The Law Office of Patricia S. Nelson
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Condominiums
Creating or Buying Condominium Units in a Small Condominium Association
Are you considering converting your small - two to five or six unit - building into a condominium? Are you considering buying a unit in a small condominium association? This article will take you through the pros and cons of owning a unit. It will take you through the steps needed to convert your building into a condominium. You will also learn about the condominium documents themselves, how the documents are organized and what you should be looking for in creating or reviewing condominium documents.
What is a condominium?
A condominium is a set of property rights, which allows an owner of property to divide the owner's property and sell buildings or portions of buildings (individual units) separate from the land on which the buildings are located. The owner creates a condominium in Massachusetts by filing a Master Deed. The Master Deed creates the condominium, defines the boundaries of the units within the condominium, sets up an organization which will own everything that will be in common by all the unit owners (the land and usually, but not always, the exterior of the buildings) and sets out restrictions on the use of the units.
How is a condominium created?
In Massachusetts, a condominium is created by the filing of a Master Deed, which must be accompanied by a Master Plan of each floor of every building. Together, the Master Deed and Plan must set out the boundaries of all units and common areas. In most cases, there is also a site plan, which shows the land with the buildings and designates areas for common use (such as common parking areas) or for the exclusive use of individual unit owners (such as parking spaces or yard space).
The Master Deed designates the organization by which the unit owners will together own the common areas of the condominium, usually a trust. The Condominium trustees (or board members, in the event the association is a corporation) are required to meet, draft yearly proposed budgets, assess and collect condominium fees and arrange for and pay the expenses for insuring and maintaining the common areas.
The common areas (the parts of the land and buildings held in common by the association) vary from condominium to condominium. In some cases, the land is held in common but each unit is a separate building where the unit owners own both the interior and exterior of the building. The unit owners may have the right and responsibility for maintaining their own yards, which will be designated as "limited common areas". In such condominiums, the condominium association's only responsibilities may be to maintain the drives and some common lawns.
More typical is the condominium where not only the land but the parking, exterior of the building, hallways, stairways and utility areas are all common, and only the interiors of the units, from the interior of the joists inward, is owned by the unit owners individually.
How are condominium associations governed?
Condominium associations are organizations, in Massachusetts usually a trust, set up to own and govern the common areas of the condominium. In larger condominiums, the unit owners vote for trustees (or board members) at an annual meeting. The Declaration of Trust (or corporate by-laws) set out the terms of office and provisions for removal, resignation and replacement of trustees (or board members). In the case of very small associations, the condominium documents often provide that the owners of each unit appoint a trustee (or board member). If you are purchasing a unit in a condominium which allows the unit owners to appoint trustees, make sure you have properly appointed a trustee in a writing recorded in the applicable registry of deeds.
The trustees or board members are empowered by the declaration of trust or corporate by-laws to handle the day to day affairs of the condominium such as making repairs and paying expenses.
The unit owners are generally required to meet annually to vote for trustees or board members and approve major changes such as amendments to the declaration of trust of by laws. The yearly budget should also be presented to the unit owners for approval at the annual meeting.
What should I look for in reviewing condominium documents?
1. Master Deed and Master Plans
2. Declaration of Trust or By-Laws
3. Rules and Regulations
The trustees or board members have the right to set and change rules and regulations for the use of the common areas of the condominium.
4.Unit Deed and Unit Plan
As a buyer, you will want to examine the deed into the owner from whom you are purchasing the unit. Also obtain a copy of the unit plan for your unit, should be attached to first deed for this unit.
2. Compare the expense of creation with the value of the units to be created.
First, you need to balance the expense of creating the condominium against any increase in value of the property as whole if it is sold as condominium units.
If you are converting a building into a condominium, you will need to hire an attorney to prepare the master deed, declaration of condominium trust and rules and regulations of the condominium. You will also need to hire a licensed architect or engineer to prepare the master plan and a civil engineer to prepare a site plan. An experienced condominium attorney should be able to help you assemble the team of professionals you will need to create a condominium. The expense will depend on the size and complexity of the condominium project.
