The Land Only Condominium: Little Known and Less Understood
Some time ago I was walking a development project with the chief surveyor for a large engineering company, showing him the unit boundaries I wanted established for a client’s proposed land only condominium project.
After about a half hour of pointing out boundary and overhang issues to him and discussing the location of common elements, he asked: “So what’s a land only condominium anyway?”
And this was a surveyor and engineering firm that had done extensive condominiums projects!
I have had similar questions from lawyers, even experienced real estate lawyers.
The land only condominium is indeed neglected.
Defined
It is not surprising, as the Rhode Island Condominium Act makes little mention of land only condominiums, beyond their definition. R.I.Gen.Laws 34-36.1-1.03(17)
“Land only units shall mean units designated as land only units on the plats and plans which units may be comprised entirely or partially of unimproved real property and the air space above the real property. The boundaries of a land only unit are to be described pursuant to Section 34-36.1-2.05(a)(5). Land only units may, but need not, contains a physical structure. The declaration may provide for the conversion of land only units to other types of units and/or common elements provided the conversion shall be effective only upon the recording of an amendment to the declaration which amendment will include new plats and plans identifying any portion of the land only unit converted to another type of unit and/or common element.”
Essential Attributes
There you see the essential attributes of a land only unit:
- It need not contain a physical structure, but it may
- It may subsequently be converted to a conventional condominium or common elements
- The air space above the land is included in the unit
Land only units are also mentioned in the section of the Condominium Act addressing the creation of condominiums, R.I. Gen. Laws 34-36.1-2.01( which will be discussed in more detail below) and they are mentioned sporadically elsewhere in the Act.
For all its obscurity, it is a powerful and versatile tool for real estate development.
Consider two representative projects where I have found land only units extremely useful.
Representative Project—Mill Site
A client purchased a large mill site it wanted to develop, but was unsure it had the interest in developing the entire project. The site consisted of numerous buildings, some connected but most stand-alone structures, and some open space for new building construction. The client was looking for a way to have the flexibility to develop the site in part and perhaps sell off the site in part for development. However, the local land use regulations prohibited subdivision of the property.
A land only condominium was the solution.
First, under Rhode Island law a condominium is not a subdivision. McConnell v. Wilson, 543 A.2d 249 (RI 1988)
Secondly, each building and buildable parcel was designated as a land only unit. Unlike a conventional condominium, which cannot be declared until the buildings are substantially complete, the land only unit can be declared as it stands, and buildings either later constructed on the unit or rehabilitated on the unit become part of the unit. ) R.I. Gen Laws 34-36.1-2.01(b) The owner could develop three or four units and sell off the remainder of the units to other developers for development.
Representative Project—High Rise Urban Development
A client was interested in buying an unimproved parcel in a downtown condominium project and constructing a high rise office building. However, the condominium was designed as a conventional condominium, meaning the client could not “buy” the condominium until after it constructed the building and it was substantially complete. That’s a risky situation to structure, particularly given the vagaries of conventional financing for such an expensive project. Complicating the issue was the fact the condominium was a leasehold condominium—meaning it was subject to a long-term ground lease.
Again, the solution was restructuring the condominium regime to have the portion being purchased by my client be a land only condominium, which can coexist in the same condominium regime with a conventional condominium. R.I. Gen Laws 34-36.1-2.01(b)
Under the new structure, financing was provided and the project successfully completed, with the client having ownership of the condominium pad site from day one.
A Little Respect Please
So, the next time you hear someone reference a land only condominium, please treat it with a little respect!
Prospective purchasers and owners of investment rental property, including condominium developers renting units they can’t sell, may not often think of minimum housing standards, but perhaps they should.
