D R A F T

FOR DISCUSSION ONLY

AMENDMENTS TO

UNIFORM COMMON INTEREST OWNERSHIP ACT

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

February 24, 2005

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

The ideas and conclusions set forth in this draft, including the proposed statutory language and any comments or reporter=s notes, have not been passed upon by the National Conference of Commissioners on Uniform State Laws or the Drafting Committee. They do not necessarily reflect the views of the Conference and its Commissioners and the Drafting Committee and its Members and Reporters. Proposed statutory language may not be used to ascertain the intent or meaning of any promulgated final statutory proposal.

DRAFTING COMMITTEE ON AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT

CARL H. LISMAN, 84 Pine St., P.O. Box 728, Burlington, VT 05402, Chair

OWEN L. ANDERSON, University of Oklahoma College of Law, 300 Timberdell Rd., Norman, OK 73019

MARION W. BENFIELD, JR., 10 Overlook Circle, New Braunfels, TX 78132

LEVI J. BENTON, State of Texas, 301 Fannin, Houston, TX 77002

DAVID D. BIKLEN, 153 N. Beacon St., Hartford, CT 06105, Enactment Plan Coordinator

ELLEN F. DYKE, 8010 Towers Crescent Dr., Suite 300, Vienna, VA 22182

JOHN S. GILLIG, Office of the Speaker, State Capitol, Room 309, Frankfort, KY 40601

DALE G. HIGER, 101 S. Capitol Blvd., Suite 1900, Boise, ID 83702‑5958

HIROSHI SAKAI, 3773 Diamond Head Circle, Honolulu, HI 96815

NATHANIEL STERLING, Law Revision Commission, 4000 Middlefield Rd., Suite D‑1, Palo Alto, CA 94303

YVONNE L. THARPES, Legislature of the Virgin Islands, P.O. Box 1690, St. Thomas, VI 00804

LEE YEAKEL, Western District of Texas, P.O. Box 164196, Austin, TX 78716‑4196

WILLIAM R. BREETZ, JR., University of Connecticut Law School, Connecticut Urban Legal Initiative, 35 Elizabeth St. Rm K‑202, Hartford, CT 06105, National Conference Reporter

EX OFFICIO

FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Road, Room 3056, Norman, OK 73019, President

LANI LIU EWART, Suite 1800, Alii Pl., 1099 Alakea St., Honolulu, HI 96813, Division Chair

AMERICAN BAR ASSOCIATION ADVISORS

GARY A. POLIAKOFF, 3111 Stirling Road, Ft. Lauderdale, FL 33312‑6525, ABA Advisor

REBECCA ANDERSON FISCHER, 633 17th St. Ste. 300, Denver, CO 80202, ABA Section Advisor

EXECUTIVE DIRECTOR

WILLIAM H. HENNING, University of Alabama School of Law, Box 870382, Tuscaloosa, AL 35487-0382, Executive Director

Copies of this Act may be obtained from:

NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS

211 E. Ontario Street, Suite 1300

Chicago, Illinois 60611

312/915‑0195

www.nccusl.org

AMENDMENTS TO THE UNIFORM COMMON INTEREST OWNERSHIP ACT

TABLE OF CONTENTS

PART 1PROPOSED AMENDMENTS TO EXISTING UCIOA

SECTION 1-102. DEFINITIONS.................................................................................................. 1

SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS........................................... 2

SECTION 3-101. ORGANIZATION OF UNIT OWNERS= ASSOCIATION.............................. 4

SECTION 3-102. POWERS OF UNIT OWNERS= ASSOCIATION......................................... 5

SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS................................. 5

SECTION 3-106. BYLAWS.......................................................................................................... 8

SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF LIMITATION PERIOD 8

SECTION 3-113. INSURANCE................................................................................................. 10

SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS.............. 13

SECTION 4-113. EXPRESS WARRANTIES OF QUALITY.................................................. 14

SECTION 4-114. IMPLIED WARRANTIES OF QUALITY...................................................... 15

SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED WARRANTIES OF QUALITY 16

SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES................................... 17

SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION;

ATTORNEY=S FEES...................................................................................................... 18

PART 2

PROPOSED NEW PART 6 TO UCIOA - DRAFT OF AN OPTIONAL,

STANDALONE, ACT...................................................................................................... 20

PART 1

PROPOSED AMENDMENTS TO EXISTING UCIOA

SECTION 1-102. DEFINITIONS.

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Definitions (7) And (8) are relevant to the proposal to add a comment that it is not possible to create ANo Unit@ or AI Unit@ communities under UCIOA.

(7) ACommon interest community@ means real estate with respect to which a person, by virtue of his ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration. AOwnership of a unit@ does not include holding a leasehold interest of less than [20] years in a unit, including renewal options.

(8) ACondominium@ means a common interest community in which portions of the real estate are designated for separate ownership and the remainder of the real estate is designated for common ownership solely by the owners of those portions. A common interest community is not a condominium unless the undivided interests in the common elements are vested in the unit owners.

