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Condominiums

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A condominium, or condo for short, is a form of housing tenure. It is the legal term used in the United States and in most provinces of Canada for a type of joint ownership of real property in which portions of the property are commonly owned and other portions are individually owned. In Australia and the Canadian province of British Columbia, the legal term for this is strata title. In Quebec, it is known as syndicates of co-ownership. In the United Kingdom, the equivalent is common-hold, but this form of ownership was only introduced in 2004 and so far is hardly used. Colloquially, the term "condo" is often used to refer to the apartment unit itself in place of the term "apartment". This clearly signifies ownership of the property.

Discussions

Often, a condominium consists of units in a multi-unit dwelling (i.e., an apartment or a development) where each unit is individually owned and the common areas like hallways and recreational facilities are jointly owned by all the unit owners in the building. It is possible, however, for condominiums to consist of single family dwellings: so-called "detached condominiums" where homeowners do not maintain the exteriors of the dwellings, yards, etc. or "site condominiums" where the owner has more control over the exterior appearance. These structures are preferred by some planned neighborhoods and gated communities.

A homeowners association, consisting of all the members, manages the common areas usually through a board of directors elected by the members. The same concept exists under different names depending on the jurisdiction, such as "unit title", "sectional title", "common hold," "strata council," or "tenant-owner's association", "body corporate", "Owners Corporation" or "condominium association." Another variation of this concept is the "time share". Condominiums may be found in both civil law and common law legal systems as it is purely a creation of statute.

The rules for condominium government or management are established in a document commonly called a declaration of condominium. The owners and occupiers of condominiums are subject to rules in the declaration of condominium or created by the condominium association, such as paying required monthly fees for maintaining the property's common areas. Condominiums are commonly owned in fee simple title, but can be owned in ways other real estate can be owned, such as title held in trust. Owners can typically rent their condominiums to other people to occupy as tenants, similar to renting out other real estate.

Non-Residential Condominiums

Condominium ownership is also used, albeit less frequently, for non-residential land uses like offices, hotel rooms, retail shops, and group housing facilities like retirement homes or dormitories. The legal structure is the same, and many of the benefits are similar; for instance, a nonprofit corporation may face a lower tax liability in an office condominium than in an office rented from a taxable, for-profit company. However, the frequent turnover of commercial land uses in particular can make the inflexibility of condominium arrangements problematic.

Condos in the United States

New luxury Aqua waterfront condos in Long Beach, California An alternative form of ownership, popular in the United States but found also in other common law jurisdictions, is the "cooperative" corporation, also known as "company share" or "co-op", in which the building has an associated legal company and ownership of shares gives the right to a lease for residence of a unit. Another form is leasehold or ground rent in which a single landlord retains ownership of the land on which the building is constructed in which the lease renews in perpetuity or over a very long term such as in a civil law lease. Another form of civil law joint property ownership is undivided co-ownership where the owners own a percentage of the entire property but have exclusive possession of a specific part of the property and joint possession of other parts of the property; distinguished from joint tenancy with right of survivorship or a tenancy in common of common law.

The first condominium law passed in the United States was passed by the Commonwealth of Puerto Rico in 1958. Common law tradition holds that real property ownership must involve land, whereas the French civil law tradition recognized condominium ownership as early as the 1804 Napoleonic Code; thus, it is notable that condominiums evolved in the United States via a Caribbean government with a hybrid common-civil legal system. Section 234 of the 1961 National Housing Act allowed the Federal Housing Administration to insure mortgages on condominiums, which led to a vast increase in the capital available for condominiums and to condominium laws in every state by 1969. Americans' first taste of condominium life came not from its largest cities but from south Florida, where developers had first imported the condominium concept from Puerto Rico and used it to sell thousands of inexpensive apartments to retirees arriving with equity earned from the urban North.

