Comment

1. The first clause of this section permits the defined terms used in the Act to be defined differently in the declaration and bylaws. Regardless of how terms are used in those documents, however, terms have an unvarying meaning in the Act, and any restricted practice which depends on the definition of a term is not affected by a changed term in the documents.

Example: A declarant might vary the definition of “unit owner” in the declaration to exclude himself in an attempt to avoid assessments for units which he owns. The attempt would be futile, since the Act defines a declarant who owns a unit as a unit owner and defines the liabilities of a unit owner.

To emphasize this outcome, the introductory language to Section 1-103 was amended in 2008 to delete the phrase "In the declaration and bylaws, unless specifically provided otherwise or the context otherwise requires, and...," leaving only the introductory words "In this Act". These words are deleted simply as surplus statutory text, without an intent to change the effect of the statute. The drafter of a declaration or bylaws is always entitled to use whatever words in lieu of defined terms as the drafter chooses, but this Act will override such a usage when a substantive requirement in this Act is avoided in a declaration or in bylaws.

2. The definition of “Affiliate of a declarant” (Section 1-103(1)) is similar to the definition of 12 U.S.C. Section 1730a, which prescribes the authority of the Federal Savings and Loan Insurance Corporation to regulate the activities of savings and loan holding companies, and in 15 U.S.C. Section 78c(a)(18), which defines persons deemed to be associated with a broker or dealer for purposes of the federal securities laws.

The objective standards of the definition permit a ready determination of the existence of affiliate status to be made. Unlike 12 U.S.C. Section 1730a(a)(2)(B), no power is vested in an agency to subjectively determine the existence of “control” necessary to establish affiliate status. Thus, affiliate status does not exist under the Act unless these objective criteria are met.

As a result of this definition, the association may, in some instances, be a declarant. Under the definition of “Affiliate of a declarant,” it is possible that 20% of the unit owners may “act in concert” to control the activities of the association. While the mere casting of these votes at an association meeting would not normally constitute “concerted action” by those unit owners, other acts by individual unit owners might constitute such concerted action. The consequences of that result are determined under Section 3-104.

3. Definition (2), “Allocated interests,” refers to all of the interests which this Act requires the declaration to allocate to the common interest communities.

“Allocated interests” is defined differently with respect to the three forms of Ownership.

First, the important interests, common to all projects, are the proportionate shares of common expense liabilities, and votes in the association, allocated to each unit. In either a cooperative, condominium, or planned community, every unit in the project must have a share of the votes and common expense liabilities.

Second, because the common elements are “owned” by the association in a planned community or cooperative, in contrast to a condominium, there is no common element interest allocated to unit owners in a planned community or cooperative.

Third, in a cooperative, because unit owners have traditionally had an ownership interest in the cooperative corporation, either in the form of stock or a membership certificate, the Act continues to require allocation of an “ownership interest in the association” to each unit.

The common element or ownership interest has limited significance. One situation in which the common element interest allocation would be important, however, is the distribution of insurance proceeds following a loss where an entire condominium project is not repaired or replaced and insurance proceeds are distributed to unit owners. See Section 3-113(h). See also Section 2-118(j)(2).

1. Definition (4)(6), “Common elements” is bifurcated. The Act adopts the UCA and MRECA definition with respect to condominiums or cooperatives. However, the Act adopts UPCA’s definition with respect to planned communities.
2. Definitions (4)(6) and (31)(35), treating “Common elements” and “Units,” should be examined in light of Section 2-102, which specifies in detail how the differentiation between units and common elements is to be determined in any given common interest community to the extent that the declaration does not provide a different scheme. No exhaustive list of items comprising the common elements is necessary in this Act or in the declaration, as long as the boundaries between units and common elements can be ascertained with reasonable certainty. The common elements include by definition all of the real estate in the condominium or cooperative not designated as part of the units.
3. The 1994 amendment to the definition of common elements in Section 1-103(4) 1-103(6) addresses and clarifies a real estate arrangement found in some common interest planned communities – that is, easements or other forms of servitudes which benefit the community and which run either to the unit owners association or to all the unit owners in the association. Examples of such interests include access easements to a land locked parcel on which the community is located, easements for shared parking, etc. This easement, as any commonly held interest in real estate, is and should be a common element. In reciprocal easement communities, the easements may be the only common elements.
4. The drafters also seek to distinguish between real estate owned or leased by the unit owners association which is subject to the declaration, and similar real estate which is not subject to the declaration.

