Everyone knows you can buy a condominium – a “condo” for short – and become the proud owner of a unit within a building. But, it’s not so obvious exactly how condominiums work and what it all means. So, let’s look at the answers to some important questions about condos.

1. What is the difference between a condo and an apartment in a multi-family building?

Physically there is no difference!  The difference is in the legal status of each.  A building with more than one unit can be registered with the municipality as a multi-unit building or as a condo association with multiple individual condos.

Note:  Condo associations can include units in more than one building – for example, townhouses can be grouped together legally into one association.  But to keep this simple, we will talk about condo associations that are comprised of a single building.

2. What must be done to register a building as having multiple condominiums?

The most important thing is that condo documents must be drawn up and registered with the Registry of Deeds. The Registry is the branch of the municipality that gets originals of official real estate documents such as deeds, mortgages, etc.  They are approved, registered, stored, and are accessible in public record data bases.

3. What are condo documents?

The key condo document is the Master Deed.  It is like the constitution of the condo association.  It describes the physical property, lists information about each of the individual condos, and specifies association rules.  It also includes – or cross-refences – floor plans of each unit as well as plans for the remaining areas of the building known as the common areas.  It is drawn up by the developer of the association, and until it is registered at the Registry of Deeds, the condos cannot be sold.

4. What exactly does the owner of a condo own?

The condo owner owns his condo – also called a unit.  He also owns a share (or percentage) of all the common areas.  And what are common areas?  Everything that isn’t part of any units…although there are some gray areas that must be addressed by the Master Deed…read on.

Building hallways and roofs are invariably common areas.  Other elements of the building are designated in the master deed as either common or individual. The designations may vary from one association to another.  In some associations, for example, decks belong to unit owners. In other associations, decks belong to the association which in turn gives individual unit owners the exclusive right to use the deck adjacent to their unit.  And what difference does it make?  If the decks are a common area, the association must maintain the decks, if the decks are individually owned then each owner is responsible for their deck maintenance.  There can be similar variations relating to parking spaces, interiors of walls between each unit and the common areas, storage units, etc.

5. How is each condominium owner’s share of the common areas determined?

The Master Deed incudes the ownership percentage of each unit as it was determined by the developer.  It is supposed to reflect the relative market value of the units at the time the Master Deed is registered.  Let’s look at an example of a two-unit association that has one unit listed for $800k and one unit for $1.2m.  The total market value of the association is $2m.  The first unit is worth 40% of $2m, and the other unit is worth 60% of the $2m total.   The ownership percentages should be 40% and 60%.

Note: Sometimes developers don’t follow the guidelines and give units equal percentages even when they did not have equal value. In our example, they might give each unit a 50% ownership percentage.

6. What difference does it make what a unit’s ownership percentage is?

The ownership percentage translates into responsibility on one hand, and rights on the other.  The responsibility is the portion of the association budget that the owner of the unit will be required to pay.  The rights are reflected in voting power on decisions regarding the association.  In our example, the second unit has a 60% ownership percentage, which means it has a majority for the purpose of any vote on association decisions.

Note:  The Master Deed indicates which types of decisions require a majority, and which require other percentages.


7. How does payment of a unit’s share of the budget work?

The Master Deed typically specifies that an annual budget needs to be developed before the beginning of each year.  Once the total budget is determined, the cost is allocated between the units according to the ownership percentages.  Then each unit’s annual portion is divided by 12 to determine its monthly condo fee.  In our example above, if the annual budget is $12,000, then the first unit’s annual share is 40% or $4800, and the second unit’s annual share is $7200.  Dividing by 12, we get a condo fee for the first unit of $400/month and for the second unit of $600/month.

Note:  small associations of 2 or three units sometimes agree to simply split and pay association bills as they come in, even if that is not prescribed by the Master Deed. If all the owners agree, then there isn’t anyone who will complain and cause a problem with this approach.

8. What’s in the condo budget?

The budget normally includes all anticipated operating expenses for the common areas of the association.  It should also include money for reserves to cover budget overages, emergencies, and periodic big projects.


9. What is typically included in operating expenses?

The association operating expenses normally include a line item for “water and sewer” because there is usually only one water meter and one water and sewer bill for the whole building. Also, every association is required to have a master insurance policy that covers all common elements, so that cost is also a universal line item.  Everything else varies depending on how the association is physically built and how it is run.  If every unit has its own private heating units, and if there are no common area heating elements, then the cost of heat is borne by the individual unit owners and there is no heat cost in budget.  If there is a large boiler or furnace for the whole building, then its fuel and maintenance costs will be in the budget in the form of oil or gas expense.  If the building is professionally managed, there will be a management company fee.  Smaller associations sometimes divide the responsibility for doing common area tasks among the owners:  gardening, sweeping, shoveling snow. Otherwise, these items will also show up in the budget.

10. What is included in reserves?

As mentioned above, reserves cover budget overages, emergencies, and periodic big projects.  Budget overages are self-explanatory…they can happen in any budget.  Emergencies are typically water leaks, fires, broken heating systems…items that must be fixed immediately and may require immediate payment.  And what are typical big projects? roof replacements, painting or pointing of the building exterior, interior painting and new carpets.  These are all projects you would have to do periodically in a single-family home, but which are the responsibility of the association when the project is in the common areas.

Note:  Many mortgage lenders require that the reserves be at least 10% of the annual condominium association budget before they will grant a mortgage.

11. What are these “Assessments” everyone keeps talking about?

When an association’s operating funds and reserves are not adequate to cover emergencies or impending big projects, the association has to get extra funds to cover these items.  They calculate the amount of money needed and “assess” each unit a portion of that amount based on – you guessed it – its percentage ownership.  Sometimes the association decides that each owner must pay a lump sum for the unit’s share.  Sometimes payments are scheduled over a period of months or even years…and accounted-for separately from the condo fees.  If the money isn’t needed urgently, this approach is viable.  But, sometimes the association doesn’t want to assess a lump sum, yet it doesn’t have the option of waiting for installment payments. In those cases, the association can borrow money. Repayment/interest is usually paid separately from condo fees over a period of months or years, much like for the installment payment plan without any loan.

12. Can changes be made to the Master Deed?

Changes can be made to the Master Deed just as changes can be made to the Constitution – by passing amendments.  The percentage of owner votes that is required to pass an amendment is outlined in the Master Deed itself.  Typically, new rules about renting out units, pets, smoking, making noise, etc. are put into amendments.  If the Association wants to pass an amendment that affects the basic finances and/or size of any units, then the mortgage lenders must approve the amendment in addition to the unit owners.  Examples of this would be annexing the square footage of a common area element (such as a common hallway) into a unit or adjusting the ownership percentages. Since the bank made the loan based on unit statistics, the bank effectively has to confirm that they accept changes to these statistics so as not to invalidate the loan.

Do you have any more general questions about how condo associations work that you want addressed in future posts?  Do you have specific questions about your association?  Call Chris at 857- 829-0282 or email him at Chris@Isellmass.com.

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