The GAR Purchase and Sale Agreement aggregates the disclosures and agreements relating to the community association into one exhibit, the Community Association Disclosure Exhibit (“CAD”).
Who Pays for What in the CAD
The seller generally pays for the following things:
1) the closing letter
2) all amounts assessed against the property that come due before the closing, including both regular and special assessments
3) any move out fees and other fees designated by the community association as a seller fee
4) any transfer, initiation and administrative fees that the seller has not fully disclosed to the buyer (or which increase after the seller has initially disclosed this amount to the buyer)
5) any special assessments that have been adopted or are under consideration
that have not been fully disclosed by the seller to the buyer.
Seller Obligated to Pay All Assessments Owing Through Closing
The seller is obligated to pay all assessments against a property owing through closing in order to convey good title to the buyer. This includes all recurring assessments owing through the closing. These are normally annual assessments that are paid in intervals established by the community association such as monthly, quarterly, or semi-annually. For example, if an assessment is $1,200 per year and is due in monthly installments of $100 per month and a property closes halfway through the year, the first six months of assessments would be paid by the seller, and the second six months of assessments by the buyer. The point is that assessments are prorated through the closing. Assessments can include late fees, fines, court costs, interest and attorney’s fees charged against a property. It is critical that the assessment amount is completed correctly. The form calls for the annual assessment and the number of installments. If the seller completes the document with the monthly assessment amount, for example, the Seller will have the pay 11 months for the buyer because the annual amount was not properly disclosed.
Special Assessments Paid in Installments
Some special assessments may be paid in installments while others must be paid at once. The due date for the special assessment will determine what must be paid by the date of closing. If a special assessment is due in installments, some of which come due before the closing and some of which come due after the closing, the installments coming due before the closing would all be the obligation of the seller to pay. Most special assessments are technically due in full when they are passed, but no late fees or penalties are imposed if the owner timely makes all permitted installment payments. When installment payments are permitted by the community association, those installments coming due prior to the closing are the responsibility of the seller and those installments coming due after the date of closing are the responsibility of the buyer.
Seller Pays for Seller Clearance Letter
Under the CAD, the seller is obligated to pay the cost of any association account statement, clearance letter or closing letter. This letter normally details all amounts owing to the community association through a specified date on the letter and is used to help a seller convey clear title to a property to a buyer. In some instances, the closing letter will only be issued by the community association as part of a package, where other amounts must also be paid to get the closing letter. So, for example, a community association might charge $500 to issue a clearance letter and to provide other documents to the seller at the same time. If the clearance letter will only be issued in a package of documents or other information, information, the seller is required to pay whatever amount is necessary to get the package of documents or information, including the clearance letter.
Buyer Pays for Transfer, Initiation and Administrative Fees That Are Fully and Accurately Disclosed
Under the CAD, the buyer pays all transfer, initiation, and administrative fees that have been accurately and fully disclosed to the buyer. “Transfer, initiation and administrative fees” is a defined term in the GAR Community Association Disclosure Exhibit and includes: “. . . any initiation fee, capital contribution, new member fee, transfer fee, new account set-up fee, fees similar to the above but which are referenced by a different name, one-time fees associated with the closing of the transaction and fees to transfer keys, gate openers, fobs and other similar equipment. Advance assessments due at Closing for a period of time after Closing, shall not be Transfer, Initiation and Administrative Fees and shall be paid by Buyer.” It is critical that the Seller accurately disclose these fees in the CAD. If the Seller does not and fees in excess of the agreed amount are due, the Seller has to pay them. See 3.C on page 3 of the CAD.
If the buyer wants the seller to make a contribution to transfer, initiation and administrative fees, a Special Stipulation can be used.
The Seller Pays for Transfer, Initiation and Administrative Fees
Above an Agreed Amount
Transfer, initiation and administrative fees need to be accurately disclosed by the seller to the buyer. One problem that arises in this area is that sometimes a fee will increase from the time it is initially disclosed to the buyer. In other cases, the seller may forget to disclose a fee. The (CAD) provides that the buyer pays up to a maximum fill-in-the-blank amount for transfer, initiation, and administrative fees. The seller then pays all transfer, initiation, and administrative fees above this amount, regardless of why. So, for example, let’s say that the buyer and seller agree in the CAD that the buyer will pay a maximum of $1,000 for transfer, initiation and administrative fees. The community association then increases the fees to $1,400. In this case, since the maximum amount the buyer is obligated to pay is $1,000, the seller is obligated to pay the additional
If Seller Accurately Discloses Special Assessments Approved/Under Consideration
If the seller accurately discloses in the GAR Community Association Disclosure Exhibit that a special assessment has passed or is under consideration, then the special assessment is paid for by the party who owns the property at the time the special assessment is due. In other words, if the special assessment is due prior to closing, the special assessment is paid by the seller. If the special assessment is due after closing, the special assessment is paid by the buyer. If a portion of the special assessment is due before and after closing, the buyer and seller would each pay their respective portions of the special assessment.
Buyers have a general duty under Georgia law to exercise reasonable care to protect themselves against being defrauded. Buyers should try to independently verify whether a special assessment has been passed or is under consideration, since doing so will strengthen the buyer’s legal position by showing that the buyer exercised reasonable care to discover whether a special assessment was under consideration or approved. Another way buyers can demonstrate that they used reasonable care to determine if a special assessment is under consideration or has been approved is to include a special stipulation in their contracts. The special stipulation should require the seller to provide, provide, within the first five days or so of the commencement of the due diligence period, minutes of the meetings of the six most recent meetings of the board of directors of the community association. 5Surprise
Special Assessments Arising After the Binding Agreement Date
Who Should Pay?
In some cases, notice of a large special assessment is often sent and approved after the Binding Agreement Date but prior to closing. What is the fair way to decide who should pay? The CAD includes a procedure, including a right to terminate under specific condition, where the parties pre-agree. See the CAD for details at F.iii (c). An amount above which the buyer has the right to terminate must be filled in.
Source: Weissman, Seth. The Red Book on Real Estate Contracts in Georgia (pp. 768-777). 6th Edition 2021.