By: Evan M. Sauer
With the rise in apartment rents, we are being approached by developers to assist with the acquisition and de-conversion of condominium buildings to apartment rental properties in Chicago. Although this may seem like a daunting process, it really only involves the following steps: (1) obtaining the vote of unit owners to sell the entire condominium building; and (2) legally de-converting the condominium building. Requisite Vote to Sell
As odd as it sounds, fewer than all unit owners in a condominium building may be able to compel a sale of the entire condominium property. Unless a greater percentage is provided for in the declaration or bylaws, Section 15 of the Illinois Condominium Property Act (“Act”) (765 ILCS 605/15) permits not less than 75% of all unit owners (where the property contains 4 or more units) calculated by unit percentage (not just those that attend the meeting) to elect to sell the property.
If this happens, all unit owners are bound by the sale. However, any unit owner who did not vote in favor of the sale may file an objection to the board within 20 days after the date of the meeting at which such sale was approved. Such objecting unit owner(s) shall be entitled to receive from the proceeds of such sale an amount equivalent to the greater of: “(i) the value of his or her interest, as determined by a fair appraisal, less the amount of any unpaid assessments or charges due and owing from such unit owner or (ii) the outstanding balance of any bona fide debt secured by the objecting unit owner's interest which was incurred by such unit owner in connection with the acquisition or refinance of the unit owner's interest, less the amount of any unpaid assessments or charges due and owing from such unit owner. The objecting unit owner is also entitled to receive from the proceeds of a sale under this Section reimbursement for reasonable relocation costs, determined in the same manner as under the federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended from time to time, and as implemented by regulations promulgated under that Act.”
If there is a disagreement as to the value of the objecting unit owner’s interest, Section 15 provides for a mandatory arbitration process whereby that unit owner and the purchaser each have the right to designate an appraiser, and both appraisers mutually designate a third appraiser. The three appraisers determine by vote of at least two of the members of the panel, the value of the objecting unit owner's interest in the condominium property. De-convert the Condo Building
Following the sale of the entire condominium property to the purchaser, the next step for the purchaser is to de-convert. De-conversion requires withdrawal of property from the Act. Section 16 of the Act (765 ILCS 605/16) permits all unit owners to withdraw the property from the Act by recording an instrument to that effect. To be effective, however, the withdrawal must be agreed to by all lien holders of the condominium property, by having their liens transferred to the undivided interests attributed to the owners whose units were so burdened.
After withdrawal of the property from the Act, the property is deemed to be owned in common by all of the owners, with each owner having the same percentage as previously owned by such owner in the common elements. In the case of a single purchaser, the purchaser will be the sole 100% owner of the property. Evan Sauer
is a real estate lawyer at Reda & Des Jardins, LLC a forward-thinking, technologically savvy law firm providing top-notch legal services to clients ranging from startups to large companies in a variety of industries. R&D's practice includes business, real estate, litigation and estate planning.