Unit Owner Sales: What Is the Responsibility of the Association?

A recent article in the Providence Journal indicates that home sales in Rhode Island, including condominiums, are on the rise. (Finally!) During the sales downturn the last few years, many municipal and state regulations were put in place which only now are being felt as people are once again putting their single family homes and condominium units on the market for sale. I ran into an issue the other day regarding resale of a condominium unit.

A unit owner attempted to extend the association’s obligation to disclose a non-conforming fire code condition found in the resale certificate, to mean also that it must immediately resolve the condition by the date of the closing on his unit. Specifically, he listed his unit for sale, requested a resale certificate, found out the condominium’s fire detection and suppression systems were not compliant with the state’s fire laws, and thereafter, insisted that the condition be remedied before the sale. Briefly, in my opinion, while of course the association has a duty to disclose non-compliant conditions, it does not necessarily follow that the executive board must fix the condition by or on the date of the unit owner’s closing.

Timing Is of the Essence

My associate, Mary-Joy Howes, wrote an article titled “Providing a Foolproof Resale” in Condo Media in July 2013, so I won’t repeat the details about what information need be provided in the certificate. Suffice it to say, the Rhode Island Condo­minium Law is by and large a Consumer Protection Statute and, as such, makes true and accurate disclosure of information paramount. And while the resale statute provides a duty to disclose, it does not provide for a buyer’s automatic right of cancellation of the contract.* However, the right of cancellation may be negotiated in the purchase agreement between the unit seller and the buyer.

Take for example, Section 13 of the Rhode Island REALTORS Standard Form Condominium Sales Agreement which states that, “This (Purchase) Agreement is voidable by Buyer until the Resale Certificate has been provided, and for five calendar days thereafter, or until closing, whichever occurs first.” So, then timing is of the essence here for both parties. Since, conceivably, if the resale certificate and the information contained therein is provided on the date of closing, the buyer could conceivably bail out at that point right at the closing table.

The RI Condominium Statute lends some assistance for unit resales: The condominium must deliver a resale certificate to a unit owner seller requesting it within 10 days when he or she requests it. So therefore, assuming on Oct. 1, there is a request. The as­sociation has until Oct. 11 to deliver it and, thereafter, the buyer would have five days or until Oct. 16 to review, negotiate, or accept it.

Most of the information on the resale certificate should by this time have been provided to the buyer via the broker anyway, including but not limited to such matters as the amount of the monthly assessments, whether or not substantial special assessments are contemplated in the future, or unique characteristics of the condo­minium project. For instance, the broker and/or seller should have by the time of the contract signing deliv­ered a declaration which could detail whether or not leasing was permitted, or whether this was an age 55 or older project, as well as the rules and regula­tions which would indicate whether pets are permitted.

However, what if the broker secures a resale certificate and there is a “surprise” condition disclosed on it? Section 11 of the Resale Certificate Requirement 34-36.1-4.09 indicates that the association must provide to the unit owner (seller) a statement as to whether the executive board has knowledge of any violations of the health or building codes with respect to the unit (for sale), the limited com­mon elements assigned thereto (i.e., abutting sundeck or parking space), or any portion of the condominium.

Say, for instance, the condominium is in need of a fire code upgrade (i.e., each unit must be hardwired fire alarms). What if that system would cost $100,000, but the unit owners as a group have not authorized the funds necessary to make the improvement/modification for economic reasons? What effect, if any, will that circumstance have on the association’s obligation to maintain the buildings? Suppose the unit owner with the re­sale certificate indicates that his sale is being held up by a fire inspector who is requiring all the units and common elements to be code compliant? While in my opinion, the association must disclose the need for the improve­ment, I do not believe the association would be required to implement the modification within the short time period established for the dosing on the sale of the unit requesting the certificate.

To be sure, the association, by and through its executive board, is charged with responsibility for the maintenance and operation of the common dements, including the structural integrity of the buildings housing the units. That would include ultimately upgrading the fire detection and suppression systems. The authority for this is found in the Declaration, Bylaws and Section 3.02 of the RI Condominium Statute. And further to be sure, the resale certification request may serve as a request for a status on the condition and health of the association and its infrastructure. But an out and out requirement to do the work immediately? I think not.

That said, there is a caveat: While the association may not be required to upgrade by the date set by its unit owner and buyer here, now that it has been notified of a defective condition, it must use reasonable efforts to secure code compliance.

Minimizing Exposure to Liability

In the case of fire code upgrades, since the Station Fire Case, while the Rhode Island Fire Code has been amended to require upgrades to multifamily dwellings, including condominiums, the time limits for compliance have been extended on a case-by-case basis. Accordingly, I would recommend that the association in our hypothetical move forward with securing three bids for fire alarm and suppression contractors to do the modifications. I would thereafter have the unit owners meet to discuss the price and choice of financing (i.e., special assessment or association loan).

Once that is complete, I would pe­tition the Fire Code Appeals Board for additional time within which to implement the plan. Some boards will be more than happy to grant up to a year to secure compliance. Once the appeal is heard and the variance is granted, the fire inspector involved in the sale discussed above may be more disposed to permit individual unit sales pending the completed fire code modifications.

While taking the above steps in the above example may not prevent the loss of the sale, it would go a long way toward minimizing the association’s exposure to liability for a disgruntled unit owner’s real or perceived claim against it for a failed or delayed sale of the unit.

* On new sales from the developer, a buyer has an automatic right to cancel the contract within 10 days of his receipt of the public offering statement con­taining critical information about the condominium. As discussed above, this would not be the case for a resale, unless this condition were negotiated in the contract between the buyer and seller.