Q)I am interested in purchasing a condominium from a person who bought it a few years ago from a developer. The building contains 60 units and, although it appears to be in good condition, it is about 50 years old.
The monthly condominium fee seems reasonable, but I am concerned that it might be increased significantly over the next few years. Are there any protections I can obtain to guarantee that my fee will not jump drastically? What do you advise?
A)Although you have not told me where the condominium is, each of the three local jurisdictions (Maryland, Virginia and the District of Columbia) has legal requirements putting the burden on the seller to give you certain information on which you can make your decision to buy.
If there is a real estate agent involved in the transaction, ask the agent to give you the required documents. In any event, they can be obtained from the condominium association. Regardless of the size of the condominium, there must be an association, and the books and the records of the condominium must be maintained carefully.
You should obtain, at the very least, the following documents:
THE CURRENT CONDOMINIUM DOCUMENTS. These include the condominium declaration, the bylaws and the house rules. It is important to review these documents to determine whether you can abide by them.
THE CURRENT BUDGET. This is perhaps the most important document. It shows the income and expenses of the condominium as well as its level of reserves. It is important to recognize that, although reserves are required for such items as future repairs to the boiler, roof, electrical system and other items, all too often many condominium associations do not understand the necessity of maintaining adequate reserves. If the reserves are too low, you may want to reconsider purchasing in that building, especially if it is 50 years old.
THE PROPOSED BUDGET. Each year, the condominium association must prepare a new budget taking into consideration the expenses from the previous year. As we all know, the cost of maintaining any building will only go up. Thus, if your building has an oil burner, for example, the budget may have to be revised to reflect the increase in the cost of heating oil. It is these cost increases that will raise your individual condominium fee.
A STATEMENT OF THE AMOUNT OF THE MONTHLY CONDOMINIUM FEE. Obtain a correct statement from the condominium association showing the monthly condominium fee assessed on the unit you are considering. You also want to assure yourself that the present unit owner is not in arrears on the fee. Although the title lawyer conducting your settlement should collect any arrearages from the seller, this important item is often overlooked and the delinquent fees remain a lien on your unit.
Review these documents very carefully. You asked whether there are any guarantees to protect you against significant increases in the condominium fee. Unfortunately, the answer is no.
Of course, you may get the seller to guarantee the condominium fee at a fixed level for a period of time -- one year, for example. This is a function of negotiating when you sign a purchase contract. If the seller is very anxious, you may be able to get such a guarantee.
If the condominium association has professional management, I recommend that you talk to the management company. Review the records and ask the management company about its projected expenses. Most management companies are competent and should be able to assist you.
Often, the management company (or the condominium association itself) has engaged engineers and architects to review the condition of the building.
If such studies have been performed, look at these documents and pay particular attention to the useful-life projections of the major systems. For example, an engineer may determine that the boiler, which will cost $30,000 to replace, has a useful life of three more years. If adequate reserves are not being built up for this replacement, you may find yourself hit with a special assessment of $500 to pay for the boiler in your building of 60 units.
I would rather pay $5 to $10 each month to build up the reserves than come up with a large amount in an emergency.
Buying a condominium should not be considered lightly. You have to understand what condominium living is all about and how the condominium you are considering actually operates. Laws govern the operation of condominiums, but if the board of directors is not dedicated or if the management company is not deeply involved in the day-to-day operation of the condominium, these laws will not give you much comfort.
You also may want to consider meeting with other unit owners, perhaps by staying in the lobby on Saturday or Sunday and just introducing yourself. You may get a good flavor of the condominium membership this way.
After all, when you buy a condominium, you are subjecting yourself to living in a democracy. Majority rule -- a necessary ingredient of this democracy -- may not be your cup of tea.
Benny L. Kass is a Washington attorney. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.