Wednesday, 22 November 2017

Condo 101: The Governing Documents

Written by Posted On Tuesday, 21 February 2017 20:50

Question: I am interested in buying a condominium, and have just received a package from management containing a lot of documents and information. Frankly it is overwhelming. What should I review?

Answer: When you sign a contract to buy an existing condominium, you must be given what is known as a "resale package". If you are buying from the developer, it is a Public Offering Statement (POS). Typically, the sales contract gives you a period of time, usually. three business days, from the day you get the package to cancel the contract and get your earnest money deposit back. I prefer to change this "cancellation period" in the contract before you sign it to five business days, to give you more time to absorb all of the material.

The package includes such things as the condominium governing documents,, the current budget, any pending lawsuits involving the association, insurance information and an audit report from an independent CPA. You should carefully review the financials to make sure the association is financially sound and has sufficient reserves for that rainy day.

To create a condominium, there must be a law enacted by the state legislature (or the DC City Council). All of the Washington metropolitan jurisdictions have a Condominium Act; in fact, some local counties -- such as Montgomery -- have their own laws that also impact condominiums.

In general, the Condo Act has legal priority, and overrides any conflicting legal documents. Although there are some provisions in these laws that are carved in stone -- such as percentage interests cannot be changed without unanimous consent from all owners -- the drafters of the legislation recognized that times and circumstances change. Accordingly, the various condominium laws permit associations to amend their legal documents from time to time as needed.

The governing condo documents start with the Declaration. This document literally "declares" the complex to be a condominium. It provides an explanation of the three components of the condo, namely "units", "common elements" and "limited common elements". It also spells out the ownership percentage of each unit (which must total 100 percent) on which voting and condo payments are based. It should be noted that although a few associations have one-unit-one-vote, the majority of condominiums base voting and assessments on percentage interests. Each unit's percentage interest is shown at the end of the Declaration.

The "bible" of a condominium is the Bylaws. It sets forth the way board members are elected and what they can -- and cannot -- do; it contains restrictions on such issues as pets, parking, leasing and payment of condo fees. While I always strongly urge potential buyers to read all of the condo documents, at the very least one must carefully read the Bylaws to make sure this is where you want to live. You should, of course, also review the financial status of the association; you don't want to buy into a place where there are too many delinquencies, where the reserves are too low, or major repairs are upcoming with no funds available to pay for them.

There often are Rules which are adopted by the Board of Directors. They deal with a host of issues, often interpreting or expanding on provisions contained in the Bylaws. For example, if the Bylaws permit dogs, the Rules may spell out that dogs must be on a leash while on common grounds, or that owners must pick up their dog waste. On the other hand, if the Bylaws prohibit dogs, the Board cannot override that by enacting a Rule.

Another document is the Plat and Plans. This is often called the "condo map". It is an architectural drawing -- recorded among the land records in the jurisdiction where the condo is located -- that is a floor plan of each unit, showing what is a general common as compared to a limited common element. General common elements are for everyone's use, such as elevators or hallways. Limited common elements are reserved for less than all unit owners. Limited common elements can include a balcony, deck, patio, storage space and even parking spaces.

If you are buying in the District of Columbia, the Plat and Plans must be included in the resale package. They are not required in Maryland or Virginia, but if you are buying in those states, I would ask to get a copy before you decide to buy.

I use the concept of hierarchy -- priority of legal condominium documents. The condo law in your jurisdiction trumps everything. If state law says you need a super-majority vote in order to amend the Bylaws, that requirement can only be amended by the legislative body.

Next in priority is the Declaration. Referring again to pets, if the Declaration says "no pets", that is the law. The Board cannot allow pets unless the Declaration is amended, and that will take a 66-2/3 vote or higher of the membership, depending on what the Declaration states.

The Bylaws fall in place under the Declaration and then, in last place -- but still very important -- are the Rules and Regulations.

Buying a condo unit requires lots of reading, consulting with current owners, management, your lawyer, and financial advisors. This may be the biggest investment you will ever make; do your homework, with a good place to start being the condo documents, since they will govern you if you purchase.

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Benny L. Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of Kass, Mitek & Kass, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

www.kmklawyers.com

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