Consult with a local real estate broker for an estimate of the selling price for each of the units.
3. Sharing the risks, expense and control over common areas.
For many building owners who retain a unit within the building, giving up control over the maintenance of common areas to the condominium association can be a difficult process. If you create a condominium, you have to be prepared to turn control over to the trustees of the association and pay your share of any expenses approved by the trustees of the association.
On the plus side, you will give up the risks and expense associated with the ownership of the units themselves. In a condominium where the unit owners own the interior of their units, the unit owners will become responsible, for example, for lead paint law compliance, for the replacement of appliances, for repainting or replacing worn carpets. In the case of expenses or risks associated with common areas, the unit owner will share those risks and expenses with other unit owners in proportion to the percentage unit ownership in the building.
Disputes in small condominium associations - What problems should I be concerned about?
Disputes in small condominium associations are more difficult to resolve, simply because they occur in a smaller, less uniform context. As a result of the number and intensity of disputes in small associations, federal home mortgage regulations now require that the master deeds for associations with fewer than five (5) units contain a mandatory arbitration clause, requiring arbitration of disputes.
Problems occur when unit owners disagree about the need or methods for maintaining common areas. For example, one unit owner (perhaps the one on the top floor) may think its time to replace the leaky roof, while another unit owner would prefer to have the roof patched. Unit owners may have different points of view about the extent of landscaping that is preferred. A unit owner who needs to leave for work at 7 A.M. may wish to hire a more expensive snow plow company , who promises early plowing, while the owners who leave for work later in the day may not want to pay for early plowing. Worse, one of the unit owners may not have the funds to pay his or her share of the cost of replacing the roof (or the furnace or siding or whatever), even if the need for replacement is clear.
These differences of opinion are exacerbated in the small condominium association. In larger associations, extreme points of view tend to be outvoted by the majority. The larger the association, the less effect the inability or refusal of a unit owner to pay their condominium fees or assessments will have on the association's ability to pay its bills. Smaller associations are usually self-managed by the unit owners while larger associations are usually professionally managed. The presence of a professional manager helps smooth out differences of opinion. Finally larger associations, especially those who are professionally managed, do a better of job of planning for future maintenance and repairs and setting aside funds in capital reserve accounts to pay for future repairs.
Are there ways to avoid or minimize disputes in small condominium associations?
No one can set up a system that will avoid all disputes. If you are creating a condominium or have an opportunity to alter existing condominium documents, you can take some steps to reduce the likelihood of disputes or provide methods for resolving disputes which do arise.
1. Small associations work best when the condominium association owns and controls as little as possible. For example, in the case of townhouses where the units share only a common wall, it may be possible to give each unit owner separate ownership and control of their own roofs, exterior, windows, gardens. The less the association owns and manages, the less likely a dispute will arise. Of course, you do need to balance other needs such as the overall structural integrity of the building and architectural integrity as well in deciding what should be common and what should be owned by the individual unit owners.
2. Make sure your condominium master deed contains at least an arbitration clause. In the case of condominium association with fewer than five (5) units, a buyer will have difficulty obtaining mortgage financing without such a provision since the condominium will not meet FNMA requirements. I also suggest the condominium documents include a provision providing for mediation of disputes. Mediation is a non-binding process in which the parties meet with a trained mediator who helps the parties reach settlement of their disputes. If the parties cannot agree, the parties are free to pursue their rights in court or by arbitration, as may be the case. Many disputing associations first try to resolve their disputes by mediation and use arbitration for any issues they cannot resolve by mediation. The use of these alternative dispute resolution processes helps keep costs down and usually produces a faster result than filing a case with the courts. Arbitration and mediation provisions need to be carefully drafted to avoid interfering with the special rights accorded condominium associations in collecting condominium fees and assessments.
