Who Owns The Streets In Your Gated Community?
That's sounds like a question that would have a straight forward answer like, “of course, the Homeowners in the subdivision through the HOA own the streets”. Unfortunately, you might find out that the community doesn't own the streets at all. In fact the community is only leasing them from some paving company. What?
All the pretty trappings of that brand new community could be leased from various companies and that’s why the cost of the lots is so cheap. The HOA could be leasing the roads, walls, gate house, club house, tennis courts, curbs, street lights and even the landscaping. You know what they say, buyer beware and it's always in the fine print!
Imagine my surprise when I joined the Board of my community only to find out we didn't own the street lights in our gated, private community. I get it, somebody else always owns the street lights on public roads but inside the gates, it should be different. The community owns the streets, landscaping, walls, gates etc. but not the street lamps.
It turns out the developer, instead of buying the street lights and poles leased them from the power company. So why would that make any difference? Well suppose all the street lights cost $50,000 and there are 20 lots in the community. That means the cost of the lots would have to increase by $50,000/20 or $2,500 per lot for the developer to make the same amount of profit.
After some investigation I found, the developer leased the street lights from the power company for a period of 5 years at a fixed monthly amount. After 5 years the power company doesn’t replace the street lights and start a new lease, they just maintain the existing lights and poles but the community continues to pay the same monthly rate. If we wanted to terminate the lease and buy our own poles and lamps we would have to rip up the entire community and install our own wires from the meter including new poles at a huge cost. On top of the lease payments we are obligated to pay for the electric the utility company supplies!
Perhaps it's just me. Suppose I lease a new car for 5 years at $300 per month, after 5 years I either own (with buy out) the car or I can get a new one at $300 per month. Imagine if you found out you had to continue to drive the old car and still pay $300 per month forever but the leasing company would just maintain the car? Doesn't pass the smell test, to me!
What if other parts of the infrastructure is leased instead of purchased too? See where I’m going with this? No wonder the lots were so cheap or the developer just sold the lots at the market price and pocketed the difference?
So, before you buy a lot in a gated community you might want to ask, who owns the infrastructure in the community before you sign on the dotted line?
Have an awesome day!
Mike
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