He teaches courses related to condominium laws and has helped thousands of realtors and consumers with their condominium related questions.
Dale has often asked me to join in on these courses and talk about construction related issues (he is the expert on the law, I am not). In the process of working with Dale, I have seen the quality and clarity of the information he presents. And I am very pleased that he has agreed to present some of this information on The Sound Home Resource Center.
Don't let the more technical or "legalistic" aspect of this material stop you from learning this information. If you own a condominium, are buying or selling a condominium, you need this information. - George
ANSWER: There are three pertinent acts that relate to condominiums in the State of Washington.
The first act is the Washington Horizontal Property Regimes Act, Chapter 64.32 RCW (HPRA). HPRA was enacted in 1963.
The second act is the Washington Condominium Act, Chapter 64.34 adopted in 1989 and effective July 1, 1990 (WCA).
The third act is Engrossed House Bill 1848 adopted on May 13, 2005 and effective August 1, 2005, amending RCW 64.34.415, 64.34.410, and 64.34.100; adding a new section to chapter 64.34 RCW; and adding a new chapter to Title 64 RCW (i.e Chapter 64.55) .
PRACTICE TIP: It is important to know whether a Condominium Declaration was recorded prior or after July 1, 1990 as Condominium Declarations recorded under the former Act, HPRA, are deficient in a number of areas including the following:
a) HPRA does not provide significant statutory guidance in areas such as Declarant’s ability to expand or contract a Condominium;
b) HPRA does not provide significant statutory guidance regarding the rights and responsibilities of Owners’ Associations;
c) HPRA does not provide guidance on the conversion of existing buildings to condominiums;
d) HPRA does not define the obligations of the Declarant to unit owners or the Association particularly during and following the development period;
e) HPRA does not contain public disclosure warranties or other consumer protections, (e.g. Public Offering Statement and Resale Certificate requirements).
Condominiums created before July 1, 1990, while governed by HPRA are nevertheless subject to some of the provisions of the WCA including the requirement for Sellers other than the Declarant to provide Resale Certificates.
It is also important to know whether any permits or Public Offering Statements were issued after August 1, 2005, which would subject the condominium to the design and inspection regulations under HB 1848.
Answer: 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 the WCA.
Thus, this type of ownership of common elements is what distinguishes a condominium from a planned unit development or a co-op.
ANSWER: A condominium is created by the recording of a Declaration and Survey Map and Plans.
PRACTICE TIP: At the earliest possible time both the Listing Agent and Selling Agent should obtain a copy of the Declaration, Survey Map and Plans. A review of these documents will answer the following critical questions:
a. Does the condominium permit subleasing of units? (Declaration)
b. Does the condominium permit pets? (Declaration)
c. Does the condominium permit some form of in-home business activity? (Declaration)
d. Are specific parking spaces and storage areas allocated as limited common elements to a given condominium? (Survey)
e. In the case of a newer condominium, whether the Declarant reserves the right to add improvements or develop other condominiums at the site. (Survey)
ANSWER: The period of Declarant control terminates the earlier of
a. Sixty days after conveyance of 75% of the units which may be created to unit owners other than the Declarant,
b. Two years after the last conveyance or transfer of record of a unit, except as security for a debt;
c. Two years after any development right to add new units has been exercised, or
d. The date on which the Declarant records an amendment to the declaration pursuant to which the Declarant voluntarily surrenders the right to further appoint officers or members of the Board. In addition, not later than 60 days after the conveyance of 25% of the units which may be created at least one member and not less than 25% of the members of the Board must be elected by unit owners other than the Declarant, and not later than 60 days after the conveyance of 50% of such units not less than 1/3 of the members of the Board must be elected by unit owners other than the Declarant.
Answer: There are two provisions: The Public Offering Statement (POS) and the Resale Certificate (RC).
The POS is required of the Declarant and the RC is required upon the resale of the unit by the Seller in all cases except (1) the sale of nonresidential units (e.g. business or commercial) if the Seller and Purchaser agree in writing, (2) the conveyance by gift, devise or descent, (3) a conveyance by court order, (4) a disposition by government or governmental agencies, (5) a conveyance by foreclosure, (6) a disposition of all the units in a condominium in a single transaction, or (7) a disposition to someone other than a purchaser, e.g. a mortgagee, Declarant, dealer or tenant under a lease for less than 20 years.
PRACTICE TIP: If representing a lender on a foreclosed unit, a POS and an RC will not be required.
a. What Is Contained In the POS?
