Condominiums, Co-ops, and other Multiunit Interests

CONDOMINIUMS & CO-OPS History 1970’s Demographics Economy Housing costs Interest rates Life style Politics Vision Regulatory response Issue of reserves

Model Acts and Law Applicable to Multi-Unit Housing Uniform Condominium Act Horizontal Property Acts or Horizontal Property Regimes Model Real Estate Cooperative Act Model Real Estate Time-Share Act Uniform Common Interest Ownership Act Uniform Planned Community Act

Types of Multiunit Housing Hybrids Patio homes Garden homes Combinations of above Condominiums Townhouses Cooperatives Time-sharing properties

Creating a Condominium Ownership Interest Compliance with conversion requirements Declaration of condominium or declaration of horizontal property regime and covenants or declaration of covenants, conditions, and restrictions (CC&Rs or CCRs). Master deed Incorporation (in most cases) Individual deeds (for each unit owner)

Content for Declaration of Condominium Legal description of the property. Detailed description of the building or buildings making up the complex, and the number of stories, basements, and units. Mailing address of each unit and a physical description including the number of rooms, method of access, and other identifiable characteristics. (continued on next slide)

Content for Declaration of Condominium Detailed description of the common areas. Limitations on the use of common areas. Monetary value of the building and each unit. How votes are to be assigned—per unit basis or per value basis. (continued on next slide)

Content for Declaration of Condominium Restrictions on land use; for example, all-adult restrictions. Name and address of legal representative for the development. Voting procedures. Methods for amending the declaration of condominium. Other restrictions

Condominium Fee simple interest Undivided fractional interest in common areas Fees Special assessments Reserves

Creation of a Cooperative History Incorporation Acquisition of all land interest in corporate name Bylaws and restrictions Issuance of shares to owners of units Execution of proprietary leases for each unit owner Tenant-shareholder Tax aspects Transfers

Content of Cooperative Incorporation Corporate name Purpose of the corporation (cooperative) Share structure, including voting rights and transferability Name of legal agent or representative Structure of the board of directors and makeup on initial board Provisions for amendment to the articles

Creation of Townhouses Declaration of Covenents, Conditions and Restrictions (CCRs or CC&Rs) Articles of incorporation (in some states and/or for ownership of common areas) Bylaws Regulations

Creation of Time-Sharing Interests Recreational leases Proprietary leases Fee simple, with limitations on time of possession Vacation license (considered the sale of a security and regulated by the SEC)

The Common Factor in All Multi- Unit Housing Forms Owners’ Associations CCR’s Uniform Planned Community Act

The Purposes of an Owners’ Association Maintains common areas Arranges for delivery of services Taxes members through regular and special assessments to pay for amenities and services Protects neighborhood aesthetics and real estate values by enforcing the declaration

The Governance Mechanisms of Owners’ Associations Governing board elected by owners Bylaws Fees and assessments Fines for noncompliance and failure to pay Planned Community Acts

Content of Owners’ Association Bylaws Composition of a governing board or committee for the association and the methods and requirements for election of its members. Details for meetings, such as place, time, notice, quorum, requirements, and voting processes. Procedures for day-to-day maintenance authorization, equipment replacements, and routine repairs. (continued on next slide)

Content of Owners’ Association Bylaws Amount of any association fees to be collected from unit owners for maintenance of common areas, and so on; the methods for collecting such fees; and the penalties for late payment or nonpayment. (See the discussion on enforcement for authority of associations for collection.) Procedures for amending the bylaws. Use restrictions, such as adult-only restrictions and limitations on transfer and rental.

Recommendations for Avoiding Litigation Enforce all the rules quickly and uniformly. Singling out owners for enforcement will give courts a reason for setting aside the rule and the enforcement. Try other avenues for enforcement such as loss of voting privileges, ongoing but minimal fines, and loss of privileges on a temporary basis. Be certain the rules are formally adopted and properly recorded as necessary. (continued on next slide)

Recommendations for Avoiding Litigation Maintain minutes and records of meetings when rules are adopted so that a court could examine the intent of the owners and their governing body in adopting the rules. Include a cost/benefit analysis of the rule in the adoption process. Provide in the rules that attorneys’ fees are recoverable when there is litigation. Liability issues and insurance.

Judicial Review of Owners’ Association Enforcement of Rules Reasonableness test Business judgment test Contract law test

Sources of Owners’ Association Litigation Enforcement of rules Modification of structure Constitutional issues Contract disputes Injury to person or property

Tools for Enforcement Fees and fines Liens (with statutory limitations) Foreclosure (with statutory limitations)