With the trend continuing of real estate investors buying out condominium buildings and “de-converting” them into apartment buildings, legislative efforts have been made to protect the rights of condominium unit owners. The deconversion trend can be attributed to the increase in apartment rents over the last several years along with the reality that such buildings are now worth more as rentals than condominiums. Conversely, the value of condominium units has not seen that same pattern of growth and many older condominium buildings are facing the need for expensive modernization and capital improvements.
Currently, under Illinois law, Section 15 of the Illinois Condominium Property Act requires the approval of a minimum of 75% of the unit owners to approve of a deconversion. If the requisite unit owner vote occurs, all owners (even dissenting unit owners) are bound to participate in the sale. While these dissenting unit owners often receive a premium price on their unit that surpasses market rate, deconversions can have a detrimental impact on unit owners. Often times, dissenting owners simply are reluctant to sell their homes that they have become attached to or fear the inability to recoup the returns on their unit rehab investment costs. Other dissenting owners believe it is unachievable to find an affordable and comparable place to live in the same neighborhood.
In an effort to provide some additional protection to the opposing unit owners, in 2017 the Illinois legislature amended the condominium law that most notably allowed for additional compensation for those unit owners that did not vote in favor of a deconversion, including the right to receive certain relocation costs. There have been more recent legislative efforts in 2018 to make deconversions more difficult. Legislation originally introduced in the Illinois General Assembly sought to increase the amount of ownership needed to approve a deconversion from 75% to 85%. This proposed bill has stalled at the state level and is still pending. Recently, aldermen in Chicago have stepped in, and have done what the Illinois General Assembly could not: increase the percentage threshold of unit owners required to approve a deconversion from 75% to 85%. This proposal, proposed by Chicago alderman Brendan Reilly, has recently been approved by the City Council and is expected to become effective October 16, 2019.
As a result of this ordinance passing the Chicago City Council, it is our opinion that this increased percentage threshold will have a chilling effect on the deconversion trend in Chicago. Unless it is a small building and/or a significant portion of the units are owned by one person or entity, gaining this super-majority of votes will be extremely difficult.
Rudolph Kaplan will continue to closely monitor any movement on the issue at the state and local levels for the best interest of our clients.