I never saw this sort of small condo mentioned until a few years ago - but for my whole life I have known of situations where two or three households owned a two or three family house without organizing as a condo. The only possible advantage I can see to organizing as a condo is that I imagine it might be easier for me to sell my condo that is one unit of three than it would be to sell my 1/3 share of the building - but are there any other advantages of such a small building going condo?
This doesn’t sound like a venture I would be interested in. For one thing, I would have to rely on two other people to keep up building maintenance? No thanks.
Sorry I can only think of cons off the top of my head.
Sharing costs for maintenance of the exterior and common areas; ability to sell your unit independent of others; incorporation bylaws that require maintaining a capital reserve for taxes, maintenance, and repairs instead of having to negotiate payment on what to do when; bylaws and CC&Rs to control disruptive behavior (loud music, extra vehicles, damage to exterior, et cetera); so on and so forth.
I would never buy joint property with multiple non-family members (or for that matter with hypothetical family members) without having a separate entity to actually provide some assurance that maintenance and repair costs will be borne equally and taxes will be paid in the appropriate proportion.
This sometimes happens when a multi-family unit is built where the previously was a single house. This depends on city regulations, but a 2 or 3 family multi-housing unit may be able to be built in what was previously a single-home lot. If space is tight, it will just be one building with multiple apartments rather than multiple small, separate houses. They are attractive for buyers since they are typically in very desirable locations where housing is tight and expensive. A condo in a 3-unit building will probably be much more affordable than a single house. Most people looking for housing will want place where there is only one family, especially if they are buying rather than renting. Buying a share in a common living arrangement would only be something I would do if I really knew the people well. I’m not going to buy a share in some random house and live with some random people. A small condo in a small building is much more attractive to most buyers.
Do you have those assurances though? Say the 3 unit condo needs a new roof - and the owner of one unit can’t or won’t pay their share. Or they don’t pay their share into the capital reserve ? What about disruptive behavior? I’m just not clear on how those things will be different in a condo vs shared ownership - going condo doesn’t magically make do people do what they are supposed to and whether it’s condo or jointly owned doesn’t make much difference if I think the other two households are too loud - I’m just going to have to deal as the others disagree with me. If we need a new roof, and one owner won’t contribute , either the other two pay for it or we don’t get a roof, whether jointly owned or condo ( it’s possible to get it back later, but that’s true whether it’s shared ownership or condo)
I kind of think this is part of why I don’t understand it - the small , 2-3 unit condos I’ve seen described in newspaper articles , etc are not a group of random people - they are siblings/cousins/friends who instead of buying a two or three family house and owning it jointly, in one way or another end up owning all of the units in a 2-3 unit condo (maybe they bought or inherited the building and converted it, maybe they independently bought all the units in a newly built small building - it’s not clear). Because just the same as I wouldn’t buy a share of a house with random people , I similarly wouldn’t buy a unit in a 3 unit condo if random people owned the other two. Two is a small enough number that they can both be problems.
Although I feel like I might need to clarify - I am not talking about a two unit building that is part of a larger development. I’m talking about a 2-3 unit condo, which is not part of a larger development - the entire condo consists of those units and the HOA consists of the owners of those units.
A condo association can impose a lien and even sue to foreclose on an owner who doesn’t meet their required obligations. Good luck doing that in an informal partnership. In the case of disruptive behavior such as a noise complaint or violent/threatening behavior, having a condo agreement versus shared ownership makes the difference between it being a civil disturbance and a domestic complaint, and I guarantee police would rather deal with the former than the latter.
Ok great, so the condo association can impose a lien and sue to foreclose on the owner who doesn’t meet his obligations. I’m not sure how effective that will be if there are only the two of us - I will certainly be paying the fees for the lien and the foreclosure myself and that could cost me as much as or more than the roof.
I’m not sure what distinction you are making regarding the police and noise ( I said nothing about violent or threatening behavior). I will say that where if live, the police respond and address noise complaints in exactly the same way whether the people in the different units are co-owners of a house, condo unit owners , or tenants. What I was talking about however was “house rules” - there can be rules imposed by landlords or HOAs that are more restrictive than the law. And if I want a more restrictive rule, and the other two don’t, I will just have to put up with it regardless of the form of ownership.
We just sold our previous home, the 2nd floor of a Boston triple decker. When the previous owners of the building wanted to sell, they converted it to condos and made considerably more money then they would have gotten if they had sold the entire place. They also used the profits from the first two units to fund the rehab of the third.
