CID Disclosures

(Revised January, 2012)

California law requires extensive disclosures in the sale of Common Interest Developments (“CID”), a term which includes all projects characterized by exclusive individual rights of use or ownership in a portion of real property, coupled with undivided real property rights held in common with others. 

The term Common Interest Development includes any of the following: condominium project, planned development, community apartment project, and stock cooperative.  Although most of the disclosures to be given to buyers of CID’s are the same, there are slight differences if the sale is in a new development, a conversion, or an existing CID (i.e., a resale).  The attached list identifies the disclosures in each of the different types of CID sales.

There are basically three types of interests in a CID:

1.  Common Area:   The entire common interest development except the separate units of the individual owners. Typical examples of common areas include pools, spas, and gardens.

2.  Exclusive Use Common Area:  A portion of the common area designated by the CC&R’s for the exclusive use of one or more, but fewer than all, of the owners of the separate interests. Examples include the right to use parking spaces, storage, a patio or balcony, and external and internal telephone wiring.

3.  Separate Interest:

A.   In a condominium project, separate interest means an individual unit.

B.   In a planned development, separate interest means a separately owned lot, parcel, area, or space.

C.   In a community apartment project, separate interest means the exclusive right to occupy an apartment.

D.   In a stock cooperative, separate interest means the exclusive right to occupy a portion of the real property, usually one apartment.

 PRACTICE TIP:  Be sure to review the CID documents and the Preliminary Title Report to see which interests are being transferred to the buyer, and how those interests are defined.  Not all CID’s are alike. 

FORM:  CAR form “Homeowner Association Information Request” (ZipForms form HOA) covers the items to be requested from the HOA or their management company, and may be used by the HOA to state which documents are not available.

REQUIRED DISCLOSURES IN A COMMON INTEREST DEVELOPMENT SALE:

1.  ALL BUYERS:  CAR form “Homeowner Association Information Request” (ZipForms form HOA) discloses all of the documents that should be given to ALL buyers of a unit in a common interest development (or a conversion). 

2.  NEW COMMON INTEREST DEVELOPMENT SALE:  In addition to all of the disclosures in Number 1 above, buyers in a CID of five or more units must be given a current Subdivision Public Report (also referred to as the “White Slip”)

3.  NEW CONVERSION:  In addition to all of the disclosures in Items 1 and 2 above, the Subdivider must give to the buyer:

            A.  A written statement listing all substantial defects or malfunctions in the major systems in the unit, as well as the common area.  This written statement must disclose any problems with major systems including, but not limited to, the roof, walls, floors, heating, air conditioning, plumbing, electrical systems or components, and recreational facilities.  This disclosure, if delivered after the contract is entered into, must give a three-day right to rescind, just as with a TDS. 

B.  LESS THAN 5 UNITS:  If the common interest development is subject to a blanket encumbrance, but the project is not subject to the Subdivided Lands Law (i.e., fewer than five separate units in the project), then the owner (subdivider) may not sell, or lease for a term exceeding five years, without providing the buyer with a notice containing the language in the form attached.

Note:  HOAs must disclose assessment and reserve study information in a statutory form, “Assessment and Reserve Study Disclosure Summary”. 

4.  Upon the sale of a unit in the HOA, the HOA must also disclose in writing any prohibition in the governing documents against renting or leasing.

Starting January 1, 2012, an owner in a CID is exempt from any prohibition by the HOA against renting or leasing the unit, unless that prohibition was in effect before the owner acquired title to his or her unit.  However, this law does not apply to rental prohibitions in effect before that date.  This protection continues for so long as the buyer owns the unit. 

This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.

© Copyright 2012 Broker Risk Management                                                         Revised 1/02/12

FORM TO BE USED:

DISCLOSURE TO BUYER

CIVIL CODE 1133

To be given by the Subdivider of 2-4 units on the first sale, or lease for a period in excess of five years, of a lot, parcel or unit where there is a Blanket Encumbrance.