Q: My client is buying a condominium unit and it is not clear what portions of the Property are “common area” that can be used by all members and the “restricted common area.” According to the Listing Agent, the area where the Seller has been parking his car is supposed to be “deeded” to the unit but there is nothing in the Preliminary “Title” Report that shows the Buyer would be acquiring a dedicated spot. There is also supposed to be separate storage for each unit but the storage space numbers do not match any of the unit numbers. The Buyer is also concerned that there is a private deck off her unit that may need repairs and she wants to know who is responsible for maintaining that deck. Please help me help my client.
A: Questions about who owns and/or who is responsible for common areas in a Homeowners’ Association are not easily answered and if the Buyer does not fully understand these issues prior to Close of Escrow, then the Seller and both Agents could be facing a nasty post Close of Escrow Claim.
I. TERMINOLOGY
A Common Interest Development (“CID”) is the legal term for property that includes separately deeded ownership in a designated portion of the CID as well as undivided deeded rights to common areas. With residential property, a Homeowners’ Association (“HOA”) is established by the original development documents to oversee the maintenance and preservation of the common areas and to create rules and regulations for the members.
There are different types of CID including condominiums, townhouses and planned unit developments. Regardless of which type of CID you are listing or selling, there are a number of factors that all Agents need to know about the particular CID.
A. What “Separate Property” is being sold?
Regardless of what Sellers put into their disclosures, the best way for a Buyer to determine what specific, separate interest the Buyer will be acquiring is to carefully review the Preliminary Report of title. That document will indicate what will be “deeded” to the Buyer. Generally, with condominiums, the description of the Property will specify that the Buyer is only acquiring the interior living space of the unit; with CIDs that have separate structures for each unit, the description will generally specify the entire structure. The owner will generally be responsible for the maintenance of the unit that is being sold.
Anything that is not specifically transferred by deed to the Buyer, including parking and storage spaces, may be part of either the Common Area or the Restricted Common Area.
B. What is the Restricted Common Area?
Sometimes referred to as “Exclusive Use Areas,” Restricted Common Areas are those portions of the development that can only be accessed by and/or used by specific owners. Restricted Common Areas are identified in the Conditions, Covenants and Restrictions (CC&Rs) and/or the Condominium Map which will also specify which unit(s) are entitled to use these areas and whether or not the HOA will be responsible for their maintenance. Typical examples of Restricted Common Areas are decks, yards, parking and storage spaces. Generally, if a Restricted Common Area can only be accessed by and used by a single owner, that owner will be responsible for the cost of maintaining that area but that is not always true. No one should make any assumptions; the Buyer should confirm the correct information with the HOA.
C. What is the Common Area?
The HOA is responsible for maintaining the Common Areas and the individual owners only have an undivided interest in, and a non-exclusive right to use, the Common Areas. Any agreement between the Seller and Buyer to have a pest inspection of an individual owner’s unit, will only authorize the inspector to evaluate those areas that are not within the control and responsibility of the HOA. Only the HOA can authorize inspections of the Common Areas.
II. MARKETING & DISCLOSURES
Before marketing a single unit in a Common Interest Development, check the CC&Rs or, if it is available, the Seller’s Title Policy to confirm precisely what space(s) have been deeded to the current owner and then make certain that the marketing material and the disclosures are clear on what can actually be sold to the Buyer.
Although Sellers can legally provide Buyers with all of the required HOA information and documents if they are in the Seller’s possession, the most effective way for the Seller to meet the Seller’s statutory and contractual disclosure obligations is to make a written request to the HOA (or its management company) to provide all of the required information and documents.
CAR has created an excellent Homeowner Association Information Request form (“HOA-IR”) along with two additional forms for the documents: First, the Homeowner Association Request for Required Statutory Documents and Charges (“HOA-RS”) and second, the Homeowner Association Request for Non-Statutory Documents, Other Information and Charges (“HOA-RN”). The HOA-RN form specifically asks about the number and location of designated parking and storage spaces.
Unfortunately, many HOAs will not complete any of the three CAR HOA forms; whether or not the HOA will complete the CAR forms, many HOAs do not provide full and complete copies of all documents. Thus, regardless of who you represent in the sale of a single interest in a HOA, it is imperative that both Agents check to make sure that the HOA packet of documents is complete by comparing the documents that are received from the HOA (or downloaded from a HOA website) with the list of documents and information requested in the three CAR HOA forms.
PRACTICE TIPS:
- Seller’s Agents should not make any representations regarding parking and/or storage spaces without securing that information from the HOA documents or a Preliminary Report of title.
- Seller’s and Buyer’s Agents should confirm that they have all of the required HOA documents before transmitting that material to the Buyer by comparing the packet of documents with the CAR HOA forms.
- Seller’s and Buyer’s Agents should document that they have advised their clients of any missing documentation and Buyers should be warned not to proceed with the purchase without securing all of the required information and documentation.
- Buyer’s Agents should provide the Buyers with an Advisory at the same time as the HOA documents are provided explaining the necessity of the Buyer reviewing the various documents. The attached Homeowner Association Document Advisory for Buyers explains the HOA documents that the Buyer needs to read and also warns Buyers about the need to check out certain issues such as parking and storage spaces.
ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS. 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.
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