Condos in Canada - Ontario

In Ontario, condominiums are governed by the Condominium Act, 1998 with each development establishing a corporation to deal with day-to-day functions (maintenance, repairs, etc...). A board of directors is elected by the owners of units (or, in the case of a common elements condominium corporation, the owners of the common interest in the common elements) in the development on at least a yearly basis. A general meeting is held annually to deal with board elections and the appointment of an auditor (or waiving of audit). Other matters can also be dealt with at the Annual General Meeting, but special meetings of the owners can be called by the board and, in some cases, by the owners themselves, at any time.

In recent years the condo industry has been booming in Canada, with dozens of new condo towers being erected each year. Toronto is the epicenter of this boom, with 17,000 new units being sold in 2005, more than double second place Miami's 7,500 units. For several years now the city's sky line has had a forest of cranes erecting new towers. Outside of Toronto, the most common forms of condominium have been town-homes rather than high-rises, although that trend may be altered as limitations are placed on "Greenfield’s" developments in those areas (in turn, forcing developers to expand upward rather than outward and to consider more condominium conversions instead of new housing). Particular growth areas are in Kitchener Waterloo and London. In fact, after Toronto, the Golden Horseshoe Chapter of the Canadian Condominium Institutes one of that organization's most thriving chapters.

The Ontario Condominium Act, 1998 provides an effectively wide range of development options, including Standard, Phased, Vacant Land, Common Element and Leasehold condominiums. Certain existing condominiums can amalgamate, and existing properties can be converted to condominium (provided municipal requirements for the same are met). Accordingly, the expanded and expanding use of the condominium concept is permitting developers and municipalities to consider newer and more interesting forms of development to meet social needs.

On this issue, Ontario condominium lawyer Michael Clifton writes, "Condominium development has steadily increased in Ontario for several years. While condominiums typically represent attractive lifestyle and home-ownership alternatives for buyers, they also, importantly, introduce a new approach to community planning for home builders and municipal approval authorities in Ontario. ...[There are] opportunities for developers to be both creative and profitable in building, and municipalities more flexible and imaginative in planning and approving, developments that will become sustainable communities." (In, A Comment about Condominiums, Community Planning and Sustainability, Forum Magazine, Dec 06/Jan 07, p. 28.)

Condo Conversions

Generally stated, a condo conversion is a process of entitling an income property, often seeking approvals from both state and local authorities, in order to convert from sole ownership of the entire multi unit property into individual for sale units.

Indeed, virtually every condominium project could be characterized as a conversion of property that is held generally under one title, to property that is severed into portions so that the title to most such portions (i.e., units) can be held separately. However, the term "conversion" is usually reserved for just those projects which involve changing the title (and sometimes also the use) of an existing structure, such as a multi-dwelling apartment building, row dwellings (town-homes) or a commercial multi-unit rental site.

As that statement suggests, and subject to any specific restrictions imposed by legislative or other approval authority, any type of existing structure can be converted to condominium, including residential, commercial and industrial. For example, as noted in the Canadian Condominium Institute - Golden Horseshoe Chapter text, Essential Issues for Realtors in the Condominium Act, 1998 [1] (by Ontario condominium lawyers, Craig Robson, Michael Clifton and Ron Danks), even though the Ontario Condominium Act, 1998 formally recognizes only conversions of existent residential premises to condominium, "Condominium conversions can be made to former office buildings, warehouses or other commercial properties as well as existing rental residential premises."

Analyzing the Multi-Family Property

The market for residential condominium conversions typically arises when the price of single family homes increase beyond the reach of the first time buyer. There are multiple types of investors involved when there is a hot conversion market. For example, an experienced developer may purchase an apartment building, hire a consultant to put the entitlements in place, and then upgrade the building so that the sales team can sell them as individual condominiums. Alternatively, a mom and pop have owned a 20 unit apartment building for 20 years and want to sell it. Rather than selling it outright as an apartment building, they hire a consultant to process the entitlements and sell the building instead at a condo premium to a developer who finishes the job.

In order to determine the sales potential of the converted units, a market analysis is needed. This part of the process involves conducting a study of the neighborhood and of any competing complexes: an inspection of the exterior of the buildings, the condition of the interiors of the units, the condition of the grounds and the amenity package in place.

