Even in today’s distressed real estate environment, there are times where a condominium conversion makes sense. I have been working on condominium conversions for more than twenty year. There follows a short summary of the process, with the thought that condominium conversion may make the best sense for your multi-unit Sellers. My firm, Topkins & Bevans, continues to assist developers and individuals with condominium conversions. We have developed a team of engineers, financing people, accountants and marketing professionals which can take most of the anguish out of the process.
A Massachusetts condominium can only be created by adherence to the provisions of Massachusetts Laws, Chapter 183A. The first professional to be involved is the engineer, or in some cases, an architect. This professional needs to provide two separate documents. The first is a site plan, which shows the footprint of the building on the land. If there are parking spaces to be conveyed or parking easement, they are indicated on the site plan. Any easements or rights of way are also delineated. The professional also needs to draft condominium floor plans, which configure the units which are being created. If there are yards, decks or roof rights, these need to be shown on the condominium floor plans. Common areas , including those for exclusive unit to certain units, are marked off.
Once the plans are developed, our firm gets into the action. We draft the following two necessary documents which will accompany the plans described above:
•1. Master Deed. This document makes the property a condominium. It references the Site Plan and the Condominium Floors plans. It indicates the exact boundaries of each Unit. It provides descriptions of any exclusive easements or rights. Often, there is language in the Master Deed which makes FNMA and FHLMC able to purchase loans secured by the condominium units. The Master Deed also sets forth the percentage of ownership and actual configuration of each Unit. In effect, the Master Deed gives the purchaser necessary specific information as to what he or she is actually purchasing.
•2. Condominium Trust. This document sets forth the rules and regulations of condominium operations. Condominiums are run by a group of Trustees, elected by the unit owners. The Trustees meet periodically and make decisions concerning operations. They contract for repairs, maintenance, insurance and snow removal. They collect monthly fees, which are set, annually, and they make sure each unit owner is current in payment of necessary fees. All of the details of these items are described in the Trust document. Additionally, the Trust will control whether pets are permitted and also describe procedures which must be adhered to if you are renting your unit.. Most new Trust documents also set forth an arbitration procedure to be utilized if a unit owner takes issue with the actions of the Trustees.
After the documents are drafted and recorded, it is time to sell the condominium units you created. There are tax ramifications which need to be addressed. An accountant thoroughly familiar with the proper steps is essential. Similarly, real estate professionals can market your units effectively and can actually be showing the units while the documentation is being completed. You as the organizer need to obtain common area insurance and prepare an initial budget which will be used to determine the condominium monthly fee. An experienced condominium attorney can help you accomplish all these steps at a pace which works for you.
There is work involved in a condominium conversion. There are also cash outlays. On the other hand, it is estimated that a two or three family dwelling converted into condominiums is still worth no less than one hundred fifty percent of its value as an apartment dwelling. With that kind of increase in value, especially in a difficult rental market, it behooves any property owner to consider condominium conversion.