The POS requires the Declarant to disclose certain information relative to the Declarant and the condominium project including: name and address of the condominium; the name and address of the Declarant; name and address of the management company if any; the relationship of the management company to the Declarant, if any; a list of up to the 5 most recent condominium projects completed by the Declarant or an affiliate of the Declarant within the past five years, including the names of the condominiums, their addresses, and the number of existing units in each; the nature of the interest being offered for sale; a brief description of the permitted uses and use restrictions pertaining to the units and the common elements; a brief description of the restrictions if any on the renting or leasing of units by the Declarant or other unit owners, together with the rights, if any, of the Declarant to rent or lease a majority of the units; the number of existing units in the condominium and the maximum number of units that may be added to the condominium; a list of the principal common amenities in the condominium which materially affect the value of the condominium and those that will be added to the condominium; a list of the limited common elements assigned to the units being offered for sale; the identification of any real property not in the condominium, the owner of which has access to any of the common elements, and a description of the terms of such access; the identification of any real property not in the condominium to which unit owners have access and a description of the terms of such access; the status of construction of the units and common elements, including estimated days of completion if not completed; the estimated current common expense liability for units being offered; an estimate of any payment with respect to the common expense liability for the units being offered which will be due at closing; the estimated current amount and purpose of any fees not included in common expenses and charges by the Declarant, or the Association, for the use of any common elements; any assessments which have been agreed to or are known to the Declarant and which, if not paid, may constitute a lien against any units or common elements in favor of any governmental agency; the identification of any parts of a condominium, other than units, which any individual owner will have the responsibility for maintaining; if the condominium involves a conversion condominium, the information required under the conversion condominium provisions (RCW 64.34.415); whether time-sharing is restricted or prohibited, and if restricted, a general description of such restrictions; a list of all development rights reserved to the Declarant and all special Declarant rights reserved to the Declarant, together with the date such rights must terminate, and a copy of or reference by recording number to any recording or transfer of special Declarant rights; a description of any material differences in the terms of furnishings, fixtures, finishes, and equipment between any model unit available to the Purchaser at the time the Agreement for sale was executed and the unit being offered; any liens on real property to be conveyed to the Association required to be disclosed; a list of any physical hazards known to the Declarant which particularly affect the condominium or immediate vicinity in which the condominium is located, and which are not readily ascertainable by the Purchaser; a brief description of any construction warranties to be provided to the Purchaser; any building code violations, citations received by the Declarant in connection with the condominium which have not been corrected; a statement of any unsatisfied judgments or pending suits against the Association, a statement of the status of any pending suits material to the condominium of which the Declarant has actual knowledge, and a statement of any litigation brought by Owners’ Association, unit owners, or governmental entity in which the Declarant or any affiliate of Declarant has been defendant, arising out of the construction, sale or administration of any condominium within the previous five years, together with the results thereof, if known; any rights of first refusal to lease or purchase any unit or any of the common elements; the extent to which the insurance provided by the association covers furnishings, fixtures, equipment located in the unit; a notice which describes a purchaser’s right to cancel the purchase agreement or extend the closing; any reports or statements required under other sections of the WCA; a list of documents which the prospective purchaser is entitled to receive from the Declarant before the rescission period commences; a notice which states: “a purchaser may not rely on any representation or express warranty unless it is contained in the POS or made in writing signed by the Declarant or by any person identified in a POS as Declarant’s agent”; a Notice which states: “This POS is only a summary of some of the significant aspects of purchasing a unit in this condominium and the condominium documents are complex, contain other important information and create binding legal obligations. You should consider seeking the assistance of legal counsel”; any other information and cross-references which the Declarant believes will be helpful in describing the condominium to the recipients of the POS, all of which will be included or not included at the option of the Declarant; and any notice that addresses compliance or non-compliance with the Housing for Older Persons Act of 1995.
The POS must be accompanied by the copies of the Declaration, the Survey Map and Plan, the articles of incorporation of the Association, the Bylaws of the Association, any rules and regulations, a current or proposed budget of the association, and the balance sheet of the association current within 90 days of assessments having been collected for 90 days or more.
If the condominium is subject to HB 1848, the Building Enclosure Inspection Report, which lists the repairs needed, must accompany the POS.
b. Is the Declarant Liable for Misstatements in the POS?
The Declarant is liable for any misrepresentation contained in the POS or for any omission of a material fact therefrom if the Declarant had actual knowledge of the misrepresentation or omission, or in the exercise of reasonable care, could have known of the misrepresentation or omission.
c. Does the Purchaser Have A Right to Rescind the Sale Agreement Upon Receipt of the POS?
