Issues of concern for buyers and sellers of Condominiums

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Transcript Issues of concern for buyers and sellers of Condominiums

Condominium Properties
in Sri Lanka
Issues of concern for
buyers and sellers
of Condominiums
Ajithaa Edirimane LLB (Col) MLB (Hamburg)
Attorney-at-Law & Notary Public

Condominium properties or multi storey
buildings are an important feature of real
property development.

Especially in urban areas where land is
limited but there is a rising population, multi
storey buildings subdivided as
condominiums have been the solution for
urban housing.

In an emerging economy, condominium
living can be an attractive housing option if
issues of concern faced by buyers and
sellers can be minimized.
Issues of concern for Buyers
and Sellers
1.
Title to the condominium unit &
condominium property registration
2.
Potential risks & insurance cover
3.
Administration, maintenance and
management of the condominium
property
Introduction – concept of
‘condominium properties’

In Sri Lanka, Roman Dutch Law applies to land.

A principle of Roman Dutch Law - ‘Anything attached to the land
goes with the land’ – supeficies solo cedit
- the owner of the land owns anything built on it.
- Vertical ownership : from the bowels of the earth to the heaven
above

Statute created a new concept of ownership of
immovable property –
Ownership of horizontal layers of land
Important requirement is registration
under the provisions of the Act
Legislation

Condominium Property Act No. 12 of 1970 – repealed

The Apartment Ownership Law No. 11 of 1973
(Principle enactment) This Act was subsequently
amended by the following legislation:

Apartment Ownership (Amendment) Act No. 45 of
1982

Apartment Ownership (Special Provisions) Act No. 4
of 1999 & Apartment Ownership (Special Provisions)
Act No. 27 of 2002

Apartment Ownership (Amendment) Act No. 39 of
2003
Dual ownership




CONDOMINIUM - INDIVIDUAL OWNERSHIP
Designed for independent use
In a building of more than one storey
Divided into one or more rooms





Sometimes with Accessory Units
Direct exit to a road or to a common area leading to a
road
COMMON ELEMENTS - JOINT OWNERSHIP
All areas which do not form part of any condominium unit
in a Condominium Property
Which are described as Common Elements and shown in a
Plan of subdivision
Management Corporation
Sec. 20B of Act No. 45 of 1982

Upon the registration of the Deed of Declaration
and the plan of the subdivided property at the
respective Land Registry, a body corporate
referred to as a Management Corporation
comes into existence

having its own common seal and the power to
sue and be sued under its name.

All owners of condominium parcels become a
body corporate with perpetual succession under
the provisions of the Apartment Ownership Law.
Three-fold Unity
Individual ownership of condominium
Joint or common
ownership of common
elements
Membership of
Management
Corporation
Owner’s Bundle of Rights
% joint ownership of Common elements
based on share values
Determined by Developer
- Sec.13(3) of Act No.39 of 2003
Servitudes
(Dominant &
Servient holders)
Sec.13 of the
Principle enactment
No. 11 of 1973
CONDOMINIUM
UNIT
Accessory
units
Determined by
Developer
& Municipal
Regulations
- Sec 7 of Act No. 45 of 1982
Constitution & By-laws

Statutory Constitution – 1st Schedule of the
Apartment Ownership Act No. 45 of 1982

Statutory By-laws – 2nd Schedule of the Act

Additional provisions – adopted by a Special
Resolution of the MC
- To safeguard the rights of each individual
owner in the community referred to as a
“Condominium Property”
- To maintain, manage and administer the
Condominium Property
Issues of concern for Buyers
and Sellers
1.
Title to the Condominium unit &
condominium property registration
2.
Potential risks & insurance cover
3.
Administration, maintenance and
management of the condominium
property
1. Title to the Condominium unit &
condominium property registration

A condominium property comes into existence
with the registration of the Deed of Declaration
signed by the owner of the land annexing a
Plan of Subdivision of the building (i.e.
Condominium Plan), attested by a Notary.

