1. Real Estate Law Categories of Real Property

2. Subjects Covered:  Residential Property  Common-Interest Communities  Commercial Property  Acreage

3. Considerations In Purchasing Residential Property 1. Financing 2. Purchase price and other associated costs (renovations, utilities, maintenance, insurance) 3. Property taxes 4. Location 5. School districts 6. Zoning 7. Condition of property (plumbing, electrical, mechanical, roof, termites, mold) 8. Resale prices of similar properties 9. Type of community: common interest community or not

4. Capital Gains on Residential Property The Taxpayer Relief Act of 1997 The Taxpayer Relief Act of 1997 Gains up to $500,000 for couples and $250,000 for individuals exempt from taxes Gains up to $500,000 for couples and $250,000 for individuals exempt from taxes − Home must be the principal residence − Must have lived there 2 of the last 5 years Exclusion allowed on each sale or exchange of principal residence (but not more than once every 2 years) Exclusion allowed on each sale or exchange of principal residence (but not more than once every 2 years) No need to “rollover” gain as before the Taxpayer Relief Act of 1997 No need to “rollover” gain as before the Taxpayer Relief Act of 1997

5. Common-Interest Communities Types: Types: Condominiums Condominiums Cooperatives Cooperatives Time Shares Time Shares Planned Unit Developments Planned Unit Developments

6. Condominiums Definition: A Form of individual ownership with a jointly owned undivided n interest in common area. Definition: A Form of individual ownership with a jointly owned undivided n interest in common area. Types: Types: 1. Residential Condos a. Multi Unit Buildings b. Converted houses c. Condex d. Vacation Condos 2. Commercial Condos a. Industrial b. Shopping c. Mixed Use

7. Property Interests In Condominiums Real Property Interests: Real Property Interests: 1. Unit – 2. Common Areas - Personal Property Interests: - Common area Personal Property Interests: - Common area Examples: Clubhouse furniture, basketball hoop, picnic table Examples: Clubhouse furniture, basketball hoop, picnic table

8. Creation of Condominiums In Massachusetts a condominium is created under the provisions of Massachusetts General Laws (MGL), Chapter 183A. In Massachusetts a condominium is created under the provisions of Massachusetts General Laws (MGL), Chapter 183A. The documents and instruments that create, describe, and establish the framework for governance: The documents and instruments that create, describe, and establish the framework for governance: 1. Master Deed 2. Unit Deed 3. Declaration of Trust (the Bylaws) 4. Rules and Regulations 5. Amendments

9. Master Deed This is the legal instrument that transfers property to condominium ownership and describes: Each is different but follows a familiar pattern according to the powers of the statute. This is the legal instrument that transfers property to condominium ownership and describes: Each is different but follows a familiar pattern according to the powers of the statute. The deed includes: The deed includes: Description of land and buildings Description of land and buildings What is individually owned and what’s common area What is individually owned and what’s common area Description of limited common elements Description of limited common elements Determination of percentage interest Determination of percentage interest Architectural and use restrictions Architectural and use restrictions Outline of managing entity Outline of managing entity Protection of first mortgagees Protection of first mortgagees Plat/ plot plan Plat/ plot plan Amendments Amendments

10. Unit Deed The individual Unit Deed is the document that provides the unit buyer with the following basic rights and obligations: The individual Unit Deed is the document that provides the unit buyer with the following basic rights and obligations: Right of ownership and % interest Right of ownership and % interest First time conveyed, has floor plans attached First time conveyed, has floor plans attached

11. Declaration of Trust (Bylaws) This is the document that establishes the Condominium Association and its legal authority. This is the document that establishes the Condominium Association and its legal authority. Most Condominiums in Massachusetts are set up as Trusts with Trustees. If the association is to be incorporated, the Articles of Incorporation will establish the association and its organizational structure. Most Condominiums in Massachusetts are set up as Trusts with Trustees. If the association is to be incorporated, the Articles of Incorporation will establish the association and its organizational structure. Describes obligations and powers of the Trustees, procedures for maintenance and repair of the unit and common areas, insurance requirements, association meetings, and voting rights, handling of common area expenses, reserve funds, and assessment of unit owners Describes obligations and powers of the Trustees, procedures for maintenance and repair of the unit and common areas, insurance requirements, association meetings, and voting rights, handling of common area expenses, reserve funds, and assessment of unit owners

12. Rules and Regulations Summarize important provisions of the trust which govern the conduct of residents, guests, and tenants Summarize important provisions of the trust which govern the conduct of residents, guests, and tenants

