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Changing Landscape

Maine’s lawyers and property managers involved in the condominium market are discovering the condo real estate rules are presenting a changing landscape due to the patch work quilt of local condo ordinances and permitting rules spreading throughout the state.  No longer is the Maine Condominium Act the only reference to be reviewed when their developer client calls.

Southern Maine is seeing an expanding market in new condos with apartments being converted to condos from Portland to Biddeford.  While new residential developments are receiving negative push-back from neighbors in such communities as Scarborough, Westbrook, and Portland’s Munjoy Hill neighborhood due to perceived impact on infrastructure, the conversion of multi-family buildings causes different concerns.

Municipalities noticed a few years ago the potential impact on their citizens and infrastructure of apartments being converted to condominiums.   They reacted by drafting condo conversion ordinances to be debated at well attended municipal meetings. Most of the ordinances were targeted at protecting the current tenants in the apartments to be converted. Portland’s Article VII “Condominium Conversion” ordinance became the model for many of Maine’s second tier cities. South Portland’s Article IX “Regulation of Condominium Conversions” was seen by many to be even more aggressive in protecting the rights of current tenants.

The ordinances were to give the tenants sufficient notice of their rights based on their seniority in the apartment. These rights might include due notice of when the tenant is required to vacate, exclusive options to purchase their unit, eligibility for relocation payments, and relocation referral assistance. The condo ordinances continue to evolve.  Many communities, both large and small, have yet to adopt any condominium ordinances at all.  Instead, they are depending on the Maine Condominium Act’s Article IV “Protection of Condominium Purchasers” (Section 1604-105) to provide the needed safeguards for responsible condominium conversion development.  While this Act prohibits communities from preventing condo developments, it confirms Maine Home Rule authority allowing each community to draft its own condo ordinances.

The ordinances, as well as the Condo Act itself, requires the developer to obtain from an independent architect or engineer, who has no affiliation to the developer, a comprehensive assessment report of the current condition of the property.  The issues addressed include all structural components; waste disposal systems; water systems; and the mechanical and electrical installation materials used in the condominium complex-to-be.

To complement this report, the consultant is to provide an opinion on the useful life of each item reported as well as an estimate of the cost of replacement. Furthermore, a list of any outstanding notices of uncured violations of building code or other municipal, state, or federal laws or regulations, together with the estimated cost of curing those violations, must be provided.

Though this information might be sufficient for a typical apartment building condominium conversion, it may not be sufficient for some of the new vacation cottage complexes envisioned for conversion. These properties may come with a lot of other municipal baggage that need to be clearly understood by both the developer and eventually the association and unit buyer.

Some towns, such as Wells, have placed significant limitations on seasonal occupancy of these new condominium units.  To assist local planning and code enforcement departments communities such as Ogunquit have enacted condo ordinances requiring the developer to paying additional condo development fees such as establishing a $1,500 fund to pay for independent consultants to study the proposed condo development plans for the municipality.

Though rising condo development fees are a concern for some, those familiar with the condo market nationwide realize Maine is considerably behind the rest of the country. California has been at the forefront of the policy debate of condo conversion fees.  The ability to convert an apartment to a condo is so prized in some cities that there are waiting lines.  San Francisco not only has prohibited conversions of apartments of less than six units but also has established a formal lottery with elaborate rules of entry to determine who gets the next condo conversion application.

Portland’s proposed fee of 1% of the first sale price is mild compared to some of the western cities’ conversion fees as high as 5% of the first sale price.  The highest fees (some as high as 12 ½%) are primarily focused on mitigating the impact to existing tenants being displaced by the conversion.

If higher condo conversion fees do come to Maine, their nature will be influenced by the community’s desire to either protect existing tenants in the apartments to be converted or the future tenants in affordable housing throughout the community.  Developers and property managers should be paying attention, as their contributions to this policy debate may make all the difference. 

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Article written by Jack Carr, P.E., R.S., LEED AP, Criterium Engineers

Published in Condo Media, May, 2017

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