In California, the old term homeowner association (HOA) has been replaced by a new term: common-interest development (CID). The reason for this change in terminology is that some of the property that is owned in common is not residential. The change is worth noting because nearly 40 percent of all residences in the Golden State are in CIDS.
According to Attorney Kelly G. Richardson, co-founder and managing partner of Richardson Harman Ober and the second presenter in OCAR’s 2014 Distinguished Speaker Series, to have a common-interest development, you must have three things: (1) a recorded declaration, usually in the form of covenants, conditions, and restrictions (CC&Rs); (2) mandatory membership; and (3) separate ownership interest. In California, there are 47,000 common-interest developments encompassing 4.5 million units.
Common-interest developments are classified on the basis of the type of real estate interest their owners have—which is usually defined by the deed (if there is one) or described on the first page of the CC&Rs—and fall into one of four categories: community apartment, stock cooperative, condominium, and planned development.
In a community apartment, each owner receives a deed as a tenant in common on the entire property and an easement, or license, which entitles him to occupy one residence within the project. In a stock cooperative, the association holds title to the entire property, and each home owner receives a share of stock in the cooperative and a license to occupy one residence.
In a condominium, which Richardson declares is a “legal fiction,” the property is split for ownership purposes into two conceptual parts: individual residences, called “units,”—which are, in reality, air spaces—and “common areas.” A condo owner owns a living unit but not a lot. By contrast, in a planned development, property interest is ownership of a lot.
Typically, common-interest developments have five types of governing documents: (1) the articles of incorporation; (2) the condominium plan or subdivision map; (3) the covenants, conditions, and restrictions; (4) the bylaws, and (5) the rules and regulations.
According to Richardson, the covenants, conditions, and restrictions matter even if no one reads them. They are part of the purchase contract, and attorney fees are awardable in the event of a breach. The most important sections to read before purchasing are those having to do with use restrictions and with maintenance and repair.
To learn what criteria REALTORS® should use in evaluating common-interest developments and how to adjust client expectations for living in them, read “Kelly G. Richardson Explains What a Homeowner Association Is, Why You Should Care, and What You Should Do About It,” which begins on page 14 in the April 2014 issue of the Orange County REALTOR®.
By Sherri Butterfield