This definition (29) would be affected if the committee chooses to make control of any architectural review committee a special declarant right.

(29) ASpecial declarant rights@ means rights reserved for the benefit of a declarant to (i) complete improvements indicated on plats and plans filed with the declaration (Section 2-109) or, in a cooperative, to complete improvements described in the public offering statement pursuant to Section 4-103(a)(2); (ii) exercise any development right (Section 2-110); (iii) maintain sales offices, management offices, signs advertising the common interest community, and models (Section 2-115); (iv) use easements through the common elements for the purpose of making improvements within the common interest community or within real estate which may be added to the common interest community (Section 2-116); (v) make the common interest community subject to a master association (Section 2-120); (vi) merge or consolidate a common interest community with another common interest community of the same form of ownership (Section 2-121); or (vii) appoint or remove any officer of the association or any master association or any executive board member during any period of declarant control (Section 3-103(d)).

A number of issues were raised at the first drafting committee meeting regarding difficulties in applying Section 2-107 in the context of either [a] mixed use projects, where there is a need to protect, for example, the ground level retail store from the voting power of the majority of homeowners; and [b] the perception that UCIOA forces multiple associations to be created when a single association would be preferable.

Sub-section (d) was intended to address the first problem; anecdotal evidence suggests (d) is not being relied on by drafters. C. Lisman also expressed concerns about the unneeded multi-tier association problem.

SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS.

(a) The declaration must allocate to each unit:

(i) in a condominium, a fraction or percentage of undivided interests in the common elements and in the common expenses of the association (Section 3-115(a)), and a portion of the votes in the association;

(ii) in a cooperative, an ownership interest in the association, a fraction or percentage of the common expenses of the association (Section 3-115(a)), and a portion of the votes in the association; and

(iii) in a planned community, a fraction or percentage of the common expenses of the association (Section 3-115(a)), and a portion of the votes in the association.

(b) The declaration must state the formulas used to establish allocations of interests. Those allocations may not discriminate in favor of units owned by the declarant or an affiliate of the declarant.

(c) If units may be added to or withdrawn from the common interest community, the declaration must state the formulas to be used to reallocate the allocated interests among all units included in the common interest community after the addition or withdrawal.

(d) The declaration may provide: (i) that different allocations of votes shall be made to the units on particular matters specified in the declaration; (ii) for cumulative voting only for the purpose of electing members of the executive board; and (iii) for class voting on specified issues affecting the class if necessary to protect valid interests of the class. A declarant may not utilize cumulative or class voting for the purpose of evading any limitation imposed on declarants by this [Act] nor may units constitute a class because they are owned by a declarant.

(e) Except for minor variations due to rounding, the sum of the common expense liabilities and, in a condominium, the sum of the undivided interests in the common elements allocated at any time to all the units must each equal one if stated as a fraction or 100 percent if stated as a percentage. In the event of discrepancy between an allocated interest and the result derived from application of the pertinent formula, the allocated interest prevails.

(f) In a condominium, the common elements are not subject to partition, and any purported conveyance, encumbrance, judicial sale, or other voluntary or involuntary transfer of an undivided interest in the common elements made without the unit to which that interest is allocated is void.

(g) In a cooperative, any purported conveyance, encumbrance, judicial sale, or other voluntary or involuntary transfer of an ownership interest in the association made without the possessory interest in the unit to which that interest is related is void.

The following section would be affected by the proposal to increase the types of organizations that may serve as unit owner associations

There was discussion of whether to impose a statutory Adefault@ association if the declarant does not act. [e.g. Unless and until organized as another entity recognized under the law of this State, an un-incorporated association of all owners comes into existence on the date the first unit is conveyed]

Other stated issues are these:

1. Why are only homeowners allowed as owners? How about the declarant during the period of declarant control [consensus B yes] How about Tenants - [no B provide only the rights as now allowed in Sec.3-110(c)] Lenders? B no noted decision]

SECTION 3-101. ORGANIZATION OF UNIT OWNERS= ASSOCIATION. A unit owners= association must be organized no later than the date the first unit in the common interest community is conveyed. The membership of the association at all times consists exclusively of all unit owners including the declarant during the period of declarant control or, following termination of the common interest community, of all former unit owners entitled to distributions of proceeds under Section 2-118 or their heirs, successors, or assigns. The association must be organized as a profit or nonprofit corporation, trust, limited liability company, ~~[or]~~ partnership, any other form of business organization authorized by the laws of this State [, or as an unincorporated association].

The following section and Section 4-117 would be affected by any comment on binding arbitration and MagnusonBMoss.

SECTION 3-102. POWERS OF UNIT OWNERS= ASSOCIATION.

(a) Except as provided in subsection (b), and subject to the provisions of the declaration, the association [, even if unincorporated,] may:

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(18) by regulation, require that disputes between the executive board and unit owners or between two or more unit owners regarding the common interest community must be submitted to nonbinding alternative dispute resolution in the manner described in the regulation as a prerequisite to commencement of a judicial proceeding.

