| Real estate developers are increasingly turning to condominiums and planned unit developments as the means to maximize land use and offer home buyers convenient, affordable housing. This shift toward more compact housing developments has largely been brought on in an effort to combat the dual problems of increasing population and the declining availability of prime land.
Other forms of this type of common interest development exist, but condominiums and PUDs are by far the most popular in most states. The essential characteristics shared by condominiums and PUDs are:
- Common ownership of private residential property;
- Mandatory membership of all owners in an association which controls use of the common property;
- Governing documents that establish the procedures for governing the association and the rules that the owners must follow in the use of their individual properties as well as the common properties; and
- A means by which owners are assessed to finance the operation of the association and the maintenance of common areas.
Before continuing further, it may be helpful to clarify a common misconception about condominiums (also known as condos) and PUDs. The terms condominium and PUD refer to types of ownership in real property, not to physical styles of dwellings. Hence, when buyers say they're buying a townhouse, that isn't the same as saying they're buying a condominium. When buyers say they're 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 in a PUD, or a rental apartment. The terms condominium or PUD only refer to the ownership rights that a buyer receives and the interest he acquires in the common areas of the development.
Condos and PUDs offer many advantages to home buyers—low maintenance and access to attractive amenities. However, there are restrictions and obligations that come with condo or PUD ownership that buyers need to be aware of prior to purchase.
To acquaint readers with various aspects of ownership in condos and PUDs, some of the more commonly asked questions are answered below.
What are the basic differences between ownership of a condo and ownership of a PUD?
The owner of a unit within a typical condominium project owns 100% of the unit, as defined by a recorded condominium plan. As well, he will own a fractional or percentage interest in all common areas of the project.
The owner of a lot in a PUD owns the lot, which has been conveyed to him as shown in a recorded tract map or parcel map, and he owns the structure and improvements on the lot. In addition, the PUD owner receives easements and rights to use common areas owned by another-frequently a homeowner's association, to which the individual lot owners belong.
(The above are basic descriptions and should not be considered legal definitions.)
Besides ownership of his or her individual unit, what other amenities (common areas) does a buyer acquire the use of, and how does he or she own them?
Common interest areas may span the spectrum from the ordinary (buildings, roadways, walkways, parking areas) to the extravagant (equestrian trails, golf courses, tennis courts). The more usual extra amenities include community swimming pools and clubhouse facilities.
Ownership rights in common areas will be spelled out in the project's declaration of covenants, conditions and restrictions, also called "CC and Rs." (The subject of CC&Rs is expanded later.)
As stated in the answer to the previous question, condo owners possess a fractional interest in common with all other owners in the same project for all of the common areas. PUD owners receive rights and easements to the 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 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 charge assessments for purposes of paying to maintain the common areas.
Each owner should check his CC&Rs and homeowners association bylaws (the rules governing the management of the development) to ensure he understands his rights to the use of his unit and common areas.
What services will my homeowner's assessments help to finance?
H—association management, legal fees, association insurance and so on.
As well, reserves must be factored into 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 ceilings, reserves will frequently fund replacement of such items as roofs, siding, windows and plumbing.
Each member of the homeowner's association, upon purchasing his 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 unpaid assessments. Should a delinquency continue, the association has the right to place a lien against the owner's property. The lien could lead to a foreclosure if the delinquency is not paid.
Of what importance are CC&Rs and Bylaws?
Bylaws and CC&Rs 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&Rs and Bylaws may be written so as to restrict not only property use, but also to restrict owners' lifestyles. They might, for instance, spell out hours during which entertainment, such as parties, can be hosted.
Bylaws and CC&Rs are highly important and should be thoroughly examined and understood prior to purchase. These documents bind all owners and their successors to the rules and regulations of the community. Failure to follow the rules and regulations can be considered a breach of contract. Legal action can be taken against an owner for any such breach.
At what point in a real estate transaction is a buyer allowed to review a copy of CC&Rs or association bylaws?
It is the responsibility of the owner to provide the prospective purchaser with the governing documents of the development (CC&Rs and bylaws), the most recent financial statement of the homeowner's association and a notice of any dues delinquent on the unit.
These items should be delivered as soon as practicable; however, prospective buyers should request to see them as early as possible. A prospective buyer who does not fully understand what is stated in these documents, should consult a qualified real estate attorney.
If the prospective purchaser of a condo or PUD objects to items included in the CC&Rs or bylaws does he get an 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. The most sensible action in this case is to decide to live by the rules or to buy someplace else, where the rules are acceptable.
What if I have further questions about condominium or PUD ownership?
Talk to a real estate broker or an attorney. A person thinking about buying a condo or PUD should seek answers to all his questions before the sale has occurred. Waiting till after the sale can prove frustrating and costly. Buyers need to know the rules and their rights before buying. |
