D R A F T
FOR DISCUSSION ONLY
AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
MEETING IN ITS ONE-HUNDRED-AND-SIXTEENTH YEAR
PASADENA, CALIFORNIA
JULY 27 - AUGUST 3, 2007
AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT
WITHOUT PREFATORY NOTE AND WITH PROPOSED NEW COMMENTS
Copyright ©2007
By
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 Reporter. 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
The Committee appointed by and representing the National Conference of Commissioners on Uniform State Laws in amending this Act consists of the following individuals:
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
DAVID D. BIKLEN, 153 N. Beacon St., Hartford, CT 06105
ELLEN F. DYKE, Legal Department 52/923, 10400 Fernwood Rd., Bethesda, MD 20817
JOHN S. GILLIG, 120 W. Todd St., Frankfort, KY 40601
DALE G. HIGER, 1302 Warm Springs Ave., Boise, ID 83712
DONALD E. MIELKE, 7472 S. Shaffer Ln., Suite 100, Littleton, CO 80127
HIROSHI SAKAI, 3773 Diamond Head Circle, Honolulu, HI 96815
NATHANIEL STERLING, 4180 Oak Hill Ave., Palo Alto, CA 94306
YVONNE L. THARPES, Legislature of the Virgin Islands, P.O. Box 1690, St. Thomas, VI 00804
NORA WINKELMAN, Office of General Counsel, 333 Market St., 17th Flr., Harrisburg, PA 17101
LEE YEAKEL, Western District of Texas, P.O. Box 164196, Austin, TX 78716-4196
WILLIAM R. BREETZ, JR., Connecticut Urban Legal Initiative, 35 Elizabeth St. Rm K-202, Hartford, CT 06105, Reporter
EX OFFICIO
HOWARD J. SWIBEL, 120 S. Riverside Plaza, Suite 1200, Chicago, IL 60606, President
LEVI J. BENTON, State of Texas, 201 Caroline, 13th Flr., Houston, TX 77002, Division Chair
AMERICAN BAR ASSOCIATION ADVISOR
GARY A. POLIAKOFF, 3111 Stirling Rd., Ft. Lauderdale, FL 33312-6525, ABA Advisor
REBECCA ANDERSON FISCHER, 633 17th St., Suite 3000, Denver, CO 80202, ABA Section Advisor
EXECUTIVE DIRECTOR
JOHN A. SEBERT, 211 E. Ontario St., Suite 1300, Chicago, IL 60611, 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
AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT
TABLE OF CONTENTS
[ARTICLE] 1
GENERAL PROVISIONS
[PART] 1
DEFINITIONS AND OTHER GENERAL PROVISIONS
SECTION 1-104. VARIATION BY AGREEMENT
SECTION 1-105. SEPARATE TITLES AND TAXATION
SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, REGULATIONS, AND BUILDING CODES
SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW APPLICABLE
SECTION 1-109. CONSTRUCTION AGAINST IMPLICIT REPEAL
SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION
SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF CONTRACT
SECTION 1-113. OBLIGATION OF GOOD FAITH
SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED
SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS
SECTION 1-201. APPLICABILITY TO NEW COMMON INTEREST COMMUNITIES
SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES
SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST COMMUNITIES
SECTION 1-205. SAME; EXCEPTION FOR SMALL PRE-EXISTING COOPERATIVES AND PLANNED COMMUNITIES
SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS
SECTION 1-207. APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE
SECTION 1-208. APPLICABILITY TO OUT-OF-STATE COMMON INTEREST COMMUNITIES
SECTION 1-209. OTHER EXEMPT REAL ESTATE AGREEMENTS
SECTION 1-210. OTHER EXEMPT COVENANTS
[ARTICLE] 2
CREATION, ALTERATION, AND
TERMINATION OF COMMON INTEREST COMMUNITIES
SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES
SECTION 2-102. UNIT BOUNDARIES
SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND
SECTION 2-104. DESCRIPTION OF UNITS
SECTION 2-105. CONTENTS OF DECLARATION
SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES
SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS
SECTION 2-108. LIMITED COMMON ELEMENTS
SECTION 2-109. PLATS AND PLANS
SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS
SECTION 2-111. ALTERATIONS OF UNITS
SECTION 2-112. RELOCATION OF UNIT BOUNDARIES
SECTION 2-113. SUBDIVISION OF UNITS
[SECTION 2-114. EASEMENT FOR ENCROACHMENTS
[SECTION 2-114. MONUMENTS AS BOUNDARIES
SECTION 2-115. USE FOR SALES PURPOSES
SECTION 2-116. EASEMENT RIGHTS
SECTION 2-117. AMENDMENT OF DECLARATION
SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY.
SECTION 2-119. RIGHTS OF SECURED LENDERS
SECTION 2-120. MASTER ASSOCIATIONS
SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST COMMUNITIES
SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE
SECTION 2-123. MASTER PLANNED COMMUNITIES
[ARTICLE] 3
MANAGEMENT OF THE COMMON INTEREST COMMUNITY
SECTION 3-101. ORGANIZATION OF UNIT OWNERS' ASSOCIATION
SECTION 3-102. POWERS AND DUTIES OF UNIT OWNERS' ASSOCIATION
SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS
SECTION 3-104. TRANSFER OF SPECIAL DECLARANT RIGHTS
SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES OF DECLARANT
SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY
SECTION 3-108. UNIT OWNER MEETINGS
[NEW] SECTION 3-108A. EXECUTIVE BOARD MEETINGS
SECTION 3-110. VOTING; PROXIES
SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF LIMITATION PERIOD
SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON ELEMENTS
SECTION 3-115. ASSESSMENTS FOR COMMON EXPENSES
SECTION 3-116. LIEN FOR ASSESSMENTS; ENFORCEMENT
SECTION 3-118. ASSOCIATION RECORDS
SECTION 3-119. ASSOCIATION AS TRUSTEE
SECTION 3-121. LITIGATION INVOLVING THE DECLARANT
SECTION 3-123. REMOVAL OF OFFICERS AND DIRECTORS
SECTION 3-124. ADOPTION OF BUDGETS
[ARTICLE] 4
PROTECTION OF PURCHASERS
SECTION 4-101. APPLICABILITY; WAIVER
SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT
SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS
SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO DEVELOPMENT RIGHTS
SECTION 4-105. SAME; TIME SHARES
SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES CONTAINING CONVERSION BUILDINGS
SECTION 4-107. SAME; COMMON INTEREST COMMUNITY SECURITIES
SECTION 4-108. PURCHASER'S RIGHT TO CANCEL
SECTION 4-109. RESALES OF UNITS
SECTION 4-110. ESCROW OF DEPOSITS
SECTION 4-111. RELEASE OF LIENS
SECTION 4-112. CONVERSION BUILDINGS
SECTION 4-113. EXPRESS WARRANTIES OF QUALITY
SECTION 4-114. IMPLIED WARRANTIES OF QUALITY
SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED WARRANTIES OF QUALITY
SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES
SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION;
SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL
SECTION 4-119. DECLARANT'S OBLIGATION TO COMPLETE AND RESTORE
SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS
AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT
GENERAL PROVISIONS
DEFINITIONS AND OTHER GENERAL PROVISIONS
SECTION 1-101. SHORT TITLE. This [act] may be cited as the Uniform Common Interest Ownership Act.
SECTION 1-102. APPLICABILITY. Applicability of this [act] is governed by [Part] 2 of this [article].
SECTION 1-103. DEFINITIONS. In the declaration and bylaws (Section 3-106), unless specifically provided otherwise or the context otherwise requires, and in this [act]:
(1) “Affiliate of a declarant” means any person who controls, is controlled by, or is under common control with a declarant. A person “controls” a declarant if the person:
(i)(A) is a general partner, officer, director, or employer of the declarant,;
(ii)(B) directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, holds with power to vote, or holds proxies representing, more than 20 percent of the voting interest in the declarant,;
(iii)(C) controls in any manner the election of a majority of the directors of the declarant,; or
(iv)(D) has contributed more than 20 percent of the capital of the declarant.
A person “is controlled by” a declarant if the declarant:
(i)(A) is a general partner, officer, director, or employer of the person,;
(ii)(B) directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, holds with power to vote, or holds proxies representing, more than 20 percent of the voting interest in the person,;
(iii)(C) controls in any manner the election of a majority of the directors of the person,; or
(iv)(D) has contributed more than 20 percent of the capital of the person.
Control does not exist if the powers described in this paragraph are held solely as security for an obligation and are not exercised.
(2) “Allocated interests” means the following interests allocated to each unit:
(i)(A) In in a condominium, the undivided interest in the common elements, the common expense liability, and votes in the association;
(ii)(B) in a cooperative, the common expense liability and the ownership interest and votes in the association; and
(iii)(C) in a planned community, the common expense liability and votes in the association.
(3) “Assessment” means the sums attributable to each unit and due to the association as a result of the common expense liability allocated to the units pursuant to Section 3-115.
(3)(4) “Association” or “unit owners' association” means the unit owners' association organized under Section 3-101.
(5) “Bylaws” mean the document that contains the procedures for conduct of the affairs of the association regardless of the form of the association’s legal entity or the name by which the document comprising the bylaws is identified.
(4)(6) “Common elements” means:
(i)(A) in the case of:
(A)(i) a condominium or cooperative, all portions of the common interest community other than the units; and
(B)(ii) a planned community, any real estate within a planned community which is owned or leased by the association, other than a unit; and
(ii)(B) in all common interest communities, any other interests in real estate for the benefit of unit owners which are subject to the declaration.
(5)(7) “Common expenses” means expenditures made by, or financial liabilities of, the association, together with any allocations to reserves.
(6)(8) “Common expense liability” means the liability for common expenses or limited common expenses allocated to each unit pursuant to Section 2-107.
(7)(9) “Common interest community” means real estate described in a declaration with respect to which a person, by virtue of his the person’s ownership of a unit, is obligated to pay a share of real estate taxes, insurance premiums, maintenance, or improvement of, or services or other expenses related to, common elements, other units, or other real estate described in a that declaration. The term does not include arrangements described in Sections 1-209 and 1–210. “Ownership of a unit” does not include holding a leasehold interest of less than [20] years in a unit, including renewal options.
(8)(10) “Condominium” 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.
(9)(11) “Conversion building” means a building that at any time before 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.
(10)(12) “Cooperative” means a common interest community in which the real estate is owned by an association, each of whose members is entitled by virtue of his the member’s ownership interest in the association to exclusive possession of a unit.
(11)(13) “Dealer” means a person in the business of selling units for his or her own account.
(12)(14) “Declarant” means any person or group of persons acting in concert who:
(i)(A) as part of a common promotional plan, offers to dispose of his or its the interest of the person or group of persons in a unit not previously disposed of[;] [or]
(ii)(B) reserves or succeeds to any special declarant right [, or
(iii)(C) applies for registration of a common interest community under [Article] 5].
(13)(15) “Declaration” means any instruments, however denominated, that create a common interest community, including any amendments to those instruments.
(14)(16) “Development rights” means any right or combination of rights reserved by a declarant in the declaration to:
(i)(A) add real estate to a common interest community;
(ii)(B) create units, common elements, or limited common elements within a common interest community;
(iii)(C) subdivide units or convert units into common elements; or
(iv)(D) withdraw real estate from a common interest community.
(15)(17) “Dispose” or “disposition” means a voluntary transfer to a purchaser of any legal or equitable interest in a unit, but the term does not include the transfer or release of a security interest.
(16)(18) “Executive board” means the body, regardless of name, designated in the declaration to act on behalf of the association.
(17)(19) “Identifying number” means a symbol or address that identifies only one unit in a common interest community.
(18)(20) “Leasehold common interest community” means a common interest community in which all or a portion of the real estate is subject to a lease the expiration or termination of which will terminate the common interest community or reduce its size.
(19)(21) “Limited common element” means a portion of the common elements allocated by the declaration or by operation of Section 2-102(2) or (4) for the exclusive use of one or more but fewer than all of the units.
(20)(22) “Master association” means an organization described in Section 2-120, whether or not it is also an association described in Section 3-101.
(21)(23) “Offering” means any advertisement, inducement, solicitation, or attempt to encourage any person to acquire any interest in a unit, other than as security for an obligation. An advertisement in a newspaper or other periodical of general circulation, or in any broadcast medium to the general public, of a common interest community not located in this state, is not an offering if the advertisement states that an offering may be made only in compliance with the law of the jurisdiction in which the common interest community is located.
(22)(24) “Person” means an individual, corporation, business trust, estate, trust, partnership, association, joint venture, public corporation, government, or governmental subdivision or agency, or other legal or commercial entity. [In the case of a land trust, however, “person” means the beneficiary of the trust rather than the trust or the trustee.]
(23)(25) “Planned community” means a common interest community that is not a condominium or a cooperative. A condominium or cooperative may be part of a planned community.
(24)(26) “Proprietary lease” means an agreement with the association pursuant to which a member is entitled to exclusive possession of a unit in a cooperative.
(25)(27) “Purchaser” means a person, other than a declarant or a dealer, who by means of a voluntary transfer acquires a legal or equitable interest in a unit other than:
(i)(A) a leasehold interest (, including renewal options), of less than 20 years,; or
(ii)(B) as security for an obligation.
(26)(28) “Real estate” means any leasehold or other estate or interest in, over, or under land, including structures, fixtures, and other improvements and interests that by custom, usage, or law pass with a conveyance of land though not described in the contract of sale or instrument of conveyance. “Real estate” includes parcels with or without upper or lower boundaries, and spaces that may be filled with air or water.
(29) “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable format.
(27)(30) “Residential purposes” means use for dwelling or recreational purposes, or both.
(28)(31) “Rule” means any rule, procedure, or regulation of an association, however denominated, that does not appear in the declaration or bylaws and that governs the conduct of persons or property within the common interest community.
(32) “Security interest” means an interest in real estate or personal property, created by contract or conveyance, which secures payment or performance of an obligation. The term includes a lien created by a mortgage, deed of trust, trust deed, security deed, contract for deed, land sales contract, lease intended as security, assignment of lease or rents intended as security, pledge of an ownership interest in an association, and any other consensual lien or title retention contract intended as security for an obligation.
(29)(33) “Special declarant rights” means rights reserved for the benefit of a declarant to:
(i)(A) 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)(B) exercise any development right (Section 2-110);
(iii)(C) maintain sales offices, management offices, signs advertising the common interest community, and models (Section 2-115);
(iv)(D) 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)(E) make the common interest community subject to a master association (Section 2-120);
(vi)(F) merge or consolidate a common interest community with another common interest community of the same form of ownership (Section 2-121); or
(vii)(G) 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)).;
(H) control any construction or design review committee or process;
(I) attend meetings of the unit owners and, except during an executive session, the executive board; or
(J) have access to the records of the association to the same extent as a unit owner.
(30)(34) “Time share” means a right to occupy a unit or any of several units during [five] or more separated time periods over a period of at least [five] years, including renewal options, whether or not coupled with an estate or interest in a common interest community or a specified portion thereof.
(31)(35) “Unit” means a physical portion of the common interest community designated for separate ownership or occupancy, the boundaries of which are described pursuant to Section 2-105(a)(5). If a unit in a cooperative is owned by a unit owner or is sold, conveyed, voluntarily or involuntarily encumbered, or otherwise transferred by a unit owner, the interest in that unit which is owned, sold, conveyed, encumbered, or otherwise transferred is the right to possession of that unit under a proprietary lease, coupled with the allocated interests of that unit, and the association's interest in that unit is not thereby affected.
(32)(36) “Unit owner” means a declarant or other person who owns a unit, or a lessee of a unit in a leasehold common interest community whose lease expires simultaneously with any lease the expiration or termination of which will remove the unit from the common interest community, but does not include a person having an interest in a unit solely as security for an obligation. In a condominium or planned community, the declarant is the owner of any unit created by the declaration. In a cooperative, the declarant is treated as the owner of any unit to which allocated interests have been allocated (Section 2-107) until that unit has been conveyed to another person.
Proposed Comment
The definition of “Rule” distinguishes between rules “governing conduct” – which ought to be the subject by unit owner review before adoption – and procedures governing internal management of the association's business activities that the board or management company might adopt or amend at will.
Here are a few examples of the latter:
• The association is soliciting bids from potential contractors for a particular project
or service and adopts a procedure for soliciting, reviewing and accepting bids.
• The board approves a management contract with an outside management company. The management contract is full of procedures governing how the manager is going to carry out its duties with regard to the management of the association.
• The recreation committee adopts a sign-up procedure for using the pool table in the clubhouse.
SECTION 1-104. VARIATION BY AGREEMENT. Except as expressly provided in this [act], its provisions may not be varied by agreement, and rights conferred by it may not be waived. Except as provided in Section 1-207, a declarant may not act under a power of attorney, or use any other device, to evade the limitations or prohibitions of this [act] or the declaration.
SECTION 1-105. SEPARATE TITLES AND TAXATION.
(a) In a cooperative, unless the declaration provides that a unit owner's interest in a unit and its allocated interests is real estate for all purposes, that interest is personal property. [That interest is subject to the provisions of [insert reference to state homestead exemptions], even if it is personal property.]
(b) In a condominium or planned community:
(1) If there is any unit owner other than a declarant, each unit that has been created, together with its interest in the common elements, constitutes for all purposes a separate parcel of real estate.
(2) If there is any unit owner other than a declarant, each unit must be separately taxed and assessed, and no separate tax or assessment may be rendered against any common elements for which a declarant has reserved no development rights.
(c) Any portion of the common elements for which the declarant has reserved any development right must be separately taxed and assessed against the declarant, and the declarant alone is liable for payment of those taxes.
(d) If there is no unit owner other than a declarant, the real estate comprising the common interest community may be taxed and assessed in any manner provided by law.
SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, REGULATIONS, AND BUILDING CODES.
(a) A building code may not impose any requirement upon any structure in a common interest community which it would not impose upon a physically identical development under a different form of ownership.
(b) In condominiums and cooperatives, no zoning, subdivision, or other real estate use law, ordinance, or regulation may prohibit the condominium or cooperative form of ownership or impose any requirement upon a condominium or cooperative which it would not impose upon a physically identical development under a different form of ownership.
(c) Except as provided in subsections (a) and (b), the provisions of this [act] do not invalidate or modify any provision of any building code, zoning, subdivision, or other real estate use law, ordinance, rule, or regulation governing the use of real estate.
SECTION 1-107. EMINENT DOMAIN.
(a) If a unit is acquired by eminent domain or part of a unit is acquired by eminent domain leaving the unit owner with a remnant that may not practically or lawfully be used for any purpose permitted by the declaration, the award must include compensation to the unit owner for that unit and its allocated interests, whether or not any common elements are acquired. Upon acquisition, unless the decree otherwise provides, that unit's allocated interests are automatically reallocated to the remaining units in proportion to the respective allocated interests of those units before the taking, and the association shall promptly prepare, execute, and record an amendment to the declaration reflecting the reallocations. Any remnant of a unit remaining after part of a unit is taken under this subsection is thereafter a common element.
(b) Except as provided in subsection (a), if part of a unit is acquired by eminent domain, the award must compensate the unit owner for the reduction in value of the unit and its interest in the common elements, whether or not any common elements are acquired. Upon acquisition, unless the decree otherwise provides, :
(i)(1) that unit's allocated interests are reduced in proportion to the reduction in the size of the unit, or on any other basis specified in the declaration; and
(ii)(2) the portion of the allocated interests divested from the partially acquired unit are automatically reallocated to that unit and to the remaining units in proportion to the respective allocated interests of those units before the taking, with the partially-acquired unit participating in the reallocation on the basis of its reduced allocated interests.
(c) If part of the common elements is acquired by eminent domain, the portion of the award attributable to the common elements taken must be paid to the association. Unless the declaration provides otherwise, any portion of the award attributable to the acquisition of a limited common element must be equally divided among the owners of the units to which that limited common element was allocated at the time of acquisition.
(d) The court decree must be recorded in every [county] in which any portion of the common interest community is located.
SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW APPLICABLE. The principles of law and equity, including the law of corporations [,] [and] any other form of business organization authorized by law in this state [,and unincorporated associations], the law of real property, and the law relative to capacity to contract, principal and agent, eminent domain, estoppel, fraud, misrepresentation, duress, coercion, mistake, receivership, substantial performance, or other validating or invalidating cause supplement the provisions of this [act], except to the extent inconsistent with this [act]. Without limiting the foregoing, the laws of this state that apply to the association’s form of legal entity apply to the association except to the extent that law is inconsistent with this [act], in which case this [act] governs.
SECTION 1-109. CONSTRUCTION AGAINST IMPLICIT REPEAL. This [act] being a general act intended as a unified coverage of its subject matter, no part of it shall be construed to be impliedly repealed by subsequent legislation if that construction can reasonably be avoided.
SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION. This [act] shall be applied and construed so as to effectuate its general purpose to make uniform the law with respect to the subject of this [act] among states enacting it.
SECTION 1-111. SEVERABILITY. If any provision of this [act] or the application thereof to any person or circumstances is held invalid, the invalidity does not affect other provisions or applications of this [act] which can be given effect without the invalid provisions or applications, and to this end the provisions of this [act] are severable.
SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF CONTRACT.
(a) The court, upon finding as a matter of law that a contract or contract clause was unconscionable at the time the contract was made, may refuse to enforce the contract, enforce the remainder of the contract without the unconscionable clause, or limit the application of any unconscionable clause in order to avoid an unconscionable result.
(b) Whenever it is claimed, or appears to the court, that a contract or any contract clause is or may be unconscionable, the parties, in order to aid the court in making the determination, must be afforded a reasonable opportunity to present evidence as to:
(1) the commercial setting of the negotiations;
(2) whether a party has knowingly taken advantage of the inability of the other party reasonably to protect his the party’s interests by reason of physical or mental infirmity, illiteracy, inability to understand the language of the agreement, or similar factors;
(3) the effect and purpose of the contract or clause; and
(4) if a sale, any gross disparity, at the time of contracting, between the amount charged for the property and the value of that property measured by the price at which similar property was readily obtainable in similar transactions. A disparity between the contract price and the value of the property measured by the price at which similar property was readily obtainable in similar transactions does not, of itself, render the contract unconscionable.
SECTION 1-113. OBLIGATION OF GOOD FAITH. Every contract or duty governed by this [act] imposes an obligation of good faith in its performance or enforcement.
SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED.
(a) The remedies provided by this [act] shall be liberally administered to the end that the aggrieved party is put in as good a position as if the other party had fully performed. However, consequential, special, or punitive damages may not be awarded except as specifically provided in this [act] or by other rule of law.
(b) Any right or obligation declared by this [act] is enforceable by judicial proceeding.
SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS.
(a) From time to time the dollar amount specified in Section 1-203 must change, as provided in subsections (b) and (c), according to and to the extent of changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers: U.S. City Average, All Items 1967 = 100, compiled by the Bureau of Labor Statistics, United States Department of Labor, (the “Index”). The Index for December, 1979 2006, which was 230 587, is the Reference Base Index.
(b) The dollar amount specified in Section 1-203 and any amount stated in the declaration pursuant to that section, must change on July 1 of each year if the percentage of change, calculated to the nearest whole percentage point, between the Index at the end of the preceding year and the Reference Base Index is 10 percent or more, but
(i) the portion of the percentage change in the Index in excess of a multiple of 10 percent must be disregarded and the dollar amount shall change only in multiples of 10 percent of the amount appearing in this [act] on the date of enactment;
(ii) the dollar amount must not change if the amount required by this section is that currently in effect pursuant to this [act] as a result of earlier application of this section; and
(iii) in no event may the dollar amount be reduced below the amount appearing in this [act] on the date of enactment.
(c) If the Index is revised after December, 1979 2006, the percentage of change pursuant to this section must be calculated on the basis of the revised Index. If the revision of the Index changes the Reference Base Index, a revised Reference Base Index must be determined by multiplying the Reference Base Index then applicable by the rebasing factor furnished by the Bureau of Labor Statistics. If the Index is superseded, the Index referred to in this section is the one represented by the Bureau of Labor Statistics as reflecting most accurately changes in the purchasing power of the dollar for consumers.
APPLICABILITY
SECTION 1-201. APPLICABILITY TO NEW COMMON INTEREST COMMUNITIES. Except as otherwise provided in Sections 1-202 and 1-203 this [part], this [act] applies to all common interest communities created within this state after the effective date of this [act]. The provisions of [insert reference to all present statutes expressly applicable to planned communities, condominiums, cooperatives, or horizontal property regimes] do not apply to common interest communities created after the effective date of this [act]. Amendments to this [act] apply to all common interest communities created after the effective date of this [act] or subjected to this [act], regardless of when the amendment is adopted in this state.
SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES. If a cooperative contains no more than 12 units and is not subject to any development rights, it is subject only to Sections 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes) and 1-107 (Eminent Domain)1-106 and 1-107 of this [act] unless the declaration provides that the entire [act] is applicable.
SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE LIABILITY CONDOMINIUMS AND PLANNED COMMUNITIES.
(a) If a condominium or planned community that is not subject to any development right:
(1) contains no more than 12 units; or
(2) provides, in its declaration, that the annual average common expense liability of all units restricted to residential purposes, exclusive of optional user fees and any insurance premiums paid by the association, may not exceed $300 $766 as adjusted pursuant to Section 1-115 (Adjustment of Dollar Amounts), it is subject only to Sections 1-105 (Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes), and 1-107 (Eminent Domain) unless the declaration provides that this entire [act] is applicable.
