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CONDOMINIUM SALESCONDOMINIUM SALES

Issues of concern forIssues of concern for Buyers and SellersBuyers and Sellers

In terms of the In terms of the Apartment Ownership Act of Sri Apartment Ownership Act of Sri

LankaLanka

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Types of sales transactionsTypes of sales transactions

Pre-construction condominium salesPre-construction condominium sales Newly constructed condominium salesNewly constructed condominium sales Re-sale condominiumsRe-sale condominiums

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Pre constructionCondominiums

Prior to registration of Provisional

Condominium Property

After registration of Provisional

Condominium Property

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PRE-CONSTUCTION CONDOMINIUMSPRE-CONSTUCTION CONDOMINIUMSPrior to registration of Prior to registration of

Provisional Condominium PropertyProvisional Condominium PropertyIssues for Buyers:Issues for Buyers:

Can an advance be recovered if project is not completed? Can an advance be recovered if project is not completed? – – Advisable not to enter into any transaction as the element Advisable not to enter into any transaction as the element of risk is high. of risk is high.

- But if buyer wants to do so, execute Reservation - But if buyer wants to do so, execute Reservation Agreement between Buyer and Developer with a right of Agreement between Buyer and Developer with a right of termination and deposit advance with a neutral third termination and deposit advance with a neutral third party as an Escrow Agent (who may be a party to the party as an Escrow Agent (who may be a party to the Agreement). Agreement).

- The third party can be the lender / bank / provider of - The third party can be the lender / bank / provider of funds to the prospective purchaser.funds to the prospective purchaser.

Is the project registered? Is the project registered? - - Request for copy of registered Request for copy of registered Provisional Deed of Declaration.Provisional Deed of Declaration.

Will the project have the basic amenities? Will the project have the basic amenities? – – Request for copy Request for copy of Provisional Condominium Planof Provisional Condominium Plan

Will the construction be completed? Will the construction be completed? ??????????

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PRE-CONSTUCTION CONDOMINUIMSPRE-CONSTUCTION CONDOMINUIMS Prior to registration of Prior to registration of

Provisional Condominium PropertyProvisional Condominium PropertyIssues for Seller / Developer:Issues for Seller / Developer:

How to raise funds for completion? How to raise funds for completion? By mortgaging land, By mortgaging land, Developer’s / Joint Venture partner’s contribution to the Developer’s / Joint Venture partner’s contribution to the projectproject

How to secure buyers for condominiums?How to secure buyers for condominiums? Enter into Reservation Agreements rather than Sales Enter into Reservation Agreements rather than Sales

AgreementsAgreements How to get necessary approvals, including CMA How to get necessary approvals, including CMA

Certificate as early as possible? Certificate as early as possible? - Forward to the CMA for approval the Provisional - Forward to the CMA for approval the Provisional

Condominium Plan Condominium Plan - Ensure building has the requisite Common Elements as - Ensure building has the requisite Common Elements as

stipulated in the Apartment Ownership Act (Sec. 26 of stipulated in the Apartment Ownership Act (Sec. 26 of Act No. 11 of 1973 as amended) Act No. 11 of 1973 as amended)

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PRE-CONSTUCTION CONDOMINIUMSPRE-CONSTUCTION CONDOMINIUMSUpon registration of Upon registration of

Provisional Condominium PropertyProvisional Condominium PropertyIssues for Buyers:Issues for Buyers:

Can an advance be recovered if project is not completed?Can an advance be recovered if project is not completed? – Enter – Enter into notarialy attested Sale & Purchase Agreement. Ideally the into notarialy attested Sale & Purchase Agreement. Ideally the deposit should be placed with a neutral Escrow Agent till sufficient deposit should be placed with a neutral Escrow Agent till sufficient completion of the project (Agreement should be registered)completion of the project (Agreement should be registered)

Is the condominium unit of the size and description given in Is the condominium unit of the size and description given in promotional documents? promotional documents? – Check copy of registered Deed of – Check copy of registered Deed of Declaration and connected Plan of subdivision (with Developer / at Declaration and connected Plan of subdivision (with Developer / at Land Registry)Land Registry)

When will the condominium project be completed? When will the condominium project be completed? – Tentative – Tentative date to be given by Developer and inserted in S & P Agreement.date to be given by Developer and inserted in S & P Agreement.

