Questions and Answers on: C O N D O S & T O W N H O U S E S
In the past, home ownership typically involved a single‑family house with a yard. But today, due to increased prices of single‑family homes and changes in lifestyles, many people either cannot afford or simply prefer not to own traditional single-family homes. In response to their needs, alternative forms of home ownership have been developed. Among these are multifamily housing complexes containing townhouses and condominiums (often referred to as “condos”).
This pamphlet focuses on questions frequently asked about purchasing and owning a townhouse or condo.
What are homeowners’ associations? What are my responsibilities as an owner of a condo or townhouse? What are the developer’s responsibilities? These are some of the subject areas addressed. The reader is cautioned however that the legal aspects of condo and townhouse ownership are too complex to be treated in detail in this pamphlet. Therefore, prospective purchasers and owners of condos and townhouses are advised to consult their attorneys for specific guidance. In addition, for more information on restrictive covenants, homeowners’ associations (HOAs) and HOA dues and charges, see the Commission’s publication, Questions & Answers on: Subdivisions and Planned Communities.
Purchasing a Condo or Townhouse
Q: What’s the difference between a condo and a townhouse?
A: Condo unit owners own the inside of their units. Townhouse owners own the complete unit, including exterior surfaces and the land on which the unit is built. Every condo or townhouse development also has “common areas” of the property such as recreation areas, sidewalks and parking lots. Condo owners share ownership of the common areas with other owners, while common areas in townhouse developments are usually owned by the homeowners’ association for the benefit and use of unit owners. Either way, owners typically pay dues to a homeowners’ association to cover the costs of maintaining the common areas, as well as other common expenses.
Q: Are there any other legal differences between condos and townhouses?
A: Yes. The creation, sale and management of condos are governed by specific statutes (the “Unit Ownership Act” for condos created before October 1, 1986 and the “North Carolina Condominium Act” for condos created on or after October 1, 1986). There are no specific statutes governing most townhouses. However, townhouse projects of more than 20 units and created on or after January 1, 1999 are covered by the Planned Community Act, as are certain developments which volunteer to be subject to all or a portion of the Act. Townhouses that fall outside the Planned Community Act are governed by the same general laws that govern single-family houses.
Q: How will I know if there are restrictions on the use of my condo or townhouse, and what those restrictions are?
A: Unit ownership in both condo and townhouse projects is subject to certain restrictive covenants (deed restrictions). These are usually embodied in a recorded legal document called a “Declaration of Condominium” or “Declaration of Restrictive Covenants” which is recorded at the county Register of Deeds office. The declaration describes the nature of the project and establishes rules and restrictions governing the use of the units and common areas. Examples of restrictions include but are not limited to limiting the property to residential use, requiring that units be a minimum size and certain architectural style, prohibiting exterior changes to the property, and limiting who can live in the property, etc.
Q: Will the closing attorney or real estate broker furnish me a copy of the declaration, restrictive covenants, and bylaws of the
A: Not necessarily. The closing attorney does not have the specific duty to furnish these documents, but will do so if you request them. If a real estate broker is assisting you in your purchase of a condo or townhouse, the broker may be able to obtain a copy of these documents. But you may want to directly consult your attorney and/or the homeowners’ association as it is important to get the most current version of the covenants and restrictions. If a real estate broker furnishes you a copy of the bylaws or covenants, you should be aware that they may not be current, since they remain subject to amendment by the developer or homeowners’ association.
Q: Are there any special protections for condo purchasers?
A: Maybe. If you are considering the purchase of a new condo unit, the developer(or the developer’s agent) must give you a public offering statement. This statement is prepared by the developer and contains information about the size of the development, the projected completion date, the legal documents which govern the property, and the projected common expense assessment. It will also inform you of your right to cancel the purchase contract within SEVEN CALENDAR DAYS following your execution of the contract. No public offering statement is required to be given to you if you purchase a condo created before October 1, 1986, a condo that is not new, or a townhouse. And you have no automatic right to cancel your purchase contract. However, when purchasing any pre‑owned condo unit created on or after October 1, 1986, the seller must give you a “resale certificate.” This statement sets forth the monthly assessment for common expenses and any other fees payable by the unit owner.
Q: I’m buying a new condo or townhouse in a development that is still under construction. Does the developer have to finish the
A: No. Subject to applicable local and state laws. Unless the developer has specifically contracted to complete the development, it can stop construction of new units at any time and sell any remaining undeveloped portions of the developments.
Q: Does the developer have to provide promised amenities?
A: For condos created on or after October 1, 1986, the developer is required to file a plat or plan showing any improvements such as swimming pools, tennis courts, or a club house, which are planned. Each improvement must be labeled “MUST BE BUILT” or “NEED NOT BE BUILT.” The developer is required to provide only the amenities which are labeled “MUST BE BUILT.” However, the developer may not promote any amenities which are labeled “NEED NOT BE BUILT.” For townhouses and for condos created before October 1986, no law requires developers to provide promised amenities. However, if the developer fails to provide a promised amenity, a property owner may file a civil suit based on the developer’s misrepresentation. Purchasers should be especially cautious when purchasing a condo or townhouse unit in a development that is incomplete.
Owning a Condo or Townhouse
Q: Who is responsible for maintaining my condo or townhouse?
A: Owners are responsible for maintaining the interior of their units; and townhouse owners may also be required to maintain their doors, windows, and the crawl space under their units. The homeowners’ association is typically responsible for maintaining all common areas and the exterior of buildings. However, prospective buyers should verify this before making offers. The association pays for this maintenance from homeowners’ dues, assessments, and other charges.