13. Annual Budget This document determines the monthly association fees. It should list all the necessary expenses to maintain all common areas for one year. This document determines the monthly association fees. It should list all the necessary expenses to maintain all common areas for one year. Items included: Items included: Reserves Reserves Condominium Fees Condominium Fees Special Assessments Special Assessments

14. Reserves Reserves include: Reserves include: a. Capital Reserve Fund – allocation of funds for maintenance of the common area (e.g., roof, driveway, etc.). b. Contingency – reserves that cover emergencies that aren’t foreseen or in the budget. Note: Language is typically included in the Purchase and Sale Agreement explaining that the conveyance of the condo shall be deemed to include the Seller’s allocable share of reserve funds held by the organization of unit owners. This is explained to Seller when a listing is taken.

15. Condominium Fees Determined by the annual budget; usually paid monthly. Determined by the annual budget; usually paid monthly. Owners are typically assessed expenses according to their percentage interest. Owners are typically assessed expenses according to their percentage interest. The percentage interest is the relationship of the unit to the total of all units. The law states that this shall be the relationship of unit fair market value to the total of all market values. The percentage interest is the relationship of the unit to the total of all units. The law states that this shall be the relationship of unit fair market value to the total of all market values.

16. Special Assessments Funds needed above and beyond the current budget and reserves to replace a capital item. Funds needed above and beyond the current budget and reserves to replace a capital item. Any now paid? Any to be considered? Any now paid? Any to be considered?

17. 6 (d) Certificates Refers to section of M.G.L. 183A Refers to section of M.G.L. 183A Verifies owners payment status of fees and assessments Verifies owners payment status of fees and assessments

18. Insurance Policies Types: Types: 1. Master Insurance Policy – Property and liability coverage for common areas − The unit owner may or may not be covered for certain items such as cabinets and appliances through this policy. 2. Unit Owner’s Policy – Real and personal property and liability coverage for unit owner

19. Unit Taxes Paid individually by Unit Owners Paid individually by Unit Owners − Usually based on both the tax assessment and percentage share of common area. − If valuation of common area is taxed directly to the association, it is passed on to the owners through the condo fee.

20. Right of First Refusal Some condominium documents, in the Master Deed, or in the Declaration of Trust, contain an element called "Right of First Refusal" which guarantees to the association or its members the right to buy a unit under the same terms and conditions as set forth in a bona fide contract with a potential purchaser of that unit, provided the right is exercised within the time period specified in the documents. Some condominium documents, in the Master Deed, or in the Declaration of Trust, contain an element called "Right of First Refusal" which guarantees to the association or its members the right to buy a unit under the same terms and conditions as set forth in a bona fide contract with a potential purchaser of that unit, provided the right is exercised within the time period specified in the documents. Letter of Declination - Waiver of right of first refusal; required at closing Letter of Declination - Waiver of right of first refusal; required at closing

21. Major Massachusetts Laws Affecting Condominiums Condo Super Lien Bill Condo Super Lien Bill Condo Conversion Statute Condo Conversion Statute

22. Condo Super Lien Bill (Chapter 400 of M.G.L. 183A) 1. Priority of Lien – Gives condo associations the authority to impose a "priority" lien (taking precedence over the first mortgage on the condo unit) on owners who fail to make required common-area payments. In order for costs and fees to be a super-priority item, a notice to the owner and first mortgagee after 60 days of delinquency and a separate notice to the lender 30 days before filing the lien foreclosure action. If the association were to proceed to a lien enforcement sale of the unit, the effect would be to wipe out the first mortgage. However, payment at any time of the super-priority amount will eliminate the super-priority. This provision is intended to balance the interests of associations and lenders. Important for a condo association to have legal counsel involved to serve the proper notifications and monitor the process.

23. Condo Super Lien Bill (cont’d) 2. Unit Owner’s Liability − Explicit recognition that fines, losses and costs of enforcement for a unit owner’s (or tenant or guest’s) misconduct will constitute a lien 3. Due Diligence Issues and Fiduciary Duties: A. Provision of access to condo docs and provision of information about rental guidelines, pets, assigned versus deeded parking. B. Fiduciary Obligations of Buyers Agents to provide analysis of market value, alert buyer to potential issues of concern, including financial health of the complex, average length of time for units on market in complex, vacancy rates, if applicable, and per cent of owner-occupied units.

