Condominium Associations: Know What You're Getting Into When You Buy a Condo
TABLE OF CONTENTS:
- Condo Associations vs. HOAs
- Condominium Plats and Plans
- Transition of Control over Management
- Organization and Powers of a Condominium Association
- Directors and Officers
- Regulation of Association Powers
- Condo Association Responsibilities
- Common Elements: General and Limited
- Association Insurance
- Books and Records
- Unit Ownership and Determining Unit Boundaries
- Unit Owner Obligations
- Violation and Enforcement of Covenants
- Allocation of Common Element Interest, Votes, Common Expenses
- Alteration of Units
- Termination of a Condoniminium Association
Condominium living can be a great experience. You get the community feeling of an apartment complex with the financial benefits of homeownership. But before purchasing a condo, you need to know what you’re getting into. Condo associations offer tangible benefits and services to their members, but members also owe certain obligations to the association and duties to their neighbors. Of course, condo associations are not all the same, and the legal framework governing condominiums varies from state to state. In general, though, there are a few important principles every condo owner or prospective purchaser should keep in mind.
Condo Associations vs. HOAs
Homeowners associations are nearly ubiquitous these days, so most people have at least a general familiarity with how they work. And because condo associations and HOAs are similar arrangements, comparing and contrasting the two is a good place to begin a survey of condos. Both HOAs and condominiums involve individually owned real-estate interests incorporated within a larger community. Both include “common elements” - property collectively owned by the community and managed by an association. And each association is typically organized as a nonprofit corporation run by elected board-members.
Both systems are also governed by state statutes and a community constitution referred to as a “declaration.” And, they have the same basic goals of maintaining a community’s quality of life and preserving property values.
HOAs are usually associated with single-family, residential houses, while condominiums typically involve apartment-style units within one or more multi-story buildings. Notably, though, “condominium” technically refers to the ownership structure, so architecture is not essential. A condominium can just as easily consist of townhomes or duplexes.
In most states, the statutes governing HOAs and condos are very similar. A state’s “Condominium Act” will often include some language nearly identical to the HOA law. However, condo laws are almost always more comprehensive and detailed. In most cases, a condo association’s rules and regulations address more topics - and the association plays a more active role - than in a comparable HOA.
Condominium Plats and Plans
As with an HOA, when a developer decides to subdivide a single parcel into multiple condominium units, the developer must – after securing all necessary approvals – prepare and record a condominium plat within the land records of the county in which the units will be located. An HOA’s subdivision plat is a map of the divided parcel describing and setting forth the dimensions of each newly created lot and any common areas. Likewise, a condominium plat will generally map out the condominium, identify and describe each unit - including its boundaries, location, and any other information necessary to identify the unit with reasonable certainty – and provide a description of all common elements, easements, and any encroachments affecting the condominium. See, e.g., Md. Code, Real Property, §11-103; A.R.S. §33-1219.
Condominium plats are often filed alongside or as an attachment to the community’s declaration of condominium. Upon filing, both documents become public records and can be reviewed at the office of the county clerk (or similarly titled county official, depending upon the state).
Transition of Control over Management
While a condominium is in development, the developer controls the condo association. As the principal unit owner, the developer retains authority to appoint board-members and/or officers, manage common elements, administer the association’s finances including collection of assessments, and generally perform the association’s duties. Eventually, as more units are sold, the developer will turn over control of the association to its members. The precise timing and standards for the transition are controlled by state law. Often, control shifts within a month or two after a majority of the association’s voting members become unit owners other than the developer. When the transition occurs, the developer turns over association funds, records, and contracts (including insurance agreements) to the elected board. Thereafter, the board, on behalf of the association, assumes control and ownership of common elements and general administration of the community. See, e.g., Fla. Stat. §718.301(4).
Organization and Powers of a Condominium Association
A community’s “declaration of condominium” (or just “declaration”) is the source of a condo association’s authority, only trumped by state and federal law. The declaration is essentially a legally binding contract entered between the association and each unit owner. Because a declaration is a recorded public record, unit purchasers are deemed to have consented to the declaration and agreed to be bound by its terms when they accept title to a unit.
A condo declaration establishes the association of unit owners and declares that it will be organized under the state’s condominium act. A declaration sets forth community covenants (promises between and among the unit owners and the association), restrictions (use limitations and prohibited activities), and the general powers and duties of the association’s board of directors. Board powers typically include the authority to collect assessments from unit owners, enforce covenants, maintain common elements, and act on behalf of the association in legal, contractual, and financial matters.
