Friday, July 15, 2011

Due Diligence

Prior to purchasing any property, the best practice of any developer should include a phone call to her or his attorney. In order to ensure that a comprehensive review of the title, zoning, tenants' rights and other legal issues has been conducted, it is imperative to involve a lawyer specializing in those practice areas. Also, a good lawyer can provide guidance about what sort of properties would be optimal for a condominium project before the developer even starts to look at properties.

For a review of your prospective land purchase or for guidance about what you should be looking for in a property, call us today at 202.351.6100.

Tuesday, March 1, 2011

Shelving a Condo Project

Upon registering a new condominium project, developers sometimes face choosing between putting units up for sale immediately or postponing sales and renting out the units instead. Postponing sales is often referred to as "shelving" a condominium project. Putting aside the economic and practical considerations, it is important to keep in mind the legal aspects of shelving a condominium project.

First, the District of Columbia requires annual reports (D.C. Code § 42-1904.07) within 30 days of each anniversary date of the order registering the condominium. The reports must be filed with the Rental Conversion and Sale Division (CASD) of the Department of Housing and Community Development. The reports must include any material changes to the information contained in the original application for registration.

Second, prior to leasing any unit, the developer must file an FR-500 with the Office of Tax and Revenue, file a Basic Business License (a “BBL”) Application and a Clean Hands Certification with the Department of Consumer and Regulatory Affairs (the “DCRA”), receive a bill for the BBL and rental unit fee and a BBL number, allow the DCRA to conduct a housing inspection, if any such inspection is requested, make the BBL and rental unit fee payments with the Office of Finance and Treasury, and file a registration with the Rental Accommodations Division (the "RAD") of the Department of Housing and Community Development.

Third, developers should determine whether they will be subject to rent control in connection with the leasing of the units. If the owner of the housing accommodation is not a natural person, or if the units in the condominium to be rented, together with any other properties owned by the developer, contain five or more units, then each unit may be subject to rent control. All rules in connection with rent control will then need to be observed. If rent control does not apply, then the above referenced application filed with the RAD registration should include a claim of exemption.

Fourth, DC Code provides that developers must include a disclosure in the lease that gives prospective tenants notice of the existence both of the condominium and of the condominium instruments by which the tenant will be bound. Applicable language conforming to DC Code may be obtained from the Greater Capital Area Association of Realtors (GCAAR).

Fifth, units rented to low-income tenants may be eligible for property tax abatement provided that the CASD gives its approval. Thus, it makes sense to seek CASD approval for property tax abatement when renting to low-income tenants.

Sixth, developers should be aware that when market circumstances make the sale of the units desirable, each tenant will have certain rights to purchase the units ahead of any third party. From a practical standpoint, this means that all proper notices must be given and all proper waiting periods must be observed before any leased unit may be sold. Then, if a new owner seeks to occupy a unit, all landlord and tenant laws must be obeyed to observe the rights of the tenant. Please note that special protections attach to tenants that meet an income criterion and are elderly or disabled in connection with all of the rules and regulations discussed above.

Seventh, prior to the first out-sale, a letter of credit or bond must be filed with the Rental Conversion and Sale Division of the Department of Housing and Community Development. Then, at settlement, a limited warranty must be issued to the purchaser. Both of these steps must be taken even if many years have elapsed since the registration of the condominium.

The foregoing discussion is not intended to represent an exhaustive list of the legal issues that developers face when they seek to shelve a condominium project. Also, there will be numerous financial and practical issues that developers will face, such as gaining FHA and Fannie Mae (formerly the Federal National Mortgage Association) approval in connection with loans that future buyers may seek to obtain. Developers should consult with attorneys--and also with financial and tax advisers--when making the decision to shelve a project due to the number and complexity of related issues.