Living in a three unit condo had it’s positives and negatives. Since we were the most interested owners we could do pretty much what we wanted. We landscaped the backyard with sweat equity, built a patio (although it was common space) and handled plantings and trimming the trees as we liked. But it also meant that we were responsible for paying the condo bills (out of the condo fees), getting work done (painting, carpentry, plumbing), and shoveling. All three owners generally agreed on things, but we had some contentious issues, mainly because the water/sewer bills were common and not split between the three units.
It was a good experience, and now we’re in a single family house. Both have benefits and disadvantages.
True, it can be costly, but at the end you end up with a condo you can sell to recoup the legal fees. But this would be something to consider. If the other owners are going to be trouble, then stay away. If the units look run down and that maintenance hasn’t been done, then that’s a sign that the condo board is not very good and won’t do what’s necessary to maintain the units.
You’ve asked why anyone would want to enter into a condo agreement instead of just an informal partnership, and when I and others have offered detailed reasons keep objecting that they aren’t of concern or don’t apply to you, which, good for you but it comes off as oppositional defiance. There are many reasons that people want to have some kind of legal control over jointly owned property that comes with incorporation or syndication into a collective entity rather than partial shares in a freehold property that protects individual interests and offers some assurances of equal contribution to joint obligations and expenses. If none of that applies to you, great, but it does apply to the vast majority of people wanting to purchase a subunit of a freestanding structure.
I didn’t ask about an informal partnership, actually. I asked about jointly owning vs going condo - I didn’t say anything about the form of partnership. And I’m not saying that the issues aren’t of concern or that they don’t apply to me; and I’m not trying to be defiantly oppositional : I really and truly do not understand what the advantage is in a 2 or 3 unit building. I understand how it’s an advantage in a larger development. But you’re saying it offers you assurances of equal contributions to joint expenses and I just don’t understand how .
Walk me through it -
We need a new roof on our three-unit condo building. Let’s say it’s gonna cost $24K so the assessment will be 8K each. You and I get our $8K together but the owner of the third unit says he doesn’t have the money. What do we do at this point? I’m going to assume that you and I pay $12K each to put the roof on. Ok, we can put a lien on Sam’s unit- how much does that cost? We won’t get the money back until Sam sells - and if we end up foreclosing , that’s going to cost money too, isn’t it ? Maybe after we foreclose and Sam’s unit is sold, we will get all our money back - maybe.
Suppose it’s a 2 unit condo - I assume it wouldn’t be set up for 50/50 ownership - if Sam owns 51% ,can I even put a lien on his unit since I only own 49%? In the 3 unit building, I’m 99% sure that if you and Sam both refused to pay , I will be out of luck since the “Board” isn’t going to vote to put a lien on or foreclose your units, since the two of you make up 2/3 of the board .
This whole section here
Sharing costs for maintenance of the exterior and common areas; ability to sell your unit independent of others; incorporation bylaws that require maintaining a capital reserve for taxes, maintenance, and repairs instead of having to negotiate payment on what to do when; bylaws and CC&Rs to control disruptive behavior (loud music, extra vehicles, damage to exterior, et cetera); so on and so forth
I’m not really clear on why these things couldn’t be formalized in any way other than a condo conversion - and it’s certainly not the case that all of these tiny condos always have a reserve fund large enough to cover taxes, maintenance and repairs without ever needing a special assessment for a new roof or something.
“jointly owning” is an informal partnership; one which relies upon verbal or implicit promises on who will contribute what in terms of expenses and obligations. Disagreements within informal partnerships are rarely easily or fairly disputed and resolved. “Going condo” generally means some form of incorporation such as an LLC or other legal instrument in which the parties all have explicit obligations to that legal entity that are readily enforced. If this doesn’t apply to you because you don’t think your ‘partners’ while shy away from paying their fair share or don’t think it would be worth it to pursue legal adjudication in a dispute, then so be it; you probably don’t need this kind of arrangement (though I would personally regard that as naive through the lens of my experience, but your mileage may vary). But if you have a damaged roof and end up having to bear the cost yourself with no hope of recourse; or another person is sued for an injury that occurs in their living space but is a part of the jointly owned property, making all owners liable; or one person wants to or has to sell, forcing the other property owners to either refinance and buy them out or sell their own shares of the property, then joint ownership starts to look not very good.
Again, if you see no advantage to this and aren’t concerned about any of these issues then it probably isn’t for you. For most people, it is probably a good idea, even (or perhaps especially) if they are entering into this agreement with family or close friends.
I think possibly this is where we are talking past each other - “going condo” doesn’t just mean some form of incorporation such as an LLC or other legal instrument. I can form an LLC ( which in my state are not incorporated), a corporation or a formal partnership with my brother ( or my best friend) and own a 2 family house and each of us live in one apartment without converting it to a condo.
