Real Estate Ownership – Condominium or Fee Simple

Generally, apartment-style buildings are called condos, two-story row houses are known as town homes, and free-standing homes on small lots are referred to as garden homes.  Unfortunately, this description creates some confusion about real estate ownership.  Apartment, town home, and garden home describe the design or construction of certain homes.  The word “condominium” does not refer to a the layout or style of a building.  Condominium is a form of ownership of real estate.  The form of ownership of real estate cannot be recognized by observing the building design.   

Condominium Regime

The legal definition of condominium is:  the absolute ownership of a unit based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other condominium unit owners.  Each unit owner of a condominium has individual title to the space inside his unit.  The space is sometimes described as beginning with “the paint on the walls.”  In addition, each unit owner has an undivided interest in the physical components of the condominium buildings and land. 

A popular type of condominium development is the multi-story apartment.  In this case, there is no land under each unit.  In these developments, the condo association usually handles maintenance of the building exterior and common grounds, while the unit owners maintain the interiors of their units.  A condominium association is selected to make decisions about expenditures for repairs, and to handle administrative work related to the common areas.  Fees are collected from the unit owners to pay for common maintenance.  The association normally holds an insurance policy covering the jointly-owned areas, while individual owners carry insurance for the interior components of their units.

Condo projects may resemble duplexes, town homes, garden homes, or residences on regular lots.  In general, the creation of a condo regime allows the developer to get more density approved than would be allowed if he had done single-ownership lots.  This is often the reason why the condo regime is chosen instead of a development with single ownership lots.  A condominium may be built as two units of a duplex.  In this case, the two owners may jointly make decisions concerning maintenance of any common areas.  By setting up the units of a duplex as two condos, the owner is able to sell them to two different owners. 

Each condominium has rules that are specific to the development, so no assumptions should be made about their requirements.  It is important to read the condominium documents carefully before purchasing a condo.  The documents specify the maintenance that is covered by the common budget.  In one project, the association may handle exterior components, decks, pools, sidewalks and driveways.  In another, the individual owners may be responsible for more maintenance of their units, including foundations, roofs, and exterior walls.  

If you have questions about the division of labor between the common budget and the individual owners of a condominium, you can present your question to the condo board itself.  The board can give you an interpretation of the rules and clarify how the issue has been handled in the past.  Another possibility is to ask a real estate attorney to review the documents for you.  Realtors, other unit owners, or maintenance workers are not appropriate or reliable sources for the interpretation of condo documents.  

The Texas real estate contract for condominiums contains a provision requiring that the buyer be given a copy of the condo documents, with a period of time to review them.  During the document-review period, the buyer may terminate the contract without penalty.  In addition, a resale certificate is must be provided by the  association president or manager.  This document provides information on the current budgets, insurance coverage, special assessments, lawsuits and other matters that affect the association.  

Fee Simple Ownership

In contrast to the condominium regime, you may own real estate by fee simple.  “Fee”, which comes from the word, “fiefdom”, refers to legal rights in land, and “simple” means unconstrained.  Fee simple is the most common type of ownership.  It is the absolute legal title to real property, including both buildings and land. 

In fee simple, there are several different possibilities with regard to your obligations of ownership:

(a)  Your property may not be in a subdivision at all.  In this case, your deed will not include any subdivision restrictions that control your use of the property.  Be aware that there could be some deed restrictions put in place by previous owners.  In addition to deed restrictions, you may be governed by city or county ordinances or zoning laws that limit your use of the property. 

(b)  Your property may be in a subdivision with very few restrictions, no common areas, no architectural control committee, and no mandatory dues.  Usually these are older subdivisions.  

(c)  Your property may be in a subdivision of homes on large lots, or in a town home or garden-home community in which there is a legally created homeowners association.  In this case, every homeowner is required to be a member of the association.  The association may charge mandatory dues and enforce subdivision rules.  A certain level of maintenance may be required of each property owner.  For example, you may need association approval of exterior paint colors, fences, or additions to your home.         

Like the condominium form of ownership, fee simple ownership does not prescribe how maintenance is handled or how developments are governed.  For example, the owners of a town house, with fee simple ownership, may be required to fully maintain their units.  Or, the owners’ association may cover painting, roofing and yard work for the owners.  In subdivisions where there are single family homes on large lots, it is more common for the homeowners association to manage the common grounds, pools and parks, while the individual lot owners fully maintain their own properties.  

Understand your ownership rights and obligations

Before buying into a condominium regime or purchasing a fee simple property, you should have a clear understanding of the type of ownership you will have in your property.  If you are buying a condominium, it would be wise to read the condo documents carefully and understand how maintenance is divided between the individual owners and the condominium association.  

If your ownership is fee simple, with individual ownership of the land, you should review the deed restrictions (if there are any) and understand the restrictions and obligations that apply to your property.  In the fee simple form of ownership, there may be mandatory dues to pay for common area maintenance, or, in some cases, the dues may be used for partial maintenance of the individual properties.  

If you have a question about your type of ownership or about your obligations as a homeowner, it would be wise to review the title documents with a real estate attorney before proceeding with your purchase.  Ask plenty of questions!  A clear understanding of your type of ownership, and of your obligations as a homeowner will result in a more satisfying real estate purchase.

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