Entire condominium property can be sold

An interesting trend is emerging in the condominium arena throughout the Chicago area. There is a growing number of real estate developers seeking to acquire entire existing condominium properties. I have even seen condominium associations actively marketing their entire property for sale!

Once the entire condominium property is acquired, the purchaser removes the property from the Condominium Property Act, and the former condominium property is turned into a rental apartment property. This trend is driven by the demand of people to rent, rather than to own, their residence, and the shortage of rental properties.

I touched upon this issue in an earlier column, but let's explore this in greater, but not complete, detail.

The issue of the sale of an entire condominium property is governed by Section 15 of the Illinois Condominium Property Act. It is possible for an entire existing condominium building to be sold. That is, the unit owners in the association can approve of a sale of the entire condominium property, and this would include all of the individual units. That comes as a surprise to some.

The percentage of unit owners who must vote in favor of a proposed sale of the entire property depends on the number of units in the association. Where the property contains four or more units, the affirmative vote at a duly called meeting of not less than 75 percent of all unit owners in the association can elect to sell the property.

There is a lower threshold for condominiums with less than four units. If the association's declaration requires approval by a greater number of owners, that percentage would be controlling.

If the necessary unit owner approval is obtained, that action is binding on all unit owners. All of the unit owners would then be required to execute and deliver instruments, like the deed to their unit, and to perform all acts as may be necessary to implement the sale.

Note that any unit owner who did not vote in favor of the sale of the property, and who has filed written objection with the board of managers within 20 days after the date of the meeting at which such sale was approved, is entitled to receive from the proceeds of the sale an amount equivalent to the value of his interest, as determined by a fair appraisal. Any amount of any unpaid assessments or charges due and owing from such unit owner would be deducted from that amount.

If there is a disagreement as to the value of the interest of a unit owner who did not vote in favor of the sale of the property, that unit owner has the right to designate an expert in appraisal or property valuation to represent him, in which case, the prospective purchaser of the property designates an expert in appraisal or property valuation to represent him. Both of these experts then mutually designate a third expert in appraisal or property valuation. These three experts constitute a panel to determine by vote of at least two members of the panel, the value of that unit owner's interest in the property.

If an owner is "under water," meaning the balance of his or her mortgage is higher than that owners' share of the proceeds of the sale, this owner would arguably have to bring funds to the closing! This can be a significant impediment, since the owner may simply not have funds. That said, I have seen deals structured so that the purchaser of the condominium property contributes those funds necessary to cover this type of shortfall.

The sale of an entire condominium property, and all of the individual units, is a very complicated transaction, and there are many steps that would have to be taken to "unwind" the association by the board. The first thing an association should do when approached by a purchaser who proposes to purchase the entire condominium is to retain counsel familiar with condominium law.

• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.