Real Estate Tip – Condominiums: Development & Declarant Rights

Condominium development is often done in phases, some of which can be done on land referred to expansion land or land reserved for future development. Developers create condominiums by “declaring” them and the right to develop future phases of the condominium on expansion land is part of the developer’s “development and special declarant rights.”

When developing a condominium, be absolutely certain that your title insurance policy insures development and special declarant rights. This advice is not new; it’s always been a good idea. What’s new is the possibility that other courts will follow the lead of the federal district court’s decision in a case in Rhode Island. This case provided an unexpectedly high level of protection to the developer, and the Rhode Island company was required to pay the developer even though:

• The expansion land was not described in the title policy
• A Rhode Island state court had ruled that the expansion rights had been lost by the developer because they were not exercised timely
• There was strong evidence that the developer was aware of the title defect before the insurance was issued and did not disclose the flaw
• The expansion-related loss arose after the policy was issued (title policies only insure as of their effective date, post-policy events are typically not covered)
• The developer waited for six years after being sued on the title issue before bringing it to the insurance company’s attention

If the courts believe that future development rights deserve this high level of protection, no condominium developer should be without this title insurance protection. To be 100% sure that development and special declarant rights appear in the right place in your title insurance policy, engage legal counsel with substantial title insurance experience.

Today’s real estate tip is brought to you by Rick Smith, a LEED Accredited Professional and member of Bernstein Shur’s Real Estate Practice Group and Green Building Team. Stay tuned for more useful tips for real estate professionals.

For more information, contact Rick at rsmith@bernsteinshur.com or 603 623-8700603 623-8700 ext. 8829 or 207 774-1200207 774-1200.