Selling a Rental Property in Maryland? The Tenant’s Right of First Refusal Could Change Your Timeline

Selling a rental property in Maryland may appear straightforward: choose an agent, list the home, accept an offer, and schedule closing. However, if the property is occupied by tenants, an additional legal step may affect the entire sale timeline.

Under Maryland law, tenants living in certain residential rental properties must receive an opportunity to purchase the property before ownership transfers to a third party. This requirement is known as the tenant’s right of first refusal.

For Maryland landlords, real estate investors, and property owners, overlooking this process can lead to delayed closings, additional expenses, and legal disputes. Therefore, compliance should be considered before the property is listed not after a buyer is already waiting to close.

What Is the Maryland Tenant Right of First Refusal?

Maryland’s tenant right of first refusal applies to residential rental properties containing three or fewer individual dwelling units. According to the Maryland Department of Housing and Community Development, owners planning to sell a covered property must give current tenants the first opportunity to make an offer.

This does not mean the landlord must sell the property below market value. Instead, it creates a required notice and negotiation process before the owner proceeds with certain third-party offers.

The full requirements appear in Maryland Real Property Code § 8-119. Because the law affects both marketing and closing, landlords should coordinate the process with their real estate agent, property manager, title company, and attorney.

The Required Notice Comes Before the Public Listing

Before a covered rental property is offered for sale to the public or a third party, the owner must send each tenant a written notice explaining the tenant’s right to submit an offer.

Moreover, the notice must use the official form and include material terms the owner would be willing to place into a sales contract. A copy must also be submitted to Maryland’s Office of Tenant and Landlord Affairs.

Property owners can access the state’s Right of First Refusal Portal to complete and print the required forms.

Simply mentioning the sale in a text message or giving the tenant a verbal heads-up is not enough. Proper delivery and documentation matter. Consequently, owners should keep copies of the notice, proof of mailing or tracked delivery, and every response received.

How Long Does the Tenant Have to Respond?

After receiving the owner’s notice, the tenant generally has 30 days to submit a written offer to purchase the property.

If the tenant makes an offer containing the same or more favorable material terms described in the owner’s notice, the owner must accept it. Otherwise, the owner may respond with a counteroffer and explain the differences between the proposed terms.

If the tenant declines, does not submit an offer within the required period, or negotiations end without a contract, the owner may generally proceed with marketing or selling the property to a third party. Nevertheless, the owner must still follow the remaining notice and reporting requirements.

The 10% Rule Can Restart the Process

One of the most important details for Maryland rental property owners is the 10% rule.

Suppose the owner offered the property to the tenant for $250,000. Later, the owner plans to accept a third-party offer that is at least 10% lower than the lowest price previously offered to the tenant. In that situation, the tenant’s right of first refusal may become active again.

As a result, the owner may need to provide a new notice allowing the tenant an opportunity to match the lower sales price. The tenant then has 30 days after receiving that notice to submit a qualifying written offer.

This rule is especially important when a property remains on the market and the asking price is reduced. Although the original notice may have been completed correctly, a substantially lower offer can create another compliance step before closing.

A Common Mistake That Can Delay Closing

Consider a landlord who owns a tenant-occupied rowhome in Baltimore. The owner lists the property, accepts an investor’s offer, and schedules closing within 30 days. During the title review, someone asks whether the tenant received the required notice.

The owner did tell the tenant that the property would be sold. However, the official form was never delivered, proof of mailing does not exist, and the Office of Tenant and Landlord Affairs was not notified.

Now the closing timeline may no longer work. The buyer could become frustrated, the rate lock could expire, and both parties may incur additional costs.

The problem was not the decision to sell. Instead, the problem was beginning the transaction without a compliance checklist.

Are Any Property Transfers Exempt?

Yes. Maryland law identifies certain transfers that may be exempt, including some transfers between family members, court-ordered transfers, foreclosure-related transfers, and transfers involving certain ownership structures or government entities.

However, an owner should never assume that a transfer is exempt simply because the property is being moved into an LLC, transferred to a relative, or sold off-market. The exact transaction and ownership relationship matter. Therefore, owners should review the statutory exemptions in Maryland Real Property Code § 8-119 and seek legal guidance when necessary.

Maryland Landlord Checklist Before Selling an Occupied Rental

Before listing or accepting an offer on a tenant-occupied rental property in Maryland, confirm the following:

• Determine whether the property contains three or fewer residential rental units.

• Confirm the names and mailing information of every current tenant.

• Review whether the proposed transfer qualifies for an exemption.

• Use the official Maryland notice form.

• Include commercially reasonable material sale terms.

• Deliver the notice using an approved trackable method.

• Submit the required copy to the Office of Tenant and Landlord Affairs.

• Allow the full tenant response and negotiation period.

• Document offers, counteroffers, rejections, and missed deadlines.

• Recheck the 10% rule before accepting a lower third-party offer.

• Notify the buyer that the tenant may hold a right of first refusal.

• Coordinate the expected closing date with the title company and legal counsel.

Selling a Rental Property Requires More Than Finding a Buyer

A successful rental property sale requires accurate records, tenant communication, realistic timelines, and compliance with Maryland landlord-tenant law. In addition, the lease, security deposit, payment ledger, maintenance history, rental license, and tenant notices should be organized before due diligence begins.

At Indigo Blue Property Management, we help Maryland rental property owners maintain structured leasing, resident communication, maintenance, documentation, and day-to-day property operations. Although a property manager does not replace legal counsel, an organized management system can help owners identify required steps before they become expensive closing problems.

If you are preparing to sell a tenant-occupied property or want stronger systems for your Maryland rental portfolio contact Indigo Blue Property Management to learn how our team can support you.

This article is for general educational purposes only and does not constitute legal advice. Requirements and exemptions may vary according to the property, transaction, and circumstances. Property owners should consult a qualified Maryland attorney regarding their specific sale.