Because You Are Buying More Than a Home: Part III-The CC&Rs

So far we have learned that when a buyer purchases a home in a common interest development (CID) they are also conscribed to membership in a homeowners association or HOA. In the majority of cases the HOA is organized as a non-profit corporation under the corporation laws of the state where the property is located. The act of purchasing real property within the HOA results in the buyer, in effect, becoming an investor in this non-profit corporation as a result of Covenants, Conditions & Restrictions (CC&Rs) which are created by the developer of the HOA.

The CC&Rs are said to “adhere” to the property deed because they are recorded with the deed in the office of the clerk of records in the county where the property is located. The legal description of the property along with the surveyor’s plat and the CC&Rs form a bundle of legal documents which establish the precise location and dimensions of the property and the uses and restrictions which are incumbent upon the property as a result of the CC&Rs. This bundle of legal documents, and in particular the CC&Rs, are a de facto contract between the property owner and the HOA. Because this “contract” is recorded with the deed it is automatically transferred from one owner to the next each time the property changes hands.

In the case of a condominium development where dwelling units are located above and below one another the plat and legal description will typically define a three dimensional airspace which represents the physical boundaries of the individual condominiums within the development. As a result of this vertical stratification of the physical boundaries of the dwelling units this type of development is sometimes referred to as a “strata development,” particularly in Canada and parts of Europe. Along with the usual responsibilities inherent to real property ownership, the CC&Rs impose various rules, restrictions and obligations on the owner of a property within an HOA. As a result of these self-imposed restrictions on the use of the property, developments that are subject to CC&Rs are sometimes called “deed restricted communities.” If you own a traditional single-family home in an HOA or a condominium the CC&Rs represent a significant impost in addition to the more traditional responsibilities that result from home ownership.

In most respects the CC&Rs are a legal document that places restrictions and conditions on the use of the property which is subject to the CC&Rs. From a practical standpoint however, they also impose various rules and obligations on the owner of the property. First and foremost is that the purchaser of a property which is subject to CC&Rs is automatically enrolled as a member of an HOA that is responsible for enforcing the CC&Rs and managing the common area improvements within the HOA. Membership in the HOA is not optional. When a buyer purchases a property within an HOA they automatically become a member of the association and as such they become a part-owner or investor in this non-profit corporation.

The CC&Rs impose financial obligations on the property owners within the HOA as well as rules and restrictions on how the property may be utilized and in some instances on how the physical improvements to the individual lots are constructed and maintained. In most instances the CC&Rs include architectural covenants which can dictate everything from the physical appearance of the homes and other improvements to the size of the homes.

The CC&Rs also include a detailed description of the General Common Elements; i.e. those improvements within the HOA that are shared by all of the members of the association; the Limited Common Elements, improvements that are designated for the exclusive use of one or more, but not all of the association members; and the Limited Elements, which are those improvements that are exclusively used by a single owner. The definitions of the “common elements” are more exacting and relevant in a condominium setting but they apply to a traditional HOA as well.

From the perspective of a potential buyer the General Common Elements are an important factor because they determine the magnitude of the HOAs responsibility with respect to maintenance of the common areas. In a condominium it is typical for the association to be responsible for the exteriors of the buildings in which the residential units are located. Whereas in a more conventional HOA setting the individual homeowners are most often responsible for maintaining their home and the other improvements located on their lot.

If the HOA is responsible for replacing the roof over your head, then you want to make sure they have the money to replace it when the roof is worn out. The condition of the swimming pool may not matter to you if you don’t use the pool but if the roof over your kitchen sink starts leaking it is obviously something that you are going to want the HOA to attend to without delay. And while the pool may not matter to you in a direct sense, it matters to the HOA in general because the condition of the pool or any other common area improvements can and often will have a direct impact on the value of the homes in the community. Hence it is to your advantage for the HOA to be responsible stewards of the common area improvements, whether you choose to use them or not.