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Can You Sell Common Areas To Generate Revenue?

“In theory, selling common areas might be a great way to generate revenue,” says Penny Koepke, an attorney with Ekmark & Ekmark LLC in Scottsdale, Ariz. “But in practice, it‟s impractical. It‟s document intensive, and sometimes the approval requirements end up meaning that you won‟t be able to do it.”

Since every owner possesses an interest in the common areas, to sell common areas, governing documents usually require approval by 100 percent of owners and all lienholders, which typically means each owner‟s mortgage company. Why do you have to get the mortgage companies‟ approval? They have an interest in the property that secures the owners‟ debt, and you can‟t do anything to diminish the value of that property without their consent. So if you‟re interested in selling a portion of your parking lot and have 100 units in your association, you‟ll need the approval of all owners of the 100 units, along with every last one of their lenders.

That doesn‟t mean associations don‟t take a shot at the idea. “I have one association that‟s talking about selling its pool right now, but not so much to raise revenue,” says Nancy Polomis, a partner at Hellmuth & Johnson PLLC in Eden Prairie, Minn. “The pool is a revenue sucker, and Minnesota recently passed a law that requires updates to pool drainage systems, which could be a major financial investment. In this case, the pool is old, and not that many people use it, but whether the sale will come to fruition, I don‟t know. Other associations I‟ve worked with have considered such sales, but the approval requirements are overly burdensome, and they haven‟t been able to get the deal done.”

If you‟re not scared off yet, whether you‟re considering selling association property or common areas, get buy-in first. “If you‟re going to take away what some might see as an amenity, you certainly want them on board,” says Polomis. “Even if you technically don‟t need their approval, you at least want them in your camp.”

The complexities are the bad news. The good news is that sales can be successful. For instance, in densely built New York City, associations sometimes successfully sell their roof rights to neighboring buildings. “I represent an association that just signed an agreement to sell its roof rights to the owner of an adjoining property,” says Marc Landis, a partner at Phillips Nizer in New York City. “Even if the purchase isn‟t completed, my clients have already received compensation for entering into the agreement.”

And there are options other than sales. In New York City and other metro areas, associations sometimes lease space on their roofs to add cell phone towers and satellite dishes. And don‟t forget to think beyond your tangible property. “I have an association client that sells advertising on its in-house cable channel, and what they earn is pretty significant,” says Donna DiMaggio Berger, managing partner at Katzman Garfinkel in Ft. Lauderdale, Fla. “There are other ways to be creative and generate revenue.”