Requirements of a Declarant When Selling Homes in a Common-Interest Community Containing Converted Buildings

By: David M. Bray

Nevada Revised Statute (“NRS”) Chapter 116 highlights the various prerequisites and requirements of a declarant-developer (“declarant”) prior to selling homes in a common-interest community to the general public. Indeed, one distinct requirement of a declarant is the preparation and issuance of a Public Offering Statement. The Public Offering Statement provides information to potential homebuyers, including but not limited to: the description of the common-interest community; the estimated number of homes to be constructed; home warranty information; and a projected financial budget for the maintenance of the community. In addition to these general disclosures, Nevada law mandates separate and unique requirements of a declarant’s Public Offering Statement if the common-interest community contains any converted buildings.

What Is A “Converted Building”?

As a point of clarification, NRS 116.029 defines a “converted building” as any building, which prior to the creation of the common-interest community, was “occupied wholly or partially by persons other than purchasers and persons who occupy with the consent of purchasers.” In essence, a converted building is a building that was occupied by a prior owner and/or tenants, but is later re-used or re-purposed as part of a common-interest community. If these buildings become part of a common-interest community, the declarant is required, as part of the Public Offering Statement, to including: (1) a statement based on a report prepared by an independent registered architect or licensed professional engineering, describing the present conditions of the structural, mechanical and electrical components of the building; and (2) provide a list of any uncured violations of the building code and/or local regulations; and (3) an estimated cost for any uncured violations.

Mandatory Investigation & Disclosure Requirements Of The Declarant

When read in conjunction, Nevada law requires that a declarant who offers homes in a common-interest community that contain converted buildings (i.e., apartments later sold as condominiums, RV park’s pools and pool buildings later re-used in a single family homes community, etc.) must: (1) hire an independent architect or engineer to perform an inspection/analysis of the converted buildings to determine their present condition; (2) disclose the findings of the required inspection/analysis in the Public Offering Statement; (3) provide a list of any outstanding uncured building code violations; and (4) provide the estimated costs of curing those violations. Moreover, this investigation and disclosure is mandatory.  Indeed, Nevada law holds a declarant potentially liable for “any false or misleading statement…or for any omission of material fact” of a Public Offering Statement. The Nevada Legislature wanted to ensure that potential homebuyers were fully apprised of whether the common-interest community they were thinking of purchasing a home in was “new,” meaning that any buildings and/or structures previously used were in compliance with the operative building code and local regulations, or if not, what was necessary to remedy such violations.

Consequences for Failing to Comply with Nevada Law Re. Disclosure Of Converted Buildings

In the event a declarant does not address the specific mandates of Nevada law regarding converted buildings, NRS Chapter 116 provides harsh penalties against the declarant. Indeed, not only would an HOA and/or homebuyer have the right to recover money damages against the declarant for failure to conduct the investigation of the converted buildings and disclose the same, but Nevada law also provides that the Court may award reasonable attorney’s fees in favor of the prevailing party, as well as the potential to recover punitive (i.e., punishing) damages, where it is proven that the declarant’s failure to comply was intentional. Despite these potential penalties, our office has prosecute numerous cases involving declarants who have failed to either perform the mandatory investigation of the converted buildings and/or failed to disclose the findings of the same to potential homebuyers. If you would like further advice regarding a declarant’s requirements when selling homes in a common-interest community, please Angius & Terry for more information.