Tennessee Condominium Law Update
June 1, 2008
An overview of the several significant differences between the current Horizontal Property Act and the proposed Condominium Act.
At our firm's March 2008 Real Estate Law Seminar, the Horizontal Property Act, which currently governs condominium developments in Tennessee, was discussed, and the changes to Tennessee law by the proposed Tennessee Condominium Act (the "Condominium Act") were addressed. We anticipated that the Condominium Act, which will replace the Horizontal Property Act, would become effective on either July 1, 2008, or January 1, 2009. On April 21, 2008, Governor Bredesen signed the Condominium Act and it will become law on January 1, 2009.
There are several significant differences between the current Horizontal Property Act and the proposed Condominium Act, including:
- The Horizontal Property Act does not require the recordation of any plats or plans; however, the Condominium Act, will require that the condominium documents contain a plat or plan showing the condominium building and land. This plat or plan must contain without limitation the following items: (i) a survey or general schematic of the entire condominium; (ii) the location and dimensions of all real estate not subject to development rights or subject to withdrawal; (iii) encroachments; (iv) easements; (v) vertical and horizontal unit boundaries; (vi) common elements; and (vii) limited common elements. Additionally, the plat or plan must show the intended location and dimension of any contemplated improvements and must be certified by an independent, registered surveyor, architect, or engineer or combination thereof.
- Under the Horizontal Property Act, a developer does not have to "turn over" control of the owners' association (e.g. the ability to appoint the directors to the board for the owner's association) until such time as 100% of the condominium units have been sold. Pursuant to the Condominium Act, the developer's right to control the owners' association must terminate no later than 120 days after conveyance of 75% of the condominium units.
- No requirement exists under the Horizontal Property Act with respect to the disclosures that a developer must make to potential buyers. The Condominium Act, however, will require a developer to disclose certain items in writing to unit purchasers. These items include without limitation the following: (i) a copy of the recorded, or if not recorded then in substantially final form, master deed/declaration, bylaws and charter, along with all amendments; (ii) a copy of the condominium's rules and regulations; (iii) the most recent balance sheet, income statement, and approved budget for the association; (iv) minutes from the meetings of the owners' association for the previous 24 months; (v) the amount of the current monthly assessments and other assessments applicable to the subject unit; (vi) a statement of fees due as a result of the transfer of the subject unit; (vii) a statement of the insurance coverage maintained by the owners' association; and (viii) a statement as to whether the board of the owners' association is still controlled by the developer.
- Unlike the Horizontal Property Act, the Condominium Act will require the developer to place any deposit made in connection with the purchase or reservation of a unit in an escrow account designated solely for such purpose. The escrow account must be managed by a licensed title insurance company or agent thereof, an attorney, a licensed real estate broker, or an independent bonded escrow company, and such funds must be deposited in an institution in which accounts are insured by a government agency or instrumentality and located in Tennessee.
The differences between the current Horizontal Property Act and the proposed Condominium Act set forth above are merely a summary, so please do not hesitate to contact us to discuss specific differences and how the proposed change in the law will affect a specific condominium project.