Buying a condominium in Vermont involves many of the same considerations as buying a traditional single-family home, but there is an important difference: you are not just buying a home. You are also becoming a member of a condominium association and assuming a share of its financial and operational future.

That makes due diligence especially important.

A home inspection can help a buyer understand the physical condition of the condominium unit. But before purchasing a condo, buyers should also investigate the condominium association, its finances, rules, insurance, pending projects, potential special assessments, and other issues that could affect the cost and enjoyment of ownership.

Fortunately, Vermont law provides important protections for buyers of existing condominium units, including the right to receive a resale certificate and other condominium documents before completing the purchase.

The Vermont Condominium Resale Certificate

One of the biggest differences between buying a condominium and buying a typical single-family home in Vermont is the resale certificate.

Under Vermont's Uniform Common Interest Ownership Act, a seller of an existing condominium unit generally must provide the buyer with a resale certificate, along with a copy of the condominium declaration, bylaws, and association rules or regulations.

The resale certificate provides important information about the condominium association and the unit being purchased. Depending on the circumstances, the information can include assessments and other amounts owed, the association's financial condition, insurance, pending litigation, capital expenditures and other matters relevant to the purchase.

The resale certificate should not be treated as just another piece of closing paperwork. It is an important due diligence document that can help a buyer identify potential problems before becoming an owner.

The certificate also has an important estoppel effect. Under Vermont law, a purchaser is not liable for an unpaid assessment or fee greater than the amount stated in the association's certificate. This gives the buyer significant protection against previously undisclosed association charges attributable to the unit.

Buyers Have a Short Period to Review the Condominium Information

Timing is critical.

Under Vermont law, the purchase contract remains voidable by the buyer until the required resale certificate has been provided and for five days thereafter.

The purchase and sale contract may provide similar rights for reviewing condominium documents and deciding whether to proceed with the transaction. The particular contract and circumstances of the transaction should always be reviewed carefully.

Five days can pass quickly.

If a resale certificate or condominium document raises a concern, the buyer may need to obtain additional information, evaluate the issue, negotiate a resolution with the seller, decide to accept the issue, or exercise a right to terminate.

Those decisions need to be made before the applicable deadline expires. Discovering a problem during the review period does little good if the buyer waits until after the termination deadline to address it.

Read the Declaration, Bylaws and Rules

Condominium ownership comes with restrictions that generally do not apply to a traditional single-family home.

Buyers should review the declaration, bylaws, rules, and regulations for two primary reasons.

First, determine whether you can live with the rules.

There may be restrictions involving pets, vehicles, rentals, alterations, use of the property and other aspects of condominium living. A buyer should understand those restrictions before purchasing rather than discovering after closing that a planned use is prohibited.

Second, understand how the association is governed.

When you purchase a condo, you become part of the organization responsible for making decisions affecting the development. The governing documents can explain voting rights, meetings, board authority, assessments, amendment procedures, and other decision-making processes.

Understanding those rules can help a buyer know how to participate as a member of the association and, potentially, as a board member or officer in the future.

Look Beyond the Current Condo Fee

A buyer may naturally ask, "How much are the condo fees?"

That is important, but it is only the beginning.

The current monthly or quarterly assessment does not necessarily tell you what ownership will cost in the future. Buyers should consider the association's current budget, financial statements, reserve information, recent meeting minutes, and known or anticipated capital projects.

One of the most important issues to investigate is the possibility of a special assessment.

A special assessment can require unit owners to contribute additional money beyond their regular condominium fees. Depending on the project involved, an assessment can represent a significant unexpected expense.

Potential reasons for future special assessments might include major repairs, deferred maintenance, stormwater work, increasing insurance costs, litigation, or other capital improvements.

The goal is not simply to determine whether a special assessment is due today. Buyers should also look for indications that one may be coming.

Review Several Association Meeting Minutes

Association meeting minutes can be particularly valuable because they may reveal what is actually happening within the condominium community.

Rather than reviewing only the most recent meeting, buyers should consider reading the minutes from several recent meetings.