(b) The exemption provided in subsection (a)(2) applies only if:
(1) the declarant reasonably believes in good faith that the maximum stated assessment will be sufficient to pay the expenses of the planned community; and
(2) the declaration provides that the assessment may not be increased during the period of declarant control without the consent of all unit owners.
SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST COMMUNITIES. Except as provided in Section 1-205 (Same; Exception for Small Pre-Existing Cooperatives and Planned Communities), Sections 1-105 (Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes), 1-107 (Eminent Domain), 2-103 (Construction and Validity of Declaration and Bylaws), 2-104 (Description of Units), 2-117 (Merger or Consolidation of Common Interest Communities), 3-102(a)(1) through (6) and (11) through (16) (Powers of Unit Owners' Association), 3-103 (Tort and Contract Liability), 3-116 (Lien for Assessments), 3-118 (Association Records), 3-124, 4-109 (Resales of Units), and 4-117 (Effect of Violation on Rights of Action; Attorney's Fees), and Section 1-103 (Definitions) to the extent necessary in construing any of those sections, apply to all common interest communities created in this state before the effective date of this [act]; but those sections apply only with respect to events and circumstances occurring after the effective date of this [act] and do not invalidate existing provisions of the [declaration, bylaws, or plats or plans] of those common interest communities.
SECTION 1-205. SAME; EXCEPTION FOR SMALL PRE-EXISTING COOPERATIVES AND PLANNED COMMUNITIES. If a cooperative or planned community created within this state before the effective date of this [act] contains no more than 12 units and is not subject to any development rights, it is subject only to Sections 1-105 (Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes), and 1-107 (Eminent Domain) unless the declaration is amended in conformity with applicable law and with the procedures and requirements of the declaration to take advantage of the provisions of Section 1-206, in which case all the sections enumerated in Section 1-204 apply to that cooperative or planned community.
SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS.
(a) The declaration, bylaws, or plats and plans of any common interest community created before the effective date of this [act] may be amended to achieve any result permitted by this [act], regardless of what applicable law provided before this [act] was adopted.
(b) An amendment to the declaration, bylaws, or plats and plans authorized by this section must be adopted in conformity with any procedures and requirements for amending the instruments specified by those instruments or, if there are none, in conformity with the amendment procedures of this [act]. If an amendment grants to any person any rights, powers, or privileges permitted by this [act], all correlative obligations, liabilities, and restrictions in this [act] also apply to that person.
SECTION 1-207. APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE COMMON INTEREST COMMUNITIES.
(a) “Nonresidential common interest community” means a common interest community in which all units are restricted exclusively to nonresidential purposes. Except as provided in subsection (e), this section applies only to nonresidential common interest communities.
(b) A nonresidential common interest community is not subject to this [act] unless the declaration otherwise provides.
(c) The If the declaration of a nonresidential common interest community may provide that provides that the common interest community is subject to this [act], it must also provide that:
(1) the entire [act] applies to the community;
(2) only [Articles] 1 and 2 apply; or that
(3) only Sections 1-105 (Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations and Building Codes), and 1-107 (Eminent Domain) apply.
(d) If the entire [act] applies to a nonresidential common interest community, the declaration may also require, subject to Section 1-112 (Unconscionable Agreement or Term of Contract), that:
(1) notwithstanding Section 3-105 (Termination of Contracts and Leases of Declarant), any management contract, employment contract, lease of recreational or parking areas or facilities, and any other contract or lease between the association and a declarant or an affiliate of a declarant continues in force after the declarant turns over control of the association; and
(2) notwithstanding Section 1-104 (Variation by Agreement), purchasers of units must execute proxies, powers of attorney, or similar devices in favor of the declarant regarding particular matters enumerated in those instruments.
(e) A common interest community that contains units restricted exclusively to nonresidential purposes and other units that may be used for residential purposes is not subject to this [act] unless the units that may be used for residential purposes would comprise a common interest community in the absence of the nonresidential units or the declaration provides that this [act] applies as provided in subsection (c) or (d).
SECTION 1-208. APPLICABILITY TO OUT-OF-STATE COMMON INTEREST COMMUNITIES. This [act] does not apply to common interest communities or units located outside this State, but the public offering statement provisions (Sections 4-102 through 4-108)state, but Sections 4-102 and 4-103 and, to the extent applicable, Sections 4-104 through 4-106 apply to all contracts for the disposition thereof signed in this state by any party unless exempt under Section 4-101(b) [and the agency regulation provisions under [Article] 5 apply to any offering thereof in this state].
SECTION 1-209. OTHER EXEMPT REAL ESTATE AGREEMENTS.
(a) An agreement between the associations for two or more common interest communities to share the costs of real estate taxes, insurance premiums, services, maintenance or improvements of real estate, or other activities specified in their agreement or declarations does not create a separate common interest community. If the declarants of those common interest communities are affiliates, the agreement may not unreasonably allocate the costs among those common interest communities.
(b) An agreement between an association and the owner of real estate that is not part of a common interest community to share the costs of real estate taxes, insurance premiums, services, maintenance or improvements of real estate, or other activities specified in their agreement does not create a separate common interest community. However, the assessments against the units in the common interest community required by the agreement must be included in the periodic budget for the common interest community and the agreement must be disclosed in all public offering statements and resale certificates required by this [act].
Reporter's Comment
This new section addresses once again the continuing issue of the scope of the Act. It should be considered in connection with the revised definition of “Common Interest Community” in Section 1-102 (7).
The three sub-sections address 2 separate aspects of this issue:
1. whether contractual arrangements for cost sharing between two or more common interest communities requires creation of a third separate common interest community; and
2. whether contractual arrangements for cost sharing between an association and an owner of real estate located outside the common interest community’s boundaries requires creation of a separate common interest community.
The following analysis helps frame the issues posed in sub-sections (a) and (b).
There are numerous situations in which a declaration of easements or a covenant to share costs would suffice to establish the relationship between two parcels without the need to establish another association in which all the property owners are members to “manage” that relationship. Also, the sharing is not always a matter of shared use -- it might be a shared concern for maintenance of public rights-of-way through a community, or shared benefit of a roving security patrol, or sharing of costs of street lights on thoroughfares.
Here are some examples of common situations:
1) The homeowners association maintains the entry features, median and right-of-way landscaping, and sidewalks along a public street that also serves a commercial parcel (e.g., hotel or country club). The developer wants the hotel or country club to be obligated to pay a share of the costs that the association incurs in performing this maintenance, so he records a declaration on the club or hotel parcel with a covenant obligating the club/hotel to share costs incurred by the association in performing this responsibility and setting out a formula for computing its share. If both parties are agreeable, no purpose is served by another association.
2) Same situation except that the hotel is performing the maintenance instead of the association. The association is obligated under the covenant to share the costs to pay its share and a formula is set out in the covenant for computing the association’s share, which it then includes in its common expense budget and collects as part of its regular assessment, and pays to the hotel. Why do we need another association in which the property owners and hotel are members, with organizational documents, contracts, meetings, etc., to deal with this? The hotel doesn’t want to be subject to membership in an association controlled by other property owners. The existing association can adequately represent the interest of its members in dealing with the hotel.
3) Assume a vertical subdivision with a commercial parcel on the ground floor and a 15-story residential condominium above it. There is a recorded instrument creating reciprocal easements, obligating the condominium association to insure the entire building, among other things, and obligating the commercial owner to share certain costs incurred by the condominium association in accordance with a formula set out in the recorded instrument. Again, if the parties accept this arrangement, no purpose is served by mandating creation of another association.
4) Four residential condominiums share a common road. The first association to be created is responsible for maintaining the road. Each of the other three, at the time it is created, is made subject to a recorded covenant to share cost requiring it to pay 1/4 of the cost that the first association incurs in maintaining the road. Do we really need to create a master association to own and maintain the road?”
Basically, sub-section (a) makes clear that in the case of arrangements between associations, a separate association would not be required so long as the arrangement has not been entered into for purposes of evading the Act and so long as an allocation of costs between associations created by affiliated developers are reasonable.
In the case of arrangements between associations and third parties other than associations, sub-section (b) avoids the need for a separate association so long as the costs to be borne by the unit owners in the existing association are reflected in the periodic budget for the association and are subject to approval by the unit owners.
Reporter Notes (04/07)
One commentator writes regarding Section 1-209:
“I agree that there are a number of cost sharing arrangements which should not be deemed to create additional common interest communities. However, I have some reservations about Section 1-209 as it is presently drafted. These are as follows:
1. The exemption applies both to agreements created by unit owner controlled associations acting in the best interests of the unit owners and to agreements created by declarants, whose primary motivation is profit. The limitation, at the end of 1-209(a) that the cost allocation be “reasonable” is not sufficient to protect the unit owners.
2. Cost is not the only concern of unit owners and their associations when it comes to sharing in the use of, and the expenses for, other land. In Connecticut, we have a number of situations, most of them dating back to before the adoption of UCIOA, in which developers would include amenities, such as clubhouses, swimming pools and tennis courts, as well as access roads, etc. in one community and then grant to a second community the right to use the facilities together with the obligation to pay a pro rata share of the cost of operation. The decisions concerning the operation and maintenance of the facilities, however, remain with the first community. These arrangements frequently breed frustration and acrimony, if not outright abuse. UCIOA, especially in some of the proposed amendments, recognizes the importance of giving unit owners their say, even on issues where the actual vote is to be taken by others. Surely this provision should apply as much to the operation and maintenance of real estate serving the
community and paid for by the community as it does to the common elements.
3. If these arrangements are not considered to create a common interest community, the parties are left to the common law of easements, which, in many states, may not address a number of the issues that frequently arise, and there is no forum in which to address them other than litigation.
4. Several of the examples given in the comments illustrate, although I think inadvertently, the problems with the section. Comments 1 and 2 suggest that when a residential association and a commercial venture such as a hotel share certain common facilities and expenses, the hotel is as likely as not to defer to the association for the operation of these amenities as the other way around. In my experience, the hotel always wants to control everything. Since the hotel developer, if it is not the declarant itself, usually has a seat at the table while the overall structure of the community is being negotiated, while the individual unit owners do not, the hotel negotiates the deal it wants, often to the detriment of the unit owners. The deal as it is finally structured may contain some sort of a “reasonable” formula, but the control, decision making, etc., including the level of maintenance desired, will remain with the hotel.
5. I have had only limited experience with vertical mixed use common interest communities. In the few I have encountered, the commercial owners and the residential owners are often at loggerheads. Disputes arise out of situations that the declarant failed to anticipate when it prepared the documents. Sometimes they apply to circumstances that the declarant could not have anticipated. The commercial owner, which is usually a sophisticated real estate operator, speaks with one voice and has significant resources. The residential owners are already at a disadvantage. Denying them all the benefits of a community association structure, and the procedural safeguards and protections of the Act will only exacerbate the problem.
6. The comment concerning (b) seems to assume that the agreement with the other owner will not require the association to spend any money unless the expenditure is included in a budget approved by the unit owners. I am not sure how an adjoining property owner could enter into a shared cost agreement if the other party to the agreement could, in any given year, by a vote of its unit owners, refuse to pay its share of maintenance. If this provision were made clear in the easement agreement, I doubt any adjoining owner would participate.
SECTION 1-210. OTHER EXEMPT COVENANTS. A covenant that requires the owners of separately owned parcels of real estate to share costs or other obligations associated with a party wall, driveway, well, or other similar [use] [property] does not create a common interest community unless those owners otherwise agree.
CREATION, ALTERATION, AND
TERMINATION OF COMMON INTEREST COMMUNITIES
SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES.
(a) A common interest community may be created pursuant to this [act] only by recording a declaration executed in the same manner as a deed and, in a cooperative, by conveying the real estate subject to that declaration to the association. The declaration must be recorded in every [county] in which any portion of the common interest community is located and must be indexed [in the grantee's index] in the name of the common interest community and the association and [in the grantor's index] in the name of each person executing the declaration.
(b) In a condominium, a declaration, or an amendment to a declaration, adding units may not be recorded unless (i) all structural components and mechanical systems of all buildings containing or comprising any units thereby created are substantially completed in accordance with the plans, as evidenced by a recorded certificate of completion executed by an independent [registered] engineer, surveyor, or architect [, or (ii) unless the agency has approved the declaration or amendment in the manner prescribed in Section 5-103(b)].
SECTION 2-102. UNIT BOUNDARIES. Except as provided by the declaration:
(1) If walls, floors, or ceilings are designated as boundaries of a unit, all lath, furring, wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finished flooring, and any other materials constituting any part of the finished surfaces thereof are a part of the unit, and all other portions of the walls, floors, or ceilings are a part of the common elements.
(2) If any chute, flue, duct, wire, conduit, bearing wall, bearing column, or any other fixture lies partially within and partially outside the designated boundaries of a unit, any portion thereof serving only that unit is a limited common element allocated solely to that unit, and any portion thereof serving more than one unit or any portion of the common elements is a part of the common elements.
(3) Subject to paragraph (2), all spaces, interior partitions, and other fixtures and improvements within the boundaries of a unit are a part of the unit.
(4) Any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, and all exterior doors and windows or other fixtures designed to serve a single unit, but located outside the unit's boundaries, are limited common elements allocated exclusively to that unit.
SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND BYLAWS.
(a) All provisions of the declaration and bylaws are severable.
(b) The rule against perpetuities does not apply to defeat any provision of the declaration, bylaws, rules, or regulations adopted pursuant to Section 3-102(a)(1).
(c) In the event of a conflict between the provisions of the declaration and the bylaws, the declaration prevails except to the extent the declaration is inconsistent with this [act].
(d) Title to a unit and common elements is not rendered unmarketable or otherwise affected by reason of an insubstantial failure of the declaration to comply with this [act]. Whether a substantial failure impairs marketability is not affected by this [act].
SECTION 2-104. DESCRIPTION OF UNITS. A description of a unit which sets forth the name of the common interest community, the [recording data] for the declaration, the [county] in which the common interest community is located, and the identifying number of the unit, is a legally sufficient description of that unit and all rights, obligations, and interests appurtenant to that unit which were created by the declaration or bylaws.
SECTION 2-105. CONTENTS OF DECLARATION.
(a) The declaration must contain:
(1) the names of the common interest community and the association and a statement that the common interest community is either a condominium, cooperative, or planned community;
(2) the name of every [county] in which any part of the common interest community is situated;
(3) a legally sufficient description of the real estate included in the common interest community;
(4) a statement of the maximum number of units that the declarant reserves the right to create;
(5) in a condominium or planned community, a description of the boundaries of each unit created by the declaration, including the unit's identifying number or, in a cooperative, a description, which may be by plats or plans, of each unit created by the declaration, including the unit's identifying number, its size or number of rooms, and its location within a building if it is within a building containing more than one unit;
(6) a description of any limited common elements, other than those specified in Section 2-102(2) and (4), as provided in Section 2-109(b)(10) and, in a planned community, any real estate that is or must become common elements;
(7) a description of any real estate, except real estate subject to development rights, that may be allocated subsequently as limited common elements, other than limited common elements specified in Section 2-102(2) and (4), together with a statement that they may be so allocated;
(8) a description of any development rights (Section 1-103(14)) and other special declarant rights (Section 1-103(29)) reserved by the declarant, together with a legally sufficient description of the real estate to which each of those rights applies, and a time limit within which each of those rights must be exercised;
(9) if any development right may be exercised with respect to different parcels of real estate at different times, a statement to that effect together with (i) either a statement fixing the boundaries of those portions and regulating the order in which those portions may be subjected to the exercise of each development right or a statement that no assurances are made in those regards, and (ii) a statement as to whether, if any development right is exercised in any portion of the real estate subject to that development right, that development right must be exercised in all or in any other portion of the remainder of that real estate;
(10) any other conditions or limitations under which the rights described in paragraph (8) may be exercised or will lapse;
(11) an allocation to each unit of the allocated interests in the manner described in Section 2-107;
(12) any restrictions (i) on alienation of the units, including any restrictions on leasing which exceed the restrictions on leasing units which executive boards may impose pursuant to Section 3-102(c)(2) 3-120(d), and (ii) on the amount for which a unit may be sold or on the amount that may be received by a unit owner on sale, condemnation, or casualty loss to the unit or to the common interest community, or on termination of the common interest community;
(13) the [recording data] for recorded easements and licenses appurtenant to or included in the common interest community or to which any portion of the common interest community is or may become subject by virtue of a reservation in the declaration; and
(14) any authorization pursuant to which the association may adopt rules to establish and enforce construction and design criteria in the manner provided in Section 3-120; and
(15) all matters required by Sections 2-106, 2-107, 2-108, 2-109, 2-115, 2-116, and 3-103(d).
(b) The declaration may contain any other matters the declarant considers appropriate, including any restrictions on the uses of a unit or the number or other qualifications of persons who may occupy units.
SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES.
(a) Any lease the expiration or termination of which may terminate the common interest community or reduce its size [, or a memorandum thereof,] must be recorded. Every lessor of those leases in a condominium or planned community shall sign the declaration. The declaration must state:
(1) the [recording data] for the lease [or a statement of where the complete lease may be inspected];
(2) the date on which the lease is scheduled to expire;
(3) a legally sufficient description of the real estate subject to the lease;
(4) any right of the unit owners to redeem the reversion and the manner whereby those rights may be exercised, or a statement that they do not have those rights;
(5) any right of the unit owners to remove any improvements within a reasonable time after the expiration or termination of the lease, or a statement that they do not have those rights; and
(6) any rights of the unit owners to renew the lease and the conditions of any renewal, or a statement that they do not have those rights.
(b) After the declaration for a leasehold condominium or leasehold planned community is recorded, neither the lessor nor the lessor's successor in interest may terminate the leasehold interest of a unit owner who makes timely payment of a unit owner's share of the rent and otherwise complies with all covenants which, if violated, would entitle the lessor to terminate the lease. A unit owner's leasehold interest in a condominium or planned community is not affected by failure of any other person to pay rent or fulfill any other covenant.
(c) Acquisition of the leasehold interest of any unit owner by the owner of the reversion or remainder does not merge the leasehold and fee simple interests unless the leasehold interests of all unit owners subject to that reversion or remainder are acquired.
(d) If the expiration or termination of a lease decreases the number of units in a common interest community, the allocated interests must be reallocated in accordance with Section 1-107(a) as if those units had been taken by eminent domain. Reallocations must be confirmed by an amendment to the declaration prepared, executed, and recorded by the association.
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.
New Comment
[to be added as a new paragraph following the last sentence of existing Comment 2]
Questions have arisen concerning the drafters’ intent regarding the language in subsection (b), which prohibits the declaration from “discriminating in favor of units owned by the declarant.” Specifically, the question is whether this section imposes a special level of scrutiny on the allocation of votes and common expense liability to units that the declarant may own, compared to similar units that are owned by persons who are not declarants.
The answer is that the language means what it says: that is, if the allocated interests would change at the time the declarant sold the unit, then the allocated interests are improper because they discriminate in favor of the declarant’s ownership of that unit. However, if the allocation of common expenses and votes is permanent rather than dependent on the owner’s identity and one whose formula is identified in the declaration, then the allocation is proper. Subject to the obligations of good faith in Section 1-113 and the prohibition on unconscionable terms in Section 1-112, this would be true even if the effect of the allocation were to create a relative benefit in favor of units that the declarant or its affiliate intended to own for an indefinite period.
Example: A common interest community consists of a high-rise building containing 10 floors of equal size. There are 4 units on each floor except the top floor, where there is only 1 ‘penthouse’ unit. Even though the penthouse unit is four times the size of the units on the 9 other floors, and is clearly more valuable than the other 36 units, the declaration allocates an equal share of the common expenses to all the units, including the penthouse unit. The effect of this allocation is that the penthouse unit bears a 1/37th share of the common expenses - this is only 25% of the cost – on a per square foot basis – of the share borne by each unit owner on a lower floor.
Assume that the declaration properly contains the formula used for the allocation of common expenses among the units and properly discloses the material and unusual circumstance that the penthouse benefits substantially from the formula used to allocate expenses.
The fact that the declarant intends to retain ownership of the penthouse unit and live in that unit does not mean that the standard contained in section 2-107 (b) has been violated. However, the Act would be violated if the declaration provided that, upon the declarant’s sale of the penthouse, the formula for allocating common expenses would be changed to an allocation among all the units based on their relative sizes.
In the example, this appears to yield an unjust result and a court might be invited to consider the extent to which the declarant had acted in bad faith or unconscionably in making such an allocation. Nevertheless, any other rule would simply encourage challenges to any allocation of common expenses, since an argument can always be made that any allocation – whether done on relative size, number of rooms, “value’, location within a building, equality or any other basis - inevitably works to the relative disadvantage of some owners compared to others in the same community.
SECTION 2-108. LIMITED COMMON ELEMENTS.
(a) Except for the limited common elements described in Section 2-102(2) and (4), the declaration must specify to which unit or units each limited common element is allocated. An allocation may not be altered without the consent of the unit owners whose units are affected.
(b) Except as the declaration otherwise provides, a limited common element may be reallocated by an amendment to the declaration executed by the unit owners between or among whose units the reallocation is made. The persons executing the amendment shall provide a copy thereof to the association, which shall record it. The amendment must be recorded in the names of the parties and the common interest community.
(c) A common element not previously allocated as a limited common element may be so allocated only pursuant to provisions in the declaration made in accordance with Section 2-105(a)(7). The allocations must be made by amendments to the declaration.
SECTION 2-109. PLATS AND PLANS.
(a) Plats and plans are a part of the declaration, and are required for all common interest communities except cooperatives. Separate plats and plans are not required by this [act] if all the information required by this section is contained in either a plat or plan. Each plat and plan must be clear and legible and contain a certification that the plat or plan contains all information required by this section.
(b) Each plat must show or project:
(1) the name and a survey or general schematic map of the entire common interest community;
(2) the location and dimensions of all real estate not subject to development rights, or subject only to the development right to withdraw, and the location and dimensions of all existing improvements within that real estate;
(3) a legally sufficient description of any real estate subject to development rights, labeled to identify the rights applicable to each parcel;
(4) the extent of any encroachments by or upon any portion of the common interest community;
(5) to the extent feasible, a legally sufficient description of all easements serving or burdening any portion of the common interest community;
(6) except as provided in subsection (h), the approximate location and dimensions of any vertical unit boundaries not shown or projected on plans recorded pursuant to subsection (d) and that unit's identifying number;
(7) except as provided in subsection (h), the approximate location with reference to an established datum of any horizontal unit boundaries not shown or projected on plans recorded pursuant to subsection (d) and that unit's identifying number;
(8) a legally sufficient description of any real estate in which the unit owners will own only an estate for years, labeled as “leasehold real estate;”
(9) the distance between non-contiguous parcels of real estate comprising the common interest community;
(10) the approximate location and dimensions of any porches, decks, balconies, garages, or patios allocated as limited common elements, and show or contain a narrative description of any other limited common elements; and
(11) in the case of real estate not subject to development rights, all other matters customarily shown on land surveys.
(c) A plat may also show the intended location and dimensions of any contemplated improvement to be constructed anywhere within the common interest community. Any contemplated improvement shown must be labeled either “MUST BE BUILT” or “NEED NOT BE BUILT.”
(d) Except as provided in subsection (h), to the extent not shown or projected on the plats, plans of the units must show or project:
(1) the approximate location and dimensions of the vertical boundaries of each unit, and that unit's identifying number;
(2) the approximate location of any horizontal unit boundaries, with reference to an established datum, and that unit's identifying number; and
(3) the approximate location of any units in which the declarant has reserved the right to create additional units or common elements (Section 2-110(c)), identified appropriately.
(e) Unless the declaration provides otherwise, the horizontal boundaries of part of a unit located outside a building have the same elevation as the horizontal boundaries of the inside part and need not be depicted on the plats and plans.
(f) Upon exercising any development right, the declarant shall record either new plats and plans necessary to conform to the requirements of subsections (a), (b), and (d), or new certifications of plats and plans previously recorded if those plats and plans otherwise conform to the requirements of those subsections.
(g) Any certification of a plat or plan required by this section or Section 2-101(b) must be made by an independent [registered] surveyor, architect, or engineer.
(h) Plats and plans need not show the location and dimensions of the units' boundaries or their limited common elements if:
(1) the plat shows the location and dimensions of all buildings containing or comprising the units; and
(2) the declaration includes other information that shows or contains a narrative description of the general layout of the units in those buildings and the limited common elements allocated to those units.
SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS.
(a) To exercise any development right reserved under Section 2-105(a)(8), the declarant shall prepare, execute, and record an amendment to the declaration (Section 2-117) and in a condominium or planned community comply with Section 2-109. The declarant is the unit owner of any units thereby created. The amendment to the declaration must assign an identifying number to each new unit created, and, except in the case of subdivision or conversion of units described in subsection (b), reallocate the allocated interests among all units. The amendment must describe any common elements and any limited common elements thereby created and, in the case of limited common elements, designate the unit to which each is allocated to the extent required by Section 2-108 (Limited Common Elements).
(b) Development rights may be reserved within any real estate added to the common interest community if the amendment adding that real estate includes all matters required by Section 2-105 or 2-106, as the case may be, and, in a condominium or planned community, the plats and plans include all matters required by Section 2-109. This provision does not extend the time limit on the exercise of development rights imposed by the declaration pursuant to Section 2-105(a)(8).