Thus only upon registration, will the vertical
ownership of land gets transformed into a
property with owners in horizontal layers of a
building.
Issues of concern for buyers - Title
1.
Entering into Sales Agreements and paying a significant
part of the purchase price when the building has not
been registered as a Provisional Condominium property
for pre-selling of units or as a Semi Condominium or fully
completed Condominium Property.
2.
Making the entire the entire payment only on the basis of
a Sales Agreement, which is not a title deed. Subject
matter of the sale, (i.e. Condominium) not in
existence.
3.
Examples: Many condominium properties in
Wellawatte have not been registered. Several hundred
unit owners are in occupation without title deeds.
Developers have collected funds and cannot be
contacted.
These units cannot be sold or mortgaged as the
occupier is NOT the owner.
4.
Precautions 
Check whether the project is registered as a
Provisional Condominium Property under Act
No. 39 of 2003
(Registration ConP/….)

Deposit the purchase consideration with an
Escrow Agent, a neutral third party till a
significant portion of the building is completed.
Success depends on the negotiating ability of
the buyer and the market demand for
condominiums, as there is no legal requirement
to deposit funds in an escrow a/c under our law.
Issues of concern for Sellers / Developers –
Registration of the condominium property

Difficulty in registering Provisional Condominium
Properties or even completed or Semi Condominium
Properties.
 Due to inability to obtain CMA Certificate
• Construction issue or Common Elements / facilities not
adequately provided

Difficulty in completing the project or completing it in
phases.
 Lack of funds or difficulty in raising funds from
potential buyers when provisional condominium plan
cannot be registered or when the real property market is
down.

Difficulty in raising funds when there is a defect in the
title of the land upon which the building is constructed.

Title Registration :
the need to register all condominium units
under the Registration of Title Act No. 21 of
1998, (RTA) if the building is constructed in
a Province or Administrative District where
Registration of Title Act applies. (Sec. 44 of Act No. 39
of 2003)
In 2007 by Gazette No. 1508/20 dated 1
August 2007, application of the RTA was extended to
all provinces except the North and the East. Therefore,
there is now a mandatory requirement to register all
condominium properties under the RTA. But Title
Registries are yet to be established in most of the
areas coming under the Gazette Notice. (e.g.
Colombo)
2. Potential risks and Insurance cover
- concerns both buyers and sellers

Potential Risks –

Fire (i.e. defective wiring of the building, fire
inside a unit due to unit owner’s negligence)

Poor workmanship (i.e. leaking taps, water
seeping through defective constructions, water
leakages in bathrooms)

Damages caused by adjoining unit owner (i.e.
damages from construction work carried out in
the apartment, water seepage, etc.)

Injuries to unit owners / visitors while using the
Common Elements (i.e. slippery floors, injuries
or even death while using common facilities)
Precautions
For Buyer –

Doing a proper survey of the building, checking on its history from
people residing in the building, seeking advice from an engineer
regarding the structure, electrical and other features of the building
before moving in.

In a re-sale of a condominium, requesting the Certificate that a
Management Corporation is obligated to provide indicating whether
there are any accumulated arrears of dues from the said unit.
(Sec.20(H)(4) of Act No. 39 of 2003)

Checking on the reputation of the Contractor and Developer. In Sri
Lanka there is no statutory requirement for the Developer to have a
license unlike in Singapore.

Checking whether there is adequate insurance to cover all risks for
the building including fire.

Getting an insurance cover for the movable assets within the unit
owner’s apartment.
For Seller (Developer) –

Getting adequate Insurance Cover :
 Fire Insurance for the building
 Public Liability Insurance for the Common Elements and
common facilities

Getting the insurance cover for the building before taking
over the
project from the Contractor.

Using warning signs in parking areas, in places where
possible injuries can occur.

Having a contingency plan for emergencies, training staff,
conducting fire drills, etc. educating unit owners.