In a planned community, if that real estate is subject to the declaration – that is, it is “within the planned community” – it meets the definition of a common element. If that real estate is not within the planned community, title may be held by the association, but it is not a common element unless the declaration is amended in accordance with this Act to incorporate that real estate as part of the real estate subject to the declaration.

Most common interest communities are not likely to experience a need to acquire real estate in addition to the land originally submitted to the declaration. However, it is not difficult to envision cases where that result would be desirable to the unit owners – for example, to acquire additional parking areas or open space. There is no reason to either prohibit the association from securing this result, or to require the formalities of an amendment of the declaration to redefine the boundaries of the common interest community; this would typically require a two-thirds vote of the unit owners under Section 2-117(a).

This distinction will have practical consequences. For example, real estate which is not a common element may be taxed by the local assessor, unless exempt under other state law, notwithstanding the rule in Section 1-104 of the Act that the common elements may not be separately taxed. Further, non-common element real estate may be bought and sold by the association without the need to observe the requirements for conveying or encumbering common elements stated in Section 3-112.

In a condominium, fee title to the common elements is vested in the unit owners, not the unit owners association. Thus, in the condominium, all the real estate subject to the declaration, except the units, is a “portion of the common interest community” and therefore is a common element. Real estate which is not subject to the declaration is neither a unit nor a common element.

However, the desired substantive result discussed above is the same for all forms of common interest communities. Accordingly, the drafters contemplate that the condominium or cooperative association could also acquire title to real estate which is physically located outside the condominium or cooperative boundaries, in its own name, which would not automatically become a common element.

8. Definition (7) (9), “Common interest community,” is new to this Act. The term creates one comprehensive definition of those interests governed by the Act. This generic definition, derived from the definition of planned community in UPCA, is used through the Act to refer collectively to the three particular forms of common interest community: condominiums, cooperatives, and planned communities.

Each of those forms in turn, has a separate definition. “Condominium” and “cooperative” are defined precisely as they are in the Acts which apply to those forms. The definition of “planned community,” however, is new, and, under UCIOA, becomes a residual concept. Any ownership arrangement which is a common interest community but which does not meet the definition of either a condominium or cooperative, would be a planned community. Thus, there are but three forms of common interest community: (1) condominiums; (2) cooperatives; and (3) everything else.

The 2008 amendments to the definition of "common interest community" accomplish two main goals.

First, they make clear that the mutual obligations of unit owners - obligations which arise “by virtue of” that ownership - to pay a share of the project's expenses may include a share of services provided to unit owners or other expenses provided either to the common elements or the units. Second, the amended definition makes clear that several common real estate arrangements described in new sections 1-209 and 1-210 are excluded from the definition. Section 1-209 thus resolves the question of whether cost-sharing arrangements between an assocation and either another assocation or a 3d party require creation of a new association [they do not]. New section 1-210 also confirms that a variety of simple, traditional arrangements, such as a shared driveway, party wall, or shared well, which some have argued would technically satisfy the definition of “common interest community” in the Act as originally drafted, are not subject to the Act unless the drafter chooses that result.

1. Definition (8) (10), “Condominium” makes clear that, unless the real estate title to the common elements is vested in the owners of the units, the project is not a condominium. Thus, for example, if title to the common elements is in an association in which each unit owner is a member, the project is not a condominium, but a planned community.
2. Definition (9) (11), “Conversion building,” is important because of the protection which the Act provides in Section 4-112 for tenants of buildings which are being converted into a common interest community. The definition distinguishes between buildings which have never been occupied by any person before the time that the building is submitted to the cooperative form of ownership, and buildings, whether new or old, which have been previously occupied by tenants. In the former case, because there have been no tenants in the building, the building would not be a conversion building, and no protection of tenants is necessary.
3. Definition (10) (12), “Cooperative,” makes clear that the Act applies only to cooperatives which constitute common interest communities. The common interest community real estate, moreover, must be owned by the association, which, under Section 3-101, may be organized as a profit or non-profit corporation, trust, trustee, partnership, or depending on the option adopted in a particular State, as an unincorporated association. In requiring, as does Section 3-101, that the association consist exclusively of “unit owners” – defined in MRECA as “proprietary lessees” – the definition tracks the usual requirements of cooperative instruments, which exclude from association membership persons who are not owners or proprietary lessees of the units.

