It is starting to happen again. Just like it did in the late 1980’s and early 1990’s. Condominiums are in financial trouble, I have previously written a Featured Post about delinquent condominium Unit Owners and what Trustees MUST do to collect common area fees from them.
A similar, but potentially much more serious, situation obtains with the Condominium developer. As most of you probably know, as soon as the Master Deed is recorded, each Unit in the recorded document must start paying common area fees. There is some question whether each Unit needs to contribute the required amounts to the reserve account. That varies from state to state. Let’s just stick with the fee for each Unit for operations.
The law is that the developer must pay condominium common area fees for his unsold Units. I am afraid that this requirement is “more honored in its breach than in its observance”, as the Bard would say. Cash flow is generally tight for new developers, and they perhaps cannot afford to pay. They can deliver a Certificate at the closing, indicating that the common areas fees are paid with respect to the Unit which is being purchased. It may well be a different story for the unsold Units.
My suggestion in this area is that the real estate professionals representing the BUYER need to be militant. Place a provision in the Purchase and Sale Agreement or Rider where the SELLER makes an affirmative statement that the common area fees for all Units owned by the SELLER are current. Require the SELLER to demonstrate that fact at the closing by bringing a Condominium Bank Statement which proves that payment has been made.
Once the SELLER understands that there will be no closing without everything being current, there will be a great incentive to make matters right. The numbers can really “explode” unless some approach is taken to require the developer to keep up the monthly payments. It is not a pleasant situation for a new BUYER to walk into a situation where there are financial problems at day one. All of us need to work hard to try to prevent this.
If you are looking for suggested P & S language for these situations, please contact me at etopkins@topbev.com. I am a Massachusetts real estate attorney, but I am reasonably confident that the language I have developed will hold up in other jurisdictions, as well.