Taking prompt action when an emergency occurs or when an
injury or an accident is reported within the building including
following the proper method in making a claim.
3. Administration, maintenance and
Management of the Condominium
Property
Mainly concerns buyers
 The key to happy and contented living
within a condominium property is the
administration, maintenance and
management according to its by-laws and
based on sound and ethical principles.

There are many cases where condominium
living has become a nightmare for
inhabitants due to the absence of proper
maintenance, inefficient management or
non-implementation of by-laws.
Some examples:

In one particular condominium property (name
withheld), there are complaints from unit
owners of serious defects in construction, some
even having seen floor tiles come off and
cracks appearing on its wall.
• The Council does not have the funds to attend to
its repairs and blames the Developer for the
defects. Since title deeds have been issued to all
its unit owners, the Developer is not unduly
concerned.

In some condominium properties, there are no
proper by-laws or house rules for management
and administration apart from the few statutory
by-laws listed in Act No. 45 of 1982 and Act No.
39 of 2003.
• Therefore, the Council seems to be powerless
even to stop parking of vehicles blocking
entrances and fire hydrants.

In another condominium property (name withheld) part of
the Common area including the main entrance have been
leased out to a third party by the Developer without the
consent or knowledge of the unit owners. The Common
areas are jointly owned by all unit owners and therefore
their consent is absolutely necessary to lease or alienate
their joint ownership rights.
• Though the Council understands the law and wants it
to be rectified, the Developer controls or influences the
Council preventing the rectification of this situation.

Another condominium property (name withheld) which
was originally registered as a ‘residential condominium
property’ has a Developer who has retained a large
number of units which he uses to let or lease to third
parties, effectively making it a hotel with a constant turn
over of occupants. This causes disturbances to other unit
owners, excessive use of common facilities depriving the
rights of legitimate unit owners.
• Once again here, the Council is powerless as the
Developer controls the Council.
Example –

The most common deception used by some Developers is
to get the prospective buyers to sign a Sales Agreement
giving them virtual control as Managing Agent of the
condominium property, without any right of termination for
the unit owners.

This enables the Developer to earn an
income even after all the units are sold. The
arrangement is consolidated by adding a clause
in the Sales Agreement requiring the unit owner to
vote in favor of their appointment at a meeting
of the Management Corporation.

Such provisions in Sales Agreements between
prospective unit owner and Developer is not binding on
the MC since it is not a party to the arrangement.
Precautions - How can a prospective buyer
have its rights safeguarded?

The first important requirement is for prospective buyers to be well
informed of their rights and obligations before entering into sales
agreements with Condominium property Developers. (Condominium
Management Authority need to do more in this area).

Buyers should not rely on external appearances or be taken in by
colorful brochures issued by Developers, but should do their own
investigations with proper legal advice aided by inspections of the
soundness and quality of work of the building from engineers.

Read the By-laws and Constitution that applies to the condominium
property. Check the history of the condominium property, if the unit
is a re-sale condominium. (i.e. is there a sinking fund for major
repairs? how is the building managed? Is there a Managing Agent?)

After becoming a unit owner, work with the other unit owners
to strengthen the Association by proposing amendments to the Bylaws if the current By-laws are inadequate to safeguard the rights of
unit owners.
Conclusion

Condominiums are a necessary feature of urban housing.

These fulfill the need for housing for thousands of urban
dwellers where land is limited or prices exorbitant. There are
also investors who seek out up market condominiums for
investment and future re-sales for profit.

Both buyers and sellers are faced with many issues of
concern when dealing with condominium properties.
Condominiums will be an attractive housing option and be of
high value if such issues of concern are minimized.

The need of the hour is to educate both sellers and buyers on
their respective rights and obligations. This will result in unit
owners taking an active interest in the management of the
condominium property.

It is also necessary to have quick resolution of disputes,
especially in the collection of service charges, and other
matters relating to maintenance of the building.
Thank you for your attention!