3.40 Condominiums

3.40.1

In General

A condominium is generally defined as a system of separate ownership of individual units in multi-unit projects.

Typically, condominium ownership consists of the individual ownership in fee simple of a unit or apartment in a residential, commercial, or industrial multipurpose structure coupled with the ownership of an individual interest, as tenant in common with the rest of the owners, in the common facilities and areas of the building(s) and grounds which are used by all residents or occupants of the condominium.

Condominiums in Texas are established and regulated by Chapter 81 and 82 of the TX Property Code. 

See also Texas Bulletin TX2013006 – LEGISLATIVE UPDATES 2013 Part I relating to the ability of a condominium association to borrow money.

See also Texas Bulletin TX2013006 – LEGISLATIVE UPDATES 2013 Part I relating to filing and indexing of management certificates. 

3.40.2

Main Characteristics

The main characteristics in a condominium ownership are:

  • Individual ownership in fee simple of the enclosed space of rooms in a building usually called a unit or apartment.

  • Ownership of an undivided interest in certain designated common elements which serve all the units in the condominium.

  • Right to mortgage each individual unit.

  • Separate taxation of each individual unit.

  • Necessity of an agreement among unit owners regulating the administration, maintenance, and conversion of the property.

3.40.3

Terminology

Section 81.002 TX Condominium Act contains definitions of condominiums.

3.40.4

Creation of Condominiums

Chapter 82, TX Condominium Act, sets out the manner by which condominiums are created.

Basic Procedures

Describe the entire parcel of land.

Describe each of the separate units or apartments therein.

Describe the common elements and the limited common elements thereof.

A system of management and assessment for the maintenance, operation, and conservation of the property.

The adoption of instruments for conveying and encumbering the interests of the respective owners.

Necessary Instruments

The Declaration of Condominium

Plats, Plans, Maps, Floor Plans.

Bylaws or Code of Regulations.

Declaration of Restrictions.

Frequently, these instruments are combined, or made part of, or included in the Declaration.

These instruments and any amendments or modifications must be filed for record in the land records of the county where the property is located.

3.40.5

Deeds To Individual Units - Legal Descriptions

The instrument required for the purpose of acquiring title to a unit or apartment is the unit or apartment deed. This document represents the transfer of title of the unit to the purchaser. Since each deed to an individual unit is to real property, it must be recorded.

In addition, the contents of any deed to an individual unit must comply, as to its contents, with the requirements and provisions imposed by the condominium statute itself.

The legal description of the unit does not have to be a detailed metes and bounds description unless such a description is required by statute. The description may identify the unit or department as it is described in the recorded declaration or any other document which adequately describes the premises, such as the plat or map.

3.40.6

Percentages Of Common Elements Appurtenant To The Units

Title to an individual unit in a condominium regime includes, in addition to the right to exclusive ownership and use of the particular unit, an undivided interest in the common areas and facilities in a percentage computed, under most condominium statutes, by taking into consideration the value of the unit in relation to the value of the whole property.

The main characteristics of the percentages in the common areas are:

  • To be appurtenant to each respective unit.

  • To have a permanent character which cannot be altered except by the express consent of all the unit owners in a recorded amendment to the declaration or master deed consistent with state law. Mortgagees, lienholders, and in some cases developers, must also join in consistent with state law the execution.

Not to be subject to separation from the units to which they are appurtenant.

3.40.7

Common-Law Condominiums

Common-law condominiums are the result of projects defectively created from a statutory point of view or projects created prior to the enactment of statutory authority in a given jurisdiction.

No Title Insurance Coverage Should Be Offered In Connection With A Common-Law Condominium.

3.40.8

Leasehold Condominiums

3.40.8.1
In General

A condominium can also be created on land in which the developer has only a long-term ground lease.

The basic difference between a fee simple and leasehold condominium is that a purchaser of a unit in the former acquires an undivided fee simple interest in land, whereas the purchaser of a unit in the latter case acquires an undivided interest in a leasehold on a fee which has been submitted to a horizontal property regime.

In a fee simple condominium, the property is submitted to a horizontal property regime by the owner, and deeds are issued to unit purchasers. Similarly, in a leasehold condominium, the basic approach (and that favored by most condominium mortgagees) is to have the owner-lessor submit the fee to the condominium property regime. However, since ownership of the land is being retained, the purchasers do not receive unit deeds, but rather are issued unit leases.

