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As general contractors compete to build industrial, commercial and apartment projects throughout the country, the typical contractor welcomes each and every job in today’s market. The contractor is especially pleased if it is a project built for one client, who currently may have no plans to market the units or building ultimately for sale as individual units to homeowners. In doing so, today’s general contractor may not look forward, including the potential ultimate conversion of today’s building, to multifamily for-sale units, in the future. As a result, in reviewing the standard contract for construction, the contractor does not take into account potential terms, requirements and/or exclusions which could be included in the contract to provide legal protections for the future when the building is later converted to a condominium project. As a result, the contractor may be exposed to future liability and damages which were never anticipated at the time the contract was finalized.
Obviously, in today’s economy, the general contractor may be prevented from including all or even some of these protections in their contracts if they want to obtain the job. Further, many have a difficult time even envisioning a time in the future when conversions to for-sale units are actually occurring at the frenzied rate that has been seen in upward economic cycles. Yet, it is no secret that the rise and fall of multifamily residential construction can be tied directly to the economy. When the economy is good and single family home prices are rising, a direct correlation can be witnessed to the increased construction of condominium units in order to provide lower cost options for purchasers looking to get into the residential market. Further, at this same time, developers have been shown to take this a step further during a hot residential sales market by converting apartments, warehouses and industrial buildings into multi-unit condominium projects, including both residential and commercial individual for-sale units with homeowner’s associations in place.
It has also been established that during periods of down economies, construction of apartment buildings rises as the rental market picks up, as first time buyers look to wait for the bottom of the market before purchasing a home, as purchasers look for job security and peace of mind before committing to a new home purchase, and as foreclosed former homeowners are unable to purchase new homes for a variety of reasons. The general uncertainty that comes with the downturn in the economy tends to cause people to think long and hard before purchasing a home. As a result, there is typically a spike in demand for apartment units, and builders look to take advantage of this demand by building units for rent and/or deciding to rent their units that were previously built with the intent to sell.
The current recession has been no exception to these general rules, which has resulted in a significant decrease, if not almost complete standstill, of new construction of for-sale residential units, including single family homes and multi-unit projects for the last several years. Further, new home construction built with the intent to sell has yet to pick up and economic forecasters are still unable to predict when the economy will turn enough to cause builders to start building new units intended for sale. However, with the increase in demand for rentals, builders have begun to build units for rent which typically consist of multi-unit, common area projects. Ultimately, once the economy improves, the sale of residential units will once again increase and if history is an accurate prediction of the future it can once again be expected that the rise of conversions in a hot economy will again come to fruition, and the units constructed today for rent and/or other uses will be converted to residential and even commercial for-sale projects.
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Although it may be difficult to imagine the conversion of residential rental units to for-sale units anytime soon, one simply needs to look at the last few economic upturns to confirm that this prediction is not only possible, but is likely. Quite simply, residential construction, sales, and rentals are cyclical, typically mirroring the ebbs and flows of the economy. As a result, the experienced general contractor who is currently entering into contracts to build apartment buildings or other buildings which can easily be converted to condominiums must understand the laws of conversion liability.
This allows the contractor to attempt to avoid future liability when units built today as rentals are again converted to for-sale units. These units and projects then become the subject of construction defect litigation, thereby exposing today’s general contractor to future, completely unexpected, liability.
Although each state has separate statutes, case law and regulations governing this complex area of the law, and even more importantly, the complexities and details of each project and contract, must be looked at on a case-by-case, project-by-project, builder-by-builder, contractor-by-contractor basis. This paper seeks to identify potential issues, protections and details to guide a general contractor in entering into contracts for projects which ultimately could be converted to individual residential units. In order to properly protect a general contractor from present and future claims, attorneys, insurance professionals and experienced representatives in each state should be consulted to review the specifics of each project and the terms and conditions of each and every contract.
In general, with the anticipation of these potential claims down the road, especially in light of the long statute of limitation periods in place in most states throughout the country, this paper discusses the general rules, causes of action, and legal issues of condominium conversion liability and provides a national summary of laws regulating conversions, including a summary of all applicable conversion statutes in each of the 50 states. It is extremely important to understand these laws and issues in order to attempt to provide protections for both future and current agreements. Based on this information, this paper then seeks to provide potential contract additions, modifications and/or exclusions in order to attempt to minimize potential exposure for today’s general contractor to future construction defect lawsuits by individual homeowners and/or homeowner associations.
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During housing booms it has been common to convert apartment buildings or even industrial or commercial buildings to condominium projects in order to obtain the maximum economic benefit from the building. By converting an apartment development into a condominium project so that each unit can be sold separately, the owner may be able to increase the total aggregate sales price for each unit to an amount that substantially exceeds the total price that may be obtained by selling the building as an apartment development.
The conversion process may call for extensive renovation, including the upgrading of materials, structural improvements, new roofs, plumbing and electrical systems, the addition of recreational facilities, and a thorough re-landscaping of the entire premises. However, in many cases, the conversion process may simply include a coat of paint and a slab of granite in the kitchen. Under either scenario, the typical homeowner, and their attorney, may ultimately make claims of construction defects against the converter and in many cases the original builder.
Many cities have enacted ordinances regulating condominium conversions. These ordinances are typically restrictive in nature, and are generally aimed at providing protections to future buyers of these now “new” units. In most instances, cities and counties have the power to regulate and control condominium conversions, and many courts allow cities and counties much discretion in this regard. For example, in
Griffin Development Co. v. City of Oxnard (1985) 39 Cal. 3d 256, 217, the California
Supreme Court upheld a conversion ordinance as a legitimate exercise of police power, even though the practical effect of the ordinance was to prevent conversions through onerous requirements.
Nearly every case in which the courts have passed on the validity of a law regulating the conversion of rental housing to condominiums has concerned local bylaws or ordinances. These local laws have been held invalid where they conflicted with, or were preempted by, state legislation in the area. For example, the Uniform
Condominium Act (UCA), which has been adopted by several jurisdictions, regulates condominium conversions and provides that a local regulation may not prohibit condominium ownership or place any requirement on a condominium that would not be imposed on an identical development under a different type of ownership.
Conversely, the jurisdictions that have not adopted the UCA have developed their own laws in this regard, as summarized below.
Typically, condominium construction crazes that have hit multiple states were driven by a strong demand for housing, a dwindling amount of available land, and a higher profit margin for all parties involved in the construction process. Although transforming apartment buildings, hotels or old warehouses may be quicker and less risky than construction from the ground up, conversions create new gray areas of liability. Many developers of these conversion projects feel that their liability is narrower than the developer of new housing because they believe they are shielded from liability for construction defects that result from the original construction of the building. Further, they look to the original owner/developer of the property if it is someone different, who not surprisingly looks to the original general contractor that built the project, including the structural elements, roof, windows, doors, plumbing, electrical and HVAC components, which are generally the areas at issue in a construction defect lawsuit. As a result, the original general contractor may have correctly understood it was building a typical apartment building, with reasonable potential for construction defects, but then faces exposure to unknown, unseen and unpredictable future homeowners and homeowner’s associations and the attorneys that make a living on these claims.
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In fact, these unknown homeowners and associations argue that the current developers of conversion projects should be liable for the whole product, and not just the improvements they made. Of course the original developer may seek indemnity, express or otherwise, as well as insurance protections under the original contract from the contractor it retained to construct the project, but this may be insufficient. Without protections in current contracts, the original general contractor can be exposed to future liability in these lawsuits well beyond the anticipated potential exposure at the time the contract was signed and/or the project was completed.
For the most part, the same theories of liability are used nationwide in claims for construction defects in conversion projects. Again, it is important for today’s general contractor to understand these future claims in order to attempt to draft protections in today’s contract. This section will explore different theories of liability that may arise in a conversion project, in order to better understand potential steps a general contractor may take in order to minimize exposure to such liability.
Several states have enacted statutes targeted at condominium conversions.
1 These statues require converters to inspect the major systems of a building and deliver a report to prospective buyers. This report must list all substantial defects or contain a disclaimer stating that the converter has no knowledge of any defects in the major systems.
2 Major systems to be inspected include: the roof, walls, plumbing, air-conditioning, heating, electrical systems, fireproofing and drainage systems. If significant defects are noted in the major systems, the owner/developer may consider legal action against the original builder and subcontractors under standard construction law including negligence, strict liability and breach of contract/warranty. The converter or subsequent purchaser of a building oftentimes seeks to have the original owner/developer and, if possible, its general contractor and subcontractors agree to indemnify the converter for all defects, including those arising out of the original construction that the general contractor or subcontractors did not repair or bring to the attention of the owner/developer.
In Florida, the District Court of Appeals held that subsequent unit owners could sue
(for negligence) the engineering firms that inspected an apartment building before it was converted into condominium units.
3 The engineering firms were asked to make inspections of the building and improvements pursuant to the Florida statute that required the owner of a conversion project to provide each potential buyer with an inspection report on the physical condition of the building. When the new unit owners moved into their respective units, they discovered that the condition of the building was not the same as was represented by the engineering firms.
4 The court found that the engineers could be held liable if (1) the inspection reports were false, (2) the engineers knew that the unit owners would rely on their opinions, and (3) if the owners suffered a financial loss as a result of their reliance on this information.
1 See Cal. Civ. Code § 1134 (2006); Fla. Stat.
§ 718.616 (2005); 765 ILCS 605/22 (2005).
2 See Cal. Civ. Code § 1134. Please see statutes relevant to your state for specific disclosure requirements.
3 Bay Garden Manor Condominium Ass’n,
Inc. v. James D. Mark Assoc., Inc., 576 So.
2d 744 (D.C. Fla. 1991).
4 Id.
at 745.
5 68 Pa CS § 3404(a)(1) (2005); 68 Pa CS
§ 3411 (c) (2005).
6 Drake v. Martin, 36 Cal. Rptr. 2d 704
(5d. 1994).
In Pennsylvania, a public offering statement of a unit in a condominium conversion must warrant: (1) that there are no structural defects in the work done by the declarant or on behalf of the declarant; (2) that all units and common areas have been inspected for visible structural and mechanical defects pursuant to the statute; and (3) that any found defects have been repaired.
5 Liability may ensue under the
Pennsylvania statute and similar statutes enacted in many states for a converter’s failure to conduct a reasonable inspection and/or the failure to disclose known defects. If there are discrepancies between what is reported in the disclosure and the actual condition of the building, purchasers of these condominiums may have an action for fraud, negligent misrepresentation and breach of warranty against the converter. The statutes, however, do not define what constitutes “reasonable inspections.” Violation of the disclosure requirements proscribed by the statute may subject the owner/developer to liability for a purchaser’s actual damages.
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Builders and developers, similar to others conducting business with the public, are held to a standard of reasonable care in the performance of their daily activities.
8 A breach of these duties may create liability under a negligence theory. For builders and developers involved in condominium conversions, this means they can be held liable for defects arising out of a negligent conversion. For a sophisticated builder or developer, this is even truer as they may be held to a higher standard of care in performing the conversion.
A converter or subsequent owner/seller may also be liable for construction defects under a negligence theory for: (1) failure to conduct a reasonable inspection of the property for dangerous conditions; (2) failure to disclose all known defects; and (3) failure to comply with local ordinances regarding original construction, which are made a condition to subdivision map approval.
The California Second District Court of Appeals noted that a developer could be liable for negligent conversion of apartments into condominiums.
9 In Orange Grove Terrace
Owners Ass’n v. Bryant Properties, Inc., the homeowners’ association and individual owners in a condominium complex sued the developer for damages caused by faulty repairs made in the course of converting previously existing apartments in the condominium project.
10 The court stated:
We deem it appropriate to note that if the defendants undertook to repair roofs, and in doing so negligently determined that patching, rather than replacing would suffice, the jury could reasonably determine that the roof repairs were negligently performed.
11
The Unites States District Court for the District of Columbia found the same.
12
In Towers Tenant Ass’n, Inc. v. Towers Limited Partnership, the homeowners’ association brought suit against the developer of a condominium conversion for damages arising from defects and deficiencies in the property.
13 The court noted that although landlords do not have a general duty to renovate leased properties, once a landlord begins renovations to improve the property there is a duty to exercise reasonable care.
14 The court sated that a breach of such duty gives rise to a cause of action for negligence.
15
8 See Cal. Civ. Code § 1714 (West 2006)
(imposes a duty of care to refrain from unreasonably injuring another).
a. Statutes of limitation in regards to suits against the original builder/developer
9 Orange Grove Terrace Owners Ass’n v.
Bryant Properties, Inc., 222 Cal. Rptr. 523,
536–27 (2d. 1986).
10 Id.
at 523–24.
11 Id.
at 526–27.
12 Towers Tenant Ass’n, Inc. v. Towers Limited
Partnership, 563 F. Supp. 566, 570 (D.D.C.
1983).
13 Id.
at 569.
A critical issue once a lawsuit is filed in a matter involving a condominium conversion project is the statute of limitations as the original contractor and subcontractors may be protected from claims by the homeowners and converters due to the statute of limitations or repose enacted by each state. For example, in Arizona, an eightyear statute of limitations and a nine-year statute of repose govern actions arising out of construction deficiencies if discovery or injury occurs in the eighth year after completion.
16 Therefore, if an owner/developer were to purchase an apartment building ten years after it was built, they would not be able to recover from the original owner/developer any damages arising from deficiencies resulting from the original construction of the building.
14 Id.
at 570.
15 Id.
16 Ariz. Rev. Stat. § 12-552 (2004).
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In California, the Court of Appeals found that an architect who rendered services on an apartment complex when it was initially built could not be liable for defects in the original construction that occurred more than ten years before the action was filed.
