condominiums

Oregon Condominium Conversions

Definitions

  1. “Declarant” means a person who records a declaration under ORS 100.100
  2. “Declaration” means the instrument described in ORS 100.100 by which the condominium is created and as modified by any amendment recorded in accordance with ORS 100.135 or supplemental declaration recorded in accordance with ORS 100.120.
  3. “General common elements,” unless otherwise provided in a declaration, means all portions of the condominium that are not part of a unit or a limited common element
  4. “Sale” includes every disposition or transfer of a condominium unit, or an interest or estate therein, by a developer, including the offering of the property as a prize or gift when a monetary charge or consideration for whatever purpose is required by the developer

Statutory Framework - The Oregon Condominium Act (ORS Chapter 100) governs:

    • Formation
    • Operation
    • Sales
  1. Ownership Interests - Most condominiums consist of two types of real property: units and common elements. Each type is governed by substantially different rules regarding ownership, use, operation, and responsibility for maintenance, repair, and replacement.
  2. Units - The unit consists of the cubic air space created by the horizontal and vertical boundaries described in a condominium declaration. It is a separate parcel of real property capable of being platted, conveyed, and encumbered like any traditional parcel of real property.
  3. Common Elements - Generally, the balance of the property covered by a condominium plat not constituting units is called common elements. While units may be individually conveyed and encumbered, common elements, as their name suggests, are owned in common by all unit owners as tenants in common. Under the Oregon Condominium Act, common elements may not be conveyed, encumbered, or subjected to lien or attachment except under special circumstances. See ORS 100.440.
  4. General vs. Limited Common Elements - Common elements are further divided into two types: general common elements and limited common elements, which are distinguished from each other on the basis of right of use. A general common element is one that all unit owners are entitled to use on a nonexclusive, theoretically equal, basis, while use of a limited common element is restricted to less than all of the units (and typically to only one). See ORS 100.005(7), (16), (18). Some typical examples of limited common elements in residential condominium developments are decks, patios, assigned parking spaces, and courtyards. Limited common elements must be designated as such on the condominium plat, and their assignment to units and the description of use rights and limitations must be set forth in the condominium declaration and bylaws.
  5. Formation - To submit any property to the provisions of the Oregon Condo­minium Act (Condominium Act), the declarant must record a condominium declaration, bylaws, and plat in the office of the recorder of the county in which the property is located. ORS 100.100(1), ORS 100.115(1), ORS 100.410(1)
  6. Declaration - The required contents of any condominium declaration are set forth in ORS 100.105. In summary, for other than staged or flexible condominiums, the declaration must include a description of the property being submitted to unit ownership, a statement of the interest in the property, the name of the condominium project, the unit designation, a statement that each unit’s location is shown on the plat, a description of the boundaries and area of each unit, a description of the general common elements, and an allocation to each unit of an undivided interest in the common elements and the method used to establish that allocation. ORS 100.105(1).
  7. Bylaws - The Oregon Condominium Act (Condominium Act) requires the declarant to adopt on behalf of the association of unit owners the initial bylaws governing the administration of the condominium. ORS 100.410(1).
  8. Plat - A plat must be prepared and recorded simultaneously with the condominium declaration. ORS 100.115(1). The plat must comply with the requirements of ORS 92.050, ORS 92.060(1)–(2), ORS 92.080, and ORS 92.120 (requirements for surveying, preparing, filing, and recording plats). The plat must show the location of all buildings and public roads; show the designation, location, dimensions, and area of each unit, including the vertical and horizontal boundaries of each unit and the common elements to which each unit has access; identify and show, to the extent feasible, the location and dimensions of all limited common elements described in the declaration; and include a statement of a registered engineer, architect, or surveyor certifying that the plat fully and accurately depicts the boundaries of the units of the buildings and that construction of the units and buildings as depicted on the plat has been completed. ORS 100.115(1)(a)–(d).

Approvals

    1. Oregon Real Estate Agency - The Oregon Real Estate Agency carries out the provisions of the Condominium Act. See ORS 696.490(2) (appropriating funds for that purpose). The agency will review for substance and form both the original executed condominium declaration and bylaws, and copies of the condominium plat. The agency will also require the submission of a subdivision guaranty, a form of title insurance in favor of the agency, covering the property covered by the declaration.
    2. City or County - Depending on whether the property is located in a city or in an unincorporated county, the local government surveyor, tax collector, and tax assessor must review and approve the condominium declaration and plat. The city or county surveyor may be required to execute the plat.

