The Chicagoland condominium market has weathered some extreme economic fluctuations since the financial crisis of 2008 - arguably more so than other large urban/suburban markets. One result of this is a higher number of condo properties exploring the option of converting from an ownership model to rental than in other markets. The process - sometimes called ‘reconversion’ - often involves the bulk sale of units.
In a bulk sale, an entire multifamily property is purchased for the purpose of converting the condominium units within it to rental apartments - either as-is, or converting and upgrading them. The move is permitted under section 15 of the Illinois Condo Property Act, says Sima Kirsch, an attorney specializing in community association law in Chicago, adding “The rules are very strict, and a board’s fiduciary duty requires homeowner involvement at every level until a vote is confirmed.”
Transparency is Key
As with any major financial decision, in a bulk sale conversion it’s crucial to avoid not just conflicts of interest in fact, but even the appearance of such. Kirsch suggests that any board member who falls into a category where the benefit of the bulk sale is greater to him or her than to other members should recuse themselves from discussion or voting on the matter. Similarly, if an attorney who represents the association also appears to be representing individual board members’ or owners’ interests, he or she should step aside from representing the association as far as the conversion is concerned. “In each of these cases,” says Kirsch, “the financial gain is enough to create the appearance of a serious conflict of interest for board members and the association’s attorney.” And that can lead not only to suspicion and bad blood between residents and their board, but to legal liability.
“Every effort should be made to follow a transparent and owner-supported procedure to avoid any appearance of a conflict of interest, disloyalty, or breach of duty,” continues Kirsch. “This impropriety can be avoided by following some simple suggestions.”
For starters, Kirsch says, “Although developers and sales agents can be overbearing and aggressive at times, they’re only the vehicle that brought it to your door. When an association falls into chaos, one can generally look to the board, manager, or attorney, for the outcome. That’s why, no matter who is in charge, it’s crucial to have a roadmap and to keep conflicts in check. The best place to start on any issue that’s critical to the association members, or that requires a member vote is with a survey - and in this instance, a due diligence document collection and building inspection.”