Most people, including most title companies and lenders, view the distinction between condominiums and planned communities as one reflective of the physical structure of the community; that is, most understand condominiums to consist of vertical structures with air space units, and planned communities to involve single unit structures on separate legal lots, like a single family home community. In fact, the only legal distinction under CIOA between condominiums and planned communities is who owns the common areas. If the common areas are owned by the unit owners in undivided interests, then, by definition, the community is a condominium; if, on the other hand, the common areas are owned by an association or some other third party rather than the owners, then the project is a planned community under CIOA. Therefore, condominiums need not be air space units; one could, for example, create a condominium community which consists of land units alone. Similarly, a planned community can consist of stacked air space units in a multi-floored structure. This distinction becomes important because, under CIOA, there are no exemptions on the limitations that CIOA places on developers for condominiums, but there are wholesale exemptions available for certain planned communities.

All condominiums--whether they consist of air space units, land units, or otherwise, whether they are mixed use, wholly residential, or wholly commercial--are all subject to the full range of CIOA's restrictions, limitations and obligations. Planned communities, however, if they are restricted by the project covenants to non-residential use, are essentially fully exempt from CIOA. Therefore, when a developer is developing an office or other commercial community, it is important to consider the legal structure of that community. Whether a developer is converting a building to for sale office units or constructing a new office development, the community can be created as a planned community that falls outside of the restrictions of CIOA if it is restricted to non-residential use and the common areas are not owned by the unit owners but by the owners association. A developer who organizes the new commercial community as a CIOA-exempt planned community, rather than as a condominium, has greater flexibility and control in the governance and development of the project once a unit is sold.

One impediment to organizing a new multi-unit for sale commercial project as a planned community rather than a condominium is the confusion often exhibited by title companies, lenders and government officials when a developer calls something a planned community that looks like a condo; which brings to mind a Cheech and Chong sketch that we'll save for another time. In any event, with a little education these folks usually come around. Even so, buyers' lenders not uncommonly want to impose restrictions on the developer's control of the community and limit the kind and term of developer rights that can be exercised after a certain number of units have been sold; but these are generally less restrictive than the CIOA standard.

Other than the legal documentation, a planned community operates in essentially the same way as a condominium. The association in both types of communities serves the same function; fees are paid to the owners association for the maintenance and repair of common areas; both types of communities are essentially taxed the same; and so on.

Office communities are not a new concept; however, over the last few years, they have grown in popularity all over the country. Their growth in popularity can be attributed to several different factors including low interests rates, increasing rents in office property, and also the inability of developers to sell an office building as a whole to one owner. Although the past decade has seen the conversion of existing office buildings, the more recent trend is new construction. Owning a unit in an office community helps owners build equity in their company and often mortgages end up being less than rent would be on the same unit. As developers, buyers, lenders and title companies become more accustom to the concept, it is probable that the office community market will continue to grow, thus providing opportunities for both developers and business owners alike. But make sure you check out the “planned community” next time you are developing an office “condo”.