The Homeowner Association Residence: Do You Know What You're Selling?
Over one third of the homes in California are in some kind of common interest development ("CID"), and that number is growing. Of new housing developments in California, at least double that amount or more are common interest developments. Many often refer to CIDs as "homeowner associations', although there are many CIDs which are in fact not residential in nature. Some office buildings and industrial parks are in fact condominiums, for example.
By Kelly G. Richardson, Esq.
Over one third of the homes in California are in some kind of common interest development ("CID"), and that number is growing. Of new housing developments in California, at least double that amount or more are common interest developments. Many often refer to CIDs as "homeowner associations', although there are many CIDs which are in fact not residential in nature. Some office buildings and industrial parks are in fact condominiums, for example.
In California, there are four separate types of common interest developments recognized by law, and all four types of CIDs are very different from each other.
The four types of CIDs are the Community Apartment, the Stock Cooperative, the Condominium and the Planned Development. The real estate interest of the homeowner is completely different in each, and involve different considerations relevant to homebuyers.
The first rule of ascertaining what type CID is, don't look at the buildings, look at the paperwork. You cannot tell a condominium from a co-op, or a planned development from a community apartment by looking at it. Each should have some form of recorded covenants on the property. Look closely at the covenants, and you should be able to see what type of home with which you are dealing.
Community Apartment. Also often known as the "own-your-own" the community apartment is the most simple form of common interest development. In a community apartment, the property is undivided legally, but is one piece of real estate that has multiple residences on it. Each owner receives a deed, but it is a not a deed for a given residence, but as a tenant in common on the entire property. The owner receives an easement or license with that deed, specifying the dwelling which that owner will occupy. Community apartments are normally older projects, and usually unincorporated.
Stock Cooperative. The stock cooperative is often referred to in short as a "co-op". In a stock cooperative, the Association is usually incorporated, and it holds the title to the entire property. Each of the owners has a share of stock in the Association, which share is coupled with the right to occupy a given residence. So, when one buys into a co-op, once receives not a deed, but a share of stock.
Condominium. In a condominium, the property is split into two conceptual parts. There are the residences, called "units", which the law refers to as the "Separate Interests". Then there is everything other than the units, which is referred to as "Common Area". The Separate Interests, or Units, are normally defined by another recorded document, the Condominium Plan (in an older property sometimes called a "Subdivision Map".
Watch out for what exactly is the Unit, because it often varies. Sometimes, the Unit is only the airspace inside the walls of the home. Balconies or patios may or may not be part of the Unit. Sometimes, the Unit is defined as the building, but not the land under it.
Condominiums are not always attached housing. Detached housing can be a condominium, so one must always check the deed and the CC&Rs to make sure.
A condominium is also distinguished by the name of the separate real property interest conveyed. If the deed conveys a "Unit" and an undivided equal interest in the Common Area, it is a condominium.
Planned Unit Development, or Planned Development. If a project is not a Condominium, Co-op, or Community Apartment, and it has common area, and the power to assess members, it is a Planned Development. When one thinks of Planned Developments, normally tract houses come to mind. However, Planned Developments are not always detached housing. Town home or patio home projects can be Planned Developments, so again, do not risk being fooled by the project's appearance. What do the CC&Rs and Grant Deed say? The real property interest in a Planned Development is a "Lot". If you see the word "Lot" in the grant deed in a CID, you are dealing with a Planned Development. If the deed references "Unit", it is a Condominium. [There is always the possibility the subdivider erred in its labeling of the real property interest, so if doubt persists, check with your legal counsel to be sure].
It's Not Just a Label. The type of CID project determines more than just the technical label of the type of home purchased. Normally, Condominium, Co-op or Community Apartment associations have a much greater maintenance and repair responsibility than do Planned Developments, while in Planned Developments much of the maintenance and repairs are left to each member. Community Apartment and Stock Cooperatives are far less common (and almost always older properties) and most lenders are uncomfortable financing them. This affects their desirability and therefore their value, and so most Community Apartment and Co-op projects will over time go through the conversion process to become condominiums.
Know more about what you sell, and make sure your listings are accurate as to what is the nature of the property being sold.
Kelly G. Richardson, Esq., is Senior Partner in Richardson & Harman, LLP, and is the Association's General Counsel.
Date Posted: 6/23/2006
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