Publications

Phillip C. Querin, Partner
Partner - Portland, Oregon Office

philquerin@dwt.com
(503) 241-2300

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Listing and Selling Condominiums Today
[July 2005]

(Part one of two)

As most Realtors® know all too well today, homes sales and sale prices are hitting all-time highs. It makes little difference whether they are detached single-family homes, or whether they are attached, such as condominiums. However, there are significant differences in how homes and condos should be marketed and sold. With detached dwellings, i.e. traditional single family structures, the seller owns – and has the right to exclusively possess - the entire property, both land and building. This is not the case with most condos, and this distinction is very important when it comes to marketing and selling them to consumers.

The condo owner (technically called the “unit owner”) does not own a direct interest in the surrounding land or the structure itself. Rather, ownership is indirect, i.e. by virtue of the unit owner’s membership in the homeowner association. Each unit owner is assigned a proportionate ownership interest in the land and structure, usually based upon the square footage that his/her unit bears to the total square footage of the entire structure. In other words, the unit owner directly owns nothing more than the airspace inside the unit, together with the windows, doors and fixtures within its interior physical boundaries. Each separate unit and its allocated undivided interest in the common areas are considered a parcel of real property, and are subject to separate assessment and taxation just the same as any other parcel of real estate.

The remaining portions of the structure, including the pipes, ducts, electrical wiring inside the floor, ceiling and walls, as well the land and all recreational facilities such as pools and tennis courts, are owned by the association and are known as "general common elements.” These common elements that are expressly reserved for use by the unit owner, such as the garage or patio, are called " limited common elements."

The primary document creating the condominium form of ownership is called the declaration. It is a comprehensive summary of information describing all of the units in the project, their location, the limited and general common elements and the percentage interests each owner will have in them. Before any condominium units may be sold to the public, the declaration must be approved by the county tax assessor and the Oregon Real Estate Commissioner. Upon approval, the declaration is recorded in the county where the condominiums are located. The signor of the declaration is known as the " declarant."

Additionally the declarant must also record the initial set of bylaws governing administration of the condominium's business affairs. Condominium developers must expressly warrant all new construction against any defects in the plumbing, electrical, mechanical, structural and all other components of the units and common elements. The warranty on the unit and limited common elements must be for at least one year from delivery of possession of the unit to the first owner (other than the declarant). With certain minor exceptions, the warranty on the general common elements must be for at least one year from the initial conveyance of title to the new owner (other than the declarant). The statutory warranty does not extend to consumer products, such as the kitchen appliances. Purchasers of new condominium units who have claims for a b reach of warranty relating to the unit or limited common elements should put them in writing and deliver them to the declarant before expiration of the warranty period.

The a ssociation of unit owners is responsible for the administration, management and operation of the entire condominium project. The association’s business affairs are governed by a board of directors, and may adopt bylaws, rules and regulations, create budgets, impose assessments, hire and terminate employees, and generally conduct business in the collective interest of the unit owners.

Realtors® who are also unit owners and are involved in the listing or sale of units, or who, as unit owners, also serve as officers or directors of the association, must be extremely careful. Because of their fiduciary duties, they may be held to a higher standard of care and greater disclosure obligations to buyers. They must be sure to disclose to potential buyers all material information they have acquired about the entire project and cannot simply rely upon information given them by their seller if, because of their own ownership or association connection, they are privy to additional material information. The same may be said to hold true of agents who are not owners, but have sold multiple units within the same building and can therefore be said to have a better global understanding and knowledge of the operation of the entire project than a Realtor® who has no such familiarity.

During the initial development of a new condominium project, the law provides for a period of time that the declarant has to control and run the affairs of the association before it is turned over to the unit owners. In this manner, the declarant is assured that the affairs of the association are run according to his or her interests, which may not necessarily be the same as those of the private unit owners. The period of declarant administrative control in the governing documents is generally limited to three years from the earlier of the date the first condominium unit is conveyed to a purchaser or when 75 percent of the units are sold.

At the turnover meeting, when the administration of the association is turned over to the unit owners and new officers and directors are elected, the declarant is required to give them advance written notice of the purpose, time and place of the meeting and to provide them with a variety of items including all business records, corporate documents, minute books, a report of the present financial condition of the association, including a balance sheet and income and expense statement, and, if available, all as-built architectural, structural, engineering, mechanical, electrical and plumbing plans. Additionally, the declarant must turn over a statutorily-required reserve study, together with other sources of information that serve as a basis for calculating the reserves necessary to replace common elements. As discussed later, Realtors® should encourage their buyer-clients to obtain and closely review such information in order to assure themselves that there will be sufficient funds available in the future to replace important common elements, such as the roof.

Generally, unit owners may make improvements or alterations to the interior of their unit so long as they do not impair the structural integrity or mechanical systems, or lessen the support of the condominium structure. Unless all of the other affected unit owners consent, one unit owner may not make any repairs or alterations of their unit that would jeopardize the soundness or safety of the property, reduce its value, or increase the association's common expenses. (Continued in "Considerations in Purchasing a Condominium.")

© Copyright 2005. Phillip C. Querin, Davis Wright Tremaine. No part may be reproduced without the author’s express written consent.