An association’s bylaws work in conjunction with its declaration, and the two documents are commonly recorded together and reference one another. Bylaws lay out procedural rules dealing with election and appointment of board-members and officers; rules and standards for board and member meetings; process and requirements for amendments; and other aspects of how the association is run. Most associations are incorporated and will therefore also have an “articles of incorporation,” which also details rules and standards of corporate governance.
Condo rules and regulations are adopted by the board and implement the general policies and objectives set forth in the governing documents. Rules and regulations usually deal with more specific details of association policy. For instance, if a community has a pool, the board might adopt regulations governing when the pool is open and establishing usage rules.
State law and condo declarations require regular meetings to discuss association policies, status, and potential issues to be addressed. Member meetings are generally only required once per year but can occur more often, and the board can call special meetings to address emergent matters. Member meetings provide a venue for voting, discussion, and member comments and questions. The board must provide all members with advance notice of member meetings and, in the case of special meetings, must state the meeting’s purpose (e.g., amending governing documents, filling a board vacancy).
Board meetings allow the elected board-members to conduct the business of the association. Some, though not all, states require board meetings to be open to all members unless sensitive or privileged matters are being discussed. Board meetings are usually held more frequently than member meetings and usually must have a quorum present for the board to take action. Most states require condo associations to keep and retain meeting minutes for both board and member meetings.
“Assessments” are the regular payments unit owners must make to the association to fund its operation. A board’s right to set and collect assessments is established in the condo declaration and by state law. Revenue raised through assessments pays for maintenance and repair of common elements, and legal, professional, and management fees incurred by the association, and typically funds a reserve account for irregular maintenance and long-term capital expenditures. See, e.g., A.R.S. §33-1255. Unpaid assessments are secured by a statutory lien on the delinquent unit in favor of the association, and associations are usually empowered to collect late fees, interest, and collection costs for non-payment. See, e.g., Fla. Stat. §718.116. Along with regular assessments, association boards are empowered to charge special assessments when additional funding is needed for unexpected, one-time expenses, such as a major repair. Id., at §718.116(10).
Directors and Officers
All unit owners automatically become members of a condominium association upon purchasing a unit. Membership rights include the right to vote in elections for board members. The board of directors consists of a defined number of elected members (usually specified in the bylaws) and carries out the association’s obligations on its behalf. The right to elect board members is the primary means by which unit owners exercise power over the board. The elected board appoints officers, such as a president and treasurer, to implement the board’s directives. Officers are usually chosen from among the elected board members.
An association’s board of directors and officers almost always have a fiduciary duty toward the association and its members. A fiduciary duty is higher than the ordinary standard of care owed by parties to a contract and includes the obligation to act in good faith and in the best interests of unit owners and the association as a whole. Fla. Stat. §718.111(1)(d). Board members may not engage in any improper self-dealing and have a duty to disclose any potential conflicts of interest or business dealings between the association and any board member or officer. See, e.g., 765 ILCS 605/18(a)(16).
Regulation of Association Powers
Well-drafted governing documents will unambiguously state the areas in which an association is permitted to act and the areas in which it may not act. An association may not act outside the scope of its authority without first amending the condominium declaration. Additionally, state statutes often expressly identify rights guaranteed to unit owners or actions which an association is forbidden from taking. See, e.g., 754 ILCS 605/9(c)(1) (guarantying right to display religious objects on front door of unit); Fla. Stat. §718.113(4) (guarantying right to display American and Florida flags); A.R.S. §33-1261(D) (prohibiting limitations on certain political activity); Cal. Civ. Code §4715 (prohibiting blanket prohibition on pets); Fla. Stat. §718.110(13) (limiting enforcement of rental restrictions to unit owners who consented to the restriction or purchased unit after adoption).
Federal and state anti-discrimination laws also place limitations on the powers of condo associations. The federal Fair Housing Act (FHA), 42 U.S.C. §3601, et. seq., prohibits discrimination in housing based on certain “protected classes.” Under the FHA, a condo association cannot take any action adversely affecting a person’s right to buy, rent, or enjoy the use of real estate based upon that individual’s race, color, religion, sex, familial status, national origin, or disability.