How can a prospective purchaser check on the progress? How can a prospective purchaser check on the progress? – Check – Check with Developer. Progress Reports are to be filed by the Developer with Developer. Progress Reports are to be filed by the Developer with the CMA under Sec.9( c) of the Common Amenities Board Act with the CMA under Sec.9( c) of the Common Amenities Board Act No. 24 of 2003No. 24 of 2003

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PRE-CONSTUCTION CONDOMINUIMSPRE-CONSTUCTION CONDOMINUIMSUpon registration of Upon registration of

Provisional Condominium PropertyProvisional Condominium PropertyIssues for Seller / Developer:Issues for Seller / Developer:

Are Buyers honoring commitments under S & P Agreements? Are Buyers honoring commitments under S & P Agreements? – Monitor S – Monitor S & P Agreements and enforce conditions, if necessary.& P Agreements and enforce conditions, if necessary.

Will the condominium units be completed on the scheduled dates? Will the condominium units be completed on the scheduled dates? – – Monitor Agreement with Contractor and claim from Performance Bond Monitor Agreement with Contractor and claim from Performance Bond

if necessary.if necessary. - Pre-selling of condominiums require compliance with Sec.4 of Act No. - Pre-selling of condominiums require compliance with Sec.4 of Act No.

39 of 2003 (i.e. if sale is before completion, project to be registered 39 of 2003 (i.e. if sale is before completion, project to be registered within 18 months of the agreement to sell or within 3 months of within 18 months of the agreement to sell or within 3 months of completion of building)completion of building)

Who is liable for risks? Who is liable for risks? – Ensure risks are covered during construction – Ensure risks are covered during construction stage by Contractor’s Insurance Cover.stage by Contractor’s Insurance Cover.

Does the Contractor’s Warranty period correspond with the Warranty Does the Contractor’s Warranty period correspond with the Warranty given by the Developer to prospective unit owners for their individual given by the Developer to prospective unit owners for their individual condominiums?condominiums? – Ideally Contractor’s Warranty period should extend – Ideally Contractor’s Warranty period should extend beyond one year in multi-storey buildings. beyond one year in multi-storey buildings.

If not, obtain adequate Insurance Cover to be effective as soon as the If not, obtain adequate Insurance Cover to be effective as soon as the Contractor’s Warranty on the building expires.Contractor’s Warranty on the building expires.

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Newly completedCondominium

Condominium PropertyNot registered

Condominium PropertyRegistered

Provisional CondominiumProperty

Semi Condominium

Property

Completed Condominium

Property

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Newly completed condominiumsNewly completed condominiumsCondominium Property not registeredCondominium Property not registered

Issues for BuyersIssues for Buyers Can S & P Agreements be signed with the Developer? Can S & P Agreements be signed with the Developer? – – Since the condominium property Since the condominium property is not registeredis not registered, the subject matter , the subject matter

of each S & P Agreement of each S & P Agreement will be a non-existing Condominiumwill be a non-existing Condominium. Thus the . Thus the absence of subject matter will make such agreements void. absence of subject matter will make such agreements void.

If the Agreement is registered, it will be registered against the main land. If the Agreement is registered, it will be registered against the main land. Therefore, ideally parties should enter into a Reservation Agreement and Therefore, ideally parties should enter into a Reservation Agreement and

place Deposit with a neutral Escrow Agent until Condominium Property is place Deposit with a neutral Escrow Agent until Condominium Property is registered.registered.

Does the condominium fit the description given in the promotional Does the condominium fit the description given in the promotional documents? documents? – Check plan of subdivision prepared for the building, which – Check plan of subdivision prepared for the building, which should be registered with the CMA.should be registered with the CMA.

Is the condominium property and each condominium within the Warranty Is the condominium property and each condominium within the Warranty period?period?- Check from the Developer the Warranty period on the - Check from the Developer the Warranty period on the condominiums and check date of COC.condominiums and check date of COC.

Is the condominium property insured against fire and other common Is the condominium property insured against fire and other common risks?risks? – Check from the Developer the insurance covers obtained for the – Check from the Developer the insurance covers obtained for the building, especially fire insurance.building, especially fire insurance.

What is the share value assigned to the unit? What is the share value assigned to the unit? – Check plan of subdivision – Check plan of subdivision and Deed of Declaration for share values and percentages assigned to and Deed of Declaration for share values and percentages assigned to each unit.each unit.

