Imants's Blog

WA Legislature passes HB 2014 and effectively kills condo conversions

Imants Holmquist (Holmquist & Gardiner, PLLC) — Fri, 07 Mar 2008 12:38:02 -0600

HB 2014 increases the tenant notice period to 120 days, increases the relocation fee to three times the monthly rent, and perhaps worst of all, bars construction on the project (except for a demonstration unit and sales unit) until all of the tenants have left the project. Anyone who has done a number of these projects will tell you that it usually takes the full 90 days until the last tenant leaves. Therefore construction and renovation of the less intrusive kind is usually commenced as quickly as possible after a large portion of the tenants have moved out.

Practically speaking, this new legislation means that developers will have to eat the carrying cost of holding a building (or buildings) for 120 days before commencing work. During that time, as a result of most of the tenants moving out, they will have a very limited cash flow and will be losing money. In addition to these losses, they will have to pay three times the rent in relocation costs to any tenants under the mean salary.

A line from HB 2014 I found particularly humorous was this addition to RCW 64.34.440(6)(g): "The work performed under this subsection (6)(g) must not violate the tenant's or subtenant's rights of quiet enjoyment during the one hundred twenty day notice period." The reason this is so humorous is that it restates over four centuries of common law. A tenant's right to quiet enjoyment could not be any clearer in terms of case law, and our legislature felt the need to add this line. Its laughable, but also pathetic.

The whole of 64.34.440 could have been replaced with one sentence: "Owners of apartment buildings and duplexes (or anything multifamily), you are no longer allowed to utilize your property in the manner you see fit. We hereby impose a tax on you for developing your property to its highest and best use."

In more simple terms, by enacting this legislation the Washington Legislature has affected a taking upon apartment owners. The results will be less affordable housing for sale, and more discrepant old apartment buildings needing repair. Also, perfectly timed for our recession, there will be a dramatic downturn in the number of conversion projects, meaning less workers employed, and less construction materials purchased. All of this equates to less tax dollars for the citizens of Washington (both in terms of excise tax on resale, and on all of the labor and materials during construction).

If you have read this far and you are not sick to your stomach with dread for what comes next in our socialist state, I implore you to read Orwell's 1984 again. Ok, that is admittedly a bit harsh. The point is that when we extend protections to the point that we stagnate growth where market factors would (and have) taken care of things, we run the risk of causing much much more harm than we are attempting to prevent.

WA Legislature passes HB 2014 and effectively kills condo conversions

Imants Holmquist (Holmquist & Gardiner, PLLC) — Fri, 07 Mar 2008 12:29:19 -0600

The whole of 64.34.440 could have been replaced with one sentence: "Owners of apartment buildings, you are no longer allowed to utilize your property in the manner you see fit. We hereby impose a tax on you for developing your property to its highest and best use."

In more simple terms, by enacting this legislation the Washington Legislature has effected a taking upon apartment owners. The results will be less affordable housing for sale, and more discrepant old apartment buildings needing repair. Also, perfectly timed for our recession, there will be a dramatic downturn in the number of conversion projects, meaning less workers employed, and less construction materials purchased. All of this equates to less tax dollars for the citizens of Washington (both in terms of excise tax on resale, and on all of the labor and materials during construction).

If you have read thus far and you are not sick to your stomach with dread for what comes next in our socialist state, I implore you to read Orwell's 1984 again.

At it again, new proposed amendments to Condo Act

Imants Holmquist (Holmquist & Gardiner, PLLC) — Wed, 23 Jan 2008 17:58:28 -0600

Close to a year ago I drafted a post regarding Washington State Legislature's proposed changes to the Condominium Act (RCW 64.34). This year the same bill, SB 5031, has been re-introduced and another bill, SB 6411, has been proposed which would be even more restrictive than the first. Under SB 6411, among other things, tenants would have the right to 180 days of notice of condominium conversion (twice the current 90 day notice period) and until the last tenant moved out, no construction could be completed other than one model unit per type and one sales office unit. Early construction would also be subject to consent from the tenants remaining in the building.

Long story short, if this bill were to pass, mid level and lower level condominium converters could not afford the carrying costs to complete conversions.

It goes without saying that there are people fighting this, and it is by no means a lock to pass. It is just something to keep in mind when advising clients on whether or not to convert apartment buildings. Some of my clients have been converting now regardless of whether their intent is to sell or rent at present. In this way, any changes in the legislation will not affect their ability to convert.

I have been extremely busy of late, however it is my goal to post more proposed legislation that may have an affect on the real estate industry and in particular, those working in construction and development.

If you have further questions, feel free to contact me.