March 22, 2017
Purchasing a unit in a condominium is not the same as purchasing a single family, detached house. When purchasing a newly constructed or to be constructed condominium unit in Pennsylvania, there are certain matters that purchasers should be aware of. A few of those are listed below.
New Unit Purchases
Unless you are buying the most expensive and largest unit in the community, the ability to negotiate the actual terms of the community documents (i.e., the Declaration, Bylaws, or Rules and Regulations) is slim indeed. However, within those documents, things to look out for include:
- How are the percentages of liability for payment of common expense assessments determined? Do they vary from unit to unit? Are they based on size (square footage), or on some arbitrary basis that has no relationship to the value of a particular unit?
- Has the declarant/developer reserved the right to add or withdraw real estate? If real estate can be added, are there assurances that it will be developed in a manner that is compatible with the existing development? If real estate can be withdrawn, what effect might this have on the liability of existing units for expenses related to amenities (such as pools) that were intended for a larger community?
- How many phases of development are there? Are you looking at the first phase? Last phase?
- Are units restricted to residential use?
- Are there adequate and fair leasing restrictions? Many purchasers who are buying their primary residence prefer to have some restrictions on leasing.
Developer/declarants are required to provide public offering statements (POS) to prospective purchasers that contain detailed information about the condominium. A purchaser can cancel an agreement of sale within 15 days after receiving the POS or any amendment to the POS which would have a material and adverse effect on the rights or obligations of the buyer. Purchasers should pay particular attention to the budget portion of the POS. Although these may be difficult to interpret, a high percentage of management fees to the remainder of the budget or a lack of provision for reserves may be warning signs. While comparisons may be difficult, an experienced broker may be able to provide insight.
Resales of Units
A buyer is entitled to what is termed (for condos) a "3407 certificate" which contains much the same information as is set forth in the initial public offering statement, updated to show the current status of the unit and the association in general. An agreement of sale is voidable for five days after the certificate is provided or until conveyance, whichever first occurs. The information must be complete; if it is not, the five day period would run from the time that complete information is provided.
With respect to the governing documents, many of the same considerations as those listed above apply.
Among the most important items within the 3407 certificate are the current budget, the most recent balance sheet for the association, any capital expenditures proposed by the association, the amount of common expense assessments against the unit in question, and a statement of any unpaid common expense assessments with respect to such unit.
Check to determine whether the project is professionally managed.
Check to determine whether the condominium association has a right of first refusal with respect to the unit (not a common requirement in condos of more recent vintage).
It is not a bad idea to ask other unit owners about their experiences. One common problem seems to be leakage of water into condo units, which inevitably leads to disagreement between the association and the affected unit owner as to what needs to be repaired and who is responsible to pay for it.
Closings
Make certain that the unit is correctly described in the deed. Ask the title company for help if you have doubts.
Get a "3315(g)" certificate from the association showing no unpaid assessments against the unit (overlaps somewhat with the 3407 certificate mentioned above, but a buyer is entitled to it and it is recordable).
Get a condo endorsement from the title insurer (#810 for a condo).
Summary
There are many factors to consider when purchasing a condominium unit. A professional real estate agent or an attorney can help you to navigate through those issues.
If you have any questions about real estate transactions, please contact Arnold Heller at 610-275-0700 or via email at aheller@highswartz.com.
The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.