If your condominium documents do not contain mediation or arbitration provisions, it is not too late to use these alternative dispute procedures. The parties can agree, even after a dispute arises, to submit their dispute to mediation and/or arbitration.
3. Make sure the condominium association has retained an experienced condominium attorney to review the condominium documents. Many existing condominium documents are old or poorly drafted. Consult with the attorney from time to time to make sure the way you are running the condominium is in accord with the condominium documents. Many small associations go off on their own and make decisions without regard to the requirements of the law or the condominium documents, only to find themselves in trouble at a later date.
4. The trustees or board members for the condominium association should hold frequent meetings, preferably monthly, and keep carefully minutes of what is decided at each meeting. Distribute copies of the minutes to absent trustees and unit owners. Massachusetts' law requires that the association hold an annual meeting and that a budget for the year be prepared in advance of the meeting.
5. Try to encourage the trustees or board members to do a capital reserve study (an assessment of future repairs with estimated dates and costs of repair) and to put a portion of monthly condominium fees into a capital reserve fund for those repairs.
Conclusion
Condominiums are complex legal entities. Buyers, owners and condominium associations should seek legal help in creating, reviewing and governing associations. Condominium associations are complex societies that require effort and cooperation from the unit owners to function smoothly and effectively. As a condominium buyer or creator, you should be prepared for the complexities of condominium ownership before taking the steps to create or purchase unit(s) in a condominium.
(C) Patricia S. Nelson - March 12, 2003.
What is a condominium?
A condominium is a set of property rights, which allows an owner of property to divide the owner's property and sell buildings or portions of buildings (individual units) separate from the land on which the buildings are located. The owner creates a condominium in Massachusetts by filing a Master Deed. The Master Deed creates the condominium, defines the boundaries of the units within the condominium, sets up an organization which will own everything that will be in common by all the unit owners (the land and usually, but not always, the exterior of the buildings) and sets out restrictions on the use of the units.
How is a condominium created?
In Massachusetts, a condominium is created by the filing of a Master Deed, which must be accompanied by a Master Plan of each floor of every building. Together, the Master Deed and Plan must set out the boundaries of all units and common areas. In most cases, there is also a site plan, which shows the land with the buildings and designates areas for common use (such as common parking areas) or for the exclusive use of individual unit owners (such as parking spaces or yard space).
The Master Deed designates the organization by which the unit owners will together own the common areas of the condominium, usually a trust. The Condominium trustees (or board members, in the event the association is a corporation) are required to meet, draft yearly proposed budgets, assess and collect condominium fees and arrange for and pay the expenses for insuring and maintaining the common areas.
The common areas (the parts of the land and buildings held in common by the association) vary from condominium to condominium. In some cases, the land is held in common but each unit is a separate building where the unit owners own both the interior and exterior of the building. The unit owners may have the right and responsibility for maintaining their own yards, which will be designated as "limited common areas". In such condominiums, the condominium association's only responsibilities may be to maintain the drives and some common lawns.
More typical is the condominium where not only the land but the parking, exterior of the building, hallways, stairways and utility areas are all common, and only the interiors of the units, from the interior of the joists inward, is owned by the unit owners individually.
How are condominium associations governed?
Condominium associations are organizations, in Massachusetts usually a trust, set up to own and govern the common areas of the condominium. In larger condominiums, the unit owners vote for trustees (or board members) at an annual meeting. The Declaration of Trust (or corporate by-laws) set out the terms of office and provisions for removal, resignation and replacement of trustees (or board members). In the case of very small associations, the condominium documents often provide that the owners of each unit appoint a trustee (or board member). If you are purchasing a unit in a condominium which allows the unit owners to appoint trustees, make sure you have properly appointed a trustee in a writing recorded in the applicable registry of deeds.
The trustees or board members are empowered by the declaration of trust or corporate by-laws to handle the day to day affairs of the condominium such as making repairs and paying expenses.
The unit owners are generally required to meet annually to vote for trustees or board members and approve major changes such as amendments to the declaration of trust of by laws. The yearly budget should also be presented to the unit owners for approval at the annual meeting.
