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.