The minutes may contain discussions about proposed repairs, capital projects, potential special assessments, insurance concerns, stormwater issues, litigation, rule changes, and other matters that may affect future owners.

They may also reveal ongoing disagreements among unit owners or recurring disputes between neighbors. Not every disagreement is significant, but reading several sets of minutes can give a prospective buyer a better sense of the current issues facing the community.

Pay Particular Attention to Special Assessments

Special assessments deserve special attention because they can be one of the largest financial surprises for a new condominium owner.

Buyers should investigate whether any special assessments have been approved, proposed, discussed, or reasonably anticipated.

When a known special assessment exists, the buyer and seller can negotiate who will be responsible for paying it and address that agreement as part of the transaction.

Regular condominium fees are generally prorated at closing. A special assessment, however, may require separate treatment.

A buyer should not assume that because an assessment relates to a project approved before closing, the seller will necessarily pay it. If responsibility is not otherwise addressed, the date on which an assessment payment becomes due can be important. An installment coming due after closing could become the responsibility of the person who then owns the unit.

Known special assessments should therefore be identified and addressed before closing.

Consider the Association's Finances and Future Capital Needs

Buyers should review available financial information about the association, including the current budget, financial statements, reserve information, and information concerning anticipated capital projects.

An association may appear financially healthy based on its operating budget while still facing significant future expenses.

For example, an association might be considering roof replacement, paving, building repairs, stormwater improvements, or other major projects. If sufficient funds are not available when the work needs to be performed, owners could face increased condominium fees or special assessments.

An attorney's review of condominium documents can help identify major legal and transactional red flags, but determining whether the association's reserves are financially adequate relative to deferred maintenance and future capital needs is not ordinarily part of a legal review.

That is one reason buyers should not rely solely on their attorney when evaluating a condominium purchase.

Condo Buyers Should Still Get a Home Inspection

Buying a condominium does not eliminate the need for a professional home inspection.

A qualified home inspector can evaluate the physical condition of the unit and may identify concerns involving building components or common areas that warrant further investigation.

The attorney's document review and the home inspector's physical inspection serve different purposes. One does not replace the other.

This can be particularly important when association records indicate deferred maintenance or a major upcoming project. Buyers need to understand not only what the association documents say, but also whether the physical condition of the property raises concerns about future repairs and expenses.

Stormwater Permits Can Be an Important Vermont Issue

Stormwater systems deserve particular attention in some Vermont condominium developments.

A buyer should determine whether the development is subject to a stormwater permit and, when applicable, whether that permit remains current.

If a permit has expired, important questions include: What is the association's plan for renewing it? What work will be required? Will the stormwater system need maintenance or upgrades? What will those improvements cost? How will the association pay for them?

A stormwater issue can become a significant financial issue if substantial work is required and the association does not have funds available to pay for it.

That can lead directly to another question prospective buyers should ask: Is a special assessment anticipated?

Pending Litigation Can Affect More Than the Lawsuit

Buyers should also investigate pending or threatened litigation involving the condominium association.

The important question is not merely whether a lawsuit exists. Buyers should try to understand what the dispute involves and its potential effect on the association.

Relevant considerations may include potential financial exposure, legal expenses, whether applicable insurance is expected to cover the claim, and whether the dispute could eventually result in a special assessment.

Litigation can also affect the ability of buyers to obtain mortgage financing.

Financing a Condo Can Depend on the Association

When buying a single-family home, borrowers often think primarily about whether they qualify for the mortgage.

With a condominium, the lender may also evaluate the condominium project.

Depending on the lender and loan program, financing may be affected by issues involving association insurance, reserves, litigation, the physical condition of the development, and other characteristics of the condominium project.

The number of rental units within the development can also matter.

A high concentration of rentals may limit financing options under some lending programs. Associations may also impose their own rental restrictions, including limits on how many units can be rented at a particular time.

That creates two different issues for buyers.

First, if many units are already rentals, a buyer should determine whether that could affect financing for the purchase.

Second, a buyer who plans to live in the condo initially but might convert it to a rental property later should determine whether the association's rules will permit that use.