24. Condo Super Lien Bill (cont’d) 4. On File Documents − The association, in the custody of the trustees or management company, must keep up-to-date copies of the recorded master deed, by-laws and amendments, a minute book of the association meetings, and financial records, contracts for work or services to be provided to the association, and insurance policies. − These records must be made available for inspection by unit owners and first mortgagees, including a right to copy at the requesting party’s expense.

25. Condo Super Lien Bill (cont’d) 5. Management Obligations − Management contracts must provide for the right of the Board to terminate the contract for cause with 10 days notice (but giving that amount of time to cure) and 90 days (or less if the contract permits) to terminate without cause. − 6(d) Certificates must be furnished within 10 business days after a written request.

26. Condo Conversion Statute (St. 1983, c.527) Major Conversion Provisions: Major Conversion Provisions: Applies to co-ops as well as condos; doesn’t apply to buildings containing less than 4 residential units Applies to co-ops as well as condos; doesn’t apply to buildings containing less than 4 residential units Tenants have a period of time to purchase on terms and conditions the same or more favorable than those extended to the general public Tenants have a period of time to purchase on terms and conditions the same or more favorable than those extended to the general public ** Any city or town may impose their own conversion regulations in lieu of this statute

27. Condo Conversion Statute (cont’d) a. Protected Classes − Elderly, Handicapped, Low or Moderate Income – 62 years+. Physically handicapped, income less than 80% of median income for the area set forth in HUD regulations b. Time to Vacate − 1 year for elderly, disabled and low to moderate income people c. Moving reimbursement − Up to $750.00 of documented expenses for non- protected classes; up to $1,000 for protected classes. Tenant has to be up-to-date on rent payments and voluntarily vacate before end of notice period to be eligible for reimbursement.

28. Cooperatives Unlike condominiums, residents do not own their units, but instead own shares in a corporation that owns the building. Unlike condominiums, residents do not own their units, but instead own shares in a corporation that owns the building.

29. Cooperatives (cont’d) 1. The Proprietary Lease − Spells out the number of shares a Buyer will own and states that those shares entitle him to occupy a certain space and have access to the building facilities. At closing, the Buyer receives a proprietary lease and stock certificates. 2. Monthly Fees − Amount determined by number of shares. The allocation of shares is determined by unit size, location, condition, and amenities. The monthly fee covers maintenance, repairs, improvements, as well as payment of real estate taxes and interest on the underlying mortgage for the building (if applicable).

30. Cooperatives (cont’d) 3. The Board of Directors − Elected from shareholders; oversees management, may have a managing agent, has the authority to approve or disprove a prospective purchaser − scrutinizes a prospect’s financial documents − in a privately owned co-op (no government agency subsidy) has the right to reject anyone they feel will alter the quality of life of the co-op as long as the reason doesn’t involve discrimination against a protected class (e.g., Cher, Madonna, Richard Nixon, public figures).

31. Cooperatives (cont’d) 4. Financing Issues − Higher risks to shareholders in case of co-op owner default on payment - the difference needs to be made up by other shareholders. − The bank financing co-op loans is in second position to the bank holding mortgages on the building. − The Board establishes the amount of financing allowable for unsubsidized market rate cooperatives − More limited availability of co-op financing, because the only collateral is the lease and the stock certificates.

32. Cooperatives (cont’d) 5. Special Assessments − Like a Condominium owner a cooperative member can be issued a special assessment for repairs that need to be made to the cooperative.

33. TimeShares/Interval Ownership Two Types: Two Types: Ownership (Fee Simple Interest) Ownership (Fee Simple Interest) Right to Use (Leasehold Interest) Right to Use (Leasehold Interest)

34. TimeShares/Interval Ownership (cont’d) 1. Ownership (Fee Simple) − The Buyer buys his unit outright for the specified week or weeks spelled out in his contract. − The Buyer has a deed, title, and title insurance. − The Buyer can rent or sell his timeshare for profit or leave it as part of his estate. − The Buyer pays real estate taxes and mortgage interest just as in a regular condo purchase, but the deductions are based on the fraction of the year he actually owns. − Majority of time shares are purchased with a personal loan; loans for both ownership and right-to-use plans are unsecured consumer loans.

35. TimeShares/Interval Ownership (cont’d) 2. Right to Use (Leasehold) − Right to use every year for the specified period of time. − Upon expiration of the lease period, the property reverts back to the Owner. With both types of time shares, there is usually an annual maintenance fee. With both types of time shares, there is usually an annual maintenance fee.

