Air Space, Site & Detached Condominium Associations

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1 Welcome to the WASHINGTON STATE CHAPTER of Community Associations Institute The leading professional organization providing education, resources, and advocacy for community association living. Air Space, Site & Detached Condominium Associations How does it all work when your Association is comprised of boxes of air? Ken Strauss- Partner Melissa Guyott, CMCA, AMS Director of Developer Services 1

2 Definition of an Air Space Condominium The traditional condominium unit is the space inside the walls, floor and ceiling, but not including the main structural components which are Common Elements owned by all unit owners as tenants in common. An airspace unit is simply space. This space may or may not include any of the ground. Any Structure inside the space belongs to and is the responsibility of the unit owner. Definition of an Air Space Condominium Air Space Condominium. The Units are comprised of boxes of space, the boundaries of which are defined by planes in space, shown on the Survey Map and Plans for the project. In a traditional condominium, the boundaries are the walls, floor and ceiling of the apartment, which is not the case here. As a result, the Unit includes the home, exterior landscaped areas, and any other structures, fixtures, equipment or appliances lying within the airspace boundaries. Public Offering Statement, Viscaia Condominiums 2

3 Air Space, Site & Detached Units Interchangeable terms used to describe the same type of Association. But units can come in many different styles. Whose Idea Were Air Space Condominiums, Anyway? Mobile Home Parks: Laws throughout the country have changed essentially creating Site Condos comprised of manufactured homes on lots owned by the homebuyer. Provides more flexibility to developers: Structures do not need to exist at the time the declaration or plat is recorded. Construction loans can be obtained on the land within the unit, just like a traditional single family home. The units can be subdivided into multiple units if the declarant reserves that right. Builders can establish a common interest community without having completed or commenced the construction of any buildings. Municipalities cannot regulate ownership of real property. Therefore developers can sell units without subdivision approval- costly and time consuming. 3

4 The Difference Between Traditional and Air-Space Condominiums Traditional Association Maintains Building Exteriors Units are built as part of a larger building Limited Common Elements Land under the buildings is a common element Assessments may be higher to address exterior elements and common areas Routine Maintenance like gutter and dryer vent cleaning coordinated by the Association You own the interior of your unit defined by your four perimeter walls The entire Association (Project) requires FHA Approval Air Space Owner Maintains Building Exteriors Units may be built one at a time Limited Common Elements are Rare Homeowner may own the dirt under their unit Assessments may be lower as the owner is responsible for roof, siding, painting Owner is responsible for all home maintenance The interior of your unit is defined by your exterior lot lines Site Condominium units are exempt from FHA project approval; Are We Sure This is a Condominium? Some developments operate like condominiums, but are really homeowners associations. "Condominium" means real property, portions of which are designated for separate ownership and the remainder of which is designated for common ownership solely by the owners of those portions. Real property is not a condominium unless the undivided interests in the common elements are vested in the unit owners, and unless a declaration and a survey map and plans have been recorded pursuant to this chapter. Review Declaration and Survey Map and Plans to be sure. 4

5 Lawyers Making Things More Complicated: Review the Declaration From an airspace condominium created in 2012 Dear Sales Professional Is this project FHA Approved? A traditional condominium project must pass a review by FHA/HUD in order for buyers to be approved for an FHA Mortgage. Project Approval for Site Condominiums is not required. Site Condominiums are defined by HUD as: Single family totally detached dwellings. No shared garages or other attachments including breezeways. Are encumbered by a declaration of condominium covenants. The condominium unit consists of the entire structure as well the site and air space. The land under the living unit is not considered a common area or limited common area. Insurance and maintenance costs are totally the responsibility of the unit owner. Any common assessments collected will be for amenities outside of the footprint of the site. Site Condominiums that do not meet all the above requirements will require full project approval. 5

6 Master Insurance Challenges and Considerations Building Construction Type: Attached buildings still defined as Air Space. Declaration prescribes: Master Insurance only covers common areas. What happens if there is a fire resulting in a total loss of the building(s)? What is the Association s obligation to restore units for uninsured owners? Declaration Amendments: Is an Association exempt from responsibility by an amendment to the Declaration mandating a certain type of coverage? Air Space Condominiums How state statutes are applied RCW : 1) Commencing not later than the time of the first conveyance of a unit to a person other than a declarant, the association shall maintain, to the extent reasonably available: (a) Property insurance on the condominium, which may, but need not, include equipment, improvements, and betterments in a unit installed by the declarant or the unit owners, insuring against all risks of direct physical loss commonly insured against. From the Declaration of an Air Space project built in

7 Unit or Improvement? Intent: because the Unit is just a box of air, everything in it is an improvement within the Unit which does not have to be insured Wait Is That Right? Official Comments to the Condominium Act: Put simply, if any item is installed, constructed, repaired or replaced by the declarant or a successor in connection with the original sale of a unit, the item is insured by the association. Clearly, this does not include items of personal property easily movable within the unit or easily removable from the unit (whether or not deemed a fixture under state law), such as a vase, table or other furnishings. If installed by the unit owner, the item may be insured by the association but generally the preferable approach is that these items be insured by the unit owner. Those items, installed by the unit owner and not covered by the association policy, are called improvements and betterments. 7

8 Condominium Act Insurance Obligations (3) Insurance policies carried pursuant to subsection (1) of this section shall provide that: (a) Each unit owner is an insured person under the policy with respect to liability arising out of the owner's interest in the common elements or membership in the association; (b) The insurer waives its right to subrogation under the policy against any unit owner, member of the owner's household, and lessee of the owner; (c) No act or omission by any unit owner, unless acting within the scope of the owner's authority on behalf of the association, will void the policy or be a condition to recovery under the policy; and (d) If, at the time of a loss under the policy, there is other insurance in the name of a unit owner covering the same risk covered by the policy, the association's policy provides primary insurance. More Insurance Considerations Catastrophic Loss and Obligation to Restore Ordinance or Law Coverage Costs to upgrade to meet current building codes Water or Sewer Backup Debris Removal Coverage Ability for owner to obtain Earthquake Coverage Project not certified for lending by some underwriters Legal Risks to Board or Association 8

9 Building Enclosure Design and Moisture Protection The following statement was included as part of a Public Offering Statement for a project built in Washington State in 2013 Multiunit residential building : a building containing more than two attached dwelling units, including a building containing nonresidential units if the building also contains more than two attached dwelling units Consumer Protection Issues Airspace condominiums are intended to limit declarant liability Shifts traditional common elements to units Maintenance obligations need to be carefully reviewed Costs Uniformity of construction Legal standing of Association may be affected RCW Unit owners' association Powers. (1) Except as provided in subsection (2) of this section, and subject to the provisions of the declaration, the association may: (d) Institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium; 9

10 Condominium Act Warranties A declarant and any dealer impliedly warrants that a unit and the common elements in the condominium are suitable for the ordinary uses of real estate of its type and that any improvements made or contracted for by such declarant or dealer will be: (a) Free from defective materials; (b) Constructed in accordance with sound engineering and construction standards; (c) Constructed in a workmanlike manner; and (d) Constructed in compliance with all laws then applicable to such improvements. Limited warranties and 2/5/10 warranties cannot replace the WCA warranties. QUESTIONS? 10