(c) Whenever a declarant exercises a development right to subdivide or convert a unit previously created into additional units, common elements, or both:
(1) if the declarant converts the unit entirely to common elements, the amendment to the declaration must reallocate all the allocated interests of that unit among the other units as if that unit had been taken by eminent domain (Section 1-107); and
(2) if the declarant subdivides the unit into two or more units, whether or not any part of the unit is converted into common elements, the amendment to the declaration must reallocate all the allocated interests of the unit among the units created by the subdivision in any reasonable manner prescribed by the declarant.
(d) If the declaration provides, pursuant to Section 2-105(a)(8), that all or a portion of the real estate is subject to a right of withdrawal:
(1) if all the real estate is subject to withdrawal, and the declaration does not describe separate portions of real estate subject to that right, none of the real estate may be withdrawn after a unit has been conveyed to a purchaser; and
(2) if any portion is subject to withdrawal, it may not be withdrawn after a unit in that portion has been conveyed to a purchaser.
SECTION 2-111. ALTERATIONS OF UNITS. Subject to the provisions of the declaration and other provisions of law, a unit owner:
(1) may make any improvements or alterations to his that owner’s unit that do not impair the structural integrity or mechanical systems or lessen the support of any portion of the common interest community;
(2) may not change the appearance of the common elements, or the exterior appearance of a unit or any other portion of the common interest community, without permission of the association;
(3) after acquiring an adjoining unit or an adjoining part of an adjoining unit, may remove or alter any intervening partition or create apertures therein, even if the partition in whole or in part is a common element, if those acts do not impair the structural integrity or mechanical systems or lessen the support of any portion of the common interest community. Removal of partitions or creation of apertures under this paragraph is not an alteration of boundaries.
SECTION 2-112. RELOCATION OF UNIT BOUNDARIES.
(a) Subject to the provisions of the declaration and other provisions of law, the boundaries between adjoining units may be relocated by an amendment to the declaration upon application to the association by the owners of those units. If the owners of the adjoining units have specified a reallocation between their units of their allocated interests, the application must state the proposed reallocations. Unless the executive board determines, within 30 days, that the reallocations are unreasonable, the association shall prepare an amendment that identifies the units involved and states the reallocations. The amendment must be executed by those unit owners, contain words of conveyance between them, and, on recordation, be indexed in the name of the grantor and the grantee, and [in the grantee's index] in the name of the association.
(b) Subject to the provisions of the declaration and other provisions of law, boundaries between units and common elements may be relocated to incorporate common elements within a unit by an amendment to the declaration upon application to the association by the owner of the unit who proposes to relocate a boundary. Unless the declaration provides otherwise, the amendment may be approved only if persons entitled to cast at least [67] percent of the votes in the association, including [67] percent of the votes allocated to units not owned by the declarant, agree to the action. The amendment may describe any fees or charges payable by the owner of the affected unit in connection with the boundary relocation and the fees and charges are assets of the association. The amendment must be executed by the unit owner of the unit whose boundary is being relocated and by the association, contain words of conveyance between them, and on recordation be indexed in the name of the unit owner and the association as grantor or grantee, as appropriate.
(c) The association (i) in a condominium or planned community shall prepare and record plats or plans necessary to show the altered boundaries of affected units, and their dimensions and identifying numbers, and (ii) in a cooperative shall prepare and record amendments to the declaration, including any plans, necessary to show or describe the altered boundaries of affected units, and their dimensions and identifying numbers.
SECTION 2-113. SUBDIVISION OF UNITS.
(a) If the declaration expressly so permits, a unit may be subdivided into two or more units. Subject to the provisions of the declaration and other provisions of law, upon application of a unit owner to subdivide a unit, the association shall prepare, execute, and record an amendment to the declaration, including in a condominium or planned community the plats and plans, subdividing that unit.
(b) The amendment to the declaration must be executed by the owner of the unit to be subdivided, assign an identifying number to each unit created, and reallocate the allocated interests formerly allocated to the subdivided unit to the new units in any reasonable manner prescribed by the owner of the subdivided unit.
[ALTERNATIVE A]
[SECTION 2-114. EASEMENT FOR ENCROACHMENTS. To the extent that any unit or common element encroaches on any other unit or common element, a valid easement for the encroachment exists. The easement does not relieve a unit owner of liability in case of his willful misconduct nor relieve a declarant or any other person of liability for failure to adhere to any plats and plans or, in a cooperative, to any representation in the public offering statement.]
[ALTERNATIVE B]
[SECTION 2-114. MONUMENTS AS BOUNDARIES. The existing physical boundaries of a unit or the physical boundaries of a unit reconstructed in substantial accordance with the description contained in the original declaration are its legal boundaries, rather than the boundaries derived from the description contained in the original declaration, regardless of vertical or lateral movement of the building or minor variance between those boundaries and the boundaries derived from the description contained in the original declaration. This section does not relieve a unit owner of liability in case of his willful misconduct or relieve a declarant or any other person of liability for failure to adhere to any plats and plans or, in a cooperative, to any representation in the public offering statement.]
SECTION 2-115. USE FOR SALES PURPOSES. A declarant may maintain sales offices, management offices, and models in units or on common elements in the common interest community only if the declaration so provides and specifies the rights of a declarant with regard to the number, size, location, and relocation thereof. In a cooperative or condominium, any sales office, management office, or model not designated a unit by the declaration is a common element. If a declarant ceases to be a unit owner, he ceases to have any rights with regard thereto unless it is removed promptly from the common interest community in accordance with a right to remove reserved in the declaration. Subject to any limitations in the declaration, a declarant may maintain signs on the common elements advertising the common interest community. This section is subject to the provisions of other state law and to local ordinances.
SECTION 2-116. EASEMENT RIGHTS.
(a) Subject to the provisions of the declaration, a declarant has an easement through the common elements as may be reasonably necessary for the purpose of discharging the declarant's obligations or exercising special declarant rights, whether arising under this [act] or reserved in the declaration.
(b) In a planned community, subject to the provisions of Sections 3-102(a)(6) and 3-112, the unit owners have an easement (i) in the common elements for purposes of access to their units and (ii) to use the common elements and all real estate that must become common elements (Section 2-105(a)(6)) for all other purposes.
SECTION 2-117. AMENDMENT OF DECLARATION.
(a) Except in cases of amendments that may be executed by a declarant under Section 2-109(f) or 2-110, or by the association under Section 1-107, 2-106(d), 2-108(c), 2-112(a), or 2-113, or by certain unit owners under Section 2-108(b), 2-112(a), 2-113(b), or 2-118(b), or by secured lenders pursuant to Section 2-119, and except as limited by subsection (d), the declaration, including any plats and plans, may be amended only by vote or agreement of unit owners of units to which at least [67] percent of the votes in the association are allocated, or any larger majority the declaration specifies. The declaration may specify a smaller number only if all of the units are restricted exclusively to nonresidential use or as permitted under Section 2-119.
(b) No action to challenge the validity of an amendment adopted by the association pursuant to this section may be brought more than one year after the amendment is recorded.
(c) Every amendment to the declaration must be recorded in every [county] in which any portion of the common interest community is located and is effective only upon recordation. An amendment, except an amendment pursuant to Section 2-112(a), must be indexed [in the grantee's index] in the name of the common interest community and the association and [in the grantor's index] in the name of the parties executing the amendment.
(d) Except to the extent expressly permitted or required by other provisions of this [act], no amendment may create or increase special declarant rights, increase the number of units, change the boundaries of any unit or the allocated interests of a unit, in the absence of unanimous consent of the unit owners.
(e) Amendments to the declaration required by the [act] to be recorded by the association must be prepared, executed, recorded, and certified on behalf of the association by any officer of the association designated for that purpose or, in the absence of designation, by the president of the association.
(f) By vote or agreement of unit owners of units to which at least 80 percent of the votes in the association are allocated, or any larger percentage specified in the declaration, an amendment to the declaration may prohibit or materially restrict the permitted uses of or behavior in a unit or the number or other qualifications of persons who may occupy units. The amendment must provide reasonable protection for a use or occupancy permitted at the time the amendment was adopted.
(g) The time limits specified in the declaration pursuant to Section 2-105(a)(8) (Contents of the Declaration) within which reserved development rights must be exercised may be extended, and additional development rights may be created, if persons entitled to cast at least 80 percent of the votes in the association, including 80 percent of the votes allocated to units not owned by the declarant, agree to that action. The agreement is effective 30 days after an amendment to the declaration reflecting the terms of the agreement is recorded unless all the persons holding the affected special declarant rights, or security interests in those rights, record a written objection within the 30-day period, in which case the amendment is void, or consent in writing at the time the amendment is recorded, in which case the amendment is effective when recorded.
(h) A provision in the declaration creating special declarant rights that has not expired may not be amended without the consent of the declarant.
[(i)] [If any provision of this [act] or of the declaration of any common interest community in this state, whether created before or after the [insert effective date of this [act] or the amendments to this [act], as appropriate,] requires the consent of a person holding a security interest in a unit as a condition to the effectiveness of an amendment to the declaration, that consent is granted if no written refusal to consent is received by the association within 45 days after the association delivers notice of the proposed amendment to the holder of the interest or mails the notice to the holder of the interest by certified mail, return receipt requested. The association may rely on the last-recorded security interest of record in delivering or mailing notice to the holder of that interest.]
[(j)] [If the declaration of a common interest community, whether created before or after the [insert effective date of this [act] or the amendments to this [act], as appropriate,] contains a provision requiring that amendments may be adopted only by the vote or agreement of unit owners of units to which more than 80 per cent of the votes in the association are allocated, such a proposed amendment shall be deemed approved if:
(1) (A) unit owners of units to which at least 80 per cent of the votes in the association are allocated vote for or agree to the proposed amendment;
(B) no unit owner votes against the proposed amendment; and
(C) notice of the proposed amendment is delivered to the unit owners holding the votes in the association that have not voted or agreed to the proposed amendment and no written objection of the proposed amendment is received by the association within thirty days after the association delivers notice; or
(2) unit owners of units to which at least 80 per cent of the votes in the association are allocated vote for or agree to the proposed amendment but at least one unit owner objects to the proposed amendment and, pursuant to an action brought by the association in the [insert appropriate court] against all objecting unit owners, the court finds that the objecting unit owners do not have a unique minority interest, different in kind from the interests of the other unit owners, that the voting requirement of the declaration was intended to protect.]
Reporter Note (04/07)
Subsections (i) and (j) are adapted from the Connecticut version of this Act, codified as C.G.S. § 47-237.
A version of subsections (i) and (j) has proved extremely useful in Connecticut. This draft expands the Connecticut statute by applying those provisions not only to communities created under UCIOA, but to pre-existing communities that now fall partially under the Act. Some of the most difficult mortgagee consent provisions can be found in the documents of older communities. These made some sense in the earlier days of development when most unit mortgages were held by local financial institutions concerned that unit owners might routinely adopt irresponsible amendments. However, now that most mortgages are held by distant entities unable to respond to requests for needed amendments in a timely way, these provisions frequently hamstring communities as they seek to adopt necessary changes in their documents.
SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY. (a) Except in the case of a taking of all the units by eminent domain (Section 1-107) or in the case of foreclosure against an entire cooperative of a security interest that has priority over the declaration, a common interest community may be terminated only by agreement of unit owners of units to which at least 80 percent of the votes in the association are allocated, or any larger percentage the declaration specifies. The declaration may specify a smaller percentage only if all of the units are restricted exclusively to nonresidential uses.
(b) An agreement to terminate must be evidenced by the execution of a termination agreement, or ratifications thereof, in the same manner as a deed, by the requisite number of unit owners. The termination agreement must specify a date after which the agreement will be void unless it is recorded before that date. A termination agreement and all ratifications thereof must be recorded in every [county] in which a portion of the common interest community is situated and is effective only upon recordation.
(c) In the case of a condominium or planned community containing only units having horizontal boundaries described in the declaration, a termination agreement may provide that all of the common elements and units of the common interest community must be sold following termination. If, pursuant to the agreement, any real estate in the common interest community is to be sold following termination, the termination agreement must set forth the minimum terms of the sale.
(d) In the case of a condominium or planned community containing any units not having horizontal boundaries described in the declaration, a termination agreement may provide for sale of the common elements, but it may not require that the units be sold following termination, unless the declaration as originally recorded provided otherwise or all the unit owners consent to the sale.
(e) The association, on behalf of the unit owners, may contract for the sale of real estate in a common interest community, but the contract is not binding on the unit owners until approved pursuant to subsections (a) and (b). If any real estate is to be sold following termination, title to that real estate, upon termination, vests in the association as trustee for the holders of all interests in the units. Thereafter, the association has all powers necessary and appropriate to effect the sale. Until the sale has been concluded and the proceeds thereof distributed, the association continues in existence with all powers it had before termination. Proceeds of the sale must be distributed to unit owners and lien holders as their interests may appear, in accordance with subsections (h), (i), and (j). Unless otherwise specified in the termination agreement, as long as the association holds title to the real estate, each unit owner and the unit owner's successors in interest have an exclusive right to occupancy of the portion of the real estate that formerly constituted the unit. During the period of that occupancy, each unit owner and the unit owner's successors in interest remain liable for all assessments and other obligations imposed on unit owners by this [act] or the declaration.
(f) In a condominium or planned community, if the real estate constituting the common interest community is not to be sold following termination, title to the common elements and, in a common interest community containing only units having horizontal boundaries described in the declaration, title to all the real estate in the common interest community, vests in the unit owners upon termination as tenants in common in proportion to their respective interests as provided in subsection (j), and liens on the units shift accordingly. While the tenancy in common exists, each unit owner and the unit owner's successors in interest have an exclusive right to occupancy of the portion of the real estate that formerly constituted the unit.
(g) Following termination of the common interest community, the proceeds of any sale of real estate, together with the assets of the association, are held by the association as trustee for unit owners and holders of liens on the units as their interests may appear.
(h) Following termination of a condominium or planned community, creditors of the association holding liens on the units, which were [recorded] [docketed] [insert other procedures required under state law to perfect a lien on real estate as a result of a judgment] before termination, may enforce those liens in the same manner as any lien holder. All other creditors of the association are to be treated as if they had perfected liens on the units immediately before termination.
(i) In a cooperative, the declaration may provide that all creditors of the association have priority over any interests of unit owners and creditors of unit owners. In that event, following termination, creditors of the association holding liens on the cooperative which were [recorded] [docketed] [insert other procedures required under state law to perfect a lien on real estate as a result of a judgment] before termination may enforce their liens in the same manner as any lien holder, and any other creditor of the association is to be treated as if he had perfected a lien against the cooperative immediately before termination. Unless the declaration provides that all creditors of the association have that priority:
(1) the lien of each creditor of the association which was perfected against the association before termination becomes, upon termination, a lien against each unit owner's interest in the unit as of the date the lien was perfected;
(2) any other creditor of the association is to be treated upon termination as if the creditor had perfected a lien against each unit owner's interest immediately before termination; (3) the amount of the lien of an association's creditor described in paragraphs (1) and (2) against each of the unit owners' interest must be proportionate to the ratio which each unit's common expense liability bears to the common expense liability of all of the units; (4) the lien of each creditor of each unit owner which was perfected before termination continues as a lien against that unit owner's unit as of the date the lien was perfected; and
(5) the assets of the association must be distributed to all unit owners and all lien holders as their interests may appear in the order described above. Creditors of the association are not entitled to payment from any unit owner in excess of the amount of the creditor's lien against that unit owner's interest.
(j) The respective interests of unit owners referred to in subsections (e), (f), (g), (h), and (i) are as follows:
(1) Except as provided in paragraph (2), the respective interests of unit owners are the fair market values of their units, allocated interests, and any limited common elements immediately before the termination, as determined by one or more independent appraisers selected by the association. The decision of the independent appraisers must be distributed to the unit owners and becomes final unless disapproved within 30 days after distribution by unit owners of units to which 25. The proportion of any unit owner's interest to that of all unit owners is determined by dividing the fair market value of that unit owner's unit and its allocated interests by the total fair market values of all the units and their allocated interests.
(2) If any unit or any limited common element is destroyed to the extent that an appraisal of the fair market value thereof before destruction cannot be made, the interests of all unit owners are: (i) in a condominium, their respective common element interests immediately before the termination, (ii) in a cooperative, their respective ownership interests immediately before the termination, and (iii) in a planned community, their respective common expense liabilities immediately before the termination.
(k) In a condominium or planned community, except as provided in subsection (l), foreclosure or enforcement of a lien or encumbrance against the entire common interest community does not terminate, of itself, the common interest community, and foreclosure or enforcement of a lien or encumbrance against a portion of the common interest community, other than withdrawable real estate, does not withdraw that portion from the common interest community. Foreclosure or enforcement of a lien or encumbrance against withdrawable real estate, or against common elements that have been subjected to a security interest by the association under Section 3-112, does not withdraw, of itself, that real estate from the common interest community, but the person taking title thereto may require from the association, upon request, an amendment excluding the real estate from the common interest community.
(l) In a condominium or planned community, if a lien or encumbrance against a portion of the real estate comprising the common interest community has priority over the declaration and the lien or encumbrance has not been partially released, the parties foreclosing the lien or encumbrance, upon foreclosure, may record an instrument excluding the real estate subject to that lien or encumbrance from the common interest community.
SECTION 2-119. RIGHTS OF SECURED LENDERS.
(a) The declaration may require that all or a specified number or percentage of the lenders who hold security interests encumbering the units or who have extended credit to the association approve specified actions of the unit owners or the association as a condition to the effectiveness of those actions, but no requirement for approval may operate to (i) deny or delegate control over the general administrative affairs of the association by the unit owners or the executive board, or (ii) prevent the association or the executive board from commencing, intervening in, or settling any litigation or proceeding, or (iii) prevent any insurance trustee or the association from receiving and distributing any insurance proceeds except pursuant to Section 3-113.
(b) A lender who has extended credit to an association secured by an assignment of income (Section 3-102(14)) or an encumbrance on the common elements (Section 3-112) may enforce its security agreement in accordance with its terms, subject to the requirements of this [act] and other law. Requirements that the association must deposit its periodic common charges before default with the lender to which the association's income has been assigned, or increase its common charges at the lender's direction by amounts reasonably necessary to amortize the loan in accordance with its terms, do not violate the prohibitions on lender approval contained in subsection (a).
SECTION 2-120. MASTER ASSOCIATIONS.
(a) If the declaration provides that any of the powers described in Section 3-102 are to be exercised by or may be delegated to a profit or nonprofit corporation [or unincorporated association] that exercises those or other powers on behalf of one or more common interest communities or for the benefit of the unit owners of one or more common interest communities, all provisions of this [act] applicable to unit owners' associations apply to any such corporation [or unincorporated association], except as modified by this section.
(b) Unless it is acting in the capacity of an association described in Section 3-101, a master association may exercise the powers set forth in Section 3-102(a)(2) only to the extent expressly permitted in the declarations of common interest communities which are part of the master association or expressly described in the delegations of power from those common interest communities to the master association.
(c) If the declaration of any common interest community provides that the executive board may delegate certain powers to a master association, the members of the executive board have no liability for the acts or omissions of the master association with respect to those powers following delegation.
(d) The rights and responsibilities of unit owners with respect to the unit owners' association set forth in Sections 3-103, 3-108, 3-109, 3-110, and 3-112 apply in the conduct of the affairs of a master association only to persons who elect the board of a master association, whether or not those persons are otherwise unit owners within the meaning of this [act].
(e) Even if a master association is also an association described in Section 3-101, the certificate of incorporation or other instrument creating the master association and the declaration of each common interest community, the powers of which are assigned by the declaration or delegated to the master association, may provide that the executive board of the master association must be elected after the period of declarant control in any of the following ways:
(1) All unit owners of all common interest communities subject to the master association may elect all members of the master association’s executive board.
(2) All members of the executive boards of all common interest communities subject to the master association may elect all members of the master association's executive board.
(3) All unit owners of each common interest community subject to the master association may elect specified members of the master association's executive board.
(4) All members of the executive board of each common interest community subject to the master association may elect specified members of the master association's executive board.
SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST COMMUNITIES.
(a) Any two or more common interest communities of the same form of ownership, by agreement of the unit owners as provided in subsection (b), may be merged or consolidated into a single common interest community. In the event of a merger or consolidation, unless the agreement otherwise provides, the resultant common interest community is the legal successor, for all purposes, of all of the pre-existing common interest communities, and the operations and activities of all associations of the pre-existing common interest communities are merged or consolidated into a single association that holds all powers, rights, obligations, assets, and liabilities of all pre-existing associations.
(b) An agreement of two or more common interest communities to merge or consolidate pursuant to subsection (a) must be evidenced by an agreement prepared, executed, recorded, and certified by the president of the association of each of the pre-existing common interest communities following approval by owners of units to which are allocated the percentage of votes in each common interest community required to terminate that common interest community. The agreement must be recorded in every [county] in which a portion of the common interest community is located and is not effective until recorded.
(c) Every merger or consolidation agreement must provide for the reallocation of the allocated interests in the new association among the units of the resultant common interest community either (i) by stating the reallocations or the formulas upon which they are based or (ii) by stating the percentage of overall allocated interests of the new common interest community which are allocated to all of the units comprising each of the pre-existing common interest communities, and providing that the portion of the percentages allocated to each unit formerly comprising a part of the pre-existing common interest community must be equal to the percentages of allocated interests allocated to that unit by the declaration of the pre-existing common interest community.
SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE. In a planned community, if the right is originally reserved in the declaration, the declarant in addition to any other development right, may amend the declaration at any time during as many years as are specified in the declaration for adding additional real estate to the planned community without describing the location of that real estate in the original declaration; but, the amount of real estate added to the planned community pursuant to this section may not exceed 10 percent of the real estate described in Section 2-105(a)(3) and the declarant may not in any event increase the number of units in the planned community beyond the number stated in the original declaration pursuant to Section 2-105(a)(5).
SECTION 2-123. MASTER PLANNED COMMUNITIES.
(a) The declaration for a common interest community may state that it is a master planned community if the declarant has reserved the development right to create at least [500] units that may be used for residential purposes, and at the time of the reservation that declarant owns or controls more than [500] acres on which the units may be built.
(b) If the requirements of subsection (a) are satisfied, the declaration for the master planned community need not state a maximum number of units and need not contain any of the information required by Section 2-105(a)(3) through (14) until the declaration is amended under subsection (c).
(c) When each unit in a master planned community is conveyed to a purchaser, the declaration must contain (i) a sufficient legal description of the unit and all portions of the master planned community in which any other units have been conveyed to a purchaser; and (ii) all the information required by Section 2-105(a)(3) through (14) with respect to that real estate.
(d) The only real estate in a master planned community which is subject to this [act] is units that have been declared or which are being offered for sale and any other real estate described pursuant to subsection (c). Other real estate that is or may become part of the master planned community is only subject to other law and to any other restrictions and limitations that appear of record.
(e) If the public offering statement conspicuously identifies the fact that the community is a master planned community, the disclosure requirements contained in [Article] 4 apply only with respect to units that have been declared or are being offered for sale in connection with the public offering statement and to the real estate described pursuant to subsection (c).
(f) Limitations in this [act] on the addition of unspecified real estate (Section 2-122) do not apply to a master planned community.
(g) The period of declarant control of the association for a master planned community terminates in accordance with any conditions specified in the declaration or otherwise at the time the declarant, in a recorded instrument and after giving written notice to all the unit owners, voluntarily surrenders all rights to control the activities of the association.
MANAGEMENT OF THE COMMON INTEREST COMMUNITY
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 association must have an executive board and the membership of the association at all times consists exclusively of all unit owners 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, [or] limited liability company, partnership, [, or as an unincorporated association],] [or] any other form of legal entity authorized by the laws of this state.
New Comment
The Act restricts membership in the association to those persons who are ‘unit owners’ as that term is defined in Section 1-103 (32). This rule should be considered together with three other provisions of the Act: (i) the requirement in Section 2-101 (b) that at least in a condominium, a unit may not be ‘created’ until the structural components and mechanical systems of that unit are completed; (ii) the provision in Section 2-107 (b) that the declaration must allocate votes and a share of the common expense liabilities to each unit pursuant to formulas that do not discriminate in favor of units owned by the declarant; and (iii) the restriction in Section2-117 (d) that the allocations of votes and common expense liabilities to the units may not be amended except by unanimous consent of all the unit owners.
Taken together, these sections seek to avoid the potential for either intentional developer overreaching – by, for example, allocating more votes to units the declarant owns in order to extend control of the association beyond the timeframes allowed under the Act in Section 3-103(d) - or inadvertent uncertainty in failed projects as a result of allocating votes and common expense liabilities to ‘ghost’ or ‘paper’ units that are never built. Rather, the philosophy of the Act is to make certain that only persons with an actual economic interest in a ‘real’ unit will have a vote in the affairs of the association and that the patterns for voting and allocating the relative costs of maintaining the community’s property will not be subject to developer abuse.
This does not mean that the declarant should not or cannot participate in the activities of the association. First, it is clear under Section 2-110 (a) that the declarant is the initial owner of every unit when it is created. Accordingly, until that unit is sold, the declarant is a ‘unit owner’ and has the same rights to participate in the capacity as a unit owner as would any other person who owned that same unit.
