What to know about condo associations: Your guide to rules, fees and insurance

If you’ve considered buying a condominium, you may already be familiar with some of the perks of condo living. Sure, you have to pay monthly or annual fees, but you also get access to a swimming pool that you’re not personally responsible for cleaning and maintaining.

More importantly, you own and are responsible for the interior of your condo unit (typically from the drywall inward and the floorboards upward) while a group of people who make up what’s known as a condo association manages the rest of the property and complex.

But what exactly are condo associations, and how do they work? Let’s explore these community associations – including their rules and fees – in more detail.

What is a condo association?

A condo association is a governing board composed of all the residents who own units within the building, complex, neighborhood or other planned development. The association may have an elected board of directors representing it, and sometimes the condo association board hires a property management company to oversee the daily operation of the planned community.

While daily operations may look different from place to place, a condo association’s general responsibilities include:

• Making sure all rules, policies and bylaws are followed
• Collecting monthly, quarterly and special assessment fees from each condo owner
• Deciding how these fees will be allocated for insurance, emergencies, overall maintenance and other expenses

Condo association vs. HOA

While a condo association and a homeowners association (HOA) are similar in purpose, the main difference between the two governing bodies pertains to what their respective owners actually own. See the breakdown below.

Condominium Association

In a condo association, each condo owner is a member of the association and they’re the sole owner of their individual unit’s interior. Each condo owner also has joint ownership of shared areas. These include lobbies, parking garages and amenities such as swimming pools, fitness facilities, tennis courts and dog parks.

Homeowners Association

Similar to a condo association, each member owns their individual property, which includes their home and the real estate on which the home resides. However, the individual members don’t share joint ownership of common areas. Instead, the homeowners association (HOA) owns these shared areas. The HOA usually exists as an independent entity or is owned by the developer or an HOA management company.

How Does a condominium association work?

With the exception of ownership, a condo association operates similar to an HOA. Both are community associations charged with establishing a set of rules and regulations that govern how residents can live within the community, and both collect fees to fund basic operating expenses.

Let’s take a closer look at what a condo association does and how one operates.

Condo association rules

When you purchase a condo, you enter into a restrictive covenant with the condo association. This means that you agree to abide by the association’s declarations, rules, bylaws and amendments.

A condo association’s primary set of rules can be found in a governing document known as the Declaration of Covenants, Conditions and Restrictions (CC&Rs). The primary goal of the CC&Rs is to establish guidelines for how you can use the building or complex, including the common areas and sometimes your individual condominium.

You may need to be sure not to block any entryways or walkways, including the sidewalk in front of your detached condo or the hallway of your unit’s floor. You also may not be able to grill out except in designated spaces.

Some other common topics the CC&Rs may cover include:

• Noise: Your condo association will probably have specific rules prohibiting you from engaging in activities in your unit or the common areas that would be considered intrusively loud to other residents.
• Pets: Your condo association may not allow pets. If it does, you may be limited in the type of pets you can have, how many you can have and the common areas that pets are allowed in. Most likely, you’ll need to have your pets on a leash when in those common areas, and you’ll probably be required to keep them up to date on their vaccinations.
• Garbage disposal: If your detached condo is in a neighborhood with curbside garbage pickup, you’ll most likely be required to store your trash and recycling in acceptable bins. If you reside in a high-rise or other condo building, you may be forced to dispose of your garbage in the garbage chute or the dumpster assigned to your building.
• Renovations: Obviously, you can’t renovate the common area to suit your personal tastes and design aesthetic. But you may also need the condo association’s permission before you can remodel your kitchen or Your home improvement or renovation project might need to be approved by the association board members.

All this may seem like too much oversight of your personal property. But the condo association is a legal entity, and its board of directors has the power to enforce its rules and regulations – as well as impose fines for violations – as long as those CC&Rs don’t violate federal or state laws.

Ultimately, one of the main purposes of a condo association is to ensure your safety and convenience, as well as that of the other unit owners and residents in your complex or building. Another objective is maintaining property values so the community continues to be a good investment.

Condo association fees and other costs

Similar to an HOA, your condo association will collect regular dues from you and other association members to cover basic operating expenses. These fees are known as common charges. How much you pay in monthly, quarterly or annual charges will depend on the location and size of your condominium complex and the amenities your association offers.

In addition to common charges, your association may occasionally need to collect a one-time fee called a special assessment for unexpected costs.

Let’s look at three costs your condo association fees will go toward:

Operating Fund

The money from common charges is funneled into an operating fund for the general upkeep of the building or complex. Typically, this includes its shared areas and common elements such as sidewalks, elevators and perhaps fitness equipment.

Common charges also cover general repairs to the exterior of your unit’s building or your single-family home or townhome if your condo is detached.

Reserve Fund

In addition to landscaping and clubhouse maintenance, the fees the association collects from you and other condo owners will contribute to a reserve fund. This fund acts as a sort of savings account for unplanned expenses and necessary upgrades.

The condo association uses a percentage of your common charges to maintain the reserve fund and replenish it when necessary.

Special assessment

This one-time fee is usually required when a natural disaster or other emergency creates a need for an urgent repair that exceeds the association’s annual budget. A special assessment can also be collected if a community project runs over budget.

Usually, the association must vote to approve a special assessment. Either way, you’ll be required by the CC&R to pay the special assessment, which can sometimes cost thousands of dollars. Because of these high costs, the COA spreads the burden between residents and has everyone chip in via the special assessment.

Similar to enforcing its CC&Rs, a condo association has the legal authority to place a lien or encumbrance on condo units and even initiate foreclosure proceedings if a condo owner defaults on paying their fees.

Condo association insurance

In addition to covering general upkeep and operating expenses, your condo association fees pay for the condo association insurance policy. The condo association insurance policy covers damages to exterior areas of the building or complex, including the basement, roof, parking structure and elevator, or other amenities such as the clubhouse, community pool or gym.

The condo association insurance policy also provides liability protection by covering legal or medical costs if a resident or guest suffers an injury in a common area of the complex and then sues for compensation.

It’s important, however, not to confuse condo association insurance with individual condo insurance. While the condo association insurance policy covers the areas outside of your home, you’ll still be responsible for the maintenance and repair of your condo’s interior. As such, you’ll want to consider an individual condo insurance policy, which operates similarly to homeowners insurance.

The bottom line

If you purchase a condominium, you’re automatically included in the community’s governing body known as the condo association. This means you’ll have a voice in how the condo association operates, but it also means you’ll pay association fees and be held accountable to the association’s Covenants, Conditions and Restrictions.

Just remember that the main purpose of the condo association is the upkeep of the condo building or complex. This helps ensure safety and convenience for you and other unit owners, but it also helps preserve property values so that joining the community remains a good financial investment.

Are you thinking about buying a condo? Start a mortgage application to see how much of a loan you’ll qualify for.