Opinion ID: 2422541
Heading Depth: 2
Heading Rank: 3

Heading: The Waterside Decision

Text: The Waterside Complex at issue in Waterside consisted of the Townhouses and the Towers, [14] which were located on separately-deeded parcels of real estate. In October 2003, Trilon Plaza Co. (TPC), which held title to the Townhouses in fee simple, entered into a contract with United Dominion Realty Trust (UDRT) under the terms of which ownership of the Waterside complex was transferred to UDRT. No right of first refusal was accorded to the tenants. The parties' Contribution Agreement provided that TPC would create the Townhouses Trust, and that it would convey title to the Townhouses to the Trust. The sole beneficiary of the Townhouses Trust was to be Townhouses Holding Company, wholly owned by TPC. Finally, the Contribution Agreement provided that TPC would sell 95% of its interest in the Townhouses Holding Company to UDRT in return for approximately $50,000,000 at closing. All of these transactions were executed contemporaneously in December 2003. The association representing the residents of the Townhouses brought suit, contending that the transactions constituted a sale, and that the tenants had been denied notice and an opportunity to purchase, in contravention of TOPA. The court ruled in Waterside that the conveyance of the Townhouses described above constituted a sale within the meaning of D.C. § 42-3404.02(a). The court noted that, because a contract specifically provided for the transfer of 100% of TPC's interest in the Townhouses to the Townhouses Trust, it followed that TPC's right to receive the proceeds of the sale of the Townhouses Holding Company was contingent on the initial transfer of fee simple title in the Townhouses from TPC to the Townhouses Trust. Waterside, 2 A.3d at 1089. Thus, neither Twin Towers, which involved a transfer of only a 95% interest in the property, nor Wallasey, in which there was no transfer of ownership to a third party, was controlling. Id. Viewing the entire transaction as a whole, id., we held in Waterside that the transfer constituted a sale: We conclude that the conveyance of the Townhouses resulted in a sale under subsection (a). The Contribution Agreement compelled the transfer of TPC's entire interest in the Townhouses to the Townhouses Trust. TPC's promise to transfer absolute title was in exchange for valuable consideration flowing from UDRT to TPC. These facts lead to the conclusion that this conveyance was not a mere restructuring as in Wallasey. Rather, viewing the entire transaction as a whole like we did in Gomez, the transfer constituted a sale because TPC transferred absolute title in Townhouses to the Townhouses Trust as part of an agreement in which a third party, UDRT, would thereby gain an interest in the property. Because none of the facts upon which we base this conclusion are in dispute, we hold that, as a matter of law, TPC indeed sold the Townhouses under subsection (a). Id. at 1090. Waterside thus stands for the proposition that when the original owner of a rental accommodation transfers absolute title to another entity, and when he or she does so pursuant to an overarching agreement as a result of which a third party obtains an interest in the accommodation, then a sale has occurred for purposes of TOPA. As we explained in Waterside, our earlier decisions in Gomez, in which we concluded that the transaction constituted a potential sale, and in Alcazar, in which we reached a contrary conclusion, illustrate the proper application of the analysis adopted in Waterside. In Gomez, we held that a transfer of absolute title to an apartment building from one wholly owned entity to a wholly owned subsidiary could constitute a sale if the transaction involved arm's length bargaining, and if it resulted in an agreement to sell 99% of the stock of the subsidiary to a third party in return for consideration of value. Gomez, 967 A.2d at 1283; see also Waterside, 2 A.3d at 1090 & n. 21 (discussing Gomez ). As we explained both in Gomez and in Waterside, Wallasey was inapposite in these circumstances because the entire transaction [meaning the transfer of absolute title from one subsidiary to another, followed by the sale of the transferee's stock] was contemplated by, and carried out in accordance with, the Stock Sale Agreement. Waterside, 2 A.3d at 1089 (quoting Gomez, 967 A.2d at 1284) (emphasis and bracketed language added in Waterside ). Thus, in Gomez and Waterside, both the initial transfer of absolute title to an entity controlled by the original owner and the subsequent transfer of 95% to 99% of the owner's interest to a third party occurred pursuant to an overarching agreement between the original owner and the third party. Under these circumstances, we held that the transfers in each case were sales (or, in Gomez, a potential sale). In Alcazar, on the other hand, the court held that the initial transfer of a rental accommodation from an individual owner to an entity controlled by that same owner, as part of a multi-step transfer, did not constitute a sale. As we explained in Alcazar and reiterated in Waterside, the dispositive difference between Alcazar and Gomez, in each of which the transaction included initial transfers of the apartment buildings to entities controlled by the original owners, was the lack of an overarching agreement [in Alcazar ] pursuant to which the parties undertook to complete the complex transaction that resulted in the transfer of ownership. Waterside, 2 A.3d at 1089 & n. 17. Alcazar, 981 A.2d at 1207 n. 3. We explained that Alcazar differed from Gomez because in Gomez, the. . . transaction was contemplated by, and carried out in accordance with, the Stock Sale Agreement, which spelled out the obligations of the parties. Id. at 1089. The result in Waterside is consistent with the authorities holding that courts should treat transactions as a whole and should avoid exalting form over substance. We agree with amicus curiae that the Waterside decision limit[s] the opportunities for gamesmanship  in which sellers of rental housing endeavor to devise increasingly ingenious mechanisms for circumventing [15] the Council's clear intent to protect tenants' opportunities to purchase their rental accommodations before owners may sell them.