Olympia wants to help renters purchase homes and start co-ops. Here’s how
AI-generated summary reviewed by our newsroom.
- Staff propose safeguards: legal aid, inspection, appraisal, title report.
- City could fund due diligence and legal aid to help low-income buyers.
- Policy would focus on buildings (10+ units) to support tenant co-ops.
The City of Olympia is set to consider policies that would make it easier for renters to purchase their homes, and for tenants to transform apartment buildings into cooperatives.
Housing Program Specialist Christa Lenssen presented the Land Use & Environment Committee with the policy and program options Feb. 26. She said the discussion comes after the council adopted a rental registry and inspection program, which has been in place for two years.
According to previous reporting from The Olympian, the rental registry program requires landlords to register their rental properties annually with the city, obtain and maintain a state business license with the endorsement of the city through the Department of Revenue, and schedule inspections of a portion of the rental units once every five years with a qualified third party housing inspector.
The annual registration fee is $35 per unit. The business license fees include a one-time application fee with the Department of Revenue of $50 and then $35 annually to renew for the Olympia endorsement and state license renewal fee. Inspection fees can vary.
The program emerged as a part of the ongoing efforts to provide tenant protections and prevent displacement in a way that focuses on cooperating with landlords, according to previous reporting. However, city staff noticed owners of single-family and lower-unit homes were struggling to meet some requirements, such as uploading rent roll data and obtaining a business license.
After receiving feedback from the community, Lenssen said the council decided to provide an exemption to property owners who are renting to immediate family members. At the same time, staff began exploring an exemption for landlords and tenants who have rent to own agreements.
Lenssen said a rent to own or lease to own arrangement involves a willing landlord and tenant who agree to terms where a tenant will eventually own the property they’re renting. In Olympia, that would most likely be the sale of a traditional single-family home or possibly manufactured homes.
Lenssen said there are two common arrangements for these purchase agreements. One is a lease with an option to purchase. The other is a lease purchase, which is where a tenant would commit to buying the home.
She said the second option sometimes involves a down payment, and if a tenant falls behind on their monthly payments, the seller may reclaim the property or sue for damages.
Risks and benefits
Lenssen said city staff spoke to advocates who expressed concerns about scams and predatory arrangements that could come out of a rent to own agreement. She said because of these concerns, staff suggested not allowing rental registry and inspection program exemptions unless there are safeguards in place.
She said some of the concerns could be mitigated by “due diligence and a solid legal contract.”
Lenssen said at this point in time, it’s difficult to know how many property owners might be interested in a rent to own agreement, and how many transactions might result if the city implemented a pilot program. She said a property sale might not go through for a variety of reasons, and investments either by the tenant or the city, if they were to help, could be lost if that occurs.
She said ultimately, it is still a landlord-tenant relationship where the property could need repairs, and either may not qualify for financing, or present significant unexpected costs to the tenant.
“Tenants may be held responsible for maintenance and repairs in rent to own agreements, and they may invest time and money into the property that they never recoup,” Lenssen said.
She said the property may have a co-owner or have chain of title issues.
“One example is if the property owner dies, there could be claims by the descendants that the agreement was invalid or the inheritor doesn’t want to uphold the terms of the agreement,” she said. “A landlord may also lose potential revenue if they lock in a purchase price with the tenant that ends up being less than the market value.”
Lenssen said it could also be a mutually beneficial arrangement between renters and landlords, one that provides access to homeownership to a renter who might otherwise have difficulty accessing it.
She said it provides long-term stability for renters by allowing them to live in the same home for longer. Tenants may also benefit by not having to compete with other buyers.
Lenssen said landlords may be provided a greater sense of security that the renter will care for the home and maintain their monthly payments if they know they will eventually own that home.
She said turnover for tenants can be costly for landlords, and having a long-term renter may save time and money for landlords. And landlords would not have to make some of the cosmetic updates or prepare a home for sale on the real estate market, if they are going through a private transaction.
Lenssen said staff has recommended that legal support or guidance be provided to ensure that the risks are identified and are adequately addressed for both parties, and that responsibilities of both parties are clearly outlined.
She said staff reached out last year to Sound Legal Aid to get a cost estimate for providing a contract template, educational resources for tenants to understand the risks of these agreements, and an estimated cost for drafting individual contracts.
Contract templates and educational resources are estimated to cost $15,000 to $18,000. Their monthly indirect rate is $1,250, and the per-transaction cost estimate is $2,000 to $3,500.
Lenssen said the city could consider exemptions if the renter and landlord both have outside legal representation that are advising them.
She said staff are recommending tenants obtain a home inspection, appraisal and title report. Due diligence, which includes home inspection, appraisal and title report is estimated to cost $2,000 per transaction.