Section 3-103(A) and Section 3-111 and would be affected by a decision to address the authority of the executive board to invest association reserves in various kinds of equities. [see also relevant excerpts of the UPIA, attached as part 3, item C]

Sub-Sections (C), (D) And (E) of Section 3-103 would be affected by a penalty due to the declarant=s failure to turn over control in a timely way.

Sub-Sections (B), (F) And (G) of Section 3-103 would be affected by an amendment to allow appointed directors.

SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS.

(a) Except as provided in the declaration, the bylaws, subsection (b), or other provisions of this [Act], the executive board may act in all instances on behalf of the association. In the performance of their duties, officers and members of the executive board appointed by the declarant shall exercise the degree of care and loyalty required of a trustee. Officers and members of the executive board not appointed by the declarant shall exercise the degree of care and loyalty required of an officer or director of a corporation organized under [insert reference to state non-profit corporation law].

(b) The executive board may not act on behalf of the association to amend the declaration (Section 2-117), to terminate the common interest community (Section 2-118), or to elect members of the executive board or determine the qualifications, powers and duties, or terms of office of executive board members (Section 3-103(f)), but the executive board may fill vacancies in its membership for the unexpired portion of any term.

(c) Within [30] days after adoption of any proposed budget for the common interest community, the executive board shall provide a summary of the budget to all the unit owners, and shall set a date for a meeting of the unit owners to consider ratification of the budget not less than 14 nor more than 30 days after mailing of the summary. Unless at that meeting a majority of all unit owners or any larger vote specified in the declaration reject the budget, the budget is ratified, whether or not a quorum is present. In the event the proposed budget is rejected, the periodic budget last ratified by the unit owners must be continued until such time as the unit owners ratify a subsequent budget proposed by the executive board.

(d) Subject to subsection (e), the declaration may provide for a period of declarant control of the association, during which a declarant, or persons designated by him, may appoint and remove the officers and members of the executive board. Regardless of the period provided in the declaration, and except as provided in Section 2-123(g) (Master Planned Communities), a period of declarant control terminates no later than the earlier of: (i) [60] days after conveyance of [75] percent of the units that may be created to unit owners other than a declarant; (ii) [2] years after all declarants have ceased to offer units for sale in the ordinary course of business; (iii) [2] years after any right to add new units was last exercised; or (iv) the day the declarant, after giving written notice to unit owners, records an instrument voluntarily surrendering all rights to control activities of the association. A declarant may voluntarily surrender the right to appoint and remove officers and members of the executive board before termination of that period, but in that event the declarant may require, for the duration of the period of declarant control, that specified actions of the association or executive board, as described in a recorded instrument executed by the declarant, be approved by the declarant before they become effective.

(e) Not later than [60] days after conveyance of [25] percent of the units that may be created to unit owners other than a declarant, at least one member and not less than [25] percent of the members of the executive board must be elected by unit owners other than the declarant. Not later than [60] days after conveyance of [50] percent of the units that may be created to unit owners other than a declarant, not less than [33-1/3] percent of the members of the executive board must be elected by unit owners other than the declarant.

(f) Except as otherwise provided in Section 2-120(e), not later than the termination of any period of declarant control, the unit owners shall elect an executive board of at least three members, at least a majority of whom must be unit owners. The executive board shall elect the officers. The executive board members and officers shall take office upon election.

(g) Notwithstanding any provision of the declaration or bylaws to the contrary, the unit owners, by a two-thirds vote of all persons present and entitled to vote at any meeting of the unit owners at which a quorum is present, may remove any member of the executive board with or without cause, other than a member appointed by the declarant.

If the committee chooses to address many governance issues by reference to the by-laws, Section 3-106 would be affected.

SECTION 3-106. BYLAWS.

(a) The bylaws of the association must provide

(1) the number of members of the executive board and the titles of the officers of the association;

(2) election by the executive board of a president, treasurer, secretary, and any other officers of the association the bylaws specify;

(3) the qualifications, powers and duties, terms of office, and manner of electing and removing executive board members and offices and filling vacancies;

(4) which, if any, of its powers the executive board or officers may delegate to other persons or to a managing agent;

(5) which of its officers may prepare, execute, certify, and record amendments to the declaration on behalf of the association; and

(6) a method for amending the bylaws.

(b) Subject to the provisions of the declaration, the bylaws may provide for any other matters the association deems necessary and appropriate.

See Drafting Notes Preceding Section 3-103

SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF LIMITATION PERIOD.

(a) A unit owner is not liable, solely by reason of being a unit owner, for an injury or damage arising out of the condition or use of the common elements. Neither the association nor any unit owner except the declarant is liable for that declarant=s torts in connection with any part of the common interest community which that declarant has the responsibility to maintain.

