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; and
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, that 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-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 own 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.
