It doesn’t really come up often, but there are times when the Association may want to convey some portion of their common elements to a third party. There could be various reasons for this, including but not limited to, a land swap with a neighboring community, changing Lot boundaries, as part of a negotiation in a condemnation proceeding, etc. How common elements are conveyed is dependent on the age of the community and whether or not we are talking about the common elements of a planned community or a condominium.
NCGS § 47F-3-112 states, in part: “(a) Portions of the common elements may be conveyed or subjected to a security interest by the association if persons entitled to cast at least eighty percent (80%) of the votes in the association, or any larger percentage the declaration specifies, agree in writing to that action; provided that all the owners of lots to which any limited common element is allocated shall agree in order to convey that limited common element or subject it to a security interest. The declaration may specify a smaller percentage only if all the lots are restricted exclusively to nonresidential uses. Distribution of proceeds of the sale of a limited common element shall be as provided by agreement between the lot owners to which it is allocated and the association. Proceeds of the sale or financing of a common element (other than a limited common element) shall be an asset of the association.”
The language of the above statutory provision is NOT retroactive to planned communities formed before January 1, 1999. NCGS § 47C-3-112 contains almost identical language and IS retroactive to condominiums formed prior to October 1, 1986. So, knowing the type of community and date of formation is going to be important in formulating a conveyance plan. It is very likely that a vote is needed to convey common elements, even in older communities, so Boards and managers should always look closely at their governing documents. Very often in older communities the vote requirement is smaller than eight percent (80%), however, there is often still a vote required. Even when a membership vote is not required, there are political choices to be made. Conveying common elements can be a hot button issue. The members may want a voice in the matter even when the ultimate decision might be able to be made by the Board.
Associations often do not have many tangible assets. Real property (i.e. common elements) is probably the most important asset owned and/or controlled by the Association. So careful consideration should be given to whether it is a good idea to engage in this kind of property conveyance. The HOA and condominium attorneys at Law Firm Carolinas have a great deal of experience in dealing with the intricacies and considerations involved in conveying the common elements and are ready to assist your community when needed.