What should I look for in reviewing condominium documents?
1. Master Deed and Master Plans
- Make sure you know the boundaries of your unit and the elements of the building or grounds for which you will be responsible as a unit owner;
- Make sure you know what appurtenant rights - parking, storage - are included with your unit;
- Check restrictions on the use of your unit. There may be restrictions on the use of the unit, your right to make renovations, or your right to rent or resell the unit;
- Check for arbitration and mediation provisions.
- Check the percentage ownership interest for your unit - this determines what percentage of the common area expenses you will have to pay, as well as voting rights for matters requiring unit owner approval.
2. Declaration of Trust or By-Laws
- Review the rights and responsibilities of the trustees or board members as well as those of the unit owners
- Review provisions on voting. For example, most routine operating decisions will be made by the trustees or board members and will require only a majority vote. In Massachusetts, improvements (as opposed to repairs) of the common areas will require approval of at least 75% of the total percentage unit ownership interests in the condominium in order to be binding on all owners (subject to certain rights of unit owners if the cost exceeds 10% of the fair market value of the condominium). In a two unit condominium, decisions usually require that trustees representing both units are in agreement.
- Look for the rights of the condominium association to impose penalties and collect common area charges and assessments.
3. Rules and Regulations
The trustees or board members have the right to set and change rules and regulations for the use of the common areas of the condominium.
- Make sure you have the most up to date set of rules and regulations
- Look for restrictions on pets, parking, or storage in common areas.
- Keep in mind that rules and regulations are easily changed by simple vote of the Trustees or Board Members.
4.Unit Deed and Unit Plan
As a buyer, you will want to examine the deed into the owner from whom you are purchasing the unit. Also obtain a copy of the unit plan for your unit, should be attached to first deed for this unit.
- Review the unit deed and unit plan for the boundaries of your unit.
- Review the unit deed and plan for any appurtenances (parking, storage, etc), or rights in limited common areas, which may have not already been included in the Master Deed.
- Review the unit deed for restrictions on the use of your unit (such as your right to rent your unit) which may have not been included in the Master Deed.
2. Compare the expense of creation with the value of the units to be created.
First, you need to balance the expense of creating the condominium against any increase in value of the property as whole if it is sold as condominium units.
If you are converting a building into a condominium, you will need to hire an attorney to prepare the master deed, declaration of condominium trust and rules and regulations of the condominium. You will also need to hire a licensed architect or engineer to prepare the master plan and a civil engineer to prepare a site plan. An experienced condominium attorney should be able to help you assemble the team of professionals you will need to create a condominium. The expense will depend on the size and complexity of the condominium project.
Consult with a local real estate broker for an estimate of the selling price for each of the units.
3. Sharing the risks, expense and control over common areas.
For many building owners who retain a unit within the building, giving up control over the maintenance of common areas to the condominium association can be a difficult process. If you create a condominium, you have to be prepared to turn control over to the trustees of the association and pay your share of any expenses approved by the trustees of the association.
On the plus side, you will give up the risks and expense associated with the ownership of the units themselves. In a condominium where the unit owners own the interior of their units, the unit owners will become responsible, for example, for lead paint law compliance, for the replacement of appliances, for repainting or replacing worn carpets. In the case of expenses or risks associated with common areas, the unit owner will share those risks and expenses with other unit owners in proportion to the percentage unit ownership in the building.
Disputes in small condominium associations - What problems should I be concerned about?
Disputes in small condominium associations are more difficult to resolve, simply because they occur in a smaller, less uniform context. As a result of the number and intensity of disputes in small associations, federal home mortgage regulations now require that the master deeds for associations with fewer than five (5) units contain a mandatory arbitration clause, requiring arbitration of disputes.