In a typical leasehold condominium, the expiration or termination of the lease will terminate the existence of the condominium.

This form of ownership is somewhat complex and intricate, and it is not uncommon for developers to follow different approaches or variations in the creation of leasehold condominiums.

3.40.8.2
Uniform Condominium Act Provisions For Lease - Condominiums

The Texas Condominium Act Sec 82.056 generally follows Section 2-107 (Leasehold Condominium) of the Uniform Condominium Act and provides that:

  • Any lease the expiration or termination of which may terminate the condominium or reduce its size (or a memorandum thereof) shall be recorded, and the declaration shall state:

    the (recording data) for the lease (or a statement of where the complete lease may be inspected);

    the date on which the lease is scheduled to expire;

    a legally sufficient description of the real estate subject to the lease;

    any right of the unit owners to redeem the reversion and the manner whereby those rights may be exercised, or a statement that they do not have those rights;

    any right of the unit owners to remove any improvements within a reasonable time after the expiration or termination of the lease, or a statement that they do not have those rights; and

    any rights of the unit owners to renew the lease and the conditions of any renewal, or a statement that they do not have those rights.

  • After the declaration for a leasehold condominium is recorded, neither the lessor nor their successor in interest may terminate the leasehold interest of a unit owner who makes timely payment of their share of the rent and who otherwise complies with all covenants which, if violated would entitle the lessor to terminate the lease. No unit owner's lease-hold interest is affected by failure of any other person to pay rent or fulfill any other covenant.

  • Acquisition of the leasehold interest of any unit owner by the owner of the reversion or remainder does not merge the leasehold and fee simple interests unless the leasehold interest of all unit owners subject to that reversion or remainder are acquired.

  • If the expiration or termination of a lease decreases the number of units in a condominium, the common element interests, votes in the association, and common expense liability shall be reallocated in accordance with section 1-107 (a) as though those units had been taken by eminent domain. Reallocations shall be confirmed by an amendment to the declaration prepared, executed and recorded by the association.

3.40.8.3
Special Title Insurance Considerations

Any policy to be issued must be a leasehold policy.

All the terms and conditions of the leases and subleases (if any) must be shown as exceptions in Schedule B of the policy.

The customary exceptions pertaining to the condominium must be shown in Schedule B of the policy.

An exception relative to all the terms and conditions of the condominium (leasehold) deed from the developer to the purchaser must be shown in Schedule B of the policy.

Since the Company does not know how tax assessors will assess the lessor's interest after the recording of the condominium declaration and the assessing of the individual units, it is necessary to make certain that there are no unpaid taxes assessed against the underlying fee or against the individual units as of the time of the title policy.

3.40.9

Expandable Condominiums

3.40.9.1
In General

Expandable condominiums are also referred to as add-ons, progressive, flexible, or phasing condominiums.

These condominiums are constructible in phases or stages: a floor at a time, a building at a time, or even a subdivision at a time, but all within the physical area encompassed by the original project; however, these subsequent phases or stages are not reflected in the original recorded condominium plan.

Texas law does not prohibit expandable condominiums.

Specific approval must be obtained from Texas Underwriting Counsel in regard to the possible insurance of any expandable condominiums.

3.40.10

Texas Time-share Act Sec. 221.001 et seq.

3.40.10.1
In General

Time-sharing is a generic term used to describe interval ownership of an interest in real property and undoubtedly, condominium property may be made subject to time-shared ownership. When examining the title to a time-sharing condominium, it is necessary to:

  • Follow the underwriting instructions relative to condominiums.

  • Follow the underwriting instructions relative to timesharing ownership.

  • Determine whether the condominium documents establish any form of prohibition, express or implied, in reference to time-sharing ownership in condominium units.

  • Determine whether the tax assessor has made separate tax assessments for each time-share estate.

Refusal to insure or the need to raise special exceptions may result from the above determinations.

3.40.11

Condominium Conversions

3.40.11.1
In General

Though many existing buildings were not originally designed with condominium ownership in mind, some owners will convert an existing building or group of buildings from rental status to condominium ownership.

To avoid substantial risks not present in other condominiums you must determine legality of the conversion by reviewing Sec. 82.154 and 82.160 TX Condominium Act and the local ordinances regulating conversions.

