Condominiums vs. HOAs: The Bottom Line
"Community association" is a generic term that describes a group of entities known as common ownership communities, which include condominiums, homeowners' associations ("HOAs"), and housing cooperatives. Of the three, condominiums and HOAs are the most common and are closely related. A cooperative is a significantly different type of entity, and is best left to a later discussion. Though closely related, condominiums and HOAs have distinct differences in their organization and operation. This article will briefly review and compare some of the more common features of a condominium and an HOA.
A condominium is generally defined as a type of joint ownership of real property in which center portions of the property are commonly owned (the common elements), and other portions are individually owned (the units). A condominium is created upon the recordation of a declaration, bylaws, and a condominium plat in the local county or municipal land records.
Comprising the condominium regime are unit owners, collectively known as the "council of unit owners". This council of unit owners is empowered to run the condominium, but most of the powers and duties are delegated to a board of directors, except for those enumerated powers reserved for the council of unit owners. The council of unit owners elects the Board of Directors.
Each unit owner owns his/her unit, traditionally an apartment style residence, and an undivided interest in the common elements, in accordance with the unit owners' percentage interest set forth in the declaration. Each unit has a separate parcel identification or tax identification number, but because the common elements are collectively owned, there is no separate parcel identification or tax identification number for common elements.
The boundaries of a unit are found within the condominium's declaration and plats, and sometimes in state statutes. Generally, the boundaries of the unit include the exterior surface of the unit's drywall inward and from the interior surface of the concrete floor slab upward, but may vary from condominium to condominium. Contained within the units are all of the appliances serving only that unit, all plumbing located solely within the boundaries of the unit, and carpeting.
The common elements are broken down into general common elements (GCEs) and limited common elements (LCEs). General common elements are available for use by every unit owner. General common elements often include the roofs, sidewalks, elevators, common hallways, lobby and community facilities. Limited common elements are portions of the condominium designated or assigned for the exclusive use of one or more, but less than all, of the unit owners. The designation of limited common elements is often found in the condominium's declaration or on the plats, and in some cases, the designation is within the discretion of the Board of Directors, as in the case of parking spaces. Common examples of limited common elements are balconies and patios serving a unit.
The maintenance, repair, and replacement responsibilities are what really distinguishes a condominium from an HOA. Generally speaking, the condominium association is responsible for the maintenance, repair, and replacement of all of the general common elements, and the repair and replacement of the limited common elements. The unit owner is frequently responsible for the maintenance, repair, and replacement of the unit, and for the maintenance of the limited common elements designated for that unit owner's exclusive use.
Funding the operation of the condominium are assessments. Subject to some restrictions, the Board of Directors is responsible for annually determining the common expenses of the condominium. Each unit owner is assessed that unit owner's share of the common expenses based on the unit owner's percentage of ownership interest. The general rule is, the larger the condominium unit, the greater the proportional share of the common expense owed.
An HOA is defined as an entity comprised of homeowners residing within a particular area, whose principal purpose is to ensure the provision and maintenance of community facilities and enforcement of the various covenants and restrictions. An HOA is created upon the recordation of a Declaration of Covenants, Conditions and Restrictions ("DCC&R") in local land records. Each lot and common area is subject to the DCC&R. Unlike a condominium, the bylaws of the HOA are not recorded in land records.
An HOA is comprised of the owners of the lots that serve as the HOA's members. The HOA's Bylaws will delegate the obligations for governing the affairs of the HOA to a Board of Directors. The Board of Directors is generally charged with determining the amount of annual assessments, adopting rules and regulations and architectural guidelines, maintaining the common area, and enforcing the various governing documents of the HOA.
Each member of the HOA owns his/her individual lot purchased via a deed. The boundaries of the lot will be as defined in the legal description contained in the deed. The HOA, not the lot owners, owns the common area through a common area deed, normally from the original developer (the declarant). The owners have no ownership interest in the common areas. The owners are granted a right to utilize and enjoy the common areas through a grant of easement contained in the DCC&R. The owners' easement to use and enjoy the common areas is subject to the covenants and restrictions contained in the DCC&R. and to the rules and regulations adopted by the Board of Directors. Often the right to utilize the common areas can be suspended for violations to the HOA's rules and regulations or for failure to pay assessments.
The HOA is responsible for maintaining, repairing and replacing the common areas. The common areas may include the parking lots, sidewalks, green space not included within the lots, playgrounds, swimming pool and other recreation facilities. The owners will be responsible for maintaining, repairing, and replacing their lots, including the landscaping within their property boundaries and the exterior of the owners' homes. There are some HOAs where the DCC&R permits the HOA to assume the responsibility of the landscaping of lots. Any exterior additions, alterations or improvements on a lot undertaken by an owner will need to be pre-approved by the HOA's Board of Directors or its designated committee.
Due to the reduced maintenance, repair, replacement and insurance obligations, an HOA's assessments are often considerably less than a comparably sized condominium. Here too, the Board of Directors is responsible for determining on an annual basis what funds will be required to meet the anticipated expenses of the HOA for the upcoming fiscal year. By virtue of ownership of their lot, owners are required to pay for their share of the common expense assessed against the lot. An owner's obligation is based on the total amount of the common expense divided by the number of lots within the association. This calculation may vary if there are different types of homes comprising the HOA, such as townhomes and single-family homes within the same HOA.
Living within a common ownership community has significant benefits. Understanding the basics of each type of community association will allow prospective owners to know what to expect and allow existing owners to know how to get the most out of their community association's ownership experience.
Jeremy Tucker is a community associations attorney at Lerch, Early & Brewer in Bethesda, Maryland who represents community associations and condominiums in a wide range of matters, including general counsel and litigation. For more information about condominiums vs HOAs, contact Jeremy at (301) 457-0157 or firstname.lastname@example.org.