Disclosure Statement

    • General Description
    • Sale Agreements
    • Warranties
    • Common Expenses, Assessment and Budget
    • Operation and Management
    • Declarant / Developer Rights
    • Governing Documents

Reserves & Reserve Studies

    1. The Oregon Condominium Act requires all new condominiums to establish a reserve fund. The amount of reserves is based on a reserve study.  The reserve study should be prepared by a qualified individual and identify all property and components with a useful life of 1-30 years.  Reserves are only required for property or components which the Association is obligated to maintain, repair, or replace. 

Conversions 

  1. A conversion condominium is a condominium in which there is a building, improvement, or structure that was occupied before any sales activity and that is at least partly residential in nature. ORS 100.005(10). The legal requirements for nonconversion condominiums apply with equal force to conversion condominiums.
  2. Notice to Tenants - The declarant must give each tenant a notice of conversion at least 30 days before the declarant presents an offer to sell the unit to the tenant. ORS 100.305(3). The notice of conversion must include the following information:
      • A statement that the declarant intends to create a conversion condominium;
      • General information relating to the nature of condominium ownership;
      • A statement that the notice does not constitute a notice to terminate the tenancy;
      • A statement regarding whether the tenant’s unit will be substantially altered;
      • A statement regarding whether the declarant intends to offer the unit for sale and, if so, a description of the tenant’s rights under ORS 100.310(1) to (3); a good-faith estimate of the approximate price range for which the unit will be offered for sale to the tenant; a good-faith estimate of the monthly operational, maintenance, and other common expenses or assessments attributable to the unit; a statement that financial assistance may be available from a local governing body, the Housing and Community Services Department, or a regional housing center; and a statement that the landlord may not terminate the tenancy without cause if the termination would take effect; and
      • A statutory notice about restrictions on rent increases.
      • The notice must be hand-delivered to the tenant’s dwelling unit or sent to the tenant at the unit’s address by certified mail, return receipt requested. ORS 100.305(1)(f).

Right of First Refusal - Before the declarant sells any unit to a third party in a conversion condominium without substantial renovation of the unit, the declarant must first offer to sell the unit to the tenant who occupies it. The terms of the offer are specified by statute. The offer terminates 60 days after the tenant receives it or upon the tenant’s earlier written rejection of the offer, and it must be accompanied by all of the applicable disclosure statements issued by the Real Estate Commissioner as required by the Oregon Condominium Act.

Timing - The Oregon Condominium Act provides that the notice of conver­sion must be given to a tenant at least 30 days before the declarant presents the right of first refusal to the tenant. ORS 100.305(3). In addition, the notice of conversion must be given at least 120 days before the conversion condominium declaration is recorded. ORS 100.305(1).

Regulation of Sales - Unlike condominium statutes in other states, the Oregon Condo­minium Act relates only to the sale (or resale) of units by developers and not to casual resales of single units by individual owners. The act defines a developer as a declarant or any person who purchases an interest in a condominium from a declarant, successor declarant, or subsequent developer for the primary purpose of resale. ORS 100.005(13).

Condominium Review for Purchasers

Buying a condominium is a significant investment. Prior to purchasing, buyers receive numerous documents relating to the condition and operations of the condominium project. We will review those documents and provide an opinion on the overall health of the condominium. We will requested the following documents from the potential buyer:

  • Declaration / CC&Rs
  • Bylaws
  • Rules and Regulations
  • Meeting Minutes for the previous 3 years
  • Reserve Study
  • Maintenance Plan
  • Articles of Incorporation
  • Insurance Policy Declarations

After receiving the documents, we will provide an opinion on the following:

  • Declaration or Bylaw provisions which are outdated or contrary to state law;
  • An overview of the financial standing of the Association;
  • Potential for construction defect issues;
  • Any pending litigation;
  • Restrictions on renting or leasing of units;
  • Conflicts between rules/regulations and other governing documents;
  • Adequacy of the Association's insurance coverage; and
  • Whether the reserve account is properly funded.

 

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FHA Certified Condominiums

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Many condominiums throughout the United States are Federal Housing Administration (“FHA”) certified.  This allows prospective buyers to receive FHA-insurance loans and mortgages. If a condominium is FHA certified, that means that the condominium meets all of the FHA legal, financial, operational, and property requirements.

FHA certified condominiums allow for a larger demographic of potential buyers.  This, in turn, makes the condominium more valuable and marketable.There are certain requirements which must be met.  The requirements include:

1. Property Use and Type

Under federal law, FHA mortgages may be used only to purchase a primary residence.  You may not secure an FHA loan for the purchase of a timeshare, condo-hotel, or resort property.  There are other types of properties which FHA loans may not be used: condominiums where more than 25% is designated for commercial use or condominiums located in coastal barrier zones.

