Publications

Converting Real Property Into Condominiums

"Where did all these condominiums come from?"
Alice asked the Mad Hatter. (with apologies to Lewis Carroll)

When the founding fathers of Condoworld first created condominiums from nothingness, nobody contemplated the mass proliferation of conversion properties. Throughout the late seventies and early eighties, thousands of rental units disappeared and "presto chango," condominiums appeared. Of course, this process resumed in the mid-nineties as the economy expanded.

It was discovered early on that not only could you develop condominiums from scratch, you could take pre-existing structures and convert them into units which were owned by individuals. The legal process, though sometimes costly, can be spread over the purchase price of the units. Thus, the more units, the cheaper the per capita legal expenses. In essence, it does not cost much more to convert 400 units than it does four.

The following is a simplified overview of the process of making gold out of concrete:

Upon securing ownership of the property, you must determine if local building codes and ordinances permit condominiums for that area. Usually the property is zoned for multi family use and there is no distinction between condominiums and rentals.
Does the municipality have a conversion ordinance? Chicago, Evanston, Oak Park and numerous other home-rule communities have strict disclosure requirements and reports which must be filed. If the property has historical significance, it may have additional compliance restrictions. Each conversion requires a certification by an architect or engineer as to the condition of the property.
Right of first refusal. The Illinois Condominium Property Act (Section 30) requires that a notice of intent to convert the property be sent to all tenants. This notice must be sent not more than one year nor less than 30 days prior to submitting the property to the Act. The notice must contain a list of selling prices (except for those being vacated for re-hab) and an offer to sell which cannot expire earlier than 30 days after receipt, unless the tenant waives his right to purchase.

Any tenant whose lease expires prior to 120 days from the date of the notice has the right to extend their tenancy until the expiration of the 120 day period or give notice of intent to purchase the unit within 30 days of receiving the notice.

Preparation of legal documents. Once notice has been sent to the tenants, a plat must be prepared by a Registered Illinois Land Surveyor, disclosing the exterior boundaries of the parcel, the location of all buildings and lot improvements, the elevations of the finished and unfinished interior surface and identification of all units. If the property is added on to, an amended plat of survey must be prepared each time. The plat is attached to the declaration of condominium ownership as an exhibit and amended plats are attached to amendments to the declaration which add units.
Declaration of condominium and bylaws. A declaration of condominium must be drafted to conform to the Act and when it is recorded, the property identified in the plat is then "submitted to the Act." If the developer retains the right to add on, each additional building or group of units is submitted by recording an amendment to the declaration and an amended plat.

The initial percentages of ownership must be calculated equaling 100%. For each add on, they must be diluted and recalculated to still equal 100%. Although the statute suggests that percentages are based upon "value" [Sec. 4(e)], it is a subjective determination to be made by the developer and it is usually based on sales price or square footage.

There should also be a set of bylaws governing the operation of the association, a not for profit corporation. They can be incorporated into the body of the declaration or attached as an exhibit as a separate document.

Recording. Once the initial declaration and plats have been recorded and all reporting requirements have been complied with to the local government, the legal entity known as a condominium is now created. All rights and obligations stem from the initial recording date, including the developer’s financial obligations.

Each purchaser will receive a deed to a specifically identified unit and a proportionate share of the common elements. It is that percentage upon which the amount of assessments and the weight of one’s vote is based upon.

Disclosure. In relation to the initial offering of sale, the developer must provide copies of the declaration, bylaws, operating budget, floor plan, disclosure of all fees and costs, expenditures made for repairs, a statement regarding reserves, an engineer’s report certifying the present condition of the building, all warranties, releases and certificate of insurance. If this information is not available at the time a contract to purchase is signed, the entire deal can be voided up to five days after the last item is furnished or until closing, whichever is earlier.

At last, the transaction can be closed and the purchaser is now the proud owner of a bouncing baby condominium. Hopefully, for the developer, they’re not losing a unit, they’re gaining a friend (and not a lawsuit).