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Page 26 — COLORADO REAL ESTATE JOURNAL — February 18-March 3, 2015
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A s we all know, resi-
dential construction
in Colorado has been
largely limited to apartments and
townhomes owing to developer
and investor fears of construction
defect litigation. However, market
demand for condominiumfor-sale
product is so high that developers
are beginning to stick their toes
in the water; a few sizable con-
dominium projects in the metro
area are heading to construction
in the coming months. Still, until
we see realmovement legislatively
on the defect issue, we are not
likely to see near the pace of new
condominiumdevelopment as the
market can sustain.
Back in the day, another pop-
ular option for bringing condo-
miniums to market was to con-
vert existing apartments and other
built assets to for-sale residences.
As with new construction, very
few if any conversions of 20 or
more units have been undertaken
in recent years. Gary Kujawski at
the Colorado Real Estate Commis-
sion, who is charge of registration
of condominiumconversions, con-
firms that he has seen none in the
last several years. But, that is likely
to change very soon. This article
highlights certain legal require-
ments unique to condominium
conversions.
n Statutory/Regulatory Re-
quirements. There are three prin-
cipleColorado statutes that govern
condominium conversions: the
Colorado Common Interest Own-
ership Act, certain provisions of
the old CondominiumOwnership
Act, and the Subdivision Devel-
oper’sAct and its regulations.
Any condominiumproject creat-
ed after July 1, 1992, whether new
construction or a conversion, must
fully comply with CIOA. There-
fore, the documentation required
by CIOA for a condo conversion
is the same as that required for a
newly constructed condominium
(i.e., a condominium declaration
and condominium map and asso-
ciated homeowner association
articles, bylaws and policies). The
rights and duties of a declarant/
developer in projects involving
new construction and conversions
are essentially the same under
CIOA.
In addition to the requirements
of CIOA, the Old Condominium
Act (whichwas largelysupplanted
by CIOAin 1992) still requires that
upon recording the condominium
declaration converting apartments
to condominiums, developers are
required to mail a special notice
of the conversion by certified or
registered mail to each existing
rental ten-
ant. While the
statute does
not require
that the devel-
oper offer ten-
ants a right of
first refusal to
buy their unit
(as required
by other
states such as
Nevada and
Florida), the
statute per-
mits the tenant
to continue to reside in the unit
until the later of the expiration of
their lease or 90 days after deliv-
ery of the notice, unless otherwise
agreed to in writing by the par-
ties. The challenge created by this
notice requirement is to balance
the developer’s desire to terminate
the leases on a phased basis so
that the units can be sold with the
developer’s need for rental income
until the units are sold.
Unlike new construction, the
Subdivision Act views a condo-
minium conversion in which 20
or more units are created to be
a “subdivision” requiring special
registration of the project and the
developer with the Colorado Real
Estate Commission. This registra-
tioninvolves filingadetailedappli-
cation with the commission that
discloses background information
on the developer and the intended
project and paying an application
fee (currently $1,200).All individu-
als with at least a 24 percent finan-
cial interest in the developer must
be disclosed, including whether
any of those individuals have been
charged or convicted of a felony
or theft-related offense, and the
applicationmust list inwhat states
those individuals are licensed/reg-
istered to sell, broker or develop
real estate and any enforcement
actions taken.
Along with the application, the
conversion developer must sub-
mit its draft condominium organi-
zational documents, its unit sales
contract and reservation forms,
and a quite lengthy disclosure
statement concerning the project
to be given to each buyer before
signing a sales contract. The unit
sales contract must include several
special provisions required by the
commission, including a promi-
nent statement of the buyer’s right
to rescind the sales contract for a
period of five days after the later
of the buyer’s execution of the
sales contract and the receipt by
the buyer of the disclosure state-
ment. In any event the disclosure
statement must be provided to
buyers before
they sign a
sales contract.
The disclo-
sure state-
ment contents
are akin to
the old HUD
ILSDA dis-
closure state-
ment (which
is no longer
required for
condomini-
ums). Among
other matters the disclosure must
include a general description of
all amenities and accommodations
within the project along with a
description of the homeowners
association and the services and
related fees that come with being
an association member. The chal-
lenge is to include the informa-
tion that the commission requires,
making sure that the statements
made continue to be accurate as
the project unfolds and evolves,
andworking in disclaimers of rep-
resentations andproject conditions
where possible.
The commission is to issue or
refuse to issue its certificate indicat-
ing final approval of the applica-
tion (or ask for additional infor-
mation) within 60 days from its
receipt of the developer’s applica-
tion. Youmust submit a fully com-
plete application if you have any
chance of receiving final approval
in 60 days. Although the devel-
oper cannot sign contracts until it
receives a subdivision developer’s
certificate from the commission,
it may (with the consent of the
commission) enter into approved
reservation agreements during the
pendency of its application so long
as any funds collected from reser-
vees are held in trust by a third
party and are fully refundable.
Conversion certificates are site
specific anddeveloper specific and
are not assignable. They also must
be renewed each calendar year for
so long as unit sales continue. For
those of you who have completed
conversions in the past, the com-
mission’s regulations have been
updated since but remain substan-
tively similar to those that were
in place when conversions were
active.
n Local Affordable Housing
Requirements. In Boulder, condo-
minium conversions are not sub-
ject to the city’s affordable housing
ordinance unless the conversion
increases the total number of units
at the site, or the original develop-
ment paid cash-in-lieu to meet the
J. Christopher
Kinsman
Partner, Davis
Graham & Stubbs LLP,
Denver
Adam Chenell
Of counsel, Davis
Graham & Stubbs LLP,
Denver