Rockwell publishing real estate law chapter 16

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© 2009 Rockwell Institute

California Real Estate Law

Lesson 16:
Common Interest
Developments

© Copyright 2007 Rockwell Publishing, Inc.

Introduction

This lesson will discuss:
l types of common interest developments
l subdivision laws
l homeowners associations


Common Interest Developments
Types of CIDs
Standard subdivision: typically a group of traditional
homes built more or less simultaneously by a single
developer
l dates back to 1950s and 1960s
l owners governed by set of rules
l owners don’t share any interest in subdivision
property


1

Types of CIDs
Changes to subdivisions since 1970s:
l smaller families
l increasing land costs

Now common interest developments are more
common.


Types of CIDs
Common interest development (CID): subdivision in
which homeowners share title to at least some
aspects of the property, such as parking lots, golf
courses, parks, etc.
l homes usually built closer together
l more surrounding open space
l shared property known as common elements


Types of CIDs
Four main types of common interest developments:
l condominiums
l planned developments
l community apartments
l cooperatives

Most common interest developments are either
condominiums or planned developments.

2

Types of CIDs
Condos and planned developments
Condominium:
l owner has title to unit from the walls in
l shares ownership of land beneath building
l shares ownership of common elements


Types of CIDs
Condos and planned developments
Planned development:
l owner has title to individual home
l owner has title to land beneath building
l shares ownership of common elements only
l more like standard subdivision
l also known as planned unit development or
PUD


Condos and Planned Developments
Townhouses
Units in condominium or planned development can
take form of townhouses.

Townhouse: multi-story homes that share common
walls with other units (like condominium) but have
private yard area (like homes in PUDs)


3

Townhouses
When townhouse development is created as
condominium:
l private yard area is classified as limited
common area

Limited common area: owned by all owners in
development as tenants in common, but possessory
rights assigned to individual owners


Townhouses
When townhouse development created as planned
development:
l private yard area owned separately (as with
regular houses)


Types of CIDs
Community apartments and cooperatives
Two less common forms of CIDs:
l community apartment
l cooperative


4

Types of CIDs
Community apartment: all owners own entire
development as tenants in common
Each owner receives:
l deed for undivided partial interest in
development
l lease to individual unit or lot


Types of CIDs
Most original community apartments have since
been converted to condominiums.
l mobile home parks still often organized as
community apartments


Types of CIDs
Cooperative: residents don’t receive deeds
Each resident:
l owns stock in corporation that holds title to
entire development
l receives lease for individual unit

Co-ops are more common on East Coast.


5

Summary
Types of CIDs

l Common interest development
l Common element
l Condominium
l PUD
l Limited common area
l Community apartment
l Cooperative

Subdivision Laws

Four statutes affect the subdivision and sale of real
property in California:
l Subdivision Map Act
l Subdivided Lands Law
l Vacation Ownership and Timeshare Act of
2004
l Interstate Land Sales Full Disclosure Act


Subdivision Laws
Subdivision Map Act
Subdivision Map Act: originally passed in 1907, to
help standardize subdivision procedures and to
keep track of titles to lots
l requires developers to create and record
detailed plans or maps of their subdivisions


6

Subdivision Laws
Subdivision Map Act
Subdivision maps show:
l lot lines
l roads
l grading
l utility easements
l etc.


Subdivision Laws
Subdivision Map Act
Subdivision Map Act later amended to address
problems caused by population growth.

Requires developers to:
l conform subdivisions to city or county land-
use goals
l pay fees for use of public services
l prepare environmental impact reports


Subdivision Laws
Subdivision Map Act
Subdivision Map Act is state law, enforced by local
governments.