(b) An action alleging a wrong done by the association, including an action arising out of the condition or use of the common elements, may be maintained only against the association and not against any unit owner. If the wrong occurred during any period of declarant control and the association gives the declarant reasonable notice of and an opportunity to defend against the action, the declarant who then controlled the association is liable to the association or to any unit owner for (i) all tort losses not covered by insurance suffered by the association or that unit owner, and (ii) all costs that the association would not have incurred but for a breach of contract or other wrongful act or omission. Whenever the declarant is liable to the association under this section, the declarant is also liable for all expenses of litigation, including reasonable attorney=s fees, incurred by the association.

(c) Except as provided in Section 4-116(d) with respect to warranty claims, any statute of limitation affecting the association=s right of action against a declarant under this [Act] is tolled until the period of declarant control terminates. A unit owner is not precluded from maintaining an action contemplated by this section because he is a unit owner or a member or officer of the association. Liens resulting from judgments against the association are governed by Section 3-117 (Other Liens).

Various proposals- none contained in these materials B have been made for amending the insurance requirements. If any such amendments are made, those amendments would affect this section.

SECTION 3-113. INSURANCE.

(a) Commencing not later than the time of the first conveyance of a unit to a person other than a declarant, the association shall maintain, to the extent reasonably available:

(1) property insurance on the common elements and, in a planned community, also on property that must become common elements, insuring against all risks of direct physical loss commonly insured against or, in the case of a conversion building, against fire and extended coverage perils. The total amount of insurance after application of any deductibles must be not less than 80 percent of the actual cash value of the insured property at the time the insurance is purchased and at each renewal date, exclusive of land, excavations, foundations, and other items normally excluded from property policies; and

(2) liability insurance, including medical payments insurance, in an amount determined by the executive board but not less than any amount specified in the declaration, covering all occurrences commonly insured against for death, bodily injury, and property damage arising out of or in connection with the use, ownership, or maintenance of the common elements and, in cooperatives, also of all units.

(b) In the case of a building that is part of a cooperative or that contains units having horizontal boundaries described in the declaration, the insurance maintained under subsection (a)(1), to the extent reasonably available, must include the units, but need not include improvements and betterments installed by unit owners.

(c) If the insurance described in subsections (a) and (b) is not reasonably available, the association promptly shall cause notice of that fact to be hand-delivered or sent prepaid by United States mail to all unit owners. The declaration may require the association to carry any other insurance, and the association in any event may carry any other insurance it considers appropriate to protect the association or the unit owners.

(d) Insurance policies carried pursuant to subsections (a) and (b) must provide that:

(1) each unit owner is an insured person under the policy with respect to liability arising out of his interest in the common elements or membership in the association;

(2) the insurer waives its right to subrogation under the policy against any unit owner or member of his household;

(3) no act or omission by any unit owner, unless acting within the scope of his authority on behalf of the association, will void the policy or be a condition to recovery under the policy; and

(4) if, at the time of a loss under the policy, there is other insurance in the name of a unit owner covering the same risk covered by the policy, the association=s policy provides primary insurance.

(e) Any loss covered by the property policy under subsections (a)(1) and (b) must be adjusted with the association, but the insurance proceeds for that loss are payable to any insurance trustee designated for that purpose, or otherwise to the association, and not to any holder of a security interest. The insurance trustee or the association shall hold any insurance proceeds in trust for the association, unit owners, and lien holders as their interests may appear. Subject to the provisions of subsection (h), the proceeds must be disbursed first for the repair or restoration of the damaged property, and the association, unit owners, and lien holders are not entitled to receive payment of any portion of the proceeds unless there is a surplus of proceeds after the property has been completely repaired or restored, or the common interest community is terminated.

(f) An insurance policy issued to the association does not prevent a unit owner from obtaining insurance for his own benefit.

(g) An insurer that has issued an insurance policy under this section shall issue certificates or memoranda of insurance to the association and, upon written request, to any unit owner or holder of a security interest. The insurer issuing the policy may not cancel or refuse to renew it until [30] days after notice of the proposed cancellation or non-renewal has been mailed to the association, each unit owner and each holder of a security interest to whom a certificate or memorandum of insurance has been issued at their respective last known addresses.

(h) Any portion of the common interest community for which insurance is required under this section which is damaged or destroyed must be repaired or replaced promptly by the association unless (i) the common interest community is terminated, in which case Section 2-118 applies (ii) repair or replacement would be illegal under any state or local statute or ordinance governing health or safety, or (iii) [80] percent of the unit owners, including every owner of a unit or assigned limited common element that will not be rebuilt, vote not to rebuild. The cost of repair or replacement in excess of insurance proceeds and reserves is a common expense. If the entire common interest community is not repaired or replaced, (i) the insurance proceeds attributable to the damaged common elements must be used to restore the damaged area to a condition compatible with the remainder of the common interest community, and (ii) except to the extent that other persons will be distributees (Section 2-105(a)(12)(ii)), (A) the insurance proceeds attributable to units and limited common elements that are not rebuilt must be distributed to the owners of those units and the owners of the units to which those limited common elements were allocated, or to lien holders, as their interests may appear, and (B) the remainder of the proceeds must be distributed to all the unit owners or lien holders, as their interests may appear, as follows: (1) in a condominium, in proportion to the common element interests of all the units and (2) in a cooperative or planned community, in proportion to the common expense liabilities of all the units. If the unit owners vote not to rebuild any unit, that unit=s allocated interests are automatically reallocated upon the vote as if the unit had been condemned under Section 1-107(a), and the association promptly shall prepare, execute, and record an amendment to the declaration reflecting the reallocations.

