Worse Than the Worst-Case Scenario

Most co-ops and condos have a plan for worst-case scenarios. But what happens when a catastrophe hits – and things go from worst to even worse?

The average condo unit-owner or board member may not know it, but tucked away in section 339-cc of the Condominium Act is a provision regarding the board’s responsibility when calamity strikes the building. If 75% or more of the building is destroyed or severely damaged, the issue of reconstruction is put to the members of the condo association. If more than 75% of the unit-owners do not want the building to be repaired, then the condominium association is dissolved, and the building can be sold.

“Condominium ownership is fabulous – until catastrophe happens,” says Theresa Racht, an attorney. Before the vote on whether to restore the building can take place, unit-owners must understand the costs to repair such a significant portion of their homes, and that educational process can prove difficult. In a recent example, Racht says, “We presented it to the unit-owners at a meeting, and we started educating them and ourselves on what had to be done and what the costs were to restore the building. Those costs weren’t just how much you pay to build a building, but also soft costs – architecture and professional fees, project management fees, insurance premiums on a construction site. It’s the things that are not insured.”

Beyond rebuilding the structure, unit-owners also have to factor in the cost of repairing their individual units, paying real estate taxes and mortgages on units they cannot inhabit, and paying for alternative accommodations during the reconstruction.

If the association decides that the cost is too great and votes to not rebuild, then the board’s attorney has to file what’s known as a partition action, which dissolves the condominium as a legal entity and gives the board the authority to sell the building. Any funds received are then divided among the unit-owners, based on their share of ownership in the common elements of the building. That may qualify as making the best of a worse-than-worst-case scenario.