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.

Two Lots or More?

In the District of Columbia, it may be possible to record plat and plans of a condominium that sits on two or more lots. Surprisingly, multiple lots of record do not necessarily need to be contiguous so long as they all sit in the same square.

For a review of your survey(s) and legal description(s), call us today at 202.351.6100.

New Vacant Property Tax Rate

New tax rates for vacant properties will go into effect this March. The default of $10 tax for each $100 of assessed value for vacant properties will drop down to $1.65 for each $100 of assessed value (up to the first $3,000,000 of assessed value). In other words, the default rate will switch from Class III to Class II without any need to qualify the property for an exemption.

This does not mean that owners have been given a green light to neglect their properties. The city can still go after blighted properties in a number of ways, including application of the Class III rate of $10 tax for each $100 of assessed value for vacant properties. To avoid a finding by the DCRA Office of Vacant Property that a property is blighted, the owner should take a number of steps, including but not limited to the following: (1) Make sure that the property does not pose any threat to the health or safety of the community. (2) Maintain the landscaping of the property. (3) Improve the appearance of any scructures on the property by removing boards that have been used to board up windows and other openings, remove or paint over graffiti, secure doors and windows against intruders, and protect the exterior surfaces by applying paint or other materials. This is not intended to be an exhaustive list of steps that an owner must take to avoid a blighted property qualification. For more information on the subject, consult the DCRA Office of Vacant Property.

Owners of vacant properties are required by law to fill out the registration form provided by the Office of Vacant Property and file it with the Office of Vacant Property.

If you have would like to find out more about the rules pertaining to vacant properties in the District of Columbia, please contact us at BuckmanLegal PLLC by calling 202.351.6100 or send an email to info@buckmanlegal.com.