Archive for November, 2009


Tuesday, November 10th, 2009

When can I record?

There is a question that arises in just about every new construction condominium, and that is:  When can I create the condominium.  A condominium is only created upon the recording  of a declaration of condominium.  Until the moment that the declaration is recorded, a parcel of land remains a parcel of land, and units of space cannot be conveyed (other than in the traditional sense, as a subdivision or planned community).  In many condominiums, especially where there is only one or just a few buildings, and no phasing of units by building is intended, there will come a time when a portion of the building is complete, and a portion is not.  At that time, the question arises whether the declaration is allowed to be recorded, because once recorded, the space is legally created and definable and can be conveyed.  Delays in creation of the condominium usually mean delays in the ability to close on sales and convey.  Obviously, delays like this mean delays in meeting financial obligations. 

North Carolina law provides that a condominium declaration cannot be recorded unless all of the structural components and mechanical systems of the building are complete as certified by either a North Carolina licensed architect or engineer.  For definitional purposes, the official comment to the statute is quite helpful.  Generally, structural components are complete when those portions of the building necessary to keep it standing are in place, and when the building is weather tight.  I once had a client that desired to record a condominium declaration and sell a lower unit fully complete (including windows) even though the upper units had no windows or window frames yet installed.  Clearly, without some of the building windows in place, it was my view that the declaration should not be recorded.   Mechanical systems of a building are complete when such normal or customary (in the locale) systems for the building (as opposed to individual unit fixtures) such as plumbing, electrical, and heating and air conditioning are in place and operation when connected to.   

Once a condominium declaration is recorded, space (or condominium units) can be conveyed by the Declarant to others.  However, developers of any condominium structure which includes one or more residential units need to be aware that the purchaser protection provisions of the North Carolina Condominium Act do not allow the conveyance of any Unit in the building (residential or commercial) until the Unit is substantially complete as evidenced by a certificate of occupancy issued as provided by law, or in the alternative if such Unit is certified substantially complete by an architect or engineer.  Though there are no case interpretations on point, absent a certificate of occupancy, it is my believe (without legal certainty, but based on what I believe to be the logical interpretation of the statute) that the architect or engineer is certifying completion as to the “Unit” contracted for.  In many mixed use condominiums, sales of residential condominiums proceed prior to lower floor commercial units being contracted for.  In many instances, commercial units are “finished” by the purchaser after closing, based upon the commercial needs of the business to be operated, and the “unit” conveyed is actually just a “shell”.  Therefore, for the purpose of conveyance of a shell, it is my belief that the best interpretation is that the architect or engineer would be certifying to substantial completion of the Unit “shell”, as opposed to the Unit as “upfitted” or “finished”.

In that this question comes up in almost every new construction condominium, I hope this is helpful information.  Feel free to contact me if you have need of further interpretation.


Tom Grella   




North Carolina Condominium Law

Sunday, November 8th, 2009

I apologize for the long delay in posting any new blog article.  Technical difficulties, plus a bum gallbladder in the need of immediate removal, has slowed things down.  However, I am back now, and so is some of my condominium development activity which kept me so busy just two short years ago.  Fortunately, or unfortunately, it now comes in two different forms.  First, I am seeing that some of those folks who had planned for condominium, or planned unit townhomes, on their property, are now instead opting to create apartments funded by HUD 221(d)(4) loans.  Their hope is that the project might someday be converted to condominium.  Second, I am finding that some owners of apartment projects, finding themselves in financial difficulty, are declaring their projects as condominium for the purpose of keeping their heads above water by selling off some or all of the project prior to institution of foreclosure proceedings against them. 

Because condominium work continues, I thought that it would be helpful to provide my readers with some helpful information answering some of the commonly asked legal questions in condominium projects in North Carolina.  Tune into my next several posts.