17
The apartment complex was bought by a corporation with the purpose of converting the apartments into condominiums. After the condominiums were built and sold, the homeowners’ association sued the converter for construction defects. The converter subsequently filed a cross-complaint against those involved in the conversion as well as the original architect. In its reasoning the court determined that since the converter could not be liable for construction defects that arose from the original construction of the complex, the architect could not be liable to the converter for any such damages.
18
The court noted that every subsequent renovation does not renew the tolling of the statute of limitations.
19
Again, if an action is filed against a converter beyond ten years from the time of original construction, the converter may be barred from obtaining recovery against those entities involved in the original construction. However, it should be noted that in some cases, depending on the facts, it might be possible to pursue other causes of action, including breach of contract and misrepresentation.
Condominium conversions may involve substantial renovations and rehabilitation to the previously constructed building. Generally in conversion projects, the original structure has been built and used for years before the condominium units are actually built and sold to their first owner. Due to the timeline involved, there is much uncertainty as to the application of the statute of limitations in an action against a converter and original general contractor.
There is agreement in the fact that the statutes of limitations and repose begin to run on the improvements made by a converter once those improvements have been substantially completed. However, there is a dispute between homeowners and builders/developers as to whether the statute of limitations for defects relating to the original construction recommences upon substantial completion of the conversion.
Thus, converters who may not actually perform any modifications to the original construction could be liable for defects arising from the original construction of the building if it is deemed that the statute of limitations renews and the conversion project is considered a “new” construction. These converters then typically look to the original general contractor for indemnity on these claims.
17 Sandy v. Superior Court, 247 Cal. Rptr. 677
(6d. 1988).
18 Id.
at 682.
19 Id.
20 For a detailed discussion of national “right to repair” and “notice and opportunity” laws, please contact the author of this paper at Chapman, Glucksman, Dean,
Roeb & Barger.
Due to the nationwide trend towards the expansion of construction defect litigation, many have pushed for protections for contractors by enacting laws that govern conditions that must be met before complaints and lawsuits based on claimed defects may be filed. Many states have tackled these issues with differing laws, such as “right to repair” or “notice and opportunity” laws. These states include Alaska, Colorado,
Florida, Idaho, California, and Arizona, to name a few. Laws permitting a builder to address homeowners’ claimed defects and attempt to make a curative repair and avoid litigation are the favored form of legislation for controlling the large number of construction defect lawsuits.
20 However, in actuality, many believe they have resulted in minimal success in actually limiting these lawsuits.
21 California’s SB 800 explicitly states that it is not applicable to condominium conversions.
While these statutes allow builders the right to repair a home or to waive this right before a lawsuit for construction defects is filed, it should be noted that many of these laws do not apply to condominium conversions.
21
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22 Hubble Smith, Insurance Liability Deemed
Condo Conversion Hurdle, Las Vegas
Review Journal, Dec. 11, 2004.
23 Greenman v. Yuba Power Products, Inc.,
377 P.2d 897, 900 (Cal. 1963).
24 Kriegler v. Eichler Homes, Inc., 74 Cal.
Rptr. 749 (1d. 1969).
25 Minute Order on Submitted Matter:
Defendant Demurrer to Third Amended
Complaint date October 5, 2004 at p. 4 of 6.
As cases involving condominium conversions grow, so have the arguments that converters should be liable for damages arising out of the whole project, not just the improvements made by the converter. Some argue that when a condominium converter undergoes renovation and redesign of the building, homeowners should be able to argue that the newly reconstructed building should be considered “new” for liability and warranty reasons. In Nevada, one lawmaker states that once an apartment complex is converted, the condominium unit should fall under Chapter 40 of Nevada’s
Revised Statutes which lays out the process by which a homeowner can pursue a claim for construction defects.
22
Since courts are still reluctant to impose liability on converters for defects arising out of the original construction of a building, alternate theories of liability should be discussed in order to analyze the potential risks in a conversion project. Generally, a developer of multi-family residential construction can be liable for defective construction under theories of strict liability, negligence and breach of warranty. a. Strict liability
Many states recognize a cause of action for strict liability against builders involved in the mass-production and sale of homes, including multi-family housing. The reasoning behind extending strict liability to mass-produced housing projects is that the developer who created the defective construction should bear the cost of any damages arising therefrom.
When a lawsuit is filed, a determination should be made as to whether the plaintiff can pursue a cause of action for strict liability against the converter. Generally, strict liability does not apply to converters or subsequent owners/sellers that (1) have not installed, created, or altered the condition that is claimed to be defective and (2) have no actual or constructive knowledge of any defect. Therefore, if it can be established that the converter was not the original developer of the project and is not in the business of building and/or selling mass-produced homes, the plaintiff should not be able to proceed under a strict liability cause of action.
However, plaintiffs frequently argue that converters should be held liable under a strict liability theory because converters place these units into the stream of commerce and typically perform sufficient renovations to the property. Generally, a manufacturer is strictly liable in tort when he places a product on the market which proves to have a defect that causes injury.
23 Courts have extended this doctrine to others in the vertical distribution of consumer goods, including developers of mass-produced homes.
24 While there is no direct case law on whether a converter is strictly liable in tort, converters should argue that strict liability only applies to “new construction:”
“Generally, a developer of residential real property is only strictly liable or liable for breach of implied warranty for new construction...However, the sale of a “used residential building generally is not liable under either of those theories.” 25
This is a very important distinction as the typical general contractor of an apartment building which may not have the details and budget of a typical condominium project, was not intended to be a mass produced, for-sale, individual unit project and was not built for individual owners, could then be subjected to strict liability and/or indemnity for strict liability during a subsequent construction defect lawsuit.
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26 Belle Plaza Condominium Ass’n, Inc. v. B.C.E. Development, Inc., 543 So.
2d 239 (3d. 1989)
27 Id.
at 240.
28 Shapiro v. Hu, 233 Cal. Rptr. 470 (1d.
1986).
29 Id.
at 475.
30 Id.
at 475–77.
b. Breach of warranty i. The “As-Is” provisions in sales contracts
To protect itself, a converter may place an “as is” provision in the sales contract. The following is an example of an “as is” provision:
As Is/Warranty Disclaimer, Buyer hereby acknowledges and understands that the Unit is not a newly constructed unit, but a unit previously occupied by tenants which is at least nine (9) years old. Buyer is purchasing the property on an “As-Is” basis, based upon the buyer’s own inspection, investigation and evaluation. THERE ARE NO WARRANTIES AND THERE ARE NO
REPRESENTATIONS WITH RESPECT TO THE NATURE AND QUALITY OF THE
PROPERTY. SELLER EXPRESSLY DISCLAIMS ALL WARRANTIES, GUARANTEES,
OR REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FIRNESS FOR ANY USE OR
PURPOSE OR REASONABLE WORKMANSHIP, CONCERNING THE PROPERY
OR ANY OF THE PRODUCTS OR APPLIANCES LOCATED THEREIN…”
As discussed below, the original general contractor should seek to ensure that all similar protections and language apply to them if the project is subsequently converted. In Florida, the Court of Appeals held that a trial court was proper in dismissing a claim for the breach of express warranties where the property was sold “as is”.
26 The condominium association brought suit against the developer of a condominium conversion for negligent construction, negligent performance of the statutory duty to disclose, and breach of warranties. The condominium units were sold pursuant to a prospectus. The court found that the prospectus contained a disclaimer of warranties that was in bold print and referenced the condition of the conversion. Since the disclaimer was conspicuous, the court found that the converter properly disclaimed all express or implied warranties.
27
In 28 purchasers of commercial real property in an “as is” condition brought an action for misrepresentation after discovering a bulge in a foundational wall. The court found that no warranty of quality could apply to the case for at least two reasons: (1) the construction at issue was not new, and (2) the sale was expressly on an “as is” basis – that is, in its present observable state and condition and with no implied warranties as to quality or condition whatsoever.
29 The court ruled that it could not impose a warranty on the sale of real property because an “as is” provision in any sale puts the potential buyers on notice that the seller makes no warranties about the quality or condition of the thing being sold. The use of the phrase “as is” relieves a seller of real property from liability for defects in that condition. In fact, the court found no cases in which a person selling real property “as is” was liable for defects in the quality or condition of the real property, where the property was not “new” construction and the sale was made in good faith.
30
Although inserting “as is” language into a sales contract may prevent some liability for latent defects stemming from the original construction of the project, this language does not relieve the owner/seller from liability for misrepresenting or concealing known defects. Any misrepresentations or concealments of defects still provide grounds for rescission of the contract. For these reasons, the original general contractor should require that any defects that the owner/seller or builder/developer becomes aware of prior to the sale of units must be disclosed to potential buyers.
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of C apte 1 Chapter 3 Chapter 4 Chapter 5 ii. Implied warranties
The principles of an implied warranty apply to the conversion and eventual sale of these converted units when a developer-vendor has carried out notable renovation of the property.
31 In Towers Tenant Ass’n, Inc.
the United States
District Court for the District of Columbia held that strict liability and implied warranty principles applied to the conversion and sale of condominium units where the builder/vendor/developer carried out significant renovation and rehabilitation to the property.
32 The court also noted that product liability principles would give rise to an independent cause of action against the converter for defective condominiums.
33 In finding that implied warranty principles applied to conversions, the court noted that there seemed to be no difference between newly constructed apartment buildings and an old building that had been significantly reconstructed.
34 Although the converter may or may not be liable under product liability principles for pre-existing conditions, the court found that the converter was certainly responsible for the quality of their work.
35 Their renovations were tantamount to new construction.
36 Once again, the original developer/owner will then seek to recover from the original general contractor for these claims.
c. The implied warranty of habitability
31 Towers Tenant Ass’n, Inc., 563 F. Supp. 566.
The implied warranty of habitability provides a homeowner protection against losses where defects make his/her unit uninhabitable. However, before applying the implied warranty of habitability, certain elements must be satisfied: (1) the structure must be new and the purchaser must be the original owner; 37 (2) the builder/owner must be in the business of constructing and selling homes; and (3) the buyer must have been unaware of the defect and the defect must be one not detectable by a reasonably prudent person.
38
32 Id.
at 576.
33 Id.
34 Id.
at 575.
There is a split as to whether the implied warranty of habitability is applicable to condominium conversions. Some jurisdictions do not apply the doctrine to conversion cases. These jurisdictions presume that defects can be discovered through
“reasonable inspections”.
39
35 Id.
36 Id.
37 Although some states have allowed subsequent purchasers to bring actions for a breach of the implied warranty of habitability.
38 Andrew Cook & Debra Pogrund Stark, Pay it Forward: A Proactive Model to Resolving
Construction Defects and Market Failure,
38 Val. U. L. Rev. 1, 11 (2003).
39 Id.
at 12.
For example, Delaware does not recognize actions based on the implied warranty of habitability, as it finds that such a claim is subsumed within a claim based on an implied warranty of good quality and workmanship.
40 However, in a suit involving construction defects arising out of a conversion project, the Delaware Supreme
Court found that a cause of action for the breach of implied warranty of good quality and workmanship can lie in contracts involving older structures that have been substantially renovated or reconstructed.
41 Such a claim may also lie against vendors, not only against those who perform the actual construction.
42 The court reasoned that if an implied warranty can attach to a contract for the addition of concrete steps to an existing building, it could attach to a contract for the conversion of an apartment building into condominiums.
43
40 Council of Unit Owners of Breakwater
House Condominium v. Simpler, 603 A.2d
792 (Del. 1992).
d. Breach of fiduciary duty
41 Id.
at 793.
42 Id.
43 Id.
at 795.
44 Raven’s Cove Townhomes, Inc. v. Knuppe
Development Co., 171 Cal. Rptr. 334, 343
(1d. 1981).
In the event the owner/seller serves on the homeowners’ association’s board of directors, the owner/seller may be liable under a theory of breach of fiduciary duty for failure to disclose any known construction defects. Members of a homeowners’ association’s board of directors owe a fiduciary duty to the association, specifically the duty of “undivided loyalty” when the board considers “maintenance and repair contracts, the operating budget, creation of reserve and operating accounts, etc.” 44
This duty serves to prohibit members of the association from taking actions that benefit the developers at the expense of the homeowners. Therefore, members of
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of C apte 1 Chapter 3 Chapter 4 Chapter 5 the board of directors of the homeowners’ association are individually liable to the association for “breach of basic fiduciary duties of acting in good faith and exercising basic duties of good management.” 45
a. Indemnity provisions
In most contracts for the construction and/or sale of a real property, an express indemnity provision, or in many contracts, multiple provisions, are included in an attempt to outline responsibilities and provide protections. As a result, a cause of action for express indemnity is included in most construction defect matters.
Ultimately, this claim may be the most dangerous to the general contractor as it can require the contractor to indemnify the developer even if the developer is actively negligent. This area of the law in and of itself can also be extremely complex and varies on a state by state and case by case basis depending upon the facts at issue.
However, in general terms, as discussed earlier, the converter and/or original builder/ owner typically requires the general contractor and subcontractors working on the project to agree to indemnify them for all defects, including those defects that arise out of the original construction that the general contractor or subcontractors did not repair or bring to the attention of the owner/developer. As a result, and as discussed below, these indemnity provisions should be carefully considered and drafted to attempt to minimize exposure to the general contractor for both the original construction and any subsequent conversion.