Specific exceptions should be raised for the:

  • Failure to comply with either statutory requirements or local ordinances in regard to conversions.

  • Rights of former tenants who are not purchasers but remain in possession.

Any pending litigation, brought by tenants or a tenant's organization, attacking the validity of the conversion must be carefully examined and shown as a title exception in Schedule B of the policy.

You should not insure over the outcome of such a suit without prior approval of Texas Underwriting Counsel.

3.40.12

Parking Easements In Condominiums

3.40.12.1
In General

Insuring a parking space or garage, as an appurtenant easement to a condominium unit, requires full compliance with the following:

  • You must issue a policy on the condominium unit to which the easement is appurtenant.

  • You must determine that the parking space or garage as been legally established as an appurtenant easement for the benefit of the condominium unit.

  • You must fulfill any other requisite or guideline in regard to the insurance of an easement.

The parking easement may be considered as appurtenant if:

  • The declaration or master deed provides for the grant of an exclusive easement for parking appurtenant to designated units over spaces delineated on a record survey or map and the deed to the unit also grants the parking space.

  • The declaration or master deed declares parking spaces delineated on a recorded survey or map as limited common elements and the survey, map, declaration, or master deed designates the unit to which such parking space use is limited. It also provides for the deed conveying the unit to designate such parking spaces. The statutes define limited common elements as a portion of the common elements reserved for the exclusion of other units.

3.40.13

Contract Purchases In Condominiums Under Construction

3.40.13.1
In General

A contract purchaser, under a contract to purchase a condominium unit in a building under construction, may have an equitable lien on the land equal to the purchaser's earnest money deposit. In some jurisdictions, the lien may have priority over the lien of any construction loan. However, this may not be the case in some other area.

When insuring a condominium under construction, a proper exception must be raised in relation to the rights of purchasers, if any, of the condominium units. This exception should read as follows:

Rights of purchasers under unrecorded contracts to purchase part of the land insured as condominium units and all parties claiming by, through, or under them.

3.40.14

Right Of First Refusal In Condominium Property

3.40.14.1
In General

Some condominium declarations provide for a right of first refusal in the condominium board of managers or association. As a result, and unless this right is not provided for by the condominium declaration, evidence must be furnished to the Company relating to the fact that the board or association has not exercised and does not intend to exercise its right of first refusal.

In this respect, any title commitment must contain the following exception:

Upon a conveyance or devise of the land, a certificate executed and acknowledged by the Secretary of the Board of Managers, stating that compliance has been made by the owner with the provisions of Article _______________________ of the Declaration recorded _________________________ as Document ______________ or that said provisions have been duly waived by the Board and the rights of the Board under Article ________________ have been terminated, must be furnished to the Company.

3.40.15

Mechanic's Liens Relative To Condominium Property

3.40.15.1
Construction Of The Condominium Is Completed

After the declaration of condominium has been recorded and while the property remains subject to the declaration of condominium, mechanics' liens may only arise or be created against:

·         The condominium property, as a whole, only through the unanimous consent of the unit owners or by the homeowner's association if permitted by the declaration of condominium.

·         A unit or parcel of condominium, only through the express consent of the unit of parcel owner.

Call a Texas Underwriter if your search reveals a mechanic's lien affidavit against either the project or a specific property.

3.40.16

Assessment Liens

 

3.40.16.1
In General

Sec. 82.112 and 82.113 of the TX Condominium Act provides that reasonable assessments may be imposed in the declaration of restrictions or bylaws, obligating the condominium owners to contribute a proportionate share of the expenses of management and maintenance of the common area. Such assessments may properly become liens on the estate or interest of the condominium owner upon the recordation of a notice of the lien.

In this connection, any title commitment must contain the following requirements:

Furnish a statement executed and acknowledged by the Secretary of the Board of Managers of ____________, stating that there are no unpaid assessment liens arising by reason of the affecting the unit nonpayment of any maintenance affecting the unit or parcel.

See also Texas Bulletin TX2013006 – LEGISLATIVE UPDATES 2013 Part I relating to filing and indexing of management certificates. 

3.40.17

Condominium Endorsement

Form T-28 is available for use. The use of this endorsement is governed by Procedural Rule P-9(b)15. It can only be attached to a Loan Policy, Pursuant to Rate Rule R-11(L), there is no charge for this endorsement. The endorsement may not be issued without compliance with this Section 3.40 et seq.