Georgia Condominium Law: Beyond the Condominium Act
| Publication year | 2007 |
| Pages | 0024 |
GSB Vol. 13, NO. 2, Pg. 24. Georgia Condominium Law: Beyond the Condominium Act
Vol. 13, NO. 2
October 2007
The development and sale of residential condominiums and the establishment of related associations are governed by several distinct bodies of Georgia law. Foremost of these is the Georgia Condominium Act (the "Condominium Act").(fn1) The Condominium Act establishes the unique rights, duties and obligations of parties developing and purchasing condominiums in Georgia. (A federal condominium statute also applies to apartments that are converted to condominiums.)(fn2)
In addition to the Condominium Act, residential condominiums are governed by a substantial body of law relating to the purchase and sale of residential real estate. This body of law encompasses pre-sale disclosure obligations, claims for construction defects and arbitration.
A third body of law that is often overlooked, but nevertheless applicable to residential condominium developments, is that relating to non-profit and for-profit corporations. The Condominium Act expressly provides that condominium associations are for-profit or non-profit corporations subject to the Georgia Business Corporation Code(fn3) or the Georgia Nonprofit Corporation Code,(fn4) respectively.(fn5) This body of law establishes standards of conduct for a corporation's officers(fn6) and directors,(fn7) procedures for a corporation to conduct business,(fn8) and rights and obligations of a corporation's shareholders or members.(fn9)
The Georgia courts have had few opportunities to construe Georgia condominium law. Consequently, little guidance to the bar and general public exists concerning many aspects of Georgia condominium law, including the interaction between the distinct bodies of law that apply to residential condominium developments. This article will explore some of those areas of interaction.
Disclosure of Defects
Much condominium litigation involves claims of defects in the property.(fn10) Some of that litigation also includes allegations of fraud on the part of the developer/seller based upon its failure to disclose defects prior to sale.(fn11) These failure-to-disclose claims raise the question whether a condominium developer has an obligation to inspect the property to discover defects, or even to disclose known defects.
The Georgia courts have repeatedly addressed a residential buyer's right to claim fraud based on a seller's failure to disclose known defects in the property:
"Fraud in the sale of real estate may be predicated upon a willful misrepresentation, i.e., the seller tells a lie; upon active concealment where the seller does not discuss the defect but takes steps to prevent its discovery by the purchaser; and thirdly a passive concealment where the seller does nothing to pre-vent the discovery but simply keeps quiet about a defect which though not readily discernible, is known to the seller."(fn12)
Georgia also recognizes two other species of fraud in the sale of residential real estate: constructive fraud and fraud through negligence.(fn13) Constructive fraud occurs when a seller makes representations that it "should have known" were false or conceals material information that it should have known.(fn14) Fraud through negligence occurs when a seller makes reckless misrepresentations of fact without any knowledge of their truth.(fn15) Outside of these obligations, Georgia does not impose on sellers affirmative duties to inspect and disclose defects in residential property.
Unlike general real estate law, the Condominium Act imposes on developers affirmative duties to detect and disclose defects in projects that involve the conversion of an existing building into a residential condominium.(fn16) The Condominium Act expressly defines a "conversion condominium" as one involving the creation of a residential condominium that includes any building that was occupied by a person who did not have the pre-existing contractual right to purchase the condominium.(fn17)
The scope of the definition of "conversion condominium" is a source of disagreement among practitioners. Some members of the bar contend that a conversion condominium only includes buildings that were previously used for residential purposes. Because, however, the definition does not refer to prior residential use, it appears that the term "conversion condominium" encompasses most re-use projects that renovate and convert to residential condominiums existing facilities such as warehouses, mills or historic structures such as office buildings or hotels.
The Condominium Act requires developers of conversion condominiums to include in the documents...
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