Use of Condominium Regimes, Ownership Lots and Air Rights Parcels to Develop, Own and Finance Commercial Real Estate
Mixed-use projects bring with them the need to separate ownerships either vertically, horizontally or both. Therefore, many mixed-use projects will involve some form of condominium or other manner of vertical or horizontal subdivision, such as land, master and sub-condominium regimes, ownership lots, air rights space or parcels, or some combination of the foregoing. The benefit of these structures is that they provide a means for vertical or horizontal separation of the different portions of a mixed-use project for development, ownership and/or financing purposes. The following is a brief description of each of these techniques, primarily focusing on these concepts as they are or may be used in Montgomery County, Maryland.
There are many forms of condominium regimes utilized in Maryland. Land condominiums are horizontal subdivisions of land parcels and legally can be used in the proper situations as an alternative to the traditional subdivision process. Single condominium regimes may be created on a traditional record lot. If ownership of the different vertical components of the record lot is necessary (today or in the future), then another option is the establishment of two or more separate and distinct condominium regimes upon a record lot, including master, subordinate or use-specific condominiums. Easements among condominium units, common elements and condominium regimes may be included in the condominium documents or in a separate cross-easement agreement. If a residential condominium is involved, the residential condominium is required to be registered with the Maryland Secretary of State’s Office. No state approval of condominium documents is required if no portion of the condominium is for a residential use. Condominium regimes are recognized structures created by statute; however, the governance of multi-tiered regimes or multiple uses within such regimes cause some owners to use alternative methods of division.
Ownership lots are a demarcation within a single, traditional record plat that reflects distinct ownership interests in separate portions of the underlying record lot. Two or more ownership interests, and hence corresponding ownership lots, may be established on a record lot. Each ownership lot must be "grounded" and must establish an interest in a portion of the ground plane of a record lot (i.e., cannot be detached from the physical ground). Like condominium regimes, ownership lot lines are intended to reflect only ownership interests and have no bearing whatsoever on zoning requirements. A cross-easement agreement generally is needed along with ownership lots. The City of Rockville permits the establishment of ownership lots, pursuant to specific legislative authority. Montgomery County has relied on the existing minor subdivision provisions of the applicable subdivision regulations in its recent approval of a number of plats creating ownership lots. As the use for ownership lots becomes more frequent, the use of that structure, with the required cross-easement agreement, may be less cumbersome than the condominium structure, which brings with it formal meeting and record keeping requirements for the organization governing the multiple parcels.
Air Rights Parcels
Air rights parcels are three-dimensional parcels created within a single record lot as shown on a plat that reflects distinct ownership interests in separate portions of the underlying record lot and the air above. Each air rights parcel would be assigned a separate tax identification number, and can be separately conveyed and financed. A creation of a condominium regime would not be required; however, a condominium regime could be established within an individual air rights parcel (just as within a single record lot among many). An example is the creation of a residential air rights parcel, with upper and lower elevations of the building to be constructed therein, over the existing retail within which condominium units could be created for sale. While well accepted in other jurisdictions, including the District of Columbia, this is a new concept for Montgomery County, although conceptually it is simply a logical extension of ownership lots. Once specific legislative authority for the creation of air rights parcels is established in Montgomery County (either existing or via legislation), approval of air rights parcels, as delineated on a plat, will be identical to approval of an ownership lot. Air rights parcels are fairly straightforward to establish and amend, with significantly less documentation and on-going legal responsibilities than a condominium regime.
Sharon Nelson Craig is a real estate attorney and Pat Harris and Bill Kominers are land use attorneys at Lerch, Early & Brewer in Bethesda, Maryland. For more information regarding the use of condominium regimes, ownership lots and/or air rights parcels in structuring mixed-use development projects, contact Sharon at 301-841-3836 or firstname.lastname@example.org, Pat at 301-841-3832 or email@example.com or Bill at 301- 841-3829 or firstname.lastname@example.org.