Penalties for Building Conversion

Q: Is a developer penalized on property taxes for converting a building to rental once it has been converted to condominiums and registered as condominiums?

Thanks,

Darren J.

A: There is no technical penalty imposed, although as a practical matter in such a situation, it is likely that the aggregate tax assessed value of all of the individual condominium units would be greater than would the assessment be for a simple apartment building because retail values of individual condo units are greater than the aggregate wholesale value of an apartment and assessments are made by comparison with comparable property.

Mark G. Griffin Esq is a partner at a Washington, DC based firm Griffin & Murphy, LLP. Griffin & Murphy, LLP is a boutique law firm concentrating its practice in real estate law, civil litigation, development, condominium conversions, estate planning, probate, and business law. Attorneys in the firm practice in Washington, D.C., Maryland and Virginia. For more information visit WashLaw.com.

Readers may send questions to him at info@BuildingDC.com.

Refund Deposit from a Defaulting Developer

Q: How can a buyer have their deposit refunded from a defaulting developer? This comes mainly from the recent occurrences at the Dumont.

Thank you,

Shane E.

A: The condominium laws of the District of Columbia typically require that deposits for sales of new condominium units be placed in a segregated escrow account which should remain available to contract purchasers so that, in the event that a contract purchaser validly terminates a purchase contract, the contract purchaser is entitled to and will, in fact, receive the return of his or her deposit. If a buyer were to establish valid grounds for a refund and the developer defaulted by refusing to return the deposit or in failing to maintain the segregated escrow account, there are criminal penalties. .It should be pointed out however, that some developers require contract purchasers to give the developer their deposit to be used to pay for the cost of the development. Getting a deposit back under these circumstances is much harder and may be impossible if the condo project fails before it is completed.

Mark G. Griffin Esq is a partner at a Washington, DC based firm Griffin & Murphy, LLP. Griffin & Murphy, LLP is a boutique law firm concentrating its practice in real estate law, civil litigation, development, condominium conversions, estate planning, probate, and business law. Attorneys in the firm practice in Washington, D.C., Maryland and Virginia. For more information visit WashLaw.com.

Readers may send questions to him at info@BuildingDC.com.

Convert Unsold Units To Rentals

Q: Do owners of condominiums in a building have a right to sue a developer if they convert unsold units to rentals?

A: No, unless it could be proved that fraudulent promises were made or the leases were made in violation of a specific provision in the condominium documents.  The condominium documents for the vast majority of condominiums in the Washington DC area place only minimal restrictions on leasing by any unit owner, including the developer. Typical restrictions consist of requirements that leases be for a minimum period such as six months and that copies be provided to the Board.

Mark G. Griffin Esq is a partner at a Washington, DC based firm Griffin & Murphy, LLP. Griffin & Murphy, LLP is a boutique law firm concentrating its practice in real estate law, civil litigation, development, condominium conversions, estate planning, probate, and business law. Attorneys in the firm practice in Washington, D.C., Maryland and Virginia. For more information visit WashLaw.com.

Readers may send questions to him at info@BuildingDC.com.

Bankrupt Developers

Q: What happens when a developer goes bankrupt once units in a building have already been sold?

A: The principal negative effect of a developer going bankrupt after all the units are sold is that the Association and the unit owners who have warranties, as a practical matter, can only look to the letter of credit or bond which the developer posted to secure its warranty allegations and this could be inadequate for larger claims. Claims can be made in the developer’s bankruptcy, but the bankrupt estate of the developer may not be sufficient to cover all claims completely.

Mark G. Griffin Esq is a partner at a Washington, DC based firm Griffin & Murphy, LLP. Griffin & Murphy, LLP is a boutique law firm concentrating its practice in real estate law, civil litigation, development, condominium conversions, estate planning, probate, and business law. Attorneys in the firm practice in Washington, D.C., Maryland and Virginia. For more information visit WashLaw.com.

Readers may send questions to him at info@BuildingDC.com.

Condominium Board Of Members

Q: How does a condominium association turn over to a board of members?

A: All new condominiums begin life with a Board of Directors made up entirely of persons who have been appointed by the Declarant (the developer).  When sales reach various plateaus elections are required to elect unit owners to the Board and when the 75% level, based on percentage interests, is achieved an election is held to populate the entire board with directors elected by the unit owners.  Pure democracy takes over from that point forward.  These elections can be awkward because the members often start off as complete strangers.  One way or the other the ice is broken (wine and cheese often helps), and nominations are made.  Most owners do not seek this responsibility and there is a tendency for anyone in the audience who is an accountant or lawyer to be pressed into service.  To avoid anarchy, it is a good idea for neighbors to get to know each other before these elections take place.

Mark G. Griffin Esq is a partner at a Washington, DC based firm Griffin & Murphy, LLP. Griffin & Murphy, LLP is a boutique law firm concentrating its practice in real estate law, civil litigation, development, condominium conversions, estate planning, probate, and business law. Attorneys in the firm practice in Washington, D.C., Maryland and Virginia. For more information visit WashLaw.com.

Readers may send questions to him at info@BuildingDC.com.

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