(i) The provisions of this section may be varied or waived in the case of a common interest community all of whose units are restricted to non-residential use.

Section 4-103 (5) would be affected by a provision that required a multi-year budget projection for the association.

It would also be the sub-section affected by a comment urging the states not to mandate >adequate= or any reserves.

SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS.

(a) Except as provided in subsection (b), a public offering statement must contain or fully and accurately disclose:

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(5) any current balance sheet and a projected budget for the association, either within or as an exhibit to the public offering statement, for [one] year after the date of the first conveyance to a purchaser, and thereafter the current budget of the association, a statement of who prepared the budget, and a statement of the budget=s assumptions concerning occupancy and inflation factors. The budget must include, without limitation:

(i) a statement of the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacement;

(ii) a statement of any other reserves;

(iii) the projected common expense assessment by category of expenditures for the association; and

(iv) the projected monthly common expense assessment for each type of unit;

Section 4-113 and the following sections on warranties would be affected by a proposal requiring the association to give notice to the declarant and an opportunity to cure before suing on warranties.

SECTION 4-113. EXPRESS WARRANTIES OF QUALITY.

(a) Express warranties made by any seller to a purchaser of a unit, if relied upon by the purchaser, are created as follows:

(1) any affirmation of fact or promise which relates to the unit, its use, or rights appurtenant thereto, area improvements to the common interest community that would directly benefit the unit, or the right to use or have the benefit of facilities not located in the common interest community, creates an express warranty that the unit and related rights and uses will conform to the affirmation or promise;

(2) any model or description of the physical characteristics of the common interest community, including plans and specifications of or for improvements, creates an express warranty that the common interest community will conform to the model or description;

(3) any description of the quantity or extent of the real estate comprising the common interest community, including plats or surveys, creates an express warranty that the common interest community will conform to the description, subject to customary tolerances; and

(4) a provision that a purchaser may put a unit only to a specified use is an express warranty that the specified use is lawful.

(b) Neither formal words, such as Awarranty@ or Aguarantee,@ nor a specific intention to make a warranty, are necessary to create an express warranty of quality, but a statement purporting to be merely an opinion or commendation of the real estate or its value does not create a warranty.

SECTION 4-114. IMPLIED WARRANTIES OF QUALITY.

(a) A declarant and any dealer warrants that a unit will be in at least as good condition at the earlier of the time of the conveyance or delivery of possession as it was at the time of contracting, reasonable wear and tear excepted.

(b) A declarant and any dealer impliedly warrants that a unit and the common elements in the common interest community are suitable for the ordinary uses of real estate of its type and that any improvements made or contracted for by him, or made by any person before the creation of the common interest community, will be:

(1) free from defective materials; and

(2) constructed in accordance with applicable law, according to sound engineering and construction standards, and in a workmanlike manner.

(c) In addition, a declarant and any dealer warrants to a purchaser of a unit that may be used for residential use that an existing use, continuation of which is contemplated by the parties, does not violate applicable law at the earlier of the time of conveyance or delivery of possession.

(d) Warranties imposed by this section may be excluded or modified as specified in Section 4-115.

(e) For purposes of this section, improvements made or contracted for by an affiliate of a declarant (Section 1-103(1)) are made or contracted for by the declarant.

(f) Any conveyance of a unit transfers to the purchaser all of the declarant=s implied warranties of quality.

SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED WARRANTIES OF QUALITY.

(a) Except as limited by subsection (b) with respect to a purchaser of a unit that may be used for residential use, implied warranties of quality:

(1) may be excluded or modified by agreement of the parties; and

(2) are excluded by expression of disclaimer, such as Aas is,@ Awith all faults,@ or other language that in common understanding calls the purchaser=s attention to the exclusion of warranties.

(b) With respect to a purchaser of a unit that may be occupied for residential use, no general disclaimer of implied warranties of quality is effective, but a declarant and any dealer may disclaim liability in an instrument signed by the purchaser for a specified defect or specified failure to comply with applicable law, if the defect or failure entered into and became a part of the basis of the bargain.

SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES.

(a) Unless a period of limitation is tolled under Section 3-111 or affected by subsection (d), a judicial proceeding for breach of any obligation arising under Section 4-113 or 4-114 must be commenced within six years after the [claim for relief][cause of action] accrues, but the parties may agree to reduce the period of limitation to not less than two years. With respect to a unit that may be occupied for residential use, an agreement to reduce the period of limitation must be evidenced by a separate instrument executed by the purchaser.

