Condo owners will face a new set of rules when the new year rolls around. That's when an updated condominium bill passed by the state legislature in April finally takes effect.
The Tennessee Condominium Act of 2008 is the first comprehensive update in three decades of the state's condo laws, a set of statutes so old they actually referred to condo units as "apartments," said Carol Stewart, a condominium law specialist with the firm Burr & Forman.
The act is modeled after legislation that's been adopted by more than three dozen states, and it should extend to all owners some routine protections that in Tennessee had to be woven into contracts and other legal documents.
"Without a statute to create these multimillion-dollar entities, people were kind of going on the hope that the documents were written very well," Stewart said.
The law reworks many of the state's rules for condo associations, a legal entity that had little history in the state before the 1960s, say Stewart and Darlene Marsh, another partner in the firm.
Among the things that the new law clarifies is how land should be allocated in a condo association and what rules condo developers have to follow when they remain involved in a finished project. The law also gives condo associations more power to enforce covenants — those agreements governing everything from the color of window shades to the process of renting out units — that an owner signs when they buy into a condominium.
But one of the most important changes is that the new law gives associations a better shot of collecting on liens against owners who don't pay their association fees, Stewart and Marsh said.
Before, associations were treated like an ordinary creditor: Their claims were prioritized based on when they were filed, and an association might find its debt behind those of a condo owner's plumber, an electrician or chimneysweep.
Now, associations are second only to the first mortgage holder — in other words, the bank — when owners fall behind. "It (the new law) recognizes the association has to have that money to function," Stewart said.
New rules for failed projects
One other thing the law does is rework the obligations of banks and developers who take over a condominium project before it is finished.
Under the old law, successors to the original developer had to take on all of its obligations or not get involved in the project at all. So, if the original developer promised a swimming pool, the bank or the developer it tapped to finish the project had to build a pool.
The new law is more lenient. Now a successor has the right to pick and choose which obligations it will follow through on.
That might sound like a bad deal for people who have bought based on the first developer's promises. But it beats the alternative — holding a contract in a project that's too costly or too troubled to sell out, Marsh said.
"Having full membership, that's your ultimate goal," Marsh said.
Chas Sisk covers real estate. Reach him at 615-259-8283 or csisk@tennessean.com.