In addition, the Act recognizes the unique role of the declarant during the development phase, and the expectations of the declarant’s lenders that the development can be constructed in accordance with the plans, free from the risks of interference by other unit owners and the association. Accordingly, the Act includes the important concepts of “Development Rights” [Section 1-103 (14)] and ‘Special Declarant Rights” [ Section 1-103 (29)]. Among the significant special declarant rights is the right to control the owners association during the time reasonably necessary to control the project and sell the units. [Cite to Barclay v. Deveau.] Taken together with the substantive provisions of the Act governing those concepts, the Act makes clear both that the developer will be meaningfully engaged in every aspect of the Association’s and the projects activities during the time when development is underway, and that the unit owners themselves will be free of the developer’s control at the appropriate time.
SECTION 3-102. POWERS AND DUTIES OF UNIT OWNERS' ASSOCIATION.
(a) Except as otherwise provided in subsection (b), and subject to the other provisions of the declaration this [act], the association [, even if unincorporated,] may:
(1) must adopt and may amend bylaws and may adopt and amend rules and regulations;
(2) must adopt and may amend budgets for revenues, expenditures, and reserves pursuant to Section 3-124 and collect assessments for common expenses from unit owners and may invest any funds of the association;
(3) may hire and discharge managing agents and other employees, agents, and independent contractors;
(4) may institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the common interest community subject to, in the case of litigation involving the declarant, Section 3-121;
(5) may make contracts and incur liabilities;
(6) may regulate the use, maintenance, repair, replacement, and modification of common elements;
(7) may cause additional improvements to be made as a part of the common elements;
(8) may acquire, hold, encumber, and convey in its own name any right, title, or interest to real estate or personal property, but:
(i)(A) common elements in a condominium or planned community may be conveyed or subjected to a security interest only pursuant to Section 3-112; and
(ii)(B) part of a cooperative may be conveyed, or all or part of a cooperative may be subjected to a security interest, only pursuant to Section 3-112; [Note: The committee awaits further comment on co-op refinancing.]
(9) may grant easements, leases, licenses, and concessions through or over the common elements;
(10) may impose and receive any payments, fees, or charges for the use, rental, or operation of the common elements, other than limited common elements described in Section 2-102(2) and (4), and for services provided to unit owners;
(11) may suspend any privileges of unit owners other than the right of a unit owner to vote on any matter submitted to a vote of unit owners or services provided to unit owners by the association for non-payment of assessments, may impose charges for late payment of assessments; and, after notice and an opportunity to be heard, may levy reasonable fines for violations of the declaration, bylaws, and rules, and regulations of the association;
(12) may impose reasonable charges for the preparation and recordation of amendments to the declaration, resale certificates required by Section 4-109, or statements of unpaid assessments;
(13) may provide for the indemnification of its officers and executive board and maintain directors' and officers' liability insurance;
(14) except to the extent limited or varied by the declaration, may assign its right to future income, including the right to receive assessments; but only to the extent the declaration expressly so decides;
(15) may exercise any other powers conferred by the declaration or bylaws;
(16) may exercise all other powers that may be exercised in this state by legal entities of the same type as the association;
(17) may exercise any other powers necessary and proper for the governance and operation of the association; and
(18) by regulation, may 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.
(b) The declaration may not impose limitations on the power of the association to:
(1) deal with the declarant which are more restrictive than the limitations imposed on the power of the association to deal with other persons.; or
(2) commence litigation against any person, but:
(A) the association must comply with Section 3-121, if applicable, before commencing any action against any person in connection with construction defects; and
(B) the executive board shall promptly provide notice to the unit owners of any litigation in which the association is a party other than litigation involving enforcement of rules or to recover unpaid common charges.
(c) Unless otherwise permitted by the declaration or this [act], an association may adopt rules and regulations that affect the use of or behavior in units that may be used for residential purposes only to:
(1) prevent any use of a unit which violates the declaration;
(2) regulate any behavior in or occupancy of a unit which violates the declaration or adversely affects the use and enjoyment of other units or the common elements by other unit owners; or
(3) restrict the leasing of residential units to the extent those rules are reasonably designed to meet underwriting requirements of institutional lenders who regularly lend money secured by first mortgages on units in common interest communities or regularly purchase those mortgages.
Otherwise, the association may not regulate any use of or behavior in units.
(d)(c) If a tenant of a unit owner violates the declaration, bylaws, or rules and regulations of the association, in addition to exercising any of its powers against the unit owner, the association may:
(1) exercise directly against the tenant the powers described in subsection (a)(11);
(2) after giving notice to the tenant and the unit owner and an opportunity to be heard, levy reasonable fines against the tenant for the violation; and
(3) enforce any other rights against the tenant for the violation which the unit owner as landlord could lawfully have exercised under the lease or which the association could lawfully have exercised directly against the unit owner, or both.
(e)(d) The rights granted under subsection (d)(c)(3) may only be exercised if the tenant or unit owner fails to cure the violation within 10 days after the association notifies the tenant and unit owner of that violation.
(f)(e) Unless a lease otherwise provides, this section does not:
(1) affect rights that the unit owner has to enforce the lease or that the association has under other law; or
(2) permit the association to enforce a lease to which it is not a party in the absence of a violation of the declaration, bylaws, or rules. and regulations.
(f) The executive board shall use its reasonable judgment to determine whether to exercise the association's powers to impose sanctions and pursue legal action for violations of the declaration, bylaws and rules including, without limitation, whether to compromise any claim made by or against it, including claims for unpaid assessments. The association shall have no duty to take enforcement action if the executive board, acting in good faith and without a conflict of interest, determines that, under the facts and circumstances presented, (i) the association's legal position does not justify taking any or further enforcement action; (ii) the covenant, restriction, or rule being enforced is, or is likely to be construed as, inconsistent with current law; (iii) although a technical violation may exist or may have occurred, it is not of such a material nature as to be objectionable to a reasonable person or to justify expending the association's resources; or (iv) it is not in the association's best interests, based upon hardship, expense, or other reasonable criteria, to pursue an enforcement action. The executive board's decision not to pursue enforcement under one set of circumstances does not prevent the association from later taking enforcement action under another set of circumstances, except the executive board may not be arbitrary or capricious in taking enforcement action. Whether the association’s course of performance with respect to enforcement of any provision of the declaration, bylaws and rules constitutes a waiver or modification of that provision is not affected by this [act].
Partial New Comment
In drafting new sub-section (f) the Committee addresses an issue perceived as a significant problem by some commentators and activists in the field – the question of the Association’s authority to either ‘selectively enforce’ its rules or its obligation to enforce the rules to the letter in every instance, at the risk of being found by a court to have waived its right to enforce the rules in some instance as a consequence of its failure to enforce the rules in other instances.
As it considered its position, the Committee considered this hypothetical series of examples.
Happy Acres is a community of 200 side-by-side townhouses, in the town of Happy, Arizona. The units are located in 10 separate buildings; each unit has an assigned single car garage with an overhead door in a separate garage building. All roads within Happy Acres are private roads owned by the Association.
The Executive Board has long had a properly adopted rule that reads as follows:
“The display of any commercial advertising anywhere within the common interest community that is visible outside the units and the installation of satellite dishes for television reception, are strictly prohibited.”
Assume further that these possible violations of the rule come to the attention of the executive board:
1. Owner A owns a small pick-up truck with lettering on both doors that reads: “Call A’s Landscaping Services, Happy Arizona, tel. 402-777-5432.” For 3 years, A has driven her truck to and from work every day, and parks it in her garage, closing the door every night. No one has complained but everyone knows about the truck.
2. “A” buys a new car, but keeps her old truck. Since she only has one garage, she has taken to parking the new car in the garage, and leaves the truck parked in the driveway in front of her garage unit.
3. Owner B’s son owns a red sweat shirt with a very loud logo on both the front and back that reads: “Party at the Soft Rock Café”. He regularly walks to the Association’s swimming pool wearing that shirt and carrying a ‘boom box’ playing loud ‘hip hop’ music. Several retired lawyers regularly play cards around the pool; they do not care for either the sweatshirt or the music.
4. Owner C owns a real estate brokerage firm and specializes in selling units at Happy Acres. For every listing, “C” installs a sign post on the unit’s front lawn reading: “FOR SALE – Call C’s Brokerage – Your Neighborhood Broker”. The signs are small and quite tasteful. He has been doing this since before the rule on ‘no commercial advertising’ was adopted. At first, it was only 1 or 2 signs; today, there are 11 such signs, all over the complex. C is a member of the Executive Board.
5. Owner D is a competitor of C; he is not a member of the Board. When he secures his first listing at Happy Acres, he installs a sign on that front lawn that is three times the size of C’sign; it reads “D is D Broker for You – call 402-777-1234.”
6. After the Executive Board orders D to remove his advertising sign, D complains to the Board about C’s 11 existing signs and demands that the Board order C to remove his signs.
7. Owner E, also a member of the Executive Board installs a satellite dish without action taken to force its removal. When Owner F seeks to do the same, the Executive Board orders its removal.
In evaluating the alternative outcomes here, the extreme positions are clear. On the one hand, one could assert that the Board’s obligation is to strictly enforce or attempt to enforce every alleged breach of the rules, so that the board can never be accused of selective enforcement, favoritism, or waiver.
On the other hand, the board could be held free of any obligation to enforce at any time, without in any way constraining its ability to enforce the same rules at a later time against the same or different persons in those cases where the board decided it would do so.
In the middle is some rule of law that would guide the Board’s exercise of discretion. There are a number of theoretical standards that might guide the Board’s discretion; they include: (i) the ‘business judgment rule’; (ii) arbitrary and capricious; (iii) reasonableness; (iv) bad faith; (v) discriminatory or other improper purposes; (vi) “best interests of the association”; (vii) “good cause”; and (viii) perhaps the notion that the law does not care about insignificant matters.’
There have been legislative proposals in various states in response to the issue of discretionary rules enforcement, although there is no consensus position. For example, a 2005 bill in New Jersey provided as follows:
“Notwithstanding…, any other law or the association’s governing documents, an association shall not be required to enforce a violation of a rule, regulation or covenant when an association, its employees or agents cannot, in the ordinary discharge of their functions, objectively determine that a violation of such rules, regulations or covenants exists or where the association reasonably determines that enforcement would be imprudent, impractical or unduly burdensome, provided that the failure to enforce a violation would not have (i) a material detrimental impact on the value of some or all of the units; or (ii) impair the general welfare of the owners. Nothing herein shall prohibit an association from enforcing a violation that it is not required to enforce…. Any unit owner may enforce the rules, regulations or covenants of the association through an action filed with a court of competent jurisdiction, or by alternative dispute resolution proceedings in accordance with.... Any association refusing to enforce an alleged violation of a rule, regulation or covenant pursuant to the terms of this section shall have no liability to any unit owner or third party.”
Proposed New Comment
New comments will address how bylaws must be consistent with §3-106, and rules with §3-120.
The definition of “bylaws” notes that the document for a particular common interest community need not be identified by that name. For example, if the association for a common interest community were organized as a limited liability company, the bylaws for the association might appear in the form of an operating agreement. However, regardless of the name of the instrument, this Act mandates the minimum contents of the bylaws or, in this instance, the operating agreement; see Section 3-106. Any provision of the State’s statutes governing the content of the bylaws or, as appropriate, the operating agreement, to the extent inconsistent with the requirements of Section 3-106, would be subject to this Act; see Section 1-108.
Draft Comment
RE: Applicability of Uniform Prudent Investor Act
The Uniform Prudent Investor Act, as drafted, would not apply to the association’s investment of reserves. The Drafting Committee has considered the question of whether UCIOA should be amended to require that the principles imbedded in UPIA should be applied to association boards; for the reasons stated below, we conclude that it should not so apply.
The drafters understand from anecdotal evidence that the reserves of most common interest community associations, as a matter of practice, are invested in cash or near-cash (i.e., short term bond fund) equivalents.
The UPIA by its terms applies to trust investing. It is the nearly universal practice for associations to be organized as corporations or – occasionally – other forms of business entities but rarely as trusts. In these cases, the business judgment rule rather than the prudence norm of trust law applies.
Beyond that, however, and regardless of the form of organization, the Committee concluded that it ought not to make special provision for association investments in this Act because actual or contingent liquidity needs will predominate in most circumstances affecting the association. Unlike a family trust, an association board is not meant to be doing long-term investing for capital growth and, accordingly, most such investing is appropriately done in interest-bearing cash equivalents.
Finally, because the subject has not been problematic in practice, the committee sees no need to make special provision for it. Of course, in those unusual cases where long term capital growth might be appropriate, and subject to the business judgment rule, UCIOA would not bar a board’s decision to invest the reserves in suitable vehicles designed to achieve that goal.
Proposed New Comment to 3-102(a)(11)
Subsection 3-102 (a) (11) generally empowers the association to impose charges for late payments of assessments and reasonable fines for violations of the governing documents. Under UCIOA, fines levied by the Association may not be arbitrary nor may they be discriminatorily applied – thus we reach the same result as some have urged. Moreover, in an effort to minimize these potential abuse of the association’s powers, the 2007 amendments would bar any foreclosure of a unit if the only sums due are fines and related charges; see § 3-115. However, the Committee does not believe that there is a need either to go beyond these standards to codify the precise dollar amount of late charges or fines, or to detail the standards for conduct of a hearing. Thus, the Committee considered but declines to follow the enactments of States such as North Carolina which impose a default cap on the amount of late fees; see North Carolina 2005 Session Law 2005-422, § 47F-3-102, and detailed default provisions regarding the conduct of the hearing; Id., at § 47F-3-107.1.
The Committee has also voted to amend the Act to articulate a policy allowing the executive board to “suspend privileges or services provided by the association” [cf. North Carolina § 47F-3-102 (11)] but specifically precludes suspending the right to vote if a unit owner has not paid her assessments.
The Committee understands that in some circumstances a unit owner may be asked to “agree” to an action in writing, rather than authorizing an action by vote. The prohibition on suspending the right of an owner to vote includes a similar prohibition on participating in an “agreement.”
In any event, this comment will be expanded to confirm that fines must be reasonable and consistently applied, citing authority.
New Comment to May, 2007 Draft of UCIOA
Section 3-102 (a) (14)
The Drafting Committee proposes to reverse the existing presumption in the Act as to whether the association may pledge its common expense assessments as security for a loan. Currently, the Act provides that the Association may only do so “to the extent the declaration expressly so provides.” Because many declarations do not so provide, the Act as drafted forces the Association to amend its declaration in order to borrow funds, since lenders will commonly require a pledge of the income stream as a condition to extending credit to the Association.
The Committee is aware of the increasing use of this important financing technique and the extraordinarily low default rate on such loans across the country. As a consequence, the Committee believes that the Act should be amended to empower the Association to borrow funds with a pledge of its income stream, subject only to the restrictions appearing in the declaration.
It may be entirely appropriate for the declaration to include some restrictions, such as a requirement that the proposal to borrow funds be put to a vote of the unit owners before the loan is closed. For example, the Committee has received suggestions from knowledgeable commentators that the Act require a majority vote of unit owners before the Association borrows any funds. While this may be an appropriate restriction in many cases, the Committee recognizes that in this, as in many cases, the Act ought to avoid a fixed rule that may be inappropriate in some communities, and instead chooses to defer such decision-making to the drafters of each community’s declaration or to the sound discretion of the executive board, or the unit owners, in a particular case.
Reporter Note
The 2006 proposed amendments to UCIOA include, in Section 3-120, a significant expansion of the association’s rule-making authority. Sub-section (c) of this section 3-102 has been relocated to new Section 3-120(d) in order to consolidate all of the Act’s provisions on rules in one section.
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 to the association required of a trustee. Officers and members of the executive board not appointed by the declarant shall exercise the degree of care and loyalty to the association required of an officer or director of a corporation organized under [insert reference to state non-profit corporation law]. and are subject to the conflict of interest rules governing directors and officers of that law. The standards of care and loyalty described in this section apply regardless of the form of legal entity in which the association is organized.
(b) The executive board may not act on behalf of the association to amend the declaration (Section 2-117) or the bylaws, 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) (c) Subject to subsection (e)(d), the declaration may provide for a period of declarant control of the association, during which a declarant, or persons designated by him the declarant, 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) (d) 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 one third of the members of the executive board must be elected by unit owners other than the declarant.
(f) (e) Except as otherwise provided in Section 2-120(e) and (f), 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 Unless the declaration provides for the election of officers by the unit owners, the executive board shall elect the officers. The executive board members and officers shall take office upon election or appointment.
(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.
(f) A declaration may provide for the appointment of members of the executive board before or after the period of declarant control and the method of filling vacancies in appointed memberships, rather than election of those members by the unit owners. However, appointed members:
(1) may not be appointed by the declarant or an affiliate of the declarant;
(2) may not comprise more than [one third] of the entire board; and (3) have no greater authority than any other member of the executive board.
Proposed Comment to new (f)
1. This section is designed to accommodate the possibility, especially in senior living projects and in subsidized and ‘first time home buyer’ complexes, that it may be valuable and assist the long term viability of the project if a non-controlling percentage of the directors – appointed by persons other than unit owners – could provide independent outside expertise to the Board, even if those directors are not directly responsive to the owners themselves. As drafted, the new provision contains safeguards that the committee feels adequately guard against the potential for abuse by the original declarant or outside lenders.
2. The committee emphasizes that the fiduciary duty of the directors appointed by others is to the association – as it is with any director – and not to the appointing authority. We believe this clear statement of duty should ameliorate the concerns of undue influence that may flow from potential conflicting interests.
3. The final comments should discuss why we have 2 different standards of care – the declarant appointed directors have an inherent conflict of interest and the declarant has total control of the board during the period of declarant control; that is why we impose a higher duty.
4. The final comments on this subject need to articulate how all of the matters described in this sub-section will function.
5. As with any provision of the declaration this provision for ‛outside directors‛ can be
amended out of the declaration by the vote or agreement of unit owners holding no more
than 67% of the voting power in the association. Unless a higher percentage for such an amendment is required by the declaration, this will insure that if a significant
majority of the unit owners conclude that the directorships are being abused,
they can rid themselves of the system.
Proposed New Comment
The Act continues to rely on the Business Judgment Rule as the basis for evaluating the actions of the Board.
“As long as directors of a corporation decide matters rationally, honestly, and without a disabling conflict of interest, the decision will not be reviewed by the courts.” Atkins v. Hibernia Corp., 182 F3d 320, 324, (5th cir. 1999) quoted in Block, Barton & Radin, The Business Judgment Rule, (5th ed. 1998) in 2002 Supp. Page 6.
The business judgment rule is a tool of judicial review, not a standard of conduct. The rule (1) shields directors from liability and protects decisions made by directors when the rule’s elements – a business decision, disinterestedness, and independence, due care, good faith and no abuse of discretion – are present and a challenged decision does not constitute fraud, illegality, ultra-vires conduct or waste, and (2) creates a presumption that directors have acted in accordance with each of the elements of the rule [Block et al at page 110.)
Reporter Note (04/07)
In the Fall of 2007, the committee will consider whether to include this provision, adapted from Conn. Gen. Stat. 47-245 (h) and (i) [Cognate provision to UCIOA § 3-103]
(g) Within 30 days after unit owners other than the declarant elect a majority of the members of the executive board, the declarant shall deliver to the association all property of the unit owners and of the association held by or controlled by the declarant, including the following items:
(1) the original or a certified copy of the recorded declaration as amended; the association articles of incorporation, if the association is incorporated; bylaws; minute books and other books and records of the association; and any rules that may have been promulgated;
(2) an accounting for association funds and financial statements, from the date the association received funds and ending on the date the period of declarant control ends, audited by an independent certified public accountant and accompanied by the accountant's letter, expressing either:
(A) the opinion that the financial statements present fairly the financial position of the association in conformity with generally accepted accounting principles; or
(B) a disclaimer of the accountant's ability to attest to the fairness of the presentation of the financial information in conformity with generally accepted accounting principles, and the reasons therefor;
(3) association funds or control thereof;
(4) all of declarant's tangible personal property that has been represented by the declarant to be the property of the association or, unless the declarant has disclosed in the public offering statement that all such personal property used in the common interest community will remain the declarant's property, all of the declarant's tangible personal property that is necessary for, and has been used exclusively in, the operation and enjoyment of the common elements, and inventories of these properties;
(5) a copy of any plans and specifications used in the construction of the improvements in the common interest community which were completed within two years before the declaration was recorded;
(6) all insurance policies then in force, in which the unit owners, the association or its directors and officers are named as insured persons;
(7) copies of any certificates of occupancy that may have been issued with respect to any improvements comprising the common interest community;
(8) any other permits issued by governmental bodies applicable to the common interest community that are currently in force or issued within one year prior to the date on which unit owners other than the declarant took control of the association;
(9) written warranties of the contractor, subcontractors, suppliers and manufacturers that are still effective;
(10) a roster of unit owners and mortgagees and their addresses and telephone numbers, if known, as shown on the declarant's records;
(11) employment contracts in which the association is a contracting party; and
(12) any service contract in which the association is a contracting party or in
which the association or the unit owners have any obligation to pay a fee to the persons
performing the services.
(h) During the period of declarant control, the declarant, at least every six months, shall
provide the unit owners with a current financial statement of the association. The statement shall
be on a cash basis and need not be audited by an independent accountant. It shall include:
(1) all income and expenses for the calendar year to date;
(2) all accounts payable and receivable, including the ages of those accounts and showing all sums due to and from the declarant and affiliates of the declarant;
(3) the amount of any funded replacement reserves; and
(4) the balance of any other funds of the association.
SECTION 3-104. TRANSFER OF SPECIAL DECLARANT RIGHTS.
(a) A special declarant right (Section 1-103(29)) created or reserved under this [act] may be transferred only by an instrument evidencing the transfer recorded in every [county] in which any portion of the common interest community is located. The instrument is not effective unless executed by the transferee.
(b) Upon transfer of any special declarant right, the liability of a transferor declarant is as follows:
(1) A transferor is not relieved of any obligation or liability arising before the transfer and remains liable for warranty obligations imposed upon him by this [act]. Lack of privity does not deprive any unit owner of standing to maintain an action to enforce any obligation of the transferor.
(2) If a successor to any special declarant right is an affiliate of a declarant (Section 1-103(1)), the transferor is jointly and severally liable with the successor for any obligations or liabilities of the successor relating to the common interest community.
(3) If a transferor retains any special declarant rights, but transfers other special declarant rights to a successor who is not an affiliate of the declarant, the transferor is liable for any obligations or liabilities imposed on a declarant by this [act] or by the declaration relating to the retained special declarant rights and arising after the transfer.
(4) A transferor has no liability for any act or omission or any breach of a contractual or warranty obligation arising from the exercise of a special declarant right by a successor declarant who is not an affiliate of the transferor.
(c) Unless otherwise provided in a mortgage instrument, deed of trust, or other agreement creating a security interest, in case of foreclosure of a security interest, sale by a trustee under an agreement creating a security interest, tax sale, judicial sale, or sale under Bankruptcy Code or receivership proceedings, of any units owned by a declarant or real estate in a common interest community subject to development rights, a person acquiring title to all the property being foreclosed or sold, but only upon his request, succeeds to all special declarant rights related to that property held by that declarant, or only to any rights reserved in the declaration pursuant to Section 2-115 and held by that declarant to maintain models, sales offices, and signs. The judgment or instrument conveying title must provide for transfer of only the special declarant rights requested.
(d) Upon foreclosure of a security interest, sale by a trustee under an agreement creating a security interest, tax sale, judicial sale, or sale under Bankruptcy Code or receivership proceedings, of all interests in a common interest community owned by a declarant:
(1) the declarant ceases to have any special declarant rights, and
(2) the period of declarant control (Section 3-103(d)) terminates unless the judgment or instrument conveying title provides for transfer of all special declarant rights held by that declarant to a successor declarant.
(e) The liabilities and obligations of a person who succeeds to special declarant rights are as follows:
(1) A successor to any special declarant right who is an affiliate of a declarant is subject to all obligations and liabilities imposed on the transferor by this [act] or by the declaration.
(2) A successor to any special declarant right, other than a successor described in paragraph (3) or (4) or a successor who is an affiliate of a declarant, is subject to the obligations and liabilities imposed by this [act] or the declaration:
(i) on a declarant which relate to the successor's exercise or nonexercise of special declarant rights; or
(ii) on his the successor’s transferor, other than:
(A) misrepresentations by any previous declarant;
(B) warranty obligations on improvements made by any previous declarant, or made before the common interest community was created;
(C) breach of any fiduciary obligation by any previous declarant or his appointees to the executive board; or
(D) any liability or obligation imposed on the transferor as a result of the transferor's acts or omissions after the transfer.
(3) A successor to only a right reserved in the declaration to maintain models, sales offices, and signs (Section 2-115), may not exercise any other special declarant right, and is not subject to any liability or obligation as a declarant, except the obligation to provide a public offering statement [,] and any liability arising as a result thereof [, an and obligations under [Article] 5].
(4) A successor to all special declarant rights held by a transferor who succeeded to those rights pursuant to a deed or other instrument of conveyance in lieu of foreclosure or a judgment or instrument conveying title under subsection (c), may declare in a recorded instrument the intention to hold those rights solely for transfer to another person. Thereafter, until transferring all special declarant rights to any person acquiring title to any unit or real estate subject to development rights owned by the successor, or until recording an instrument permitting exercise of all those rights, that successor may not exercise any of those rights other than any right held by his the declarant’s transferor to control the executive board in accordance with Section 3-103(d) for the duration of any period of declarant control, and any attempted exercise of those rights is void. So long as a successor declarant may not exercise special declarant rights under this subsection, the successor declarant is not subject to any liability or obligation as a declarant other than liability for his the declarant’s acts and omissions under Section 3-103(d).
