Defining the Common Interest Development

Common Interest Developments (CIDs) is the general term for a type of investment structure that presents unique benefits for real estate owners. While most common in the residential property arena, CIDs are seen in many types of properties. In residential property the CID allows individual investors to share in the benefits of common elements such as swimming pools, tennis courts, or landscaped common areas that an individual owner may not have been able to afford. In retail, commercial, industrial, or medical office space the CID structure may allow for individual businesses to own their operating space. In general, the CID may be closer to the small village model — where people act locally as citizen-members of the community to determine decisions in the best interest of the group — than to anything in modern life. The appeal of combining multiple individual investments for mutual benefit continues to grow today. Since the 1970s, home owners have worked together in this way, in part to combat the rising cost of housing. In the last decade, CIDs have steadily gained in proportion to conventional ownership of individual homes. According to a Community Associations Institute report, CIDs now account for 75 percent of all new home construction in the United States

The economic and social benefits related to community association living have resulted in a significant increase in the number of these communities worldwide. That increase also represents an opportunity for real estate management professionals to expand their business.   

While the definitions may change depending on the property type of CID (e.g., for planned unit developments and co-ops), the defining components of common interest developments are:

• Units: single, distinct parts of a whole (may be attached or detached units; may be constructed vertically or horizontally). 
• Common Elements/Areas: areas of a property used by all owners; owned jointly by all owners – ordinarily including land and structures not otherwise described as units (lobbies, laundry rooms, recreation facilities, roofs, etc.). 
•  Limited Common Elements (aka “exclusive use areas”): physically part of the common area, but reserved for exclusive use of a particular owner or group of owners (e.g., parking spaces reserved for particular owners). 
•  Public Rights-of-Way and Easements:  areas to which others outside the association membership may have restricted rights (e.g. water, gas, electric, or telephone utility easements).  

Following are brief explanations of the more common types of CIDs: condominiums, cooperatives (co-ops), planned unit developments (PUDs), and homeowners associations (HOAs).

Condominiums

Condominium, as a legal term, indicates simply joint ownership of real property. Condominiums are common in residential and commercial buildings, but may include industrial or marina property. Condominiums are most often constructed vertically, however, they can be horizontal or even detached. Unit ownership is usually comprised of the interior air space inside the walls of the dwelling and an undivided interest in the common areas, which are for the use of owners and maintained by the association. Common areas may not be sold or encumbered by an individual owner.  

Cooperative (Co-op)

The term “co-op” refers to ownership of a share or shares of stock in a corporation that holds the title to a multiple-unit residential structure. Shareholders do not own specific units outright. Residents have the right to occupy the unit under a proprietary lease as a co-owner of the cooperative association. Unlike stock cooperatives where the corporation owns the entire project, a community apartment project (also known as “own-your-owns”) is a development where members own the entire project. The advantage of the co-op for owners is that they can decide who owns stock in the corporation, which in effect means that the corporation can refuse potential owners. The disadvantage of the co-op is that if a unit goes vacant, the community of stockholders will continue to pay taxes on the empty unit.  

Planned Unit Development (PUD)

PUDs may include a mixture of residential and commercial facilities within a defined area that meet specific zoning arrangements. This type of development is typically larger in scale, often with multiphase construction of additional developments over a number of years. The individual owner in PUDs has ownership of the unit and membership in the corporation that owns the common areas.  

Homeowner Associations (HOAs)

An organization of homeowners, the HOA exists to maintain and provide for the rights of owners to use common areas. Homeownership is a requirement for membership in the association.  

Condominium Hotels

These projects blend hotels and residential condominium units into a single package. Normally, at lease some portion of the condominium units are owned by private unit owners but are used by the hotel for hotel guests. The “common area” owned by the condominium owners is managed by the hotel owner. Condominium hotels are typically sold as non-primary residences in order for the units to be part of the hotel’s inventory of rentable units.