Contractors involved in multi-party construction projects typically want to be protected from lawsuits arising out of defects in another contractor’s work. Therefore, general contractors require the subcontractors that they hire to be insured and provide protection against the general contractor’s potential liability for defects in that subcontractor’s work product. Most often, this protection has two parts: (1) the indemnification agreement and (2) the additional insured status on the contractor
(or subcontractor’s) CGL policy. Traditionally, this combination of risk-transfer devices has provided broad protection to project owners and general contractors, but recent changes in state laws and insurance policy language have limited these protections.
As a result, all parties to construction contracts should seek consultation from experienced professionals and be aware that many states have case law or statutory regulations, which set up anti-indemnity rules for construction projects. Most states have recognized the issues and potential inequities of requiring subcontractors to indemnify, or be held to provide indemnity, for larger portions of construction projects than would be fair and equitable. Some states prohibit contracts that force a small subcontractor to have such responsibility, and others strictly regulate the circumstances under which such types of contracts will be permitted.
In an indemnity agreement, one party (the indemnitor) promises to reimburse, and in some cases defend the other party (the indemnitee) against claims or suits brought against the indemnitee by a third party. For example, in a construction contract, a subcontractor may agree to assume the general contractor’s liability for bodily injury or property damage arising out of the subcontractor’s work. This agreement transfers the risk of financial loss from one party to another, which is often called a “non-insurance contractual risk transfer and considered a risk financing technique.” 46
45 Id.
at 344.
46 Craig F. Stanovich, Contractual Liability and the CGL Policy (May 2002), available at http://www.irmi.com/Expert/Articles/2002/
Stanovich05/aspx.
Indemnity language varies from subcontract to subcontract and each state has both statutory and case law that may restrict what liabilities may or may not be transferred.
As a result, general contractors and subcontractors find themselves engaged in disputes over the interpretation of these provisions. The parties’ mutual intent is key in
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47 (1972) 29 Cal.App.3d.
48 Rossmoor Sanitation, Inc. v. Pylon, Inc.
(1975) 13 Cal.3d 622.
interpreting the provision; however, public policy concerns and limitations imposed by statute also play a role in the interpretation of these agreements.
In California, for example, the courts have identified three types of express contractual indemnity provisions, as delineated in MacDonald & Kruse, Inc. v. San Jose Steel
Company: 47
1. Type 1 provision: contains an express and unequivocal expression of intent that the indemnitor is to indemnify the indemnitee for, among other things, the indemnitee’s own active negligence, either standing alone or together with the negligence of the indemnitor.
2. Type 2 provision: contains a compromise by the indemnitor to indemnify the indemnitee harmless, but does not expressly state that the indemnitee will be indemnified for his own negligence. Any active negligence on the part of the indemnitee defeats the right to be indemnified.
3. Type 3 provision: provides that the indemnitor will indemnify the indemnitee for any liabilities caused solely by the indemnitor’s negligence, but not for any liabilities caused by the indemnitee’s negligence. Any active or passive negligence on the part of the indemnitee defeats its right to be indemnified. Whether a party is actively or passively negligent is a question of fact for the jury to decide.
48
In 2005, the California legislature amended Civil Code § 2782 in an effort to prevent home builders from imposing Type 1 indemnity obligations on subcontractors. As mentioned above, these provisions forced the indemnitor (subcontractor) to indemnify the indemnitee (builder) for the negligence or misconduct of the indemnitee (builder).
In 2009, the legislature enacted two new pieces of legislation (Senate Bill 138 and
Assembly Bill 2738), which seek to close perceived loopholes in Civil Code § 2782 and further curb the use of Type I indemnity clauses in residential construction contracts entered into after January 1, 2009.
As amended in 2009, Civil Code § 2782 now renders void and unenforceable any provision in a residential contract that purports to require a subcontractor to insure or indemnify, including the cost to defend, the builder or general contractor, or contractor not affiliated with the builder, for claims that arise out of or relate to the negligence of the builder, general contractor, or nonaffiliated contractor for defects to the extent that such defect claims do not arise out of or relate to that subcontractor’s scope of work in the subcontract agreement. Thus, the builder, general contractor, or nonaffiliated contractor, by law, can no longer require a subcontractor to pay a disproportionate share of the damages or attorneys’ fees in construction defect actions. The subcontractor’s obligations to the builder, general contractor, or nonaffiliated contractor for indemnity, including defense, must be calculated in proportion to the subcontractor’s fault. Furthermore, by adding the word “insure” to Civil Code § 2782(c), the builder, general contractor, or nonaffiliated contractor is effectively precluded from requiring the subcontractor to obtain insurance to protect the builder against claims for construction defect claims.
Furthermore, Civil Code § 2782(d) now affirmatively requires the builder, general contractor, or nonaffiliated builder to provide a written tender of the claim, or portion thereof, to the subcontractor as a condition precedent to the subcontractor’s duty of defense and indemnity. In addition, upon proper notice and tender by the builder,
Civil Code §2872(d) specifies the subcontractor’s two possible courses of action.
The subcontractor can either defend the claim with defense counsel of its choice, or alternatively, pay, within thirty days of receipt of an invoice from the builder or general contractor, no more than a reasonable allocated share of the builder’s or general contractor’s defense fees and costs. This empowers the subcontractor by enabling the subcontractor to maintain control of the defense for any claim or portion of the claim to which the defense obligation applies.
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of C apte 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 b. Anti-Indemnity statutes
Many states have case law or statutory regulations which set up anti-indemnity rules for construction projects. Most states have recognized the danger of permitting small subcontractors to indemnify, or be held to provide indemnity for larger portions of construction projects than would be fair and equitable. Some states prohibit contracts which force a small subcontractor to have such responsibility, while others strictly regulate the circumstances under which such types of contracts will be permitted.
There are six states 49 that restrict the scope of additional insured status as legally required in the contract through the anti-indemnity statute. Certain statutes specifically address contract provisions that require one party to “insure” the other party for that other party’s negligence (Montana) or to “name the indemnified party as an additional insured” (New Mexico). Oregon’s statute refers only to a contract provision “that requires a person or that person’s surety or insurer to indemnify another,” but that language has been interpreted by the state’s highest court to apply to contract requests for additional insured status. California’s statute prohibits requirements that subcontractors indemnify or insure a residential builder or contractor for the builder or contractor’s negligence in connection with a construction defect claim.
While many of the states’ anti-indemnity statutes include exceptions for insurance, recently, many jurisdictions have begun to apply anti-indemnity restrictions to insurance contract requirements as well, thus prohibiting a contracting party from requiring the other to provide additional insured coverage for its own negligence.
50 c. Additional insured endorsements
Both indemnification agreements and additional insured endorsements are complementary devises for protecting a project owner from liability arising out of a contractor’s work. The indemnification agreement obligates the subcontractor to accept responsibility for liabilities incurred by the general contractor as a result of the subcontractor’s work. However, indemnification agreements can be challenged, and most states have anti-indemnity statutes, as discussed above. Developers/owners commonly attempt to require their general contractors to provide direct coverage that is not dependent on the enforceability of the indemnity provision and is valid both during “operations” and for “completed operations.” Additional insured status has long been the preferred method of providing this coverage.
49 California, Colorado, Kansas, Montana,
New Mexico, and Oregon
50 See APPENDIX C: Multi-State Analysis of Anti-Indemnity Statutes.
51 See McIntosh v. Scottsdale Ins. Co.
(10th Cir.
1993) 992 F.2d 251, 254; Acceptance, 69
Cal. App. 4th at 330. But see Washington
Sports and Entertainment, Inc. v. United
Coastal Ins. Co.
(D.D.C. 1998) 7 F. Supp. 2d
1, 9 (holding that architect’s professional liability insurance policy limited coverage for landowners as additional insureds to their vicarious liability since it limited coverage for additional insureds to liability arising from the professional services performed by the architect); Travelers Indem. Co. v. Hanover
Ins. Co.
(E.D. Vir. 1979) 470 F. Supp. 630
(holding that insurer had no duty to defend additional insured where the policy provided coverage insofar as the additional insured’s liability derived from negligence of insured).
52 See Marathon Ashland Pipe Line, LLC v.
Maryland Casualty Company (10th Cir.
2001) 243 F.3d 1232.
Most construction agreements require the general contractor and its subcontractors to obtain general liability insurance and to name the developer/owner as an additional insured on the policy. Generally, an additional insured is added to an insurance contract by (1) endorsement or by (2) certificate of insurance. If additional insured status is found to exist, the additional insured may be entitled to a defense against covered allegations, the cost of which is borne by the subcontractor’s insurer.
Many carriers attempt to limit additional insured coverage to vicarious liability imposed on an additional insured for the acts or omissions of its subcontractor named insured, as opposed to liability the additional insured may incur because of its own acts or omissions. However, courts have held that coverage afforded additional insureds is not limited to vicarious liability for the named insured, but can include acts for which the additional insured is directly liable, depending on the jurisdiction.
51
Although the typical construction defect litigation and subsequent mediation still involves discussions about defect and coverage issues, another hotly disputed area involves the duties and responsibilities under additional insured endorsements. Some jurisdictions have held that an additional insured stands in the shoes of the named insured and is entitled to full coverage, 52 while other jurisdictions have held that the
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 additional insured has a lower level of coverage or protection.
53 Many jurisdictions permit severability or separation of insureds which permits the insurer to treat named insureds and AIs differently.
54
Once again, it is important for today’s general contractor, who is not even constructing a building for sale as individual residential units, to understand the potential exposure for future claims as they may face exposure directly to the homeowner, the homeowner’s association, the original owner/developer, and/or the converter.
Therefore, as discussed below, all attempts should be made to limit this exposure in the contract.
53 See Jacobs Constructors, Inc. v. NPS Energy
Services (3rd Cir. 2001) 264 F.3d 365.
54 See Erdo v. Torcon Construction Company,
Inc.
(N.J. Super. 1994) 645 A.2d 806.
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Table o f Chapter 1
Chapter 2 Chapter 3 Chapter 4 Chapter 5
Once again, the laws of each state are constantly changing, evolving and subject to interpretation, and therefore a professional must be consulted if conversion is at issue in a particular matter at the time of entering into any contract for construction. The following is a general summary of the applicable laws related to each state that has enacted conversion requirements:
State Code Section Summary of Law
Alabama AL ST § 35-8A-
412
Alabama
Uniform
Condominium
Act
A declarant of a condominium containing conversion buildings shall give each of the residential tenants notice of the conversion no later than 60 days before the tenants are required to vacate. The notice must set forth generally the rights of tenants and shall be hand-delivered to the unit or mailed. No tenant or subtenant may be required to vacate upon less than 60 days’ notice, except by reason of nonpayment of rent, waste, or conduct that disturbs other tenants’ peaceful enjoyment of the premises. Failure to give notice as required by this section is a defense to an action for possession.
The offering statement of a condominium containing any units that may be occupied for residential use must contain the following:
(1) A statement by the declarant of the approximate age of the structural components and mechanical and electrical installations which are material to the use and enjoyment of the building;
(2) A list of any outstanding notices of uncured violations of the building code or other municipal regulations, together with the estimated cost of curing those violations.
Alaska AK ST §
34.08.620
Alaska
Common
Interest
Ownership
A common interest community may be created under this chapter only by recording a declaration executed in the same manner as a deed and, in a cooperative, by conveying the real estate subject to the declaration to the association.
In a condominium, a declaration that adds a unit may not be recorded, and a plat or plan that is part of the declaration may not be filed or recorded, unless the structural components and mechanical systems of each building containing a unit of the condominium are completed substantially in accordance with the plans, as evidenced by a certificate of completion recorded with the declaration or amendment to the declaration and executed by:
(1) an independent registered engineer, architect, or land surveyor;
(2) an appraiser with the designation of senior residential appraiser, senior real property appraiser, or senior real estate analyst of the Society of Real
Estate Appraisers;
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Arizona
Arkansas
AZ ST
§ 33-1215
AZ ST §
33-1220
(3) a residential member, or member of the appraisal institute, of the American Institute of Real Estate
Appraisers; or
(4) an individual with a designation established by regulation of the Alaska Housing Finance
Corporation for fee appraisers who certify the completion of construction.
If the condominium is a conversion from multifamily rental to condominiums, a statement containing all of the following is required:
(a) A statement that the property is a conversion from multifamily rental to condominiums;
(b) The date original construction was completed;
(c) The name and address of the original owner, builder, developer and general contractor as shown on the applicable city, town or county building permit;
(d) The name and address of each subsequent owner as determined by a search of the county recorder’s records in the county in which the property is located;
(e) The subdivider’s agreement to provide the following information on request:
(i) The name and address of any builder, developer, general contractor, subcontractor, architect and engineer who designed or made improvements to the property immediately before the first condominium was sold.
(ii) A specific description of all improvements made.
From § 33-1220:
Whenever a declarant exercises a development right to subdivide or convert a unit previously created into additional units or common elements, or both:
1. If the declarant converts the unit entirely to common elements, the amendment to the declaration must reallocate all the allocated interests of that unit among the other units as if that unit had been taken by eminent domain.
2. If the declarant subdivides the unit into two or more units, whether any part of the unit is converted into common elements, the amendment to the declaration shall reallocate all the allocated interests of the unit among the units created by the subdivision in any reasonable manner prescribed by the declarant.
AR ST
§ 18-13-111
AR ST
§ 18-13-115
Arkansas
Horizontal
Property Laws
Once the property is submitted to the horizontal property regime, an apartment in the building may be individually conveyed and encumbered and may be the subject of ownership, possession, or sale and of all types of juridic acts intervivos or causa mortis as if it were sole and entirely independent of the other apartments in the building of which it forms a part, and the corresponding individual titles and interests shall be recordable.
