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California's 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 interest developments in California are Condominiums and
Planned Developments, often referred to as PUDs. The essential characteristics
shared by these two forms of ownership are:
- Common ownership of private
residential property.
- Mandatory membership of all
owners in an association which controls use of the common property.
- 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.
- 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 they are buying a unit in a PUD, they are not necessarily buying
a single-family detached home. Though the townhouse is the most common style of
structure found in common interest developments in California, a townhouse
might legally be a Condominium, or a unit or lot in a Planned 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 the
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 California 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-building 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&R's.) The subject of CC&R's
will be expanded upon later in this informational piece. 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.
Check your CC&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&R's and
bylaws?
CC&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 the CC&R's and Bylaws may be written so as to
restrict not only property use, but also to restrict owner's lifestyles, for
instance, spelling out hours during which entertainment, such as parties, may
be hosted.
CC&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&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&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&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
Condo 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 home ownership rights. The questions and answers in the
informational piece are intended to provide a brief overview. Should you have
further questions or seek more extensive information about Condominium and PUD
ownership, consult a real property attorney or your licensed real estate agent
or broker.
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