Phased Condominium
Developments
By
Philip M. Hastings
[This
article originally appeared in the New England Real
Estate Journal, September 1, 2017.]
Large-scale condominium projects are
often developed in several phases over a period of time. While this approach may be beneficial to the
developer for a number of reasons, phased condominium developments can be
complicated. A recent New Hampshire
Supreme Court case – Condominiums at
Lilac Lane Unit Owners’ Association v. Monument Garden, LLC - highlights
some of the complexities that arise with the phased development of a
condominium under the state’s Condominium Act.
The Lilac Lane Condominium case centered on a dispute between
the condominium association and the successor to the original developer/declarant. Created in 2010, The Condominiums at Lilac
Lane in Dover was planned as a 120 unit condominium to be constructed over time,
with 24 units in five separate buildings.
At the time of its creation only one building was fully completed, with a
second under construction; construction had not begun on the other three
buildings. After a change of ownership
and some delay, the new developer re-started construction on the unfinished
buildings in 2013 and 2014.
The association objected to the plans to complete the project
and brought suit against the developer.
It claimed that the only way a condominium can be developed in phases in
New Hampshire is if the declarant designates certain portions of common area as
“convertible land” at the time of the condominium’s creation and subsequently
converts that area into additional units as described in the condominium documents
within certain time limits set forth in the Condominium Act. The association argued that because the partially
completed and unconstructed buildings in the Condominiums at Lilac Lane had not
been treated as “convertible land”, they could not be built out as originally
planned.
The Court rejected the
association’s argument, recognizing that, in addition to using convertible
land, there are in fact two other distinct ways that a condominium project can
be developed in phases in New Hampshire.
The second method uses “expandable land”. In this method, the developer withholds a
portion of the developable land from the condominium, reserving the right to
add it to the condominium and build additional units on it at some later
date. The expansion must take place
within certain time limits, but, unlike with convertible land, the expandable
land never becomes part of the condominium unless the developer exercises its
rights in a timely fashion. The
expandable land also must be a separate lot for zoning and tax purposes, in
case the expansion never takes place.
The Condominiums at Lilac Lane represents a third model of
phased condominium developments. There,
the developer submitted the entire parcel to the condominium and described all
120 units in the initial condominium documents.
The Court agreed with the developer that, even though some of the units
were created prior to their construction and the condominium did not include
any convertible or expandable land, this method complied with the Condominium
Act because the recorded condominium plans identified some of the units as
completed, some as not yet completed and some as not yet begun.
Each of the three methods for creating a phased condominium
in New Hampshire have advantages and disadvantages. As the Court noted in the Lilac Lane Condominium
case, the use of convertible land and expandable land is subject to a number of
requirements in the statute, including fairly stringent time limitations. While the third method does not contain the
same time limitations and other restrictions associated with convertible or
expandable land, creating all of the units at the start may impose certain
obligations on the developer that can be avoided or minimized by using
convertible or expandable land.
While the Condominium Act gives the developer flexibility
with respect to phasing a condominium project, several factors must be
considered with each approach. These include
the project financing, property tax implications, and marketing strategy. The choice of approach may also have
ramifications for the project’s permits and approvals and for the sales registration
process with the Attorney General’s office.
Before beginning any condominium project, the developer
should consult with his legal advisors and other consultants to craft the best
approach in the particular circumstances.
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