Buy-Out Provision

Assume that you are representing the developer of a new condominium project and have been asked to draw up an appropriate set of declarations for the condominium. Having reviewed the declarations drawn up by your firm several years ago for the same client, when the client built another condominium project, you have decided that most of the changes to be done can be made by one of your bright, young associates.

There is one provision in the new declarations, however, that will require your expert drafting skills.

When the previous declarations were drafted (before you joined the firm), no provision was made for rebuilding or selling the condominium project as a whole. During the years that have passed since condominium projects first became popular, it has gradually become evident that some provision must be made for allowing the rebuilding or sale of the entire condominium project.

As a lawyer active in the real estate field, you are aware that some of the early condominiums have fallen into such a state of disrepair that it is simply necessary to rebuild the entire project. Other condominium projects, initially built on relatively inexpensive land on the edge of town, are now surrounded by new developments, which make the underlying land so valuable that it is no longer financially prudent to continue to use the land for the original condominiums.

Because of the fact that each unit owner in the condominium also owns an undivided interest in all of the common elements, it would be impossible to sell the whole condominium project without the consent of each unit owner – unless the declarations contain appropriate provisions for sale.

Clearly, it is necessary to protect the interests of each unit owner. However, over the years it has become clear that it is also necessary to provide some way in which the entire condominium project could be rebuilt, or sold, when that is the appropriate course.

Keeping in mind the necessity of protecting the individual unit owner, as well as the need to be able to rebuild or sell the entire project when necessary, draft an appropriate buy-out provision (or “obsolescence clause”) to be included in the new condominium declarations.

MUST CONSIDER THE RULE AGAINST PERPETUITIES