HPR & PUD DEVELOPMENTS
The increased usage of small Planned Unit Developments in Tennessee urban core areas has given rise to confusion among real estate professionals.
This confusion can be found in two general areas:
1) What are the proper terms to use when discussing a Planned Unit Development, and
2) What are the rights and responsibilities of an owner in a Planned Unit Development?
Useful Terms
HPR - Horizontal Property Regime
PUD - Planned Unit Development
There has been some significant marketplace confusion through the
interchangeable use of the terms/abbreviations HPR and PUD to describe these
small developments. Simply stated, both are correct. HPRs are a broad
category of developments that include most pre-2009 condominium-style
developments in Tennessee, as well as PUDs. But PUD is a more specific type
of HPR that excludes those pre-2009 condominiums, and therefore, PUD is the
best term to use.
As you read on, you’ll see that the Planned Unit Development statute is the single, specific statute that is used to enable this type of development.
What is a PUD?
A PUD is defined by statute as, "an area of land, controlled by one
(1) or more landowners, to be developed under unified control or
unified plan of development for a number of dwelling units,
commercial, educational, recreational or industrial uses, or
any combination of the foregoing, the plan for which does not
correspond in lot size, bulk or type of use, density, lot coverage, open
space, or other restrictions to the existing land use regulations."
The Rationale
Why use this development tool in the first place? Developers and builders alike have turned to HPR/PUDs as a development tool to achieve a higher individually-sellable density than the bulk zoning code would normally allow. Also of significant importance to developers, this density is achieved without the need for approval from the regional planning commission.
The Horizontal Property Act, consisting of Tenn. Code Ann. §§ 66-27-101 to - 123, allows for this type of development throughout Tennessee. A 2001 Tennessee Attorney General opinion provides that “if a property owner complies with the Act’s provisions for establishing a horizontal property regime, the property owner need not seek the regional planning commission’s approval under the statutory provisions governing subdivisions” Op. Tenn. Att’y Gen. 01- 147 (Sept. 14, 2001). It is important to note, however, that this statute does not allow completely unfettered construction within the bounds of an HPR/PUD, because a regional planning commission is empowered to “adopt regulations governing the subdivision of land within its jurisdiction” pursuant to Tenn. Code Ann. § 13-3-403(a). So, regional planning bodies may still restrict the height of the dwelling, establish setbacks, as well as a myriad of other construction-related concerns.
In other words, the regional planning commission may properly restrict the construction of a two-unit or four-unit dwelling on a lot (for instance), but they may not restrict the use of a HPR/PUD to allow each dwelling to be individually owned by different owners, where a two or four-unit dwelling is otherwise allowed.
Attached vs. Detached HPR/PUD Developments
One of the key HPR/PUD characteristics for most marketplace clients is the issue of dwelling attachment. This is one of the many characteristics that can be properly regulated by the regional planning commission.
To use Nashville as an example, 2-4 unit HPR/PUD dwellings were traditionally required to be attached to the other dwellings in the same HPR/PUD development. Developers routinely and cleverly oriented the structures in order to meet the minimum attachment required – usually an ancillary space, such as a garage was the attachment wall. These minimum connections became known as “umbilical cords.” In 2014, the Nashville/Davidson County Metro Council decided that the attachment requirement was failing to achieve its purpose of making the multiple-dwelling structure look like one home. The Council therefore passed BL2014-770: Two-Family Dwellings, which, among other things, allowed for HPR/PUD builds that are not attached.
To make a proper evaluation, a builder or developer seeking to construct an
HPR/PUD should thoroughly investigate all construction restrictions imposed by
the regional planning commission and building codes regulators.
What is required by law to create an HPR/PUD?
Tenn. Code Ann. § 66-27-103(b) gives us the six mandatory things that must be in place to establish an HPR/PUD in Tennessee:
All planned unit developments shall require:
- Declaration
- Bylaws
- Plat showing private and common elements
- Townhouse corporation
- Charter and an
- Attorney's opinion
The Best HPR/PUD Documents
The best HPR/PUD documents that are filed with the County Register of Deeds will have each of these requirements satisfied in one (multi-page) recorded instrument. But remember that these developments are a relatively new tool in Tennessee, and you may find HPR/PUDs from pre-2008 that aren’t as clear as recent ones. The Plat (sometimes called the Site Plan) will not only be particularly useful to your analysis as a Realtor®, but also when you have discussions with clients. Work with your local title agent or County Register of Deeds to determine the best method to use in obtaining these recorded instruments.
Element Categories in a Plat or Site Plan
As you review several HPR/PUD site plans, you’ll begin to notice that there are three types of areas that are delineated within the plan. Those major categories are:
- Private Element – includes the lot area upon which dwelling is constructed, and for which fee simple ownership and exclusive use is reserved to that dwelling only. “Private elements shall exist only where each apartment in the project has a ground floor and there are no apartments located above or below the private element except the one (1) apartment located thereon.” This means that HPR/PUDs cannot be stacked on each other. They must have no other dwelling above, and no other dwelling beneath;
- Limited Common Element – those common elements which are agreed upon by all of the co-owners to be reserved for the use of a certain number of dwellings to the exclusion of the other dwellings. In most site plans, you’ll find that Limited Common Elements are reserved for the exclusive use of one owner, although, Limited Common Elements reserved for several (but not all) owners are not uncommon.
- Common Element – Generally speaking, every other part of a site plan that is not designated as a Private Element or a Limited Common Element will be a Common Element, and is equally owned and equally usable by all owners in the development.
Insurance Requirements
Clients should be encouraged to seek insurance providers that are familiar with HPR/PUD developments for help in acquiring the correct insurance product and avoiding any gaps in coverage. There are, however, a few guiding principles that can be used to point real estate purchasers in the right direction:
- An individual unit owner homeowner’s policy will usually provide coverage to perils that occur within the private element, subject to specific exclusions found in all insurance policies.
- An individual unit owner homeowner’s policy will usually provide coverage to perils that occur within the limited common element reserved for only the use of that dwelling, subject to specific exclusions found in all insurance policies.
- An individual unit owner homeowner’s policy will not provide coverage to perils that occur within the limited common element reserved for the shared use of more than one homeowner.
- An individual unit owner homeowner’s policy will not provide coverage to perils that occur within the common element.
In the last two circumstances above, a general liability policy will be required to be held by the HOA to provide coverage as to perils in any space with shared ownership and usage. It’s important to reiterate that these guiding principles are no substitute for property-specific advice that is provided by an insurance provider familiar with HPR/PUD developments.