City and county agencies:
l must review subdivision maps
l may require developers to change plans


7

Subdivision Laws
Subdivision Map Act
Developer may not enter into any binding purchase
agreement with buyers until:
l required map is filed
l local agency requirements are met


Subdivision Laws
Subdivision Map Act
If property is sold but no map is recorded:
l buyer has one year to void purchase
l developer may be subject to criminal penalties


Subdivision Map Act
Application of the Map Act
Subdivision Map Act applies to every subdivision of
a parcel of property.
l even subdivision of one parcel into two
parcels
Parcel: under Subdivision Map Act, includes
condominium projects

However, some Map Act provisions only apply
when land is divided into five or more lots.

8

Subdivision Map Act
Map approval process
First step in approval process is filing tentative map.

Tentative map: draft of final map that developer will
eventually record

Local agency charged with evaluating subdivision
maps circulates tentative map to other city or county
departments.


Subdivision Map Act
City and county departments consider:
l flood control
l utility supply
l public amenities
l impact on schools
l traffic demands

Departments make reports to planning department.

Subdivision Map Act
Based on reports, planning department accepts or
rejects tentative map.

Usually department grants developer qualified
acceptance: acceptance with conditions attached

Example: Qualified acceptance may contain
condition that developer dedicate more land to open
space.

9

Subdivision Map Act
Getting tentative map approved may take years.
l Developer must satisfy all imposed conditions
before filing final map.


Subdivision Map Act
Once tentative map is recorded, developer may
sign conditional purchase agreements.
l not binding on purchasers until final map filed

Tentative map usually expires within 24 – 36
months, although developers may seek extensions.
l if map expires ? must start process over


Subdivision Map Act
Property owners who are subdividing a parcel into
less than 5 lots just need to file a parcel map.
l simplified process
l fewer conditions


10

Subdivision Map Act
Condominium conversions
Developers who want to convert apartments to
condominiums must:
l file a subdivision map
l give tenants 180 days’ notice that tenancy is
terminating
l give tenants at least 90 days following notice
before unit put on market
l give tenants exclusive right for 90 days
following notice to buy unit on same or more
favorable terms than will be offered to public

Summary
Subdivision Map Act

l Subdivision Map Act
l Parcel
l Tentative map
l Final map
l Parcel map
l Condominium conversions


Subdivision Laws
Subdivided Lands Law
Subdivided Lands Law : requires sellers of
subdivided parcels or interests to make detailed
disclosures to potential buyers
l enacted in 1943
l applies to sales, financing, and leases
l applies to subdivisions containing at least 5
lots


11

Subdivision Laws
If subdivision project is covered by Subdivided
Lands Law:
l developer must obtain public report from
Department of Real Estate (DRE)
l before offering any lot or unit for sale or lease


Subdivision Laws
To obtain public report, developer files application
containing:
l notice of intent
l completed questionnaire with information
regarding project
l attached documentation


Subdivision Laws
Real Estate Commissioner reviews application.
l checks for misrepresentations
l looks for evidence that buyers get what they
pay for


12

Subdivision Laws
Developer must demonstrate:
l reliable procedure for removing blanket
construction liens
l trust account in place for buyer’s deposits

If application approved, public report issued.


Public reports
Public report contains developer disclosures, to
help consumers make informed decisions.

Disclosures include descriptions of any:
l taxes and assessments
l private restrictions
l unusual charges to buyers
l hazards or environmental issues
l potentially harmful financing terms

Public reports
Subdivided Lands Law prohibits arranging sale of
subdivision property before Commissioner has
issued either:
l preliminary report
l conditional report
l final report


13

Public Reports
Preliminary report
Preliminary report:
l allows developer to take buyer “reservations”
l frequently referred to as “pink report”
l buyer can back out of reservation
l developers can use for one year
l contains initial versions of disclosures that will
be contained in final report


Public Reports
Conditional report
Conditional report:
l allows developer to enter into conditional
sales contracts
l developer must prove project will be
completed as promised
l developer must prove that buyers’ deposits
will be handled correctly


Public Reports
Conditional report
Conditional sales contracts:
l binding only for certain time (6 – 30 months)
l during that period, developer must obtain final
report


14

Public Reports
Final report
Final report:
l issued when Commissioner determines
project meets requirements of Subdivided
Lands Law
l once distributed to buyer and map recorded,
home sales can be finalized
l prospective buyers must receive copy before
signing purchase agreement
l seller needs to keep copy for at least 3 years
l valid for 5 years

Public Reports
Final report
New report needed if subdivision undergoes
material change.

