What to Consider When Buying a Condominium
What is a Condominium?
Condominium living has become very popular in Michigan, particularly in cities and vacation spots. In an effort to regulate the growth of condominiums in Michigan, the Michigan Condominium Act was enacted in 1978, and amended over the years, to establish the rights and responsibilities of purchasers and owners of condominiums, developers of condominium projects and associations of co-owners within the condominium projects. Buying a condo is not for everyone, and many aspects of being a condo owner must be considered before going forward with a purchase.
Owning a condominium is very different than owning and living in a typical residential house. A condominium is a privately owned individual housing unit within a community of other units (the condominium project) that are privately owned. A purchaser of a condominium unit buys a unit of space as a housing unit, along with an undivided interest in common areas within the condominium project that are co-owned by other condo owners.
What Maintenance Responsibility Does a Condominium Owner Have?
The owner of a condominium has exclusive ownership and occupancy of their own unit and generally has the responsibility to maintain the interior of their unit, including the walls, flooring and attached fixtures. Although each unit owner has exclusive ownership of the space inside the inner walls of their structure, an owner of a condominium is considered a “co-owner” because all owners in the condominium project also own an interest in the common areas, referred to as the “general common elements” and the “limited common elements.”
Typically, everything that is not exclusively owned in the condominium project by the individual co-owners is the property that is considered the common element. Common elements can include not only hallways, sidewalks and roads within the condominium project, but also the land and structures around the units such as club houses, pools and recreational facilities, depending on the how the condominium project is designed and organized.
Note that there can also be property that is considered “limited common elements” which is considered as commonly owned property by all co-owners but has restricted use. Limited common elements can include patios and balconies of a unit and carports which give exclusive use and access to a co-owner of a unit.
All condominium projects have a condominium association, composed of all co-owners. The condominium association is a legal entity that is responsible for maintaining the common areas and enforcing the rules and regulations described in the condominium documents. Another purpose of the association is to provide a mechanism for the co-owners to work together to maintain property values and the quality of the condominium neighborhood. The association also elects a board of directors to govern the condominium project.
Considerations to Make Before Buying a Condo
One very important factor to consider when purchasing a condominium is that typically all the co-owners in the condominium project share in the expenses of maintaining the common elements along with their own unit. Consequently, the nature and extent of the common elements, as well as their condition, will determine a big part of an owner’s ongoing expenses of owning a condominium.
Usually, an owner of a condominium will pay property taxes and a monthly mortgage installment, and they typically are also responsible for a monthly condominium association fee. This additional fee covers maintenance of the common elements. The monthly association fee can be relatively substantial if the common elements include private roads, parks, swimming pools or other amenities that must be maintained.
Do I Need a Lawyer for the Paperwork Involved in Buying a Condo?
Someone who is considering buying a condo should always make their purchase contingent on an attorney’s review of the sales contract and “condominium documents.” The condominium documents include the master deed, bylaws, minutes from most recent annual meeting, current financial statements, annual budget and a disclosure of all fees that the owner of the condo unit pays to the condominium association.
The master deed, sometimes referred to as the condominium declaration, is the primary document that establishes the existence of the condominium project and the land it occupies. It is recorded with the county register of deeds. It also defines the general and any limited common elements in the condominium project and sets out the basic structure of the condominium community.
The association bylaws are part of the master deed and establish how the association is governed. They also establish how the condominium units are to be used, the restrictions of ownership and who is permitted to be a member in the association and their voting rights. The bylaws also define the powers and duties of the board of directors, how they are elected, whether they can hire a managing agent and provide them with authority to assess the unit owners for maintenance and repairs of the common elements.
The language in the assessment sections should be carefully reviewed because it will usually provide not only for regular assessments on a monthly, quarterly, or annual basis, but also for special assessments to address the cost of repairs and maintenance not covered by the regular assessments. It should also be understood that the bylaws give the board certain legal remedies if a unit owner does not pay assessments.
Bylaws also include various use and occupancy restrictions on the condominium units, including restrictions on making improvements, renting units, installing signage, parking vehicles and owning pets and animals. The bylaws use and occupancy restrictions can cover a wide range of activities and uses. Consequently, it is critical that a prospective buyer, along with their attorney, thoroughly review and have a full the condominium’s use and occupancy restrictions.
Annual meetings of all co-owners of the condominium project are also established through the bylaws. The annual meeting, usually moderated by the association’s board of directors, provides all co-owners a forum to discuss not only important issues that have or should have been addressed over the past year, but also important issues that need to be addressed in the coming year. The annual budget for managing the association is typically discussed and voted on and new board members are elected to govern the association. Accordingly, the minutes from the most recent annual meeting along with the financial statements should be carefully reviewed in order to have an understanding of the financial condition of the association and how it is managed.
It is important to note that the most recent financial statement will show the amount of the condo association’s reserve fund. Per Michigan’s Condominium Act, a minimum of 10 percent of the association’s current annual budget on a noncumulative basis is required to be held in reserve for a condo association. Depending on the amount and types of common elements, a reserve of 10 percent may not be adequate to cover needed maintenance or major repairs for the common elements. In situations where the reserves are inadequate, special assessment for all co-owners to pay are usually necessary.
Your Next Step: Schedule a Consultation with a Respected Ann Arbor Real Estate Attorney.
Buying a condo offers many advantages, but it also comes with many challenges. Prospective buyers must have a clear understanding not only of the sales contract for a condominium, but also of the association’s bylaws, financial statements, rules and restrictions. Consulting an experienced real estate attorney is essential to understanding and protecting your rights throughout the process of purchasing a condominium.
Ager Law Office helps individuals and families with all aspects of purchasing, selling and owning condominiums. From our Ann Arbor office, we serve clients throughout Washtenaw County.
For additional information on our reasonable flat fees that are available for real estate services, contact our experienced real estate attorney, Bill Ager by calling (734) 649-0784 , sending an email to firstname.lastname@example.org , or using our online contact form.