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
California
Colorado
Civil Code §
1134
From § 18-13-115:
Any conveyance of an individual apartment shall be deemed to also convey the undivided interest of the owner in the common elements, both general and limited, appertaining to the apartment without specifically or particularly referring to it.
The owner, subdivider, or agent of the owner or subdivider, of a rental apartment (as an existing dwelling) that has been converted to a condominium, stock cooperative, or community apartment project must, as soon as practicable before transfer of title for the first sale, deliver to a prospective buyer a written statement listing all substantial defects or malfunctions in the major systems in the unit and the common areas of the project, or a written statement disclaiming knowledge of any such substantial defects or malfunctions.
Section 1134(c)(1) defines “major systems” as the roof, walls, floors, heating, A/C, plumbing, or electrical components. The disclaimer may be delivered only after the owner or subdivider has inspected the units and the common areas and has not discovered a substantial defect or malfunction that a reasonable inspection would have disclosed. (§ 1134(a)).
Any person who willfully fails to carry out these requirements shall be liable in the amount of actual damages suffered by the buyer. (§ 1134(d)).
These disclosure requirements do not apply to the sales of units in a project that were originally approved as a condominium project, but then were held off the market for a period of time and rented (sometimes called a
“shelf condominium project”).
CO ST
§ 38-33-104
Colorado
Condominium
Ownership
Act
Whenever condominium ownership of real property is created or a separate assessment of condominium units is desired, a written notice thereof shall be delivered to the assessor of the county in which said real property is situated, which notice shall set forth descriptions of the condominium units. Thereafter all taxes, assessments, and other charges shall be assessed against and collected on each condominium unit, each of which shall be carried on the tax books as a separate and distinct parcel for that purpose and not on the building or property as a whole.
The valuation of the general and limited common elements shall be assessed proportionately upon the individual air space unit in the manner provided in the declaration. The lien for taxes assessed to any individual condominium owner shall be confined to his condominium unit and to his undivided interest in the general and limited common elements. No forfeiture or sale of any condominium unit for delinquent taxes, assessments, or charges shall divest or in any way affect the title of other condominium units.
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Connecticut CT ST
§ 47-88b
Connecticut
Common
Interest
Ownership
Act
(a) Any declarant of a conversion condominium shall include in his public offering statement, in addition to the requirements of section 47-71b, the following:
(1) A specific statement of the amount of any initial or special condominium fee due from the purchaser on or before settlement of the purchase contract and the basis of such fee.
(2) Information on the actual expenditures made on all repairs, maintenance, operation or upkeep of the subject building within the last three years, set forth tabularly with the proposed budget of the condominiums and cumulatively broken down on a per unit basis.
(3) A description of the provisions made in the budget for adequate reserves for capital expenditures and an explanation of the basis for such reserves.
(4) A statement of the declarant, certified by a professional engineer registered or exempted under chapter 391,1 as to the present conditions of all structural and major mechanical components in the condominium. This statement shall include the approximate dates of construction, installation and major repairs, and the expected useful life of each item, together with the estimated cost, in current dollars, of replacing each of the same.
(b) In the case of a conversion condominium, the landlord or developer shall give at least one hundred eighty days notice to each of the tenants of the building or buildings which are to be submitted to the provisions of this chapter. Such notice shall be hand-delivered or sent by certified mail, return receipt requested, and shall inform tenants of: (1) The owner’s intent to create a conversion condominium; (2) the exclusive right of each tenant to contract for the purchase of his unit during the first ninety days; (3) the right of each tenant to remain in his unit for one hundred eighty days or until the expiration of his lease; (4) the possibility of relocation assistance and the address and phone number for information concerning such assistance; (5) the availability of state financial assistance to assist a tenant in the purchase of his unit; and (6) whether the declarant is offering or arranging any special financing.
(d) Except pursuant to a purchase agreement for a unit, any provision in a contract, lease or other undertaking which allows a landlord or developer to cancel and terminate such contract, lease or other undertaking upon the conversion of the property is hereby declared to be unenforceable and contrary to public policy.
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Delaware 25 Del.C. §
81-210
25 Del.C. §
7110
Delaware Unit
Property Act
(a) To exercise any development right reserved under §
81-205(a)(8) of this title, the declarant shall prepare, execute, and record an amendment to the declaration and in a condominium or planned community comply with § 81-209 of this title. The amendment to the declaration must assign an identifying number to each new unit created, and reallocate the allocated interests among all units. The amendment must describe any common elements and any limited common elements thereby created and designate the unit to which each is allocated to the extent required by § 81-208 of this title.
(b) Development rights may be reserved within any real estate added to the common interest community if the amendment adding that real estate includes all matters required by § 81-205 or § 81-206 of this title.
(c) Whenever a declarant exercises a development right to subdivide or convert a unit previously created into additional units, common elements, or both:
(1) If the declarant converts the unit entirely to common elements, the amendment to the declaration must reallocate all the allocated interests of that unit among the other units as if that unit had been taken by eminent domain; and
(2) If the declarant subdivides the unit into 2 or more units, the amendment to the declaration must reallocate all the allocated interests of the unit among the units created by the subdivision in any reasonable manner prescribed by the declarant.
(e) If the declaration for a pre-existing condominium provides for conversion of limited common elements to part of the unit to which such limited common elements are allocated, the same shall be a development right exercisable by the declarant by amendment to the declaration prepared, executed and recorded by the declarant.
From Section 7110:
(a) After the filing of a conversion plan, during the grace period, no owner may evict or fail to renew the lease of a tenant of a manufactured home community which is the site of a proposed conversion; provided, however, that eviction proceedings may be commenced for nonpayment of rent or a similar breach by a tenant of a contractual obligation to the owner.
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of C apte 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
District of
Columbia
DC ST §
42-1904.08
Florida FL ST
§ 718.616
Any declarant of a conversion condominium shall include in his public offering statement the following:
A statement by the declarant based upon a report of a qualified architect or engineer as to the present condition of all structural components and major utility installations in the condominium, including:
(i) The approximate dates of construction, installation, and major repairs of structural components and major utility installations and a general description of each installed system as particularly suitable or unsuitable for use in a conversion condominium;
(ii) An evaluation of the adequacy of each system to perform its intended function both before and after completion of the condominium conversion; and
(iii) The estimated life of the system components, and the estimated cost (in current dollars) of replacing each component that has a rated life that is evaluated to be less than the rated life of the entire structure.
In the case of a conversion condominium:
(1) The declarant shall give each of the tenants or subtenants of the building or buildings which the declarant submits to the provisions of this chapter at least
120 days notice of the conversion before any such tenant or subtenant may be served with notice to vacate. Such notice of conversion shall be given no sooner than 10 days after the date the declarant’s application for registration of the condominium units is approved.
(1) Each developer of a residential condominium created by converting existing, previously occupied improvements to such form of ownership shall prepare a report that discloses the condition of the improvements and the condition of certain components and their current estimated replacement costs as of the date of the report.
(2) The following information shall be stated concerning the improvements:
(a) The date and type of construction.
(b) The prior use.
(c) Whether there is termite damage or infestation and whether the termite damage or infestation, if any, has been properly treated. The statement shall be substantiated by including, as an exhibit, an inspection report by a certified pest control operator.
(3)(a) Disclosure of condition shall be made for each of the following components that the existing improvements may include:
1. Roof.
2. Structure.
3. Fire protection systems.
4. Elevators.
5. Heating and cooling systems.
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of C apte 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Georgia
Hawaii
6. Plumbing.
7. Electrical systems.
8. Swimming pool.
9. Seawalls, pilings, and docks.
10. Pavement and concrete, including roadways, walkways, and parking areas.
11. Drainage systems.
12. Irrigation systems.
(b) For each component, the following information shall be disclosed and substantiated by attaching a copy of a certificate under seal of an architect or engineer authorized to practice in this state:
1. The age of the component as of the date of the report.
2. The estimated remaining useful life of the component as of the date of the report.
3. The estimated current replacement cost of the component as of the date of the report, expressed:
a. As a total amount; and proportional share of the common expenses.
4. The structural and functional soundness of the component.
(c) Each unit owner and the association are third-party beneficiaries of the report.
GA ST §
44-3-111
Georgia
Condominium
Act
If the covered contract applies to a condominium unit which is part of a conversion condominium, the following must be provided:
(A) A statement by the declarant, based on a report prepared by an independent, registered architect or engineer, describing the present condition of all structural components and mechanical and electrical systems;
(B) A statement by the declarant of the expected useful life of each item reported on as provided in subparagraph (A) of this paragraph or a statement that no representations are made in that regard; and
(C) A list of any outstanding notices of uncured violations of building code or other county or municipal regulations together with the estimated cost of curing those violations.
This paragraph shall not apply to any condominium created prior to July 1, 1980, or to the expansion of any such condominium.
HI ST §
521-38
When a period of tenancy is pursuant to any rental agreement and where a landlord contemplates conversion to a condominium property regime under chapter 514A or 514B, the landlord shall provide notice to the tenant at least one hundred twenty days in advance of the termination of the rental agreement.
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Idaho
Illinios
I.C. § 55-1504
Idaho
Condominium
Property Act
The requirements of this act shall apply to condominiums only if: (a) there shall be recorded in the county in which such condominiums are located or to be located a declaration, as provided in this act, together with a plat or plats, and (b) if said documents, or either of them, contain an expression of intent to create a project which is subject to the provisions of this act, and (c) if at least one (1) of such documents contains:
(i) a plat or survey map of the surface of the ground included within the project,
(ii) diagrammatic floor plans of the building or buildings built or to be built thereon in sufficient detail to identify each unit, its relative location and approximate dimensions, showing elevations where multi-level or multi-story structures are diagramed, and
(iii) a certificate consenting to the recordation of such documents pursuant to this act, executed and acknowledged by the record owner and the holder of any recorded security interest in such property.
765 ILCS
605/30
Illinois
Condominium
Act
(a)(1) No real estate may be submitted to the provisions of the Act as a conversion condominium unless (i) a notice of intent to submit the real estate to this Act has been given to all persons who were tenants of the building located on the real estate on the date the notice is given. Such notice shall be given at least 30 days, and not more than 1 year prior to the recording of the declaration which submits the real estate to this Act; and (ii) the developer executes and acknowledges a certificate which shall be attached to and made a part of the declaration and which provides that the developer, prior to the execution by him or his agent of any agreement for the sale of a unit, has given a copy of the notice of intent to all persons who were tenants of the building located on the real estate on the date the notice of intent was given.
(2) If the owner fails to provide a tenant with notice of the intent to convert as defined in this Section, the tenant permanently vacates the premises as a direct result of non-renewal of his or her lease by the owner, and the tenant’s unit is converted to a condominium by the filing of a declaration submitting a property to this
Act without having provided the required notice, then the owner is liable to the tenant for the following:
(A) the tenant’s actual moving expenses incurred when moving from the subject property, not to exceed $1,500;
(B) three (3) month’s rent at the subject property; and
(C) reasonable attorney’s fees and court costs.
(b) Any developer of a conversion condominium must, upon issuing the notice of intent, publish and deliver along with such notice of intent, a schedule of selling prices for all units subject to the condominium instruments and offer to sell such unit to the current tenants, except for units to be vacated for rehabilitation subsequent to such notice of intent. Such offer shall not
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Indiana
Iowa
Kansas KS ST
58-3115a
KS ST
58-3111
Kansas
Apartment
Ownership
Act expire earlier than 30 days after receipt of the offer by the current tenant, unless the tenant notifies the developer in writing of his election not to purchase the condominium unit.
(c) Any tenant who was a tenant as of the date of the notice of intent and whose tenancy expires (other than for cause) prior to the expiration of 120 days from the date on which a copy of the notice of intent was given to the tenant shall have the right to extend his tenancy on the same terms and conditions and for the same rental until the expiration of such 120 day period by the giving of written notice thereof to the developer within
30 days of the date upon which a copy of the notice of intent was given to the tenant by the developer.
(d) Each lessee in a conversion condominium shall be informed by the developer at the time the notice of intent is given whether his tenancy will be renewed or terminated upon its expiration.
IC § 32-25-4
Indiana
Condominium
Code
The Indiana Condominium Code does not appear to govern condominium conversions.
IA ST
§ 499B.20
After April 25, 2000, an existing structure shall not be converted to a horizontal property regime unless the converted structure meets local city or county, as applicable, building code requirements in effect on the date of conversion or the state building code requirements, as adopted pursuant to section 103A.7, if the local city or county does not have a building code.
When the state building code is not applicable, Iowa
Code section 499B.20 requires compliance with all local building regulations, not merely those regulations labeled as a local “building code,” prior to conversion of existing apartments to condominiums.
The declarant may convert all or any portion of any convertible land into one or more condominium units and common areas and facilities subject to any restrictions and limitations which the declaration may specify. Any such conversion shall be deemed to have occurred at the time of the recordation of an amendment to the declaration and the recording of floor plans and the plat of survey required by this act.
All convertible lands shall be deemed a part of the common area and facilities until converted.
From Section 58-3111:
The declaration shall contain the following particulars:
1. Description of the land submitted to the provisions of this act.
2. Description of the condominium units or apartments which are constructed or are to be constructed.
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Kentucky KRS §
381.9143
Kentucky
Horizontal
Property Law
3. The apartment number of each apartment or condominium unit, and a statement of its location, approximate area, number of rooms, and immediate common area to which it has access, and any other data necessary for its proper identification.
4. Description of the common areas and facilities.
5. Description of the limited common areas and facilities, if any, stating to which apartments or condominium units their use is reserved.
6. The undivided interest in the common areas and facilities appertaining to each apartment or condominium unit and its owner for all purposes, including voting, and the method and formula by which the undivided interests in the common areas and facilities may be reallocated and altered consistent with the provisions of this act.