Material changes include:
l addition of new streets
l alteration of lot sizes
l restructuring of sales (financing or method of
conveyance)
l buyer taking title to five or more lots

Public report not required
Public report not required if
l size or type of subdivision exempt
l resale of property


15

Public Report Not Required
Exemptions for size or type
Subdivided Lands Law doesn’t apply to:
l developments involving fewer than 5 lots
l subdivisions with big lots (160 acres or larger)
l commercial subdivisions


Public Report Not Required
Resale of properties
When private homeowner sells subdivision
property:
l no public report required
l but similar content required on transfer
disclosure statement


Out-of-state subdivision sales
If subdivision is located outside California, but
developer is marketing project in California:
l no public report required
l but developer must obtain permits from Real
Estate Commissioner
l permit process and disclosures similar to
public report


16

Summary

l Subdivided Lands Law
l Public report
l Preliminary report
l Conditional report
l Final report
l Material changes


Subdivision Laws
Vacation Ownership and Timeshare Act
Timeshare: buyer purchases right to occupy
property (usually condo in vacation area) for one or
more periods every year

Timeshares:
l used to be treated as subdivisions
l complaints led to Vacation Ownership and
Timeshare Act of 2004


Subdivision Laws
Act requires:
l disclosures about property
l seven-day right of rescission for buyers
l notice of buyer’s rescission right on purchase
agreement


17

Summary

l Timeshare
l Vacation Ownership and Timeshare Act


Subdivision Laws
Interstate Land Sales Full Disclosure Act
Interstate Land Sales Full Disclosure Act (ILSFDA):
applies to interstate sale and advertising of
unimproved residential lots in medium- or larger-
sized subdivisions (at least 25 lots)
l intended to prevent fraud and deceptive
practices
l enforced by Department of Housing and
Urban Development (HUD)


Subdivision Laws
If development is covered by ILSFDA:
l must be registered with HUD
l developer must prepare property report


18

Subdivision Laws
Property report contains disclosures about project.
l buyer must get copy before signing sales
agreement
l buyer has 7 days to withdraw from sale
after receiving disclosure


Summary

l Interstate Land Sales Full Disclosure
Act
l Property report


Homeowners Associations

Davis-Stirling Common Interest Development Act:
requires every common interest development (CID)
in California to have homeowners association

Homeowners association: manages the subdivision
and handles disputes between neighbors; creation
and operation governed by Davis-Stirling Act


19

Association membership
Every homeowner in CID automatically becomes
member of CID’s homeowners association.
l association must hold regular meetings
l members vote on issues
l one vote per unit


Association membership
Homeowners association is responsible for
maintenance, repair, improvements of CID’s
common areas and structures.
l funds raised through member assessments


Association Membership
Assessments
Homeowner dues: regular fees levied on members,
(usually on monthly basis) to cover routine
expenses such as maintenance of hallways,
grounds, and other common elements


20

Assessments
Special assessments: levied on members for major
repairs to roofs, sewers, and other common
elements; or improvements, such as tennis court or
playground


Assessments
Association may impose additional fees on
individual owners for certain services.
l example: conveyance fee
l fees can’t exceed actual cost of task
(example: making copies of governing
documents for potential buyer)


Board of directors
Board of directors: elected from within homeowners
association members
l makes most management decisions
l holds regular public meetings
l holds some closed sessions to handle private
matters


21

Governing documents
Homeowners Associations governed by set of
documents that includes:
l declaration (recorded document containing
rules of subdivision)
l articles of incorporation
l bylaws


Governing Documents
Recordkeeping and inspection rights
Association must:
l keep minutes of all meetings (both board and
general)
l maintain financial books and other records


