Sometimes our clients ask us: what are the legal requirements for language used in resale certificates regarding damages where repairs are needed?
Our basic recommendation is that it is always better to disclose something and have a sale fall through than to risk a lawsuit against the property manager and/or the association for failure to disclose known damage in the resale certificate.
RCW 64.34.425 requires the resale certificate to contain a statement of any anticipated repairs which will cost more than 5% of the association’s annual budget and a statement about any violations of the building code in the unit or the condominium as a whole. We recommend that associations/managers disclose general information about damage/repairs in the resale certificate and make inspection reports available for review if they exist.
For instance, say an association had an engineer perform an inspection on a building and the engineer found problems with the stucco siding and created a report that states his findings. The resale certificate could just say that a preliminary investigation was done by an engineer and the inspection revealed that there are areas of concern about the exterior envelope of the building, some of which may be violations of the building code, and that a copy of the report is available at the attorney’s or property manager’s office. That way you have disclosed the problem without having to categorize it as a big problem or a small problem, and if anyone wants to know the extent of it they can go review the report.
If an association is further down the pike – in litigation or repairing the building after litigation – then the resale certificate should disclose more about the status of the lawsuit, scope of repair, cost estimates, repairs already done or being undertaken, etc. This will obviously reveal more about the severity of the damage and repairs, but full disclosure is important to avoid liability for the association and the property manager.
If you have any questions we can answer, please feel free to leave a comment or contact us directly. We look forward to continuing this conversation with you in our future posts!
Are Resale Certificates always required in condo sales? Is the seller required to supply these, or the property management?
Hi Phyllis,
Yes, RCW 64.34.425 requires than anytime a unit is sold (unless certain, rare exceptions apply), the seller must provide a resale certificate to the buyer. The Association (or its management company) prepares the resale certificate. Here is the language:
Resale of unit.
(1) Except in the case of a sale where delivery of a public offering statement is required, or unless exempt under RCW 64.34.400(2), a unit owner shall furnish to a purchaser before execution of any contract for sale of a unit, or otherwise before conveyance, a resale certificate, signed by an officer or authorized agent of the association and based on the books and records of the association and the actual knowledge of the person signing the certificate, containing:
(a) A statement disclosing any right of first refusal or other restraint on the free alienability of the unit contained in the declaration;
(b) A statement setting forth the amount of the monthly common expense assessment and any unpaid common expense or special assessment currently due and payable from the selling unit owner and a statement of any special assessments that have been levied against the unit which have not been paid even though not yet due;
(c) A statement, which shall be current to within forty-five days, of any common expenses or special assessments against any unit in the condominium that are past due over thirty days;
(d) A statement, which shall be current to within forty-five days, of any obligation of the association which is past due over thirty days;
(e) A statement of any other fees payable by unit owners;
(f) A statement of any anticipated repair or replacement cost in excess of five percent of the annual budget of the association that has been approved by the board of directors;
(g) A statement of the amount of any reserves for repair or replacement and of any portions of those reserves currently designated by the association for any specified projects;
(h) The annual financial statement of the association, including the audit report if it has been prepared, for the year immediately preceding the current year;
(i) A balance sheet and a revenue and expense statement of the association prepared on an accrual basis, which shall be current to within one hundred twenty days;
(j) The current operating budget of the association;
(k) A statement of any unsatisfied judgments against the association and the status of any pending suits or legal proceedings in which the association is a plaintiff or defendant;
(l) A statement describing any insurance coverage provided for the benefit of unit owners;
(m) A statement as to whether there are any alterations or improvements to the unit or to the limited common elements assigned thereto that violate any provision of the declaration;
(n) A statement of the number of units, if any, still owned by the declarant, whether the declarant has transferred control of the association to the unit owners, and the date of such transfer;
(o) A statement as to whether there are any violations of the health or building codes with respect to the unit, the limited common elements assigned thereto, or any other portion of the condominium;
(p) A statement of the remaining term of any leasehold estate affecting the condominium and the provisions governing any extension or renewal thereof;
(q) A copy of the declaration, the bylaws, the rules or regulations of the association, the association’s current reserve study, if any, and any other information reasonably requested by mortgagees of prospective purchasers of units. Information requested generally by the federal national mortgage association, the federal home loan bank board, the government national mortgage association, the veterans administration and the department of housing and urban development shall be deemed reasonable, provided such information is reasonably available to the association;
(r) A statement, as required by RCW 64.35.210, as to whether the units or common elements of the condominium are covered by a qualified warranty, and a history of claims under any such warranty; and
(s) If the association does not have a reserve study that has been prepared in accordance with RCW 64.34.380 and 64.34.382 or its governing documents, the following disclosure:
“This association does not have a current reserve study. The lack of a current reserve study poses certain risks to you, the purchaser. Insufficient reserves may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a common element.”
(2) The association, within ten days after a request by a unit owner, and subject to payment of any fee imposed pursuant to RCW 64.34.304(1)(l), shall furnish a resale certificate signed by an officer or authorized agent of the association and containing the information necessary to enable the unit owner to comply with this section. For the purposes of this chapter, a reasonable charge for the preparation of a resale certificate may not exceed two hundred seventy-five dollars. The association may charge a unit owner a nominal fee for updating a resale certificate within six months of the unit owner’s request. The unit owner shall also sign the certificate but the unit owner is not liable to the purchaser for any erroneous information provided by the association and included in the certificate unless and to the extent the unit owner had actual knowledge thereof.
(3) A purchaser is not liable for any unpaid assessment or fee against the unit as of the date of the certificate greater than the amount set forth in the certificate prepared by the association unless and to the extent such purchaser had actual knowledge thereof. A unit owner is not liable to a purchaser for the failure or delay of the association to provide the certificate in a timely manner, but the purchaser’s contract is voidable by the purchaser until the certificate has been provided and for five days thereafter or until conveyance, whichever occurs first.