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Forget the condo in Boca or the anonymous, singles-only, low-rise golf-course abodes on the edge of town that you may have associated with condos if you’re not from San Francisco or New York. In urban areas like ours, condominiums comprise a huge and expensive part of the real estate inventory in the City. Just as the rest of the city’s inventory, variation in this sector is enormous. From a Twin Peaks economy 1970s model for $300,000 to the gleaming South Beach/FiDi Penthouse in the sky for $20,000,000, you will see almost every type of condo in the City proper. Here are a few items you should know about condos, the laws, documents and entities that govern them. Most HOAs in large buildings will be assisted by property management companies; management will be more procedural and formal. For smaller associations (let’s say 2–4 units) matters are handled more informally where personal relationships and politicking is the norm. Both approaches have detractors and benefits. It’s just a matter of which is right for your needs. 

When you purchase a condo, you’re buying a three dimensional space within the condo complex/building while the homeowner association ‘owns’ the rest in common and has obligation to maintain these ‘common areas.’ Parking spaces are usually exclusive use common areas attached to a given condominium. 

Relevant condo maps will define how a property is divided into units or lots, parking, and common areas. These maps are recorded and are connected to every deed and mortgage on every unit or lot within the property. Changing the map or plan is next to impossible without every other owner agreeing to do so. Your unit is defined by these documents and the title of your property is defined in relation to the relevant map.

Therefore, common areas generally consist of the parts of the property apart from the units and any other privately deeded properties. Easements and use restrictions or allowances may be part the rights and interests granted to a particular owner.

All the rights defining which parts of the condo development/subdivision belong to who, rules and allowed uses are contained in a series of documents called most commonly known as the “CC&Rs” — Covenants, Conditions and Restrictions. The CC&Rs describe  the rights and obligations of the homeowners’ association and of each owner. CC&Rs vary widely in content and length and usually cover the following topics:

  • the demarcation between private and common areas;
  • budgets, reserves, assessments and dues;
  • usage restrictions like pet regulations, leasing rights and alteration controls;
  • maintenance responsibilities of the association and the individual owners;
  • how operating costs are shared among the owners, and the mechanism for collecting owner payments;
  • dispute resolution procedures;
  • HOA Board or Member enforcement powers; and,
  • mortgagor rights.

CC&Rs are required for all condominiums and planned developments and are prepared by lawyers as they do have to conform with various parts of state law.

 

N E W  C O N S T R U C T I O N

With all the new construction hitting San Francisco lately buying condominiums that are new construction is becoming more commonplace. There are some major differences with new construction that you should take heed to as they impact future resale, the physical condition of your condominium and your rights to rent out your property.

Enter SB 800:

California’s Right to Repair Act

California’s Legislature enacted Senate Bill 800 —the Right to Repair Act— in 2003 which applies to newly-built condo and single-family home construction built since then. SB 800 is an attempt to create a comprehensive regulatory scheme to handle construction defects for the first 10 years of a building’s life (along with a 1-year fit and finish warranty for new construction only). Instead of having to sue to get construction defects repaired initially, this system is meant to give developers a right to repair issues first before suing at first. SB 800 works well when the parties are engaged and the repair costs reasonable; it’s less effective when repairs and issues are more extensive and expensive. The system is confusing however and not every developer will opt to abide by the system given extra disclosure and legal requirements.    

Litigation? What Does That Mean?

Construction-defect issues occur in a fair number of large residential buildings in the city. Does it mean all a building’s work is shoddy? Or that the builders are evil or lazy? Or is it lawyers being greedy?  Not necessarily. With so many moving parts it takes to building these buildings — subcontractors, tradespeople, change orders and general chaos over two years — sometimes isolated mistakes or bad luck will happen despite best everyone’s efforts. Oftentimes, pending litigation in a building will create a chilling effect on lending (and on sales) which will push sale prices down during the pendency of litigation.

Why do lender purses snap shut? When lenders lend they tend to see things in only terms of how difficult it would be to get their money back from a mortgage gone bad, which is why their mortgage is first in line. Well, a judgment award skips ahead of mortgages (along with tax liens). Banks don’t want to be left holding the bag. But there are more and more banks willing to lend on these properties for those buyers with a 30–40% down payment. Of course, after the litigation and the fixes are done, things go back to normal.

DIFFERENCES WITH BUYING NEW

Bummer. Unlike most transactions involving resale of property, when a buyer chooses to buy new construction they will have to pay the transfer tax to the Assessor’s Office. This is a cost the seller usually pays. And, you guessed it, when the buyer becomes a seller one day they will have to pay transfer tax then too. Yes, it’s a bummer that taxes are paid twice but remember new construction comes along with a 10-year defects period and a comprehensive year-long warranty — these are things that never come with resale transactions. Read more about how taxes are calculated here.

It’s Covered. The original (first) owner of the condominium gets a 1-year, comprehensive fit and finish warranty from the developer covering nearly every system and aspect of the condominium’s construction and materials from defect or damage (absent normal wear and tear)

After the first year of occupancy the developers will then have the right to repair any issues that come up involving most systems in a development under California law. Another way to look at it: developers are obliged to cure any remedies that arise and manifest themselves during the development’s first 10 years. If the HOA and developer cannot reach a compromise or agreement on repairs of defects litigation can ensue.

We Can Help You Buy Anew —New

Get In Touch
Kevin K. Ho, Esq. + Jonathan B McNarry
San Francisco Real Estate Experts
+1-415.297-7462 (Kevin)
+1-415.215.4393 (Jonathan)