Q: What is a homeowners’ association?
A: A homeowners’ association is an organization of the property owners in a development, subdivision or neighborhood that manages and maintains the common areas such as open spaces, recreational areas, tennis courts and pools, for the benefit of the owners and enforces the restrictive covenants. A homeowners’ association is usually established when the project is created. The association will have an elected executive board which will manage the association and perform such tasks as enforcing the rules and regulations and collecting the homeowners’ dues. The developer, however, usually remains in control of the association until the developer no longer owns a majority of the units, or no longer has the majority of the votes in the association, or until a predetermined deadline has passed.
Q: Can my homeowners’ dues be increased?
A: Yes. The common expenses of your development may include grounds’ upkeep, building maintenance, insurance premiums, property taxes and management fees, among other things. When these expenses go up, the cost is usually passed on to the property owners in the form of increased dues and assessments. The legal authority to increase dues and to assess homeowners is set forth in the documents which govern the development. Prior to signing a contract to purchase a condominium or townhouse, you should examine the governing documents to determine the amount of maintenance fees and assessments you will be obligated to pay and whether they may increase over time. You should find out who has the authority to establish fees and assessments, whether there are any limits on the amount that can be charged, the financial stability of the association, whether there are sufficient dues/reserves to pay for larger expenditures in the future, whether there are any pending or proposed assessments of property owners. You are less likely to be shocked by fee increases if you have read this information prior to signing a purchase agreement.
Q: Can an owner avoid paying assessments for the common expense of the property?
A: No. All owners of condos including the developer must pay their share of common expenses. The same would also be true of townhouse owners if there is a clear and definite statement in the restrictive covenants specifying the purpose of the assessment and the authority of the homeowners’ association to collect the assessment.
Q: Can the homeowners’ association tell me what I can and cannot do on my own property?
A: To some degree. The law allows you great freedom to tailor the use of your property to your particular lifestyle. However, this freedom is not unlimited and is subject to certain restraints. A homeowners’ association, or the developer, may be authorized by the declaration to adopt bylaws or other rules and regulations that may govern your conduct. This can substantially affect your ability to use your property. It could even restrict your ability to rent your unit to others. Before you purchase a townhouse or condo, you should carefully read the rules governing the project and consult your attorney if you have any questions.
Q: What should I do if I disagree with the association’s rules?
A: If a dispute arises between you and the association over any of the association’s rules, it may be necessary to resolve the matter in court. Just because a provision appears in the bylaws or rules does not automatically mean that it is enforceable. But in most cases, a rule will be upheld by the courts if it is considered “reasonable.” Also, you may try to change the rules. Any change in the bylaws or rules and regulations of the homeowners’ association requires approval by the members of the association or its executive board. Each homeowner is entitled to vote.
Q: What happens if I do not abide by the restrictive covenants, bylaws, or rules and regulations?
A: In any condominium or townhouse development, an owner or the association may seek relief in court against another owner who violates the association’s covenants, bylaws, rules or regulations. In addition, owners in some condominiums and townhouses may be fined by the association in accordance with either the Planned Community Act or the Condominium Act. These Acts give associations fining authority over the owners of condominiums created on or after October 1, 1986, the owners of townhouses created on or after January 1, 1999, and owners of older condominiums and townhouses whose associations have properly subjected themselves to portions of the applicable Act. Even if an association has the right to impose a fine, no fine can be imposed until the owner is given notice of the alleged violation and an opportunity to defend against the charge at a hearing before the executive board of the association or a panel designated by the board. Once a violation is found and not corrected, the association may impose a fine up to $100.00 per day for each day the violation continues. And, if the owner fails to pay the fine and other charges assessed, the association can file a lien against the property of the offending owner and then sell the unit through a foreclosure process. Some problems may not be addressed by the covenants, bylaws, or rules and regulations. In such cases, you may have to contact a local law enforcement official or your own attorney for assistance.
Q: What if I don’t pay my dues, assessments, fines, or other changes?
A: If an owner fails to pay dues, fines, assessments or other lawfully imposed charges, the owner’s property is subject to foreclosure by the homeowners association (even if the owner’s property is fully paid for).
Q: Can the homeowners’ association employ a management company to assist in managing my condo or townhouse complex?
A: Yes. A homeowners’ association, through its executive board, will often employ a management company to take care of maintenance, collect dues and assessments, and carry out other day‑to‑day responsibilities of the homeowners’ association. The members of the association’s executive board and the staff of management companies are NOT required to be licensed by the N.C. Real Estate Commission or any other state agency so long as their management activities do not involve the sale or rental of units. However, licensed real estate brokers who manage homeowners’ associations must adhere to the N.C. Real Estate License Law and related rules. This includes keeping the collected funds of others in a trust account and maintaining records of all collections and disbursements of these funds.
Q: Can the homeowners’ association do anything about a developer who is causing problems in the development?
A: If the developer is still in control of the association, it is unlikely that the association will be able to effectively take action against the developer; however, the individual homeowners may be able to take legal action against a controlling developer. If the developer is not in control, the association can treat the developer just as it would any other homeowner.
THE NORTH CAROLINA
REAL ESTATE COMMISSION
P.O. Box 17100 • Raleigh, NC 27619-7100
Phone: 919/875-3700 • Web Site: www.ncrec.gov