7. Statement of the purposes for which the building and each of the apartments or condominium units are intended and restricted as to use.
8. The name of a person to receive service of process in the cases hereinafter provided, together with the residence or place of business of such person which shall be within the city or county in which the building or buildings are located.
9. Provision as to the percentage of votes by the apartment owners which shall be determinative of whether to rebuild, repair, restore, or sell the property in the event of damage or destruction of all or part of the property.
10. Any further details in connection with the property which the person executing the declaration may deem desirable to set forth consistent with this act.
(1) To exercise any development right reserved hereunder, the declarant shall prepare, execute, and record an amendment to the declaration and comply with KRS 381.9141. The amendment to the declaration shall assign an identifying number to each new unit created and shall reallocate the allocated interests among all units. The amendment shall describe any common elements and any limited common elements thereby created and, in the case of limited common elements, designate the unit to which each is allocated.
(2) Development rights may be reserved within any real estate added to the condominium if the amendment adding that real estate includes all matters required by
KRS 381.9133 or 381.9135, as the case may be, and the plats and plans include all matters required by KRS
381.9141. This provision does not extend the time limit on the exercise of development rights imposed by the declaration under KRS 381.9133(1)(h).
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Louisiana
(3) If a declarant exercises a development right to subdivide or convert a unit previously created into additional units, common elements, or both, the declaration shall be amended as follows:
(a) If the declarant converts the unit entirely to common elements, the amendment to the declaration shall reallocate all the allocated interests of that unit among the other units as if that unit had been taken by eminent domain; or
(b) If the declarant subdivides the unit into two (2) or more units, whether or not any part of the unit is converted into common elements, the amendment to the declaration shall reallocate all the allocated interests of the unit among the units created by the subdivision in any reasonable manner prescribed by the declarant.
LA R.S. §
1122.115
LA R.S. §
1124.104
Louisiana
Condominium
Act
If the condominium declaration expressly so permits, a unit may be subdivided or converted into two or more units, common elements, or combination of one or more units and common elements. Subject to the provisions of the condominium declaration and other provisions of law, upon written request of a unit owner to subdivide a unit, the condominium association shall prepare, execute and record an amendment to the condominium declaration, including the plats and plans, subdividing that unit.
An amendment to the condominium declaration must assign an identifying number to each unit created, and reallocate the common elements interests, votes in the association, and common expense assessment liabilities formerly allocated to the subdivided unit to the new units in any reasonable manner prescribed by the owner of the subdivided unit.
From § 1124.104:
The public offering statement of a condominium containing any building that at any time before recording the declaration was occupied wholly or partially by persons other than purchasers and having greater than ten units, must contain, in addition to the information required by Section 1124.102:
(1) A report prepared by a registered architect or engineer, describing the present condition of all structural components, roof, and mechanical and electrical installations material to the use and enjoyment of the condominium.
(2) A statement by the declarant of the estimated remaining useful life of each item reported on in
Paragraph (1) or a statement that no representations are made in that regard, and
(3) A statement by the declarant of any outstanding notices of incurred violations of building codes or other municipal regulations, together with the estimated costs of curing those violations.
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of C apte 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
Maine
Maryland
ME ST T. 33
§ 1604-105
The public offering statement of a condominium containing any conversion building must contain:
Maine Unit
Ownership
Act
Maine
Condominium
Act
(1) A statement by the declarant, based on a report prepared by an independent architect or engineer, who is not affiliated with the declarant, describing the present condition of all structural components, waste disposal system, water system and mechanical and electrical installations material to the use and enjoyment of the building;
(2) A statement by the declarant of the expected useful life of each item reported on in paragraph (1) or a statement that no representations are made in that regard; and
(3) A list of any outstanding notices of uncured violations of building code or other municipal, state or federal laws or regulations, together with the estimated cost of curing those violations.
MD REAL
PROP
§ 11-126
(b) The public offering statement required by subsection
(a) of this section shall be sufficient for the purposes of this section if it contains at least the following:
Maryland
Condominium
Act
(1) A copy of the proposed contract of sale for the unit;
(2) A copy of the proposed declaration, bylaws, and rules and regulations;
(3) A copy of the proposed articles of incorporation of the council of unit owners, if it is to be incorporated;
(4) A copy of any proposed management contract, insurance contract, employment contract, or other contract affecting the use of, maintenance of, or access to all or part of the condominium to which it is anticipated the unit owners or the council of unit owners will be a party, and a statement of the right of the council of unit owners to terminate contracts entered into during the developer control period under § 11-133 of this title;
(5) A copy of the actual annual operating budget for the condominium or, if no actual operating budget exists, a copy of the projected annual operating budget for the condominium including reasonable details concerning:
(i) The estimated monthly payments by the purchaser for assessments;
(ii) Monthly charges for the use, rental, or lease of any facilities not part of the condominium;
(iii) The amount of the reserve fund for repair and replacement and its intended use; and
(iv) Any initial capital contribution or similar fee, other than assessments for common expenses, to be paid by unit owners to the council of unit owners or vendor, and a statement of how the fees will be used;
(6) A plain language statement of the policy and procedures for collecting assessments and handling collection of delinquencies, including reasonable details concerning:
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(i) The number and percentage of unit owners who are delinquent or in arrears in an amount equal to or greater than 50% of the annual assessment of the unit owner;
(ii) The number of unsatisfied liens currently recorded against unit owners under the Maryland Contract Lien Act;
(iii) The number of unsatisfied judgments obtained against unit owners for unpaid assessments; and
(iv) The total amount of arrearages among all unit owners;
(7) A copy of any lease to which it is anticipated the unit owners or the council of unit owners will be a party following closing;
(8) A description of any contemplated expansion of the condominium with a general description of each stage of expansion and the maximum number of units that can be added to the condominium;
(9) A copy of the floor plan of the unit or the proposed condominium plats;
(10) A description of any recreational or other facilities which are to be used by the unit owners or maintained by them or by the council of unit owners, and a statement as to whether or not they are to be part of the common elements;
(11) A statement as to whether streets within the condominium are to be dedicated to public use or maintained by the council of unit owners;
(12) A statement of any judgments against the council of unit owners and the existence of any pending suits to which the council of unit owners is a party;
(13) In the case of a condominium containing buildings substantially completed more than 5 years prior to the filing of the application for registration under § 11-127 of this title, a statement of the physical condition and state of repair of the major structural, mechanical, electrical, and plumbing components of the improvements, to the extent reasonably ascertainable, and estimated costs of repairs for which a present need is disclosed in the statement and a statement of repairs which the vendor intends to make. The vendor is entitled to rely on the reports of architects or engineers authorized to practice their profession in this State;
(14) A description of any provision in the declaration or bylaws limiting or providing for the duration of developer control or requiring the phasing-in of unit owner participation, or a statement that there is no such provision;
(15) If the condominium is one which will be created by the conversion of a rental facility, a copy of the notice and materials required by §§ 11-102.1 and 11-137 of this title.
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Massachusetts Chapter 183A
Massachusetts
Condominium
Act
The Massachusetts Condominium Act does not appear to govern condominium conversions.
Michigan MI ST §
559.204
Michigan
Condominium
Act
(2) Before offering any unit for sale, the developer of a conversion condominium project shall notify each existing tenant of any unit in the proposed conversion condominium project of all of the following:
(a) The proposed conversion.
(b) The right of a prospective purchaser to receive the disclosure documents enumerated in section 84a.1
(c) The right to remain in the unit of residence for 120 days after receipt of this notice, or until expiration of the term of the lease, whichever is longer.
(d) The right to terminate tenancy after receipt of this notice upon 60 days’ notice to the developer. The notice shall be physically delivered or sent by first class mail to each unit, addressed to the tenant. A tenancy in a conversion condominium, whether month to month or otherwise, shall not be terminated by the lessor without cause within 120 days after delivery of notice under this subsection, or until expiration of the term of the lease, whichever is longer.
(3) A tenant who receives notice under subsection (2) may terminate his or her tenancy, at any time, if notice of termination of tenancy is given to the developer not less than 60 days before the date of termination.
(4) If a developer of a conversion condominium project desires to take reservations before delivery of the notice required under subsection (2), the developer shall, before taking any reservations, notify each existing tenant of any unit in the proposed conversion condominium of both of the following:
(a) The tenant’s lease is not affected by the taking of reservations for units in the proposed conversion condominium.
(b) If a conversion condominium project is established, the tenant may obtain from the developer a full statement of the rights and options available to the tenant.
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Minnesota MN ST
§ 515A.4-104
Minnesota
Uniform
Condominium
Act
The disclosure statement of a conversion condominium the units of which may be used for residential purposes shall contain, in addition to the information required by section 515A.4-102:
Minnesota
Common
Interest
Ownership
Act
(a) A professional opinion prepared by an architect licensed in this state or a registered professional engineer licensed in this state, describing the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the condominium to the extent reasonably ascertainable without disturbing the improvements or dismantling the equipment;
(b) A statement by the declarant of the expected useful life of each item reported on in subsection (a) or a statement that no representations are made in this regard;
(c) A list of any outstanding notices of uncured violations of building code or other municipal regulations, which will be outstanding at the time of the first conveyance of a unit, together with the estimated cost of curing those violations.
Mississippi Mississippi
Condominium
Law
The Mississippi Condominium Law does not appear to govern condominium conversions.
Missouri MO ST §
448.2-110
MO ST §
448.4-106
Missouri
Uniform
Condominium
Act
1. To exercise any development right reserved under subdivision (1) of section 448.2-105, the declarant shall prepare, execute, and record an amendment to the declaration and comply with section 448.2-109. The declarant is the unit owner of any units thereby created.
The amendment to the declaration shall assign an identifying number to each new unit created, and, except in the case of subdivision or conversion of units described in subsection 2 of this section, reallocate the allocated interests among all units. The amendment shall describe any common elements or limited common elements thereby created, and, in the case of limited common elements, designate the unit to which each is allocated to the extent required by section 448.2-108.
2. Development rights may be reserved within any real estate added to the condominium if the amendment adding that real estate includes all matters required by section 448.2-105 or section 448.2-106, as the case may be, and the plats and plans include all matters required by subsection 2 of section 448.2-109.
3. When a declarant exercises a development right to subdivide or convert a unit previously created into additional units, common elements, or both:
(1) If the declarant converts the unit entirely to common elements, the amendment to the declaration shall reallocate all the allocated interests of that unit among the other units as if that unit had been taken by eminent domain.
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Montana
(2) If the declarant subdivides the unit into two or more units, whether or not any part of the unit is converted into common elements, the amendment to the declaration shall reallocate all the allocated interests of the unit among the units created by the subdivision in any reasonable manner prescribed by the declarant.
4. If the declaration provides, pursuant to subsection 1 of section 448.2-105, that all or a portion of the real estate is subject to the development right of withdrawal:
(1) If all the real estate is subject to withdrawal, and the declaration does not describe separate portions of real estate subject to that right, none of the real estate may be withdrawn after a unit has been conveyed to a purchaser; and
(2) If a portion or portions are subject to withdrawal, no portion may be withdrawn after a unit in that portion has been conveyed to a purchaser.
From § 448.4-106:
The original sale certificate of a condominium containing any conversion building shall contain, in addition to the information required by section 448.4-102:
(1) A statement of work done, including the nature thereof, on the foundation, structural members, roof, chimney, gutters and downspouts, exterior and interior walls, ceilings, floors, windows, attic and wall insulation
(including installer’s statement of present “R” value), sewers and stacks, plumbing system and related fixtures, electrical system and related fixtures, and furnace and heating system (including the manufacturer’s energy efficiency ratio of any new heating or refrigeration equipment); and
(2) A list of any outstanding notices of uncured violations of building code or other municipal regulations.
Mont.
Admin.R.
17.36.313
Montana Unit
Ownership Act
(1) Except as provided in sections (2) and (3), condominiums, including those to be constructed on parcels of land that are exempted from review under the provisions of Title 76, chapter 3, MCA, and including conversion of existing structures into condominiums, are subject to review under the requirements of this chapter.
(2) Conversions of existing structures into condominiums are not subject to this chapter where the converted units are to be served by existing municipal water and sewer facilities in a Class I or II city as defined in 7-1-4111, MCA.
(3) Where the water or sewage disposal system in an existing building to be converted into condominiums has already been approved under either department requirements or has been approved by the local health department under local requirements, such water or sewage disposal system is not subject to review under this chapter.
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Nebraska
Nevada
NE ST
§ 76-886
NE ST
§ 76-881
Nebraska
Condominiums
Act
A declarant of a condominium containing conversion buildings, and any person in the business of selling real estate for his or her own account who intends to offer units in such a condominium shall give each of the residential tenants and any residential subtenant in possession of a portion of a conversion building notice of the conversion and provide those persons with the publicoffering statement, if any, no later than sixty days before the tenants and any subtenant in possession are required to vacate. The notice must set forth generally the rights of tenants and subtenants under this section and shall be hand delivered to the unit or mailed by prepaid United
States mail to the tenant and subtenant at the address of the unit or any other mailing address provided by a tenant. No tenant or subtenant may be required to vacate upon less than sixty days’ notice, except by reason of nonpayment of rent, waste, or conduct that disturbs other tenants’ peaceful enjoyment of the premises, and the terms of the tenancy may not be altered during that period. Failure to give notice as required by this section is a defense to an action for possession.
