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Condominiums, or “condos,” are a special and very popular form of property ownership. Also called “common interest communities,” the most unique aspects of a condo involve how it is owned and how the property is managed or maintained. As opposed to other types of real property, like apartments and office buildings, the special ownership aspects of condos create some unique issues for renting or leasing a condominium.
The creation and management of condominiums are almost entirely controlled by state laws, which can further complicate any condominium lease or rental. So, whether you’re a landlord or a tenant, be sure to check the condominium laws in your area, or get some advice from an experienced real estate attorney, before you sign a lease.
Condo Ownership, Management & Control
Condominiums are controlled by their:
- Governing documents, and particularly the declaration and bylaws, and
- Homeowners’ association, or “owners association.”
In general, a condo owner lives in and owns a defined space in the condominium complex, which is usually called a “unit.” As the owner, you own, in essence, the inside of the unit, and you have a lot of freedom over what you can do inside: paint walls, renovate the kitchen, and replace flooring. You can’t do anything to the outside of the unit, such paint exterior walls or even landscape.
You share “common” areas with the other condo owners. These areas include hallways, recreational facilities, and parking lots. The condos are managed by a “homeowners'” association, which typically is made up of individual condo owners. Among other things, they collect a monthly fee from you and use the funds to maintain the common areas of the property, and they enforce the condo bylaws-the rules and regulations that specify how the condo complex is to be managed.
All states have some type of law or statute that controls condominiums in almost every aspect, from where they can be built-like the need for access to a public street-to how and by whom the condominiums are to be managed, which is usually performed by an association of condo owners.
One of the most important state law requirements is that the developer or builder of a condo complex has to file a declaration. State laws vary on what it must contain, but usually it must specify things like:
- A description of each unit
- A description of all common areas
- The number of votes needed by the members of the homeowners’ association to approve things like repairs to common areas or exterior buildings
- Various restrictions, such as units can be used for residential purposes only or they can’t be leased to non-owners or can be leased for only a part of the year
State law can have major impact on a condo lease. In some states, condos can be leased for residential purposes only, while in others they can be leased for residential and commercial uses, and in still other states there’s no mention of commercial use.
Whether you’re a potential tenant or landlord, it’s critical that you understand the condo’s declaration and bylaws, as well as the state’s condo laws, before you attempt to lease a condo.
Residential Condo Leases
Because of the high costs of home ownership and shortages of available housing in many large cities, all states allow condominiums to be used for residential purposes, and residential condominium leasing is a common practice. Investors often buy condos just to lease them as residences, or for things like timeshares.
As for leases, residential condominium leases are basically the same as for any residential lease, but with one critical distinction: a condo lease will contain a provision that it is subject to the terms of the condo declaration and bylaws, and so the tenant especially needs to be aware of any use restrictions and availability of common areas. In addition, a condo lease should contain provisions for:
- Who’s responsible for monthly maintenance or “condo” fees, which are used by the homeowners association to maintain common areas and make repairs and improvements
- Who’s responsible for special assessments, or special fees that are charged to cover the costs of improvements or repairs that are not accounted for in the association’s yearly budget, such as building repairs that are required by severe weather
- Who’s responsible for property taxes
Commercial Condominium Leases
It’s not as common as residential leasing, but condominiums can be leased for commercial enterprises, like office buildings, shopping centers and professional offices, such as doctors and lawyers’ offices. Like residential leases, commercial leases for condos are very much the same as other commercial leases. The major difference is in the state law: do the condo laws in your state allow condominiums to be leased for commercial purposes?
The same special provisions for residential condo leases should be included in the commercial condominium lease as well. And, special attention should be paid to the “use” provision,that is, the description of what commercial enterprise the condo can be used for. For instance, if a tenant wants to open a delicatessen, the declaration needs to be checked to make sure that it does not limit commercial use to non-food businesses.
Questions for Your Attorney
- My commercial condominium complex’s declaration or bylaws have a restriction on the placement of business signs. Is there a way to change or amend them so my condo is more attractive to potential tenants?
- If I rent a residential condo and I’m required to pay real estate taxes, can I deduct my payments on my federal income taxes? Can I deduct the monthly maintenance/condo fee that I have to pay?
- I own a five-condo commercial complex, with two condos empty. A potential tenant insists that I sign an agreement that I won’t rent another condo in the complex to a competitor of his. Should I agree? Can I charge him extra for the agreement, because I’m certain I could rent the other condo a competitor?