The Purchaser has an absolute and unconditional right to rescind the sale of the condominium for a period of seven days after the purchaser receives the POS and before conveyance of the unit. If the POS is given to the purchaser within 7 days of closing, the purchaser has a right to extend the closing date in order to have the full 7 day review period.
d. What Is Contained In the RC?
The following information is contained in a RC:
1) A statement disclosing the right of first refusal or other restraint on the free alienability of the unit contained in the Declarations;
2) A statement setting forth the amount of the monthly common expense assessment and any unpaid common expense or special assessment currently due and payable from selling unit owner and a statement of any special assessments that have been levied against the unit which have not been paid even though not yet due;
3) A statement, which shall be current to within 45 days, of any common expenses or special assessments against any unit in the condominium that are past due over 30 days;
4) A statement, which shall be current to within 45 days, of any obligation of the association which is past due over 30 days;
5) A statement of any other fees payable by unit owners;
6) A statement of any anticipated repair or replacement costs in excess of 5% of the annual budget of the association that has been approved by the Board of Directors;
7) A statement of the amount of any reserves for repair or replacement of any portions of those reserves currently designated by the Association for any specified project;
8) The annual financial statement of the Association, including the audit report if any as prepared, for the year immediately preceding the current year;
9) A balance sheet and revenue and expense statement of the Association prepared on an accrual basis, which shall be current within 120 days;
10) The current operating budget of the association;
11) The statement of any unsatisfied judgments against the association;
12) The status of any pending suits in which the Association is a Defendant;
13) A statement describing any insurance coverage provided for the benefit of the unit owners;
b. A statement as to whether there are any alterations or improvements to the unit or to the limited common elements assigned thereto that violate any provision of the Declaration;
c. A statement of the number of units, if any, still owned by the Declarant, whether the Declarant has transferred control of the Association to the unit owners, and the date of such transfer;
d. A statement as to whether there are any violations of the health or building codes with respect to the unit, the limited common elements assigned thereto, or any other portion of the condominium; e. A statement of the remaining term of the lease hold estate affecting the condominium and the provisions governing any extension or renewal thereof; and
f. A copy of the Declaration, the Bylaws, the Rules or Regulations of the Association, and any other information reasonably requested by mortgagees of prospective purchasers of units.
The Association may charge up to $150 for preparation of the RC and is to prepare the RC within ten (10) days after request by the unit owner.
e. Does the Purchaser have a right to rescind the Sale Agreement upon receipt of the RC?
The Purchase and Sale Agreement is voidable by the Purchaser until the RC has been provided and for five (5) days thereafter, or until the conveyance, whichever occurs first.
PRACTICE TIPS: a. When representing the buyer, given the substantial amount of information available from the POS, include a contingency that the Buyer’s obligation to proceed with the transaction is contingent on the Buyer’s review and approval, at the Buyer’s sole discretion, of both the RC and the POS. An appropriate time for review of those documents would be 7 days after receipt. (Note: You will not receive the POS on resale unless you ask for it because it is not required.)
b. If the Seller has been contributing towards a reserve account for work which will not be completed until after closing, should the listing agent negotiate for a credit to the Seller for such contributions to the reserve account? Should a differentiation be made for a reserve account for simply maintenance versus improvements? Arguably, if the reserve account is for maintenance, since that maintenance was a result, in part, of the use by the Seller during his ownership, no credit is due the Seller.
c. When representing the Seller, upon taking a listing, contact the Homeowners’ Association to begin the process of obtaining the RC. This is critical as the Buyer can rescind the transaction, at the Buyer’s discretion, for a period of up to 5 days after receipt of the RC. The Buyer should be given the RC upon mutual acceptance of the Purchase and Sale Agreement so that the 5-day rescission period runs parallel with the inspection contingency.
ANSWER: The condominium conversion of apartments or co-operatives to condominiums triggers certain rights and remedies in favor of tenants and subtenants in possession of a rental unit that is being converted to a condominium. Those rights include the following:
A. 120 Day Notice to Vacate;
B. A Tenant has the right for 60 days to purchase the unit which he or she leases at a price and terms offered by the Declarant;
C. For a period 180 days, the Declarant may not sell the unit to any other person on more favorable terms without giving the Tenant and additional 10 day right to accept such terms;
D. The WCA permits cities and counties to require a housing code inspection; the correction of housing code violations before closing; a 1-year warranty on housing code violation repairs; a 1-year escrow deposit equal to 10% of the cost of housing code violation repairs; and a relocation assistance not to exceed $500 per unit payable to low-income tenants.
