April 21, 1994
WEST END TENANTS ASSOCIATION, ET AL, INTERVENOR-APPELLANTS
GEORGE WASHINGTON UNIVERSITY, ET AL, APPELLEES. DISTRICT OF COLUMBIA, APPELLANT V. GEORGE WASHINGTON UNIVERSITY, ET AL, APPELLEES
Appeals from the Superior Court of the District of Columbia; (Hon. George Herbert Goodrich, Trial Judge)
Before Steadman* and Sullivan, Associate Judges, and Belson, Senior Judge.
The opinion of the court was delivered by: Belson
BELSON, Senior Judge: Appellants, District of Columbia (the "District") and intervenor, the West End Tenants Association ("Tenants"), *fn1 appeal from summary judgment entered in favor of the George Washington University ("GWU") and the owners of the West End Building (the "Owners").
The District and Tenants sought declaratory and injunctive relief against GWU and the Owners of the West End, an 86-unit apartment building located at 2124 I Street, N.W. (the "West End") and GWU, pursuant to the Rental Housing Conversion and Sale Act of 1980 (the "Sale Act"), *fn2 as amended by the Tenant Opportunity to Purchase Clarification Amendment Emergency Act Of 1989, *fn3 (the "Clarification Act") and pursuant to the George Washington University Higher Education Facilities Revenue Bond Act of 1981 (the "Bond Act"). *fn4 In particular, they sought a declaration that Tenants had been deprived of their rights under the Sale Act as a result of a lease agreement between GWU and the Owners, dated August 1, 1988, (the "Master Lease"), and also sought an injunction requiring that those rights be effectuated. They further sought a declaration that the Master Lease violated the Bond Act agreement and an injunction barring its enforcement. Finally, they asked that the court order "the owners to give the tenants their opportunity to purchase and/or their right of first refusal with respect to the purchase" of the accommodation.
In granting appellees' motion for summary judgment, the trial court ruled that the retroactive application of the Clarification Act would be unconstitutional because, inter alia, it would violate the Contract Clause of the Constitution. *fn5 The trial court was unpersuaded that GWU violated the Bond Act. It rejected the argument that the Master Lease was equivalent to a "sale" under the Sale Act of 1980, and ruled that when the Owners and GWU entered into the Master Lease agreement in 1988, they were not required to afford the Tenants notice and an opportunity to purchase. We affirm.
We set forth in some detail the facts that bear upon the issues (1) whether the trial court erred in ruling that the Master Lease did not effect a "sale" for the purpose of triggering certain statutory rights of Tenants under the Sale Act, and (2) whether the Clarification Act had the effect of clarifying or redefining the terms of the Sale Act in such fashion as to make a "sale" of the lease transaction entered into by GWU and the Owners.
1. The Bond Act
GWU made certain promises regarding tenants' rights in order to secure passage of the Bond Act. On July 27, 1981, in response to efforts by GWU, the Bond Act was referred to the Committee on Finance and Revenue of the Council of the District of Columbia. The Bond Act "authorized the District of Columbia to issue up to $30 million in revenue bonds for the purpose of providing funds [to GWU] for the construction of an 'academic cluster' and the improvement of several existing buildings to provide greater fire safety and access" for persons with disabilities. COMMITTEE ON FINANCE AND REVIEW, REPORT ON BILL 4-303, THE GEORGE WASHINGTON UNIVERSITY HIGHER EDUCATION FACILITIES REVENUE BOND ACT OF 1981 (1981).
During the course of public hearings on the bill, residents of the Foggy Bottom area voiced concern that "passage of the act would make it possible for the University to acquire two multi-family rental housing buildings located within the campus plan area of the University." Of particular concern was the future of the West End Apartments at 2124 I Street, N.W., and the Schenley Apartments at 2121 H Street, N.W.
Responding to these concerns, GWU, on September 24, 1981, submitted a "Statement regarding the University's intentions concerning the West End and Schenley Apartments" to the Committee on Finance and Revenue. It provided, in pertinent part:
1. The University will not initiate negotiations with the owners of the West End Apartments or the Schenley Apartments for the purpose of purchasing either of these buildings.
2. In the event that the owners of the West End and Schenley Apartments offer the buildings for sale, the University will not offer or enter into a contract for the purchase of these buildings, except in conjunction with the tenants' exercise of their rights to purchase the property under prevailing laws of the District of Columbia.
3. If after compliance with points 1 and 2 above, the University acquires through purchase the West End and/or Schenley apartment buildings, the University will maintain the buildings as rental housing under the provisions of the prevailing laws of the District of Columbia.
The University would have the right to use any voluntarily vacated units for student tenancy.
This agreement will remain in effect for a period of ten years.
See id. at 23.
With these assurances, the Council passed the Revenue Bond Act. It became law on December 23, 1981, D.C. Law 4-58, 28 D.C. Reg. 4758 (1981). *fn6
2. 1988 Master Lease Agreement
A review of the events that led up to the signing of the Master Lease Agreement and of the provisions of that agreement will aid our consideration of whether the agreement violates the Sale Act or other applicable statutes.