2. Financial Stability

To become FHA certified, the association must prepare and fully fund an annual budget.  At least 10% of the budget must be allocated to reserves. The reserve fund is used to maintain, repair and replace common elements of the condominium, such as the siding and roofs.  Lastly, no more than 15% of the condominium units may be more than 60 days delinquent on the payment of regular assessments.

3. Operational Stability

The condominium association must show that at least 50% of the units are owner-occupied. This means that if your association has a high number of rentals, FHA approval may not be an option.  In addition, FHA certification requires that all of the condominium buildings and common element are in good repair.

4. Insurance Requirements

Every association should have certain insurance policies.  Click here for more on insurance. FHA approval requires that the association maintain the following policies:

A. Property/Hazard Insurance

B. Liability Insurance

C. Fidelity Insurance (if there are more than 20 units)

D. Flood Insurance (if required)

5. Legal Requirements

There are a handful of legal requirements to become FHA certified.  First, any rental restriction in the governing documents must comply with the FHA’s governing statutes.  Second, litigation (other than routine litigation for delinquent assessments) must be disclosed and explained.  Lastly, the association must certify that it is in full compliance with any applicable state or federal law.

To see if your condominium has been FHA approved, visit: https://entp.hud.gov/idapp/html/condlook.cfm

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Turnover in Condominiums and HOAs - Oregon

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Organization of Association The Oregon Planned Community Act (PCA) and the Oregon Condominium Act (OCA) require that an association of owners be formed for the purpose of administrating, managing, and operating the development. The PCA specifically requires the declarant to organize the association as a nonprofit corporation under the Oregon Nonprofit Corporation Act (See ORS chapter 65) and adopt and record the initial bylaws not later than the date on which the first lot is conveyed.   With respect to a condominium, upon the recording of the declaration and bylaws, an unincorporated association is created by operation of law. Typically, the governing documents require the declarant to incorporate the association as a nonprofit corporation under ORS Chapter 65 prior to the conveyance of the first unit or by the turnover meeting discussed below.

Declarant Rights Relating to Control of Association.  

Subject to certain statutory limitations, a declaration may provide for a period of declarant control of the association. A declarant’s control of an association may include the authority to appoint and remove officers and members of the board of directors of the association, to exercise powers and responsibilities otherwise assigned by the declaration and bylaws to the association, to approve amendments to the declaration or bylaws and, to allocate a greater number of votes to lots or units owned by the declarant. However, even though a declarant may initially control an association, the association itself is a separate entity.

Transition from Developer Control to Control by Owners

Transition is frequently characterized as a process and not an event. This concept is reflected in the PCA and OCA, both of which require the formation of a transitional advisory committee. This committee provides for the transition from administrative control by the declarant to administrative control by the association and its board and is generally referred to as a “turnover.” The timetable and procedure for turnover is established by the PCA or OCA and the declaration. A smooth transition, one that is well organized and amicable, will minimize conflicts and be in the best interests of all involved parties. A successful transition significantly contributes to the success of a development.

Transitional Advisory Committee

As mentioned, the PCA and the OCA provide for the formation of a transitional advisory committee to facilitate the transition from the administrative control by the declarant to control by the association. For condominiums, the formation of a transitional advisory committee is only required if the condominium consists of at least 20 units or, if it is a staged or flexible condominium, the number of units that may annexed or created totals 20. For a planned community created on and after January 1, 2002, a transitional advisory committee is only required for Class I Planned Communities. A transitional advisory committee is advisory only. However, it can request access to the information, documents and records that the declarant must deliver to the owners at the turnover meeting. Serving on the committee provides owners an opportunity to become familiar with the governing documents, budgets, architectural and other restrictions, rules and other critical aspects of association operation and management. Members of the advisory committee are often those owners who ultimately run for, and are elected to, board positions at the turnover meeting.

Turnover Process

Turnover marks the time when legal control of an association is transferred from the declarant to the owners. However, a developer who retains a majority of the units may still practically control the association.

Calling of the Turnover Meeting

The PCA and OCA require the declarant to call the turnover meeting within 90 days of the expiration of any declarant control specified in the declaration. If no such control has been reserved in the declaration, the PCA and OCA specify a time by which such meeting must be called. The declarant must give notice of the turnover meeting in accordance with the bylaws and PCA or OCA. If the turnover meeting is not called by the declarant within the time specified, for a condominium, the meeting may be called and notice given by an owner. In the case of a planned community, the meeting may be called and notice given by an owner or the transitional advisory committee.