(b) Subject to subsection (c), a [claim for relief] [cause of action] for breach of warranty of quality, regardless of the purchaser=s lack of knowledge of the breach, accrues:

(1) as to a unit, at the time the purchaser to whom the warranty is first made enters into possession if a possessory interest was conveyed or at the time of acceptance of the instrument of conveyance if a nonpossessory interest was conveyed; and

(2) as to each common element, at the time the common element is completed or, if later, as to (i) a common element that is added to the common interest community by exercise of development rights, at the time the first unit which was added to the condominium by the same exercise of development rights is conveyed to a bona fide purchaser, or (ii) a common element within any other portion of the common interest community, at the time the first unit is conveyed to a bona fide purchaser.

(c) If a warranty of quality explicitly extends to future performance or duration of any improvement or component of the common interest community, the [claim for relief] [cause of action] accrues at the time the breach is discovered or at the end of the period for which the warranty explicitly extends, whichever is earlier.

(d) During the period of declarant control, the association may authorize an independent committee of the executive board to evaluate and enforce by any lawful means warranty claims involving the common elements, and to compromise those claims. Only members of the executive board elected by unit owners other than the declarant and other persons appointed by those independent members may serve on the committee, and the committee=s decision must be free of any control by the declarant or any member of the executive board or officer appointed by the declarant. All costs reasonably incurred by the committee, including attorney=s fees, are common expenses, and must be added to the budget annually adopted by the association under Section 3-115. If the committee is so created, the period of limitation for claims for these warranties begins to run from the date of the first meeting of the committee, regardless of when the period of declarant control terminates.

SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION; ATTORNEY=S FEES.

(a) If a declarant or any other person subject to this [Act] fails to comply with any of its provisions or any provision of the declaration or bylaws, any person or class of persons adversely affected by the failure to comply has a claim for appropriate relief. Punitive damages may be awarded for a willful failure to comply with this [Act]. The court, in an appropriate case, may award court costs and reasonable attorney=s fees.

PART 2

PROPOSED NEW PART 6 TO UCIOA

DRAFT OF AN OPTIONAL, STANDALONE, ACT

LISMAN NOTES B THERE ARE DEVELOPMENTS IN:

VA, MD, FL, CA, HI, TX, NC and GA

Before drafting a homeowner=s bill of rights/ board responsibilities piece,

your Reporter feels the need for greater committee direction.

To that end, I have distilled these possible subjects from the enclosed materials:

A. THESE NOTES DERIVE FROM NOTES THAT CARL LISMAN TOOK IN WALTHAM [those notes are attached in Part 3, Item d. of these Materials [the numbers correspond to the Lisman minute paragraph numbers]

1. Joanne Stubblefield recommends using the proposed Homeowners= Bill of Rights to limit the association=s ability to adopt rules to fairly traditional subjects, such as pets, parking, and leasing.

2. We might address the subject of mandatory grand-fathering of personal property rights [that is, the association either can or cannot force me to sell my existing RV after the association adopts new rules prohibiting the parking of RV on Association Property

An alternative is that new rules only apply to Owners who buy [or Tenants who rent] after the rule is adopted.

3. We might decree that the Association cannot make rules about who occupies the unit other than as it affects the Common elements.

4. We might bar rules that prohibit:

a. political signs.

b. Religious displays during holidays

c. American Flags [or any national flags]

Note - An alternative would be to provide that the Association cannot bar such things, but may adopt [reasonable?] rules [after notice and comment] regarding size, location, and lighting of such matters.

6. We might adopt Aprocedure for recall / repeal? of rules by members@

11. Carl notes or implies that AIn section 3-108, we ought to expand purpose of special meetings to allow a vote to overturn a decision of the Board or take up any other matter that the association might properly consider - owners can do whatever the board can do.

Later, Carl notes suggest that the association [should be required to?] establish and administer standards relating to building design, construction and appearance.@ I think this is a complicated issue, if it is not dealt with up front.

13. Carl then goes on to add these random thoughts:

a. provide reasonable notice of every board meeting.

b. Make clear that any subject is appropriate for an association meeting

c. We discussed whether unit owners can change an agenda at a meeting? Many of us feel ANo@, because we otherwise deprive owners of the opportunity to participate on issues not disclosed in the agenda.

At the same time, it is important for owners to be able to add items to the agenda, even if the Board disagrees with such an outcome.

d. In that regard, we asked AWho can set agenda items?@ The appropriate answer seemed to be a set % of owners can require it [Compare SEC rule on shareholder proposals]

e. The discussion suggested that we ought to add email as an alternative form of service for those who ask for it. [Take note of e-sign acts B attach it.]

f. The Committee debated a requirement that the Association must post notices on any designated bulletin Board and give personal notice of its actions to unit owners.

14. Some members suggested that we add new section 3-108 provisions, to wit:

- Board meetings should be open to all except in executive session

- public comment should always be required.