The definition also recognizes the fundamental link between association membership and occupancy rights in providing that unit owners who are the members of the association are entitled to exclusive possession of their units under a proprietary lease – see Definition (24)

(26) – by virtue of their ownership interests in the assets of the association.

The ownership interest of a cooperative unit owner is a composite interest, which consists of the owner’s ownership interests in the association and his right to occupy a unit pursuant to a proprietary lease. This interest, since it includes the proprietary interest under a lease, may not, as a theoretical matter, exist until a proprietary lease has in fact been executed by the declarant for the units in the cooperative. The definition “unit” resolves this theoretical gap by providing that the declarant is treated as the owner of cooperative interests which have not yet been created.

12. Definition (11) (13), “Dealer,” is a newly defined term in UCIOA. It was not used in any of the three separate Acts. It replaces, in many sections, the words “person in the business of selling (either) real estate (or) cooperative interests for his own account.” Use of the term in UCIOA does not change the substantive results in any of the three Acts.

13. Definition (12) (14), “Declarant,” is designed to exclude persons who may be called upon to execute the declaration in order to ratify the creation of the common interest community, but who are not intended to be charged with the responsibilities imposed on all declarants by this Act if that is all they do. Examples of such persons include holders of pre-existing liens and, in the case of leasehold common interest communities, ground lessors. (Of course, such a person may become a declarant by subsequently succeeding to a Special declarant right.) Other persons similarly protected by the narrow wording of this definition include real estate brokers, because they do not offer to dispose of their own interest in a unit. Similarly, unit owners reselling their units are not declarants because these units were “previously disposed of” when originally conveyed.

If the association, itself, or in conjunction with another declarant, is offering units for sale to others, and if those units have not previously been sold or otherwise disposed of, then the association itself is a declarant.

Finally, a person who, while in control of the association, chooses not to exercise that control, is still a declarant.

The last bracketed clause in this definition must be deleted in any State which chooses not to enact Article 5 of the Act.

14. Definition (13) (15), “Declaration,” is defined as “any instruments the instrument, however denominated, that create a common interest community, including any amendments to those instruments the instrument.” Thus, the term would not only include the traditional condominium declaration with which most practitioners are familiar, or the declaration of covenants, conditions, and restrictions (CC & R’s) so common in planned unit developments. It would also include, for example, a series of deeds to units with common mutually beneficial restrictions, or to any other instruments which create the relationship which constitutes a common interest community. If those recorded instruments create that relationship, then those documents constitute a declaration and must contain, for new projects, the information required by Section 2-105.

The declaration of a cooperative does not include the proprietary leases of the individual units, although a sample of such a lease might be attached as an exhibit to the declaration.

Similarly, the definition of “declaration” of any common interest community does not refer to the bylaws of the association or the documents creating the association. Such documents do not “create” the common interest community, but merely regulate its use after creation. The bylaws may, but need not be, an exhibit to the declaration.

15. Definition (14) (16), “Development rights,” includes a panoply of sophisticated development techniques that have evolved over time throughout the United States and which have been expressly recognized and regulated in the case of condominiums, in an increasing number of jurisdictions, beginning with Virginia in 1974.

The concept of “development rights” lies at the heart of one of the principal goals of the Act, which is to maximize the flexibility available to a developer seeking to adjust the size and mix of a project to the demands of the marketplace, both before and after creation. The principal constraint on that flexibility is the obligation of disclosure, and its impact on marketing. Thus “development rights” include the rights to:

(a)

Increase the size or density of a project, either by adding real property to it, or by creating new units, common elements or limited common elements on either the original land or within the original buildings, or on any other land or buildings subsequently added;

(b)

Change the mix of units, common elements, and limited common elements, either by subdividing units, or by converting units into common elements or limited common elements; and

(c)

Reduce the size of a project by withdrawing real property – whether land, entire buildings, or particular units – from it.

