If you haven’t already, bought into a community association, chances are pretty good that you will someday.
The trend toward shared homeownership has been growing steadily since the early 1960s, when the first condominiums were established. Today, the number of associations has grown to about 150,000 and about one in eight Americans lives in one, according to the Community Associations Institute, an education and advocacy group in Alexandria, Va.
In the country’s 50 largest metropolitan areas, community associations make up the majority of new residential construction, says Edward Boudreau, senior vice president for the Institute of Real Estate Management in Chicago and president of Capital Consultants, a property management firm in Dallas, Houston, Phoenix and Orlando.
“The reason they’re so popular is many municipalities and counties have cut down on services,” he says. “People want additional amenities and a lifestyle and they’re willing to pay for it. Associations privatize a lot of functions.”
Other reasons, depending upon location, include scarcity of land and high construction costs.
But not all associations are alike. Shared ownership comes in varying formats, each of which affects governance, financial and lifestyle issues differently. To add to the confusion, looking at the building or complex from the outside won’t tell you what kind of association it is.
“We have come to find that unless two associations were put together by the same developer, nothing is the same,” says Suellyn Scharping, president and founder of CLS Property Management Co. in Downers Grove.
To help sort out the similarities and differences among the community associations found in the Chicago area, we talked to a panel of professionals.
Types of associations
To legally qualify as an association–as opposed to a block club or neighborhood organization–the developer must have created a governing document, called a declaration, and filed it with the county recorder’s office. This document includes such information as the legal structure of the community, property use and maintenance, owners’ rights, how the association will be run and how assessments will be levied.
“If there’s no recorded document, you own a single-family home, even if it’s connected, like row houses,” says Boudreau.
The declaration will tell you the type of association.
– Condominium: Homeowners own the air space, or paint to paint, within their respective units and have exclusive use of features such as balconies and patios that serve only those units. Those features are called limited common elements. Everything else–the buildings, land, trees and recreational facilities–comprises the common elements. Residents also own a portion of the common elements and limited common elements according to their percentage of ownership. The percentage, established by the developer, is usually based upon the value or square footage of the unit.
– Cooperative: In a cooperative, you buy and sell shares of a corporation, which owns the entire property. Those shares entitle the holder to the exclusive use of a specific unit, or “apartment,” through a document called a proprietary lease.
– Common interest. If a property is not a condo or co-op, it is probably a common interest community. That’s where you own the building or portion of the building you live in, including the exterior walls and roof, as well as the land under it. There’s also a homeowner association.
Sometimes you’ll see a property, particularly townhouse-style units in the city, touted as “fee simple.” In the purest sense, the phrase means the seller has the right to sell the the property. In popular jargon, however, it usually means the property has no association and no assessments.
– Master association: Large communities, which may consist of multiple housing styles or building phases, will often have more than one association under a master, or “umbrella,” association. Typically, the master association addresses issues that affect all homeowners while the individual associations address those that affect it only.
Architecture
Architectural style has little to do with the type of association. For example, many people refer to two-story attached living units as townhouses. From a design standpoint, they are correct. But as an association, a cluster of these is either a condominium or a common interest community.
The difference is in who owns the land. If the association does, it is a condominium. If the unit owner does, he lives in a common interest community.
“You can have single-family homes that are condominiums or common interest communities,” says David Bendoff, an attorney with Arnstein & Lehr, which has offices in Chicago, Barrington, West Palm Beach and Milwaukee. “It depends upon not necessarily the physical product but on the legal documents that form the association.”
The legalities
An association’s rights and responsibilities are governed by more than their declarations and by-laws. All associations must abide by municipal, state and federal statutes, such as the Fair Housing Amendments Act of 1989 and local building codes. Those incorporated as non-profit organizations, which includes most cooperatives, must adhere to the Illinois General Not For Profit Act.
Condominiums, but not cooperatives and common interest associations, must adhere to the provisions of the Illinois Condominium Property Act.
“For example, in a condominium association, elections are at large,” says Bendoff. “You cannot say so many persons have to be elected from each building. But the declaration for a master association of a common interest community could say one board member has to be from each of the underlying associations.”
The cost
Which association has higher assessments? More depends upon the amenities and services provided than the type of association, says Scharping. “If you have a swimming pool, clubhouse and tennis courts, your assessments will be higher than a building that doesn’t have anything. Elevators are expensive, too.”
Associations have the option of repairing and maintaining limited common elements or requiring owners to do it. They can decree that you water the grass, replace the windows and fix your balcony. Some provide heat. Whether the money comes directly out of your checkbook or the association’s, you still pay.
The legal description of the association does affect how you pay your homeowner’s insurance and property taxes, however.
Because they own the buildings, condo and co-op associations carry master insurance policies. Owners and shareholders need to insure only their personal belongings and major interior improvements with a modified renter’s policy known as an HO-6.
The cost of an HO-6 policy that covers $40,000 worth of personal belongings and $3,000 in interior upgrades ranges from about $110 to $400 per year in the Chicago metropolitan area, says Terrence Kavanagh, president of Chesterfield Service Corp., an insurance agency in Chicago’s Beverly neighborhood. The variation is due to location of the association and the insurer’s rates.
The tab for the master policy is paid for from assessments.
Owners in common interest associations must cover their personal effects plus their dwellings. They need an HO-3 policy, which for a brick building in the $125,000 to $250,000 price range, can run from $150 to $700 per year. The cost is higher than an HO-6, but the association’s insurance is minimal.
“One problem we’ve seen in (common interest associations) is, who’s to say everyone has insurance?” says Kavanagh. “What if the building burned down and someone canceled his insurance or bought an HO-6 by mistake?”
A couple of associations he represents went through the arduous legal task of converting to condominiums so they could control the coverage. The cost to the owners, whether through private insurance or increased assessments, remains about the same, he says.
Condominium owners pay their property taxes individually. So do owners in common interest communities, but because they own their dwellings, taxes often are higher. A cooperative receives a single tax bill, which is then divided among the shareholders and added to their assessments.
The lifestyle
How you live, or are allowed to live, in an association greatly differs from community to community. All require some degree of conformity and some more than others.
You’ll probably be subject to architectural control, which means you can’t put a fence around your patio so the dog can go outside or you must install a certain style storm door. You may be restricted in how you use limited common elements, as in no holiday decorations or refrigerators on balconies. Some associations don’t permit owners to plant flowers, some insist you replace dead bushes immediately and still others encourage any efforts to beautify the property.
Because owners in common interest associations own land, these communities tend to have more of a single-family home feeling. You’ll find more children, the pros point out. On the other hand, apartment-style condominiums and cooperatives are more secure and sometimes have 24-hour door personnel.
You’ll only know by reading the declaration, by-laws and rules.
“It all depends upon how the original governing documents were drafted and what concept the developer had,” Scharping says, “and how many changes were made by the boards over the years.”
