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Ownership & Transfer of Interest
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Association Restrictions

 

A member's separate interest in a common interest development may be transferred to another party by sale, lease or exchange. An association's governing documents typically contain provisions that contain restrictions pertaining to a member's sale, lease or exchange of their interest.  Those restrictions generally pertain to such things as  the display of "For Sale" or "For Lease" signs on the member's property or in the common area,  Owners' and real estate agents' right to use real estate directional and "Open House" signs in the community, and  the right to conduct open houses.  Some associations having provisions in the governing documents that absolutely prohibit leasing, partially restrict leasing, or restrict a tenants' rights. Other restrictions that are commonly found in an association's governing documents relate to the owner's right to use common area property when their separate interest has been leased to a tenant. Most associations with recreational areas allow only unit occupants and their guests to use the association's recreational facilities and prohibit owners who have leased their property from using said facilities.

 

Court cases addressing issues relative to an association's restrictions that affect an owner's ability to transfer their separate property interest frequently uphold restrictions that are found to be reasonable. Unreasonable restrictions such as restrictions that impose an unreasonable restraint on alienation will not be enforced.

 

 

Seller Disclosure Obligations

 

Owners of a separate interest in a common interest development are required to provide a prospective buyer with various disclosure documents before title is transferred.  In general, a prospective buyer should be provided with copies of the following documents pertaining to the common interest development:

 

  • Governing documents including the Declaration, Articles of Incorporation, Bylaws and Operating Rules;
  • The association's most recent budgets and financial statements;
  • A statement indicating the association's current regular and special assessments and fees;
  • A statement disclosing any change in assessments and fees that have been approved by the board of directors but have not become due and payable as of the date the information is provided;
  • A statement indicating the status of assessments that have been levied on the owner's interest which are unpaid;
  • Information relating to late charges, attorney fees, interests and collection costs that are or may become a lien on the interest being sold;
  • Notices sent by the association to the owner pertaining to unresolved violations of the governing documents by the owner;
  • Information concerning construction defects known to the association and any other litigation that the association is or may become involved in;
  • A statement describing the association's restrictions on the leasing of a separate interest;
  • Minutes of meetings of the association's board of directors conducted over the previous 12 months.
 

To facilitate an owner's compliance with the above disclosure requirements, state laws and/or the association's governing documents obligate the association to provide the necessary disclosure documents for delivery to the prospective buyer within a limited period of time (i.e. 10 days from receipt of the request for the documents). The association may charge a reasonable fee for assembly and preparation of the requested documents and delivery of the documents can generally be completed by electronic transmission upon agreement of the requesting party. An owner of a separate interest should also provide a prospective tenant, or tenants,  with copies of the association's governing documents and obtain a written acknowledgement of receipt from the prospective tenant(s) (usually in the form of an amendment to a proposed lease) and an agreement to abide by said governing documents.

 

 

Association Transfer Fees

 

Most associations impose a "transfer fee" in connection with the transfer of title to a separate interest. Prospective purchasers of a separate interest should be provided with a separate disclosure statement that details the required transfer fee, how it is calculated, who it is paid to, and what it is used for. 

 

 

Failure to Provide Disclosure Information

 

An owner's failure to provide a prospective purchaser or tenant with the required information my subject the owner to liability for damages caused to the purchaser or tenant. In certain cases, the failure to provide the required information could result in rescission of the transaction.