The sale of all the units within a condominium association, also known as a condo deconversion, has gained momentum over the last few years.
Compared to the cost of constructing an entirely new property from the ground up, some real estate investors and developers have found it easier and financially more advantageous to purchase an existing condominium building and, in some cases, convert the units into apartments.
These transactions are complex, involving multiple parties and dozens to hundreds of unit owners depending on the size of the building. Additionally, there are seemingly countless issues that must be addressed during the process including deferred maintenance, finances, occupancy, and legal considerations.
Section 15
In Illinois, a provision in Section 15 of the Illinois Condominium Property Act (the ‘Act”) specifics that to purchase all the units in the association, a sale requires approval by unit owners having at least 75% of the ownership of the common elements.
In some cases, the percentage may vary based on the size of the building or the association’s governing documents. However, Section 15 of the Act generally states that if the requisite 75% affirmative vote of the ownership is obtained, the approval of the sale will be binding to all unit owners, even those who did not vote in favor of the sale. Note that in the City of Chicago, the percentage is 85% for approval of a sale.
Recent Case Law
Since the condominium deconversion trend ramped up in 2015, Illinois legislation has attempted to further clarify Section 15 of the Act and address some of the unique factors involved in these transactions, including:
- Board responsibilities
- Fiduciary duty
- Investigating a bulk sale
- Membership approval
- Ownership voting thresholds
In January 2022, the Illinois Court of Appeals issued a ruling (Glazer v. The Private Residences at Ontario Place Condominium Association) clarifying that the Illinois Condominium Property Act does not require the association’s Board to “obtain the approval of the unit owners before taking action to investigate or negotiate a bulk sale.”
Board Authority
Indeed, there are votes reserved for the unit owners within a condominium association including certain amendments to the declaration and expenditures (ex. special assessments).
With this recent ruling, the legislature has made it clear that the association’s board can obtain information and consult with real estate professionals prior to sale of all units before they are required to obtain ownership votes.
Ultimately, the owners of the condominium association will make the final decision regarding a deconversion if at least 75% of the ownership (or other required percentage) agree to the sale.
Legal Resource
There are numerous critical issues that condominium association board members must address when it comes to a deconversion, including:
- Contract review
- Negotiations
- Meeting notices
- Unpaid assessments
- Document distribution
- Litigation
KSN’s full-service Condo Deconversion department is dedicated to navigating the entire Section 15 sales process including legal guidance and administrative support.
As of January 2022, KSN attorneys have closed over seventy condominium deconversion sales ranging from single digit associations to condo buildings with over 700 units.
If your association has been approached by an interested buyer, your association is in the middle of a potential sale or de-conversion, or you are a buyer interested in converting income property into condominiums, please contact Kovitz Shifrin Nesbit to discuss your legal needs.
Visit www.ksnlaw.com or call our law firm at 1-855-537-0500.
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