B. A GOVERNMENT-SUPERVISED DISPUTE RESOLUTION MECHANISM

Commissioner [and drafting committee member] Nat Sterling provided me some information about possible consideration of this subject in California. Through him, I learned that Montgomery County, Maryland has adopted such a program.

I have spoken with Mr. Evan Johnson, the administrator of the Montgomery County program and we have tentatively arranged a phone conversation with him on that subject for Friday morning of our meeting, at 10 am [Chicago time].

C. BOB DIAMOND B OTHER THOUGHTS ON A HOMEOWNERS= BILL OF RIGHTS

Bob Diamond is an Advisor to the Drafting Committee; he has an extensive common interest community practice in Virginia and Maryland; he is also very active with an industry group known as Community Associations Institute. Finally, Bob and I were co-reporters [with 2 others] on the original Uniform Condominium Act in 1976-78.

In preparing for this meeting, Bob and I discussed this subject at length. We both feel that there is only a limited amount that can be said about this subject that is not already a part of UCIOA.

Bob did observe that the CAI materials on this subject [which are part of your reference materials] may deal in useful ways with several subjects, including:

i. Owner access to Association financial and other records

ii. Owner right to attend meetings

iii. Rights of Notice and rights to cure defaults under documents and, generally, due process.

Bob suggested [and I concurred with] the notion of making the Bill of Rights an optional part of UCIOA. He also suggested introducing it by language generally as follows:

ATo the extent these subjects are not addressed by existing statutes of this State, unit owners in common interest communities in this State have the following rightsY.@

This would contemplate adoption of this part as a free-standing law, even in those states that choose not to adopt all of UCIOA or the Condominium Act.

Reporter=s Note - I have reviewed the CAI materials; I conclude that they speak in very general terms of Adesirable outcomes@ B things like Arespect@ and Afairness@. However, the current text offers limited guidance for statute drafting. As an example, one suggestion is that the Association should Aconduct business in a transparent manner when feasible and appropriate.@

D. OTHER POSSIBLE TOPICS ON A HOMEOWNERS= BILL OF RIGHTS

1. Detailed California ADR procedures

California has adopted a statute [see Materials, Part 3, Item E] that does just that. It requires each association to adopt a Afair, reasonable, and expeditious procedure for resolving a dispute@ between owners or between owners and the association [with a number of exceptions]. It also has a default procedure if the Association fails to act:

A(c) If an association does not provide a fair, reasonable, and expeditious procedure for resolving a dispute within the scope of this article, the procedure provided in Section 1363.840 applies and satisfies the requirement of subdivision (a).@

2. Detailed California Architectural Review Committee Rules

California also has detailed procedures on this subject. If we wish to consider such an approach, see Materials, Part 3, Item F]

3. California Procedural Fairness Provisions

The following language is taken from the text of the summary of the California bill that adopted these rules:

AThis bill would also add provisions concerning procedural fairness in decision-making and rulemaking by associations. The bill would add requirements regarding operating rules relating to the use of the common area, the use of a separate interest, member discipline, standards for delinquent assessment payment plans, and the resolution of assessment disputes, as specified. Among other things, the bill would establish criteria for valid operating rules, require that members have notice of a proposed rule change, except as specified, and establish a procedure for reversing a rule.@

Your Reporter is of the view that such rules are in many instances not fundamentally different than the kinds of requirements imposed generally by Robert=s Rules of Order. At the same time, by imposing a statutory standard that each rule must be Areasonable@ and that it must have been Aadopted in good faith@, it seems to me that California has completely reversed the Abusiness judgment@ rule, to the ultimate detriment of the Association=s general authority over the management and affairs of the community.

However, having acknowledged my bias, I defer to the Committee=s judgment.

E. THE AARP ANALYSIS OF HOMEOWNERS= RIGHTS

I think this analysis is important for several reasons, not the least of which is its explicit rejection of UCIOA=s provisions in several areas. In any event, the 10 principles that AARP urges for inclusion in its current draft of a homeowners bill of rights are these:

1. The Right to Security Against Foreclosure

AARP does not like foreclosure for association liens. It proposes that no foreclosure at all be permitted unless that power is stated in the declaration, and it cannot be added to the declaration except by unanimous consent.

AARP rejects non-judicial foreclosure. [Some of us might agree] It proposes a whole host of special rules for foreclosing on association liens that no municipality would ever countenance for tax liens. AARP proposes all manner of special provisions on rights to cure, redemption, minimum bidding, etc. Actually, this is very interesting social policy B and quite different than UCIOA=s reliance on existing state law.

2. The Right to Resolve Disputes Without Litigation

Again, an interesting mix of 12 Arights= are set out here B the principal one being ADR, but a number of other curious provisions B including cure rights, mandated 2/3s director voting on litigation, appeals to the Ombudsman, notice before suit, exceptions for >emergency= litigation, a definition of an >emergency= etc.

