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A diamond in the rough: Conversion unlocks the potential of older building stock
April 2011
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Bob Doumani, Partner,
Aird & Berlis LLP |
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By Clare Tattersall
The conversion of older rental apartment buildings offers a significant opportunity to create a desirable, competitively priced asset to compete with current condominium developments.
There are three main types of conversion: condo, co-operative and co-ownership. In a condo conversion, residents purchase a unit in a building (which they receive a deed for) and gain a percentage interest in the common areas. With a co-op, residents purchase shares in the private corporation that owns and manages the building. They receive a leasehold occupancy interest in a specific unit and the exclusive right to use it; however, they do not receive a deed. Co-ownership is basically a hybrid between a condo and co-op. In a co-ownership situation, residents purchase a percentage of the entire building (by deed), along with the exclusive right to occupy a specific unit. However, they cannot mortgage their interest in the property without obtaining consent from the board of directors – a stipulation that does not exist in a condo or co-op building.
Before converting an apartment building, Bob Doumani of Aird and Berlis LLP says landlords must do their due diligence and ensure that the conversion is in compliance with existing provincial legislation and municipal bylaws.
“There are policies that either prohibit or discourage the conversion of older apartment buildings,” says the municipal and land use planning lawyer who is also a partner in the firm.
These types of policies are more prevalent in urban centres such as Toronto, which, Doumani says, is the most rigorous when it comes to conversion.
“(The City of Toronto) prohibits the conversion of an existing apartment building to a condominium or co-operative where the rent in each unit is less than 1.5 times the CMHC average for the municipality,” he notes. “Other municipalities in Ontario have (similar type) policies but they are not as stringent.”
Once a landlord confirms it can undertake a conversion within their regulatory environment, the next step is to get the building’s tenants on side. This, Doumani says, is the key to successfully executing a conversion.
“The best way to get existing residents on board is to offer a discount on what their unit would sell for at market price or upgrade the interior of their unit at no cost,” he says.
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