Planning the Conversion

Using the study outlined above, a conversion plan is formulated, taking into consideration both the positive and negative aspects of the property. The plan includes budgeting for needed rehab activities and the addition of any amenities that may be lacking.

Rehab and Amenities

The rehab work (interior and exterior) necessary to make the property marketable is a crucial part of this process. Certain amenities may be added, depending on what amenities are already present and what competing properties have to offer. A sales model unit can be used, which should be decorated and completely furnished. A "wish book" that depicts all of the different remodeling options available to the purchaser can also be developed.

Homeowners Association (HOA)

A condo community is governed by a homeowners association. The association, comprised of all of the condo unit owners, sets out certain guidelines relative to the obligations of the unit owners as they relate to the ownership of their unit and to their participation within the condo community. The operation of the HOA is very important to the success of the condo conversion and to the maintenance and enhancement of property values.

Marketing and Financing

The marketing of the condos can be done either through a realtor or with in-house personnel. (As outlined above, a model unit should be used in the program.) Direct mail campaigns--mailing brochures into apartment complexes--are often very successful. Television spots on cable channels can be very productive as well. Another powerful marketing tool, one that should be taken into consideration going into the conversion, is an attractive financing package that can be made available to potential purchasers of the condos.

Condo Trends

As of 2006, the trend of apartment complexes converting into condos is gaining momentum. The low interest rate affliction that has crippled apartment fundamentals for several quarters is driving the biggest condominium conversion boom in two decades. In markets across the country, condo developers are paying a premium to acquire and transform rental properties into condos.

While condo conversions benefit multifamily owners by shrinking the supply of apartments, condo buyers are typically renters, so conversions won't necessarily lead to a jump in occupancy rates.[citation needed] There is also a big incentive for a multi-family owner to do a condo conversion when they consider selling. Multi-family buildings can command a much higher selling price if there is a condo conversion and the units are sold separately.

Basically, the upward spiral in home prices has caused owners of residential investment real estate to adjust the per unit value they place on their property. Yet, critics argue that condo conversions price low-income residents out of the market and drive them out of the community, widening the affordability gap.[citation needed] In addition condo units can be a good alternative investment for investors who cannot afford to invest in single family homes or multi-family unit. In some places, like Los Angeles, California, there are various incentives for condominium converters to set aside affordable units, such as to satisfy parking to unit ratio requirements or receive other compromises from the city and the public. This can also potentially benefit the low to moderate income housing market.

Dockominium

A dockominium is the water-based version of a condominium; rather than owning an apartment in a building, one owns a boat slip on the water. The term is a portmanteau of "dock" and "condominium." In addition to the exclusive right to use the boat slip, ownership also provides one with the right to use the common elements of the marina, much the same as one would have the right to use the common areas in a residential condominium development. Additionally a unit owner may use, rent or sell their unit at any time, subject to association approval.

Similar to a condominium, a management company manages the common areas and provides all required services such as maintenance, security, insurance, bookkeeping, legal and overall management and supervision of the dockominium facility. A monthly fee is charged to cover these expenses. Typically, water is included, while electricity and cable, etc. are billed separately via the management association. Real estate taxes are separately assessed by the municipality and are the responsibility of the unit owner.

A Dockominium is created when a marina converts or sells individual slips to individual owners. Traditionally, marinas are in the business of renting or leasing space. A comparison would be the conversion of a rental apartment to a Condominium. An association is created that monitors the maintenance and operation of the marina. Each individual owner is responsible for paying monthly, quarterly, or annual association dues, and for their own property taxes assessed on the slip. Dockominium conversions are a popular trend taking place in the marina industry in high demand areas focusing on the luxury markets.

Despite the advantages, whether or not dockominium sales are legal vary according to regions and state law. Few marina owners also own the land under the water, and most have only an easement to the property. Individual unit sales may violate law, and therefore cannot be sold off, thus following the legal concept of the Public Trust Doctrine which provides that public trust lands, waters, and living resources in a State are held by the State in trust for the benefit of all of the people.

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