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.

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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.

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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.

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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.

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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)