E. The City of Seattle has adopted its own condominium conversion ordinance consistent with the WCA (SMC 22.903). The City’s ordinance requires relocation assistance of $500 per unit for those who have income less than the monthly median income for comparably sized households in the Seattle-Everett area. The relocation assistance must be paid before the tenant vacates. The ordinance further requires that prior to the delivery of the POS or the condominium conversion notice, the Declarant must have the building inspected and correct any violations. The written inspection report is to be included in the POS and the condominium conversion notice. Further, a copy of the inspection report is to be provided to a prospective purchaser before the signing of the earnest money agreement. Prior to closing, the developer shall deliver a copy of the certification of repairs to the Purchaser.
The following documentation must be placed in the Public Offering Statement involving a condominium conversion:
A. The WCA (RCW 64.34.415) requires that the Public Offering Statement either contain a copy of a report, a “transition study”, prepared by an independent, licensed architect or engineer, or a statement by the declarant based on such report, which report or statement describes, to the extent reasonably ascertainable, the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the condominium.
B. RCW Chapter 64.55 effective August 1, 2005 provides that the Public Offering Statement shall contain a copy of the inspection and repair report prepared by an independent, licensed architect, engineer or qualified building inspector. This report is required if there is to be rehabilitative construction of the building enclosure which exceeds five percent (5%) of the assessed value of the building.
C. The Public Offering Statement shall contain a statement by the declarant of the expected useful life of each item reported on in the transition study referred to in paragraph A above, or a statement that no representations are made in that regard.
D. The Public Offering Statement shall contain a list of any outstanding notices of uncured violations of building code or other municipal regulations, together with the estimated cost of curing these violations. Unless the purchaser waives in writing the curing of specific violations, the extent to which the declarant will cure such violations prior to the closing of the sale of a unit in the condominium shall also be included.
PRACTICE TIP: When listing an apartment or co-op which has been converted to a condominium, assure that the developer has complied with the WCA conversion requirements, including obtaining and placing the transition report, declarant’s statements (see paragraphs 7 C and D) and building design documents, if required, into the Public Offering Statement and if the conversion condominium is in the City of Seattle, have the Purchaser acknowledge in the Purchase and Sale Agreement that he received and approved a copy of the City Inspection Report prior to executing the Sale Agreement. If representing the Buyer of a conversion condominium in the City of Seattle, be sure that your Buyer receives the Inspection Report prior to executing the Sale Agreement and recommend that the purchase be conditioned upon Buyer’s approval of the Building Enclosure Design Documents, Inspection Report, and receipt of a copy of the Certification of Repairs.
ANSWER: The Real Property Transfer Disclosure Statement is required in all sales of residential condominiums except the initial sale by the Declarant, for which a POS is required by Chapter 64.34 RCW.
As a Buyer’s Agent, Should I Be Concerned In the Purchase of a New Condominium If the Seller/Declarant Insists on the Execution of Form 29-New Construction-Conversion Addendum to Condominium Real Estate Purchase and Sale Agreement?
ANSWER: If the Buyer executes Form 29, he should be made aware of the rights being compromised. They include:
(a) Paragraph 2 Specifications. This paragraph allows the Seller to unilaterally modify the plans and specifications. The Buyer and Seller should agree, in advance, that the unit is being purchased in accordance with plans and specifications agreed to in advance by the Buyer and Seller and identified in the Purchase and Sale Agreement. Any change to those plans and specifications would be by mutual agreement.
(b) Paragraph 3 Punch List. Buyer agrees to close the sale even though the so-called “Punch List Items” have not been corrected or completed by Seller prior to closing. Should the Buyer consider an escrow holdback for Punch List Items not completed prior to closing, with the funds being disbursed to the Seller only after Buyer’s inspector has approved the completion of the Punch List Items?
(c) Paragraph 11 – Model Units. This provision prohibits the Buyer from assuming that his unit will be built in accordance with the plans and specifications of a model unit. This re-emphasizes the importance of the Buyer and Seller agreeing in advance that the unit is built in accordance with specific plans and specifications agreed to by both parties.
(d) Paragraph 17 – Pre-Closing Inspection. This provision like Paragraph 3 requires the Buyer to close the transaction even though corrections of defects may be required. Suggest as an alternative the escrow holdback pending completion of the repairs.
(e) Paragraph 18 – Warranties. This paragraph attempts to limit Seller’s warranties. In particular, this paragraph may be construed as limiting the common-law warranty of habitability which protects the Buyer of new residential construction from major structural defects.
Answer: HB 1848 has enacted tougher inspection and repair requirements for conversion condos.