Condominium ownership has become increasingly popular in Bermuda over the last 15 years in part because it requires a lower initial cash outlay and presents fewer responsibilities than for a traditional householder.
Generally, a condominium owner is only responsible for the interior. External repairs, re-decoration, grounds maintenance and insurance are shifted away from each owner, to condominium management.
However, some homework is required before purchasing a condominium.
Investigate how much privacy and freedom there is with the chosen condominium, as it is probably less than is associated with a traditional house.
Rules and regulations written into condominium terms and conditions can seem restrictive. However, they can encourage good standards, for the benefit of all condominium owners.
For example, noise can be reduced by requiring condominium owners to fit carpets and comply with auditory restrictions during defined night hours. Often, businesses and trades are prohibited from operating from a condominium.
On-going contributions towards maintenance expenses can seem burdensome, especially as development buildings age and require more upkeep. However, the owner of a traditional house is solely responsible for the costs of upkeep, whereas condominium owners share responsibility for costs and can together accumulate a specific reserve over time. Such an accumulated reserve is known as a "sinking fund", which spreads out payment for expenses over time and between all owners in a development.
If a development is extravagantly maintained, ongoing fees may be too high; but if poorly maintained, the development may be a less desirable place to live. An acceptable balance is required.
Watch for expensive upcoming costs, for example with the elevator, roof and other structural repairs as owners must contribute toward those costs unless an adequate sinking fund has accumulated. In this regard, a professional buildings survey may assist you to determine what any upcoming costs may be.
Investigate the condominium company's accounts for the last three years for a sinking fund, for any non-contributions and for financial health generally. Missing contributions may indicate vacant units, or discord amongst existing owners and such could affect the desirability of the development. Non-contributions may have to be made good by those that do contribute; this is unfair, but may be the only practical solution for essential works.
If owners have a shareholding (and so a say) in the management company, expenses may be kept to an acceptable level.
Make sure that you understand how and when maintenance charges can be increased, and determine the percentage contribution to ensure that the charges for the chosen condominium are fair.
Check that the buildings insurance is at a reasonable premium, for an adequate sum, and covers the unit -- and be aware of any unreasonable exclusions. In case of a catastrophe, management should be obliged to reinstate the development (and so each condominium), within a reasonable period of time, using insurance proceeds.
Talk to current owners and occupiers to discover the positives and negatives of the development, and ask how effective management is. Units in a neglected development may not appreciate and could even lose value.
Check how active owners are in management. You may, or may not, want to become involved in management. In most cases, control will have been transferred to owners. For leasehold condominiums, make sure that each property owner becomes a shareholder in the landlord company. For small developments, it is likely that all owners are obliged to become involved in management.
Many condominiums are leasehold. A leasehold property is a depreciating asset, however many leaseholds are for around 999 years. Beware of leases with fewer than 70 years left, as they are unlikely to prove a good investment. Finance is unlikely to be available for a short term lease, and the property itself represents less value to pass on to children.
The more knowledge a purchaser has about a development, the more confident he or she may be about the potential success of ownership.
As with all complex matters of law, do not sign any legally binding purchase agreement without first obtaining legal advice from someone expert in the area.
Previously published in The Royal Gazette, October 2012
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
