What Is a Condominium?

John P. McGeehan, a condominium attorney who has owned several condos and serves on condo boards has been representing associations since the ‘70s. John puts it this way, “with land, you get land and with it some rights; with a condominium you get some rights and a little land.”  

A condominium is not the same thing as owning a house. What you own are rights. Those rights vary depending on what area of the condominium property you are using. You have the most rights within your unit. You have less rights outside of your unit. The unit and the common elements are defined in the condominium’s governing document. Okay, so, plain English: You must share everything outside of the unit with all or some of the other unit owners. There are rules that say what you can and cannot do. Those rules “govern” your right to use and enjoy the condominium property. If you break those rules, you can be fined. The fine can be a lien on your unit. That lien can be foreclosed just like if you didn’t pay your mortgage. 

Before Buying a Condo, You Need to Know…

Before buying a condominium, you need to know what your rights will be as a unit owner. If it is “totalitarian” as Mr. McGeehan suggests some condos are, you really ought to know that before you buy. After you buy, it’s too late! 

Whether called Bylaws, or Declaration, Rules and Regs, or Master Agreement or Declaration of Trust, you need to know what it says!

The name of the game when buying a condominium is due diligence. Sounds like lawyer speak. But it is common sense, “buyer beware”. If you do a little homework before you buy, it is well worth the investment of your time. Why is it so important? Because you’re going put a lot of money into something that has shared ownership. To put it in perspective, imagine that you’d like to have a car that is worth twenty million dollars. There is only one of this kind of car. The owner is willing to sell you and thirty-nine other people the shared right to use the car. How much are you paying for this 1/40th of the car? Six hundred fifty thousand dollars. You pay the six hundred and fifty thousand dollars.

Then you decide to take the car for a spin to your golf club to impress your business associates. First, you find out the tires are bald. Then, after you’ve ponied up tire money, the car’s management agent tells you “we’re sorry, you can’t bring the car to any golf clubs. There is a no-golf-club rule.” Wouldn’t you have liked to know that before you paid six hundred fifty thousand dollars? In this analogy the car is your condominium unit. The bald tires are deferred maintenance on the common elements – like a roof that needs replacing. And the “no golf club rule” is like a rule that says you’re not allowed to rent your unit on airbnb, etc. 

How is Owning a Condominium Different than Owning a House? 

Condominium ownership verses owning a house, is very different. With a regular old piece of real estate, you step off of your porch on Saturday morning, and you mow your front lawn. With a condominium you exit your unit, walk across the limited common element deck, and then mow the grass growing on the common elements, – and you may be fined if you mow the grass on those common elements because only the landscaper is allowed to do that and only on a Tuesday! 

With shared ownership there are rules. Sometimes your reasonable expectations of how you will get to use your condo are prohibited by those rules. With shared ownership you are tied to others. There are common expenses to be paid, sometimes special assessments, one-time fees, and if the people managing the thing aren’t very responsible, it could be teetering on bankruptcy.  

But won’t the realtor make me aware of everything I need to know? You should not rely on the realtor to do your homework. How about my attorney? Most attorneys do not read the condominium’s governing documents or explain them to you.  

What is a Condominium Unit?

“They should know exactly what they’re buying,” advises attorney Richard T. Liuzzi of Stewart Title & Escrow, Inc. in Fairfax Virginia. Most people have no idea what a condominium is. Condominiums are defined rights to use and enjoy real estate. Typically, the unit owner has the most control and use over their unit. But what is the unit? The unit is defined in the rules. The “rules” are contained in a state law. But there are also rules contained in the condominium’s bylaws and declaration or master deed. In Maine, there are two statutes that govern a condominium. There is the Maine Condominium Act, and also the Maine Nonprofit Corporation law. Also, the state law allows the condominium association to customize some of the statute’s rules in their own sub-rules. For instance, the state law may contribute to the definition of what constitutes a unit. But the declaration, and bylaws or in some states what is called the “Master Deed” may also define the unit. But wherever the definition is contained, the unit will be defined in terms of its boundaries. Why should you care? Because within the unit is where you have the most rights to use and enjoy the property.  

What Are the Parts of a Condominium ?

Condominium property is divided between units and common elements. Units are that part of the development that a unit owner has the most control over. I say “most control”, because even though a unit owner can have a great deal of choice about how they use their unit, they cannot do things that would injure other units or common elements, or that break the rules. For instance, inside a unit, the owner can typically change the layout, or paint whatever color they want. But they can’t remove a structural wall, or over charge an electrical circuit. Sometimes they cannot change a window, or put an air conditioning unit in a window, or a sign. One man’s lovely decoration is another man’s abomination. Not too long ago there were condo wars raging about “occasional flags”. You know, those flags that have a picture of a puppy or a sunflower that were so popular a few years back. If you dislike them you would say the condo association worked well to prohibit them. If you liked them you would say that the association’s governance was “totalitarian” to prohibit them. 

What Are Limited Common Elements

Limited common elements are common elements that fewer than all unit owners have a right to use. Think of this as a part of the condominium complex that the association wants to control, but not everyone gets to use. Perhaps a deck, or a common walkway. 