Problems occur when unit owners disagree about the need or methods for maintaining common areas. For example, one unit owner (perhaps the one on the top floor) may think its time to replace the leaky roof, while another unit owner would prefer to have the roof patched. Unit owners may have different points of view about the extent of landscaping that is preferred. A unit owner who needs to leave for work at 7 A.M. may wish to hire a more expensive snow plow company , who promises early plowing, while the owners who leave for work later in the day may not want to pay for early plowing. Worse, one of the unit owners may not have the funds to pay his or her share of the cost of replacing the roof (or the furnace or siding or whatever), even if the need for replacement is clear.
These differences of opinion are exacerbated in the small condominium association. In larger associations, extreme points of view tend to be outvoted by the majority. The larger the association, the less effect the inability or refusal of a unit owner to pay their condominium fees or assessments will have on the association's ability to pay its bills. Smaller associations are usually self-managed by the unit owners while larger associations are usually professionally managed. The presence of a professional manager helps smooth out differences of opinion. Finally larger associations, especially those who are professionally managed, do a better of job of planning for future maintenance and repairs and setting aside funds in capital reserve accounts to pay for future repairs.
Are there ways to avoid or minimize disputes in small condominium associations?
No one can set up a system that will avoid all disputes. If you are creating a condominium or have an opportunity to alter existing condominium documents, you can take some steps to reduce the likelihood of disputes or provide methods for resolving disputes which do arise.
1. Small associations work best when the condominium association owns and controls as little as possible. For example, in the case of townhouses where the units share only a common wall, it may be possible to give each unit owner separate ownership and control of their own roofs, exterior, windows, gardens. The less the association owns and manages, the less likely a dispute will arise. Of course, you do need to balance other needs such as the overall structural integrity of the building and architectural integrity as well in deciding what should be common and what should be owned by the individual unit owners.
2. Make sure your condominium master deed contains at least an arbitration clause. In the case of condominium association with fewer than five (5) units, a buyer will have difficulty obtaining mortgage financing without such a provision since the condominium will not meet FNMA requirements. I also suggest the condominium documents include a provision providing for mediation of disputes. Mediation is a non-binding process in which the parties meet with a trained mediator who helps the parties reach settlement of their disputes. If the parties cannot agree, the parties are free to pursue their rights in court or by arbitration, as may be the case. Many disputing associations first try to resolve their disputes by mediation and use arbitration for any issues they cannot resolve by mediation. The use of these alternative dispute resolution processes helps keep costs down and usually produces a faster result than filing a case with the courts. Arbitration and mediation provisions need to be carefully drafted to avoid interfering with the special rights accorded condominium associations in collecting condominium fees and assessments.
If your condominium documents do not contain mediation or arbitration provisions, it is not too late to use these alternative dispute procedures. The parties can agree, even after a dispute arises, to submit their dispute to mediation and/or arbitration.
3. Make sure the condominium association has retained an experienced condominium attorney to review the condominium documents. Many existing condominium documents are old or poorly drafted. Consult with the attorney from time to time to make sure the way you are running the condominium is in accord with the condominium documents. Many small associations go off on their own and make decisions without regard to the requirements of the law or the condominium documents, only to find themselves in trouble at a later date.
4. The trustees or board members for the condominium association should hold frequent meetings, preferably monthly, and keep carefully minutes of what is decided at each meeting. Distribute copies of the minutes to absent trustees and unit owners. Massachusetts' law requires that the association hold an annual meeting and that a budget for the year be prepared in advance of the meeting.
5. Try to encourage the trustees or board members to do a capital reserve study (an assessment of future repairs with estimated dates and costs of repair) and to put a portion of monthly condominium fees into a capital reserve fund for those repairs.
Conclusion
Condominiums are complex legal entities. Buyers, owners and condominium associations should seek legal help in creating, reviewing and governing associations. Condominium associations are complex societies that require effort and cooperation from the unit owners to function smoothly and effectively. As a condominium buyer or creator, you should be prepared for the complexities of condominium ownership before taking the steps to create or purchase unit(s) in a condominium.
(C) Patricia S. Nelson - March 12, 2003.
Copyright © 2018 Patricia S. Nelson