of the Tenant Advocate, followed by a window for tenants to organize, a negotiation period, and financing timelines that could stretch the whole process past a year.

The Urban Institute's research ahead of the RENTAL Act found the District had 6,886 two-to-four-unit rental properties, and that Ward 6, which includes Capitol Hill, was among the wards with the most of them. Between 2015 and 2020, these small buildings generated more TOPA sale notices annually than buildings with five or more units. The exposure was real, and it sat in exactly the kind of rowhouse stock that shows up in DC listings for buyers moving in from out of town.

What changed on December 31, 2025

The RENTAL Act passed the Council on September 17, 2025, went through a third reading after the title insurance industry flagged problems with how the small-building exemption was worded, and was signed by Mayor Bowser on November 13. Congress let its review period lapse without action, and the law took effect December 31, 2025.

Two provisions matter most for a rowhouse sale.

The first is a small building exemption. Two-to-four-unit accommodations are now exempt from TOPA's Offer of Sale requirement unless the building is majority-owned by a business corporation. An LLC, a partnership, or a trust does not trigger the exemption's exception; that exception applies when a business corporation owns a majority stake. This means the overwhelming majority of individually owned small rental buildings in DC are now exempt from the old Offer of Sale process.

The second is a new construction exemption. Any building that received its certificate of occupancy within the past 15 years is exempt from the Offer of Sale requirement, and the exemption applies retroactively, so a building that got its CO ten years ago is exempt for five more years.

Here's how the before and after compares for the properties that come up most often in DC rowhouse transactions:

The part that still catches people

Exempt does not mean silent. Even when a sale qualifies for the small building or new construction exemption, the owner still has to send tenants a Notice of Transfer, which tells them the sale is happening and that the exemption applies, without conferring any purchase right. Once that notice goes out, tenants have 45 days to register a tenant association if they want to contest it. Attorneys who handle these closings regularly note that legitimate Notices of Transfer are rarely contested in practice, but the clock still runs.

There's a second layer of friction that hasn't been resolved yet. DHCD is required to write formal regulations interpreting the RENTAL Act, and as of early 2026 the agency indicated that process could take up to two years, relying on interim guidance in the meantime. The new Notice of Transfer form, released in June 2026 for buildings with five or more units, now asks owners to submit documentation substantiating their exemption claim. For a straightforward new-construction case, that's simple: attach the certificate of occupancy. For anything less clean, a transfer of a minority ownership stake, a portfolio sale bundled across several buildings, what counts as sufficient proof is still an open question the regulations haven't answered.

The ownership structure question deserves its own attention too. Because the small building exemption turns on whether the property is majority-owned by a business corporation specifically, and not by an LLC or a family trust, the ownership structure can be the difference between a straightforward Notice of Transfer and a full TOPA process with its negotiation windows and assignment caps. Anyone who bought a rowhouse for investment purposes through a corporate entity years ago, and is only now discovering what that structure means at resale, is exactly the kind of surprise a pre-listing title review is meant to catch.

What this means before you list or make an offer

If a DC property you're selling or buying has a tenant in a second unit, a few questions are worth settling before the contract goes out:

• Is the building legally a single-family home with an accessory unit, or a legally separate two-to-four-unit building? The distinction determines which exemption, if any, applies.
• Is the building majority-owned by a business corporation? That fact determines whether the small building exemption's ownership exception applies.
• Has the seller confirmed the building's certificate of occupancy date, in case the 15-year new construction exemption is in play?
• Has a Notice of Transfer gone out to tenants, even if the sale otherwise qualifies as exempt?

None of these questions are visible from a listing photo or a walk-through. They surface in the title search and the settlement paperwork, which is exactly where they can slow down or derail a closing timeline that both sides thought was settled.

The Council isn't finished with this either. A bill introduced this past July by Council Chairman Phil Mendelson, at the Mayor's request, proposes further changes to TOPA alongside eviction process updates, and the Council held a hearing on it just this week. Anyone closing on a DC property with a rental unit attached should treat the current rules as current, not settled.

FAQ

Does the small building exemption apply automatically, or does someone have to claim it? The seller has to claim it and support the claim with documentation, whether that's a certificate of occupancy for a new-construction exemption or proof of ownership structure for the small building exemption. A title company or settlement attorney familiar with TOPA typically handles this step.

If my rowhouse has a basement apartment, does this change anything for me? If the property has always been a single-family home with an accessory dwelling unit, the 2018 exemption already covered it, and the RENTAL Act didn't change that. The RENTAL Act's biggest impact is on properties legally structured as two, three, or four separate units.

Does an elderly or disabled tenant still have rights under the old rules? For single-family accommodations, yes, but only for tenants who signed a lease by March 31, 2018, and moved in by April 15, 2018, under the terms of the original 2018 amendment. That grandfather clause wasn't altered by the RENTAL Act.

Selling or buying a DC rowhouse with a rental unit attached now comes with a different set of questions than it did two years ago, and getting the ownership structure and documentation right before you write or accept an offer is the difference between a clean closing and a stalled one. Embrey Properties works through these details with clients across the District as part of every transaction, and a conversation before you list or make an offer is the easiest way to find out where your property stands.

This article is general information, not legal, tax or financial advice. Consult a qualified professional about your situation.