In many states, there are laws that are designed to regulate the sale of subdivided lands by developers to purchasers.  In the same way that securities laws were meant to protect investors from losing money in investment schemes, subdivision regulations are meant to protect purchasers from losing money through the purchase of a property in a common interest development that has been improperly managed, fiscally or otherwise.

Laws designed to protect the purchasers of subdivided properties are somewhat awkward to apply when the purchaser is part of a group of people that also developed and is selling the land.  The legal hoops that such groups have to jump through may feel incredibly high, considering that the hoops were designed for a relationship where the developer may not even know the purchaser.

In California, where there are five or more units in a condominium project, cooperative, planned unit development, community apartment project, or tenancy in common, the project must undergo a long and expensive approval process with the state Department of Real Estate (DRE) before the units in the project can be sold or, in the case of cooperatives and community apartment projects, leased.  In approving a project, the DRE examines the planned division of the property, ensures clear title to the land, examines proposed governing documents, and must feel satisfied that all necessary services (utilities, roads, etc.) are provided for each unit.  The DRE also looks at budgets and considers whether the financing structure for the project will put buyers at too much risk, in the event that another buyer can’t make mortgage payments.  The DRE ultimately produces something called a Public Report on a project, which serves as a set of disclosures that will be provided to anyone who buys a unit. ¹

Laws Governing Community Associations

Many states ² have laws that govern the operation of associations, such as homeowners associations and condo owners association, formed for the management of property rights and undivided interests in land.  In a community where the ownership or lease of a unit is coupled with an undivided interest in property, such as in a condo community or cooperative, and/or where the Conditions, Covenants, and Restrictions (CC&Rs) provide for a common management scheme for property rights in a neighborhood, it may be necessary to adhere to certain regulations pertaining to the structure and operation of the community association.  Such statutes tend to set minimum standards for meeting procedures, notice requirements, quorum, number of votes required to pass certain proposals, election procedures, requirements for the adoption of increased assessments or special assessments, remedies for nonpayment, use of liens as a mechanism for enforcement, and so on.  Such statutes may also impose limits on the rights of associations to dictate how a property may or may not be used.  For example, California ³ and Florida ⁴ have both passed laws prohibiting a community association from making grass lawns mandatory, and allowing residents to install drought tolerant landscapes.  Colorado state law prohibits homeowners associations from banning clothes lines and solar panels. ⁵

The Uniform Condominium Act (UCA) ⁶ and the Uniform Planned Community Act (UPCA) ⁷  are examples of regulations on community associations, and these acts have been adopted in some states.  In California, the applicable law is called the Davis-Stirling Act.  These laws set mandatory procedures or mandatory minimums, which can override rules placed in an association’s governing documents.  Other times, these laws set default rules that will apply when an association’s governing documents are silent.