Given the degree of flexibility created by the condominium form of ownership of real property, it is probably not surprising that condominium regimes are often employed in connection with senior living facilities. Such regimes provide developers and operators of senior housing projects a convenient mechanism for dividing and conveying ownership interests in senior living properties to residents. While the conveyance of such interests to residents is most often done in connection with independent living units, it is possible to use such an arrangement to generate revenues across the entire spectrum of products associated with a senior living community.
Not surprisingly, however, the use of condominium regimes in senior housing living facilities exposes developers and owners of such projects to potential pitfalls and may require a fair degree of planning and a deep understanding of condominium law. For example, in many states, residents of condominium projects may be granted purchase rights or rights of first refusal with respect to their units under the applicable condominium act. Obviously, such rights in the favor or residents may present substantial challenges to the developer or owner of a facility when it comes time to employ their exit strategy with respect to the facility in question, so considerable planning will be involved in evaluating the benefits of the use of a condominium regime when developing a new project and when evaluating the purchase of an existing project which operates under such a regime.
Other issues that may arise in senior living facilities, which employ a condominium regime, may include:
- Control of the condominium association
- The right of tenants to extend their terms under residential leases
- The obligation to fund reserve accounts
- The rights that the association may have against the developer of the project (particularly, if the purchaser is to succeed to the developer’s rights as developer under the governing condominium documents).
In short, while condominium regimes may provide flexibility for developers and owners of senior living facilities, such regimes should only be employed after careful consideration and consultation with an expert on condominium and senior living projects.