6.2 Condominium & Farm/Ranch Promulgated Contracts

6.2 Condominium & Farm/Ranch Promulgated Contracts

Exam Focus: The Texas Real Estate Broker Examination tests specialized promulgated contracts beyond standard single-family transactions. Brokers must master the statutory framework of the Texas Uniform Condominium Act (TUCA, Texas Property Code Chapter 82), the mandatory 6-day resale certificate termination right, the complexities of the Farm and Ranch Contract (TREC Form 25-17), metes and bounds legal descriptions, the doctrine of emblements, and the calculation and contractual allocation of 3-year agricultural rollback taxes under Texas Tax Code Chapter 23.

1. Residential Condominium Contract (Resale) (TREC Form 30-18)

Transacting condominium real estate involves distinct property law principles governed by the Texas Uniform Condominium Act (TUCA), codified in Texas Property Code Chapter 82.

Dual Nature of Condominium Ownership

Under TREC Form 30-18 (Residential Condominium Contract [Resale]), ownership consists of two legally inseparable estates:

1. Separate Unit Ownership: The buyer acquires fee simple title to the individual unit—defined as the interior airspace bounded by the unfinished interior surfaces of perimeter walls, floors, ceilings, doors, and windows.
2. Common Elements Interest: The buyer acquires an undivided percentage interest as a tenant in common in the common elements of the condominium project (structural foundations, exterior roofs, hallways, elevators, grounds, pools, parking facilities, and mechanical utility infrastructure).

┌─────────────────────────────────────────────────────────────────────────────┐
│                     CONDOMINIUM ESTATE LEGAL STRUCTURE                      │
├──────────────────────────────────────┬──────────────────────────────────────┤
│           INDIVIDUAL UNIT            │           COMMON ELEMENTS            │
│         (Fee Simple Title)           │     (Tenancy in Common Interest)     │
├──────────────────────────────────────┼──────────────────────────────────────┤
│ • Interior cubicle of airspace       │ • Undivided fractional interest      │
│ • Paint, flooring, interior fixtures │ • Foundations, roof, exterior walls  │
│ • Bounded by perimeter sheetrock     │ • Land, clubhouse, pool, parking     │
│ • Individually taxed & mortgaged     │ • Maintained via HOA assessments     │
└──────────────────────────────────────┴──────────────────────────────────────┘

Condominium Resale Certificate & The Statutory 6-Day Rescission Right

Under Texas Property Code § 82.157, a purchaser of a resale condominium unit is entitled to receive a formal Condominium Resale Certificate issued by the unit owners' association (HOA), along with the condominium declaration, bylaws, and association rules.

• Contents of the Resale Certificate: Must detail the current regular monthly assessments, any approved special assessments, capital reserve fund balances, pending legal judgments or active lawsuits against the association, and any existing violations of health or building codes within the specific unit.
• The Statutory 6-Day Right to Terminate:
  • If the buyer receives the Resale Certificate and governing documents, the buyer has 6 calendar days after the date of receipt to review the documents and terminate the contract for any reason by delivering written notice to the seller.
  • If the buyer terminates within this 6-day statutory window, the earnest money is refunded in full to the buyer.
  • If the seller fails to deliver the Resale Certificate within the timeframe agreed in Paragraph 2 of the contract, the buyer may terminate the contract at any time prior to closing and receive a full earnest money refund.
• HOA Fees & Transfer Expenses: Paragraph 12 of Form 30-18 clearly allocates association transfer fees, resale certificate preparation fees, and working capital reserve contributions between buyer and seller according to negotiated caps.

2. Farm and Ranch Contract (TREC Form 25-17)

Rural, agricultural, and ranch transactions possess legal complexities fundamentally absent from urban residential subdivisions. TREC Form 25-17 (Farm and Ranch Contract) is specifically engineered to address land boundaries, agricultural equipment, mineral rights, crops, and rural tax exemptions.

Legal Descriptions & Survey Acreage Adjustments

• Metes and Bounds & Rectangular Surveys: Unlike residential lots described by lot-and-block subdivision plats, rural land is typically described by complex metes and bounds surveys (bearing angles, distances, monuments, natural landmarks) or government rectangular survey system descriptions (sections, townships, ranges).
• Sales Price Calculation & Per-Acre Adjustments (Paragraph 3):
  • The sales price in a Farm and Ranch contract can be expressed as a lump sum or calculated on a per-acre basis (e.g., $12,500 per acre for an estimated 150 acres).
  • Paragraph 3D Acreage Variance: If the newly commissioned boundary survey reveals a discrepancy between the estimated acreage and actual surveyed acreage exceeding a specified percentage (typically 5% to 10%), either party may adjust the sales price proportionally or terminate the contract if the variance exceeds agreed limits.