A buyer should not assume that because other units are rented, their unit can necessarily be rented in the future.

Understand the Association's Insurance and Your Own Insurance Needs

Condominium insurance differs from insurance for a typical single-family home because insurance responsibilities are divided between the condominium association and the individual unit owner.

The association generally maintains a master insurance policy covering property and risks for which the association is responsible under the condominium documents and policy.

The individual owner generally needs a condominium unit-owner policy, rather than the conventional homeowners policy typically used for a detached single-family residence.

Unit-owner coverage can address risks involving the portions of the unit for which the owner is responsible, personal property, personal liability, loss assessments, and other exposures.

The exact division of insurance responsibility can depend on the condominium documents and master policy, so buyers should make sure they understand the association's coverage and obtain appropriate individual coverage before closing.

Insurance can also be a financing issue because mortgage lenders may have requirements for the association's master coverage.

Is the Association Professionally Managed or Self-Managed?

Some Vermont condominium associations hire professional management companies. Others are managed by the unit owners themselves.

A self-managed association is not necessarily a problem. Many operate successfully.

However, the level of organization and compliance with formalities can vary considerably among self-managed associations.

Buyers should pay attention to whether important records are maintained, meetings and decisions are properly documented, financial information is available, and the association appears capable of addressing significant issues when they arise.

Weak management may become especially problematic when an association faces a major repair, stormwater issue, insurance problem, lawsuit, regulatory requirement, or large capital expenditure.

Check for Association Liens and Unpaid Assessments

The title work for a condominium purchase should address liens and other title matters affecting the unit, including condominium association liens when applicable.

Buyers also want to know whether assessments or other association charges remain unpaid.

The resale certificate plays an important role here because Vermont law limits the purchaser's liability for unpaid assessments or fees to the amount disclosed in the association's certificate.

These issues should be identified and properly addressed as part of the closing.

What Should a Vermont Condo Buyer Review Before Closing?

Buying an existing Vermont condominium generally warrants reviewing more than the physical unit itself. Depending on the property and transaction, important due diligence may include:

• The resale certificate
• Declaration, bylaws, rules, and regulations
• Current association budget and financial information
• Reserve information
• Several recent association meeting minutes
• Existing or potential special assessments
• Known major repairs and capital projects
• Stormwater permit status and anticipated stormwater work
• Pending or threatened litigation
• Association master insurance
• Rental restrictions and the number of units currently rented
• Issues that could affect mortgage financing
• Association management and recordkeeping
• Liens and unpaid assessments
• A professional home inspection

Not every issue will apply to every Vermont condominium. The important point is to investigate the unit and the association before the buyer's review rights expire.

What Happens if the Review Finds a Problem?

Finding a problem does not necessarily mean the buyer should terminate the purchase.

Some concerns can be resolved by obtaining additional information. Others may be addressed through negotiations with the seller. A known special assessment, for example, might be handled by an agreement allocating the cost between the buyer and seller.

Other issues may be serious enough that a buyer decides not to proceed.

What matters is recognizing the problem and making that decision while the buyer still has the contractual or statutory right to act.

The review period for condominium documents can be very short. Buyers should provide condominium documents to their attorney promptly and should not wait until closing approaches to raise questions about the association.

Buying a Vermont Condo? Evaluate the Association as Carefully as the Unit

A condominium can offer many advantages, but buying one is different from purchasing a traditional single-family home.

You are buying your individual unit, but you are also joining an association whose rules, finances, management, insurance, maintenance decisions, and future obligations can directly affect you.

A well-maintained unit can still be a problematic purchase if the association faces major expenses, litigation, regulatory problems, financing issues, or substantial special assessments.

Careful due diligence before closing can help uncover those issues while the buyer still has an opportunity to ask questions, negotiate solutions, or reconsider the purchase.

Peet Law Group represents buyers and sellers in residential real estate transactions throughout Vermont. Our attorneys help Vermont condominium buyers review resale certificates and condominium documents, identify significant legal and transactional concerns, complete title work, and navigate the transaction through closing. Contact Peet Law Group today.