Chapter 23 Condominiums, Cooperatives, PUDs, and Timeshares

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Chapter 23Condominiums, Cooperatives, PUDs,
and Timeshares

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Condominiums, Cooperatives, PUDs, and Timeshares

• These are forms of ownership that combine
  individual with common ownership.
• We will begin with condominiums, then look at
  cooperatives, followed by planned unit
  developments (PUDs), and finally time shares.

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Condominium Ownership

• A condominium A form of ownership, not a type
  of structure.
• Structurally, a condominium project can take a
  variety of forms.
• Condominium ownership combines separate ownership
  and common ownership together with community
  governance.
• It combines community living and community
  ownership with private property ownership.
• Condominium ownership is not restricted to
  residential uses. It is also used for commercial
  space for offices, retail space, and even
  industrial space.

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Condominium Ownership (Cont.)

• Separate property Individual owners exclusively
  own their own units - technically owned unit is
  the air space between the walls, floor, and
  ceiling typically in fee simple, for which they
  hold separate deeds. They also have separate
  mortgages (trust deeds in Calif.) and pay
  property taxes separately for their individual
  units.
• Common elements The building shell (including
  common walls) plus other common areas are owned
  together by all condominium owners as tenants in
  common, with each unit owner holding a fractional
  undivided share.
• The common elements are managed under terms
  specified in the condominium declaration and the
  bylaws by the condominium owners association.
• Limited common elements Common elements whose
  use is restricted to a specific unit owner, e.g.,
  parking stalls, storage units

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Condominium Governance

• Owners (Condominium) Association Each dwelling
  unit owner is a member of the owners
  association, which exists for the purpose of
  maintaining and regulating the common elements
  and enforcing the CCRs. Meets only occasionally,
  but at least once a year at an annual meeting.
• Board of Directors A group of individual owners
  who are elected by the association members,
  usually at the annual meeting of the association.
  It has responsibility for administering the
  affairs of the condominium project. The board
  also hires the services needed to maintain and
  operate the condo project. The board generally
  meets at least monthly.

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Condominium Governance (cont.)

• Bylaws The governing rules of the condo
  association. They set forth the rules regarding
  how the association operates, including how the
  board of directors are selected, the powers and
  duties of the directors, meetings of the board
  and of the owners association, assessment and
  collection of association fees, regulations for
  the common areas, and more.
• Covenants, Conditions, and Restrictions (CCRs)
  These are a list of restrictions on the use of
  individual units and the limited common areas,
  and they are binding on anyone purchasing a unit
  in the condo project. They are intended to
  maintain the attractiveness of the entire
  development and thereby enhance property values.
• In Calif., restrictions on owners use of their
  property must be reasonable. For example,
  association rules cannot prohibit an owner from
  keeping at least one pet, subject to appropriate
  restrictions.

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Maintenance (or Association) Fees

• The cost of maintaining the common elements and
  of operating the condominium are allocated among
  all unit owners.
• The fees are generally paid monthly. Failure to
  pay creates a lien upon the unit.
• Reserves money collected in addition to the
  regular fees to meet future expenditures,
  typically for replacement of major building
  components, like a roof. The level of reserves
  is set by the board.
• Taxes and Insurance Each unit is separately
  assessed for property taxation. Each unit owner
  is responsible for hazard and liability insurance
  on the unit.

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Sale of a Condo

• Prior to sale of a condo unit, California law
  requires that the prospective buyer be provided
  copies of
• The CCRs
• The By-Laws
• The most recent financial statement of the
  association, including delinquent fees and costs

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Pros and Cons of Condo Living

• Advantages
• Lower cost
• Low maintenance
• Location
• Amenities
• Real Property Ownership

• Disadvantages
• Close proximity of units and loss of privacy
• Loss of control because of
• Actions of Owners Assoc. and Board of Directors
• CCRs
• By-laws
• Fees (not tax deductible)
• Possible large special assessments

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Cooperatives

• A cooperative is a corporation formed to own a
  building, typically an apartment. The corporation
  holds title to the entire building.
• The cooperative may own or lease the land.
• Unit buyers do not receive a deed, but instead
  purchase a share of stock in the corporation.
• The share of stock entitles them to a proprietary
  lease, which gives them the right to occupy
  specific units in the building.
• Thus, the building corporation owns the building,
  the shareholders own corporation, and the
  corporation gives it shareholders leases to their
  units.
• The right to occupy a unit is transferred by the
  sale of the share of stock in the building
  corporation.
• In the U.S. the cooperative form of ownership is
  the forerunner of the condominium.

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Cooperatives (continued)

• There is one mortgage on the building.
• There is one property tax bill in the name of the
  corporation.
• Each coop owner (cooperator) makes a monthly rent
  payment, which includes its pro rata portion of
  the buildings mortgage payment, tax payment, and
  insurance payment, plus building maintenance,
  repair, and upkeep expenses, including payments
  into a reserve for replacements.
• Income tax rules allow each coop owner to deduct
  its portion of the mortgage interest expense and
  property taxes from its income taxes, just as
  like homeowners.

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Cooperatives (concluded)

• A cooperative building is governed by its
  articles of incorporation, bylaws, CCRs, and
  house rules.
• If one or more coop owners default on their
  payments, it falls upon the other coop owners to
  make up the difference. Otherwise default by the
  corporation could affect the occupancy and title
  of all coop owners.
• For this reason, cooperatives generally place
  prospective owners under greater scrutiny than
  condos. The cooperative association must
  generally approve the sale of shares to a buyer.
  And the buyers tend to be closely examined.

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Planned Unit Development (PUD)

• In planned unit developments (called PUDs) a
  person acquires a dwelling unit and a lot, plus
  an undivided interest in common areas. Unlike in
  a condominium, the person owns the entire
  structure, not just the air space, and also the
  lot, although the lot tends to be much smaller
  than in a typical single-family home subdivision.
  
• Common areas may be extensive or very minimal.
• The dwelling unit and lot, although owned as
  separate property, are subject to CCRs, which
  are enforced by the community association. The
  community association also controls and regulates
  the common areas.
• As with a condo, the unit owners are assessed an
  annual fee for the maintenance of the common
  areas.

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Timeshare

• A method of dividing up and selling a living unit
  at a vacation facility for specified lengths of
  time each year.
• Two Legal Types
• Right-to-Use the contractual right to occupy a
  living unit for one week a year for a term of
  between 20 to 40 years. The buyer obtains a
  leasehold estate in a living unit for a given
  time period each year for a number of years.
• Fee Simple right to fee ownership of one week,
  or a multiple of weeks, each year in perpetuity.