3. The Right to fairness in Litigation

AARP=s thrust in this arena is captured by this paragraph:

AHomeowners deserve the right to challenge unlawful action in court, even if they comply with the challenged action to avoid aggravating the situation. However, even when homeowners have sound positions that may benefit others in the association, almost none can afford counsel, and challengers face even more disincentive to the extent that they risk being forced to pay the association=s attorney fees. To provide balance so that important questions can be addressed, the Model Statute provides for associations to pay attorney fees to a reasonable level to homeowners who prevail, and limits the ability of associations to recover attorney fees from homeowners.@

The text contains a curious mix of special rules of evidence, differing attorneys fees standards, etc. It does prohibit declaration restrictions on a homeowner=s right to sue.

4. The Right to be Told of all Rules and charges

This Aright@ proposes a APlain English@ standard for rules B and bars enforcement of rules not written in plain English.

The Aright@ includes a variety of resale disclosure rules, and favorably quotes UCIOA=s comments on disclosure. However, AARP rejects UCIOA=s approach to the implied powers of associations:

The Model Statute rejects the approach taken in the Uniform Common Interest Ownership Act Y.In addition to a long list of specified powers, UCIOA ' 3-102(a) (16 & 17) offer broad, essentially unlimited authority for associations to Aexercise all other powers that may be exercised Y by legal entities of the same type as the association@ and Aexercise any other powers necessary and proper for the governance and operation of the association@.

UCIOA=s approach has been followed in some states.^{^[1]} Indeed, some states give even broader powers to associations.^{^[2]} This amounts to granting directors broad amendment power, without any homeowner votes. See also the Right to Stability in Rules & Charges Section XX (forbidding such broad delegation of amendment power).

Such broad powers have led to vehement homeowner complaints of abuse by associations, and do not reflect traditional homeownership expectations, or even the traditional rule to construe deed restrictions narrowly to protect individual homeowner rights. As recognized by the American Law Institute, the Restatement=s conservative limits on association power make sense.@

5. The Right to Stability in Rules and Charges

This Aright@ governs (1) seniority of documents; (2) restrictions on document amendments; (3) limits on operating rule changes by directors; (4) a 30 day notice requirement for votes on assessments.

6. The Right to Individual Autonomy

This right contains another gaggle of rules on such topics as: (1) signage; (2) the right to visit or petition neighbors; (3) the right of inviting friends onto property; (4) all restrictions on use of common property have to be in the >governing documents=.

7. The Right to Oversight of Associations and Directors

The topics here include: (1) open records; (2) mandatory review by directors every 90 days of various financial and legal matters; (3) open Board meetings with: recording permitted, limits on executive sessions, rights of owners to speak. (4) minutes of Board meetings to owners, no secret voting by directors. (5) rules mandating special meetings [comparable to UCIOA]; (6) Ombudsman oversight of contested elections; (7) recall procedures.

8. The Right to Vote and Run for Office

My brief review suggests that there is little new here; the proposals seem generally consistent with existing UCIOA.

9. The Right to Reasonable Associations and Directors

A few quotes suffice:

AThe [AARP] Model Bill follows the Restatement 6.13 & 6.14, requiring ordinary care and prudence, fair dealing, good faith, and reasonability. Such protections (in && 1 & 2) apply to associations and to directors, officers, managers, and other agents, reinforcing the foundation for homeowners.^{^[3]} AWhere the association exceeds its scope of authority, any rule or decision resulting from such an ultra vires act is invalid whether or not it is a >reasonable= response to a particular circumstance.@^{^[4]}

Like the Restatement at 236-37, the Model Bill rejects use of the Abusiness judgment rule@, which has been cited by some courts to deny review of actions by associations or individuals. By contrast, UCIOA 3-103(a), and its comment 6, favors the business judgment rule. However, as UCIOA recognizes, the business judgment rule developed for traditional corporate situations. In those situations, owners can sell stock or easily resign their membership, whereas homeowners can avoid associations only by selling and moving.@

There are a number of other constraints on the association proposed by AARP; in my view, the net outcome under the AARP proposal will clearly lead to more litigation and more confrontation.

^{^[1]} . E.g., NRS ' 116.3102; Ariz. Rev. Stat. 33-1242 (similar rule just for condos). See also NRS 116.2111(b) (default rule that owner cannot change unit=s exterior without association permission); Ariz. Rev. Stat. 33-1221 (similar rule just for condos).

^{^[2]} E.g., Tex. Prop. Code ' 204.010(a) (20 & 21) (directors, even without a homeowner vote, have 19 stated implied or default powers, in addition to unqualified authority to Aexercise other powers that may be exercised in this state by a corporation of the same type as the property owners association@ & Aexercise other powers necessary and proper for the governance and operation of the property owners association@)

^{^[3]} See also Restatement ' 6.13 comment a, at 235 (homeowners Aneed and are entitled to protection against actions taken in breach of duty by either the [directors] or the membership acting collectively that cause them injury@).

^{^[4]} Major v. Miraverde Homeowners Ass=n, Inc., 7 Cal. App. 4th 618, 628, 9 Cal. Rptr. 2d 237, 243 (1992).