36. TimeShares/Interval Ownership (cont’d) Characteristics: Characteristics: Annual Maintenance Fee Annual Maintenance Fee With both types of time shares, there is usually an annual maintenance fee. With both types of time shares, there is usually an annual maintenance fee. Public Offering Statement Public Offering Statement Exchange Programs: Exchange Programs: External – independent service with a membership fee External – independent service with a membership fee Internal – in-house service for affiliated resorts Internal – in-house service for affiliated resorts Trading Network – system where owners make direct arrangements to swap units with one another Trading Network – system where owners make direct arrangements to swap units with one another Fractional Ownership Fractional Ownership

37. Planned Unit Developments (PUDs) Definition: a subdivision containing individual lots with common areas controlled by a homeowners’ association. Definition: a subdivision containing individual lots with common areas controlled by a homeowners’ association. Created by: Created by: Filing articles of incorporation with the state filing authority Filing articles of incorporation with the state filing authority Recording a Subdivision Plat and Declaration of Covenants and Restrictions (i.e., a document setting forth the rights and restrictions of property owners within the PUD) with the county Recording a Subdivision Plat and Declaration of Covenants and Restrictions (i.e., a document setting forth the rights and restrictions of property owners within the PUD) with the county

38. Planned Unit Developments (cont’d) Characteristics: Characteristics: Usually takes the form of nonprofit corporation and is composed of homeowners within the subdivision. Usually takes the form of nonprofit corporation and is composed of homeowners within the subdivision. Common areas are owned by the association, not the homeowners. Common areas are owned by the association, not the homeowners. Many homeowners’ associations have architectural committees through which plans to build, renovate, or expand must be submitted. Many homeowners’ associations have architectural committees through which plans to build, renovate, or expand must be submitted. Assessments are paid to cover certain common costs. Assessments are paid to cover certain common costs.

39. Concerns in Making Commercial Real Estate Decisions Location Location Site and Building Cost and Availability - Visibility/Exposure Required - Traffic Counts (of particular concern to developers of shopping centers and office buildings) Site and Building Cost and Availability - Visibility/Exposure Required - Traffic Counts (of particular concern to developers of shopping centers and office buildings) Access to Suppliers and Markets Access to Suppliers and Markets Supplier Availability Supplier Availability Competition Competition Proximity to Labor Market and Needed Services Proximity to Labor Market and Needed Services Quality of All City/Town and Local Services Quality of All City/Town and Local Services Transportation Transportation Proximity to Major and Secondary Roads Proximity to Major and Secondary Roads Physical Access to Markets and Suppliers Physical Access to Markets and Suppliers Road Maintenance Road Maintenance

40. Concerns in Making Commercial Real Estate Decisions (cont’d) Labor Supply Labor Supply Type Needed vs. Type available Type Needed vs. Type available Wage Levels Wage Levels Seasonal vs. Year Round Seasonal vs. Year Round Housing Availability Housing Availability Quantity and Type Available/Cost - Residential Realtors/Brokers - Apartment Survey/Vacancy Rate & Rental Rates Quantity and Type Available/Cost - Residential Realtors/Brokers - Apartment Survey/Vacancy Rate & Rental Rates

41. True/False 1. A condominium association is organized as a not-for- profit corporation. 2. The owner of a cooperative owns the interior of the unit and ownership of a cooperative is evidenced by a deed. 3. A homeowners association may be organized as a for- profit corporation. 4. Under the Taxpayer Relief Act of 1997, a property owner claiming the capital gains exclusion is required to reinvest the sales proceeds in a new residence. 5. An assigned parking space is an example of a common element. T F T F F Quiz

42. Multiple Choice 6. The Taxpayer Relief Act of 1997 allows individual property owners to exclude this amount of gain realized on the sale or exchange of a principal residence. a. $125,000 b. $250,000 c. $500,000 d. none of the above Quiz (cont’d) B

43. 7. The capital gains exclusion provided under the Taxpayer Relief Act of 1997 may not be claimed more frequently than: a. once every 2 years b. once every 3 years c. once every 5 years d. none of the above 8. The following type of property is not included under the Uniform Common Interest Ownership Act: a. cooperatives b. homes in a PUD c. time-shares d. none of the above Quiz (cont’d) A D

44. 9. Condominium budget reserves can be used for any of the following except a. resurfacing the roof b. painting the exterior of the building c. regular cleaning of recreational facilities d. none of the above 10. When choosing a location for a commercial business, access for pedestrian patronage would be least important for the following business: a. shopping center b. warehouse c. office building d. none of the above Quiz (cont’d) B C