From § 76-881:
The public-offering statement of a condominium containing any conversion building must contain, in addition to the information required by section 76-880:
(1) a brief statement by an architect or a professional engineer describing the apparent condition of the structural components and mechanical and electrical installations material to the use and enjoyment of the building;
(2) a statement by the declarant of the age of each item reported on in paragraph (1) of this subsection or a statement that no representations are made in that regard; and
(3) a list of any outstanding notices of uncured violations of building codes or other municipal regulations of which the declarant is actually aware.
NV ST §
116B.355
(NRS §
116.211)
Nevada
Uniform
Common-
Interest
Ownership Act
Nevada
Condominium
Law
1. To exercise any developmental right reserved in the declaration, the declarant shall prepare, execute and record an amendment to the declaration. The declarant is the owner of any units thereby created. The amendment to the declaration must assign an identifying number to each new unit created and, except in the case of subdivision or conversion of units described in this section, reallocate the allocated interests and the allocated liability for shared expenses by the declarant or hotel unit owner among all units. The amendment must describe any common elements, limited common elements, shared components or portions of the hotel unit thereby created and, in the case of limited common elements, designate the unit to which each is allocated to the extent required by NRS 116B.345.
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New
Hampshire
2. Developmental rights may be reserved within any real estate added to the condominium hotel if the amendment adding that real estate includes all matters required by NRS
116B.330 or 116B.335, as the case may be. This provision does not extend the time limit on the exercise of developmental rights imposed by the declaration.
3. Whenever a declarant exercises a developmental right to subdivide or convert a unit or shared components previously created into additional units, common elements, shared components or additional portions of the hotel unit:
(a) If the declarant converts the unit or shared components entirely to common elements, the amendment to the declaration must convey it to the association or reallocate all the allocated interests and allocated liability for shared expenses of that unit among the other units as if that unit had been taken by eminent domain; and
(b) If the declarant subdivides the unit into two or more units, whether or not any part of the unit is converted into common elements, the amendment to the declaration must reallocate all the allocated interests and shared expenses of the unit among the units created by the subdivision in any reasonable manner prescribed by the declarant.
4. If the declarant converts a shared component into a residential unit, the amendment to the declaration must reallocate all the allocated interests and allocated liability for shared expenses to the residential units.
5. If the declaration provides that all or a portion of the real estate is subject to a right of withdrawal:
(a) If all the real estate is subject to withdrawal, and the declaration does not describe separate portions of real estate subject to that right, none of the real estate may be withdrawn after a unit has been conveyed to a purchaser; and
(b) If any portion is subject to withdrawal, it may not be withdrawn after a unit in that portion has been conveyed to a purchaser.
NH ST §
356-B:56
Any declarant of a conversion condominium shall include in his public offering statement, in addition to the requirements of RSA 356-B:52, the following:
NH ST §
356-B:7
New
Hampshire
Condominium
Act
(a) A specific statement of the amount of any initial or special condominium fee due from the purchaser on or before settlement or closing of the purchase contract and the basis of such fee;
(b) Information on the actual expenditures made on all repairs, maintenance, operation or upkeep of the subject building or buildings within the last 3 years or for the period of the declarant’s ownership, whichever, is less, set forth tabularly with the proposed budget of the condominium, and cumulatively broken down on a per unit basis in proportion to the relative voting strengths allocated to the units by the bylaws. If information shall be set forth for the maximum time during said period such building or buildings have been occupied;
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5
(c) A description of any provisions made in the budget for reserves for capital expenditures and an explanation of the basis for such reserves, or, if no provision is made for such reserves, a statement to that effect;
(d) A statement of the declarant as to the present condition of all structural components and major utility installations in the condominium, which statement shall include the approximate dates of construction, installation, and major repairs, if known, and the expected useful life of each such item, together with the estimated cost (in current dollars) of replacing each of the same.
From § 356-B:7:
No condominium shall come into existence except by the recordation of condominium instruments pursuant to this chapter. No condominium instruments shall be recorded unless all units located or to be located on any portion of the submitted land, other than within the boundaries of any convertible lands, are depicted on site plans and floor plans that comply with RSA 356-B:20, I and II. The foreclosure of any mortgage, deed of trust, or other lien shall not be deemed, in and of itself, to terminate the condominium. Notwithstanding any provision of law to the contrary, if a rent increase is made in accordance with RSA 356-C:3, I(a)(12), application for condominium conversion shall not be made until 3 months after such increase.
New Jersey NJ ST 2A:
18-61.8
New Jersey
Condominium
Act
New Jersey
Horizontal
Property Act
New Jersey
Cooperative
Recording
Act
Any owner who intends to convert a multiple dwelling as defined in P.L.1967, c. 76 (C. 55:13A-1 et seq.), other than a hotel or motel, or a mobile home park into a condominium or cooperative, or to fee simple ownership of the several dwelling units or park sites shall give the tenants 60 days’ notice of his intention to convert and the full plan of the conversion prior to serving notice, provided for in section 3 of P.L.1974, c. 49 (C. 2A:18-
61.2). A duplicate of the first such 60-day notice and full plan shall be transmitted to the clerk of the municipality at the same time. In the notice of intention to convert tenants shall be notified of their right to purchase ownership in the premises at a specified price in accordance with this section, and their other rights as tenants under this act in relation to the conversion of a building or park to a condominium, cooperative or fee simple ownership. A tenant in occupancy at the time of the notice of intention to convert shall have the exclusive right to purchase his unit, the shares of stock allocated thereto or the park site, as the case may be, for the first 90 days after such notice that such purchase could be made during which time the unit or site shall not be shown to a third party unless the tenant has in writing waived the right to purchase.
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New
Mexico
New York
NM ST
§ 47-7D-6
New Mexico
Condominium
Act
A. The disclosure statement of a condominium containing any conversion building shall contain, in addition to the information required by Section 54 of the Condominium Act:
(1) a statement by the declarant, based on a report prepared by a licensed architect or engineer, describing the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the building; and
(2) a list of any outstanding notices of uncured violations of building codes or other municipal regulations, together with the estimated cost of curing those violations.
B. Paragraph (1) of Subsection A of this section applies only to buildings containing more than fifteen units that shall be occupied for residential use.
NY GEN BUS
§ 352-eeee
(NOTE: this code only applies to
New York
City, not to the entire state of
New York)
(a) The plan provides that it will be deemed abandoned, void and of no effect if it does not become effective within fifteen months from the date of issue of the letter of the attorney general stating that the offering statement or prospectus has been accepted for filing and, in the event of such abandonment, no new plan for the conversion of such building or group of buildings or development shall be submitted to the attorney general for at least twelve months after such abandonment.
(b) The plan provides either that it is an eviction plan or that it is a non-eviction plan.
(c) The plan provides, if it is a non-eviction plan, as follows:
(i) The plan may not be declared effective until written purchase agreements have been executed and delivered for at least fifteen percent of all dwelling units in the building or group of buildings or development subscribed for by bona fide tenants in occupancy or bona fide purchasers who represent that they intend that they or one or more members of their immediate family occupy the dwelling unit when it becomes vacant.
As to tenants who were in occupancy on the date a letter was issued by the attorney general accepting the plan for filing, the purchase agreement shall be executed and delivered pursuant to an offering made without discriminatory repurchase agreements or other discriminatory inducements.
(ii) No eviction proceedings will be commenced at any time against non-purchasing tenants for failure to purchase or any other reason applicable to expiration of tenancy; provided that such proceedings may be commenced for non-payment of rent, illegal use or occupancy of the premises, refusal of reasonable access to the owner or a similar breach by the non-purchasing tenant of his obligations to the owner of the dwelling unit or the shares allocated thereto; and provided further
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Table o f Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 that an owner of a unit or of the shares allocated thereto may not commence an action to recover possession of a dwelling unit from a non-purchasing tenant on the grounds that he seeks the dwelling unit for the use and occupancy of himself or his family.
(iii) Non-purchasing tenants who reside in dwelling units subject to government regulation as to rentals and continued occupancy prior to the conversion of the building or group of buildings or development to cooperative or condominium ownership shall continue to be subject thereto.
(iv) The rentals of non-purchasing tenants who reside in dwelling units not subject to government regulation as to rentals and continued occupancy and non-purchasing tenants who reside in dwelling units with respect to which government regulation as to rentals and continued occupancy is eliminated or becomes inapplicable after the plan has been accepted for filing by the attorney general shall not be subject to unconscionable increases beyond ordinary rentals for comparable apartments during the period of their occupancy. In determining comparability, consideration shall be given to such factors as building services, level of maintenance and operating expenses.
(v) The plan may not be amended at any time to provide that it shall be an eviction plan.
(vi) The rights granted under the plan to purchasers under the plan and to non-purchasing tenants may not be abrogated or reduced notwithstanding any expiration of, or amendment to, this section.
(vii) After the issuance of the letter from the attorney general stating that the offering statement or prospectus required in subdivision one of section three hundred fifty-two-e of this article has been filed, the offeror shall, on the thirtieth, sixtieth, eighty-eighth and ninetieth day after such date and at least once every thirty days until the plan is declared effective or is abandoned, as the case may be, and on the second day before the expiration of any exclusive purchase period provided in a substantial amendment to the plan, (1) file with the attorney general a written statement, under oath, setting forth the percentage of the dwelling units in the building or group of buildings or development subscribed for by bona fide tenants in occupancy or bona fide purchasers who represent that they intend that they or one or more members of their immediate family occupy the dwelling unit when it becomes vacant as of the date of such statement and, (2) before noon on the day such statement is filed post a copy of such statement in a prominent place accessible to all tenants in each building covered by the plan.
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North
Carolina
NC ST §
47C-2-110
North Carolina
Condominium
Act
(a) To exercise any development right, the declarant shall record an amendment to the declaration and comply with G.S. 47C-2-109. The declarant is the unit owner of any units thereby created. The amendment to the declaration must assign an identifying number to each new unit created and, except in the case of subdivision or conversion of units described in subsection (c), reallocate the allocated interests among all units. The amendment must describe any common elements and any limited common elements thereby created and, in the case of limited common elements, designate the unit to which each is allocated to the extent required by
G.S. 47C-2-108 (Limited Common Elements).
(b) Development rights may be reserved within any real estate added to the condominium if the amendment adding that real estate includes all matters required by, and is in compliance with, G.S. 47C-2-105 and, if a leasehold condominium, G.S. 47C-2-106 and also if the plats and plans include all matters required by G.S. 47C-2-109.
(c) When a declarant exercises a development right to subdivide or convert a unit previously created into additional units, common elements, or both:
(1) If the declarant converts the unit entirely to common elements, the amendment to the declaration must reallocate all the allocated interests of that unit among the other units as if that unit had been taken by eminent domain; or
(2) If the declarant subdivides the unit into two or more units, whether or not any part of the unit is converted into common elements, the amendment to the declaration must reallocate all the allocated interests of the unit among the units created by the subdivision in any reasonable manner prescribed by the declarant.
(d) If the declaration provides pursuant to G.S. 47C-2-
105(a)(8) that all or a portion of the real estate is subject to the development right of withdrawal:
(1) If all the real estate is subject to withdrawal, and the declaration does not describe separate portions of real estate subject to that right, no part of the real estate may be withdrawn after a unit has been conveyed to a purchaser; and
(2) If a portion or portions are subject to withdrawal, no part of a portion may be withdrawn after a unit in that portion has been conveyed to a purchaser.
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North
Dakota
Ohio
ND ST §
47-04.1-08
OH ST §
5311.033
Oklahoma OK ST T. 60
§ 504
Oklahoma
Unit
Ownership
Estate Act
Each unit owner shall comply strictly with the bylaws and with the administrative rules and regulations adopted pursuant thereto, as either of the same may be lawfully amended from time to time, and with the covenants, conditions, and restrictions set forth in the declarations or in the deed to that owner’s unit. Failure to comply with such provisions shall be grounds for an action to recover sums due for damages, injunctive relief or such other relief as a court of proper jurisdiction may provide by the administrative body or in a proper case, by an aggrieved unit owner.
(A)(1) Except as otherwise provided in the declaration, all or any portion of a convertible unit may be converted into one or more units or common elements, including limited common elements.
(2)(a) To cause the conversion, the owner shall prepare and execute an amendment to the declaration that describes the conversion and record the amendment together with the drawings described in division (E) of section 5311.07 of the Revised Code.
(b) The amendment shall specify the undivided interests in the common elements, proportionate shares of common surplus and common expenses, and the voting powers of each unit resulting from the conversion, the total of which shall equal the interest, share, and power of the unit that was converted. The amendment to the declaration shall assign an identifying number to each unit formed, allocate to each unit a portion of the undivided interest in the common elements appurtenant to the convertible unit, describe or delineate the limited common elements formed out of the convertible unit, and show or designate each unit to which those limited common elements are reserved.
(3) The conversion of a convertible unit pursuant to this section is deemed to occur at the time that all appropriate instruments are recorded in accordance with division (A)(2) of this section and division (E) of section
5311.07 of the Revised Code.
(B) A convertible unit that, in whole or in part, is not converted in accordance with this section shall be treated as a single unit until it is so converted.
A unit ownership estate as created and defined in this act shall vest in the holder, exclusive ownership and possession; shall constitute an estate in real property which may be conveyed, encumbered, inherited, devised, or otherwise dealt with consistent with the laws of this state; and shall, for all purposes, be deemed in law to be an estate entirely independent of the other unit ownership estates in the building of which it forms a part. The individual title and interest of such estate shall be recorded in the manner provided by law for recording instruments affecting title to real property. Such estate may be held and owned by more than one person, as defined herein, in any manner recognized under the laws of this state.