(f) Nothing in this section subjects any successor to a special declarant right to any claims against or other obligations of a transferor declarant, other than claims and obligations arising under this [act] or the declaration.
SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES OF DECLARANT. Except as provided in Section 1-207, if entered into before the executive board elected by the unit owners pursuant to Section 3-103(f) takes office, (i) any management contract, employment contract, or lease of recreational or parking areas or facilities, (ii) any other contract or lease between the association and a declarant or an affiliate of a declarant, or (iii) any contract or lease that is not bona fide or was unconscionable to the unit owners at the time entered into under the circumstances then prevailing, may be terminated without penalty by the association at any time after the executive board elected by the unit owners pursuant to Section 3-103(f) takes office upon not less than [90] days' notice to the other party. This section does not apply to: (i) any lease the termination of which would terminate the common interest community or reduce its size, unless the real estate subject to that lease was included in the common interest community for the purpose of avoiding the right of the association to terminate a lease under this section, or (ii) a proprietary lease.
(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 or, if the declaration so requires, by the unit owners, 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. by the unit owners;
(7) any provisions that may be necessary to satisfy requirements in this [act] or the declaration concerning meetings, voting, quorums, and other matters concerning the activities of the association; and
(8) any matter required by law of this state other than this [act] to appear in the bylaws of legal entities organized in the same manner as the association.
(b) Subject to the provisions of the declaration, the bylaws may provide for any other matters the association deems necessary and appropriate unless the declaration or this [act] requires that those provisions appear in the declaration.
Reporter Comment
1. By deleting the words ‘if any,’ in sub-section (4), the Committee does not intend a substantive change. As re-drafted, the Act does not require the Board to delegate any of its power.
2. As drafted, the Act does not appear to prevent the bylaws from permitting the executive board from delegating all its powers to a manager or to another entity that might not be bound by the constraints of this Act.
New Comments
1. As the definition makes clear, the bylaws are intended to address procedural matters affecting the governance of the association. They are not intended to contain matters that might affect title to real property nor any of the covenants restricting the use of the units or the common property. That is one of the primary reasons why the Act requires that the declaration be recorded on the land records, but the bylaws need not be recorded.
2. The bylaws might include a broad range of qualifications for directors and officers. This Act neither imposes constraints on what these qualifications might be or mandates any such qualifications, other than the requirement that, after the period of declarant control ends, a majority of directors must be unit owners. Other law, of course, such as laws prohibiting various forms of discrimination, may independently impose limits on permissible qualifications.
3. § 3-106(a)(6) is amended to require the bylaws to state a method by which the unit owners may amend the bylaws. This would not preclude the bylaws from also providing a method by which the executive board or the officers might also amend them.
SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY.
(a) Except to the extent provided by the declaration, subsection (b), or Section 3-113(h), the association is responsible for maintenance, repair, and replacement of the common elements, and each unit owner is responsible for maintenance, repair, and replacement of his the owner’s unit. Each unit owner shall afford to the association and the other unit owners, and to their agents or employees, access through his the owner’s unit reasonably necessary for those purposes. If damage is inflicted on the common elements or on any unit through which access is taken, the unit owner responsible for the damage, or the association if it is responsible, is liable for the prompt repair thereof.
(b) In addition to the liability that a declarant as a unit owner has under this [act], the declarant alone is liable for all expenses in connection with real estate subject to development rights. No other unit owner and no other portion of the common interest community is subject to a claim for payment of those expenses. Unless the declaration provides otherwise, any income or proceeds from real estate subject to development rights inures to the declarant.
(c) In a planned community, if all development rights have expired with respect to any real estate, the declarant remains liable for all expenses of that real estate unless, upon expiration, the declaration provides that the real estate becomes common elements or units.
SECTION 3-108. UNIT OWNER MEETINGS. A meeting of the association must be held at least once each year. Special meetings of the association may be called by the president,
(a) An association shall hold a meeting of unit owners annually at a time and place stated in or fixed in accordance with the bylaws.
(b) An association shall hold a special meeting of unit owners on the call of its president, a majority of the executive board, or by unit owners having at least 20 percent, or any lower percentage specified in the bylaws, of the votes in the association. Not less than [10] nor more than [60] days in advance of any meeting, the secretary or other officer specified in the bylaws shall cause notice to be hand-delivered or sent prepaid If the association does not notify unit owners of a special meeting within fifteen days after receipt of such a request from the requisite number or percentage of unit owners, the requesting members may directly notify all the unit owners of that meeting. Only business described in the meeting notice required by subsection (c) may be conducted at a special meeting.
(c) An association shall notify unit owners of the date, time, and place of each annual and special unit owners’ meeting no fewer than 10 nor more than 60 days before the meeting date. Notice may be by hand delivery to the unit owners, by any means described in Section 3-122 or sent pre-paid by United States mail to the any mailing address of each unit or to any other mailing address designated in writing by the unit owner designates in writing. The notice of any meeting must state the time and place of the meeting and the items on the agenda, including:
(1) a statement of the general nature of any proposed amendment to the declaration or bylaws,;
(2) any budget changes, and
(3) any proposal to remove an officer or member of the executive board.
(d) The minimum time to give notice required by subsection (c) may be reduced or waived in the case of a meeting called to deal with an emergency.
(e) Regardless of the agenda, unit owners must be given a reasonable opportunity at any meeting to offer comments to the executive board regarding any matter affecting the common interest community.
New Comments [4-06]
1. The 2007 amendments mandate in subsection (e) that unit owners be provided the opportunity to address the executive board during each meeting of the unit owners. While this provision is an important part of the democratization process in community associations, it is implicit that the officers and executive board members have the inherent right to establish reasonable controls over the behavior of unit owners during the meetings. Thus, for example, it is clear that the board could prevent unit owners from interrupting the regular conduct of business and the time of other speakers, and could, as well, set reasonable limits on the number of speakers at any one meeting, the repetitiveness of unit owner comments, and the aggregate time that unit owners consumed during the meeting.
2. The Committee has also discussed the concept of permitting a unit owners’ meeting to be recessed – whether or not a quorum is present – to enable solicitation of votes or proxies in order to accomplish a particular result. The Reporter believes this could be done under current practice and that a comment may suffice – but I seek further guidance. In any event, that concept is imbedded in the new recall section – §3-123.
3. The Committee has not yet considered (i) the retroactive effect of this section on pre-existing common interest communities or (ii) the likely reaction of courts construing this section in the light of a board’s failure to satisfy statutory mandates. This may pose special difficulties for small associations.
4. The Committee has discussed the difficulties posed by mandating that advance agendas be distributed to unit owners. The two principal policy issues are: (i) is the association liable if it fails to distribute an accurate agenda [or alternatively, are actions taken at such a meeting voidable]; and (ii) may the listing of ‘new business’ on the agenda allow the executive board to add new items to the agenda, and, if so, why do we worry about sending out an agenda in the first place, since the requirement is so easily avoided? Does proposed sub-section (iii) provide an appropriate middle ground?
5. The Committee has discussed the adoption of “Best Practices” by association boards in lieu of legislation – but we have made scant headway.
6. The purpose of limiting the agenda of a special meeting to the items mentioned in the notice is to allow a member, who has no concern about the items listed in the notice, to decide not to attend the meeting, secure in the knowledge that other topics cannot be raised and voted on without his or her knowledge.
7. Similarly, a generic heading such as “New Business” is not sufficient to permit
items to be taken up if they were not otherwise described in the notice.
8. In contract, of course, at an annual meeting, unit owners are entitled to adopt any changes to an agenda.
New Comment [10-06] Re Emergencies
This section requires comment to the effect that emergency meetings may not be used to avoid the need for notice. The concept includes the notion of “immediate irreparable harm” or other circumstances where the board must act promptly to either avoid an adverse outcome or fail to take advantage of an opportunity – and the further notion that there is insufficient time from the time the issue came to the attention of the directors to give complete notice to owners.
[10-06] ADD NEW COMMENT regarding the ability to make germane amendments to the proposed text contained in the notice.
[NEW] SECTION 3-108A. EXECUTIVE BOARD MEETINGS.
(a) All meetings of the executive board and of committees comprised only of board members must be open to the unit owners except during executive sessions held during those meetings. An executive session may be held only to:
(1) consult with the association’s attorney to obtain legal advice;
(2) discuss existing or potential litigation, mediation, arbitration or administrative proceedings;
(3) discuss labor or personnel matters;
(4) discuss matters relating to contract negotiations, including the review of bids or proposals, if premature general knowledge of those matters would place the association at a disadvantage; or
(5) prevent public knowledge of the matter to be discussed if the executive board determines that public knowledge would violate the privacy of any person.
(b) The president or a majority of the board members may call a meeting of the executive board. For purposes of this section, “meeting of the executive board” does not include a gathering of board members at which the board members do not conduct association business. The executive board and its members may not use incidental or social gatherings of board members or other devices to evade the open meeting requirements of this section.
(c) The executive board shall meet at least four times per year, and at least one of those meetings must be held at or convenient to the common interest community. However, after termination of the period of declarant control, the unit owners may amend the bylaws to vary the minimum number or location of executive board meetings.
(d) At each executive board meeting, the executive board shall provide a reasonable opportunity for unit owners to offer comments regarding any matter affecting the common interest community.
(e) Unless the meeting has been included in a schedule given to the unit owners or the meeting has been called to deal with an emergency, the secretary or other officer specified in the bylaws shall cause notice of each executive board meeting to be given to each board member and to the unit owners. The notice to unit owners may be by any means reasonably calculated to actually inform owners of the meeting, including those means described in Section 3-122 or in the declaration or bylaws of the association. The notice must be given not fewer than 10 days in advance of the meeting and must state the time and place of the meeting
(f) If any materials are distributed to the executive board before the meeting, the association shall at the same time make copies of those materials reasonably available to unit owners, except that the association need not distribute copies of unapproved minutes or materials that are to be considered in executive session.
(g) Unless the declaration or bylaws otherwise provide, the executive board may meet in a telephonic or video conference call [or interactive electronic communication process] provided that:
(1) the meeting notice must indicate that the meeting is to be a telephonic[,][or] video [,or other] conference and provide information as to how unit owners may participate in the conference directly or by meeting at a central location or conference connection; and
(2) the process must provide all unit owners the opportunity to hear the discussion and offer comments as provided in subsection (d). After termination of the period of declarant control, unit owners may amend the bylaws to vary the procedures for conference calls described in this subsection.
(h) In lieu of a meeting, the executive board may act by unanimous consent as documented in a record signed by all its members. The secretary shall promptly give notice to all unit owners of any action taken by unanimous consent. After termination of the period of declarant control, the executive board may act by unanimous consent only to (i) undertake ministerial actions; or (ii) implement actions previously agreed to by the executive board.
(i) The association is bound by a contract entered into with a third party who relies on an action of the executive board and who had no knowledge that the action was contrary to this section. Otherwise, notwithstanding noncompliance with this section, an action by the executive board is binding and valid unless set aside by a court in an action brought pursuant to Section 4-117. A challenge to the validity of an action of the executive board for failure to comply with this section may not be brought more than [60] days after (i) the minutes of the executive board where the action was taken are approved; or (ii) the record of that action is distributed to unit owners, whichever first occurs.
Reporter Comments
1. The Committee has had considerable discussion since the Pittsburgh meeting on this subject; the discussion revolved around the issues raised in comments by Commissioner Bebr – that is: (i) what is a “meeting” of the Executive Board; (ii) the need for more detail as to what subjects are appropriate for an executive session; and (iii) what are the consequences of a failure to give notice of a meeting of the executive committee.
As a consequence, Section 3-108A now requires quarterly meetings, and defines ‘meetings’ to exclude incidental or social gatherings of directors where no association business is conducted. See sub-section (b).
2. The section contains “open meeting” and broad executive session text, along the lines of several existing state provisions. See, eg, Virginia Stat. Ann. § 55-510.1, Alaska Stat. Ann. § 10-25-175. We also include a provision similar to that contained in Sec. 11 of the Uniform Environmental Covenants Act, insulating any decision made at a board meeting from challenge because of defective notice to unit owners unless reversed by court order. See subsection (i).
3. The reporter is directed to insert comments with examples of what might comprise valid notice to unit owners – referring to such means as web site, sandwich board at the entrance, posting at the clubhouse, use of a community newsletter or closed circuit TV channels.
4. The reporter will also insert a comment that if a unit owner asks a board member, officer, employee of the property manager or other agent of the association about the status of an executive board meeting, the agent would be required to provide that information to the Unit Owner.
(a) Unless the bylaws provide otherwise, a quorum is present throughout any meeting of the association unit owners if:
(1) persons entitled to cast [20] percent of the votes that may be cast for election of the executive board are in the association are present in person, by proxy, or by ballot at the beginning of the meeting; or
(2) ballots solicited in accordance with Section 3-110 (g)(2) are delivered to the secretary in a timely manner by persons who, together with those present in person or by proxy at the beginning of the meeting, would comprise a quorum for that meeting.
(b) Unless the bylaws specify a larger percentage provide otherwise, a quorum is deemed present throughout any meeting of the executive board if persons entitled to cast [50] percent a majority of the votes on that board are present at the beginning ofthroughout the meeting.
SECTION 3-110. VOTING; PROXIES.
(a) If only one of several owners of a unit is present at a meeting of the association, that owner is entitled to cast all the votes allocated to that unit. If more than one of the owners are present, the votes allocated to that unit may be cast only in accordance with the agreement of a majority in interest of the owners, unless the declaration expressly provides otherwise. There is majority agreement if any one of the owners casts the votes allocated to that unit without protest being made promptly to the person presiding over the meeting by any of the other owners of the unit.
(b) Votes allocated to a unit may be cast pursuant to a proxy duly executed by a unit owner. If a unit is owned by more than one person, each owner of the unit may vote or register protest to the casting of votes by the other owners of the unit through a duly executed proxy. A unit owner may revoke a proxy given pursuant to this section only by actual notice of revocation to the person presiding over a meeting of the association. A proxy is void if it is not dated or purports to be revocable without notice. A proxy terminates one year after its date, unless it specifies a shorter term. [No person may hold or cast general proxies representing units owned by more than [ ] unit owners in a common interest community.]
(c) If the declaration requires that votes on specified matters affecting the common interest community be cast by lessees rather than unit owners of leased units:
(i)(1) the provisions of subsections (a) and (b) apply to lessees as if they were unit owners;
(ii)(2) unit owners who have leased their units to other persons may not cast votes on those specified matters; and
(iii)(3) lessees are entitled to notice of meetings, access to records, and other rights respecting those matters as if they were unit owners.
(d) Unit owners must also be given notice, in the manner provided in Section 3-108, of all meetings at which lessees are entitled to vote.
(d)(e) No votes Votes allocated to a unit owned by the association may be cast. not be cast and may not be calculated either in a quorum or in any percentage of unit votes needed for any action by the unit owners.
(f) Unless a greater percentage or fraction of the votes in the association is required by this [act] or the declaration, a majority of the votes cast in person, by proxy, or by ballot at a meeting of unit owners where a quorum is present determines the outcome of any action of the association where a vote is taken so long as the number of votes cast in favor comprise at least a majority of the number of votes required for a quorum for that meeting.
(g) [ALTERNATIVE 1] Action by an association may be taken by ballot without a meeting in accordance with the following rules:
(1) Unless prohibited or limited by the declaration or bylaws, any action that the association may take at any meeting of members may be taken without a meeting if the association delivers a written or electronic ballot to every member entitled to vote on the matter, setting forth each proposed action and providing an opportunity to vote for or against each proposed action.
(2) All solicitations for votes by ballot must:
(A) indicate the number of responses needed to meet the quorum requirements;
(B) state the percentage of approvals necessary to approve each matter other than election of directors;
(C) specify the time by which a ballot must be delivered to the association in order to be counted, which time shall not be fewer than [three] days after the date that the association delivers the ballot; and
(D) describe procedures (including time and size and manner) by when unit owners wishing to deliver information to all unit owners regarding the subject of the vote may do so.
(3) Approval by ballot pursuant to this subsection is valid only if:
(A) the number of votes cast by ballot equals or exceeds the quorum required to be present at a meeting authorizing the action; and
(B) the number of approvals equals or exceeds the number of votes that would be required to approve the matter at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot.
(4) Except as otherwise provided in the declaration or bylaws, a ballot may not be revoked after delivery to the association by death, disability, or revocation by the person who cast that vote.
[ALTERNATIVE 2] From Conn. Gen. Stat. § 33-1064 (b) – the Connecticut non-stock corporation act:
“Where board members or officers are to be elected by unit owners or any other action is to be voted upon by unit owners, the declaration or bylaws may provide that those elections may be conducted and those actions voted upon by mail in the manner stated in those documents. The vote of those unit owners, shall be determined from the total number of those who actually vote by mail, rather than from the total number of unit owners entitled so to vote, unless the declaration otherwise provides. A ballot signed under this section shall have the same force and effect as a vote of the unit owner who signed it at a meeting duly held.”
[ALTERNATIVE 3] Adapted from FLORIDA CONDOMINIUM STATUTES, CH. 718.112 (2)(d) 3.:
The members of the executive board shall be elected by written ballot or voting machine. In no event may proxies be used in electing the board, either in general elections or elections to fill vacancies caused by recall, resignation, or otherwise. Not less than 60 days before a scheduled election, the association shall provide a first notice of the date of the election to each unit owner. Any unit owner or other eligible person desiring to be a candidate for the executive board must give written notice of that fact to the association not less than 40 days before a scheduled election. The association shall provide a second notice of the election to all unit owners, together with a ballot which must list all candidates. Upon request of a candidate, the association shall include an information sheet, no larger than 81/2 inches by 11 inches, which must be furnished by the candidate not less than 35 days before the election, to be included with the ballot. The association is not liable for the contents of the information sheets prepared by the candidates. Elections shall be decided by a plurality of those ballots cast. There shall be no quorum requirement; however, at least 20 percent of the eligible voters must cast a ballot in order to have a valid election of members of the executive board. No unit owner shall permit any other person to vote his or her ballot, and any such ballots improperly cast are invalid. The regular election shall occur on the date of the annual meeting. An election is not required unless more candidates file notices of intent to run or are nominated than board vacancies exist.
[ALTERNATIVE 4]
“Any vote permitted [by the unit owners under New Jersey law], at the election of the executive board, may be made electronically provided that (i) the association is able to verify that the vote is cast by a unit owner having the right to do so, and (ii) the ballot may be cast anonymously or, when that is not reasonably practicable, the identity of the unit owner and selection indicated on any ballot shall be known only to a person or persons appointed to count the ballots, which person or persons may not be a member of the executive board and who shall subscribe to an oath not to divulge the identity of, or selection indicated by, any unit owner. If the anonymity of an electronic ballot cannot be guaranteed, electronic voting shall be permitted provided that a unit owner is given the option of casting an anonymous written ballot. A unit owner voting by electronic means shall be deemed to be present at a meeting provided that no person may be authorized to vote with respect to any matter not appearing on the electronic ballot unless the unit owner submits a proxy pursuant to subsection (b) of this section.”
(h) No provision of the declaration, bylaws, or rules and no action of the association may suspend the voting rights of a unit owner regardless of any violation of those documents.
Reporter Notes (04/07)
1. The 1994 version of the Uniform Common Interest Ownership Act does not contain any significant provision by which unit owners may cast ballots except during a physical meeting of the unit owners. Given the extraordinary growth of planned communities across the nation, it is clear that the ‘town meeting’ approach to voting – the model presently imbedded in the Act – is no longer suited to a considerable number of communities.
The Drafting Committee has already begun its consideration of this complex issue and expects to consider it at length during the 2007-2008 drafting meetings. In an effort to provide the Floor with some sense of the range of possibilities confronting the drafters, however, the Committee has included in this draft at least 4 possible approaches:
Alternative 1 is an amalgam of various state approaches which the Committee has already considered; much of the original text derived from Arizona Rev. Stat. § 10-3708, that state’s non-stock corporate law.
Alternative 2 is drawn largely from the Model Non-Stock Corporation Act as currently enacted in Connecticut.
Alternative 3 is adapted from the existing Florida law governing election of directors by ballot.
Alternative 4 is drawn from a 2005 legislative proposal in New Jersey.
2. The Drafting Committee has sought the views of a number of attorneys, including practitioners who are not among our official Observers and Advisors, who practice in this field. They have posed a number of questions. One commentator asks:
• How this section apply to the requirements of Section 2-117 which permit the declaration to be amended by the “vote or agreement” of the unit owners. Does the ballot substitute for the vote or for the agreement? Our practice has been to circulate what amount to petitions asking unit owners to sign off on proposed amendments. This is a separate useful procedure and I would suggest that it be made clear that the “agreement” called for under Section 2-117 is different than the ballot without meeting called for in Subsection 3-110(f).
• The subsection needs to specify how an action by ballot is invoked and by whom. Can the president alone order that a ballot be circulated? Does it require a vote of the executive board? Can some percentage of the unit owners initiate the process? If the unit owners can initiate the process, what happens if the leadership of the association fails to follow through and circulate the ballot? Procedures such as this are not, I believe, usually found in state corporation statutes yet.
• The time allowed for returning ballots should in no case be less than the minimum notice period for meetings. In fact, I would suggest, that the minimum period be not less than 14 days. Someone with a particular partisan position could, conceivably, circulate a ballot with little or no advance notice. The opposition would need some minimum period of time to get itself organized, and prepare and circulate a mailing to the unit owners setting our its position. If the voting period is too short, the unit owners will be forced to vote before they had heard both
sides of the issue.
In the same regard, if the ballot is circulated without some advance notice, many unit owners might sign and return the ballot quickly before they had an opportunity to hear the position of the other side. In that case, this attempt at opening up the democratic processes of the association could have the reverse affect. Perhaps we could require advance notice of the issue to be discussed and give an opportunity for all people wishing to comment to furnish comments which can be sent out by the association with the ballot itself. Under the current system where proxies are used, but not absentee ballots, it is not unusual for unit owners, as they learn more about the issues, to revoke one proxy and give another. Can they do the same with ballots?
3. As drafted, the Act imposes no limits on the permitted activities by which an action may be undertaken by balloting outside of a meeting. Thus, for example, unless limited by the declaration, those actions may include, without limitation, a meeting to remove a director pursuant to new Section 3-123 (formerly Section 3-103(g)).
4. The Committee assumes that electronic balloting will be governed by E-Sign and UETA.
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).
SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON ELEMENTS.
(a) In a condominium or planned community, portions of the common elements may be conveyed or subjected to a security interest by the association if persons entitled to cast at least [80] percent of the votes in the association, including [80] percent of the votes allocated to units not owned by a declarant, or any larger percentage the declaration specifies, agree to that action; but all owners of units to which any limited common element is allocated must agree in order to convey that limited common element or subject it to a security interest. The declaration may specify a smaller percentage only if all of the units are restricted exclusively to non-residential uses. Proceeds of the sale are an asset of the association, but the proceeds of the sale of limited common elements must be distributed equitably among the owners of units to which the limited common elements were allocated.
(b) Part of a cooperative may be conveyed and all or part of a cooperative may be subjected to a security interest by the association if persons entitled to cast at least [80] percent of the votes in the association, including [80] percent of the votes allocated to units not owned by a declarant, or any larger percentage the declaration specifies, agree to that action; but, if fewer than all of the units or limited common elements are to be conveyed or subjected to a security interest, then all unit owners of those units, or the units to which those limited common elements are allocated, must agree in order to convey those units or limited common elements or subject them to a security interest. The declaration may specify a smaller percentage only if all of the units are restricted exclusively to nonresidential uses. Proceeds of the sale are an asset of the association. Any purported conveyance or other voluntary transfer of an entire cooperative, unless made pursuant to Section 2-118, is void.
(c) An agreement to convey common elements in a condominium or planned community, or to subject them to a security interest, or in a cooperative, an agreement to convey any part of a cooperative or subject it to a security interest, must be evidenced by the execution of an agreement, or ratifications thereof, in the same manner as a deed, by the requisite number of unit owners. The agreement must specify a date after which the agreement will be void unless recorded before that date. The agreement and all ratifications thereof must be recorded in every [county] in which a portion of the common interest community is situated, and is effective only upon recordation.
(d) The association, on behalf of the unit owners, may contract to convey an interest in a common interest community pursuant to subsection (a), but the contract is not enforceable against the association until approved pursuant to subsections (a), (b), and (c). Thereafter, the association has all powers necessary and appropriate to effect the conveyance or encumbrance, including the power to execute deeds or other instruments.
(e) Unless made pursuant to this section, any purported conveyance, encumbrance, judicial sale, or other voluntary transfer of common elements or of any other part of a cooperative is void.
(f) A conveyance or encumbrance of common elements or of a cooperative pursuant to this section does not deprive any unit of its rights of access and support.
(g) Unless the declaration otherwise provides, if the holders of first security interests on 80 percent of the units that are subject to security interests on the day the unit owners' agreement under subsection (c) is recorded consent in writing:
(1) a conveyance of common elements pursuant to this section terminates both the undivided interests in those common elements allocated to the units and the security interests in those undivided interests held by all persons holding security interests in the units; and
(2) an encumbrance of common elements pursuant to this section has priority over all preexisting encumbrances on the undivided interests in those common elements held by all persons holding security interests in the units.
(h) The consents by holders of first security interests on units described in subsection (g), or a certificate of the secretary affirming that those consents have been received by the association, may be recorded at any time before the date on which the agreement under subsection (c) becomes void. Consents or certificates so recorded are valid from the date they are recorded for purposes of calculating the percentage of consenting first security interest holders, regardless of later sales or encumbrances on those units. Even if the required percentage of first security interest holders so consent, a conveyance or encumbrance of common elements does not affect interests having priority over the declaration, or created by the association after the declaration was recorded.
