Condominiums are a popular choice. Bermuda is a small community with finite resources. Open space is premium priced; those fortunate enough to still have it, hope to be able to preserve it.

Housing is expensive — the cost of a single family detached home is almost beyond the reach of the middle class. Some families have pooled financial resources to purchase or renovate properties. In a way, they have created family condominiums without the physical and legal constraints of a formal entity called a condominium association.

While we love our relatives, warts and all, in some cases these combined family property purchases may just not work from a legal and emotional perspective.

Condo choices galore. For many families, then, the first rung up the ladder of home-ownership is purchasing a condominium. In Bermuda today, there are many competitive selections; some large structures with 65 or more units, others as small as a dual-connected dwelling.

Condominiums can be tastefully designed to fit compactly into spaces that a single-family unit cannot while still preserving the collectively owned remaining land as permanent open space for all residents.

Home is where the heart is. There are many factors you should be aware of before you buy your condominium home. Since this acquisition is, for most individuals, the biggest purchase of their entire life, you (and anyone else purchasing this home with you) should become a good consumer, gathering all related information before you make your final decision. Remember the Latin expression, just as true today as it was thousands of years ago "caveat emptor". Let the buyer beware.

Structure of ownership: Condominium structures are unique, starting with type of ownership (titling) offered, freehold or leasehold. With freehold titling, the purchaser owns an undivided share in the condominium unit in perpetuity. This is accompanied by a vote in the condominium association that owns the common land.

Leasehold titling is a different story. Typically, you will own a 999-year lease in your condominium unit and have shares in the Condominium Limited Company.

The Condominium Company is governed by a board and its general members. Leasehold ownership is considered a more legally sound choice, particularly when problems arise from negligent owners, and blatant refusals to contribute to special assessments, as a landlord / tenant relationship has been formally created.

Technically, as the leasehold is sold and resold, the new sales price may actually be lower than the original sales price since the right of longevity in ownership is gradually decreasing.

Since 999 years is a rather lengthy period of time, this depreciation factor really is not an issue for your lifetime or many more generations to come. Ownership rights and responsibilities between the inner and outer walls of your condominium differ in that the legal title will generally define individual ownership for all structures within the inner walls of your dwelling, but default to collective association ownership of the outside walls and everything outside to the land legal structural boundaries.

This creates the interesting situation where all of the common areas including the outside walls are maintained through the collections of the condo assessment fees on each unit, but the insides of each condo are treated like separate homes.

It also means that it is imperative that the condominium association is run responsibly as a business — so that in the case of a major catastrophe, for instance, condominium property insurance premiums are current and adequately valued.

You may have an individual mortgage for which you are personally responsible that is legally separate from the assets and liabilities of the condominium association.

Covenants control harmonious living. Condominium associations are governed with rules and covenants, put into place so that all residents can have, in the classic real estate sense, "the right to quiet enjoyment of their home".

Covenants will pretty much eliminate having your own mini-farm with egg-laying free-range chickens (and a rooster) in your back yard. These rules may include those uninvited feral ones who waltz up without permission just as if they owned the place, but may be too restrictive about other rights, such as the use of traditional clotheslines. First-time condominium homebuyers may not realise that they have a vote on many of these rules, since they are also percentage owners in the association.

Being a cash-counting financial planner, I have a personal agenda about excess energy consumption, when that savings could be used for financial security. Everyone should have the right to a clothesline utilising 340 days of sunshine a year. It is estimated that using an electric clothes dryer costs $5 per load. Sunshine is free.

The condominium association, or the management company, collects condominium fees and has expenses: utilities, water, landscaping, and road maintenance, pool maintenance, insurance coverage, septic systems, painting, water tank purity, and so on.

Thus, several layers of stratification; the homeowner inside, the condominium association outside and the management company's way outside. Monthly condominium fees generally are broken into several different apportionments: Part to running the condominium association business; part to the management company to oversee the maintenance; and, I cannot emphasise enough, the most important and the biggest part of your monthly condominium fee should be set aside to be invested in Association Capital Reserve account for future contingencies and repairs.

Contingency cache. What are capital expenditures? Major painting jobs of the entire complex; roofing replacement, re-enforcement of structural outside walls, relining water tanks after storms and so on. What you may not realise is that as a condo homeowner, it is your right (and your duty) to be sure that the capital reserves are carefully collected from everyone in the complex and just as carefully protected for the future. Have you heard of the term "special assessment"? For the record, this charge to you may occur when there is not enough in the capital reserve (for whatever reason) to pay for a major structural repair.

Unfortunately, far too often smaller condominium associations do not have adequate (or any) capital reserves. In the event of an assessment, owners will have to contribute their percentage of the liability. If you have not set aside personal contingency funds, you could find yourself taking a further charge on your mortgage.

The outvoted trap. In very small condominium associations, say three — five units, you also may find yourself (and your family) in the minority on spending decisions. Beware, that according to current law, you must pay your maintenance fees even if you have d isagreements about how, to whom, and where the condominium fees are spent.

As an owner, you have a right to receive detailed verifiable financial accounting for all condominium management income and expenses. If it is unavailable, you may have to litigate for full disclosure of all financial records, insurance coverage, and vendor agreements.

With so much sharing going on you need to research each condominium complex, as well as the unit you fancy. Ask these questions and quite a few more.

What is the composition of the other owners in the condominium complex? You already know who you are! Such as:

a) Number of units with absentee owners, living here or living abroad?

b) Number of units with tenants, or subtenants in the case of leasehold units. Are they long-term leases or month-to-month?

c) How many units are unoccupied at any one time and the length of time they remain so?

d) How many units are owner-occupied and the length of time they have been there, on average?

Why are these questions a factor?

Consider a) above — if there is a downturn in the economy and the absentee owner runs into financial difficulty, either here or abroad, he may stop paying the monthly condo fee and any special assessment, while still collecting rental income.

Ever try collecting anything from someone living in another country? Legal resources are expensive, slow, and may be ineffectual. Leasehold titling is a stronger choice in this type of situation as the board of the Condominium Company Limited has the right in many cases to sell the unit in order to recover the arrears. Even so, it could be a stressful tedious time before your rights prevail and the offending owner's property is attached for non-payment. In the meantime, guess who gets to pick up the slack?

Not many think to include that painful expense in an already tight housing budget!

Next week: Condominium research Part II, and the week after Part III. What you need to know about condominium finances, management, occupancy rights, and getting along in your new home.

Martha Harris Myron CPA -NH1929, CFP® -67184 (US licenses) TEP - Society of Trust and Estate Practitioners. She is a Senior Wealth Manager at Argus Financial Limited with international experience, specializing in investment advisory services and comprehensive financial solutions for individual private clients and their families, business owners, endowments and trusts. DirectLine: 294 5709 Confidential e-mail can be directed to mmyron@argusfinancial.bm The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.