In 1982, Thomas Bradford, Jr., one of the owners, spoke with then university Assistant Treasurer Maurice K. Heartfield, Jr. and inquired whether the university was interested in purchasing the West End. Mr. Bradford also expressed his interest in exploring the mutual advantages to both the Owners and GWU of a renovation and long-term lease. GWU responded by providing Mr. Bradford with a copy of the assurances it had given the Council in connection with the Bond Act. All negotiations then ceased for some five years, until May 4, 1987, when Mr. Bradford again inquired as to whether the university was interested in the premises. The negotiations which followed led to several proposals culminating in the transmittal to Mr. Bradford on May 12, 1989, of an initial draft of the Master Lease.
At about this time, the university's counsel, Vincent C. Burke, III, had a telephone conversation with Mr. Byron Hallstead of the District of Columbia Consumer and Regulatory Affairs Conversion and Sale Office regarding the lease agreement. *fn7 Without revealing the parties involved, Mr. Burke presented Mr. Hallstead with a hypothetical situation based on the facts of the Master Lease. Mr. Hallstead stated that such an agreement would not violate the Sale Act as the agreement (1) constituted a lease and not a sale, and (2) recognized the rights of the tenants to purchase before any purchase by the university.
Prior to signing the lease, GWU Vice-President and Treasurer Charles E. Diehl called Councilmember John Wilson to inquire if Mr. Wilson believed that such a lease was in accordance with the University's Bond Act assurances. Mr. Wilson, according to Mr. Diehl, responded orally that, given the Master Lease's explicit recognition of the tenants' right to purchase, it was his Opinion that it did not violate the Bond Act assurances. *fn8
On August 1, 1988, the university entered into a lease agreement (the "Master Lease") with the owners of the West End Apartments for a period of ten years at a rate of $25,000 monthly, or $300,000 each year. The university was granted the "exclusive right to purchase" the apartment building at the end of the ten-year period (on July 31, 1998) for $6 million, minus a $100,000 credit per rental year, for a net amount of $5 million. This option was made "expressly subject and subordinate to the tenants' rights pursuant to the District of Columbia Rental Housing Conversion and Sale Act . . . ." It recognized that GWU must "comply with the District of Columbia Rental Housing Conversion and Sale Act and any successor or similar act in existence at the time a contract of sale is entered into, and provide the notices required by the Act relating to said sale and to the exercise of tenants' statutory rights of purchase under said Act." *fn9
The Master Lease, in addition to giving GWU control over all equipment on the premises, supplies, and transferable permits, as well as the right to challenge any real estate assessments, obligated the university to pay all real property taxes and utilities, to perform all maintenance and repairs, and to obtain all non-transferable permits and purchase liability insurance. The owners, besides holding record title, reserved the right to prevent the university from making any alterations, improvements, or additions to the apartment, to re-enter the premises in the event of noncompliance with the lease provisions, and to veto any assignment of rights by the university under the lease.
3. Passage of The Clarification Act
In December 1988, the District of Columbia filed in Superior Court its initial complaint against GWU and the Owners. The West End Tenants Association ("Tenants") and individual tenants subsequently moved to intervene in the action and were granted intervenor status on July 14, 1989. In the interim, following protests from neighborhood groups and the Tenants, the Council Committee on Consumer and Regulatory Affairs proposed amending the Sale Act. As a result of a committee-sponsored roundtable conference, the Chairman of the Committee on Consumer and Regulatory Affairs introduced Bill 8-188, the Tenant Opportunity to Purchase Clarification Amendment Act of 1989 on February 28, 1989. That bill was approved on August 1, 1989, and became law on October 19, 1989. See 36 D.C. Reg. 5790-92 (1989). *fn10
The Clarification Act, in D.C. Code § 45-1631 (b) (1990 Repl.), defines "sale" in a manner that unmistakably mirrored the Master Lease involved in this litigation which was then pending before the trial court, i.e., to "include" all agreements by which an owner relinquishes control of property, gives the party in control an option to purchase with interim payments to be applied to the purchase price; obligates the controlling party to pay taxes and insurance coverage; and allows the controlling party to purchase ownership interests in the property. At the specific request of counsel for appellants, the amendment provided that it would apply retroactively "to the sale of a rental housing accommodation" occurring after June 23, 1988. See Section 3 of 36 D.C. Reg. 5791 (1989) (slightly more than one month before the Master Lease was executed). *fn11
On September 1, 1989, GWU and the Owners filed a motion for preliminary injunction to bar the District of Columbia from enforcing the Clarification Act with respect to the Lease Agreement. GWU and the Owners subsequently withdrew this motion on October 2, 1989, upon the representation by the District of Columbia that no criminal penalties would be pursued outside this litigation. The parties on the same date stipulated that the District of Columbia could file an amended complaint to include a count under the Housing Conversion and Sale Act of 1980, as amended, D.C. Code § 45-1601 et seq. as amended in turn by the "clarifying" amendments of 1989, and that the appellees could file a counterclaim to that count. Those pleadings were subsequently filed. In June, 1990, all parties filed summary judgment motions. The trial court granted summary judgment in favor of GWU and the Owners and denied the motions of the District of Columbia and the Tenants.
1. Standard of Review -- Summary Judgment
In reviewing the trial court's grant of summary judgment, we consider the evidence in the light most favorable to the non-moving party, and make a de novo determination (1) whether any genuine issue of material fact exists, and (2) whether appellees are entitled to judgment as a matter of law. Dodek v. CF 16 Corp., 537 A.2d 1086, 1092 (D.C. 1988); Holland v. Hannan, 456 A.2d 807, 814 (D.C. 1983); see Super. Ct. Civ. R. 56 (c) (1993). In doing so, we must conduct an independent review of the record, Scrimgeour v. Magazine, 429 A.2d 187, 188 (D.C. 1981), to determine whether there are any material factual issues. McCoy v. Quadrangle Dev. Corp., 470 A.2d 1256, 1259 (D.C. 1983). Where there is doubt as to whether a genuine issue of fact has been raised, summary judgment is precluded. International Underwriters, Inc. v. Boyle, 365 A.2d 779, 782-83 (D.C. 1976). However, summary judgment can not be avoided merely by demonstrating a disputed factual issue. Nader v. de Toledano, 408 A.2d 31, 42 (D.C. 1979), cert. denied, 444 U.S. 1078, 62 L. Ed. 2d 761, 100 S. Ct. 1028 (1980). Rather, the opposing party must show that the fact is material and "that there is sufficient evidence supporting the claimed factual dispute to require a jury or Judge to resolve the parties' differing versions of the truth at trial." Id. (citation and internal quotation omitted). Like the trial Judge, we are satisfied that there are no genuine issues as to material facts. Thus, we are faced only with issues of law.
2. Sale Act of 1980
We first examine whether the Master Lease Agreement would constitute a sale under the terms of the Sale Act of 1980 -- absent consideration of the later Clarification Act of 1989. The Sale Act of 1980 "is the culmination of a long history of restrictions on conversion" of rental housing which have been enacted since 1974. Hornstein v. Barry, 560 A.2d 530, 532 (D.C. 1989) (en banc). See District of Columbia v. Washington Home Ownership Council, Inc., 415 A.2d 1349, 1360-64 (D.C. 1980) (en banc); Silverman v. Barry, 269 U.S. App. D.C. 327, 330-32, 845 F.2d 1072, 1075-77, cert. denied, 488 U.S. 956, 102 L. Ed. 2d 383, 109 S. Ct. 394 (1988). In enacting the Sale Act of 1980, the Council made several findings:
1. There exists a continuing housing crisis in this city, with a severe shortage of rental housing and a low vacancy rate, particularly in relation to units which lower income tenants can afford. See D.C. Code § 45-1601 (2) (1990 Repl. & 1993 Supp.).
2. The conversion of rental units to condominiums or cooperatives depletes the rental housing stock. See D.C. Code § 45-1601 (3) (1990 Repl. & 1993 Supp.).
3. Lower income tenants are affected most severely for post-conversion costs are usually beyond their means, a condition which results in forced displacement, serious overcrowding, and disproportionately high housing costs. See D.C. Code § 45-1601 (4) (1990 Repl. & 1993 Supp.).
4. Experience with prior conversion controls has demonstrated that such restrictions have not been sufficiently effective, and tenants who are most directly affected by conversion should be given a voice in the determination whether their rental housing should be converted. See D.C. Code § 45-1601 (7) (1990 Repl. & 1993 Supp.). *fn12
The Sale Act provides, in relevant part, that "before an owner of a housing accommodation may sell the accommodation, or issue a notice of intent to recover possession, or notice to vacate, for purposes of demolition or discontinuance of housing use, the owner shall give the tenant an opportunity to purchase the accommodation at a price and terms which represent a bona fide offer of sale." D.C. Code § 46-1631 (a) (1990 Repl.). *fn13 Moreover, "in addition to any and all other rights specified in this subchapter, a tenant or tenant organization shall also have the right of first refusal during the 15 days after the tenant or tenant organization has received from the owner a valid sales contract to purchase by a 3rd party." D.C. Code § 45-1637 (1990 Repl.).
Here, the trial court found that "the Lease [does not] violate the Sale Act. . . . Under the Lease, GWU is not obligated to purchase the buildings; to the contrary, GWU has the option not to purchase as well."
a. Construing the Sale Act
It is clear that "the starting point for interpreting a statute is the language of the statute itself," and that, "absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 64 L. Ed. 2d 766, 100 S. Ct. 2051 (1980). Moreover, "if the words are clear and unambiguous, we must give effect to [the statute's] plain meaning," James Parreco & Son v. District of Columbia Rental Hous. Comm'n, 567 A.2d 43, 45 (D.C. 1989) (citations omitted), keeping in mind that the intent of the legislature is to be found in the language which it has used, id. at 46 (citing United States v. Goldenberg, 168 U.S. 95, 102-03, 42 L. Ed. 394, 18 S. Ct. 3 (1897)); Peoples Drug Stores, Inc. v. District of Columbia, 470 A.2d 751, 753 (D.C. 1983) (en banc), and words should be construed according to the meaning commonly attributed to them. United States v. Thompson, 347 A.2d 581, 583 (D.C. 1975). In sum, "'the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing.'" Parreco, supra, 567 A.2d at 46 (quoting Cabell v. Markham, 148 F.2d 737, 739 (2d Cir.), aff'd, 326 U.S. 404, 90 L. Ed. 165, 66 S. Ct. 193 (1945)). *fn14
In Parreco, supra, 567 A.2d at 45, landlord petitioner sought to overturn the Rental Housing Commission's ruling that "equity" and "interest payments" refer only to "those mortgages or encumbrances of which the proceeds have been reinvested in the housing accommodation." In finding in favor of landlord, we applied the plain language of the statute, *fn15 noting both the rent stabilization program's need "to protect low and moderate income tenants from the erosion of their incomes from increased housing costs[,]" D.C. Code § 45-1502 (1) (1986 Repl.), and the "sometimes competing goal . . . to provide landlords and developers with a reasonable rate of return on their investments." Parreco, supra, 567 A.2d at 44 (citation and internal quotation omitted).
Similarly, the tenant-appellant in Gibson v. Johnson, 492 A.2d 574 (D.C. 1985), maintained that a father who transferred title in a rental building to his son was still the "owner" of the premises under the Rental Housing Act's rent-control provisions, arguing that "given a liberal definition of the term, should not be able to evade rent control provisions by conveying the property to one who qualifies for the exemption." Id. at 577 (footnote omitted). Acknowledging that "this court, of course, will not look beyond the plain meaning of a statute when the language is unambiguous and does not produce an absurd result," id. (citation omitted), we held that
an examination of the record reveals that may have had as one motive in conveying the property to his son the evasion of rent control. And as appellant suggests, this result may not have been desired. Yet, the statute is not ambiguous. It clearly exempts from rent control rental housing of four units or less which is owned by not more than four persons provided the owner(s) has no interest, either directly or indirectly, in any other rental property in the District of Columbia and provided a claim of exemption statement is properly filed with the Rental Accommodations Office. In our view, these criteria have been satisfied.
Id. (internal footnotes omitted).
The rationale underlying our decision in Gibson is persuasive here. *fn16 Although at the time the Master Lease was entered into the Council failed to define the word "sale," *fn17 as a leading commentator states, "where the legislature has not defined words used in the act, the court must then determine the meaning of the language in accordance with the legislative intent and common understanding to prevent absurdities and to advance Justice." 1A NORMAN J. SINGER, SUTHERLAND STATUTORY CONSTRUCTION § 20.08 (5th ed. 1993). Moreover, "if a word that should be defined in a statute is not, then its commonly accepted meaning is applied. . . ." 2A SINGER, SUTHERLAND STATUTORY CONSTRUCTION § 47.07 (5th ed. 1992). The use of dictionary definitions is appropriate in interpreting undefined statutory terms. Id.
There appears to be an almost universal consensus that, in the context of real property transactions, the word "sale" signifies an absolute transfer of property. BLACK'S LAW DICTIONARY 1337 (6th ed. 1990) defines sale, inter alia, as
A contract whereby property is transferred from one person to another for a consideration of value, implying the passing of the general and absolute title, as distinguished from a special interest falling short of complete ownership.
(emphasis supplied). "An option contract and a contract of sale are in fact two separate and distinct contracts, namely, an option contract, and the agreement to sell. An option, originally, is neither a sale nor an agreement to sell." 77 AM. JUR. 2D Vendor and Purchaser § 28 (1975) (footnotes omitted); see also 91 C.J.S. Vendor and Purchaser § 5 (1955). *fn18
Here, by the terms of the Master Lease, (1) GWU must pay a monthly rental for a ten-year period, after which it must vacate the premises (unless it purchases); (2) GWU is restricted from leasing any units for a term running past the expiration date of the Master Lease; (3) GWU must have approval of the Owners prior to commencing with any alterations or renovations; (4) GWU may not assign its rights without the Owners' consent; and (5) the Owners reserve the right to re-enter the premises in the event of noncompliance with the lease provisions. The Owners retain record title to the premises.
It is true that the lease affords GWU a large measure of control over the premises, including control over equipment, supplies and transferable permits but obligates GWU to pay for such permits. It also obligates GWU to pay real property tax and insurance premiums as well as expenses for utilities and maintenance. But such allocations of rights and obligations are common in a so-called "triple-net lease," a standard arrangement employed in connection with the use of real property by tenants who are not in any sense purchasers of the real property from which they operate their business. *fn19 GWU's answers to interrogatories stated, without contradiction, that the lease agreement in question "is a standard triple-net lease which in this metropolitan area is a standard commercial lease dictated by the marketplace." *fn20
In light of the foregoing considerations, it is clear that the Owners have not conveyed their entire interest and title in the West End and, applying the above definitions, we conclude that the Master Lease does not effect the absolute transfer of the West End to GWU and, accordingly, is not a sale under the Sale Act as it was enacted in 1980.
The Master Lease is not transformed into a sale by virtue of the included option to purchase. An option to purchase is a contract whereby a property owner, in exchange for valuable consideration, agrees with another person that the latter shall have the privilege of buying property within a specific time on terms and conditions expressed in the option. 1 SAMUEL WILLISTON, A TREATISE ON THE LAW OF CONTRACTS § 5:16 (4th ed. 1990).
The commentators clearly distinguish an option from a sale. See 8A GEORGE W. THOMPSON, COMMENTARIES ON THE MODERN LAW OF REAL PROPERTY § 4443, at 257 (1963 Repl.) ("The option is not a sale. It is not even an agreement for a sale. At best, it is but a right of election in the party securing the same to exercise a privilege, and only when that privilege has been exercised by acceptance does it become a contract to sell"); BLACK'S LAW DICTIONARY 1094 (6th ed. 1990) ("An option to purchase . . . is not a contract to purchase . . ., as optionee has the right to accept or to reject the offer, in accordance with its terms, and is not bound"). *fn21
Notwithstanding the clarity of the statutory language and the Master Lease, appellants argue that we should adopt the rationale of certain courts of other jurisdictions in the few decisions which have construed an option contract to trigger the refusal rights of tenants. In particular, appellants cite Quigley v. Capolongo, 53 A.D.2d 714, 383 N.Y.S.2d 935 (N.Y. App. Div. 1976), aff'd sub nom., Quigley v. Ithaca College, 43 N.Y.2d 748, 372 N.E.2d 797, 401 N.Y.S.2d 1009 (N.Y. 1977) for the proposition that, despite the denomination given by the parties, an option to purchase is a "sale" and triggers tenants' rights to purchase. We disagree.
In Quigley, Ithaca College entered into a contract to purchase a certain property. Upon discovering that a third party had a previous right of first refusal in the same property, the college withdrew from the contract. The college then entered into a lease with an option to purchase which was to run until after the third party's right of first refusal expired. For this option, the college paid over 20% of the ultimate purchase price at the outset and a "rental of only $1,000 annually, clearly a nominal sum for a lease of nine acres." Quigley, supra, 383 N.Y.S.2d at 937. After observing that "it is inconceivable that the college would pay such a large sum in relation to the total purchase price if the parties did not contemplate from the outset that a purchase would be consummated," id., the court concluded "that in the circumstances of this case it formalized defendant-owners' intention to sell the premises in response to the offer by defendant Ithaca College, thus activating plaintiffs' right of first refusal." Id.
Although superficially similar, Quigley is essentially inapposite to the instant action. Whereas Quigley was concerned with a contractual first right of refusal which the parties could circumvent by waiting until it expired, the tenants' right of refusal here is statutorily based and explicitly recognized by the Master Lease as applicable in the event that GWU should opt to exercise its option to purchase. Moreover, unlike the arrangement in Quigley, GWU pays the Owners $300,000 yearly, $200,000 of which is denominated as rental payments while the additional $100,000 pays for the option. The net purchase price at the end of the ten-year term if the option is exercised is $5 million. *fn22 Appellant has not suggested, nor do we conclude, that either the rental payments or the final asking price are "nominal" or fail to comport with fair-market value. *fn23
Ten years after Quigley, the Supreme Court of New York, Appellate Division, held that where the language of the first refusal agreement stated that "landlord agrees to give 'first refusal' on sale," a net lease with an option to purchase was "not a conveyance amounting to a 'sale' of property so as to activate plaintiff's right of first refusal, absent a showing that the net lease was a 'sham' or otherwise entered into in bad faith for the purpose of defeating plaintiffs rights." Kings Antiques Corp. v. Varsity Properties, Inc., 121 A.D.2d 885, 503 N.Y.S.2d 575, 576-77 (N.Y. App. Div. 1986) (emphasis supplied) (citing Quigley, supra). *fn24 The court there held:
The option contained in the net lease does not violate plaintiff's preemptive right. The right of first refusal on sale does not mature until such time as the net lessees exercise their option to purchase. . . . Since the plaintiff's lease particularly specified a right of first refusal on sale, the grant of a mere option does not violate the plaintiff's right.
Id. at 577 (citation and internal quotation omitted). *fn25 We are satisfied that the clear import of the Sale Act as it was enacted in 1980 is that the option to purchase in the Master Lease did not trigger Tenants' right of first refusal, and that the trial court was correct in so ruling.
3. Clarification Act
Having established that the plain meaning of the Sale Act of 1980 does not bring the Master Lease within its reach, we must next examine whether the same result still obtains in light of a subsequent "clearly expressed legislative intention to the contrary." Consumer Product Safety Comm'n, supra, 447 U.S. at 108. Nowhere in the extensive legislative history of the Sale Act prior to its consideration of the Clarification Act did the Council suggest that entering into an arrangement such as the Master Lease would trigger a tenant's right of first refusal. Nonetheless, in the Report of the Committee on Consumer and Regulatory Affairs regarding the Clarification Act, the Committee stated that Bill 8-188 merely clarifies the original intention of the Council when it passed the Rental Housing Conversion and Sale Act of 1980. Accordingly, the report states that "the Committee feels that the use of any agreement which transfers rights that are associated with ownership would make any transfer of tenant-occupied property subject to review. And the Council is only seeking to clarify its original intent." COMMITTEE ON CONSUMER AND REGULATORY AFFAIRS, REPORT ON THE TENANT OPPORTUNITY TO PURCHASE CLARIFICATION AMENDMENT ACT OF 1989, at 7 (1989) (emphasis supplied). As explained above in Part I, section 3, of this opinion, the Act went on to redefine the term "sale" in a manner that plainly mirrored the terms of the Master Lease involved in this case. We must now consider what weight to give to this retroactive expression of intent, an expression set forth not merely in the legislative history of the Clarification Act, but in the statutory language itself.
"Subsequent legislation which declares the intent of an earlier law is not, of course, conclusive in determining what the previous Congress meant." Federal Hous. Admin. v. Darlington, Inc., 358 U.S. 84, 90, 3 L. Ed. 2d 132, 79 S. Ct. 141 (1958). However, "the later law is entitled to weight when it comes to the problem of construction." Id. *fn26 See also United States v. Price, 361 U.S. 304, 313, 4 L. Ed. 2d 334, 80 S. Ct. 326 (1960) ("the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one"); Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 839, 100 L. Ed. 2d 836, 108 S. Ct. 2182 (1988) (opinion of "later Congress as to the meaning of a law enacted 10 years earlier does not control the issue"); United Air Lines, Inc. v. McMann, 434 U.S. 192, 200 n.7, 54 L. Ed. 2d 402, 98 S. Ct. 444 (1977) ("Legislative observations 10 years after passage of the Act are in no sense part of the legislative history"); Bridgestone/Firestone, Inc. v. Pension Benefit Guaranty Corp., 282 U.S. App. D.C. 89, 94 n.5, 892 F.2d 105, 110 n.5 (1989) ("The pronouncements of a subsequent Congress, here 13 years after the passage of ERISA, are notoriously unreliable indicators of the intent of Congress at the time of passage, and we give very little weight to such revisionist legislative history"). We deem not to the contrary Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367, 23 L. Ed. 2d 371, 89 S. Ct. 1794 (1969), where the Supreme Court upheld Congressional legislation which codified a thirty-year agency interpretation of the statutory term "public interest." There, the Court spoke of the "venerable principle that the construction of a statute by those charged with its execution should be followed unless there are compelling indications that it is wrong." Id. at 381. Here, however, the Clarification Act's retroactive definition of the word "sale" is at variance with both the common usage of the term "sale" and the understanding of the meaning of the Sale Act of those charged with its administration. Accordingly, the retroactive interpretation in question here does not deserve the same deferential treatment accorded in Red Lion.
Moreover, it is appropriate to take note of the views of the Director of the Department of Consumer and Regulatory Affairs ("DCRA"), the agency charged with enforcing the Sale Act, who testified concerning the Clarification Act that:
This proposed legislation would define certain transactions as sales for the purpose of the Rental Housing and Conversion and Sale Act. These transactions, involving leases and purchase options, transfer many of the benefits of ownership but are currently not defined as sales and therefore do not trigger the tenants' opportunity to purchase provisions of the Conversion and Sale Act. If passed, the amendment would expand the current definition of "sale" to include . . . . [specifying features of lease which would make it a "sale"].
Executive testimony of Donald G. Murray before the Committee on Consumer and Regulatory Affairs, April 27, 1989 (emphasis supplied). *fn27 We have already concluded that the Sale Act, as it read before the adoption of the Clarification Act, simply did not apply to an agreement such as the Master Lease.
It is also entirely clear from our Discussion above of the Bond Act that, so long as the Master Lease did not trigger the Sale Act of 1980, the conduct Of GWU was consistent with the assurances the university had given in connection with the enactment of the Bond Act. *fn28 For the reasons we have stated in this section, we find unavailing the retroactive indication of legislative intent expressed in the Clarification Act with respect to the meaning of the term "sale." At the time the Master Lease was entered into by appellees, it did not constitute a sale. Thus, appellants can prevail here only if the Clarification Act had the effect of retroactively changing the definition of the term "sale" so as to convert the 1988 Master Lease from a lease into a sale. We turn therefore to consider the retroactive effect, if any, of the Clarification Act upon the Master Lease, consideration which implicates the Contracts Clause of the United States Constitution.