Turnover Meeting

At the turnover meeting, owners elect a board of directors and the declarant has the obligation to deliver all property of the owners and association held or controlled by the declarant, as well as all items specified in the PCA and OCA. This includes the association’s governing documents and financial records. Turnover is a critical time in the life of an association. It is therefore important that the association consider retaining the assistance of an attorney experienced in HOA law to ensure a smooth transition and enable the new board to function in a manner that is consistent with all applicable laws and meets the needs of the development.

Three-Month Period After Turnover Meeting.

To facilitate an orderly transition, during the three-month period following the turnover meeting, the declarant, or an informed representative, is required to be available to meet with the board of directors on at least three mutually acceptable dates to review the documents delivered at the turnover meeting.

Review of Financial Statement

For communities with annual total assessments of more than $75,000, the PCA and OCA require the financial statement of to be reviewed in accordance with statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.

Audit of Association Affairs

After the turnover meeting, the owner-elected board of directors should conduct an audit of the affairs of the association. The board will ultimately need to decide the breadth and scope of the audit. However, consideration should, at a minimum, include a review of the following:

(1) Property Inspection. An inspection of the physical components of the association’s property is critical. In conjunction with such inspection, the following are recommended:

(a) An inspection of and written report regarding the physical condition of the development by someone with experience to recognize faulty workmanship, shoddy maintenance and construction defects.

(b) A written report by an engineer or other qualified person to determine if plans and specifications were followed in construction of the development.

(c) Determination of the status of any unfinished construction repairs.

(2) Association Status. The declaration and bylaws govern matters relating to the operation of the association, including whether it must be incorporated. Unless the declarant provided a copy of the articles of incorporation at the turnover meeting, the board of directors must review the governing documents and determine whether the association is required to be incorporated. If so, after confirming with the Corporation Division in the office of the Oregon Secretary of State, the board should cause the articles of incorporation to be drafted and filed in accordance with Oregon law.

(3) Association Records. As noted above, the PCA and the OCA require that the declarant deliver to the association at the turnover meeting specific documents and items. If not provided by the declarant, the board should specifically request:

-An original or photocopy of the recorded declaration and copies of the bylaws and articles of incorporation;

-A deed to the common property, unless contained within the declaration;

-The recorded minutes of the association and board of directors;

-All rules and regulations adopted by the declarant;

-Financial statements;

-Any and all records of association funds and accounts;

-Any and all tangible personal property of the association and an inventory of such property;

-Records of all property tax payments to be administered by the association;

-Copies of all income tax returns filed by declarant in the name of the association;

-Any and all bank signature cards;

-Reserve account and reserve study information;

(4) Assessment Collections Audit. There should be a complete analysis and evaluation of the collection process and the adequacy of the reserves fund. If there are a significant number of past due assessments, immediate action should be considered. Even if there are only a few assessments that are past due, it is recommended that if there is a transition committee, that it have a collection resolution drafted and ready for adoption by the owner-elected board of directors to facilitate the collection process. A professional reserve study may be needed to help properly fund this account.

 

 

 

 

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Emergency Preparedness for the Community Association

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Disaster may strike at anytime. It could be a fire, tsunami, or earthquake. Community associations should be particularly aware of procedures and plans if affected by a disaster or emergency. For high-rise communities, a disaster plan is critical. Managers or contractors who typically maintain or service the building may not be available in the wake of an emergency. The board should consider: 1) how residents will be evacuated; 2) utility shut-offs (who and how); and 3) how communications will be established.

Here is a disaster/emergency outline for boards or committees to consider when formulating a recovery plan: Disaster Plan Outline

The following are some useful links:

“Prepare! A Resource Guide” from the Red Cross - http://www.portlandoregon.gov/pbem/article/410173

Portland Bureau of Emergency Management: http://www.portlandoregon.gov/pbem/46475

FAQs About Building Evacuation” from the National Fire Protection Association - http://www.nfpa.org/safety-information/for-consumers/occupancies/high-rise-buildings/faqs-about-building-evacuation.

“High Rise Emergency Handbook” from the City of Bellevue, WA - http://www.ci.bellevue.wa.us/pdf/Fire/mac8659-HighRiseHandbookFINAL.pdf

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Understanding Common Interest Developments

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“Common Interest Developments” or “CIDs” is a broad term used to identify condominiums, cooperatives, planned communities, or other housing developments where more than one owner shares in ownership or control of property. Chances are, you or someone you know lives in a CID. In 2006, there were approximately 57 million people living in some form of a CID. While news coverage of CIDS typically focuses on overbearing board members or angry owners, CIDs do offer advantages. Owners often share the expenses of utilities, maintenance and replacement of common property or facilities and in some communities, owners don’t have to worry about maintaining their yards or the exteriors of their homes. Gated communities offer security and high-rise condominiums offer a unique and enjoyable social setting. Most importantly, purchasing property in a CID usually comes with the benefit of knowing that your property value will be maintained.

