In our previous article, we discussed the distinction between common interest communities, condominiums, and planned communities. As we explained, under Vermont condo law, condominiums and planned communities are types of common interest communities, and the Vermont Common Interest Ownership Act (“VCIOA”) applies to common interest communities created in Vermont after January 1, 1999. In this article, we will provide an overview of the crucial document that creates a new common interest community under VCIOA: the declaration.
What is a Declaration?
A Vermont common interest community may only be created by recording a document called a “declaration” in each town in which any portion of the common interest community is located. The person or entity that records the declaration is referred to as the “declarant.” VCIOA establishes many requirements that the declarant must follow, including the required contents of the declaration and the plats and plans that must be included with the declaration.
Some of VCIOA’s declaration requirements are intuitive. For example, the declaration must include the names of the common interest community and the association and a statement that the common interest community is either a condominium or planned community. It must also name the municipalities in which it is located, identify any easements, and describe any restrictions on alienation of the units (such as restrictions on leasing or the amount for which a unit may be sold). The declaration may contain any other matters that the declarant deems appropriate—for example, any restrictions on the uses of a unit or the number or other qualifications of persons who may occupy the units.
In this article, we are focusing on the somewhat less intuitive, but arguably most important, declaration requirements: the definitions of unit, common elements, limited common elements, and allocated interest.
A primary vehicle to define the unit, common elements, and limited elements are the plats and plans. Under VCIOA, the plats and plans are part of the declaration and will usually show the unit boundaries, the real estate involved and any portions that are subject to the declarant’s development rights, and the location and dimensions of common elements and limited common elements.
What is the distinction between Units, Common Elements, and Limited Common Elements?
In a common interest community, the unit owner owns the “unit” and is responsible for its maintenance, repair, and replacement. The association is responsible for the common elements. Therefore, precise definition of the unit is critical.
VCIOA defines a “unit” as a physical portion of the common interest community designated for separate ownership or occupancy, the boundaries of which are described in the declaration. In a planned community, the unit boundary is often established by each owner’s property line, commonly a “lot boundary”. The “unit” in a condominium is typically bounded by its walls, ceilings, and floors—while too simplistic in most instances, it is commonly suggested that a condominium unit owner owns “a box of air from the wallpaper in.” Everything else is a common element or limited common element.
The “common elements” are all the portions of the common interest community other than the units. “Limited common elements” are a subset of the common elements. Typically, the common elements would include all of the land upon which the project is located and project infrastructure including water supply, sewer systems, and roads. In a condominium, the common elements also include all portions of the buildings which contain the units except those areas defined as the units. For example, the roof, exterior walls, foundations, and common entries would be common elements. In a planned community, the common elements are generally the portions of the community that are outside of each unit’s property line and are owned by the association, not the unit owners. Roads, recreational facilities, and conserved land are typical examples of common elements in a planned community.
The “limited common elements” are those portions of the common elements allocated by the declaration for the exclusive use of one or more but fewer than all of the units. For instance, any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, or other fixtures designed to serve a single unit but located outside the unit’s boundaries are limited common elements allocated exclusively to that unit.
As noted above, the cost and responsibility for maintenance of the common elements belongs to the association. Given that the limited common elements are common elements, the association would normally be responsible for the maintenance of the limited common elements associated with a unit; but not always. The declaration must be carefully reviewed to determine whether the association or the unit owner is responsible for maintenance of the limited common element associated with the unit.
What are allocated interests in condominium or common community?
Another important item that must be included in the declaration is the “allocated interest” assigned to each unit, which is typically expressed as a percent of the total interests. In a condominium, a unit’s allocated interests are the unit’s undivided interests in the common elements. The allocated interest also determines the unit owner’s share of the common expense liability and the unit owner’s voting power in the association. In a planned community, the association owns the common elements. Therefore, a unit’s allocated interests are its common expense liability and association voting power, not any ownership share of the common elements.
Historically under the Condominium Ownership Act, which we discussed in the previous article, allocated interests were determined by the “value” of the unit divided by the total “value” of all units. VCIOA gives greater flexibility to the declarant in determining allocated interests. For example, the developer might use the unit’s size instead of value or make the allocated interests for all units equal. VCIOA also allows the use of a different formula for determining the unit’s share of common expense from that for determining the unit owner’s voting power. For example, since the enactment of the VCIOA the declaration can have the same voting power for all units but determine common expense liability on the basis of a unit’s size.
The allocated interests’ immediate practical significance is financial because it represents that unit’s allocated share of the common expenses required to manage and maintain the common elements and administratively operate the condominium or homeowners’ association. It can be significant and must be included with the mortgage debt service, property taxes, utilities, and other costs to determine total cost of unit ownership,
In conclusion, careful drafting of the declaration is required to ensure that it satisfies VCIOA’s requirements. Once recorded, however, it is possible to amend the declaration. In future articles, we will discuss the declaration amendment process, as well as how to create the association that operates the condominium or planned community and to address issues that associations frequently encounter.