Agricultural Fixtures & Accessories (Paragraph 2)

Form 25-17 specifically delineates what constitutes real property agricultural fixtures that convey with the land versus personal property:

• Conveyed Agricultural Accessories: Fences, gates, corrals, chutes, windmills, stock tanks, water troughs, hunting blinds, game feeders, barns, storage sheds, irrigation equipment, pressure pumps, and livestock loading chutes convey automatically unless specifically excluded in Paragraph 2D.
• Personal Property vs. Real Estate: Portable cattle panels, tractors, portable generators, and loose livestock feeding troughs remain personal property unless expressly conveyed via a separate Bill of Sale (Form Non-Promulgated).

3. Crops, Emblements & Severed Property Rights

The Doctrine of Emblements (Fructus Industriales)

Under Texas agricultural property law, growing plants are classified into two distinct legal categories:

1. Fructus Naturales (Natural Fruits): Perennial vegetation, timber, native grass, and wild fruit trees that grow naturally without annual cultivation. These are legally classified as real property and automatically convey to the buyer upon closing.
2. Fructus Industriales (Industrial Fruits / Emblements): Annual cultivated crops produced through human labor, plowing, and seasonal planting (e.g., cotton, corn, grain sorghum, winter wheat, soybeans).

• Seller's Harvesting Rights: Under Paragraph 2E of Form 25-17, the seller retains the property right to harvest growing annual crops (emblements) until the date of closing, unless otherwise negotiated.
• Post-Closing Crop Agreements: If the harvest season extends beyond closing, the parties must execute a written agricultural leaseback or specific reservation specifying harvest deadlines, field access rights, and proceeds sharing.

4. Texas Rollback Taxes (Texas Tax Code Chapter 23)

One of the highest-liability areas on the broker examination involves Agricultural Appraisal Exemptions (1-d and 1-d-1) and statutory Rollback Taxes under Texas Tax Code Chapter 23, Subchapters C and D.

Agricultural Valuation vs. Market Valuation

Under the Texas Constitution and Tax Code, land qualified for agricultural productivity use (1-d-1 Open Space or 1-d Ag) is appraised for property tax purposes based on its productive agricultural capacity, rather than its true market value. In high-growth metropolitan and suburban areas, agricultural appraised value may be a tiny fraction (e.g., $150/acre) of fair market value (e.g., $75,000/acre).

Rollback Tax Trigger & Statutory Mechanics

• The Triggering Event: When land receiving agricultural valuation undergoes a change of use to a non-qualifying purpose (e.g., rezoned or developed into a commercial shopping center, residential subdivision, or industrial park), an agricultural rollback is triggered.
• The 3-Year Lookback Period: The county appraisal district (CAD) assesses a rollback tax equal to the difference between the taxes actually paid under the agricultural valuation and the taxes that would have been paid based on fair market value for the preceding 3 tax years.
• Statutory Interest: The county imposes a mandatory 5% annual statutory interest penalty calculated from the dates the taxes would originally have been due.

┌─────────────────────────────────────────────────────────────────────────────┐
│                     ROLLBACK TAX ASSESSMENT FORMULA                         │
│                                                                             │
│  Rollback Tax Due = (Market Value Taxes - Ag Taxes Paid) [Prior Year 1]     │
│                   + (Market Value Taxes - Ag Taxes Paid) [Prior Year 2]     │
│                   + (Market Value Taxes - Ag Taxes Paid) [Prior Year 3]     │
│                   + 5.0% Statutory Annual Interest per Year                 │
└─────────────────────────────────────────────────────────────────────────────┘

Determining Who Pays: Contractual Allocation (Paragraph 10B / Paragraph 11)

• Seller Liability: If the seller changes the land use prior to closing, or if the rollback tax is assessed prior to closing without an agreed change of use by the buyer, the seller is liable for the full rollback tax and interest.
• Buyer Liability: If the rollback tax is assessed after closing because the buyer changes the use of the property (or fails to maintain agricultural operations), the buyer is strictly responsible for paying the rollback taxes.
• Statutory Disclosure Requirement (Texas Property Code § 5.010): A seller of unimproved real property must deliver a statutory notice to the buyer warning that change of use will trigger rollback tax liability. Failure to provide the notice creates statutory liability for the seller.

5. Unimproved Property Contract (TREC Form 9-18)

TREC Form 9-18 (Unimproved Property Contract) is promulgated for the purchase and sale of vacant land, individual unimproved subdivision lots, and commercial infill parcels where no residential structural improvements exist.

Critical Due Diligence Considerations on Form 9-18

• Utility Availability & Certificates of Convenience and Necessity (CCN): Buyers must verify whether the parcel lies within a public water/sewer utility district, a Municipal Utility District (MUD), or a Water Supply Corporation (WSC), or whether on-site sewage facilities (OSSF / septic systems) and private water wells are required.
• Floodplains, Wetlands & Topography: Vacant land often contains designated 100-year FEMA floodplains, federally protected jurisdictional wetlands (Army Corps of Engineers), or drainage easements that restrict buildable footprints.
• Deed Restrictions & Zoning: Verification of municipal zoning classifications, restrictive covenants, HOA architectural controls, and minimum square footage requirements.

6. Contract Comparison: Residential vs. Condo vs. Farm & Ranch vs. Unimproved

The following table illustrates the key statutory and operational distinctions across Texas promulgated purchase contracts: