What Happens When Your Rental Is Being Converted Into a Condo?
By Sandy Gadow
Special to the Washington Post
Do you live in an apartment building that is going to be converted to a condominium? If so, are you at risk of being evicted? Or is this your unanticipated chance to finally become a homeowner?
Many cities where land is scarce and housing is hard to find have developers who are clamoring to find established rental buildings that are suitable for conversion.
According to the National Association of Home Builders, the construction of new (multifamily) condominium buildings has fallen below the national average of 20 percent to a low of 10 percent of new homes built last year. Although some areas, such as Miami, may have an oversupply of empty condominiums (ones that were built before property values fell in 2009), other areas — such as San Francisco — have a scarcity of available new housing, especially affordable condominium units.
Before a rental conversion can be approved, there are well-defined steps that a developer must take. State law and city ordinances governing housing, planning and zoning will dictate the requirements a developer must follow. The process actually begins before the property is even purchased, and it includes “qualifying criteria” to determine whether the building is eligible for conversion.Anjanette Tinney-Young, a lawyer with Avenue Title Group in the District, said that once a developer has closed escrow on the property, the process can take eight months or longer to complete, and that is if nothing goes wrong.
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Although they can vary from city to city, local ordinances are designed to protect the rights of tenants who live in a rental building that is undergoing a conversion. For example, in the District, the Rental Housing Conversion and Sale Act of 1980 gives tenants the right to organize and vote on whether they are in favor of the conversion. If the tenants vote against the project, the developer cannot move forward.
Other cities have passed legislation that controls and regulates the number of conversion applications that will be accepted each year. In San Francisco — where there was a long backlog of properties waiting for approval — the Board of Supervisors took action and passed a new “expedited” conversion program. It stated that as of April (until the year 2020), only buildings that had a signed tenancy-in-common, or TIC, agreement for more than one owner in place as of May 1, 2013, would be eligible to convert to condominiums.
According to David Gellman, a lawyer in the city, buildings without a signed TIC agreement in place “may never qualify for condo conversion.” Among other protections in San Francisco, tenants who are in occupancy during a condominium conversion must be offered the option of a lifetime, rent-controlled lease for their units.
In Berkeley, Calif., the city charges owners of a rental conversion project a mitigation fee of 12.5 percent of the sales price of the condominium. And in Seattle, developers are held responsible for determining whether tenants are eligible to receive relocation assistance, calculating how much that will be and making payment directly to the tenant.
New Jersey’s “Anti-Eviction Act” protects all tenants from eviction resulting from a condominium conversion for at least three years. The Boston condominium ordinance imposes a five-year notice period for new conversions and for units already occupied by elderly, handicapped or low-to-moderate-income households who may have previously had the security of rent control. Other cities have powerful tenant organizations that work to protect the rights of renters and offer financial assistance in the event of a condo conversion.
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- Proper notice (often 120 days or more) and full information packets relating to the conversion and transfer of the property to a condominium.
- Opportunity to purchase rights.
- Tenant-first rights of refusal.
- Relocation assistance if necessary, including the Housing Assistance Payments (HAP) program. This is available to tenants who may be eligible for financial assistance if they are displaced because of the conversion.
- A proposed condominium association set-up and bylaws.
- Receipt of offer of sale notices.
It is then up to the individual tenants to consider their options. Do they want to stay and purchase their unit or remain as tenants? Will the developer offer to buy them out if they agree to move? If there will be major remodeling or renovation work, where will they live during the construction phase of the project?
Realtor.com offers a “Rent vs. Buy” calculator that can help compare the financial advantage (or disadvantage) of buying or renting the apartment. ( www.realtor.com/mortgage/tools/rent-or-buy-calculator ).
Take a close look at the local condominium conversion laws for your city or municipality, because they can differ from the state’s condo laws. And it pays to consult with a real estate lawyer if you are unsure about your rights.
If you decide to purchase your unit, you will want to be confident that all your concerns have been addressed and that your ownership rights are protected.
Here are some questions to ask and tips to consider if you intend to purchase your rental apartment:
- Is the asking price fair? Is it discounted for tenants?
- Is financing available?
- What is the expected monthly condo association fees?
- Will pets be allowed?
- Would you be able to rent out your unit if you wanted to?
- Can you become a board member in the condo association?
- Can you be involved in setting up the budget, the annual owner dues and the reserve fund for future improvements that may be necessary?
- What percentage of the association will be required to vote on renovation and decoration work? Necessary repairs generally do not require a membership vote, but discretionary spending on things such as a new decor for the entry or lobby area probably will.
- Who will manage the building? Is their fee fair, and is their reputation above reproach?
Offer suggestions and feedback on the covenants (rules) that will be included in the condominium documents. Those conditions and restrictions stipulate what an owner can (or cannot) do in the building. They are also referred to as bylaws, or CC&Rs.