March 13, 2019

Be Smart About Condo Conversions!

Be Smart About Condo Conversions!

Smart Settlements Disclaimer: This article was created for informational purposes and is not intended to replace legal advice. Consult directly with a real estate attorney for specific questions and interpretations of the laws mentioned in this article.

A condominium conversion, or condo conversion in short, is the process in which a residential or commercial property is converted into individually titled condominiums. Traditionally, condo units are governed by an organization or association that provides amenities to the condo community (much like a Homeowner’s Association).

The Benefits of a Condo Conversion

Condo conversions are a growing trend in population-dense cities such as Washington, DC, because they provide homeowners with affordable options in an urban area while providing a profitable revenue stream for investors.

The Condo Conversion Process

The condo conversion process is different in each state or district. In Washington, DC, the Rental Conversion and Sale Division (CASD) of the Department of Housing and Community Development (DHCD) regulates and entitles condo conversions through an approval process. The conversion process was established in the following laws:

The Conversion Act

The Rental Housing Conversion and Sale Act of 1980, amended (D.C. Law 3-86)

The Condominium Act

  • The Condominium Act of 1976 Technical and Clarifying Amendment Act, as amended (D.C. Law 9-82)

The District Opportunity to Purchase Act

A brief overview of the condo conversion approval process in Washington, DC, is outlined below.

Step 1. Determine Eligibility

Start by submitting an "Eligibility to Convert" application to the DHCD. Choose an application based on whether or not the property that is to be converted was previously occupied or not. If a single owner occupied the property, complete the “Not a Housing Accommodation Exemption” (NHA) form. However, if the property was registered as vacant for at least 12 months, complete the “Vacancy Exemption” (VE) form.

If the newly converted property is to remain tenanted, submit a request for a “Tenant Election to Convert.”

The condo conversion process can continue once DHCD awards you a Certificate of Eligibility to Convert. Next, you must form the Public Offering Statement.

Step 2. Submit Public Offering Statement

Next, the Public Offering Statement (POS) is submitted to the DHCD. The POS consists of two sections: a narrative portion and an exhibit portion.

Narrative Portion

Use this section to summarize significant features of the proposed condo, but it also allows you to present information that potential purchasers would find useful.

Exhibition Portion

Gather all legal documents required to operate a condo association. This includes:

  • Deed to the Property
  • Proof of Insurance
  • Declaration and Bylaws (commonly referred to as "Condo Documents")
  • Condominium Plat and Plan Survey
  • Engineering and Architecture Reports
  • Limited Warranty
  • Construction Budget
  • Condominium Association Budget
  • Purchase Agreement
  • Letter from Previous Owners (if property was not previously rented)
  • General Contractor’s Information About the Project

If the POS is found compliant with Chapter 19 of the Code of the District of Columbia and is approved, then DHCD issues a Condominium Registration Order. The owner of the new condo community can begin taking sales contracts on individual condo units.

The final large step of a DC condo conversion is redecoration with the DCRA.

Step 3. Apply for DCRA Recordation

Apply for registration with The Department of Consumer and Regulatory Affairs (DCRA) - see its website here. The DCRA’s Recorder of Deeds records the Declarations & Bylaws in your approved POS for public record. The DCRA’s Office of the Surveyor then records your Condominium Plat and Plan Survey. The DCRA’s Office of Tax and Revenue then issues new condo tax lot numbers to each condo unit and its designated parking spot.

Once those actions are completed, the condo owner can sell his or her ownership of each deeded unit.

the Timeline of a Condo Conversion

The condo conversion with no construction varies but typically lasts between four and six months. Commonly, it takes DHCD two months to review the Public Offering Statement submission, per § 42–1904.06 of the Code of District of Columbia. However, if there is construction involved in the conversion, the duration can last closer to 12-24 months.

The above condo conversion process can be completed concurrent with construction and the permitting of the property. To keep the process as short as possible, investors are encouraged to begin the condo conversion process as soon as the property is acquired. Remember that there are time restrictions associated with most filings and fees in this process.

The Fees Associated With Condo Conversions

Filing Fees

To file in the District, your filing costs will be:

$100 per condo unit (DHCD fee)

$100 per parking unit (DHCD fee)

$200 Condo Document Recordation Fee

$500 Plat and Plan Recordation Fee*

$100 per unit Tenant Election Certification Fee (or $800 total - whichever amount is greater)

An additional $100 filing fee if converting a vacant housing building to a condo or cooperative.

An additional $100 filing fee if converting a non-housing building to a condo or cooperative.

An additional $100 filing fee if converting either a housing or non-housing building to a low income equity share cooperative.

*Additional DCRA fees that may apply to your property can be found here.

Conversion Fees

The owner must make a Conversion Fee payment of 5% of each unit sales price to the DHCD within 30 business days of the settlement date (§ 42–3402.04 of the Code of District of Columbia).

However, exemptions can be granted if the property meets at least one of these qualifications:

  • Was previously owned by a sole owner or registered vacant for at least 12 months
  • Sold to a low-income household (80% or less of median household income)
  • Sold to a person 62 years of age or older
  • Sold to a disabled person (as defined by the ADA)
  • Sold to a tenant who lived in the property for at least 12 months prior to the condo conversion

Other Fees

During the condo conversion process, do not forget to budget in the fees you would normally incur with a construction project, such as appraisal costs, legal fees, transfer and settlement costs, closing costs, and new title fees.

A Condo Conversion Warranty

The DHCD mandates that the developer provide a warranty for all common areas of the community against any potential “structural defects,” payable by bond, letter of credit, or any other DC-approved form of security from which funds can be withdrawn. (§ 42–1903.16 of the Code of District of Columbia)

The warranty amount equals 10% of the estimated construction costs of the entire conversion project. The District holds the warranty for two years; the warranty for each unit begins on the date it was sold and the warranty for common areas begins once construction is complete. After the two years expires, the District fully refunds the developer.

In addition, new condo owners have a Right of Rescission, allowing them to review condo association documents and resale certifications.

More information about condo conversions can be found on the DHCD website.

Want Smart Settlements to help you make your condo conversion easy? Request a quote.

For additional information on this topic contact Evelyn Miller, Partner, at 202-753-7400.

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