Governing Documents
Recordkeeping and inspection rights
All members have right to inspect these records.
l exception: board’s executive session minutes


22

Summary

l Homeowner dues
l Special assessments
l Board of directors
l Governing documents


23

Legal Aspects of Real Estate
Lesson 16 Cumulative Quiz

1. Common elements in a subdivision would most likely include:

A. airspace of a condominium unit
B. a mobile home
C. individual lots in a planned development
D. parking lots

2. Many mobile home parks are set up as:

A. community apartments
B. condominiums
C. cooperatives
D. townhouses

3. Which of the following laws related to subdivisions is a federal law?

A. Interstate Land Sales Full Disclosure Act
B. Subdivided Lands Law
C. Subdivision Map Act
D. Vacation Ownership and Timeshare Act

4. If a subdivision has fewer than five lots, the developer only needs to file a:

A. conditional map
B. final map
C. parcel map
D. tentative map

5. Townhouses may be set up as either:

A. cooperatives or timeshares
B. condominiums or planned developments
C. community apartments or cooperatives
D. planned developments or community apartments

6. Amy owns shares of stock in the corporation that holds title to the building she lives in, and she has a
long-term lease on her unit. Amy lives in a:

A. community apartment complex (CAC)
B. condominium
C. cooperative
D. planned unit development (PUD)

© 2009 Rockwell Publishing 1

7. What law applies to the subdivision of any parcel of property in California?

A. Interstate Land Sales Full Disclosure Act
B. Subdivided Lands Law
C. Subdivision Map Act
D. Vacation Ownership and Timeshare Act

8. Which of the following is one of the governing documents of a homeowners association?

A. Declaration
B. Final map
C. Public report
D. Transfer disclosure statement

9. Which kind of report is valid for five years under the Subdivided Lands Law unless the subdivision
undergoes material changes?

A. Conditional report
B. Final report
C. Preliminary report
D. Tentative report

10. A homeowners association is required for which types of subdivision?

A. Community apartment
B. Condominium
C. Planned development
D. All of the above

11. Which of the following is covered by the Subdivided Lands Law?

A. An industrial park
B. Resale of a property in a subdivision by a private owner
C. A subdivision of five half-acre lots
D. Sale to California residents of a subdivided property located outside of California

12. An owner in a subdivision receives a deed for an undivided partial interest in the entire development
as a tenant in common. This describes a:

A. community apartment
B. condominium
C. cooperative
D. planned development


13. A developer may not advertise that a subdivision will include a swimming pool when it isn't available
for use, unless:

A. completion is assured through bonding
B. the buyer has put down a deposit
C. the buyer acknowledges receipt of a conditional report
D. a tentative map has been accepted

14. The records of a homeowners association must be available for inspection by:

A. adjacent property owners
B. all members of the association
C. the board of directors only
D. other subdivision developers

15. A homeowners association may impose which of the following fees?

A. Association dues
B. Special assessments for roof repairs
C. Conveyance fees
D. All of the above

16. Which of the following does a condominium owner have exclusive ownership over, not as a common
element?

A. Walls between her unit and her neighbor's
B. A reserved parking space
C. The enclosed space within her unit
D. The roof over her unit

17. A subdivision map must include:

A. private restrictions that will apply to the subdivision
B. utility easements
C. taxes and assessments on the property
D. prices of individual lots

18. A developer converting an apartment building into a condominium must give tenants:

A. 30 days' notice
B. 180 days' notice and an exclusive right to buy on the terms that will be offered the public
C. financial assistance in obtaining a new residence
D. the right to extend their lease after conversion


19. Buyers have a seven-day right of rescission when they agree to purchase a/an:

A. condominium
B. mobile home
C. timeshare
D. townhouse

20. At a homeowners association meeting, when an issue is put to a vote the owner of each unit gets:

A. one vote
B. one vote for each resident of the unit
C. a number of votes equal to the number of years he has owned the unit
D. a number of votes based on his share of association dues


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