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Newly completed condominiumsNewly completed condominiumsCondominium Property not registeredCondominium Property not registered

Issues for Seller / DeveloperIssues for Seller / Developer Can S & P Agreements signed with prospective purchasers be validly Can S & P Agreements signed with prospective purchasers be validly

enforced? enforced? – Until the property is registered as a subdivided condominium – Until the property is registered as a subdivided condominium property (provisional, semi or completed) there are property (provisional, semi or completed) there are no separate individual no separate individual condominium units.condominium units. The S & P agreements are void due to the absence of The S & P agreements are void due to the absence of a subject matter. (a subject matter. (Couturier v Hastie (1856) . Couturier v Hastie (1856) . RRetaining money paid as etaining money paid as Deposit for a subject matter which is not in existence may Deposit for a subject matter which is not in existence may amount to unjust enrichment.amount to unjust enrichment.

Ideal solution is to enter into Reservation Agreements, and place Ideal solution is to enter into Reservation Agreements, and place deposit with a neutral Escrow Agent.deposit with a neutral Escrow Agent.

Can Deeds of Transfer be executed? Can Deeds of Transfer be executed? – Same answer as above.– Same answer as above. Who are liable for risks? Who are liable for risks? – Risk does not pass to buyers if there are no – Risk does not pass to buyers if there are no

existing condominium units. Hence, the risk will remain with the existing condominium units. Hence, the risk will remain with the Developer, who should have adequate insurance cover for all risks that Developer, who should have adequate insurance cover for all risks that the building may be exposed to upon taking over of the project from the the building may be exposed to upon taking over of the project from the Contractor.Contractor.

Is the Contractor’s Warranty still applicable for condominium units?Is the Contractor’s Warranty still applicable for condominium units? – – Usually the Warranty is for one year from the date of take over of project. Usually the Warranty is for one year from the date of take over of project. (i.e. COC) But this is based on the Agreement between Contractor and (i.e. COC) But this is based on the Agreement between Contractor and Developer. Ideally it should be for a longer period more for multi storey Developer. Ideally it should be for a longer period more for multi storey buildings.buildings.

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Newly completed condominiumsNewly completed condominiumsCondominium Property registeredCondominium Property registeredas Provisional / Semi / completedas Provisional / Semi / completed

Issues for BuyersIssues for Buyers

Can S & P Agreements be signed with prospective Can S & P Agreements be signed with prospective buyers be validly enforced? buyers be validly enforced?

– – S & P Agreements can be signed with prospective S & P Agreements can be signed with prospective buyers as the condominium property is registered and buyers as the condominium property is registered and separate units have been created. These therefore, separate units have been created. These therefore, can be enforced in the event of a breach.can be enforced in the event of a breach.

Can Deeds of Transfer be executed? Can Deeds of Transfer be executed? – – In the case of a registered Provisional Condominium In the case of a registered Provisional Condominium

Property, Deeds of Transfer cannot be signed till the Property, Deeds of Transfer cannot be signed till the property is re-registered as a completed property is re-registered as a completed Condominium Property. Condominium Property.

This requires the Certificate of Conformity issued by This requires the Certificate of Conformity issued by the UDA or other similar authority.the UDA or other similar authority.

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Who is liable for risks in respect of a registered condominium Who is liable for risks in respect of a registered condominium property and individual units? property and individual units?

– – Risk passes to the buyer upon execution of a Deed of Transfer, Risk passes to the buyer upon execution of a Deed of Transfer, transferring title to the property from Developer to the transferring title to the property from Developer to the prospective purchaser. prospective purchaser.

Therefore, the buyer should have adequate insurance cover for Therefore, the buyer should have adequate insurance cover for all risks upon taking over of the condominium unit from the all risks upon taking over of the condominium unit from the Developer.Developer.

Is the Contractor’s Warranty still applicable for condominium Is the Contractor’s Warranty still applicable for condominium units?units?

– – The buyer should check on the Warranty period. The buyer should check on the Warranty period. the buyer should seek adequate Warranty for construction the buyer should seek adequate Warranty for construction

defects from the Developer.defects from the Developer.

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What are the share values assigned for the What are the share values assigned for the Condominium unit? Condominium unit?

– – Check from plan of subdivision and Deed of Check from plan of subdivision and Deed of Declaration. Declaration.

Voting strength at meetings and distribution of residue Voting strength at meetings and distribution of residue property in the event of a destruction to the building is property in the event of a destruction to the building is based on the share value.based on the share value.

