Issues to consider before purchasing a condo

FRIDAY, NOVEMBER 4: With the current financial climate, Bermuda has a large pool of condominiums for sale at present. We all know the law of supply and demand and now may be the perfect opportunity for the homeowner who wishes to downsize from a large house to a more modest living arrangement, or the individual seeking to climb onto the first rung of the property ladder.

When purchasing a condo, you are not only buying a unit, but more often than not, you are gaining an interest in the company that owns and manages the common areas (which are the areas surrounding the units). Having an interest in a property with others comes with risks. However, you can mitigate these risks by conducting thorough due diligence before you purchase. The following are a few questions one should ask when considering purchasing a condo.

How well are the exterior and common areas maintained?

This is a time to be superficial - Evaluate the condition of the buildings, grounds, facilities and roads. Are the grounds neatly manicured? Are the roofs and walls professionally painted and are the windows and doors in good repair? If they lack in appearance, this is an indication of how the condominium complex is maintained and managed.

How much are the maintenance fees? What will this cover?

Condo owners must pay a predetermined maintenance fee to the party managing the development. This should cover the landscaping of the grounds, building insurance, lighting, maintenance of the exterior, building repairs and ensure the operation of all the common areas.

A portion of the maintenance fees should always be designated toward reserves. Question whether reserves are sufficient to cover items such as roof repair, painting, asphalting and any other large capital improvements. Your lawyer or the sales agent should be able to request financial accounts from the board of the development.

If reserves are insufficient to pay for large expenses or improvements, or if reserves have already been designated for another planned expense, a condominium can assess an additional fee on the condo owners. The seller should be able to tell you if any special assessments are planned, but do not rely solely on this information. Make inquiries of the board of the condominium association, as to whether there are any assessments coming up. If that is the case, an owner may want to offload his unit to you before the assessment is due.

A newly built development may not have a reserve fund established to handle unexpected repairs; especially if all of the condo units have not yet been sold. In such cases, your lawyer should insist on a six to twelve month warranty, upon completion of the purchase to cover any faulty workmanship or materials.

What are condominium development’s amenities?

Condominiums offer amenities on a grander scale which would be quite costly for an individual to build or maintain on his or her property. Does the development provide access to a private beach, swimming pool, gym, tennis courts or a dock? These amenities can enhance your existence and increase the value of the unit, should you be looking to rent or sell on. Be careful as amenities such as pools and tennis courts can increase your maintenance fees!

What are the rules associated with your unit?

Request copies the rules and regulations that accompany each development and read them carefully. Some developments restrict renting, pets and children. Some can even restrict the size of the vehicle you may own. Similarly, you may want to inquire as to how well the rules and regulations are adhered to by owners and enforced by management. You do not want to buy a condo unit that is “loosely” managed as this will affect its value.

Lastly, prior to making an offer to purchase a condominium, have an attorney review the agreement. If you are not able to meet with an attorney before you make an offer, include the wording “subject to my lawyer’s approval”.

Cynthia Millet is an associate at Conyers Dill and Pearman. She may be contacted at  298 7898 or via e-mail at [email protected]. This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.