Do I Have a Right to Rent My Condominium?

Another violated expectation may be renting. If the association has a rule against renting, you can’t rent the unit. These are general observations. You should not assume you can do something in your unit without reading your condo’s rules about it.  

What If I Don’t Want Renters?

“How about asking what percentage of the units are rented?” suggests attorney Stephen Dyer. Why might that be important? There are many reasons. The character of a community that consists of mostly owner-residents verses mostly renters can be quite different. The other important factor is whether the renters are long term or short term. The longer the term, the more like owners a renter behaves. The shorter the term, the more like a hotel the community becomes. If the rents are very high, this fact might not be of too great a concern. But if the rents are modest or low, there may be a high turnover of renters. The greater the stake the residents have in a community, the more likely it is to be well run, peaceful and pleasant to live in. 

What Are Condominium Reserves?

Before buying a condominium always ask if they have a reserve study. A reserve study shows the life expectancy and cost of replacement of things like the roof. The reserve study should show all common expense elements that will need to be replaced, when they will need to be replaced, and how much it should cost. What does that mean in real life? If there is no reserve, you could buy a unit, expecting to pay $500 a month in common charges. The next day, you could be handed a special assessment for your share of a brand-new roof, for let’s say $12,000. If there was a reserve account, the roof cost would have been collected over the course of 8-10 years, and there would not have been a need for a special assessment.  

Reserves or a reserve account is money set aside to replace condominium elements that will need to be replaced over time. “Check whether reserves have been properly/adequately funded,” recommends attorney Thomas M. Little of Foley & Lardner in Tampa, Florida. This is extremely important advice echoed by every experienced real estate attorney who responded. “Also ask if the condominium hired a consultant to do a reserve study which forecasts capital expenditures. Find out if the assessments have been set at a level to accumulate funds to pay such expenditures as they become due. At my condo (new) we did a 30 year projection last year,” Attorney Rick Oshman of Houston Texas speaks from personal experience.   

For example, the roof may need to be replaced every ten years. If the condominium association is putting 1/20th of the cost of the new roof into a reserve account every year, in year ten, they will only have half the money needed to replace the roof. That would require a special assessment for half the cost. If they had put collected 1/10th the cost, then in year ten they would have enough for a new roof. But what if there is no reserve account? The roof still needs to be replaced. If there is no reserve account, the association needs to charge the unit owners a special assessment to replace the roof. Now imagine you just bought the unit the year the roof needed to be replaced. The resale certificate may not have revealed that special assessment. But you only budgeted for the ordinary common expense – not a special assessment.  

How to Tell if a Condo is Financially Sound?

A financially stable condominium is valuable. A bank is more likely to lend money to the condominium if it is financially stable. A condominium unit in an association that is financially well managed is more likely to appreciate in value. That means, a well-run, financially stable condominium should go up in value. On the other hand, a condominium that has a lot of deferred maintenance, no reserves to pay for repairs and replacement, debt, and budget shortfalls, will probably go down in value. It is easier to get a mortgage on, and therefore easier to sell a unit in an association that is financially stable. On the other hand, it is difficult to unload a condo in a development where the price is falling because it is poorly managed. But how do you know if a condominium association is financially stable? We already explained the purpose of a reserve study, and a reserve account. A reserve account based on a reserve study is one sign of a financially well-run condominium. Another indicator of financial stability is arrears in payment of common charges. Think of common charges like the dues you have to pay to own the condo. If people aren’t paying obviously that is a problem. 

Dale Whitman, Professor of Law Emeritus, University of Missouri, advises prospective buyers of a condominium unit to “ask the HOA president what proportion of the owners are habitually late on their assessment payments (or worse yet, are in litigation to collect their assessments or foreclose the liens on their units). If the percentage is very high (say, more than 5%), I would worry that the project is going to get into financial trouble, even if it isn’t quite there yet.” 

Condo Sources of Information: Public Records 

Some great practical advice comes from attorney C. Gregg Larson. “I would include questions about crimes.  A client had the storage unit in her condo building…broken into and all the units were ransacked. (The Buyer) might want to check sex offender maps.” 

How much information could you find out spending ten minutes on the internet? Many locales include a great deal of free searchable public information that can give you a sense of the issues that may be relevant to your condominium.  

Attorney John Gear in Oregon had this to say, “Anyone thinking of buying into a condo (or any other type of HOA) should do a search for litigation history… and read all the complaints…” 

That is great advice. All associations have a culture. The kinds of complaints made, and how they are resolved will reveal a great deal about the community you are considering joining. Attorney Gear goes on to say of lawsuits, “find out whether cases get settled or go to foreclosure.”  

Mr. Gear’s comment may have you asking who is foreclosing? Most people do not realize that a condominium association can foreclose on your condominium unit. This is something it is very important to know before buying a condominium. Condominiums are governed by rules. Those rules are contained in various documents. There are rules in a state law, the state law also allows the condominium to have rules in the form of a declaration, bylaws, and also rules and regulations. What if you as a unit owner do not follow the rules? What can the condominium do about it? They can fine you money. If the rule involves maintenance or repairs, they can make that repair for you, and charge you for it. So, if you don’t follow the rules, sooner or later you will end up owing the association money. If you don’t pay that money, the condominium can foreclose on your unit. “Foreclose” means they can force the sale of your unit to pay the fine that you owed.  