Is there a Budget for the 1Is there a Budget for the 1stst year of operations? What is year of operations? What is the Contribution that would be levied by the MC? the Contribution that would be levied by the MC? – – Check from the Developer for the Budget for the 1Check from the Developer for the Budget for the 1stst year year of operations of the MC. This would indicate the of operations of the MC. This would indicate the Contribution per share value fixed for the 1Contribution per share value fixed for the 1stst year. year.

Is there a Sinking Fund for future capital replacements Is there a Sinking Fund for future capital replacements and major repairs or has provision been made for such a and major repairs or has provision been made for such a fund? fund? – – same as above. If there is no provision for a same as above. If there is no provision for a Sinking Fund, there is a possibility for Contributions to Sinking Fund, there is a possibility for Contributions to be increased to create a Sinking Fund in the future. be increased to create a Sinking Fund in the future.

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Is the Developer continuing to be the Managing Agent? How long Is the Developer continuing to be the Managing Agent? How long will the said Agreement be in force?will the said Agreement be in force? – Request for a copy of the – Request for a copy of the Agreement with the Managing Agent.Agreement with the Managing Agent.

What are the encumbrances on the land and building? Have What are the encumbrances on the land and building? Have these been released?these been released?- Check on encumbrances on the property - Check on encumbrances on the property and on each unit from the respective Condominium Register at and on each unit from the respective Condominium Register at the Land Registry. If there are mortgages, these will be the Land Registry. If there are mortgages, these will be registered against each condominium unit.registered against each condominium unit.

What are the parking arrangements? Is the parking area an What are the parking arrangements? Is the parking area an accessory unit? If so, will the unit owner have to pay Contribution accessory unit? If so, will the unit owner have to pay Contribution for such area?for such area? – Check the parking area against the listed – Check the parking area against the listed Common Elements of the plan of subdivision. If it is part of the Common Elements of the plan of subdivision. If it is part of the CE, the unit owner cannot be charged Contribution for such area.CE, the unit owner cannot be charged Contribution for such area.

Are there maintenance agreements in place for lifts, escalators Are there maintenance agreements in place for lifts, escalators and other engineering equipment? and other engineering equipment? – Check from the Developer – Check from the Developer for maintenance agreements.for maintenance agreements.

What are the House Rules / By-laws of the condominium What are the House Rules / By-laws of the condominium complex?complex? – Request for a copy of the House Rules, if it has not – Request for a copy of the House Rules, if it has not yet been given. Check the Constitution of the MC.yet been given. Check the Constitution of the MC.

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Does the completed condominium unit have the same Does the completed condominium unit have the same area as given in the S & P Agreement? area as given in the S & P Agreement? – Have the – Have the area measured and if there is a discrepancy negotiate area measured and if there is a discrepancy negotiate for a reduction in price if the unit price is based on the for a reduction in price if the unit price is based on the area.area.

Has the first AGM of the Management Corporation Has the first AGM of the Management Corporation been held? Who are the Council members? been held? Who are the Council members? – Obtain – Obtain confirmation from the Developer.confirmation from the Developer.

Has the condominium property been adequately Has the condominium property been adequately insured? insured? Condominium property insurance is the Condominium property insurance is the responsibility of the MC. Request copies of Insurance responsibility of the MC. Request copies of Insurance Policies. Especially check on insurance cover for Policies. Especially check on insurance cover for common areas and whether residents too are covered common areas and whether residents too are covered for injuries.for injuries.

Insurance of the subdivided building against fire is the Insurance of the subdivided building against fire is the responsibility of the MC. responsibility of the MC.

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Newly completed condominiumsNewly completed condominiumsCondominium Property registeredCondominium Property registeredas Provisional / Semi / completedas Provisional / Semi / completed

Issues for Developer / SellerIssues for Developer / Seller Can Transfer Deeds be signed? Can Transfer Deeds be signed? – Transfer Deeds can be signed only in – Transfer Deeds can be signed only in respect of semi or completed condominium properties.respect of semi or completed condominium properties.

After obtaining the COC, a provisional condominium property will have After obtaining the COC, a provisional condominium property will have to be registered as a semi or completed condominium property.to be registered as a semi or completed condominium property.

