Condos & PUDS – what’s the difference?

Condos and PUDs. We hear and use the terms all the time, but does everyone really know what they mean?

Condos are condominiums, of course, and PUDs are planned unit developments. And while each may look like the other from the street, they’re completely different animals with different rules and laws applying to each. So, what’s in a name? Lots, actually.

Misconceptions

Often, the confusion is caused by appearances. Shared walls, common area, dues, and homeowners’ associations (HOAs) are probably the biggest culprits. Because condos and PUDs generally feature all of these, and because condos and PUDs are usually called ‘units’ instead of ‘lots’, it’s a small step to conclude that property with some or all of these features are condos. But that’s not correct.

Condos

When you’re talking condos, you’re talking 3-dimensional space instead of land. Which is why condos are a legal fiction and created by statute (Indiana's Horizontal Property Law, IC 32-25-1 et seq.). Why fictional? Because the statute declares condo units to be real estate even if units are on second and higher floors and don't have ground directly beneath them (thus, "horizontal property").

The surest way to tell if a dwelling is a condo is to look at the plans on file in the County Recorder’s office. If the plans show three dimensions (length, width, and height), you’re dealing with a condo. Condo owners don’t own dirt, bricks, and mortar; they own air space inside the interior walls. Which means a condo can’t exist until the building is erected so a professional architect or engineer can measure its three dimensions. Who does own the dirt, bricks, and mortar? All unit owners together. So, in a 50-unit condo development, each unit owner also owns a 1/50 share of the land and buildings (common area) or a share based on square-footage.

The condo statute is very detailed about what must be done to create a condo and how condos operate. For starters, condos must be created by a document called a ‘declaration’. In turn, the declaration must have specific provisions including bylaws of the HOA. It must also contain a plat (detailed drawing) showing how the building or buildings containing the units are situated as well as a copy of the plans showing the size (length, width, height) and location of each unit. In addition, the declaration must contain all covenants, conditions, and restrictions about its use (CCRs).

So, to be a condo, all the relevant documents MUST be contained in the declaration. Having said that, most declarations (and bylaws) contain general provisions allowing the board of directors to come up with rules and regulations. Often these are implemented at board meetings and documented in the form of minutes. These do not have to be recorded because a proper declaration will say the board has this power, so everyone is on notice.

PUDs

In contrast to condos, PUD units are 2-dimensional, not 3-. Significantly too, a PUD unit (lot) owner does own the ground beneath his or her feet. Although at some point each lot will have a building on it including a wall shared with at least one neighbor, the building may be erected after the PUD exists. This is because PUDs are traditional real estate (they include land) and don’t have to rely on a legal fiction to exist, although they are controlled by planning and zoning rules.

As with condos, PUD plats show unit (lot) dimensions and locations, and where the common area is. Not much more is required than that, although most PUDs have CCRs and HOAs created by a document most lawyers call a ‘declaration’ (which adds to the confusion). But unlike condos, the CCRs and HOA information don’t have to be in a single document. Also unlike condos, the HOA should (but doesn’t always) own the common area.

Simply stated, the condo statute does NOT apply to PUDs. Still, PUD CCRs have to be recorded to be enforceable, although the simplest PUDs include the CCRs right on the PUD plat. Typically, the CCRs will cover whether there is a HOA (there doesn't have to be) and whether it's a nonprofit corporation (it doesn't have to be). If it is a nonprofit corporation, there have to be bylaws (but not necessarily recorded) because Indiana's corporation law says so. If the HOA is not a nonprofit corporation, no bylaws are needed (but would be prudent).

In other words, PUDs are loose and not governed by statute, although city or county planners may dictate provisions and how they're put together.

But remember the key: check for three dimensions.

- Morrie Erickson