Authored By:	David B. Eide, Esq., View Biography
	Richard R. Voelbel, Esq., View Biography

The Proposal:

Title 12, Chapter 250 of the Minneapolis Code of Ordinances regulates condominium conversions in the city of Minneapolis (the “City”). Currently, there is a proposed amendment to this ordinance that calls for the addition of multiple provisions, including one titled “Affordable Housing Protections.” This proposed provision states that “if the average rents in a building within twelve months prior to the notice [of intent to convert] are at or below one-twelfth of 30% of 50% of the area median income adjusted by size (1.5 persons per bedroom), including all utilities,” then the declarant must “make a commitment” to meeting one of three conditions in order to proceed with the conversion. Proposed ordinance 250.130.

The first condition is a “buy-in” requirement. This condition requires that “at least fifty-one percent of the bona fide tenants in occupancy of all units in the building or group of buildings or development on the date [of giving notice] have executed and delivered a purchase agreement... to the declarant.”

The second condition is an “affordable housing fee” requirement. This condition states that the declarant shall pay “an affordable housing fee not to exceed ten percent of the sales price of each unit.” The fee increases to twenty percent if the entire building is rent subsidized prior to conversion. The fee cannot be based on a sales price “lower than 100% of the appraised value of the unit as a condominium at the time of conversion.” If the units are sold at a price below the appraisal level, the fee is still based upon 100% of the appraisal value. The fee is due immediately upon the closing of each unit and will be placed in the affordable Housing Trust Fund of Minneapolis to be used “solely to finance needed permanently affordable low and moderate income housing to help meet the City's housing goals and policies.” Failure to pay the fee may subject the declarant to criminal penalties.

The third condition is an option to “retain affordable units” in the building. To meet this condition, the declarant “shall offer for sale to a nonprofit or public body twenty percent of the units of each converted building of ten or more units and such nonprofit or public body will make those units available to households earning fifty percent or less of the [Metropolitan Median Income].” The time period in which the units must remain available for sale is sixty days following the close of the original sixty-day option to purchase period set out under section 250.50. Additionally, the units must remain affordable for a minimum term of fifteen years. The designated units may be used for rental and/or ownership as long as the use occurs on the project site. This option is not available if the converted building has fewer than ten units or if no nonprofit or public body purchases the units.

The City's Authority for the Amendment:

Minnesota Statutes Chapter 515B, known as the Minnesota Common Interest Ownership Act (“MCIOA”), is the authority for common interest communities created within Minnesota on and after June 1, 1994, unless an exemption applies. Sections 515B.4-105 and 515B.4-111 of MCIOA set forth the authority and requirements for converting property into common interest community (“CIC”) property. Municipalities, however, may impose their own regulations on conversion property so long as such action does not conflict with MCIOA.

Section 515B.1-106(a) of MCIOA states that “a zoning, subdivision, building code, or other real estate use law, ordinance, charter provision, or regulation may not directly or indirectly prohibit the common interest community form of ownership or impose any requirement upon a common interest community... or upon any part of the common interest community conversion process which it would not impose upon a physically similar development under a different form of ownership. ”However, Section 515B.1-106(c) of MCIOA provides an exception to this rule when a city determines, following a public hearing, that there is “a significant shortage of suitable rental dwellings available to low and moderate income individuals or families.” If a city meets this exception, MCIOA authorizes it to “prohibit or impose reasonable conditions upon the conversion of buildings occupied wholly or partially for residential use to the common interest community form of ownership.” The City, relying on information from the Department of Housing and Urban Development, the 2000 Census and the 2005-2009 Minneapolis Consolidated Plan, made such findings and included them in proposed section 250.05.

Pros & Cons:

The benefits of the ordinance would ostensibly be to ensure that affordable housing is not significantly depleted or wiped out by condominium conversions. According to the City's findings, “at least 283 affordable units were converted between 2001 and 2005, or 23% of the total conversions in that time period.” Without the proposed “conditions,” the opportunities for affordable housing could diminish as more and more apartment buildings go through the condominium conversion process. The hope is that the proposed conditions will help make available more housing options for low to moderate-income tenants, either in the form of ownership or as rental units.

On the other hand, despite the good intentions behind the proposal, the downside could include a chilling effect on condominium conversions. It is unusual for more than 15% to 20% of the building tenants to purchase units in any conversion situation. Low to moderate-income tenants may face difficulties in meeting down payment requirements and securing financing to purchase the units. Realistically, the “buy-in” requirement may turn out to be a difficult, if not impossible, condition to meet.

The “affordable housing fee” option requires a sizeable financial contribution from the seller. The declarant may only receive eighty to ninety percent of the unit sales price after paying the fee. This economic burden may also deter future condominium conversions.

The third option of “retaining affordable units” seemingly places the least economic burden on the seller. Although it appears reasonable, if there is not a nonprofit or public body willing to purchase twenty percent of the units, the declarant will be forced to meet one of the other two conditions.

Conclusion:

The City's goal of maintaining affordable housing is both noble and justifiable. Only time will tell if the City's good intentions and the restrictive requirements of the proposed ordinance put the kibosh on the future of condominium conversions.