If there is a discrepancy in the area of units? If there is a discrepancy in the area of units? – Sale price should be – Sale price should be adjusted accordingly if price is based on the area of the unit.adjusted accordingly if price is based on the area of the unit.

Has the Management Corporation been properly set up? Has the Management Corporation been properly set up? The MC comes The MC comes into existence with the registration of the Deed of Declaration. into existence with the registration of the Deed of Declaration.

But it is the responsibility of the Developer to set up the operations of But it is the responsibility of the Developer to set up the operations of the MC, to convene meetings to elect Council Members and to give the MC, to convene meetings to elect Council Members and to give guide lines for such other matters, as necessary.guide lines for such other matters, as necessary.

Appointment of the Managing Agent is one such task. Appointment of the Managing Agent is one such task. Have all architectural plans, Certificates, etc, been handed over to the Have all architectural plans, Certificates, etc, been handed over to the

MC?MC? – Upon setting up of the MC, these should be handed over to the – Upon setting up of the MC, these should be handed over to the custody of Council of the MC.custody of Council of the MC.

Have steps been taken to ensure that the rights and obligations of both Have steps been taken to ensure that the rights and obligations of both parties (MC and unit owners) will be safeguarded?parties (MC and unit owners) will be safeguarded?

Arrange the execution of Deeds of Mutual Covenants.Arrange the execution of Deeds of Mutual Covenants.

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Re-sale condominiumsRe-sale condominiumsIssues for BuyersIssues for Buyers

Is the financial position of the Management Corporation sound? Is the financial position of the Management Corporation sound? Are there built up arrears of Contributions due to the MC? Are there built up arrears of Contributions due to the MC? – – Check the audited accounts of the MC for the previous year. Check the audited accounts of the MC for the previous year. These can be obtained from the owner of the unit, as each unit These can be obtained from the owner of the unit, as each unit owner is entitled to Audited Accounts along with the notice of the owner is entitled to Audited Accounts along with the notice of the AGM.AGM.

What is the credit balance of the Sinking Fund? What is the credit balance of the Sinking Fund? – same as above.– same as above. Is there sound governance of the Management Corporation? Are Is there sound governance of the Management Corporation? Are

meetings properly held and are accounts audited?meetings properly held and are accounts audited? – Can be – Can be checked from other unit owners and also from owner of the unit.checked from other unit owners and also from owner of the unit.

Is there a Managing Agent for management of common Is there a Managing Agent for management of common elements? elements? – Check from owner of unit and seek copy of – Check from owner of unit and seek copy of Agreement released to unit owners.Agreement released to unit owners.

Are all mechanical, electrical and other fixtures and fittings Are all mechanical, electrical and other fixtures and fittings forming part of the Common Elements in sound order and have forming part of the Common Elements in sound order and have these been properly maintained? these been properly maintained? – The assistance of an Engineer – The assistance of an Engineer / Architect should be obtained to check on the Common / Architect should be obtained to check on the Common Elements and also on the engineering and mechanical items Elements and also on the engineering and mechanical items found within the unit.found within the unit.

Is the title to the property good? Is the title to the property good? Check from the Land Registry Check from the Land Registry by obtaining a copy of the title deeds from the current owner.by obtaining a copy of the title deeds from the current owner.

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Are there any arrears owed by the current owner to the MC / are Are there any arrears owed by the current owner to the MC / are there any other financial obligations that have not been there any other financial obligations that have not been discharged by the current owner?discharged by the current owner?

Prospective buyer can insist from the current owner for a Prospective buyer can insist from the current owner for a Certificate issued by the MC under Sec. 20 (H)(4) of Act No. 39 of Certificate issued by the MC under Sec. 20 (H)(4) of Act No. 39 of 2003 which provides information on the above2003 which provides information on the above..

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Re-sale condominiumsRe-sale condominiumsIssues for SellersIssues for Sellers

Obtaining the Certificate under Sec.20 (H)(4) of the Apartment Obtaining the Certificate under Sec.20 (H)(4) of the Apartment Ownership Act.Ownership Act.

Upon conclusion of sale, inform the Management Corporation in Upon conclusion of sale, inform the Management Corporation in writing particulars of the new owner of the unit so that the MC writing particulars of the new owner of the unit so that the MC can change the Register of Members.can change the Register of Members.

Assist the new owner in the transfer of telephone, electricity, Assist the new owner in the transfer of telephone, electricity, cable tv, and such other utilities.cable tv, and such other utilities.

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