As we have seen, the Clarification Act undertook to define, retroactively, the meaning of the word "sale" in such fashion as to make the Master Lease in this case a sale rather than a lease. The trial court ruled that, as applied to the Master Lease, the Clarification Act violated the Contracts Clause of the United States Constitution.
Article I, Section 10, Clause 1 of the Constitution provides that "no State shall . . . pass any . . . Law impairing the Obligation of Contracts. . . ." U.S. CONST. art. I, § 10, cl. 1. *fn29 Despite its absolute language, the Clause does not act as a complete bar to legislative alterations of existing contractual obligations because "its prohibition must be accommodated to the inherent police power of the State 'to safeguard the vital interests of its people.'" Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410, 74 L. Ed. 2d 569, 103 S. Ct. 697 (1983) (quoting Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 434, 78 L. Ed. 413, 54 S. Ct. 231 (1934)).
The Supreme Court has outlined the scope of the Clause and proposed a three-part inquiry to guide in its interpretation. Parties seeking relief must demonstrate (1) that there has been a substantial impairment of a contractual relationship; (2) that the impairment is not justified by a "significant and legitimate public purpose;" or if so justified, (3) that the impairment is not based upon reasonable conditions or "'of a character appropriate to the public purpose justifying [the legislation's] adoption.'" Energy Reserves, supra, 459 U.S. at 411-12 (quoting United States Trust Co. v. New Jersey, 431 U.S. 1, 22, 52 L. Ed. 2d 92, 97 S. Ct. 1505 (1977)).
Accordingly, appellees must initially demonstrate that the 1989 Act substantially impairs the Master Lease Agreement between them. To demonstrate such an impairment, a contracting party need not prove a complete cancellation of his rights. Rather, it is the degree of contractual interference which becomes critically significant. United States Trust Co., supra, 431 U.S. at 27. Whereas "minimal alteration of contractual obligations may end the inquiry at its first stage[,] severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state legislation." Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245, 57 L. Ed. 2d 727, 98 S. Ct. 2716 (1978).
In measuring an impairment's substantiality, the Supreme Court has accorded significance to whether the state has restricted contracting parties "to gains reasonably expect from the contract." Energy Reserves, supra, 459 U.S. at 411. Here, by making the 1989 Act retroactive, the Council modified the law in such fashion that appellees' actions in entering into the Master Lease without offering the tenants a first right of refusal, would be transformed into a violation of the Sale Act. Not only did this legislation expose appellees to a fine not to exceed $50,000 for willful violation, D.C. Code § 45-1660 (1990 Repl.), but it effectively deprived the Owners of a contract yielding $300,000 annually, and might deny GWU whatever potential benefit might have accrued from the agreement. Indeed, the District of Columbia and Tenants contend that the entry by the contracting parties into the lease, as distinguished from the university's eventual exercise of its right to purchase, brought about the immediate requirement that the property be offered to Tenants for purchase, or for the exercise of a right of first refusal. *fn30 It is obvious that the parties to the contract did not contemplate that the Sale Act might be triggered by their merely entering into the lease.
As a measure of contractual expectations, one factor to be considered in determining the extent of the impairment is "whether the industry the complaining party has entered has been regulated in the past." Energy Reserves, supra, 459 U.S. at 411; see Veix v. Sixth Ward Bldg. & Loan Ass'n, 310 U.S. 32, 38, 84 L. Ed. 1061, 60 S. Ct. 792 (1940). The Court in Veix, supra, 310 U.S. at 38, held that "when [a party] purchased into an enterprise already regulated in the particular to which he now objects, he purchased subject to further legislation upon the same topic." The history of the Rental Housing Act and the Sale Act indicates that rights of first refusal have long been accorded tenants under certain circumstances. Such rights have arisen, however, in connection with sales (or demolition or discontinuance of housing use) rather than with leases with or without options to purchase. It is significant that the language quoted from Veix refers to an enterprise already regulated in the particular which is now being regulated on the same topic (in Veix, the requirements for withdrawal of shares in a building and loan association). We must consider whether the extension of rights of refusal from sales to leases should be viewed as an extension to a new "particular" or "topic" which the parties would not reasonably be expected to anticipate.
In Allied Structural Steel, supra, 438 U.S. at 250, the Supreme Court held that a Minnesota statute retroactively requiring certain employers to increase substantially their contributions to private pension plans "did not operate in an area already subject to state regulation at the time the company's contractual obligations were originally undertaken, but invaded an area never before subject to regulation by the State." The unregulated area was the administration of pension plans. Although the State had previously engaged in regulating other aspects of employee compensation, such as wages and disability benefits, the Court held that the Minnesota Legislature had "entered a field it had never before sought to regulate" with its pension statute. Id. at 249. The "field" was therefore defined, not as the broad area of employee compensation, but as the more restricted subject of pension plans.