With the increase of CIDs, most states have adopted laws which govern the operations and creation of these communities. Most states have very specific laws containing the requirements to form and operate a condominium, and there has been an increase in the number of states which have adopted legislation governing planned community developments in which owners own their lot and structure, but have a collective ownership interest in common property such as a recreation center or golf course.

It’s important to know the type of CID in order to know which statute may apply. A condominium is a form of legal ownership (not an architectural style) whereby owners own the “sheetrock inward” of their unit and are joint owners of the remainder of the buildings and structures, often referred to as “common elements.” Condominiums may take the form of a high-rise building, a townhouse style development, or even an office complex.

A cooperative is similar to a condominium, but in a cooperative a corporation holds title to the units and the common areas, and owners or members receive an exclusive occupancy right for his or her unit through a lease agreement.

Planned communities, on the other hand, are developments where individual owners own their land in “fee simple”, but are obligated to pay assessments used for maintaining common property typically owned by the homeowners association.

Both types of CIDs usually have recorded documents which bind the owner to certain obligations and restrictions. These documents are often referred to as “CC&Rs”, an acronym for “Declaration of Covenants, Conditions and Restrictions.” This document may restrict owners from painting their homes certain colors, requiring approval by the board prior to building fences or other structures, or prohibiting loud or obnoxious noises or behavior.

Most CIDs also have Bylaws which may or may not be recorded depending on the jurisdiction. The Bylaws contain the provisions on how the CID is to operate, such as how many individuals serve on the board of directors, when and how to hold the annual owners meeting, and the required number of votes in order to approve certain actions. If the CID association is incorporated, which many states now require, the CID will also be governed by its articles of incorporation.

Boards of Directors, with authority from state law or its governing documents, may also adopt rules and regulations. The rules and regulations must be consistent with the other governing documents, and are often used to interpret ambiguous language or set forth procedures for issues like violations of governing documents or failure to pay assessments.

CIDs are typically governed by a board of directors. The board is elected each year by a vote of the entire membership at an annual meeting. Although the board members may volunteer owners in the community, the law requires these board members to exercise “fiduciary duties.” This means that board members must act in the best interests of the association and the membership at all times, avoid conflicts of interest, and ensure that common property is maintained, repaired or replaced when needed.

Owners also have obligations to the association. The primary obligation is the payment of regular assessments or “dues.” These assessments are used by the association to purchase and maintain insurance, pay for common area landscaping, maintain recreation facilities, and for professional management of the association.

Most states and governing documents allow the association to place a lien on the property which may be foreclosed upon if an owner fails to pay these assessments. Although foreclosing on an assessment lien may sound harsh, it’s important to remember that when an owner fails to pay his or her assessments, the rest of the owners must make up that difference in order for the association to continue to operate.

Other owner obligations may include avoiding activities that may be a nuisance to other owners, and maintaining their unit or lot so that the aesthetics of the community remain consistent.

Ultimately, the goal of a CID is to foster a community, preserve property values, and create an enjoyable place to live.

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Dealing With Marijuana in Your Community Association

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Last month Oregon voters passed Measure 91, legalizing marijuana, and following in the footsteps of Washington and Colorado. Many community associations are asking "what can we do about it?" One possible solution is an amendment to your governing documents that specifically addresses any nuisances that may result from marijuana smoke or growth operations.  In other cases, adopting a rule or regulation may be feasible.

However, one issue (which remains undecided by the courts) is what authority does a homeowners association have to regulate the use of marijuana by owners with disabilities? Under the Fair Housing Act, homeowner associations must grant reasonable accommodations or requests to owners or residents with a qualifying disability. Community Association Law Group can help you navigate these Fair Housing issues.

Associations wanting to take a proactive approach should consider an amendment to the governing documents.  Community Association Law Group will prepare an amendment to your governing documents which addresses the use and growth of marijuana for a flat fee of $800.00.

Here are some news articles from different states discussing the issues:

Oregonian: Marijuana may be legal in some states, but homeowner agreements can still ban it

NerdWallet:  Is Marijuana Covered By Homeowners Insurance?

MainStreet: Marijuana Legalization Meets Challenges With Homeowner's Associations