For consumers interested in purchasing a condominium, there are a number of variables to consider, many of which differ from those associated with the purchase of a home and are unique to buying a condominium.
Often, interested buyers purchase condos for convenience since they require a lower degree of maintenance than is typically associated with owning a home. Most residential condominiums have a homeowners’ association to which dues are paid by unit owners for upkeep and maintenance of the common areas and grounds of the property.
A careful review and understanding of the association’s rules and regulations is crucial for unit owners to understand what actions are within bounds and to avoid potential legal issues in the future. Acting in a prudent manner and exercising due diligence when considering a condo purchase will help prospective buyers make an informed decision based on a careful analysis of the association’s rules, budgets, financial condition and other factors that could influence a purchasing decision.
Ten things every prospective condo buyer should review include:
1. Read the condominium declaration and by-laws.
A condominium declaration generally contains a description of the units available, an outline of common property elements, the number of votes needed by the condo association’s members to pass rules and regulations, and an explanation of various restrictions, such as leasing arrangements with non-owners and length of leasing agreements. Typically, by-laws outline rules governing the maintenance of the building grounds and the collection and disbursement of condo association fees. Review the language in these documents to help in your decision-making process and to allow for a better understanding of the limitations on your actions as a unit owner and how they pertain to the property.
2. Determine the current condo association board members and review their backgrounds.
The association’s board is a smaller, elected group of members and is responsible for administering the declaration and by-laws. This includes ensuring they do not conflict with relevant legal statutes. Learn about the board and their track record with the association.
3. Ask if the association has been involved in litigation in the last five years.
While the condo association is designed to streamline the administration of the condominium building, it can also be a source of problems if not managed properly and effectively. Assess whether the association has been involved in any legal disputes in recent years and what the subject matter of the disputes entailed, as this is an important step in the due diligence process.
4. Study the association’s financial reports.
Take a look at whether there is an annual overview of the association’s net income and total expenses. Examine the frequency of financial reports and whether they are issued monthly. Reviewing these reports will allow you to see how the association’s budget is spent and whether a reserve fund is available and adequate. Pay particular attention to the amount of reserves, the most recent balance sheet and income and expense statement, and the current operating budget.
5. Ask if there are any anticipated large-scale maintenance items on the horizon.
If a condo association has a big-ticket maintenance project pending, it is prudent to inquire whether the expense will be paid from a reserve fund or a special assessment. This knowledge will help set your expectations on common element projects that could impact your living situation or association fees.
6. Determine the current monthly fees for the unit you are considering to purchase.
Not only knowing the current monthly association fees, but also whether they are expected to change is important information to factor into the purchasing decision. This will help you forecast your overall expenses related to ownership of the condo unit.
7. Determine the rules regarding pets, common areas and amenities.
Many people who purchase a condo have pets. Take time to learn the nuances of the condo association’s rules regarding pets. Some may restrict certain types of pets based on their species, breed, size and other factors. Further, understanding the rules governing common areas, also known as common elements, is imperative. Common areas can include hallways, fitness rooms, exterior walls, parking lots and other shared spaces used by unit owners.
8. Examine whether there are any liens on the condo unit for unpaid taxes or special assessments.
This will help inform you of any current and existing legal issues surrounding the unit you are looking to purchase, which could influence your buying decision.
9. Take a look at the percentage of live-in owners versus renters.
Understanding this ratio can provide a general idea of the current and predicted tenure of the building’s inhabitants. A higher percentage of renters may give some prospective buyers pause. This is a personal preference but one that should be considered.
10. Does the association carry sufficient wind, fire and liability insurance?
While many associations have this type of insurance, do not assume the association has the appropriate insurance coverage. Take a look at what types of coverage the association has and what the policies cover.
Bottom line: Be proactive when considering the purchase of a condo unit. Talk with other unit owners and association board members. Ask questions. Carefully read all legal documents. Being proactive in the decision making phase before you make a purchase not only can make you better informed, but also help you avoid possible legal problems down the road.
To learn more about condominium law, contact attorney and shareholder Stanley Cohn at 504-568-1990. More information about Mr. Cohn’s experience and background is available on his profile page.
The content of this article is not intended to serve as an exhaustive review of the laws, statutes or issues related to condominium law and is not intended to provide legal advice. The opinions expressed through this article may not reflect the opinions of the firm, individual attorneys or clients.