The FHA applies to not only obviously discriminatory conduct, such as a covenant that prohibits selling a unit to members of certain religions, but also actions with a “disparate impact” on any protected class. Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S.Ct. 2507 (2015). Moreover, condo associations (or any other person or entity to which the FHA applies) are required to make “reasonable accommodations” allowing full enjoyment of a unit or common elements to members of protected classes. See, e.g., Warren v. Delvista Towers Condo. Assoc., 49 F.Supp. 3d 1082 (2014). A reasonable accommodation could be a structural change, like a wheelchair access ramp, or a policy waiver, such as an exemption to a pet restriction to allow for an emotional support animal. Bhogaita v. Altamonte Heights Condominium Assn., 765 F.3d 1277 (11th Cir., 2014).
Like the FHA, the Americans with Disabilities Act (ADA), 42 U.S.C. §§ 3601-3631, prohibits disability discrimination. The ADA, though, is more limited in application and generally only applies to condo associations to the extent they offer “public accommodations” (i.e., common elements open to the general public) or qualify as employers under the statute. A condo association with a pool or recreation center to which the general public is allowed admission must comply with the ADA, including, for instance, ensuring facilities comply with the Department of Justice’s published specifications.
Other federal statutes and regulations potentially impacting condo associations or property management companies acting on their behalf include the Freedom to Display the American Flag Act, 4 U.S.C. §5, Pub. L. 109-243 (prohibiting policies that “restrict or prevent a member of the association from displaying the flag of the United States on residential property…”); the Over-the-Air Reception Devices (OTARD) Rule, 47 C.F.R. §1.4000 (prohibiting unreasonable restrictions on unit owners’ use of wireless cable or local TV antennas or satellite dishes not over one meter in diameter); the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. §1692, et seq. (regulating debt collection by third-party debt collectors); and the United States Bankruptcy Code, which, among many other things, prohibits any attempt to collect a debt subject to a bankruptcy proceeding except through the bankruptcy court.
Condo Association Responsibilities
Condo associations are generally responsible for maintaining and repairing common elements, adopting budgets, collecting assessments, preserving association records, and enforcing covenants. See, e.g., A.R.S. §33-1242(A). Association boards have authority to enter into contracts with outside parties, such as property-management companies, contractors, or legal counsel, to perform their obligations. Id.
The budgeting process varies between states and associations but is generally more precise and detailed than what is required of HOAs. Ordinarily, the board proposes a budget annually, which is then submitted to members for approval. See, e.g., 754 ILCS §605/9(c)(1). Using the standards of the Florida Condominium Act as an example, a proposed budget must set forth projected revenues and expenses - broken down by expense classifications and providing for reserve accounts for capital expenditures and deferred maintenance. Fla. Stat. §718.112(f). The association must hold an annual budget meeting open to all members. Fla. Stat. §718.112(e). If the board proposes a budget increase of more than 15 percent over the prior year, members can propose an alternate budget for consideration at a special meeting set by the board. Id.
The duty to enforce covenants can mean issuing warning letters, imposing fines or restrictions on voting or common-element privileges, and, if necessary, instituting a civil lawsuit seeking a court order for money damages or specific performance of covenants. An association that neglects to enforce covenants or enforces arbitrarily runs the risk of having a challenged covenant declared void due to waiver. See Alfaro v. Community Housing Improvement System & Planning Assn., 171 Cal.App.4th 1356, 1380 (2009).
Common Elements: General and Limited
A condominium’s “common elements” are the areas within the condominium that are not part of any individual owner’s unit. Common elements also include easements or rights-of-way necessary to a building’s infrastructure such as plumbing, wiring, and HVAC, or necessary to maintain the building. See, e.g., Fla. Stat. 718.108. Access to an easement within or adjacent to a unit is generally limited to reasonable hours upon notice to the unit-owner. Fla. Stat. § 718.111(5).
“General common elements” are facilities that serve all units or are accessible by all members. These might include stairs, elevators, hallways, recreational facilities, and exterior HVAC, plumbing, and electric. Association boards have authority to impose reasonable use restrictions or regulations on general common elements, so long as such restrictions or regulations do not conflict with other governing documents or state or federal law.