(i) In a cooperative, the association may acquire, hold, encumber, or convey a proprietary lease without complying with this section.
(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, [or vertical boundaries that comprise common walls between units,] 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)(1) the common interest community is terminated, in which case Section 2-118 applies;
(ii)(2) repair or replacement would be illegal under any state or local statute or ordinance governing health or safety, or
(iii)(3) [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.
(i) 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)(1) 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)(2) 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)(i) in a condominium, in proportion to the common element interests of all the units; and
(2)(ii) in a cooperative or planned community, in proportion to the common expense liabilities of all the units.
(j) 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)(k) 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.
Possible New Comments
The words “damaged or destroyed” may cause confusion among unit owners since the line between the rules for dealing with “damage and destruction” on one hand and “maintenance, repair and replacement” on the other are not clear. Generally “damage or destruction” deals with items commonly covered by insurance and everything else is maintenance, repair or replacement. That is, a working distinction is that a portion of a common interest community is “damaged or destroyed” (or suffers damage or destruction) if it suffers physical damage that is of a type and is caused by an occurrence of a type commonly covered by the casualty insurance required by Section 3-113 of this Act or by the Declaration or for which insurance carried by the Association is in effect. Otherwise, to “maintain, repair and replace” (or to perform maintenance, repair and replacement) is the act of addressing and correcting deterioration, wear and tear, and obsolescence to the Property which is not covered by the casualty insurance required by Section 3-113.
Reporter Notes (04/07)
Some commentators discuss the consequences of large deductibles and how to allocate them.
One extreme is contained in current proposed Connecticut legislation which provides that “the amount of any deductible on any property and liability insurance maintained by the association is a common expense.” (CT HB 5286).
Other lawyers include in their declarations a provision that the amount of any deductible will be allocated among the units damaged, regardless of fault, or solely to the unit damaged if the owner was negligent.
See also proposed amendments to § 3-115(e).
A further unaddressed insurance issue arises when the association would prefer not to file a claim for a small loss, but the unit owner wishes to do so.
SECTION 3-114. SURPLUS FUNDS. Unless otherwise provided in the declaration, any surplus funds of the association remaining after payment of or provision for common expenses and any prepayment of reserves must be paid annually to the unit owners in proportion to their common expense liabilities or credited to them to reduce their future common expense assessments.
New Comment
The requirements of this section track the requirements of the current Internal Revenue Code; see Rev. Rul. 70-607. The unit owners, of course, may vote to reverse this outcome. As a practical matter, in the everyday activities of the unit owners association, the matters addressed in this section are likely to arise only rarely.
SECTION 3-115. ASSESSMENTS FOR COMMON EXPENSES.
(a) Until the association makes a common expense assessment, the declarant shall pay all common expenses. After an assessment has been made by the association, assessments must be made at least annually, based on a budget adopted at least annually by the association.
(b) Except for assessments under subsections (c), (d), and (e), all common expenses must be assessed against all the units in accordance with the allocations set forth in the declaration pursuant to Section 2-107(a) and (b). Any past due common expense assessment or installment thereof bears interest at the rate established by the association not exceeding [18] percent per year.
(c) To the extent required by the declaration:
(1) any common expense associated with the maintenance, repair, or replacement of a limited common element must be assessed against the units to which that limited common element is assigned, equally, or in any other proportion the declaration provides;
(2) any common expense or portion thereof included as part of the common expense budget, but benefitting fewer than all of the units, including any fees for services provided by the association to occupants of individual units, must be assessed exclusively against the units benefitted based on their use and consumption of services; and
(3) the costs of insurance must be assessed in proportion to risk and the costs of utilities must be assessed in proportion to usage.
(d) Assessments to pay a judgment against the association (Section 3-117(a)) may be made only against the units in the common interest community at the time the judgment was entered, in proportion to their common expense liabilities.
(e) If any common expense is caused by the misconduct of any unit owner or the guests or invitees of a unit owner, the association may assess that expense exclusively against his unit. that owner's unit.
(f) If common expense liabilities are reallocated, common expense assessments and any instalment thereof not yet due must be recalculated in accordance with the reallocated common expense liabilities.
New Comment
1. The amendment to subsection (c)(2) reflects the increasing practice in some associations of providing food, janitorial, nursing and other services to residents of individual units as part of the common expense budget of the association whether or not the occupants are the owners of those units. Clearly, this is not the only means by which those charges might be paid for; a more direct means would surely be to charge the beneficiaries of those services directly on a fee for service basis. The purpose of the amendment is simply to call to the drafter’s attention the concern that if these services are included in the common expense budget for the entire association, rather than being charged to individual service recipients, then the non-benefitted owners should not be assessed, and possibly have a lien against their units, for services provided to other persons.
As drafted, however, the default rule does not yield that result.
2. The drafters of the proposed Texas Planned Community Act have defined “services”; see Texas Act 83.009 (19) in a version of that Act subsequent to the one made available to the Committee in March 2005.
10-06 Reporter Note- Suppose declaration does not so provide?
Reporter Note (04/07)
One commentator proposes to include in (c) “whether or not” before “included as part of the budget....”
Possible alternative to subsection (e):
“If the association carries at least the minimum casualty insurance requested by the declaration and this [act], then any casualty loss in excess of insurance proceeds (caused by the negligence or misconduct of any unit owner or the owner’s guests or invitees,) may be assessed exclusively against that unit.
SECTION 3-116. LIEN FOR ASSESSMENTS; ENFORCEMENT .
(a) The association has a statutory lien on a unit for any assessment levied against that unit or fines imposed against its unit owner. Unless the declaration otherwise provides, reasonable attorneys fees and court costs, other fees, charges, late charges, fines, and interest charged pursuant to Section 3-102(a)(10), (11), and (12), and any other sums due to the association under the declaration, this [act], or as a result of an administrative or judicial decision are enforceable in the same manner as unpaid assessments under this section. If an assessment is payable in installments, the lien is for the full amount of the assessment from the time the first installment thereof becomes due. Unless the declaration provides for a different rate of interest, interest on unpaid assessments shall accrue at the rate provided in [insert state statute governing interest on judgment liens].
(b) A lien under this section is prior to all other liens and encumbrances on a unit except:
(i)(1) liens and encumbrances recorded before the recordation of the declaration and, in a cooperative, liens and encumbrances which the association creates, assumes, or takes subject to, ;
(ii)(2) a first security interest on the unit recorded before the date on which the assessment sought to be enforced became delinquent, or, in a cooperative, the first security interest encumbering only the unit owner's interest and perfected before the date on which the assessment sought to be enforced became delinquent,; and
(iii)(3) liens for real estate taxes and other governmental assessments or charges against the unit or cooperative. The lien is also prior to all security interests described in clause (ii)(2) above to the extent of both the common expense assessments based on the periodic budget adopted by the association pursuant to Section 3-115(a) which would have become due in the absence of acceleration during the six months immediately preceding institution of an action to enforce the lien; and reasonable attorneys fees and court costs incurred by the association in foreclosing the association’s lien. This subsection does not affect the priority of mechanics' or materialmen's liens, or the priority of liens for other assessments made by the association. [The lien under this section is not subject to the provisions of [insert appropriate reference to state homestead, dower and curtesy, or other exemptions].]
(c) Unless the declaration otherwise provides, if two or more associations have liens for assessments created at any time on the same property, those liens have equal priority.
(d) Recording of the declaration constitutes record notice and perfection of the lien. No further recordation of any claim of lien for assessment under this section is required.
(e) A lien for unpaid assessments is extinguished unless proceedings to enforce the lien are instituted within [3] years after the full amount of the assessments becomes due.
(f) This section does not prohibit actions against unit owners to recover sums for which subsection (a) creates a lien or prohibit an association from taking a deed in lieu of foreclosure.
(g) A judgment or decree in any action brought under this section must include costs and reasonable attorney's fees for the prevailing party.
(h) The association upon written request shall furnish to a unit owner a statement setting forth the amount of unpaid assessments against the unit. If the unit owner's interest is real estate, the statement must be in recordable form. The statement must be furnished within [10] business days after receipt of the request and is binding on the association, the executive board, and every unit owner.
(i) In a cooperative, upon nonpayment of an assessment on a unit, the unit owner may be evicted in the same manner as provided by law in the case of an unlawful holdover by a commercial tenant, and the lien may be foreclosed as provided by this section.
(j) The association's lien may be foreclosed as provided in this subsection and subsection (o):
(1) In in a condominium or planned community, the association's lien must be foreclosed in like manner as a mortgage on real estate [or by power of sale under [insert appropriate state statute]];
(2) In in a cooperative whose unit owners' interests in the units are real estate (Section 1-105), the association's lien must be foreclosed in like manner as a mortgage on real estate [or by power of sale under [insert appropriate state statute]] [or by power of sale under subsection (k)]; [or]
(3) In in a cooperative whose unit owners' interests in the units are personal property (Section 1-105), the association's lien must be foreclosed in like manner as a security interest under [insert reference to Article 9, Uniform Commercial Code.] [or]
[(4) In in the case of foreclosure under [insert reference to state power of sale statute], the association shall give the notice required by statute or, if there is no such requirement, reasonable notice of its action to all lien holders of the unit whose interest would be affected].]
[(k) In a cooperative, if the unit owner's interest in a unit is real estate (Section 1-105) the following rules apply:
(1) The association, upon non-payment of assessments and compliance with this subsection, may sell that unit at a public sale or by private negotiation, and at any time and place. Every aspect of the sale, including the method, advertising, time, place, and terms must be reasonable. The association shall give to the unit owner and any lessees of the unit owner reasonable written notice of the time and place of any public sale or, if a private sale is intended, or the intention of entering into a contract to sell and of the time after which a private disposition may be made. The same notice must also be sent to any other person who has a recorded interest in the unit which would be cut off by the sale, but only if the recorded interest was on record seven weeks before the date specified in the notice as the date of any public sale or seven weeks before the date specified in the notice as the date after which a private sale may be made. The notices required by this subsection may be sent to any address reasonable in the circumstances. Sale may not be held until five weeks after the sending of the notice. The association may buy at any public sale and, if the sale is conducted by a fiduciary or other person not related to the association, at a private sale.
(2) Unless otherwise agreed, the debtor unit owner is liable for any deficiency in a foreclosure sale.
(3) The proceeds of a foreclosure sale must be applied in the following order:
(i)(A) the reasonable expenses of sale;
(ii)(B) the reasonable expenses of securing possession before sale; holding, maintaining, and preparing the unit for sale, including payment of taxes and other governmental charges, premiums on hazard and liability insurance, and, to the extent provided for by agreement between the association and the unit owner, reasonable attorney's fees and other legal expenses incurred by the association;
(iii)(C) satisfaction of the association's lien;
(iv)(D) satisfaction in the order of priority of any subordinate claim of record; and
(v)(E) remittance of any excess to the unit owner.
(4) A good faith purchaser for value acquires the unit free of the association's debt that gave rise to the lien under which the foreclosure sale occurred and any subordinate interest, even though the association or other person conducting the sale failed to comply with the requirements of this section. The person conducting the sale shall execute a conveyance to the purchaser sufficient to convey the unit and stating that it is executed by him the person after a foreclosure of the association's lien by power of sale and that he the person was empowered to make the sale. Signature and title or authority of the person signing the conveyance as grantor and a recital of the facts of non-payment of the assessment and of the giving of the notices required by this subsection are sufficient proof of the facts recited and of his the authority to sign. Further proof of authority is not required even though the association is named as grantee in the conveyance.
(5) At any time before the association has disposed of a unit in a cooperative or entered into a contract for its disposition under the power of sale, the unit owners or the holder of any subordinate security interest may cure the unit owner's default and prevent sale or other disposition by tendering the performance due under the security agreement, including any amounts due because of exercise of a right to accelerate, plus the reasonable expenses of proceeding to foreclosure incurred to the time of tender, including reasonable attorney's fees of the creditor.]
[(l) In an action by an association to collect assessments or to foreclose a lien for unpaid assessments on a unit under this section, the court may appoint a receiver to collect all sums alleged to be due and owing to a unit owner before commencement or during pendency of the action. The receivership is governed by [insert state law generally applicable to receiverships]. The court may order the receiver to pay any sums held by the receiver to the association during pendency of the action to the extent of the association's common expense assessments based on a periodic budget adopted by the association pursuant to Section 3-115.]
[(m) An association may not commence an action to foreclose a lien on a unit under this section unless:
(1) the unit owner, at the time the action is commenced, owes a sum equal to at least (3) months of common expense assessments based on the periodic budget last adopted by the association pursuant to3-115(a) and the unit owner has failed to accept or comply with a payment plan offered by the association; and
(2) the executive board expressly votes to commence a foreclosure action against a specific unit.]
[(n) Unless the parties otherwise agree, the association shall apply any sums paid by unit owners who are delinquent in paying assessments as follows:
(i) first, to unpaid assessments;
(ii) then to late charges;
(iii) then to attorneys fees and other reasonable collection charges and costs; and
(iv) finally, to all other unpaid fees, charges, penalties, interest and late charges.]
[(o) If the only sums due with respect to a unit consist of fines and related sums levied against the unit, a foreclosure action may not be commenced against the unit unless the association has a judgment against the unit owner with respect to the fines and has perfected a judgment lien against the unit under [insert reference to state statute on perfection of judgment liens.]
[(p) Any sale or other disposition conducted in connection with a foreclosure action under this section shall be commercially reasonable.]
New Comment
1. Subsection (f) and Official Comment 4 confirm that creation of the lien for assessments under this section does not mean that the individual unit owner is not personally liable for the assessments. The proposed amendment to subsection (f) simply emphasizes that outcome.
Reporter Notes (04/07)
1. The issue of how the association protects itself from non-payment of assessments may be of concern in a state with a homestead exemption. Either direct foreclosure of the association’s statutory lien for unpaid assessments, or foreclosure of a perfected judgment lien which the association might have secured in lieu of foreclosure, may conflict with existing homestead statutes. Further consideration of this issue in those states, in order to reconcile conflicting statutes, would then be appropriate.
2. The association bar in CT takes issue with new (m). An observer writes:
“I recognize the importance of the association offering a repayment plan. We counsel all of our association clients to offer repayment plans and we do so routinely in our collection practice. However, if the offer and acceptance of a repayment plan is a precondition to foreclosure, I can foresee endless delaying litigation over whether the plan offered by the association complied with the requirements of this subsection and whether the payments made by the unit owner complied with the plan. Some standards are needed.
Subsection 3-116(m)(1). It is important to keep in mind that since the association’s lien
has only a very limited priority over that of a first mortgage, anything which delays the
commencement and completion of a foreclosure by the association, but does not result in
the unit owner bringing his or her account current, simply raises the cost to the
association, and, therefore, to all of the other unit owners who are paying their common
charges on time. It is one thing to stamp out abuses, it is another to do so by abusing the
unit owners who pay on time. Keep in mind that there is no for-profit corporation
involved and no deep pockets, all there is are the other unit owners.
Some documents give the association the power to accelerate unpaid common charges.
Can accelerated common charges be counted in determining whether the amount owed is
equal to at least three months of common expenses.
Subsection 3-116(m)(4). I recommend that this subsection be bracketed and a note added
that the subsection should be used only in those jurisdictions where an association could
obtain a foreclosure for fines or charges for services but the defendant unit owner could
not have a judicial hearing on the fines or other changes. In those states, such as
Connecticut, where a defendant in an association foreclosure can raise defenses
challenging the creation or validity of the change, I cannot see the purpose of requiring
the association to obtain a money judgment against the unit owner and then, in order to
enforce the judgment, a second judgment of foreclosure. Admittedly, the second action
would be a suit on a previous judgment, but it still would require two lawsuits. This, in
addition would be guaranteed to irritate many judges whose dockets would be crowded
with even more condominium cases then there are now.
A few other practical observations, at least based on our experience in Connecticut. The
regular civil docket moves much more slowly then the foreclosure docket. As such, it
could be several years before the association was able to obtain a personal judgment on a
contested fine. This is a great encouragement to the unit owners who are violating the
documents to delay. The fact that the association cannot bring any meaningful pressure on
the unit owners who are fined will have the major impact of causing people to take the
fines less seriously.”
3. The Reporter also notes that small claims actions offer little comfort to association lawyers: no fees are typically awarded and, in contested claims, compromised decisions are universal.
New Comment [4/06]
1. Few issues have been more contentious than the prospect of unit owners losing their homes as a consequence of non payment of common charges – and the loss of all or most of their equity – when the association foreclosures. The reaction in state legislatures in recent years has been widespread, as evidenced, for example in North Carolina (see, e.g., 2205 Session Act No. 422).
At the same time, it is crucial that the association be able to secure timely payment of common charges in order to provide services to all the residents of the common interest community.
In an effort to balance these competing interests, the drafting committee proposes additional procedures governing foreclosure of liens for unpaid common charges. These new procedures may be summarized as follows;
First, the Act bars foreclosure for sums that are less than 3 months of common charges;
Second, the Act bars any foreclosure for fines alone unless the association first secures a personal judgment against the unit owner.
Third, the Act requires the association board to expressly approve each foreclosure action;
Fourth, the Act requires that payments of delinquent assessments be applied first to principal rather than interest and fees, in order to avoid accruing additional interest charges as the monthly fees remain unsatisfied while the attorneys fees and interest are paid first.
Finally, we require that if a foreclosure does go forward, any sale of a unit must be commercially reasonable.
These special procedures would comprise an overlay on existing state foreclosure procedures, whether judicial or non-judicial. Taken together, the drafting committee believes they respond in a concise but responsible way to the widespread reporting of abuses in this field. Hopefully, they will also be viewed by the various States as a responsible and balanced response to the issues confronting our elected officials.
2. At the same time, the committee was sensitive to the legitimate concerns of association representatives who participated in the committee’s deliberations. It is clearly imperative that the association be able to collect the common charges from recalcitrant unit owners in a timely way. To address those concerns, the committee proposes two amendments:
First, it proposes to add the cost of the association’s attorneys fees and court costs to the total value of the association’s existing ‘super lien’ – currently, 6 months of regular common assessments. This amendment is identical to the amendment adopted by Connecticut in 1991. See C.G.S. 47-258(b). The increased amount of the association’s lien has been approved by Fannie Mae and local lenders and has become a significant tool in the successful collection efforts enjoyed by associations in Connecticut.
Second, the committee adds a clarifying amendment to subsection (f) to emphasize that the association has a variety of other remedies available against a unit owner in addition to the foreclosure remedy. In many cases, the committee believes, an action for sums due will be less costly, less disruptive and more efficient than a foreclosure action.
3. The Drafting Committee considered a variety of alternative approaches to this issue and has rejected them in favor of the less expansive alternative texts described here. For example, the committee first considered the extensive provisions adopted by North Carolina’s approach to fines enforcement and collection, as reflected in legislation adopted there in September, 2005.
4. Uniform Non-Judicial Foreclosure Act Approach. The Committee has also considered but rejected the possibility of tracking the extensive borrower protections contained in the Uniform Non-Judicial Foreclosure Act. That act contains provisions dealing with:
Default Notice;
Content and Manner Of Giving;
A mandated meeting before Foreclosure;
A Period Of Limitation For Foreclosure;
Judicial Supervision Of Foreclosure;
Redemption.
5. In the only reported case of foreclosure arising under an adoption of UCIOA, the cases required that the sale be reasonable. See Will v. Mill Condominium Owners Association et al, 176 VT 380, 848 A2d 336 [2004].
Such an outcome is consistent with cases arising under Article 9 in the Bankruptcy courts where the sales price is not determined to constitute ‘reasonably equivalent value” – see Madrid and others. [get citations]
(a) In a condominium or planned community:
(1) Except as provided in paragraph (2), a judgment for money against the association [if recorded] [if docketed] [if [insert other procedures required under state law to perfect a lien on real estate as a result of a judgment] ], is not a lien on the common elements, but is a lien in favor of the judgment lien holder against: (i) all of the other real property of the association; and (ii) all of the units in the common interest community at the time the judgment was entered. No other property of a unit owner is subject to the claims of creditors of the association.
(2) If the association has granted a security interest in the common elements to a creditor of the association pursuant to Section 3-112, the holder of that security interest shall exercise its right against the common elements before its judgment lien on any unit may be enforced.
(3) Whether perfected before or after the creation of the common interest community, if a lien, other than a deed of trust or mortgage (, including a judgment lien or lien attributable to work performed or materials supplied before creation of the common interest community), becomes effective against two or more units, the unit owner of an affected unit may pay to the lien holder the amount of the lien attributable to his the unit, and the lien holder, upon receipt of payment, promptly shall deliver a release of the lien covering that unit. The amount of the payment must be proportionate to the ratio which that unit owner's common expense liability bears to the common expense liabilities of all unit owners whose units are subject to the lien. After payment, the association may not assess or have a lien against that unit owner's unit for any portion of the common expenses incurred in connection with that lien.
(4) A judgment against the association must be indexed in the name of the common interest community and the association and, when so indexed, is notice of the lien against the units.
(b) In a cooperative:
(1) If the association receives notice of an impending foreclosure on all or any portion of the association's real estate, the association shall promptly transmit a copy of that notice to each unit owner of a unit located within the real estate to be foreclosed. Failure of the association to transmit the notice does not affect the validity of the foreclosure.
(2) Whether or not a unit owner's unit is subject to the claims of the association's creditors, no other property of a unit owner is subject to those claims.
SECTION 3-118. ASSOCIATION RECORDS. The association shall keep financial records sufficiently detailed to enable the association to comply with Section 4-109. All financial and other records must be made reasonably available for examination by any unit owner and his authorized agents.
(a) The association must create and maintain the following records:
(1) detailed records of receipts and expenditures affecting the operation and administration of the association and other appropriate accounting records;
(2) minutes of all meetings of its unit owners and executive board, a record of all actions taken by the unit owners or executive board without a meeting, and a record of all actions taken by a committee in place of the executive board on behalf of the association;
(3) the names of unit owners in a form that permits preparation of a list of the names and addresses of all owners, in alphabetical order showing the number of votes each owner is entitled to cast;
(4) its original or restated organizational documents, if any, and bylaws and all amendments to them currently in effect;
(5) any financial statements and tax returns of the association for the past three years;
(6) a list of the names and business addresses of its current executive board members and officers;
(7) its most recent annual report delivered to the [Secretary of the State], if any;
(8) financial and other records sufficiently detailed to enable the association to comply with Section 4-109;
(9) all current written contracts to which it is a party; [and]
(10) records of executive board or committee actions to approve or deny any requests for design or architectural approval from unit owners[; and
(11) ballots, proxies and other records related to voting by unit owners for one year after the election to which they relate].
(b) Subject to subsection (d), all records kept by the association, including the association’s membership list and addresses, and aggregate salary information of employees of the association, shall be available for examination and copying by a unit owner or the owner's authorized agent. This right of examination may be exercised:
(1) only during reasonable business hours or at a mutually convenient time and location; and
(2) upon [5] days’ written notice reasonably identifying the specific records of the association requested.
(c) Records kept by an association may be withheld from inspection and copying to the extent that they concern:
(1) personnel matters relating to specific persons or a person’s medical records;
(2) contracts, leases, and other commercial transactions to purchase or provide goods or services, currently in or under negotiation;
(3) pending or potential litigation;
(4) matters involving state or local administrative or other formal proceedings before a government tribunal for enforcement of the declaration, bylaws, or rules;
(5) communications with legal counsel which are otherwise protected by the attorney-client privilege or the attorney work product doctrine;
(6) disclosure of information in violation of law;
(7) records of an executive session of the executive board; or
(8) individual unit files other than those of the requesting owner.
(d) The association may charge a fee for providing copies of any records under this section and for supervising the unit owner‛s inspection but those fees may not exceed the actual cost of any materials and labor incurred by the association.
(e) The right to copy records under this section includes the right to receive copies by photocopying or other means, including copies through an electronic transmission if available and so requested by the unit owner.
(f) The association is not obligated to compile or synthesize information. Information provided pursuant to this section may not be used for commercial purposes.
Reporter's Notes
1. There are two significant policy issues connected with the association’s records: first, what records to maintain, and second, who has access to those records.
Section 3-118 of UCIOA [1994] deals with these matters in a minimalist way. Regarding record maintenance, the first sentence of 3-118 requires only that the association maintain those records needed to comply with Section 4-19 – that is , the obligation to provide a resale certificate. This minimum requirement is far less expansive than the provisions of, for example, the mandates of even the Revised Model Non-Profit Corporation Act promulgated and last amended by the American Bar Association in ____; it plainly does not address the significant issues of records maintenance that have arisen since UCIOA was first promulgated 25 years ago.
Section 3-118 is similarly superficial on issues of records access; here, it mandates that ‘all’ records of the association be ‘reasonably available for examination by any unit owner or his authorized agent’ – leaving questions as to whether the word reasonable” modified ‘all …records’ as well as “available”, and leaving unanswered the large range of issues that courts and legislatures have struggled with in this field over the last quarter century.
2. The Committee recommends that the Conference replace the ‘minimalist’ provisions of UCIOA Section 3-118 with provisions generally consistent with the cognate provisions of the Revised Model Nonprofit Corporation Act, supplemented by specific provisions from other more modern State enactments and proposals in the homes association field.
