Buyer Should Receive CC&Rs;, Rest of Complex’s Papers Before Closing

QUESTION: I am interested in buying a unit in an 18-unit complex but the real estate agent says that I will get the CC&Rs; at the closing when the final closing documents are signed. Is this proper?

ANSWER: No, you are entitled to see the association’s governing documents long before you get to the closing. A prospective buyer is entitled to see the CC&Rs;, the bylaws, the rules and regulations, the budget and financial statements.

Before I would consider signing a purchase agreement I would want to read all of these documents and possibly review the board meeting minutes of the prior six months. The real estate agent that represented me in my most recent purchase (single-family home located in an association) efficiently gathered all the documents that I requested and we closed within 30 days.

You need to find an agent who will protect your interests. If you sign a purchase agreement without seeing all of the disclosure information, be sure that the agreement has a contingency clause that allows you a reasonable number of days to review the documents with the right to withdraw from the agreement if there is anything that doesn’t meet with your approval.

I would be curious about the reason that the seller or real estate agent is not disclosing the CC&Rs.; Are there pet restrictions that exclude your Labrador retriever? Do you have five cars and the outside parking is reserved for guests? There are restrictions that you need to learn about before you decide to buy.

Financial Statements Governed by State Law

Q: I live in a complex with a large homeowner association in the San Fernando Valley. I recently purchased my home and requested a copy of the financial statements, but I was told that they would not be available for several weeks.

How often are associations required to prepare a financial statement, and are they required to distribute it to all owners?

A: Associations should have an income and expense statement prepared at least on a quarterly basis. If your association has a large number of units or homes, the association may have a management company that prepares a monthly financial statement. A copy of the most recent monthly statement should be made available to you if you request it.

California law dictates that associations with an annual income of more than $75,000 must have an annual financial report (review) prepared by a licensed accountant.

A copy of the review must be distributed to all owners within 120 days after the close of the fiscal year. If your association’s fiscal year ended on Dec. 31, you should have the accountant’s report by April 30.

A financial statement should have been provided to you as part of the disclosure information when you purchased your home.

Can Fee Be Charged for Tenants’ Damage?

Q: Several units in our condominium association are rented out by the owners. The association must change the resident directory at the front entrance, change office records and provide rules and regulations to each new tenant.

The move-in and move-out often results in damage to the common areas of the building. Though the owner is supposed to pay for any damage, it is difficult to determine the guilty party.

When a unit is rented, can the association charge a $100 move-in fee each time there is a new tenant?

A: Charging a flat move-in fee is a common practice in many condominiums, but you should discuss this with your association’s attorney before instigating any new fee.

If the association is challenged by an owner, you may have difficulty collecting the fee unless the association is able to show justification for the charges. If the charge is fair and reasonable, based on actual association cost such as those you mentioned, then the fee probably would not be contested.

Most association documents are written so that owners are all treated equally. The association has no contractual agreement with the renter that would require the renter to pay a fee to the association. If you are going to have a move-in or move-out fee, it would be more equitable to charge the owner of the unit any time there is a change in occupancy.

If owners move in, they would be charged a fee. If tenants move in, the owner of the unit would pay the association and then get reimbursed by the tenant.

Charging for actual damages that occur during the move-in or move-out is always justifiable if you can determine who actually caused the damage.

The association members should realize that there will occasionally be damage that is not billed to anyone because of lack of evidence. In my opinion, this does not give the association the authority to punish all the owners who are leasing their units to tenants by charging an exorbitant fee that will eventually pay for the complete redecoration of the building. Owners who reside in the building also cause wear and tear and maintenance problems.

Who Pays Deductible on Insurance Policy?

Q: Our condominium’s governing documents are unclear regarding the association’s or the unit owner’s responsibility to pay for the deductible amount in the event of a claim under our association insurance policy.

What criteria should be used to determine the association’s procedure when a loss occurs? What is the procedure in most condominium associations?

A: I asked Timothy Cline, vice president of the Robert W. Little Agency to respond to your question. The agency, based in West Los Angeles, is one of the nation’s largest writers of condominium association insurance. Here is Cline’s response:

“Unfortunately, nearly all CC&Rs; and bylaws are silent on the handling of the deductible under the association’s master insurance policy.

“The prevailing practice in most associations would be the following: The majority of association boards believe that the unit owner should be responsible for payment of the deductible if the loss occurred due to the negligence of the individual owner.

“Likewise, if the loss resulted from the failure of a structural element or equipment that is described in the governing documents as being the owner’s maintenance responsibility, the owner should pay the deductible. For example, the payment of the deductible on a water damage loss due to the bursting of the flexible pipe leading to the dishwasher would be the owner’s responsibility.

“On the contrary, if the loss occurred due to the association’s negligence or due to a failure of a portion of the premises that is described in the governing documents as being within the association’s ‘care, custody and control,’ then the association should pay the deductible.”

Cline recommends that the association’s board of directors establish a policy for this matter, a “Deductible Handling Policy” that is consistently followed. Under any circumstances, the board should obtain legal counsel before establishing the association’s policy.

Then the association members should all receive written notification of the association’s established “Deductible Handling Policy” that spells out the circumstances that may cause the owner to be held responsible for the deductible. This is important information for the unit owners because some individual owners’ policies will pay the deductible amount that is required under the master association policy when the individual unit owner is responsible.

This would reduce the owner’s out-of-pocket expenses when a loss occurs. Individual unit owners should check with their insurance agent or broker regarding coverage for the deductible amounts of the master policy.