An existing building “going condo” means that each unit ends up with a separate deed and property tax bill and in my area, involves inspections and permits and an application to the AG’s office.(and probably more) This is the part I don’t understand the value of , separating it into different bits of real estate instead of forming an LLC or a corporation or a formal partnership to own the entire building - except as I initially said , I imagine it’s easier to sell my condo than to sell my 1/3 share of the building or the LLC.
Do you mean unrelated families? I work in real estate and that would be beyond unusual in my experience. A n-plex with multiple owners and fee simple ownership instead of in condominium is not at all uncommon, but genuine joint ownership in a multiple household building would be highly unusual. Are you sure that is actually what you have observed? Which country have you observed this in? In my experience, as a simple example, imagine a 3-plex that are all essentially town houses, I am familiar with many such buildings in which each unit is sold and held fee simple, basically the same as you would buy a free-standing single family home. (Free-standing single family homes can also be part of a condominium, obviously.)
In a fee simple arrangement like that with an n-plex, typically the building is built or arranged such that there are virtually no common assets, everyone is on their own for each portion of the unit. I’ve even seen this arrangement when an older, single-family home gets subdivided. I’ve seen things like shared basements have walls built etc to assist with the division.
I have not seen a multi-story building in which there are units confined to specific floors that are held fee simple, while I won’t deny it is possible, it would be legally and economically difficult to handle I think.
Anyway, if that really is your experience I would have to assume the families involved had complicated real estate contracts and legal entities setup, because “default” legal status with true joint ownership is a lot different than most people would expect.
Partnership is very common in my world–real estate development, I have a number of partners in the business and we have very legally specific and complex contracts and legal entities that govern each of our entities that own property, this is to specifically navigate the complexities of joint ownership.
No , actually the situations I refer to having known my whole life have involved relatives and while I won’t claim to know the details of their ownership in every case ( which is why I didn’t specify) , I do know they weren’t owned as condos with one unit on the second floor and one unit on the first floor and a condo association . In fact, I just looked up one of the deeds, and the house was sold in 1978 to " Harold J and Elizabeth J his wife and Thomas Q and Joanne Q his wife as tenants in common." ( Elizabeth and Joanne are sisters) This is in the US, New York specifically. Harry and Elizabeth didn’t own one apartment and Tom and Joanne the other - they all four of them jointly owned the building that contained two apartments.
This is a situation where it can work since all people are relatives or have a pre-existing relationship. Sometimes parents and children are listed on the deed of a shared house as well. People with a close, personal relationship can own property together since they will inherently want to maintain the personal relationship and will typically do the right thing to maintain the property without complex legal contracts spelling out all the requirements. Setting up an actual condo agreement for this situation would probably be overkill. But this ownership arrangement can be problematic if any of the owners want out. If one of the couple moves out or gets divorced, the question about what they can do with their share in the house may not have been clearly spelled out in any agreement between the two couples.
The advantages of the condo arrangement are that it clearly sets up a legal framework for people without a pre-existing relationship to live in a building where there are shared responsibilities and costs. This framework may be a lot of necessary overhead for people with pre-existing relationship where they deeply trust each other. It’s only because they already know the other owners and have a good feeling that they will be compatible as joint owners. That’s not the case with random people, so a condo arrangement is necessary to spell out all the issues and how they are to be handled.
I understand that- like I said earlier, all the 2-3 unit condos I’ve seen described in newspaper articles involved people with pre-existing relationships which is probably why I had the question to begin with. I think on some level it didn’t occur to me that people would buy a unit in such a tiny condo with random people in the other units.
I know a lot of people who have done so. They do it because they are buying one floor of a multi-family building in a nice but dense urban area, and one floor is what they can afford. I suppose if those buildings were built now, a big swath would all be a single condo association, perhaps, but they were all sold separately back in the day, and many have been rebuilt and renovated over time, and there you have it, whole neighborhoods of buildings housing 2 or 3 families.
A pair of friends just bought both units in one. Another friend is arranging for his partner to buy the unit that is the other half of his building. Another simply owns one floor, and negotiates with his two co-dwellers via the condo association (which is just him and one person from each of the other two units.)
My brother owns two similar buildings outright, and rents out the units separately. But if he wanted to sell, he might condo-ize the building so as to be able to sell separately to two families.
