Builders,
in an effort to combat the dual problem of an increasing population and a
declining availability of prime land, are increasingly turning to common
interest developments (CIDs) as a means to maximize land use and offer
homebuyers convenient, affordable housing.
The two
most common forms of common interest developments in many states are
Condominiums and Planned Unit Developments, often referred to as PUDs. The
essential characteristics shared by these two forms of ownership are:
1.
Common
ownership of private residential property
2.
Mandatory
membership of all owners in an association which controls use of the common
property
3.
Governing
documents which establish the procedures for governing the association, the
rules which the owners must follow in the use of their individual lots or units
as well as the common properties
4.
A means
by which owners are assessed to finance the operation of the association and
maintenance of the common properties
Before
continuing further, it may be helpful to clarify a common misconception about
Condominiums and PUDs. The terms Condominium and PUD refer to types of
interests in land, not to physical styles of dwellings. Therefore, when
homebuyers say that they are buying a townhouse, it is not the same as saying
that they are buying a condominium. When homebuyers say that they are buying a
unit in a PUD, they are not necessarily buying a single-family detached home. A
townhouse might legally be a condominium, a unit or lot in a Planned Unit
Development, or a single-family detached residence. The terms Condominium or
PUD will say a great deal about the ownership rights the buyer will receive in
the unit and the interest they will acquire in the common properties or common
areas of the development.
Common
interest developments offer many advantages to homebuyers, such as low
maintenance and access to attractive amenities. However, there are restrictions
and duties which come with ownership of a Condominium or PUD that buyers should
be aware of prior to purchase.
To
acquaint you with various aspects of ownership in common interest developments,
the Land Title Association has answered some of the questions most commonly
asked about Condominiums and PUDs.
What
are the basic differences between ownership of a Condominium and ownership of a
PUD?
The
owner(s) of a unit within a typical Condominium project owns 100% of the unit,
as defined by a recorded Condominium Plan. As well, they will own a fractional
or percentage interest in all common areas of the Condominium project.
The
owner(s) of a lot within a PUD owns the lot which has been conveyed to them-as
shown in the recorded Tract Map or Parcel Map-and the structure and
improvements thereon. In addition, they receive rights and easements to use in
common areas owned by another-frequently a Homeowner’s association-of which the
individual lot owners are members.
The
above are basic descriptions and should not be considered legal definitions.
Besides
ownership of my unit, what other amenities (common areas) will I be acquiring use
of and how will I own them?
Common
interest areas may span the spectrum from the ordinary-buildings, roadways,
walkways and utility rooms-to the extravagant-equestrian trails and golf
courses-with more usual amenities including community swimming pools and
clubhouse facilities.
Your
ownership rights in common areas will be spelled out in your project’s
Declaration of Covenants, Conditions and Restrictions (CC and R’s). The subject
of CC and R’s will be expanded upon later in this brochure.
As we
stated in the answer to the previous question, Condominium owners own a
fractional or percentage interest in common with all other owners in the
Condominium project, in all common areas. PUD owners receive rights and
easements to use of common areas through their membership in a Homeowner’s
association, which typically owns and controls the common areas. Some PUD
projects, however, provide that the individual homeowners will own a fractional
interest in the common areas. Again, in this case, a Homeowner’s association
will have the right to regulate the use of the common areas and to assess for
purposes of maintaining the common areas.
Check
your CC and R’s and association Bylaws (basically, rules governing the
management of the development) to insure that you understand your rights to use
of your unit and common areas.
What
services will my Homeowner’s assessments help to finance?
Your
Homeowner’s assessments support not only the easily recognizable-building and
swimming pool upkeep, landscape maintenance-but also the unseen-association
management and legal fees and association insurance.
As
well, reserves must be factored into your assessments, including reserves for
replacement of such items as roadways and walkways. In the case of
condominiums, where ownership is usually limited to airspace within the walls,
floors and ceiling of the unit, reserves will frequently fund replacement of
such items as roofs and plumbing.
Each
member of the Homeowner’s association, upon purchasing their unit, must receive
a pro forma operating budget from the association. Basically, this will be a
financial statement of the income and obligations of the association, which
must include an estimate of the life of the obligations covered under the
assessments and how their replacement is being funded.
What
happens if I fail to pay my Homeowner’s assessments?
Delinquency
fees will be added onto the unpaid assessments.
Should
your delinquency continue, the association has the right to place a lien upon
your property. The lien may lead to a foreclosure if the delinquency is not
paid.
Of what
importance are CC and R’s and Bylaws?
CC and
R’s and Bylaws are the rules and regulations of the community, meant to guide
the use of individual properties and common areas. Buyers should be aware that
CC and R’s and Bylaws may be written so as to restrict not only property use,
but also to restrict owners’ lifestyles, for instance, spelling out hours
during which entertainment, such as parties, may be hosted.
CC and
R’s and Bylaws are highly important and should be thoroughly examined and
understood prior to purchase.
They
bind all owners and their successors to the rules and regulations of the
community. Failure to follow those rules and regulations can be considered a
breach of contract. Legal action may be taken against the homeowner for any
such breach.
At what
point in the real estate transaction will I be allowed to review a copy of my
CC and R’s and Bylaws?
Legally,
it is the responsibility of the owner to provide the prospective purchaser with
the governing documents of the development (CC and R’s and Bylaws), the most
recent financial statement of the Homeowner’s association and notice of any
dues delinquent on the unit.
The law
states that these items should be delivered as soon as practicable; however,
the prospective buyer should request to see them as early as possible. If you
do not fully understand what is stated in these documents, consult a real
property attorney.
Should
I object to items included in the CC and R’s and/or Bylaws, will I have the
opportunity to terminate those items prior to taking ownership?
No. The
process required to terminate these restrictions is often complex and costly.
Termination of restrictions will require, at least, a majority vote by members
of the Homeowner’s association, and may require litigation.
What if
I have further questions regarding Condominium and PUD ownership?
Ask any
questions you may have before you buy! Don’t wait to take ownership to find out
about restrictions and regulations affecting your Homeownership rights.