Lenssen said the city could consider providing funding to help subsidize these costs for low-income households. It could also provide guidance documents, so folks understand why these safeguards might be beneficial, and require completion of these items to qualify for rental registry exemption.
Committee member Paul Berendt said he thinks the city is being “a little bit dangerous” for considering not requiring an inspection at the time of a real estate transaction. He said the inspection for a transaction is a lot more in-depth than the inspection for the rental registry.
“The rental registry inspection is really pretty top-line cosmetic in comparison to what you would get an inspection for in a real estate transaction,” he said. “I don’t think using the rental registry as a safeguard is really very sufficient, one way or the other.”
Lenssen said that would not be the case; folks entering into a lease to own agreement would be required to have a full inspection done of the property before being exempted from the rental registry and inspection program.
“The exemption would be that should the program go forward, that anyone who is a landlord of a rental unit that has a lease to own or rent to own, or such agreement would be exempted from registering, similar to our current exemption for someone who’s renting to a family member,” she said.
She said the exemption would only apply to the rental registry program inspections, which happen every 5 years.
Opportunity to purchase policy
Lenssen said a tenant opportunity to purchase policy would provide a structured timeframe and a process where tenants are notified of an impending sale and are given an opportunity to purchase a property collectively.
She said in many cases, tenants would also be provided a right of first refusal where they can match offers from other parties.
Lenssen said these policies frequently include other parties, such as nonprofits, affordable housing organizations, local government agencies, or public housing authorities. This is known as a community opportunity to purchase.
Lenssen said these policies can be applied to various housing types, from single family homes to multifamily residences. She said a city consultant recommended focusing on properties with 10 or more units for cooperative operations to be successful.
Lenssen laid out a number of risks and benefits to such a policy in Olympia. She said the city can’t necessarily know when a multifamily property goes up for sale, and what outside funding sources will be available at that time.
She said the sale of a property could fall through for a number of reasons, including the inability to secure financing, and difficulty of forming a tenant organization in a short timeframe. She said the tenant opportunity to purchase process can add substantial time to the sale process.
She said a property might have deferred maintenance, leading to significant repairs that residents may need to address, increasing the cost to residents or leading to difficulty securing financing for the property.
Lenssen said the policy would give residents the opportunity to compete for purchase, and for their offer to be considered before it’s sold to another investor.
“If a property is owned by the residents rather than an investor, there’s no profit motive or reason to increase costs beyond operating expenses, which helps keep the housing costs affordable and provides stability to those households,” Lenssen said.
She said sharing a cooperative provides residents with an opportunity to build equity rather than paying rent to a third party.
“If it’s structured as a limited equity cooperative, restrictions can be put in place to limit the price at resale, so that the property remains affordable to future residents,” Lenssen said.
She said the cost to build housing for low to moderate income households is quite significant, and it typically requires public subsidy. This option helps keep existing housing affordable for low to moderate income residents.
Lenssen said residents would form an association that makes building-wide decisions. They only contract with outside providers if needed for professional services, which might be accounting or property maintenance needs.
She said staff reviewed reports and implementation of other policies across the U.S., and to be successful there need to be supports in place to enable residents to purchase a property.
She said there are some existing resources in the community that may be used to provide that support, as well as city funding.
Rebeca Potasnik, president of the Thurston Housing Land Trust, spoke during public comment about the tenant opportunity to purchase policy. She said the Thurston Housing Land Trust is an available resource for the community and would be a great partner if the city chooses to move forward with the policy.
Potasnik said they have the mission and infrastructure to assist with cooperative purchasing programs as well, if the city chooses to move forward.
Lenssen said the regional housing council has an opportunity fund, which is a potential source for this program. She said the city may also need to build capacity in its local nonprofit sector to provide technical assistance, such as tenant organizing to form an association, help in locating financing and conducting due diligence, submitting an offer or drafting and interpreting real estate documents.
She said in the longer term, residents may need support to function as a cooperative, including shared responsibilities and decision-making, building maintenance, finances and accounting.
Lenssen said the Northwest Cooperative Development Center and Resident Home Communities Northwest provide similar services for manufactured home communities that have gone up for sale, then been purchased cooperatively by residents. They perform outreach to tenants, help locate financing and determine if the purchase price is feasible for residents. They also provide 10 years of support for resident cooperatives to make sure their first decade of operations is successful.
Committee member Robert Vanderpool said he’s very supportive and interested in the idea of a tenant opportunity to purchase program. He said the reason to have this type of program is to fight against private equity, which he said is a “real problem across the country.”
Lenssen told The Olympian she’s scheduled to bring the topic back to the committee on April 23 and July 23 for further discussion. She said that may shift depending on the committee’s direction.
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