Before purchasing a condo in New Orleans, it will serve you well to have a handle on how to conduct proper condo due diligence. Condo due diligence differs from single-family home due diligence in that you’re not just looking at the physical condition of the property; with a condo purchase, you should also concern yourself with the financial health of the condo association. Thankfully, Louisiana law provides you with the tools to do this.
The sale and purchase of condos in Louisiana is governed by the Louisiana Condo Act. As a buyer, the most important part of the Louisiana Condo Act for you will be the information it entitles you to view before you make a final decision to purchase a condo. You are entitled to this information once you have entered into a purchase agreement with a condo seller. The information, outlined in a document entitled the Certificate of Resale Checklist, includes the following categories:
– A copy of the declaration, the articles of incorporation or documents creating the association and the bylaws, and all amendments.
– A copy of the minutes from the last association/board meeting;
– A statement setting forth the amount of any current common expense assessments;
– A statement of the amount of any reserves for capital expenditures and of any portions of those reserves designated by the association for any specified projects;
– The most recent balance sheet and income and expense statement of the association, if any;
– The current operating budget of the association, if any;
– A statement of any unsatisfied judgments against the association and the status of any pending suits or potential litigation to which the association is a party;
– A copy of all insurance policies (or declaration pages) provided to the association;
– A statement of the remaining term of any ground lease affecting the condominium and provisions governing any extension or renewal thereof;
– A list of any/all delinquent condo fees, age of delinquency, and statement of the procedure used once an account is declared delinquent;
– Does the Association have a right of 1st refusal?;
– A detail of any amount of money (condo reserves) due by the Purchaser to the Association or others at the Act of Sale.
Starting with the first category, you should obtain and review all of the legal documents establishing the condo association. For new condo developments, you should look at the Association’s voting structure to determine if the developer controls the Association and if so how and when control of the Association will be turned over to the owners.
You should also review the rules and regulations to determine things like whether there are any pet restrictions, or if there are any limitations on renting the condo. Some condo associations won’t allow owners to have certain breeds of dogs, dogs over a certain size, or restrict the number of pets you can have. And, as it pertains to rentals, some condo associations won’t allow owners to rent their units at all, while most condo associations prohibit short-term rentals outright . In my experience, the most common rental restriction condo associations impose in New Orleans is that owners may not rent their units for a term shorter than six months.
You’ll want to obtain the minutes from association meetings to get a sense of what the current and past topics of conversation and issues are with the association. These minutes may also hint at whether the association board members are getting along or if there’s acrimony. Or they may mention upcoming improvement or repair projects the association plans to undertake, which ties into our next area of concern – assessments.
A statement of any current assessments should indicate if you or the current owner can expect to have to pay out monies for any upcoming repairs above and beyond what you pay as part of your condo dues. This could be for something like a new roof, painting or any other type of repair where the cost will exceed what the associations holds in reserves.
The next item on the list – what amount of reserves the condo association has – ties into the previous topic. The more reserves a condo association has on hand, the less likely you are to get hit with an assessment in the future. Large reserves tend to signal that a condo association is well managed and that its dues are high enough to allow the association to save for maintenance and improvements.
The association’s balance sheet, income and expense statement and budget should be reviewed to determine if the condo dues adequately fund the cost of maintaining the property. Next, it is very important to determine if the association is involved in any litigation and/or if the association has any unsatisfied judgments against it. Often litigation can signal that members of the association are at odds or that certain condo owners aren’t paying dues. Regarding the latter, you should determine if this is the case by requesting specific information as to any owners who aren’t paying, how long this has been the case, how much they owe the association and what, if anything, the association is doing to recover these unpaid funds.
If the association has a right of first refusal, that means it can decide to step in and purchase the condo you have agreed to buy on the same terms you’ve agreed to purchase it. The condo documents typically provide that the seller must notify the association of your offer to purchase and the association then has a set period of time established in the condo documents by which it/they have to decide to purchase or not on the same terms. Once this time period elapses, if the association declines to purchase, you are free to proceed with your transaction with the seller.
Finally, you will want to know if you are required to pay condo reserves up front into the association at the time you purchase the property and, if so, what the amount of the required reserves is. In a few condo buildings in New Orleans, this amount can be in the thousands of dollars, so you’ll of course need to budget for this. Often agents will note in the property listing what the required reserves payment is so that you aren’t surprised by this requirement.
All of the foregoing information should factor into your due diligence decision as to whether to proceed with the purchase of a condo. You or your agent will be gathering this information at the outset of the transaction, and per the condo addendum in your purchase agreement you should have an allotted period of time to decide if the information you gather is acceptable. If it is not, and you notify the seller within the allotted condo due diligence time period, you may cancel the agreement and get your deposit back.
I hope you’ve found this information helpful. If you have questions about the condo due diligence process in New Orleans, or would like to discuss representation, you may contact me here or at (504) 407-9012.