“Limited common elements” are not a part of any individual unit but are restricted to certain specified owners. Limited common elements commonly include porches, patios, balconies, and doorways, along with wiring, conduit, ductwork, and structural components servicing only a single unit. See, e.g., A.R.S. §33-1212. Unit owners are usually required to secure association approval for any modification to a limited common element, even if physically connected to a unit.
A board is responsible for arranging for the maintenance, replacement, and repair of common elements, as necessary to the condominium. This duty could include landscaping and grounds maintenance, fixing a leaky roof or HVAC problem, repairing potholes in the parking lot, or arranging for snow removal. Maintenance of common elements is paid from the association budget funded by regular assessments, from a reserve fund, or via special assessments for major unanticipated expenditures.
In most states, condo associations are required by statute to procure and maintain one or more insurance policy covering the association and the common elements. An association’s declaration may call for greater coverage than the applicable statute or require insurance against additional risks. Condominium policies commonly include coverage against property damage to common elements, liability insurance for the association itself and agents acting on its behalf, and fidelity insurance or a bond covering officers, managers, or employees handling association funds. See, e.g., Fla. Stat. §718.111(11); A.R.S. §33-1253. For the most part, unit owners are responsible for obtaining insurance coverage for their own units and the personal property therein, though some associations obtain policies covering units within the condominium (but rarely including personal property or fixtures located within and exclusively serving individual units). A.R.S. §33-1253(B); Fla. Stat. §718.111(11)(f)(3). Premiums due for association insurance policies are considered a common expense and paid from assessments.
Books and Records
Condo associations are required by both state law and most declarations to keep and maintain records of the association’s activities. Records to be preserved typically include copies of governing documents, minutes and voting logs for board and member meetings, financial and accounting records, contracts entered into by the association including insurance policies, and a roster of current members. See, e.g., A.R.S. §33-1258; Cal. Civ. Code §5200; Fla. Stat. §718.111(12). Unit owners have a right to review most association records, excluding records subject to attorney-client privilege, employment records, and documents with sensitive or confidential information relating to members or employees. The board has a duty to make such records available for inspection and copying upon reasonable notice from a member – usually at no or minimal charge. See, e.g., A.R.S. §33-1258; Cal. Civ. Code §5205; Fla. Stat. §718.111(12)(b). In most states, a requesting member need not state any purpose for the request, though some states allow an association to deny a request it believes was made for an improper purpose.
Unit Ownership and Determining Unit Boundaries
Every unit within a condominium is considered a separate and distinct parcel for purposes of real estate law and property taxes. See, e.g., A.R.S. §33-1204. The interest in common elements and easements attributable to an individual unit is tied to that unit and “runs with the land,” so that the interests are not severed upon a sale or transfer, and the right to use common elements (subject to association rules) is a property right vested in each individual unit. Likewise, a condominium declaration and the covenants, restrictions, and easements described therein attach to each unit’s deed and remain effective as against the unit itself regardless of any sale or other transfer of ownership.
The boundaries between units, and between units and common elements, are set forth and described in a condominium’s recorded plat. Typically, a plat will designate walls, ceilings, and/or floors as the outer boundaries of a unit. Finishing materials, paneling, wallpaper, and tile affixed to a wall are usually deemed as connected to an individual unit, while the wall itself (i.e., the structural components) are considered part of the common elements. See., e.g., A.R.S. §33-1212. Weight-bearing walls inside an individual unit are generally considered limited common elements.
Unit Owner Obligations
A condominium’s governing documents include covenants and restrictions that impose certain obligations on the owner of each unit subject to the condominium. Because a declaration is essentially a contract between all of the unit owners and the association, unit owners, along with their family members, guests, and tenants, are all legally bound to comply with association covenants and restrictions. A non-compliant owner potentially faces liability to not only the association but also other owners.
Common covenants include the duty to avoid creating excessive noise or other nuisance, to comply with the community’s aesthetic standards; to limit the number, size, species and breed of pets to community guidelines; and to only rent a unit under terms according with association rules.
Perhaps the most important obligation, though, is the duty to pay regular assessments to the association. The courts in most states have held that the obligation to pay assessments to a condo association exists independently of the association’s maintenance duties. See, Spanish Court Two Condo. Assn. v. Carlson, 12 N.E. 3d 1 (Ill. 2014); Blood v. Edgar’s, Inc., 632 N.E. 2d 419 (Mass. App. Ct., 1994). An association’s failure to perform is not a defense to an action to collect unpaid assessments. In the event an association does not perform its duties, a unit owner can take legal action against the association for non-compliance but cannot withhold payment of assessments without risking liability him or herself.
