Certificates of Resale
When listing a Property, you will learn quickly whether it is a condominium or in an association subjecting it to special laws requiring that buyers receive certificates of resale. The purpose of the laws is to assure that buyers know the financial wellbeing of the common entity in which the property is a part. It also assures that the buyer is not stuck with a financial obligation that should have been paid by the seller. Given the importance, every buyer should be encouraged to read these certificates carefully and should be encouraged to ask questions of the association into which they are buying.
A big wrinkle imposed by these laws is the right to terminate the agreement of sale within five (5) days of receipt of the certificate. These laws do not state that the buyer must have a good faith basis for termination; they simply provide a time within which a buyer can terminate. Because these laws are clearly written, a seller’s complaint that the buyer is using the certificate as a pretext to terminate will not provide relief to the seller, in this author’s humble opinion. In other words, the right to terminate is absolute.
The Standard Agreement (ASR) provides that the seller will request a certificate of resale within fifteen (15) days of the agreement’s execution. The number 15 is preprinted, but clearly it can be amended and even if the time is not shortened, there is nothing preventing a seller from ordering the certificate much earlier. If I were a listing agent, I would order the certificate so that copies of the certificate are available at first showing, particularly in a sellers’ market where properties go quickly.
Compare these timetables. A buyer’s offer is accepted and fifteen (15) days later the seller makes application for a certificate of resale. By law, the association has ten (10) days to deliver the certificate after it is ordered. We are now twenty-five (25) days in to the agreement and the buyer sees another property she prefers. What’s to prevent the buyer from terminating the agreement at that time based on the five (5) day window provided by the Uniform Planned Community Act? In years past, I might have answered that the buyer has already invested substantial sums in inspections and would be hesitant to terminate the agreement based on a benign certificate of resale. Today, however, the buyer may not have invested any sum in inspections and so a lawful termination that results in the return of the deposit may be attractive.
If the buyer, however, was given a certificate of resale when first viewing the property, there was a much more limited period of time within which the buyer could bale. Twenty five (25) days drop to five (5) or even less if the buyer got the certificate before signing the agreement of sale.
So why do we wait? Some associations have made it a requirement that the buyer’s identity be provided when the certificate is ordered. They make it seem like each certificate is tailor-made for a specific buyer and does not apply to any other buyer. This is not the case. To repeat, the law requires an association to provide the certificate within ten (10) days of it being ordered. These laws even provide that the association may be liable for damages sustained by the seller as the result of late delivery. What might these damages be? How about when a buyer terminates because the certificate was provided untimely. If the seller can establish that financial loss was attributed to association having provided the certificate late, then at least there’s an argument that the association is liable for that loss. Associations that do not provide certificates timely should receive a reminder. I’ve written to a number of associations on behalf of broker clients, explaining the law and quoting the provisions that subject the association to liability. If this gets the association to their legal counsel, good. The universal result I’ve had is that an association will comply with the law by timely providing certificates that have been requested, whether a buyer is in hand or not.
There is also a concern that certificates have a shelf life. While this may be so, it does not impact the transaction from the seller’s point of view. The law is that the seller provides a certificate of resale. If a buyer wants to verify that the provided certificate is accurate at the time of the settlement, then the buyer does a “bring down.” A bring down is what we do to verify that the quality of title to a property has not changed between the initial title search and closing. We can do the same thing with a certificate of resale. A certificate ordered shortly before closing would indicate whether there have been any financial changes to the well-being of the association or the unit being sold from the time of the previously provided certificate. The second certificate would be at the buyer’s expense given that the seller has complied with the law by providing a (1) certificate.
While we’re on the subject, let me whine a little about the cost of certificates! When these laws were first enacted, the average cost for a certificate of resale was twenty-five (25) bucks. That quickly became fifty (50) bucks. Now two-hundred (200) or three-hundred (300) dollars is not uncommon. The cost should reflect the effort and time involved in its preparation. The cost of licenses and documents issued by the government must be tied to the actual costs involved in their preparation. So too, the cost of certificates should be based on what it takes to produce them. I understand, however, your aim is to assist in the sale or purchase of the property and not to right the injustices of the world.
Best to all.