Hasty condo conversion leaves nervous owners in its wake

Question: After several years of being relentlessly pursued by a conversion attorney, our association president signed an agreement to convert our “own-your-own” apartments to condominiums. (Own-your-own apartments preceded the condo movement.)

Although I love my unit’s 180-degree views of the ocean and the Queen Mary, I can’t live in it because it is unsafe and not up to city code. Our building has internal wiring that has melted away. I’ve been without electricity for more than a year, and the city inspector labeled our building a “fire trap.”

The association chose not to comply with the city’s recommendation to rewire everything, claiming it is the responsibility of each owner to hire and pay electricians and obtain our own building permits for common-area rewiring.

Fearing a levy of big special assessments to fix these problems, the president sold his unit and moved. Owners called a meeting with the conversion attorney, who told us “the conversion and the conversion permit had nothing do with the building being up to code.” I got a copy of the conversion agreement and nothing reassures the association that the building will be up to code after conversion completion. Can we rectify this mess?

Answer: Maybe, but it will be costly and time consuming. Boards must understand the legal ramifications before signing any agreement or risk being sued for breach of fiduciary duty. Conversion agreements are complicated and should not be decided on a whim merely because conversion sounds like a good idea or because a director wants it.

Due diligence should have uncovered unsatisfactory clauses and might have stopped the project. The board’s due diligence includes obtaining adequate insurance specifically for the purpose of covering the conversion. Items the board must account for include: building codes, inspections, condo conversion ordinances, design review requirements, engineering permits and fees, planning fees, permits and preparation, review by various city departments, zoning requirements, neighborhood preservation ordinances, rent stabilization and eviction control, removal permits and the expiration dates for filing. Depending on the project, any lapse in permits or failure to obtain them may result in owners not being able to sell their units as condominiums, or the project may be halted altogether. Those performing the conversion must meet certain repair and improvement conditions imposed by the city.

Often, boards fail to anticipate and budget accordingly for construction that may be necessary once the conversion is completed. Conversion may affect the value and desirability of the project as a whole or the individual units, and there may also be tax assessment issues.

Complaints after conversion include faulty or inaccurate title recordings and unsatisfactory governing documents. The effects on sale or transfer of a converted unit under Civil Code Section 1134 may require sellers to provide prospective buyers with a written statement of defects, malfunctions, disclaimers and, in other cases, copies of condominium conversion maps. Escrow might ask about the status of reports, maps, tract maps, contracts or other items to be delivered to buyers. If not required by statute, they may still have to be disclosed if the buyer requests it.

If the attorney was involved with conversion-related construction, obtain a complaint form from the Contractors State License Board website (www.cslb.ca.gov). Because condominium conversions do not meet requirements for bringing a construction defects action under Civil Code Section 896, owners should consider suing for restitution and disgorgement.

Under Civil Code Section 1364(a), the association is responsible for repairing, replacing or maintaining the common areas including wiring. A special assessment may be required of all owners to bring the building up to code. Consult with an attorney regarding applicability of the statute of limitations for each separate conversion issue and for filing a malpractice suit against the conversion attorney.

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Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or noexit@mindspring.com.