There’s been a lot of buzz lately about buyers of high end new condos looking to get out of a deal they signed at the height of the bubble. My firm has been lucky enough to be able to help out some of these buyers (my next post will focus on whether small buyers are entitled to use any legal leverage necessary to extricate themselves from a bad business deal — like any big developer would — or whether buyers should “accept the consequences” of their actions and just write off the earnest money).
In handling these cases, we’ve come to appreciate the “new” model for high rise condo development. First, though, some background about the “old” model for condos (and you condo experts please forgive me for a general discussion of the issue that does not apply to all condos — there are many variations — but which provides background for my larger point). When you purchase a condominium, you are buying the exclusive right to use a particular unit. You typically own this unit exclusively from “the paint in” — i.e. the unit and all its fixtures are yours to use as you please.
However, the walls, the structure, and even the land itself is owned by ALL of the owners as a common element. In other words, if your unit constitutes 1% of the total building, then you also own 1% of the whole common building (i.e. excluding other units) AND the dirt on which the building sits. The remaining owners own the remaining 99%, with each ownership share correlating to the size of each individual unit. So, even though you bought a condo and not a house, you still own — with others — real property, dirt, your own very small piece of planet earth. Because every piece of real property is unique — there is no other one exactly like it anywhere — and because humans are earth-bound (generally speaking, at least in terms of everyday living) real property has always been considered a good long term investment.
So what’s new? For various reasons (to allow for a hotel within the building, to allow the developer to retain an ownership interest in the property, etc.), large condo towers these days (such as Washingto Square Towers in Bellevue, Olive 8, and several others) are built “on” air, detached from the earth. If you bought one of those condos, you don’t own any dirt at all — only the building and airspace above the ground. Say WHAT?
Here’s how it works (again speaking generally — every project differs in the details, I am sure). The developer will create two parcels: a parcel on the ground, up to a certain height, and an “airspace” parcel above that. These are separate legal parcels, each with their own Parcel Number. The condo will be built in the “airspace” parcel. Owners will have an easement across the “land” parcel to guarantee access to their home in the “airspace” parcel above. I guess this could be described as a “man’s castle in the sky”.
I own a condo, and I take some comfort in knowing that I own dirt. The dirt will have value (unless/until we arrive at some “Mad Max” style future) regardless of what catastrophe strikes my condo. Presumably, my fellow owners and I will always have the option of selling that dirt to someone else (it would probably require 100% agreement and so its very unlikely, but it is at least theoretically conceivable). But what if you own only air detached from the dirt? Well, it seems to me you’ve got something much less valuable. And kinda weird too — who wants to live in an “airspace” home?