Yeah, this jives with my experience, a lot of buildings I’m familiar with were relatively large homes in areas that have gentrified and gotten really dense, so at some point in the past a developer has bought the home and converted it into multiple units and then created a condominium for them. It also allows for relatively easy sales of a 2nd floor unit i.e. dividing the property by floor. I know of some row houses that are fee simple and have basically always been fee simple in this area, but that’s a much simpler arrangement–row houses have shared walls but everything else is not shared, so there isn’t strictly a need for them to be in condominium.
To get back to OP a bit, now that I know the arrangement you are familiar with–specifically “tenancy in common”, I can explain some of the limitations of this type of home ownership versus condominium.
Tenancy in common means each individual owns an equal and undivided stake in the home. This now gets a little confusing–this does not mean that each person owns an equal percentage “share” of the home but that each tenant in common has full rights and privileges to use of the house.
Tenancy in common allows for differential “ownership percentages”, e.x. Harry & Sally buy a property tenancy in common with another couple, Alice & Bob. Each starts with a 25% stake–all that really means is they can do things like take out a home equity loan against their 25%, and they can sell their 25%, and if the entire tenancy is voided and sold they are entitled to a 25% stake. Harry dies and under tenancy in common, his ownership stake is treated like an estate asset, let’s say in the State in which he lives it just defaults to his wife, Sally. She now owns a 50% stake and Alice & Bob have a combined 50% as well. This really affords neither party distinct advantages–each of the three people in the home have full rights of ownership to the entire house–but they can only sell their stake, take out loans against their stake and/or if the entire tenancy is ended they are entitled to the proceeds equal to their stake.
Let’s say the original two couples were cousins and close friends, and understood with one another that Harry & Sally would primarily use the first floor, Alice & Bob would primarily use the second floor, but that some common areas on the first floor would be shared and the rest of the property shared. None of this has any particular force of law. After Harry’s death for example Sally can sell her 50% to a third party, who then has full rights to move into the house–he also is not bound by any informal agreement Alice and Bob had with Harry * Sally. For example imagine Harry was a smoker but none of the original four other residents were, so it was agreed Harry would always smoke on the back porch. The new owners who have moved in have no special obligation to follow that. Additionally this isn’t rental property or condominium, and thus various building and health codes against smoking indoors almost certainly don’t apply in this case aside from maybe a few exceptions in very specific locations in the country.
Let’s also imagine all four of the original residents were conservative Orthodox Jews, who all followed many strict Jewish dietary and lifestyle practices, like careful observation of the Sabbath and kosher food and food preparation. Let’s imagine that the common kitchen on the first floor was always kept kosher before. The new owner who has moved in is not kosher and refuses to observe, cooking whatever he pleases in the kitchen. Alice & Bob likely have no recourse. It would actually be difficult to even impose a recourse contractually, because in such a situation it can be difficult to block Sally from selling to whomever she wants, and difficult to force a new owner to sign any sort of agreement–not necessarily impossible, but difficult. An owner of a tenancy in common stake, even with an agreement in place, often has the ability to take adverse action that can force the other parties to let them sell against their wishes in such matters.
Let’s imagine Alice & Bob arrange to have a new kitchen built on the second floor to try and continue keeping kosher, but the new owner is an ass, and doesn’t care. He decides to also cook non-kosher meals in the second floor kitchen. Legally, under a standard tenancy in common he is entirely within his rights, if Alice & Bob attempted to put locked doors or other impediments to him accessing and using the second floor, he would have legal cause against them. Under tenancy in common there is no intrinsic right to exclude one of the tenants from any part of the home.
In most jurisdictions under tenancy in common, all owners are fully liable for property taxes. Initially imagine they split it 50/50, but when the new owner moves in, as is his dickish ways, he decides he is only willing to pay 33% of the property tax since he is 1/3rd of the residents. He bought a 50% share, but most jurisdictions will not sever and apportion tax liability based on tenancy in common share percentage, what this means is if he kicks in his 33%, Alice & Bob will need to cover the remainder. If they do not then all three are treated as owing tax, and that can escalate until they lose the home. Alice & Bob would be in the position of having to pay an amount they felt was unfair, or potential lose the home.
Lawsuits can and are filed over some of the things above, with mixed results.
There is generally fully shared liability. If for example the new homeowner likes to invite guests over who engage in various high-risk activities, and one of them is injured on the property, Alice & Bob have some level of civil liability in that their home is exposed. If you can prove that the injury was solely related to some injurious act of only one of the tenants, you can sometimes make only them liable, but that’s a complex legal matter.
If, when Sally decided she wanted to move out, Alice & Bob and Sally had worked to convert the building into a condominium, with Alice & Bob owning half the units and the other unit being sold to whomever, they would be tremendously protected from all of these negative outcomes.