Attorney Gear’s tips are extremely practical and easy to follow. By looking at the court records, which in many counties are online, you will learn if there have been lawsuits that involved the condominium. For instance, if you find that there are many lawsuits or legal complaints, against the condominium by unit owners, what might you conclude from that? If there are many foreclosures against unit owners by the condominium association, what might you conclude from that information? 

Why Should You Search Condo Lawsuits Before You Buy? 

Legal complaints are public records. That means you can actually read what the unit owner is complaining about. Or conversely exactly why the condominium association is foreclosing on a unit – why they fined the unit owner in the first place. Did the unit owner simply fail to pay their common charges? Was it about smoking pot? Cooking smells? Failure to maintain the unit? Renting the unit on Airbnb in violation of the condominium documents? Letting their pet pitbull off the leash in common areas? How many pitbulls does this association have any way?! You see how each one of these different possible complaints colors your impression of the kind of community you might be living in? What about the information I revealed about the enforcement process of a condominium? Will you be comfortable living in a place where your neighbors could fine you for not following the rules and ultimately foreclose on your unit? 

As Attorney Gear correctly points out “There’s no better way to know the kind of treatment you might get than to look at how they have treated others and what prior owners have said about them while they were on the inside.” 

How Are Condo Fees Calculated?

If your common charges are going to be based on the size of your unit, you should verify the square footage of the unit. “Caveat emptor,” says Stephen R.H. Ortiz, CEO of Wilderness Gate. Mr. Ortiz is referring to the age-old legal adage “let the buyer beware.” That means, check everything out before you buy. Mr. Otiz relates a personal incident.  

“I thought I had outfoxed the London gazumping property pirates by purchasing a brand new condo on the Grand Canal in Islington. Gazumping is a nasty England & Wales practice. Sensible Scots have banned it. Preparing some ideas for (finishing the condo) I was using some graph paper to have my ideas to scale. I quickly realized I was missing about 1,000 square feet. When I confronted the developer’s office about this, they brassily replied that “it is the accurate square footage if you add a loft.” When I queried about the ceiling heights, I recall they were decent 16′ or so, which meant the loft would have a sub 7′ ceiling. “Yes the ceiling height in the loft would be 6’6″ at the midpoint, and tapered from there.” I cancelled my contract, on the basis of undisclosed material fact” 

Condo Assessments as Surprise Costs in Buying a Condo

“One of my daughters had a contract to buy a condo. The brokers knew that an assessment was being contemplated for new windows. In reviewing the minutes of the condo board and getting a contractor’s report prepared for the board we figured out the assessment was going to be over $30,000 a unit,” revealed transactional attorney Jim Henegan. Can you imagine the surprise if Jim’s daughter had not discovered this upcoming assessment? Since the action was not yet approved, a resale certificate would not have shown it. 

How might you find out about an assessment that is coming down the pipe? “Review Board and member meeting minutes for the last 12 to 18 months,” says Thomas M. Little of Foley & Lardner, attorneys in Tampa Florida.  

Many of the attorneys interviewed suggested that a prospective condo buyer should speak to the management agent, or a board president or officer. However, another attorney, one who generally represents condominiums, admitted that most management agents and condominium officers and directors are counseled not to talk to buyers. One reason for that is that they do not want to get sued by the seller if the buyer backs out of the deal.  

So, if you ask to speak to a condominium board member or managing agent, don’t be surprised if they refuse on advice of counsel. Or if they do not refuse, they may ask that the buyer, seller and realtors sign a general release holding them harmless.  

Condo Storage and Condo Parking

On the subject of parking and storage, Steven W. Bender, Professor and Associate Dean for Planning and Strategic Initiatives at Seattle University School of Law says, “due diligence around the ownership and conveyance of parking spaces and storage units is essential.” Why? Because, again, you might be surprised to learn the rules surrounding parking or storage. 

You should find out which space/storage numbers were advertised with the listing. Do they match what the condominium declaration/documents provide for that unit? Many prospective buyers of condominiums do not realize that sometimes parking spaces can be conveyed between condo unit owners outside of the condo documents. In other words, the condominium’s declaration and bylaws, or master deed, are public recordings. They are public so that a buyer can see what they are getting. However, sometimes after those documents are recorded, sometimes, things can be changed that are not reflected in those documents. If it is important to buy a parking space or storage space, make sure that the governing documents approve this. And if the governing documents approve such sales, make sure you know if the unit you are buying sold their storage or parking space to someone else before you buy the unit.  

Professor Bender makes these practical suggestions: 

• “Does the unit description match the real property tax records that sometimes tax condominium units or their accessory spaces for parking or storage as separate tax parcels? 
• Are and how are parking spaces or storage spaces referenced in the seller’s deed? 

• Also, make sure this all gets into the buyer’s deed, and title insurance policy.” 

These are great tips. Checking the tax record, reading the deed, and reviewing the condominiums governing documents can save you thousands of dollars, and hours of anguish later.