California Court Rules on Disclosure and Transfer Fees
The California Court of Appeals ("Court") in the case of Berrymore v. Merit Property Management, Inc. ruled on whether management companies (referred to as managing agents in the case) are permitted to charge higher fees under California law than the actual costs associated with producing presale disclosure documents and facilitating the transfer of property in the state.
The California statute that governs community associations in the state is the Davis-Stirling Common Interest Development Act ("Act"). In California, a seller of real estate located in a community association is required to provide extensive documentation about the association to a prospective buyer. This information is commonly referred to as presale disclosures. A community association is required to provide presale disclosure information to a seller within 10 days of a written request. The Act provides that "The association may charge a reasonable fee for this service based upon the association's actual cost to procure, prepare and reproduce the requested items." With respect to the transfer of title to a home located in a community association, the Act provides in part that "neither an association nor a community service organization or similar entity may impose or collect any assessment, penalty, or fee in connection with a transfer of title or any other interest except for the following: (A) An amount not to exceed the association's actual costs to change its records. . . "
The Plaintiffs in this case argued that the management company, like an "association" under the Act, should not be permitted to charge a fee greater than the actual costs of reproducing documents or to transfer title records. The Court disagreed with this contention and affirmed a previous opinion of the Court where it held that "an association's "costs" for purposes of the statute include "the fees and profit the vendor charges for its services." The Court went on to note that while "the statutory language prevents associations from charging inflated fees for documents and for transfer of title and using those fees for other purposes; it does not constrain the amount a managing agent may charge for these services. Competitive forces, not the statute, will constrain the vendors' fees."
The bottom line is that the California Court of Appeals ruled that management companies in California may charge associations more than their actual costs for producing disclosure packets and facilitating the transfer of title to property. For purposes of the statute, the amounts charged by the management company to the association for carrying out these services will constitute the "actual costs" to the association. Furthermore, if a management company is permitted to charge homeowners directly for these services, the management company may make a profit on these transactions and charge the homeowners more than the actual costs associated with providing such services.
Is this Decision Binding on Colorado Courts?
No. Courts in Colorado are not required to follow the decisions of courts in other states. However, since the Colorado Common Interest Ownership Act ("CCIOA") contains similar language relative to the costs an association is permitted to charge for copying association records, a court in Colorado may find the decision of the California Court of Appeals to be persuasive. However, there is no guarantee a Colorado court will follow the lead of the California Court of Appeals.
Does CCIOA address the fees that can be charged for presale disclosure information?
CCIOA does not specifically address the issue of presale disclosures that sellers residing in community associations make to purchasers. However, when a seller requests records from their community association to comply with disclosure requirements contained in their sales contract or under other provisions of Colorado law, CCIOA provides that "The association may charge a fee, which may be collected in advance but which shall not exceed the association's actual cost per page, for copies of association records."
Does CCIOA address whether transfer fees can be charged by associations or management companies and whether there is a cap on such fees?
CCIOA does not address whether transfer fees can be charged and places no cap on the amount of such fees. However, you should be aware that the Declaration of Covenants, Conditions and Restrictions for your community association may contain a provision which addresses transfer fees.
Is there a court ruling in Colorado that addresses whether management companies can charge homeowners more for association records than associations can charge?
No - this issue has not yet been ruled on by a Colorado court.
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