New Chicago Ordinance Looks to Slow Condo-to-Rental Deconversion Rates
In recent years, numerous Chicago condominium developments have undergone “deconversions” to transform them into apartment buildings. As a matter of fact, between 2016 and 2018, there were 20 total deconversions made in the City of Chicago. This possibly stems from the upward trending apartment rental market in conjunction with Chicago’s slowing home buying market, along with the devaluation of many units in condominium projects.
Last month, a new Chicago ordinance went into effect in an attempt to slow the spree of recent condo-to-rental deconversions.
Previously, deconversion developers only needed to secure a 75% approval vote from condo owners. The new ordinance, however, raises that bar to 85% in an effort to better protect owners from being forced to sell.
With the higher percentage required, the new ordinance helps current owners to ensure they receive a better valuation for their condo sale due to a larger percentage of condo owners needing to approve the deconversion. But there is a downside as well. For condominium associations that are underperforming or deteriorating, this makes it much harder for deconversion developers or exiting owners to rid themselves of a struggling problem child, even if it ultimately is in the best interest for condominium owners.
Many of the deconversion deals leading up to the new ordinance had just barely exceeded the prior 75% threshold. This spawned action from one of the co-sponsors of the new ordinance, Alderman Michelle Smith, who emphasized the need for more fairness to condo owners who want to desire to stay put.
As a result of some of the recent condo deconversion deals, numerous condo owners were displaced, forced to relocate without assistance. Although the higher voting threshold offers additional protection for condo owners, that protection is still incomplete.
A major concern for the sponsors of the ordinance was the fear of predatory buyers, but the ordinance does not directly address that issue. In general, predatory buyers make direct offers to owners and/or appeal to bulk owners to facilitate deconversion deals.
Because the ordinance merely raises the bar that needs to be met, the issue of predatory buyers remains on the table. This is worrisome for long-time condo owners or elderly owners who may be less apt to successfully face the consequences of a deconversion.
To that same effect, the ordinance does not make any effort to address bulk owners who themselves wield significantly more power than individual owners. In fact, the ordinance may make it harder for the individual owners to now get out of an association where bulk owners run the show.
The intention of protecting more condo owners, especially long-time owners and the elderly, is clear, but the true effect of the ordinance will remain to be seen.
With nearly 40 years of legal expertise, Lee Scott Perres, P.C. has worked with its share of condominium developments. For legal guidance on these matters, send us a message to book a free consultation.
