Things to Consider When Purchasing a Condo in Washington, DC
Any real estate transaction requires careful consideration and a thorough review of the documents involved. However, condominiums are structured differently than other types of properties. Therefore, it is important that you understand all of the condominium association’s regulations, bylaws, declarations, and financials because they will impact your life while you live in the residence.
This process can be overwhelming, so Smart Settlements outlines many of the documents and information you should review before purchasing a condominium in DC.
The Resale Package or Public Offering Statement
If you sign a contract to purchase an existing condo, you must be given a resale package whereas if you are purchasing a condo from a developer, you must be given a public offering statement (POS). This must be delivered on or prior to the tenth business day after the execution of the contract by the purchaser.
Documents in a resale package or public offering statement include:
- Condominium governing documents
- Declaration
- Bylaws
- Rules adopted by the Board of Directors
- Plat and plans
- Current budget
- Pending lawsuits involving the association
- Insurance information
- Audit report from an independent CPA
Let’s talk about each document.
Declaration
The governing condominium documents start with the declaration, which clearly states that the complex in question is part of a condominium. It explains the three components of the condo: the “units,” “common elements,” and “limited common elements.” A “unit” is the residential space that is not shared, general common elements are used by everyone in the complex (e.g., elevators, hallways), and limited common elements are available to some of the owners (e.g., balcony, deck, patio, storage spaces, parking spaces).
The declaration states the ownership percentage of each unit, on which voting and condo payments are based. The percentage totals from every unit in the condominium must equal 100%. Keep in mind that although associations with one-unit/one-vote exist, the majority of condominiums base voting and assessments on percentage interests. A unit’s percentage interest may not be based on the square footage of the unit. Instead, a percentage interest may be assigned based on its location within the property, the unit’s views, and outdoor space such as a terrace or balcony.
Bylaws
The bylaws of a condominium association state how board members are elected, what board members can and cannot do, and restrictions on issues such as pets, parking, leasing, and condo fee payments. Read the bylaws carefully to ensure they align with your lifestyle and housing needs.
It is also important to understand what it takes to change the bylaws and what you (and the other owners) cannot change. Bear in mind that condominium laws that govern your jurisdiction also have an impact.
Rules Adopted by the Board of Directors
Condominium associations often have rules that are adopted by the board of directors. In many cases, the rules interpret, expand on, or further define the laws or bylaws. One common example is that a bylaw may permit dogs but the rules state that dogs must be leashed while in common elements. On the other hand, a rule cannot override a law or bylaw (i.e. if a bylaw forbids dogs, a rule cannot allow them; instead, the bylaws must be amended).
Plats and Plans
You should receive the plat and plans (an architectural drawing sometimes referred to as the “condo map”) as part of the resale package or POS. The plat and plans are recorded at the appropriate land records office, they include the floor plan of each unit in the condominium complex, and they distinguish general common elements from limited common elements.
If you are buying in the District, the plat and plans must be included in the resale package. They are not required in Maryland or Virginia, but if you are buying in those states, you should request a copy before you decide to buy
Current Budget
You will receive documents that speak to the financial status of the association. Watch out for delinquencies, low funds in reserves, or projected projects that cannot be covered by the association.
Pending Lawsuits Involving the Association
If you find that your condominium association is involved in litigation, then a conventional mortgage lender may be unable to lend you the money. Litigation does not always mean that the condo would be a poor investment, but it does mean you may have a title challenge to overcome and a lending roadblock.
If the association is not involved in any litigation, the resale package will state that.
Insurance Information
If you are financing your purchase through a lender, then the lender will request a copy of the insurance policy for the building and the condominium’s association. This insurance policy works in conjunction with your owner’s policy to provide you full coverage.
Audit Report From an Independent CPA
A condominium performs independent audits according to the bylaws. The audit evaluates not just an assessment of the association’s current finances but also the overall financial health and future of the association as well as its adherence to all governing regulations.
Cancellation Policy
A typical sales contract gives you a specific period of time (most often three days from the date you receive the package) to cancel the contract and receive your earnest money back.
If you have any questions about any of these components, it is best to consult a real estate attorney.
If You Want to Create a Condominium
If you plan to create a condominium, then a law enacted by the state legislature or D.C. Council must allow it. At this time, each Washington-area jurisdiction has a condominium act, and other locales have additional laws that affect condominiums (such as regulations against renting a unit on AirBnB).
In most cases, a condominium act has legal priority over and will override conflicting legal documents in a resale package or POS. Some provisions in the condominium act are set, such as a regulation that percentage interests cannot be changed without unanimous consent from all owners. Beyond those laws, condo associations can amend their own legal documents as needed.
The condominium documents you sign will govern you for as long as you live there, so it is critical that you do your due diligence. As this may be one of the biggest investments in your life, consider consulting current owners, management staff, a real estate attorney, and a financial advisor before making your purchase.
This article is for informational purposes only. For more information about this code, visit the D.C. Law Library’s Code § 42–1904.04. and consult a D.C. real estate attorney.
For additional information on this topic contact Evelyn Miller, Partner, at 202-753-7400.
