Condo voting rights

October 1, 2006 12:17 PM

Condo-buying followup: scarabic now asks, "Should I be concerned about introducing a third party and potentially going from 50% voting rights to 33% voting rights?"

Crossposted by request from MetaChat:

Basic situation: I'm buying the upper unit in a 2-story, 2-unit condo. The terms establish 50% voting rights for each unit.

Written into the deal is the option for the Lower unit to split its rear in-law structure into a 3rd condo sometime in the future.

In that event, voting rights would become 33%, 33%, 33%. So I'd lose "veto power" on stuff.

However, there would be a 3rd person paying into the dues. And chances are that the main structure where my unit is would have more of the maintenance needs. So in all likelihood my interests and vote will tend to be aligned with the lower unit in the main building, where my unit is.

All things considered it would be better to have a 3rd owner back there paying dues than some kind of renter, too.

In any event, it's unlikely that the 3rd condo will ever happen. Getting the permits for that conversion has proved difficult and probably won't be possible in the long run.

And here's a thought... if it does turn out to be possible, maybe I'll buy it.

SO - MY QUESTION:

Is this a walk-away issue? Should I be concerned about introducing a third party and potentially going from 50% voting rights to 33% voting rights? Or should I be glad that a 3rd party might someday pay into the dues, etc?

posted by hangashore to home & garden (9 comments total)

In my condominium, voting rights go by square footage owned -- if you can arrange for this, your voting interest would be undiluted by subdivision of the lower unit.

Note: I'm in Connecticut and I'm not sure if this is common for other condos, or even legal in other states.
posted by Opposite George at 12:23 PM on October 1, 2006

And if you can't make the change, I'd walk away or discount my bid substantially. The In-law scenario you propose (one owner for two units) would leave you with all the responsibilities of an owner but with the effective power of a tenant.

Another thing to consider -- have the by-laws/declaration of condminium/whatever they call it where you are changed so that certain types of decisions (e.g., sale of the lot, utility service changes, capital investments, large maintenance items -- basically anything life-altering) require a unanimous vote.
posted by Opposite George at 12:29 PM on October 1, 2006

Oh, and as for the dues question -- dues and assessments (again, at least in my situation) are proportionate to square footage (check this is the case for you) so a subdivision or merger doesn't affect my common charges.
posted by Opposite George at 12:33 PM on October 1, 2006

Does majority rule, or does a change require unanimous consent? Our condo documents require unanimity. It has been a great thing.

If it's a simple majority, you should be careful. We have had some issues that for an upper unit owner could hurt. For example, our bylaws basically say "if there's damage to your unit, it's your problem, notwithstanding the fact that it may have been caused by another unit." The exception is negligence by the other owner. So the people above me have a toilet that leaks through no fault of their own and wrecks my ceiling, it's my problem to deal with and my insurance to claim it on. Without veto power, the units below the top floor (who are the recipients of leaks due to gravity) could change that and make it so that if your stuff leaks it is your responsibility to take care of all the damage. That would mean a lot more expense for the top floor.

If it's simple majority, it would seem that there would be all kinds of stuff they could do to gang up on you if they really wanted. Changing proportional assessments to do it by square footage, increasing or decreasing assessments, making unnecessary repairs, not making necessary ones, re-defining common elements of the property, etc.

That being said, common experience would likely find the "two dastardly voters ganging up" scenario to be unlikely.
posted by AgentRocket at 2:10 PM on October 1, 2006

Require a supermajority for major changes. 66% or even 67% .
posted by Ironmouth at 3:40 PM on October 1, 2006

Data point: My association requires a supermajority for special assessments (basically, stuff too big to be covered from the general fund) and by-laws changes. Simple rules changes only require a majority. E.g., only a majority of the percentage interest has to agree on, say, whether cars need to be registered with the managing agent, but changing the number of owners on the board or setting up a major renovation project requires a supermajority. For my condo, with 68 units, requiring unanimity would probably mean nothing would ever get done; but in your (2 or 3 unit) case, AgentRocket's method probably makes the most sense.

And, of course, your lawyer (you are retaining one familiar with condo transactions, I hope) is probably the best person to bounce some of these questions off of as what is common and/or legal can vary quite a bit by jurisdiction.
posted by Opposite George at 5:53 PM on October 1, 2006

I'm in a 2-unit condo - the changes must be majority, which in our case makes it unanimous, as each unit has 1 "vote" - I'm lucky in that my neighbors are very chill about most issues, and given they travel extensively to Asia for business, are content to let me run things.

If you end up with a hardass, the problem with a 50/50 split is that any significant disagreement goes to arbitration and then to lawyers if that doesn't solve it. Despite that, I prefer the gridlock option - If a change that one party would strenously oppose would require potential legal fees to push through, I figure it keeps us both honest.

The fear with a 33/33/33 is the whole collusion angle. You may find your interests generally align with the third unit, but who knows until you've got them as neighbors?
posted by jalexei at 6:34 PM on October 1, 2006

Get an option or right of first refusal on purchasing the back unit for a predetermined price. Then, if the back unit goes up for sale, if you need to block a voting block, you can buy it.

I have no read the contract and IANAL, but the lower unit owner could seperate the two units, set up an LLC or corp, buy it from himself and you will then be outvoted by one person everytime it is in his interests.

Also, no matter how chill this loer unit owner is, yuou never know to whom he may sell where you could have a potential conflict or problem. Consider an experienced RE attorney who has seen this before.
posted by JohnnyGunn at 7:00 PM on October 1, 2006

Run a-way. This whole 2 unit thing is doomed. Too small to be strong and too small to risk the long term cash requirements. This is a toy housing idea not worth the effort. 1/3,1/3,1/3? That's silly. Those other 2/3's could vote away your front door. Run away.
posted by Freedomboy at 8:18 PM on October 1, 2006