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Oregon OR ST §
100.305
Oregon
Planned
Communities
Act
Oregon
Condominium
Act
(1) A declarant of a conversion condominium shall give each of the existing tenants of any building which the declarant intends to submit to the provisions of this chapter notice of the conversion at least 120 days before the conversion condominium is submitted to the provisions of this chapter. Thereafter, until the property is submitted to the provisions of this chapter, the declarant shall provide a copy of such notice to any new tenant before the commencement of the tenancy. The notice of conversion shall:
(a) State that the declarant intends to create a conversion condominium and include general information relating to the nature of condominium ownership.
(b) State that the notice does not constitute a notice to terminate the tenancy.
(c) State whether there will be a substantial alteration of the physical layout of the unit.
(d) State whether the declarant intends to offer the unit for sale and, if so:
(A) Set forth the rights of the tenant under ORS 100.310
(1) to (3), including the time available for the declarant to make an offer to sell and for the tenant to respond;
(B) Set forth a good faith estimate of the approximate price range for which the unit will be offered for sale to the tenant under ORS 100.310 (1) and (2);
(C) Set forth a good faith estimate of the monthly operational, maintenance and any other common expenses or assessments appertaining to the unit;
(D) State that financial assistance for purchasing the unit may be available from a local governing body, the
Housing and Community Services Department or a regional housing center;
(E) Give contact information for the local regional housing center or, if no regional housing center exists, for the
Housing and Community Services Department; and
(F) State that the landlord may not terminate the tenancy without cause if the termination would take effect before the end of the 120-day period described in this subsection or the 60-day period described in ORS 100.310.
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Pennsylvania PA ST 68
Pa.C.S.A.
§ 3410
Pennsylvania
Planned
Community
Act
Rhode
Island
RI ST
§ 34-36.
1-4.06
(A) The declarant of every condominium containing one or more conversion buildings shall give each of the residential tenants and residential subtenants, if any, lawfully in possession of a unit or units in a conversion building or buildings, a conversion notice no later than one year before the declarant will require such residential tenant and residential subtenant to vacate.
The conversion notice must set forth generally the rights of residential tenants and residential subtenants under this section and shall be hand delivered to the unit or mailed by prepaid United States certified or registered mail return receipt requested to the residential tenant and residential subtenant at the address of the unit and not more than one other mailing address provided by a residential tenant. Every notice shall be accompanied by a public offering statement concerning the proposed sale of condominium units within such building or buildings. Except as otherwise provided in subsection (f), no residential tenant or residential subtenant in a conversion building may be required by the declarant to vacate the unit he leases earlier than one year after the conversion notice date, except by reason of nonpayment of rent, waste or conduct that disturbs other tenants’ peaceful enjoyment of the premises and the terms of the tenancy, including those terms that apply to a period occurring in whole or in part after the conversion notice date, may not be altered, but may be enforced, during that period. Failure of a declarant to give notice to a residential tenant or residential subtenant entitled to such notice pursuant to this subsection is a defense to an action for possession against such residential tenant or residential subtenant.
(a) The public offering statement of a condominium containing any conversion building must contain, in addition to the information required by § 34-36.1-4.03:
(1) A statement by the declarant, based on a report prepared by a registered architect or engineer, describing the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the building;
(2) A statement by the declarant of the expected useful life of each item reported on in subdivision
(a)(1) or a statement that no representations are made in that regard; and
(3) A list of any outstanding notices of incurred violations of building code or other municipal regulations, together with the estimated cost of curing those violations.
(b) This section applies only to buildings containing units that may be occupied for residential use.
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South
Carolina
South
Dakota
Tennessee
SC ST
§ 27-31-430
South
Carolina
Horizontal
Property
Act
SD ST
§ 43-15A-10
TN ST
§ 66-27-123
Whenever the lessee, sole owner, or co-owner of a building declares the undertaking of a conversion of rental units to condominium ownership through the recordation of a master deed or master lease, written disclosure shall be made within thirty days of the date of the recordation to all prospective purchasers, including tenants in possession, as to the physical condition of the building. The disclosure shall contain a written report prepared by an independent registered architect or engineer licensed to practice his profession in this State, describing the present condition of all general common elements. The report shall contain a good faith estimate of the remaining useful life to be expected for each item reported on, together with a list of any notices of uncured violations of building codes or other county or municipal regulations, together with the estimated cost of curing those violations. The good faith estimate of useful life shall not constitute a warranty and, as to an independent registered architect or engineer licensed to practice his profession in this State, shall not be deemed a representation of material fact or an inducement to purchase and shall not give rise to any cause of action at law or in equity against such architect or engineer. A failure to make the disclosure required by this section shall constitute a violation of the South Carolina Unfair
Trade Practices Act.
Title 43 of the South Dakota Codified Laws does not appear to govern condominium conversions. However, according to § 43-15A-10, prior to the time when a domestic condominium project is to be offered for sale in this state, the developer shall notify the real estate commission in writing of his intention to sell such offerings. If the developer fails to notify the commission as provided in this chapter, the purchaser may at his option void the contract for sale.
(a) All owners or lessors of buildings, apartments, rooms, office spaces, or other units, all of which terms in this section shall be referred to as units or unit, which are presently being occupied by one (1) or more persons under a lease or other rental agreement, shall give each tenant at least two (2) months’ actual notice of such owner’s or lessor’s intent to convert such tenant’s unit from a rental unit to a condominium, condominium project or other unit which is offered or proposed to be offered for sale. The notice shall specify that the tenant has the right to continue renting such unit at the same rental rate until the expiration of the two-month notice period required by this section.
(b) No sale of a unit which was converted from a rental unit to a unit offered for sale to a person other than the tenant last renting such unit shall be valid unless such tenant has received two (2) months’ actual notice of the owner’s or lessor’s intent to convert such unit. This provision shall apply regardless of whether the tenant’s
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Texas lease or other rental agreement expires prior to the end of the two-month notice period.
(c) If an owner or lessor converts a rental unit to a unit offered for sale without giving the tenant of such unit at least two (2) months’ actual notice of the conversion, such tenant may elect to remain, with or without a lease, in the unit at the same rental rate until the expiration of a two-month period from the date the tenant received such actual notice or the tenant may vacate the unit immediately upon receiving such actual notice and the owner or lessor shall pay such tenant all reasonable expenses incurred in moving to another location. If a tenant is in a position to make the election provided by this subsection (c) and does not vacate the premises immediately, the owner or lessor shall not be obligated to pay the tenant’s moving expenses. The election provided by this subsection (c) shall apply regardless of whether the tenant’s lease or other rental agreement has or would have expired prior to the end of the two-month notice period.
(d) If it is necessary for a tenant to institute a court action to enforce the provisions of this section and the tenant is the prevailing party, the court shall require the owner or lessor to reimburse the tenant for all reasonable costs incurred in bringing such action, including attorney fees, and shall tax all court costs against the owner or lessor.
(e) The provisions of this section shall apply to all units which are converted from rental units to units offered for sale on or after December 1, 1979.
TX PROP
§ 82.154
TX PROP
§ 82.160
If a building contains units that may be occupied for residential use, the condominium information statement of a condominium containing any conversion building must additionally contain:
Texas Uniform
Condominium
Act
(1) a dated statement by the declarant, based on a report by an independent architect or engineer, describing the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the building;
(2) a dated statement by the declarant of the expected useful life of each item reported in Subdivision (1) or a statement that no representations are made in that regard; and
(3) a list of violations of building code or other governmental regulations of which the declarant has received notice and that have not been cured, together with the estimated cost of curing those violations.
From § 82.160:
(a) A declarant of a condominium containing a conversion building shall give each residential tenant or subtenant in possession of a portion of a conversion
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Utah building notice of the conversion at least 60 days before the date the declarant will require the tenant or subtenant in possession to vacate. The notice must state generally the rights of tenants and subtenants under this section and shall be hand-delivered to the unit or mailed by certified United States mail, return receipt requested, to the tenant or subtenant at the address of the unit or any other mailing address provided by the tenant or subtenant. The declarant may not require a tenant or subtenant to vacate on less than 60 days’ notice, except for nonpayment of rent, waste, or conduct that violates the rental agreement or is illegal, and the terms of a tenancy may not be altered during that period. Failure of a declarant to give notice as required by this section is a defense to an action for possession.
(b) If a notice of conversion specifies a date by which a unit or proposed unit must be vacated and otherwise complies with Section 24.005, the notice also constitutes legal notice to vacate on that date for purposes of Section 24.005. A declarant may not terminate a lease in violation of its terms.
(c) Unless expressly authorized by a rental agreement, a declarant may not make substantial alterations to the interior of a leased premises for purposes of a condominium conversion.
UT ST §
57-8-13.2
Utah
Condominium
Ownership
Act
(1) The declarant may convert all or any portion of any convertible land into one or more units or limited common areas and facilities subject to any restrictions and limitations which the declaration may specify. Any such conversion shall be deemed to have occurred at the time of the recordation of the appropriate instruments under
Subsection (2) of this section and Subsection 57-8-13(2).
(2) Simultaneously with the recording of the condominium plat pursuant to Subsection 57-8-13(2), the declarant shall prepare, execute, and record an amendment to the declaration describing the conversion. The amendment shall assign an identifying number to each unit formed out of a convertible land and shall reallocate undivided interests in the common areas and facilities in accordance with Subsection 57-8-
13.10(2). The amendment shall describe or delineate the limited common areas and facilities formed out of the convertible land, showing or designating the unit or units to which each is assigned.
(3) All convertible lands shall be deemed part of the common areas and facilities except for such portions of them as are converted in accordance with this section.
No such conversions shall occur after five years from the recordation of the declaration, or such shorter period of time as the declaration may specify, unless three-fourths of unit owners vote in favor of converting the land after the time period has expired.
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Vermont VT ST T. 27
§ 1333
Vermont
Condominium
Ownership
Act
Vermont
Uniform
Common
Interest
Ownership
Act
(a) If the building to be converted consists of more than five dwelling units or if the building to be converted is part of an apartment complex or is one building in a group of buildings which are contiguous or which share common areas, the landlord shall give to each tenant the following minimum written notice to vacate or purchase the unit: two years to elder and handicapped tenants; one year to low-income tenant households; six months to all other tenants.
(b) If the building to be converted consists of five or fewer dwelling units, the landlord shall give to each tenant the following minimum written notice to vacate or purchase the unit: one year to elder and handicapped tenants; six months to low-income tenant households; three months to all other tenants. A landlord may not circumvent the longer notice requirements by converting a building consisting of five or fewer dwelling units if the conversion is part of a plan to convert more than five dwelling units.
(c) The notice shall state that the building is to be converted to a common interest community. It shall set forth generally the rights of tenants under this subchapter, and shall be given by certified mail, return receipt requested, at the address of the unit or any other mailing address provided by the tenant. Failure to give notice as required by this section is a defense to an action for possession.
(d) During the notice period, a tenant may not be required to vacate except for a reason specified in subsection (a) or (b) of section 4467 of Title 9.
(e) During the notice period, rent increases shall be limited to an amount which reflects reasonable profits, actual increased costs of maintenance and operation of the dwelling unit subject to conversion. Costs associated with the proposed conversion are not a permissible basis for a rent increase.
(f) After receipt of the notice prescribed in subsection (a) of this section, a tenant may terminate the rental agreement upon 30 days’ written notice to the landlord.
(g) Nothing in this section permits termination of a written lease by a landlord in violation of its terms.
(h) The notice requirements imposed by this section shall not affect the right of a declarant to transfer ownership interests in dwelling units which are not subject to those requirements or as to which the notice period has expired.
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Virginia VA ST
§ 55-79.94
Virginia
Condominium
Act
A. Any declarant of a conversion condominium shall include in his public offering statement in addition to the requirements of § 55-79.90 the following:
1. A specific statement of the amount of any initial or special condominium fee due from the purchaser on or before settlement of the purchase contract and the basis of such fee;
2. Information on the actual expenditures made on all repairs, maintenance, operation or upkeep of the subject building or buildings within the last three years, set forth tabularly with the proposed budget of the condominium, and cumulatively broken down on a per unit basis in proportion to the relative voting strengths allocated to the units by the bylaws. If such building or buildings have not been occupied for a period of three years, then the information shall be set forth for the maximum period such building or buildings have been occupied;
3. A description of any provisions made in the budget for reserves for capital expenditures and an explanation of the basis for such reserves, or, if no provision is made for such reserves, a statement to that effect;
4. A statement of the declarant as to the present condition of all structural components and major utility installations in the condominium, which statement shall include the approximate dates of construction, installation, and major repairs, and the expected useful life of each such item, together with the estimated cost
(in current dollars) of replacing each of the same;
5. If any building included or that may be included in the condominium was substantially completed prior to
July 1, 1978, a statement that each such building has been inspected for asbestos in accordance with standards in effect at the time of inspection; or that an asbestos inspection will be conducted; and whether asbestos requiring response actions has been found, and if found, that response actions have been or will be completed in accordance with applicable standards prior to the conveyance of any unit in such building. Any asbestos management program or response action undertaken by the building owner shall comply with the standards promulgated pursuant to § 2.2-1164.
B. In the case of a conversion condominium, the declarant shall give at the time specified in subsection C of this section, formal notice to each of the tenants of the building or buildings which the declarant has submitted or intends to submit to the provisions of this chapter. This notice shall advise each tenant of (i) the offering price of the unit he occupies, (ii) the projected common expense assessments against that unit for at least the first year of the condominium’s operation, (iii) any relocation services or assistance, public or private, of which the declarant is aware, (iv) any measures taken or to be taken by the declarant to reduce the incidence of tenant dislocation, and (v) the details of the relocation plan, if any is provided by the declarant, to assist tenants in relocating.
