Real Estate Matters: Can a new developer force existing owners to sell their condo units?
Q: I am fortunate enough to be a snowbird. We own a condo in Jacksonville, Florida. Our condo is in a development that was purchased by an investor/developer in the late 1980s. The developer improved the existing units, added several new buildings, sold some of the units and rented out the rest. We think the developer still controls a bit over 51% of the units.
The developer has now sold his units to a new investor. They appear to be well-financed and deep-pocketed. They have approached me repeatedly with offers to purchase our unit. Their latest offer is probably 10 to 12% over what I think is the market rate, plus it includes an option to stay on in the unit for a year rent-free and they will cover closing costs.
Normally, this would be a generous offer, but we do not want to sell. We love the place, and for us to find another would mean taking out a mortgage, which, given my age, we do not want to do. One of the other owners and I are in constant contact. She has not, to her knowledge anyway, been contacted directly by the new investors yet — though she has received other offers.
So, the question is this: Is there any way that the new investors can force the issue? Can they create a situation whereby we would be obliged to sell? Can they say, “We are in control of the homeowner’s association and we are pulling the whole place down and redeveloping”?
A: This is a great question and unfortunately, the answer is, yes. The new developer could force existing owners to sell their units. This is commonly known as a “deconversion,” which means condo units are deconverted back to rental units and is the reverse of what happens in a condo conversion, when rental units are sold as individual condos.
But, and this is a big “but,” a majority owner in your development must exceed a certain threshold number of units to force this issue and the governing documents must allow it as well.
Your governing documents may state that a simple majority of the unit owners can force a sale; however, that isn’t likely the case. Most developers place a supermajority provision in these condominium governing documents. For example, to change key elements in the governing documents and to force a sale of the development, you might need two-thirds or even three-quarters of the unit owners, or the percentage ownership equal to those numbers, to vote for the deconversion to succeed.
These supermajority provisions make it harder for a developer to simply get a majority and force the sale. In some situations, state condominium laws or local ordinances may place an even higher burden to sell a building. We’ve seen some municipalities place a threshold of 85% on the owners to authorize the sale of a condominium development.
Depending on this key number, the majority owner might take some time to get there, which is one reason why they might reach out to you, an individual owner, with a rich offer to buy your unit. Once they reach the magic threshold, they can then force the vote to deconvert the condominium association and force the sale of all the units to a prospective buyer.
This deconversion craze has been happening with some frequency in Chicago, where condo buildings that have failed (by “failed,” we mean that units are losing value and owners are unable to sell) are bought by developers looking for rental properties. Developers deconvert buildings when the costs of buying condominium units is cheaper than finding new apartment buildings to purchase.