In this latter regard, the drafting committee specifically recommends that UCIOA : (i) authorize a unit owner to have access to a mailing list of unit owners, although the association may retain the right to mail materials to unit owners at their last known addresses, in order to maintain the unit owners’ privacy; and (ii) insure that minutes of all meetings must be kept.
3. The Committee identified several possible drafting policies in both areas. This draft incorporate the Committee’s collective judgment regarding a balanced approach to both issues.
4. During the drafting process, the comments will be further supplemented to address these subjects:
a. Detailed Financial Records. First, the comment will focus on the level of detail that this Act requires for the Association’s records. Two ends of the spectrum are clear.
At one extreme, the Committee rejects the proposal that the Act should require that records be maintained in accordance with “generally accepted accounting principles”; there are simply too many associations for which that would be an unnecessary and burdensome requirement.
At the other extreme, as mandated in sub-section (a) (8), the records must be sufficiently detailed to enable the association to complete a resale certificate as provided in Section 4-109.
b. Attorneys Files. At the 2006 Annual Meeting, a Commissioner observed from the floor that the rules of the various Bar associations make it imprudent for this Act to characterize the files of an attorney representing the association as property of the association and thereafter to assert that those files are nevertheless exempt from disclosure. For that reason, the current draft does not address the status of an attorney’s records.
5. Subsection (b)(1) might be further reworded Subsection (i) to read as follows:
(i) Only during reasonable business hours or, if the records are kept or maintained by an officer of the association, other hours reasonably convenient for such officer, and at the location where the records are ordinarily maintained, or at another mutually convenient time and location.
6. A commentator writes:
Section 3-118(a). Many of the associations we represent, especially the smaller ones, do not have a complete set of records going back to the organization of the association. This is usually not the fault of the associations or their current leadership.
Declarants do not keep adequate records or fail to turn them over at transition. Managers fail to turn records over when their contracts expire or are terminated. In either of these cases, the cost of suing to obtain the missing records is prohibitive, or at least out of proportion to the loss or inconvenience caused by the missing documents. In many smaller communities, the minutes and other non-financial records are kept by a volunteer officer of the association. If someone dies, is taken ill or moves away quickly, the records are often lost. I am neither encouraging or defending these omissions, but they do happen. I am concerned that the absence of records not be used by dissident unit owners to flog associations for omissions made by prior officers, directors, or managers.
Subsection 3-118(b)(i). This subsection permits the parties to agree on a mutually acceptable time and place for the inspection of the records. If they do not agree, the subsection says that the inspection shall take place “only during reasonable business hours”. I suggest that this subsection be revised to read “(i) Only during reasonable business hours and at the location where the records are ordinarily maintained, or at another mutually convenient time and location.” Another concern has to do with smaller self-managed associations where the records may be kept by a unit owner who works during the day. If the volunteer treasurer cannot easily leave his or her job during the day to meet with a unit owner, it may be unreasonable to insist that the unit owner, or the unit owner’s attorney or accountant, have the power to make the treasurer take a day off from work. Smaller associations find it hard enough as it is to find and keep competent volunteer officers and directors.
SECTION 3-119. ASSOCIATION AS TRUSTEE. With respect to a third person dealing with the association in the association’s capacity as a trustee, the existence of trust powers and their proper exercise by the association may be assumed without inquiry. A third person is not bound to inquire whether the association has power to act as trustee or is properly exercising trust powers. A third person, without actual knowledge that the association is exceeding or improperly exercising its powers, is fully protected in dealing with the association as if it possessed and properly exercised the powers it purports to exercise. A third person is not bound to assure the proper application of trust assets paid or delivered to the association in its capacity as trustee.
(a) Before adopting, amending, or repealing any rule, the executive board must notify all unit owners of:
(1) its intention to adopt, amend, or repeal a rule and provide the text of the proposed change; and
(2) a date on which the executive board will act on the proposed rule or amendment after considering comments on those changes from unit owners.
(b) Following adoption, amendment, or repeal of a rule, the association shall notify the unit owners of its action and provide a copy of any new or revised rule.
(c) If the declaration so provides, the association may adopt rules to establish and enforce construction and design criteria and aesthetic standards. If it does so, the association must adopt procedures for enforcement of those standards and for approval of applications, including a reasonable time within which the association must act after an application is submitted and the consequences of its failure to act.
(d) A rule regulating display of the flag of the United States must be consistent with federal law. Unless the declaration otherwise provides, no rule may prohibit display on a unit or on a limited common element adjoining a unit of a flag of this state, or signs regarding candidates for public office or ballot questions, but the association may adopt rules governing the time, place, size, number or manner of those displays.
(e) An association may adopt rules that affect the use of or behavior in units that may be used for residential purposes, only to:
(1) implement a provision of the declaration;
(2) regulate any behavior in or occupancy of a unit which violates the declaration or adversely affects the use and enjoyment of other units or the common elements by other unit owners; or
(3) restrict the leasing of residential units to the extent those rules are reasonably designed to meet underwriting requirements of institutional lenders who regularly lend money secured by first mortgages on units in common interest communities or regularly purchase those mortgages.
(f) All rules adopted by the association must be reasonable.
Draft Comment
1. The association’s power under this section is subject to any reserved special declarant right to control any construction or design review process during the development process.
2. It is increasingly common throughout the United States for associations to assume the power to establish and enforce design criteria and control the exterior appearance of units, whether those units are in high rise condominiums, townhouses or single family homes on large lots. It is often asserted that the power of the association to maintain a uniformly attractive and consistent appearance throughout a community adds considerably to the value and desirability of many of these communities.
At the same time, anecdotal evidence suggests that many of the decisions made during the design approval process have been controversial and, in some instances, subject to abuse by those charged with enforcing the design criteria.
The original UCIOA was silent on this subject, relegating it simply to the general reserved powers of the association. However, because of the importance of the subject, the Drafting Committee suggests significant amendments to the design approval process. These changes are intended to confirm the ability of the association to adopt such a process, but subject to significant constraints intended to protect the interests of individual unit owners.
Accordingly, this section first makes clear in subsection (b) that the ability of the association to regulate the design process must be affirmatively reserved in the declaration.
Second, the section requires that the rules of the design committee must be formally promulgated by the executive board, including a procedure for prompt consideration of an application. The drafting committee intends that if the design committee or other group charged with enforcement of the criteria fails to act on an application within the time frame stated, then the effect of that failure is that the application will be deemed approved. At the same time, the Committee expects that the parties to an application pending before a design committee may choose to formally agree to extend the time within which the committee is otherwise required to act, and nothing in this Act is intended to affect the parties’ ability to do so.
Reporter Note (04/07)
1. CT practitioners express reservations about our use of the phrase “use of or behavior in units” in subparagraph (d). I hope to secure written recommendation on text from those attorneys.
2. To change a permitted “use occupancy, or behavior” in 3-120(d)(2), is a 67% or 80% vote required?
SECTION 3-121. LITIGATION INVOLVING THE DECLARANT.
(a) An association’s authority under Section 3-102 (a)(3) to commence and pursue litigation involving the common interest community is subject to the following rules:
(1) Before the association commences litigation, arbitration, or any administrative proceedings against a declarant or any person employed by a declarant involving any alleged construction defect with respect to the common interest community, the association must provide written notice of its claims to the declarant and those persons whom the association seeks to hold responsible for the claimed defects. The text of the notice may be in any form reasonably calculated to put the persons on notice of the general nature of the association’s claims including, without limitation, a list of the claimed defects. The notice may be delivered by any method of service and may be addressed to any person provided that the method of service and the person who is actually served either:
(A) provides actual notice to the persons named in the claim; or
(B) the method of service used would be sufficient under local law to confer personal jurisdiction over the person in connection with commencement of a lawsuit by the association against that person.
(2) The association may not commence litigation, arbitration, or any administrative proceedings against a person for a period of [ ] days after the association sends notice of its claim to that person.
(3) During the [ ] day period required by paragraph (2), the declarant and any other person to whom it directed notice may present to the association a plan to repair or otherwise remedy the construction defects described in the notice. If the association does not receive a timely remediation plan from each person to whom it directed notice, the association shall be entitled to commence any proceedings against that person as the board determines to be appropriate.
(4) If the association receives one or more timely plans to repair or otherwise remedy the construction defects described in the notice, the association board shall promptly consider those plans and notify the persons to whom it directed notice whether or not each such plan is acceptable as presented, acceptable with stated conditions, or not accepted.
(5) If the association accepts a repair plan from a responsible person, or if a responsible person agrees to stated conditions to an otherwise acceptable plan, then the parties shall agree on a timeframe for implementation of the plan, and the association shall not commence litigation, arbitration, or any administrative proceedings against that responsible person during the time that the plan is being diligently implemented.
(6) If a person to whom the association directed notice submits a timely repair plan but the association and the person do not agree in writing to the terms of the plan or its implementation, then [ Alt. 1 - the association may commence litigation etc. ] or [Alt. 2 – either party is entitled to binding arbitration.]
(7) Except as otherwise 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 or other person is tolled during the [ ] day period described in subsection (b) and during any extension of that time because a person to whom notice was directed has commenced and is diligently pursuing the remediation plan.
(b) After the time described in subsection (a)(3) expires, whether or not the association agrees to any repair plan, nothing in this section or otherwise bars commencement of litigation by:
(1) the association against a person to whom notice was directed that fails to submit a timely repair plan, the plan of which is not acceptable, or that fails to diligently pursue implementation of that plan; or
(2) A unit owner with respect to the owner's unit and any limited common elements assigned to that unit, regardless of any actions of the association.
(c) Nothing in this section precludes the association from making emergency repairs to correct any defect that poses a significant and immediate health or safety risk.
(d) Subject to the other provisions of this section and the declaration, the determination of whether and when the association may commence any proceedings may be made by the executive board, and nothing in this section requires a vote by any number or percentage of unit owners as a pre-condition to litigation.
Reporter's Notes
1. This policy and much of the proposed text is taken from the CAI proposal dated Oct. 31, 2003.
2. This text was drafted without reference to other statutory text that may have been adopted in this or similar contexts in other states.
3. This text does not address:
(a) issues arising under the warranty provisions of UCIOA; see Sec. 4-113 through 4-116;
(b) litigation against the declarant under other theories;
(c) express prohibitions limiting the right of the association to sue the declarant [except to the extent addressed now in UCIOA – see 3-102(a):
The declaration may not impose limitations on the power of the association to deal with the declarant which are more restrictive than the limitations imposed on the power of the association to deal with other persons.”
In theory, this section might allow the declaration to prohibit commencement of any suit by the board in the absence of a unit owner vote. But there is a proposed amendment to 3-102(a) on this subject.
[4/06] There are other questions here:
1. Benefield – suppose the builder just does not build what he promised, what does that do under this section?
2. Exclusion of warranties – diamond says bracket the text excluding warranties until we get there.
3. Nora – we need to add “failure to build”
4. “Cure text of the Uniform Commercial code – we can look at that….
10-06 COMMENT: On Litigation §3-121(a)(7) – need to have declarant’s claim period against subcontractors also extended.
There are a number of technical issues with the text as it now stands that need to be addressed. These include the following:
Subsection 3-121(a)(1). The reference to commencing administrative proceedings may be overly broad, especially if it applies to participating in land use hearings and appeals. If a declarant files an application for a zone change, site plan approval, etc. relating to a community and the community chooses to object to the application in part because it believes the declarant failed to construct the existing facilities properly, the declarant could argue that the intervention by the association “involved” a construction defect. In the case of land use proceedings, the deadlines, which are often short, are set by land use statutes. If the association is responding to a land use issue initiated by someone else or is making a filing within the time limit set by the land use statute, how can it take the time to give prior notice to the declarant, let alone engage in the exchange of proposals which the statute contemplates.
An association discovers that a roof on one of the buildings is falling down. A major part of any plan of remediation would include inspection of the roofs. If the association notifies the declarant that one of the roofs is falling down and they suspect that others may be defective as well, is that sufficient notice?
Subsection 3-121(a)(2). The caption speaks of tolling the statute of limitations but this subsection says nothing about it.
Subsection 3-121(a)(3) thru (a)(6). I expect there will be many situations in which the association will send a notice to the declarant which the declarant will not consider to be sufficiently specific or where the declarant will respond to the association’s notice with a plan that the association considers to be completely inadequate and rejects out of hand. If the association then sues the declarant, I can envision arguments over whether or not the association had satisfied the preconditions for suit, the declarant will move to dismiss the suit and, if the statute of limitations on the claim has run in the meantime, the association will be without remedy. Surely the Act, which is generally described as remedial, does not intent such a harsh result? A better approach might be to provide that if the court determines that the preconditions have not been met, the court can order further proceedings stayed until the preconditions have been addressed.
On that note, it might be better to let the suit to be brought and then provide that if the parties have not attempted to negotiate a settlement earlier, the court can order them to go through mediation, under court supervision, or under the supervision of an appropriate state agency, before proceeding with the suit.
Subsection 3-121(a)(7). The rules of procedure of most states mandate that certain claims by one party against another party must be joined in a single suit or they are deemed abandoned. Is it possible that, under the law of some states, that two claims against the declarant, one having to do with construction defects and the other not, must be joined in a single action. If this is the case, how does an association proceed when one of its claims, and the statute of limitations that applies to it, has been tolled, while the other claim and its statute have not?
(a) Unless otherwise required or permitted by the declaration or bylaws, the following methods or giving notice suffice when notice is required by this [act]:
(1) hand-delivered to each owner, unless that owner has designated a different mailing address in writing;
(2) hand-delivered or sent prepaid by United States mail or express or delivery service to the mailing address of each unit, unless the owner has designated in writing a different mailing address in which case, it shall be sent to the designated address; or
(3) sent by electronic means if the unit owner has given the association prior written authorization to provide notice by that means, together with an electronic address. (b) The ineffectiveness of a good faith effort to deliver notice by any authorized means does not invalidate action taken at a meeting or in lieu of a meeting.
Reporter Comments
1. The alternatives listed in sub-section (a) include all the forms of notice currently authorized in UCIOA section 3-108, which requires that unit owners be given notice of meetings. The new additional forms of notice are electronic transmissions and posting on bulletin boards, both as discussed in Phoenix.
2. This text on electronic transmissions is taken from a 2004 Maryland statute, § 11B-113.1. Additional editing of this text is plainly required, but the text highlights some of the issues raised by such a form of notice.
3. Finally, we suggested that the comment might state that the Act doesn’t designate how or when to give notice. [Note that this is a departure from the current Act].
4. Other thoughts:
a. Is this section intended to enable email, or do we intend that email can be used even if the declaration requires hand delivery or US mail?
b. Intent = [said someone] – if the documents require notice to be given by other than hand or US mail, [life, eg , fed ex or certified mail] then you have to give it that way.
SECTION 3-123. REMOVAL OF OFFICERS AND DIRECTORS
(a) Notwithstanding any provision of the declaration or bylaws to the contrary, unit owners, by a majority vote of all persons present, in person, by proxy, or ballot, at any meeting of the unit owners at which a quorum is present, may remove any member of the executive board and any officer elected by the unit owners with or without cause, except that:
(1) a member appointed by the declarant may not be removed by a unit owner vote during the period of declarant control;
(2) a person appointed under subsection (f) of Section 3-103 may only be removed by the person that appointed that member; and
(3) the unit owners may not consider whether to remove a member of the executive board at any meeting of the unit owners unless that subject was listed in the notice of the meeting.
(b) At any meeting at which a vote to remove a member of the executive board is to be taken, the executive board shall provide all persons favoring and opposing removal of that member, including the member being considered for removal, a reasonable opportunity to speak before the vote [,subject to reasonable limits on debate].
(c) At any meeting called for the purpose of removing a member of the executive board, the following rules apply:
(1) After all persons present at the meeting have been given a reasonable opportunity to speak, the meeting may be recessed for the purpose of conducting the vote as described in paragraph (2).
(2) Promptly following any recess, the association shall notify all unit owners of the recessed meeting and inform the unit owners of their opportunity to cast votes either in favor or against removal during the [ ] day period following the day that the notice is sent. The notice must specifically inform the unit owners whether they may cast votes in a secret written ballot, on a form provided to the unit owners, or by electronic means.
(d) Whether a vote under subsection (c) is taken before or after a recess, and whether or not taken by electronic means, a member of the executive board may be removed only if the number of votes cast in favor of removal exceeds the number of votes cast in opposition to removal.
Reporter Note (04/07)
[The Reporter needs assistance in describing the procedure in subsection (c)(2).]We undoubtedly require additional provisions.
One observer writes:
Subsection 3-123(c). If I understand the basic concept of this subsection correctly, it is
concerned that a vote of those present at a meeting of the association, even those present
either in person or by proxy, will not, somehow, as truly reflect the will of the unit owners
as a referendum. Subsection 3-110(f) of the proposed revisions already provides for a
referendum, and I do not see why it could not be used for a recall as well. The issue that
is the subject of a standard referendum is not first discussed at a meeting. It is proposed
for a ballot from the beginning. For some reason, which is not clear to me, a separate
procedure is proposed for a recall meeting in which the referendum takes place after the
meeting is adjourned. I have several questions about this procedure as it is described in
the draft:
1. The text is silent as to who gets to decide whether to recess the meeting.
2. The power to recess a meeting ordinarily belongs to the individuals entitled to
vote at the meeting. I find it hard to believe that the group that holds the majority
of votes at a recall meeting would ever want to recess the meeting. Ordinarily it
would want to take a vote so that its will could prevail.
3. If someone else is permitted to recess the meeting, the action would be perceived
to be, and indeed would be, undemocratic in that it was thwarting the will of the
majority of those present at the meeting.
4. If the recall is to be debated at the meeting but then voted on by people who were
not at the meeting, the entire purpose of debating the recall is nullified or at least
undermined. If the recall is to be by some sort of ballot, provision should be made
for circulating arguments and position papers with the ballot.
Subsection 3-123(d). We still need to guard against recalls by small numbers of unit
owners. The default quorum under the Act is 20% and our practice in Connecticut is to
provide that a quorum consist of whoever shows up. This is fine for making sure that the
association can conduct its business in uncontroversial times without risking the absence
of a quorum. It doesn’t work so well concerning issues such as recalls. I suggest that the
subsection be changed to read
“. . . only if the number of votes cast in favor of removal both: (i)
exceeds the number of votes cast in opposition to removal; and (ii) is
greater than one-third of the total votes in the association.”
Other Comments on Section 3-123. I think proxies should be permitted in recall votes.
Generally, if both sides are soliciting proxies, and keeping in mind that a unit owner can
always cancel an earlier proxy by giving a later one, the unit owners are given a realistic
opportunity to choose between positions and, in my experience, they usually do. For the
most part, people who complain that proxies are being misused have no real basis for
complaint except that the other side got more proxies than they did.
Ordinarily, where there is a successful recall, more than one director is removed. In my
experience, most recalls (and the resignations that sometimes accompany or precede
them) remove either all or a majority of the board members. For this reason, it is crucial
that new directors be elected at the same meeting or referendum at which the prior
directors were recalled. Otherwise there may be no one to tend to the affairs of the
association.
Reporter Note [10-06]
Here is the text of the Model Non-Profit Corporation Act regarding removal of directors, as adopted in Connecticut:
Sec. 33-1088. Removal of directors by members or directors. (a) The members entitled to vote for the election of directors or, if there are no such members, the directors, may remove one or more directors with or without cause unless the certificate of incorporation provides that directors may be removed only for cause.
(b) If a director is elected by a class of members only the members of that class may participate in the vote to remove him.
(c) If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him.
(d) A director may be removed by the members entitled to vote for directors or, if there are no such members, the directors, only at a meeting called for the purpose of removing him and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director.
Reporter’s Notes
1. In early discussions, two particular concerns were: (1) how practical is it in most cases to require a quorumed meeting for a recall, and (2) how could one ever consider recall in a large association?
2. The consensus seemed to be that this is a real world problem.
3. These additional views were expressed:
a. Ms. Foley-Healy [CAI] – there is a number somewhere between the statute’s current requirement of 2/3 of those present at a quorumed meeting, and whoever shows up at a meeting, whether or not there is a quorum present, that is the appropriate number.
b. Don Mielke - We definitely need a clearer procedure
c. The Chair - UCIOA has already dealt with this – see 3-102(g).
4. My notes then suggest that I “pull some of these things out”:
a. Change 2/3s to something else – perhaps a majority of those who vote at a meeting.
b. Can we use proxies in a removal fight. [Why not?]
c. Should the vote be on removal of x and y as directors AND election of their successors?
d. Owen Anderson – Responding to # 3, he asserted that the model should be judicial retention – that is, the new election is a separate decision from removal of the incumbent.
e. Make certain that the removal section does not apply to removal of appointed directors
f. There ought to be an opportunity to talk [at the removal meeting – or perhaps at every meeting] and then include some procedures for extended voting and for electronic voting or extended voting or whatever.
g. The vote on the removal ought not to take place until after that point in time when the talk takes place.
h. The act should require the association to have a meeting and then allow balloting by mail – instead of simply a vote at that time.
i. Marion Benfield – I would not require quorums but I would make it easy to vote – ok to be done by ballot and no quorum needed.
j. Elections should also be easy.
SECTION 3-124. ADOPTION OF BUDGETS. [Previously Section 3-103 (c), amended as shown]
(a) The executive board, at least annually, shall prepare a proposed budget for the common interest community for consideration by the unit owners. Within [30] days after adoption of any proposed budget, the executive board shall provide to all the unit owners a summary of the budget, including any reserves, and a statement of the basis on which any reserves are calculated and funded. Simultaneously, the board shall set a date for a meeting of the unit owners to consider ratification of the budget not fewer than 10 nor more than 60 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. If a proposed budget is rejected, the budget last ratified by the unit owners continues until such time as the unit owners ratify a subsequent budget
(b) The executive board may at any time propose a special assessment. Except as provided in sub-section (c), the assessment is effective only if the executive board follows the procedures for ratification of a budget described in subsection (a) and the unit owners do not reject that proposed assessment.
(c) If the executive board determines by a two-thirds vote that a special assessment is necessary in order to respond to an emergency, then:
(1) the special assessment shall become effective immediately in accordance with the terms of the vote;
(2) notice of the emergency assessment shall be promptly provided to all unit owners; and
(3) the executive board shall spend the funds paid on account of the emergency assessment solely for the purposes described in the vote.
Proposed NEW Comment
The issue of whether state law should mandate that all common interest community associations create a reserve fund for the replacement of common elements as they become necessary and, if so, the extent to which they should be mandated, is a subject of considerable scholarly debate and widely varying statutory treatment in the States.
As of 2006, some states – Florida and Hawaii, for example – either mandate that reserves be maintained [insert citations] or establish a default rule that such reserves be created in the absence of an affirmative vote by the association membership not to create reserves. Other states – Virginia and California for example, [insert citations] require that the association board undertake periodic studies of the association’s need for reserves.
It is also true that the underwriting guidelines used by Fannie Mae when deciding whether to purchase mortgages in common interest communities, requires in condominiums – but not in planned communities – not only that the association maintain reserves but that those reserves be “adequate,” without defining the meaning of that word.
The evidence presented to the drafting committee suggested that the needs, practices and expectations of unit owners in common interest communities differ widely, depending on, for example, the size, age, location and design of the physical structures as well as the age, economic circumstances and other demographic characteristics of the unit owners. Evidence suggests, for example, that small, self-managed associations commonly will maintain minimal reserves and will typically self-assess for repairs as needed. Other larger common interest communities, particularly in high maintenance buildings, may choose to establish substantially higher reserves. On the other hand, it appears that very few associations that maintain reserves at a level which would be actuarially required by evaluating the useful life of each component of the building and then accumulating reserves through increases in the monthly common charges paid by each owner, based on a schedule reflecting each component’s useful life.
Associations confront the same choices that a single family homeowner confronts in thinking about, for example, the future need to replace the roof on her house. That owner has at least three choices: (1) she can set aside a sum of money each month in a segregated fund – perhaps even calling it a ‘reserve’ fund – so that when the roof or other parts of her home need to be replaced, she will have the needed funds; (2) she can maintain savings which are not segregated and pay cash from those savings at the time the roof replacement occurs; or (3) she can borrow the needed funds, and pay that money back during the years when she is enjoying a dry home. Clearly, she can also use a combination of these techniques. Today, encouraged by state laws such as UCIOA § 3-102(a)(8) – enabling associations to pledge their future common charges as security for a loan, UCIOA § 3-112, enabling associations to mortgage the common elements as security for a loan, and UCIOA § 2-119 (confirming the rights of lenders to enforce conventional loan terms against associations) associations are increasingly engaged in borrowing as an alternative to self-funding of reserves by unit owners who may, in fact, be unable to realize the economic value of those reserve payments if they sell their units early in the life of the project.
The committee was also mindful of the impact of a possible law mandating reserves on the needs of the elderly and those of limited economic means. In practice, older unit owners often resist reserves, while younger families may perceive a greater long term value in their creation. We were also made aware of the special concerns of lower income owners in common interest communities, where poorer owners may simply walk away from their mortgages and their units because of their inability to maintain mortgage payments and monthly common charges. If a statute were to mandate fully funded reserve payments, we would be concerned with two possible unintended consequences: first, such a mandate might so raise the monthly common charges that many potential buyers might be disqualified from homeownership; and second, the increases in charges might accelerate the collapse of common interest communities housing marginal income existing owners, who might abandon their units in increased numbers. Neither of these outcomes would be desirable.