During the first sixty days after such notice is mailed or
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The acquisition of such units by the governmental agency, housing authority, or certified nonprofit housing corporation shall not (i) exceed the greater of one unit or five percent of the total number of units in the condominium or (ii) impede the condominium conversion process. In determining which, if any, units shall be acquired pursuant to this subsection, preference shall be given to elderly or disabled tenants.
The notice required above shall be hand delivered or sent by first-class mail, return receipt requested, and shall inform the tenants of the conversion to condominium.
Such notice may also constitute the notice to terminate the tenancy as provided for in § 55-222, except that, despite the provisions of § 55-222, a tenancy from month to month may only be terminated upon 120 days’ notice when such termination is in regard to the creation of a conversion condominium. If, however, a tenant so notified remains in possession of the unit he occupies after the expiration of the 120-day period with the permission of the declarant, in order to then terminate the tenancy, such declarant shall give the tenant a further notice as provided in § 55-222. Until the expiration of the
120-day period, the declarant shall have no right of access to the unit except as provided by subsection A of §
55-248.18 and except that, upon 45 days’ written notice to the tenant, the declarant may enter the unit in order to make additional repairs, decorations, alterations or improvements, provided (i) the making of the same does not constitute an actual or constructive eviction of the tenant; and (ii) such entry is made either with the consent of the tenant or only at times when the tenant is absent from the unit. The declarant shall also provide general notice to the tenants of the condominium or proposed condominium at the time of application to the agency in addition to the formal notice required by this subsection.
C. The declarant of a conversion condominium shall, in addition to the requirements of § 55-79.89, include with the application for registration a copy of the formal notice set forth in subsection B and a certified statement that such notice, fully complying with the provisions of subsection B, shall be, at the time of the registration of such condominium, mailed or delivered to each of the tenants in the building or buildings for which registration is sought. The price and projected common expense assessments for each unit need not be filed with the agency until such notice is mailed to the tenants.
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Washington WA ST §
64.34.415
(1) The public offering statement of a conversion condominium shall contain, in addition to the information required by RCW 64.34.410:
WA ST §
64.34.440
Washington
Condominium
Act
(a) Either a copy of a report prepared by an independent, licensed architect or engineer, or a statement by the declarant based on such report, which report or statement describes, to the extent reasonably ascertainable, the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the condominium;
(b) A copy of the inspection and repair report prepared by an independent, licensed architect, engineer, or qualified building inspector in accordance with the requirements of RCW 64.55.090;
(c) A statement by the declarant of the expected useful life of each item reported on in (a) of this subsection or a statement that no representations are made in that regard; and
(d) A list of any outstanding notices of uncured violations of building code or other municipal regulations, together with the estimated cost of curing those violations. Unless the purchaser waives in writing the curing of specific violations, the extent to which the declarant will cure such violations prior to the closing of the sale of a unit in the condominium shall be included.
(2) This section applies only to condominiums containing units that may be occupied for residential use.
From § 64.34.440:
(1)(a) A declarant of a conversion condominium, and any dealer who intends to offer units in such a condominium, shall give each of the residential tenants and any residential subtenant in possession of a portion of a conversion condominium notice of the conversion and provide those persons with the public offering statement no later than one hundred twenty days before the tenants and any subtenant in possession are required to vacate. The notice must:
(i) Set forth generally the rights of tenants and subtenants under this section;
(ii) Be delivered pursuant to notice requirements set forth in RCW 59.12.040; and
(iii) Expressly state whether there is a county or city relocation assistance program for tenants or subtenants of conversion condominiums in the jurisdiction in which the property is located.
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West
Virginia
WV ST §
36B-4-112
West Virginia
Uniform
Common
Interest
Ownership
Act
(a) A declarant of a common interest community containing conversion buildings, and any dealer who intends to offer units in such a common interest community, shall give each of the residential tenants and any residential subtenant in possession of a portion of a conversion building notice of the conversion and provide those persons with the public offering statement no later than one hundred twenty days before the tenants and any subtenant in possession are required to vacate. The notice must set forth generally the rights of tenants and subtenants under this section and must be hand delivered to the unit or mailed by prepaid United
States mail to the tenant and subtenant at the address of the unit or any other mailing address provided by a tenant. No tenant or subtenant may be required to vacate upon less than one hundred twenty days’ notice, except by reason of nonpayment of rent, waste, or conduct that disturbs other tenants’ peaceful enjoyment of the premises, and the terms of the tenancy may not be altered during that period. Failure to give notice as required by this section is a defense to an action for possession.
(b) For sixty days after delivery or mailing of the notice described in subsection (a), the person required to give the notice shall offer to convey each unit or proposed unit occupied for residential use to the tenant who leases that unit. If a tenant fails to purchase the unit during that sixty day period, the offeror may not offer to dispose of an interest in that unit during the following one hundred eighty days at a price or on terms more favorable to the offeree than the price or terms offered to the tenant. This subsection does not apply to any unit in a conversion building if that unit will be restricted exclusively to nonresidential use or the boundaries of the converted unit do not substantially conform to the dimensions of the residential unit before conversion.
(c) If a seller, in violation of subsection (b), conveys a unit to a purchaser for value who has no knowledge of the violation, the recordation of the deed conveying the unit or, in a cooperative, the conveyance of the unit, extinguishes any right a tenant may have under subsection (b) to purchase that unit if the deed states that the seller has complied with subsection (b), but the conveyances does not affect the right of a tenant to recover damages from the seller for a violation of subsection (b).
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Wisconsin WI ST 703.08
(1) Residential real property may not be converted to a condominium unless the owner of the residential real property gives prior written notice of the conversion to each of the tenants of the building or buildings scheduled for conversion. During the 60-day period immediately following the date of delivery of the notice a tenant has the first right to purchase the unit, if the unit is offered for sale at any time during that period, for any of the following:
(a) The price at which the unit is being offered on the market.
(b) The price contained in any accepted offer to purchase the unit.
(c) The price otherwise agreed to by the tenant and the seller.
(2) A tenant may not be required to vacate the property during the 120-day period immediately following the date of delivery of the notice required under sub. (1) except for:
(a) Violation of a covenant in the lease; or
(b) Nonpayment of rent.
(3) A tenant may waive in writing his or her first right of purchase under sub. (1), his or her right to remain on the property under sub. (2), or both.
Wyoming Wyoming
Condominium
Act
The Wyoming Condominium Act does not appear to govern condominium conversions.
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1. Express indemnity obligations beneficiary contractors guarantees/implied indemnity subsequent buyers, individual unit owners and associations
7. Strict liability
8. “As Is” provisions rights allowed repose clause
Based on the foregoing discussion regarding typical claims and issues which exist in construction defect litigation arising out of projects which are converted to residential or even commercial for-sale units, as well as the statutes and case law in play in most states throughout the country, there are general protections which general contractors can attempt to include in their contracts in order to attempt to minimize future exposure when a project built today for one owner is converted to a multi-unit forsale project. Each contract, project and issue must be reviewed on an individual basis based on the laws of the particular jurisdiction. However, it may not be possible for a general contractor to include each and every proposed modification, limitation and/or exclusion discussed below in the Prime Contract for construction.
Regardless, attempts should be made to include and/or address potential limitations on liability in order to avoid future exposure. Alternatively, whether these potential protections can be included, or not, should be strongly considered in determining the benefits or detriments of going forward with a job, the contract price, and obtaining insurance to attempt to provide protections for this future exposure. Attorneys, insurance representatives and professionals with experience in this area, including in the specific jurisdiction should be consulted before entering into any contract as each project and the laws in place at the time must be considered and analyzed.
As discussed, the biggest exposure a contractor may face could arise out of the express indemnity provision which is almost uniformly required in each and every construction contract. In general, the express indemnity provision requires the general contractor to defend and indemnify the owner for any and all claims arising out of the construction of the project. Quite simply, it is extremely difficult to attempt to amend, delete and/or limit these provisions and protections provided to the original owner.
However, an attempt may be made to limit the indemnity provision and its applicability to only the original owner, and if possible, language should be included that states in clear and concise language that the parties expressly and unequivocally agree that the express indemnity provision is deemed null and void for all claims made by subsequent owners, purchasers, individual unit owners and/or associations and/or if the project is subsequently converted to for sale-units.
An even more aggressive approach would be to require the owner to indemnify the contractor for any all claims if the project is ultimately sold and/or converted to individual for-sale units with common areas, subsequent “significant” or “major” renovations, conversions and/or modifications that are performed at the project to any major system by another contractor, or alternatively, that again the indemnity provision is considered null and void if changes are made to the original construction. It would clearly be difficult to provide precise language in this regard, but at a minimum, such language could minimize exposure to subsequent claims if the project is converted.
The rationale for these limitations or waivers to subsequent purchasers, individuals or associations for these terms and conditions or modifications, as well as the provisions or issues discussed below, is that the current contractor should not be required to defend and indemnify future unknown entities and individuals for claims that do not exist and are even more difficult to even predict years down the road.
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Once again, the typical construction contract requires the general contractor to name the owner as an additional insured for both “on-going” and “completed” operations.
Further, to the extent such coverage is available at the time the contract is completed, it is unlikely the typical owner will agree to waive this requirement. However, attempts should also be made to limit the rights and obligations flowing out of the additional insured obligations if and when the project is sold or converted and specifically for claims made by individual owners and/or associations by again deeming any additional insured obligations also null and void as with the express indemnity provisions.
If a project is converted and/or sold to another person or entity, it is likely that the subsequent purchaser, including individuals and/or associations, may attempt to argue that they are a third party beneficiary to all terms in the original contract for construction. As a result, a provision could be included which expressly and unequivocally notes that no persons, entities, associations or others are to be considered third party beneficiaries of the contract and therefore are not entitled to any protections, rights and/or obligations under the contract.
To the extent the project is subsequently converted by another contractor, a provision could be included in the original contract for construction that requires the owner or subsequent purchaser to not only defend and indemnify the original contractor, as discussed above, but further requires the subsequent contractor to defend and indemnify the original contractor from any and all claims, and that said requirement must be disclosed to the subsequent contractor and must be included in any subsequent contract.
Once again, it is extremely unlikely that an owner would agree to waive warranties, guarantees and/or implied warranties that they are entitled to and/or require in the original contract. However, an attempt could be made to include language that all warranties, guarantees and/or implied indemnity claims are deemed waived if the project is subsequently converted and no rights, warranties, guarantees or claims for implied warranties shall exist by any subsequent owner, purchaser, individual unit owner and/or association if the project is subsequently sold and/or converted. Further, such language could specifically be deemed waived to the extent allowed by law unless it is expressly agreed that none have been made to any subsequent purchaser, if the project is later converted.
A provision could be included which specifically and expressly states that it is understood and agreed that no disclosures, express or otherwise, are made by the general contractor as to the conditions, materials, construction or any work performed to a subsequent purchaser and/or if the project is subsequently converted to for-sale units.
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In an attempt to avoid claims for strict liability, which simply requires that a defect exists, as opposed to proving the contractor was negligent for the defects, a provision could be included which states that the parties to the contract agree that the project is being built for one, individual owner, and the project is not intended to be ultimately sold as individual units to the general public and therefore all claims for strict liability by any subsequent purchaser, individual or association are deemed waived.
As converters often include “As Is” provisions, as well as other similar clauses, in sales agreements for converted projects, to provide them with protections, a provision could be included in the original contract confirming that if the project is subsequently sold as individual units and/or converted, any protections in the Sales Agreements which flow to the converter/owner, should also be deemed and expressly included to flow to the original contractor, including “As Is” protections.
In the underlying contract, a provision could be included that prevents assignment of the contractual rights of the owner as to the general contractor if the project is subsequently converted or sold.
An attempt could be made in the underlying contract to define the event that triggers commencement of the statute of limitations to the earliest possible date; for example, substantial completion, thereby allowing an argument to be made, if allowed by law and/or statute, that any action is time barred based upon the original substantial completion of the project.
Finally, a general catch-all clause could be included that in essence states that all rights, obligations, guarantees, warranties, claims for indemnity, express or otherwise, including claims for construction defects and/or bodily injury, by anyone, including the original owner, individuals, subsequent purchasers and/or associations are hereby expressly waived and deemed null and void if the project is subsequently converted.
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The laws governing liability for construction defects in condominium conversions are evolving. In addition, rights, obligations and remedies allowed under contracts are also ever changing. More importantly, the practical reality of negotiating favorable terms to protect a general contractor, while still being successful in winning the job, may make it difficult to include specific protections for the general contractor if a project is subsequently converted to a for-sale condominium project. However, based on the issues, laws and decisions in this area of the law, attempts can be made to minimize exposure for projects that are converted after original construction or at a minimum allow the skilled contractor to understand the potential exposure and risks for projects that are ultimately converted so that it can evaluate the risks and benefits of entering into a job. As a result, general contractors and their representatives should keep up with this area of the law and trained professionals should be consulted in each particular state before entering into a contract for construction of a new project in order to attempt to minimize potential exposure and increase the potential benefits of a profitable project.
For further information, please contact:
Glenn T. Barger gbarger@cgdrblaw.com
11900 West Olympic Blvd.
Suite 800
Los Angeles, CA, 90064
Telephone: (310) 207-7722
Facsimile: (310) 207-6550 www.cgdrblaw.com
The information in this article is not and does not constitute legal advice nor is Zurich providing any legal advice and cannot be relied upon as such. This article is provided for general educational purposes to assist in identifying potential issues that may arise from condo conversion.
Advice from legal counsel familiar with the laws of the state applicable to the contract should be sought to address specific legal issues
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