The easements attached to a unit, the condominium declaration, and state law ordinarily impose a requirement on unit owners to allow the association reasonable access to units to the extent necessary to repair common elements. See, e.g., 765 ILCS 605/18.4(j). For the most part, associations must provide notice before accessing a unit, though there are exceptions in the event of an emergency – such as if immediate access is necessary to avoid injury or property damage to another unit owner or to remedy an imminent safety hazard (for instance, if there is a fire or dangerous animal in the building).
Violation and Enforcement of Covenants
An association’s covenants and restrictions are promises that unit owners will do – or will refrain from doing – certain things. When a unit owner violates a restriction or covenant, the association, acting through its board, is empowered by state law and by the condominium declaration to take enforcement action against the non-compliant owner. Association enforcement powers include late fees, interest, and liens for non-payment; fines for covenant violations; and restriction of voting rights and/or access to common elements. If a unit’s assessments become excessively delinquent, associations also have the power to foreclose on the unit as a means of recovering the debt. In some states, associations are authorized to attach rent payments owed to unit owners who rent their units. See, e.g., Fla. Stat. §718.116(c).
State laws place limitations on the severity of enforcement mechanisms by, for example, capping fines, late fees, and interest charges; mandating minimum delinquency amounts and times before liens can be filed or foreclosure suits can be pursued; and granting members the right to request a hearing prior to imposition of fines.
An association board owes a duty to the association and to unit owners to enforce covenants consistently. If a board neglects to enforce covenants or if a court finds that a board’s enforcement has been arbitrary, the association may be deemed to have waived the covenant and therefore unable to enforce it in the future. See Alfaro v. Community Housing Improvement System & Planning Assn., 171 Cal.App.4th 1356, 1380 (2009).
Allocation of Common Element Interests, Votes, Common Expenses
The general formula for allocating interests in common elements, voting rights, and common expense liability is to assign (usually within the declaration) each unit a percentage of the total interests and then calculate individual unit votes, interests, and assessments accordingly. See generally, A.R.S. §33-1217. For example, if a condominium has 10 units and each unit is allocated a ten-percent interest, each unit has a ten-percent voting interest, a ten-percent interest in common elements, and liability for ten percent of the common expenses. So, if in this example, the association’s budget for a year is $100,000, each unit will be responsible for assessments of $10,000 for that year.
Although the default standard is that each unit receives an equal percent interest and that voting and common-element interests are the same for any given unit, a declaration can state otherwise. For instance, units that disproportionately benefit from common elements can be assessed a greater amount if provided within the declaration. Along the same lines, a declaration may set forth different voting allocations depending on the matter upon which a vote is taken.
There is an important exception to the general system applying to special assessments benefiting fewer than all units – or which are necessitated by the misconduct of a specific unit owner. In either scenario, an association may assess the expenses against only the unit owner(s) who receives the benefit or was responsible for the expense. See, e.g., A.R.S. §33-1255.
Alteration of Units
The starting point under the common law is that the owner of a property can use it as he or she pleases, as long as the use does not cause harm to anyone else. Of course, state law and condo association governing documents can impose greater usage restrictions. In most states, unless prohibited by the declaration or other provisions of state law, a unit owner “may make any improvements or alterations within his unit that do not materially impair the structural integrity of any structure or otherwise materially lessen the support of any portion of the condominium.” O.C.G.A. §44-3-90. Changes affecting a unit’s exterior appearance or affecting common elements, though, usually require the written approval of the association. A.R.S. §33-1221.
Termination of a Condominium Association
An association’s declaration and the covenants and restrictions included therein are generally presumed to continue in perpetuity unless affirmatively terminated. Statutory termination provisions vary from state to state, and individual declarations can include other mechanisms for termination. Under the Florida Condominium Act, if the continued operation of a condominium would result in economic waste, or if continued operation is impossible due to changes in laws or regulations or due to environmental hazards or concerns, an association can prepare a plan of termination and, if approved by the requisite percentage of unit owners (as identified in the declaration), the association will terminate under the terms of the plan. Alternatively, an association can elect to voluntarily terminate if a plan of termination is approved by a super-majority of voting members, though even a small percentage of objecting members can exercise a veto power. Fla. Stat. §718-117.