At the same time, the committee understands the natural interest of elected officials, who may often be faced with constituent demands that government ‘do something’ about a common interest community that has not prudently managed its affairs, with the result that needed repairs have not been made and the needed funding is not readily identifiable.
For these reasons, the drafting committee in the 2007 amendments to UCIOA determined that the most appropriate statutory means of addressing this concern was to address the issue of reserves during the budget adoption process. The new provision does not require a particular outcome other than the fact that the budget must affirmatively address the issue one way or the other. Presumably, once required to address the issue, the association, even during the period of declarant control, and the association's professional advisors will draft a reasoned provision consistent with their best sense of the nature of the particular community and the likely financial circumstances of their purchasers.
Note that this provision does not in any way interfere with the necessary flexibility of a declarant in addressing this and many other subjects. The provision does not mandate reserves at all, nor fully funded reserves, nor ‘adequate’ reserves and it does not prevent future unit owners, after the end of the period of declarant control, from changing the initial result created by the declarant. Moreover, parallel amendments to UCIOA Section 4-109 confirms that this issue will be fully disclosed in the initial POS and later resale documents.
Thus, what this amendment accomplishes is to make certain that the subject of reserves be consciously addressed by the party best suited at the time to understand the likely expectations and requirements of the unit owners. Over the long term, however, better education of declarants and unit owners alike, and the growth of ‘best practices’ in the common interest community field under the leadership of national and state interest groups, must provide the optimal outcome in each particular circumstance.
Reporter’s Notes
1. The Drafting Committee has discussed the subjects of Special Assessments, Transfer Fees and so-called “Capital Investment” fees and Seller conveyance taxes due to the association. Various committee members and advisors expressed opinions and offered comments. Some of them were these:
a. Whether UCIOA ought to address the issue of special assessments at all. Note that at least Virginia [Sec. 55-514] does address this subject.
b. Some documents have provisions on these matter; some require a selling unit owner to make a contribution to a 501(c) (3) tax exempt organization at the time of sale; others apparently, require a 3% or 5% ‘kicker’ paid at the time of sale to the declarant.
c. One advisor notes that California prohibits a payment of ‘transfer fees’ but that she drafts a mandated transfer fee into her clients’ documents at times for ‘good purposes’ – such as common area reserves or improvements.
d. Another advisor also discussed Separate Assessments, Fines and Other Charges. He gave examples of insurance deductibles, user fees, charges for trimming the hedge when owner failed to do it, amenity charges.
e. We also considered situations where there are tiered assessments [such as a master association?]
At a minimum, the subject ought to be addressed in Sec. 4-103(a)(7) – POS disclosures [if there are to be no restrictions] or in a separately drafted section if the Committee intends any fee restrictions. An amendment has been proposed there.
Otherwise, at present there is nothing in UCIOA that is intended to limit the imposition of such fees. It is not clear that we can usefully deal with the subject of transfer fees and capital investment fees, except as a matter of disclosure.
2. An observer writes this regarding special assessments:
Subsection 3-124(b). I am glad to see this concept added. In Connecticut we have included a similar provision in most of our declarations since 1984 in order to prevent the executive board from doing, by special assessment, what the unit owners would not permit it to do as part of the budget. I do have a few concerns with the current language:
1. Special Assessments. The term “special assessment” is not defined. It is sometimes used to refer to any assessment that is not part of the budget, or any assessment that is not payable in equal monthly installments, or any assessment which is not assessed against all of the units, etc. We need a clear definition which should be, I believe,
“any assessment not part of the budget proposed and ratified under Subsection 3-124(a) which is greater than [15%] of such budget.”
With that definition, Subsection 3-124(b) will work properly.
2. Transfer Fees. There is a serious division of opinion as to whether UCIOA limits or prohibits the imposition of transfer fees. A transfer fee is, by definition, not assessed against all units in accordance with their percentages as required by Subsection 3-115(b) and it doesn’t fall within any of the exceptions in Subsections 3-115(c) through (f). Some courts, reviewing similar statutory provisions, have held that transfer fees are not permitted. Micheve, LLC vs. Wyndham Place at Freehold Condominium Association. 885 A.2d 35 (N.J. Super. Ct. App. Div. 2005. I for one believe it would be very helpful if the Act permitted transfer fees, provided:
a. That they were specifically authorized in the declaration;
b. That they apply broadly (perhaps they apply whenever state conveyance tax applies); and
c. That there be some reasonable method of limiting their amount. This might be done by limiting the amount to some multiple of the current annual assessment against the unit, a percentage of its fair market value, or something similar.
Many of the associations we represent would like to impose such a fee, though we are unable to give them clear advice as to how to do it.
PROTECTION OF PURCHASERS
SECTION 4-101. APPLICABILITY; WAIVER.
(a) This [article] applies to all units subject to this [act], except as provided in subsection (b) or as modified or waived by agreement of purchasers of units in a common interest community in which all units are restricted to non-residential use.
(b) Neither a public offering statement nor a resale certificate need be prepared or delivered in the case of:
(1) a gratuitous disposition of a unit;
(2) a disposition pursuant to court order;
(3) a disposition by a government or governmental agency;
(4) a disposition by foreclosure or deed in lieu of foreclosure;
(5) a disposition to a dealer;
(6) a disposition that may be canceled at any time and for any reason by the purchase without penalty; or
(7) a disposition of a unit restricted to nonresidential purposes.
Commissioner's Comment
7. Section 4-101(b) Applicability – add a disposition by operation of law due to the death of the owner. “D. Behr – Alaska”
SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT REQUIREMENTS.
(a) Except as provided in subsection (b), a declarant, before offering any interest in a unit to the public, shall prepare a public offering statement conforming to the requirements of Sections 4-103, 4-104, 4-105, and 4-106.
(b) A declarant may transfer responsibility for preparation of all or a part of the public offering statement to a successor declarant (Section 3-104) or to a dealer who intends to offer units in the common interest community. In the event of any such transfer, the transferor shall provide the transferee with any information necessary to enable the transferee to fulfill the requirements of subsection (a).
(c) Any declarant or dealer who offers a unit to a purchaser shall deliver a public offering statement in the manner prescribed in subsection Section 4-108(a). The person who prepared all or a part of the public offering statement is liable under Sections 4-108 [and] [,] 4-117 [, 5-105, and 5-106] for any false or misleading statement set forth therein or for any omission of a material fact therefrom with respect to that portion of the public offering statement which he the person prepared. If a declarant did not prepare any part of a public offering statement that he the declarant delivers, he the declarant is not liable for any false or misleading statement set forth therein or for any omission of a material fact therefrom unless he the declarant had actual knowledge of the statement or omission or, in the exercise of reasonable care, should have known of the statement or omission.
(d) If a unit is part of a common interest community and is part of any other real estate regime in connection with the sale of which the delivery of a public offering statement is required under the laws of this state, a single public offering statement conforming to the requirements of Sections 4-103, 4-104, 4-105, and 4-106 as those requirements relate to each regime in which the unit is located, and to any other requirements imposed under the laws of this state, may be prepared and delivered in lieu of providing two or more public offering statements.
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:
(1) the name and principal address of the declarant and of the common interest community, and a statement that the common interest community is either a condominium, cooperative, or planned community;
(2) a general description of the common interest community, including to the extent possible, the types, number, and declarant's schedule of commencement and completion of construction of buildings, and amenities that the declarant anticipates including in the common interest community;
(3) the number of units in the common interest community;
(4) copies and a brief narrative description of the significant features of the declaration, other than any plats and plans, and any other recorded covenants, conditions, restrictions, and reservations affecting the common interest community; the bylaws, and any rules or regulations of the association; copies of any contracts and leases to be signed by purchasers at closing,; and a brief narrative description of any contracts or leases that will or may be subject to cancellation by the association under Section 3-105;
(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) 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)(B) a statement of any other reserves;
(iii)(C) the projected common expense assessment by category of expenditures for the association; and
(iv)(D) the projected monthly common expense assessment for each type of unit;
(6) any services not reflected in the budget that the declarant provides, or expenses that he the declarant pays and which he the declarant expects may become at any subsequent time a common expense of the association and the projected common expense assessment attributable to each of those services or expenses for the association and for each type of unit;
(7) any initial or special fee due from the purchaser [or seller] at closing the time of sale, together with a description of the purpose and method of calculating the fee;
(8) a description of any liens, defects, or encumbrances on or affecting the title to the common interest community;
(9) a description of any financing offered or arranged by the declarant;
(10) the terms and significant limitations of any warranties provided by the declarant, including statutory warranties and limitations on the enforcement thereof or on damages;
(11) a statement that:
(i)(A) within 15 days after receipt of a public offering statement a purchaser, before conveyance, may cancel any contract for purchase of a unit from a declarant,;
(ii)(B) if a declarant fails to provide a public offering statement to a purchaser before conveying a unit, that purchaser may recover from the declarant [10] percent of the sales price of the unit plus [10] percent of the share, proportionate to histhe purchaser’s common expense liability, of any indebtedness of the association secured by security interests encumbering the common interest community,; and
(iii)(C) if a purchaser receives the public offering statement more than 15 days before signing a contract, he cannot the purchaser may not cancel the contract;
(12) a statement of any unsatisfied judgments or pending suits against the association, and the status of any pending suits material to the common interest community of which a declarant has actual knowledge;
(13) a statement that any deposit made in connection with the purchase of a unit will be held in an escrow account until closing and will be returned to the purchaser if the purchaser cancels the contract pursuant to Section 4-108, together with the name and address of the escrow agent;
(14) any restraints on alienation of any portion of the common interest community and any restrictions:
(i)(A) on use, occupancy, and alienation of the units,; and
(ii)(B) on the amount for which a unit may be sold or on the amount that may be received by a unit owner on sale, condemnation, or casualty loss to the unit or to the common interest community, or on termination of the common interest community;
(15) a description of the insurance coverage provided for the benefit of unit owners;
(16) any current or expected fees or charges to be paid by unit owners for the use of the common elements and other facilities related to the common interest community;
(17) the extent to which financial arrangements have been provided for completion of all improvements that the declarant is obligated to build pursuant to Section 4-119 (Declarant's Obligation to Complete and Restore);
(18) a brief narrative description of any zoning and other land use requirements affecting the common interest community;
(19) all unusual and material circumstances, features, and characteristics of the common interest community and the units; and
(20) in a cooperative, (i) a statement whether the unit owners will be entitled, for federal, state, and local income tax purposes, to a pass-through of deductions for payments made by the association for real estate taxes and interest paid the holder of a security interest encumbering the cooperative, and (ii) a statement as to the effect on every unit owner if the association fails to pay real estate taxes or payments due the holder of a security interest encumbering the cooperative.; and
(21) a description of any agreements binding an association described in Section 1-209.
(b) If a common interest community composed of not more than 12 units is not subject to any development rights and no power is reserved to a declarant to make the common interest community part of a larger common interest community, group of common interest communities, or other real estate, a public offering statement may but need not include the information otherwise required by paragraphs (9), (10), (15), (16), (17), (18), and (19) of subsection (a) and the narrative descriptions of documents required by subsection (a)(4).
(c) A declarant promptly shall amend the public offering statement to report any material change in the information required by this section.
SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO DEVELOPMENT RIGHTS. If the declaration provides that a common interest community is subject to any development rights, the public offering statement must disclose, in addition to the information required by Section 4-103:
(1) the maximum number of units, and the maximum number of units per acre, that may be created;
(2) a statement of how many or what percentage of the units that may be created will be restricted exclusively to residential use, or a statement that no representations are made regarding use restrictions;
(3) if any of the units that may be built within real estate subject to development rights are not to be restricted exclusively to residential use, a statement, with respect to each portion of that real estate, of the maximum percentage of the real estate areas, and the maximum percentage of the floor areas of all units that may be created therein, that are not restricted exclusively to residential use;
(4) a brief narrative description of any development rights reserved by a declarant and of any conditions relating to or limitations upon the exercise of development rights;
(5) a statement of the maximum extent to which each unit's allocated interests may be changed by the exercise of any development right described in paragraph (3);
(6) a statement of the extent to which any buildings or other improvements that may be erected pursuant to any development right in any part of the common interest community will be compatible with existing buildings and improvements in the common interest community in terms of architectural style, quality of construction, and size, or a statement that no assurances are made in those regards;
(7) general descriptions of all other improvements that may be made and limited common elements that may be created within any part of the common interest community pursuant to any development right reserved by the declarant, or a statement that no assurances are made in that regard;
(8) a statement of any limitations as to the locations of any building or other improvement that may be made within any part of the common interest community pursuant to any development right reserved by the declarant, or a statement that no assurances are made in that regard;
(9) a statement that any limited common elements created pursuant to any development right reserved by the declarant will be of the same general types and sizes as the limited common elements within other parts of the common interest community, or a statement of the types and sizes planned, or a statement that no assurances are made in that regard;
(10) a statement that the proportion of limited common elements to units created pursuant to any development right reserved by the declarant will be approximately equal to the proportion existing within other parts of the common interest community, or a statement of any other assurances in that regard, or a statement that no assurances are made in that regard;
(11) a statement that all restrictions in the declaration affecting use, occupancy, and alienation of units will apply to any units created pursuant to any development right reserved by the declarant, or a statement of any differentiations that may be made as to those units, or a statement that no assurances are made in that regard; and
(12) a statement of the extent to which any assurances made pursuant to this section apply or do not apply in the event that any development right is not exercised by the declarant.
SECTION 4-105. SAME; TIME SHARES. If the declaration provides that ownership or occupancy of any units, is or may be in time shares, the public offering statement shall disclose, in addition to the information required by Section 4-103:
(1) the number and identity of units in which time shares may be created;
(2) the total number of time shares that may be created;
(3) the minimum duration of any time shares that may be created; and
(4) the extent to which the creation of time shares will or may affect the enforceability of the association's lien for assessments provided in Section 3-116.
SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES CONTAINING CONVERSION BUILDINGS.
(a) The public offering statement of a common interest community containing any conversion building must contain, in addition to the information required by Section 4-103:
(1) a statement by the declarant, based on a report prepared by an independent [registered] architect or engineer, describing the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the building;
(2) a statement by the declarant of the expected useful life of each item reported on in paragraph (1) or a statement that no representations are made in that regard; and
(3) a list of any outstanding notices of uncured violations of building code or other municipal regulations, together with the estimated cost of curing those violations.
(b) This section applies only to buildings containing units that may be occupied for residential use.
SECTION 4-107. SAME; COMMON INTEREST COMMUNITY SECURITIES. If an interest in a common interest community is currently registered with the Securities and Exchange Commission of the United States, a declarant satisfies all requirements relating to the preparation of a public offering statement of this [act] if he the declarant delivers to the purchaser [and files with the agency] a copy of the public offering statement filed with the Securities and Exchange Commission. [An interest in a common interest community is not a security under the provisions of [insert appropriate state securities regulation statutes].]
SECTION 4-108. PURCHASER'S RIGHT TO CANCEL.
(a) A person required to deliver a public offering statement pursuant to Section 4-102(c) shall provide a purchaser with a copy of the public offering statement and all amendments thereto before conveyance of the unit, and not later than the date of any contract of sale. Unless a purchaser is given the public offering statement more than 15 days before execution of a contract for the purchase of a unit, the purchaser, before conveyance, may cancel the contract within 15 days after first receiving the public offering statement.
(b) If a purchaser elects to cancel a contract pursuant to subsection (a), he may do so by hand delivering notice thereof to the offeror or by mailing notice thereof by prepaid United States mail to the offeror or to his the offeror’s agent for service of process. Cancellation is without penalty, and all payments made by the purchaser before cancellation must be refunded promptly.
(c) If a person required to deliver a public offering statement pursuant to Section 4-102(c) fails to provide a purchaser to whom a unit is conveyed with that public offering statement and all amendments thereto as required by subsection (a), the purchaser, in addition to any rights to damages or other relief, is entitled to receive from that person an amount equal to [10] percent of the sale price of the unit, plus [10] percent of the share, proportionate to his the purchaser’s common expense liability, of any indebtedness of the association secured by security interests encumbering the common interest community.
SECTION 4-109. RESALES OF UNITS.
(a) Except in the case of a sale in which delivery of a public offering statement is required, or unless exempt under Section 4-101(b), a unit owner shall furnish to a purchaser before the earlier of conveyance or transfer of the right to possession of a unit, a copy of the declaration (, other than any plats and plans), the bylaws, the rules or regulations of the association, and a certificate containing:
(1) a statement disclosing the effect on the proposed disposition of any right of first refusal or other restraint on the free alienability of the unit held by the association;
(2) a statement setting forth the amount of the periodic common expense assessment and any unpaid common expense or special assessment currently due and payable from the selling unit owner;
(3) a statement of any other fees payable by the owner of the unit being sold;
(4) a statement of any capital expenditures approved by the association for the current and succeeding fiscal years;
(5) a statement of the amount of any reserves for capital expenditures and of any portions of those reserves designated by the association for any specified projects;
(6) the most recent regularly prepared balance sheet and income and expense statement, if any, of the association;
(7) the current operating budget of the association;
(8) a statement of any unsatisfied judgments against the association and the status of any pending suits in which the association is a defendant;
(9) a statement describing any insurance coverage provided for the benefit of unit
owners;
(10) a statement as to whether the executive board has given or received written notice that any existing uses, occupancies, alterations, or improvements in or to the unit or to the limited common elements assigned thereto violate any provision of the declaration;
(11) a statement as to whether the executive board has received written notice from a governmental agency of any violation of environmental, health, or building codes with respect to the unit, the limited common elements assigned thereto, or any other portion of the common interest community which has not been cured;
(12) a statement of the remaining term of any leasehold estate affecting the common interest community and the provisions governing any extension or renewal thereof;
(13) a statement of any restrictions in the declaration affecting the amount that may be received by a unit owner upon sale, condemnation, casualty loss to the unit or the common interest community, or termination of the common interest community;
(14) in a cooperative, an accountant's statement, if any was prepared, as to the deductibility for federal income tax purposes by the unit owner of real estate taxes and interest paid by the association;
(15) a statement describing any pending sale or encumbrance of common elements; and
(16) a statement disclosing the effect on the unit to be conveyed of any restrictions on the owner's right to use or occupy the unit or to lease the unit to another person.
(b) The association, within 10 days after a request by a unit owner, shall furnish a certificate containing the information necessary to enable the unit owner to comply with this section. A unit owner providing a certificate pursuant to subsection (a) is not liable to the purchaser for any erroneous information provided by the association and included in the certificate.
(c) A purchaser is not liable for any unpaid assessment or fee greater than the amount set forth in the certificate prepared by the association. A unit owner is not liable to a purchaser for the failure or delay of the association to provide the certificate in a timely manner, but the purchase contract is voidable by the purchaser until the certificate has been provided and for [five] days thereafter or until conveyance, whichever first occurs.
SECTION 4-110. ESCROW OF DEPOSITS. Any deposit made in connection with the purchase or reservation of a unit from a person required to deliver a public offering statement pursuant to Section 4-102(c) must be placed in escrow and held either in this state or in the state where the unit is located in an account designated solely for that purpose by [a licensed title insurance company] [an attorney] [a licensed real estate broker] [an independent bonded escrow company or] an institution whose accounts are insured by a governmental agency or instrumentality until:
(i)(1) delivered to the declarant at closing;
(ii)(2) delivered to the declarant because of the purchaser's default under a contract to purchase the unit; or
(iii)(3) refunded to the purchaser.
SECTION 4-111. RELEASE OF LIENS.
(a) In the case of a sale of a unit where delivery of a public offering statement is required pursuant to Section 4-102(c), a seller:
(1) before conveying a unit, shall record or furnish to the purchaser releases of all liens, except liens on real estate that a declarant has the right to withdraw from the common interest community, that the purchaser does not expressly agree to take subject to or assume and that encumber:
(i)(A) in a condominium, that unit and its common element interest,; and
(ii)(B) in a cooperative or planned community, that unit and any limited common elements assigned thereto,; or
(2) shall provide a surety bond or substitute collateral for or insurance against the lien as provided for liens on real estate in [insert appropriate references to general state law or Sections 5-211 and 5-212 of the State Uniform Simplification of Land Transfers Act].
(b) Before conveying real estate to the association, the declarant shall have that real estate released from:
(1) all liens the foreclosure of which would deprive unit owners of any right of access to or easement of support of their units,; and
(2) all other liens on that real estate unless the public offering statement describes certain real estate that may be conveyed subject to liens in specified amounts.
SECTION 4-112. CONVERSION BUILDINGS.
(a) A declarant of a common interest community containing conversion buildings, and any dealer who intends to offer units in such a common interest community, shall give each of the residential tenants and any residential subtenant in possession of a portion of a conversion building notice of the conversion and provide those persons with the public offering statement no later than 120 days before the tenants and any subtenant in possession are required to vacate. The notice must set forth generally the rights of tenants and subtenants under this section and must be hand delivered to the unit or mailed by prepaid United States mail to the tenant and subtenant at the address of the unit or any other mailing address provided by a tenant. No tenant or subtenant may be required to vacate upon less than 120 days' notice, except by reason of nonpayment of rent, waste, or conduct that disturbs other tenants' peaceful enjoyment of the premises, and the terms of the tenancy may not be altered during that period. Failure to give notice as required by this section is a defense to an action for possession.
(b) For [60] days after delivery or mailing of the notice described in subsection (a), the person required to give the notice shall offer to convey each unit or proposed unit occupied for residential use to the tenant who leases that unit. If a tenant fails to purchase the unit during that [60]-day period, the offeror may not offer to dispose of an interest in that unit during the following [180] days at a price or on terms more favorable to the offeree than the price or terms offered to the tenant. This subsection does not apply to any unit in a conversion building if that unit will be restricted exclusively to non-residential use or the boundaries of the converted unit do not substantially conform to the dimensions of the residential unit before conversion.
(c) If a seller, in violation of subsection (b), conveys a unit to a purchaser for value who has no knowledge of the violation, the recordation of the deed conveying the unit or, in a cooperative, the conveyance of the unit, extinguishes any right a tenant may have under subsection (b) to purchase that unit if the deed states that the seller has complied with subsection (b), but the conveyance does not affect the right of a tenant to recover damages from the seller for a violation of subsection (b).
(d) If a notice of conversion specifies a date by which a unit or proposed unit must be vacated and otherwise complies with the provisions of [insert appropriate state summary process statute], the notice also constitutes a notice to vacate specified by that statute.
(e) Nothing in this section permits termination of a lease by a declarant in violation of its terms.
SECTION 4-113. EXPRESS WARRANTIES OF QUALITY.
(a) Express warranties made by any seller a declarant 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 unless the model or description clearly discloses that it is only proposed or is subject to change;
(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 “warranty” or “guarantee,” 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.
(c) Any conveyance of a unit transfers to the purchaser all express warranties of quality made by previous sellers. the declarant.
[10-05 COMMENTS] - Law of Principal and Agent apply
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, the declarant or dealer 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 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 “as is,” “with 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) 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)(B) 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.
(b) Parties to a dispute arising under this [act], the declaration, or the bylaws may agree to resolve the dispute by any form of binding or nonbinding alternative dispute resolution, but:
(1) a declarant may agree with the association to do so only after the period of declarant control passes has expired unless the agreement is made with an independent committee of the executive board elected pursuant to Section 4-116(d); and
(2) an agreement to submit to any form of binding alternative dispute resolution must be in a writing signed by the parties.New Comment
The language of sub-section (a) is intentionally broad, and emphasizes the traditional authority of a court in equity to fashion a remedy suited to the circumstances of the case. Importantly, the provisions of this section would apply with equal force to a violation of either this Act or the declaration or by-laws by “any person” besides the declarant – including, for example, the association in its dealings with unit owners, a property manager or unit owners whose own behavior violates those same laws or instruments.
In appropriate cases involving association or executive board activities, the court might grant relief in the form of requiring new elections, removal of officers from office, and orders requiring offending parties to make the association whole for improperly expended funds. These examples are not intended to exhaust the traditional authority of a judge to grant “appropriate relief”, and that authority is emphasized by the specific grant of discretion to authorize punitive damages or attorneys fees, as the circumstances warrant.
[10-06 COMMENT] = A civil action may lie, in an appropriate case, for failure of the executive board to comply with the “open meeting” requirement of §3-108.
Add Comment on Private Enforcement.
SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL. No promotional material may be displayed or delivered to prospective purchasers which describes or portrays an improvement that is not in existence unless the description or portrayal of the improvement in the promotional material is conspicuously labeled or identified either as “MUST BE BUILT” or as “NEED NOT BE BUILT.”
SECTION 4-119. DECLARANT'S OBLIGATION TO COMPLETE AND RESTORE.
(a) Except for improvements labeled “NEED NOT BE BUILT,” the declarant shall complete all improvements depicted on any site plan or other graphic representation, including any plats or plans prepared pursuant to Section 2-109, whether or not that site plan or other graphic representation is contained in the public offering statement or in any promotional material distributed by or for the declarant.
(b) The declarant is subject to liability for the prompt repair and restoration, to a condition compatible with the remainder of the common interest community, of any portion of the common interest community affected by the exercise of rights reserved pursuant to or created by Section 2-110, 2-111, 2-112, 2-113, 2-115, or 2-116.
SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS. In the case of a sale of a unit in which delivery of a public offering statement is required, a contract of sale may be executed, but no interest in that unit may be conveyed, until the declaration is recorded and the unit is substantially completed, as evidenced by a recorded certificate of substantial completion executed by an independent [registered] architect, surveyor, or engineer, or by issuance of a certificate of occupancy authorized by law.