Conversely, in Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 74 L. Ed. 2d 569, 103 S. Ct. 697 (1983), the Court found no substantial impairment resulting from Kansas' imposition of certain price controls on natural gas in light of the state's already "extensive and intrusive" supervision of the industry, id. at 414, noting that Kansas "in the past has regulated the wellhead price of natural gas." Id. at 413 n.17 (citation omitted). The Court attached significance to the fact that the price escalator clauses at issue were designed to guarantee price increases consistent with anticipated increases in the value of the seller's gas, and to the fact that the parties' anticipations contemplated regulated rather than deregulated prices. The Court also stated that the contracts could be interpreted to contemplate state regulation.
From the holdings in Energy Reserves and Allied Structural Steel, we are instructed that, to preclude a subsequent finding of substantial impairment, earlier regulation must share more with the challenged legislation than simply the identity of the broad industry in which it operates, or even a broad phase of that industry's activity. While the Court in Energy Reserves confronted a regulation within a particular industry that shared a primary feature, control of price, of legislation enacted by the state and previously enacted by the federal government, *fn31 in contrast it dealt in Allied Structural Steel with legislation on a specific topic never before reached by state regulation.
Applying these authorities to this case, we note that although the Council had repeatedly acted in the broad area of tenants' rights, and had created a right of first refusal when there was a contract to sell the property, there had never been any move prior to the Clarification Act to include leases with options to purchase within the term "sale." To return to the question posed in Veix, supra, 310 U.S. at 38, whether a party purchased into an enterprise already regulated in the "particular" or "topic" which the party now objects, we acknowledge that previous legislation in the District has enhanced tenants' opportunities to purchase or to exercise rights of first refusal regarding rental property that is to be sold, demolished, or taken off the market. But the legislation reaches into a new "particular" or "topic" when it undertakes to give such rights when the contracting parties have only entered into a lease of the type involved here. In entering the contract the parties obviously did not contemplate this departure, nor would it be fair to say that they should have anticipated it. Thus, although reasonable arguments may be made for the opposite view, on balance we deem this case to be more analogous to Allied Structural Steel than to Energy Reserves.
Based on the foregoing, and considering especially the extent to which the Clarification Act could negate the parties' reasonable expectations of the contract, we are satisfied that the Clarification Act does substantially impair appellees' contractual arrangement. Accordingly, for appellants to prevail, the 1989 Act must be shown to be justified by a significant and legitimate public purpose "such as the remedying of a broad and general social or economic problem." Energy Reserves, supra, 459 U.S. at 411-12 (citations omitted). In analyzing the legitimate public purpose of a legislative act, "the severity of the impairment measures the height of the hurdle the state legislation must clear . . . . Severe impairment . . . will push the inquiry to a careful examination of the nature and purpose of the state legislation." Allied Structural Steel, supra, 438 U.S. at 245.
In determining the significance and legitimacy of a public purpose, our initial inquiry is whether "the State is exercising its police power, rather than providing a benefit to special interests." Energy Reserves, supra, 459 U.S. at 412. *fn32 For example, in Troy, Ltd. v. Renna, 727 F.2d 287 (3d Cir. 1984), the Third Circuit upheld legislation which extended the residential leases of elderly citizens for the "broad remedial purpose protecting the mental and physical health of citizens who could suffer greatly by evictions. The legislative findings expressly reported that the relocation of elderly and disabled persons is disruptive, costly for themselves and for the state in general, and particularly injurious for these persons who are often limited to fixed incomes." Id. at 298.
Here, there was no such broad purpose. It is evident that the sole thrust behind the Clarification Act was to reach the Master Lease Agreement between GWU and the Owners. *fn33 It is equally evident that prior to the Clarification Act, (1) there had been no ruling by the Rental Housing Commission [("RHC")] on any matter "where the facts led one to believe that leases or informal or formal ownership agreements have been used to transfer ownership/control of a building to circumvent the tenants' right of refusal in a manner comparable to the facts surrounding the GWU/West End lease;" *fn34 (2) there had been no complaints before the RHC whereby "colleges or universities have attempted to circumvent the Rental Housing Act by leasing units to students only;" and (3) the DCRA has "received no complaints from tenants or tenant organizations about the use of master lease agreements." *fn35
Addressing as it does a situation of "first impression," the Clarification Act appears in spirit, in language, *fn36 and in its explicit retroactive application to be directed only to the benefit of the "special interests" of the West End tenants, rather than to any broad societal interests. Accordingly, we agree with the trial court's Conclusion that the Clarification Act serves no broad public purpose and, as applied to the Master Lease, is unconstitutional as violative of the Contracts Clause. *fn37
Accordingly, the trial court's entry of summary judgment in favor of appellees GWU and the Owners is hereby affirmed.