Wednesday, September 15, 2010
Dear Reader,
I give a regular presentation at conferences on what to look out for when buying a property overseas. And one of the most important sections that I cover is checking out CCRs and HOAs. More than one attendee greets those words with a blank stare. Then I start to explain...
CCRs are the Covenants, Conditions and Restrictions--the rules and regulations that say what you can (and can't) do with a property in a planned community. CCRs are like private zoning laws at the community level.
HOAs are Home Owners Associations. They enforce those rules. Here's why CCRs are important:
- They may be your only zoning. Many countries overseas don't have North American-style zoning, and CCRs are what protect you from your neighbor's seven nights a week partying, or running a machine shop next door.
- CCRs are legally binding, if they are attached to your property deed, so it's important you understand what they do.
- CCRs usually restrict property style and use. They may keep you from doing what you want to do with your property.
- They assure that the development as a whole retains the character it had when you purchased, and thus helps protect your investment.
Here's what happens without them...
On one of my first scouting trips, I visited a large development that dated back to the 1980s. When it started, it was in a rural location, on the edge of a capital city. That meant it fell under rural planning law, without CCRs. Over the years, the city grew, and the development became a suburb. That classed it as part of the city, and newer phases in the project came with an impressively thick set of detailed CCRs.
In the early phases, the developer showed me the hazards of not having CCRs. One homeowner had five large dogs roaming in their rather small back yard, barking and snarling as they stalked the perimeter. A few homes along, someone had a crowing rooster, and a bunch of chickens. One three-story home, painted a fetching and eye-catching shade of lurid lilac, towered over neighboring properties.
The developer had finished those phases years earlier, but he was still paying for the roads. Why, I asked. Simple, he said: without CCRs, he relied on owners' goodwill to pay for maintenance and repairs. Most decided they didn't want to contribute. The developer made the shortfall up himself. He didn't have to (and indeed, most developers won't).
In general, a lack of CCRs can lower community standards over time, and hurt everyone's property values.
In condo towers, the CCRs help keep common areas maintained, repaired, and clean. Owners usually have to stick to strict guidelines on the appearance, style, and cleanliness of their property's exterior. No drying laundry at the front of the building...and no painting your balcony acid-green.
Don't assume that because your neighbor has ample space, they'll build well away from your house....unless it's specified in the CCRs. I saw one property on 5 acres, where the owner built his house smack opposite the house next door. Don't think that because you appreciate colonial style, your neighbor does too. Their dream home could be a modernist cube or a rustic shack. And don't think that because you enjoy early nights and peace and quiet, your neighbor will...their idea of paradise could involve a loud stereo and regular parties.
It's important that you check these items are covered by your property's CCRs.
Check that the CCRs don't stop you doing what you want to do. If you have pets, make sure the rules allow pets (some restrict the number of pets, or their size). If you want to rent short-term or sublet long-term, see if the CCRs allow that. I've come across restrictions on working or running certain types of businesses from your home, too.
Your attorney should check that the CCRs are set up under the correct regime for that country. To enforce CCRs, they must be tied to the property deed. Otherwise, if the current owner sells, the new owner won't have to follow the rules...they can do what they want.
With HOAs, ideally the developer should hand over control to the homeowners once he sells a certain percentage of properties in the development. Ask the developer when he will hand over control, and if he will help fund the HOA until he sells all the available properties.
Find out how the HOA board election works, and how they'll make decisions. It's up to the HOA to decide on monthly fees...how much they are...and what they will cover. They have to collect the monthly dues, and enforce the CCRs. Ask if any owners have more than a couple of months' worth of unpaid dues, and how the HOA proposes collecting them. You don't want a situation where only a few owners pay dues, and nobody takes action against those in default.
The HOA needs a slush fund for big-ticket costs (when the elevator needs replacing, or the roads resurfacing). If you're buying a property, ask if the HOA has such a fund already, and how well it's funded. Also ask what the operating budget is--and if the HOA is posting a profit or loss. In depressed markets (Miami, say), some large condo towers have only a handful of owners, who face covering the HOA costs and major repairs on their own.
Bottom line, CCRs are there for a reason. They're not supposed to make your life difficult. They are there to ensure you live comfortably, and preserve the value of your home. Just make sure you can live with the CCRs--they definitely cut both ways. It's important when you're buying that you consider the CCRs as a property attribute...one that's just as important as the number of bedrooms and baths.
I've seen enough examples of what can go wrong without CCRs to know that your lifestyle and continued property value are better off when you have them. Just make sure you understand them before you buy.
Margaret Summerfield
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