Risk Management Strategies for Apartment to Condo Conversion Presented By: Jeremiah M. Welch, Esq. Partner Saxe Doernberger & Vita, P.C. Chad M. Hall, MPM Sr. Vice President, Construction Practice R-T Specialty Insurance Services, LLC Sue Mitro, CPCU, ARM Vice President, Risk Management Wood Partners
What is an Apartment to Condo Conversion? Apartment Construction Rental Operation Pre- Conversion Renovation Conversion
Most Common Conversion Scenarios 1. Owner/Developer builds an apartment then decides to convert to condo at a later date after renting/leasing units. 2. Owner/Developer builds an apartment then sells to a subsequent owner that then converts to condo. 3. Owner/Developer buys an asset that is distressed bank owned and then converts to condo. 4. Owner/Developer buys an asset that is more than 10 yrs. old then converts.
Scenario 1 Owner/Developer builds an apartment then decides to convert to condo at a later date after renting/leasing units Owner Building Contractor Renovation Contractor
Scenario 1 Owner/Developer builds an apartment then decides to convert to condo at a later date after renting/leasing units Does owner have residential conversion coverage? Does GC? Should I buy a wrap-up or rely on the contractor s insurance? I have heard of issues with exclusion J(2) on the policy if I held the property for rental? Should I give the contractor reverse indemnification/anti-flip language in the contract? What about deed restrictions?
CGL Exclusion J (2) Premises you sell, give away or abandon, if the property damage arises out of any part of those premises. This does not apply if the premises are your work and were never occupied, rented or held for rental by you.
Condo Exclusion
Scenario 2 Owner/Developer builds an apartment, then sells to a subsequent owner that converts to a condo Original Owner- Developer Second Owner- Converter Building Contractor Renovation Contractor
Scenario 2 Owner/Developer builds an apartment, then sells to a subsequent owner that converts to a condo Do I need to buy condo coverage as the seller to protect myself against the condo conversion by others? What options do I have? Require the buyer to buy condo coverage for me? And GC? If I m the buyer how do I address prior work performed by others that I did not contract with? Who should indemnify whom in this scenario? As the buyer what recourse do I have against the seller for defects discovered before conversion?
Scenario 3 Owner/Developer buys a distressed bank owned asset and converts to condo Original Owner- Developer Bank New Owner/ Converter Building Contractor Renovation Contractor
Scenario 3 Owner/Developer buys a distressed bank owned asset and converts to condo Past developer is gone. Is there any type of risk transfer back to them? Who is left holding the risk if I buy this from the bank? What about the original contactors? Can we push defect claims back to them? Can we go after the original developer s insurance if they are bankrupt or dissolved? What liability does the bank or receiver have?
Your work means: Not Your work 1. Work or operations performed by you or on your behalf; and 2. Materials, parts or equipment furnished in connection with such work or operations.
Scenario 4 New Owner Converts to Condos (Statute Has Run on Original Owner/Builder) Original Owner- Developer Second Owner- Converter Building Contractor Renovation Contractor
Scenario 4 New Owner Converts to Condos (Statute Has Run on Original Owner/Builder) Statute of repose has run on original contractors and old owner/developer is liability totally gone on any existing defects? As the buyer, can I get any protection in the sale contract from a seller when the statute has run its course? What do we do about the defects then? Does the statute re-toll on the building when we sell the units if we don t make any structural improvements but just cosmetic? Our engineers would have certified that structure was sound so if an undiscovered defect arises, do we have a potential E&O on our hands? Does the statute re-toll when we fix the defects we discover in our property conditions assessments?
Jeremiah M. Welch, Esq. Partner Saxe Doernberger & Vita, P.C. 203-287-2116 jmw@sdvlaw.com Chad Hall, MPM Senior Vice President, Construction Practice R-T Specialty Insurance Services, LLC 818-937-4276 chall@rtspecialty.com Sue Mitro, CPCU, ARM Vice President, Risk Management Wood Partners 404-965-9933 sm@woodpartners.com