As a matter of simple logic, there are few other things that could be done to a real property regime which are not include within the concept of development rights. This great flexibility, particularly when coupled with the broad definitions of “unit” and “real estate,” the power to create leasehold projects, and the right to subordinate unit mortgages to blanket mortgage on either the units or common elements, is an important element in the Act.

For example, a declarant may be building (or converting) a 50-unit building on Parcel A with the intention, if all goes well, to “expand” the common interest community by adding an additional building on Parcel B, containing additional units, as part of the same common interest community. If he reserves the right to do so, i.e., to “add real estate to a common interest community,” he has reserved a “development right.”

In certain cases, however, the declarant may desire, for a variety of reasons, to include both parcels in the common interest community from the outset, even though he may subsequently be obliged to withdraw all or part of one parcel. Assume, for example, that in the example just given the declarant intends to build an underground parking garage that will expand into both parcels. If the project is a success, his documentation will be simpler if both parcels were included in the common interest community from the beginning. If his hopes are not realized, however, and it becomes necessary to withdraw all or part of Parcel B from the common interest community and devote it to some other use, he may do so if he has reserved such a development right “to withdraw real estate from the common interest community.” The portion of the garage which extends into Parcel B may be left in the common interest community (separated from the remainder of Parcel B by a horizontal boundary), or the garage may be divided between Parcels A and B with appropriate cross-easement agreements.

The right “to create units, common elements, or limited common elements” has frequently been useful in the case of commercial or mixed use common interest communities, where the declarant needs to retain a high degree of flexibility to meet the space requirements of prospective purchasers who may not approach him until the common interest community has already been created. For example, an entire floor of a high-rise building may be intended for commercial buyers, but the declarant may not know in advance whether one purchaser will want to buy the whole floor as a single unit or whether several purchasers will want the floor divided into service units, separated by common element walls and served by a limited common element corridor. This development right is sometimes useful even in purely residential common interest communities, especially those designed to appeal to affluent buyers. Similarly, the development rights “to subdivide units or convert units into common elements” is most often of value in commercial common interest communities, but may be useful in certain kinds of residential common interest communities as well.

1. Definition (15) (17), “Dispose” or “Disposition,” includes voluntary transfers to purchasers of any interest in a unit, other than as security for an obligation. Consequently, the grant of a mortgage or other security interest is not a “disposition,” nor is any transfer of any interest to a person who is excluded from the definition of “Purchaser,” infra. However, the term includes more than conveyances and would, for example, cover contracts of sale.
2. Definition (18) (20), “Leasehold common interest community,” should be distinguished from land which is leased to a common interest community but not subjected to the common interest community regime. A leasehold common interest community means, by definition, real estate which has been subjected to the common interest community form of ownership. In such a case, units located on the leasehold real estate are typically leased for long terms. At the expiration of such a lease, the common interest community unit or the real estate underlying the unit would be removed from the common interest community if the lease were not exercised or renewed. On the other hand, real estate may not be subjected to common interest community ownership, but may be leased directly to the association or to one or more unit owners for a term of years.
3. In this Act, in contrast to UPCA, Definition (23) (25), “Planned Community,” is a residual concept. That is, any common interest community which fails to fall into the category of a condominium or a cooperative is, by definition, a planned community. The definition also indicates that a planned community may have a condominium or cooperative as a constituent element.
4. Definition (24) (26), “proprietary lease,” describes that instrument initially executed by a cooperative association with the purchaser of a unit, granting the right of exclusive occupancy of a unit. The term and its significance is more fully treated in the Comments to the definition of “Unit.”
5. Definition (25) (27), “Purchaser,” includes a person who acquires any interest in a unit, even as a tenant, if the lease including renewal options, entitles him to occupy the premises for more than 20 years. Excluded from the definition, however, are mortgagees, declarants, and dealers. Persons excluded from the definition of “purchaser” do not receive certain benefits under Article 4, such as the right to a public offering statement (Section 4-102(c)) and the right to rescind (Section 4-108).
6. Definition (26) (28), “Real estate,” is very broad, and is very similar to the definition of “real estate” in Section 1-201(16) of the Uniform Land Transactions Act.

Although often thought of in two-dimensional terms, real estate is a three-dimensional concept, and the third dimension is usually important in the condominium and planned community context. Where real estate is described in only two dimensions (length and width), it is correctly assumed that the property extends indefinitely above the earth’s surface and downwards to a point in the center of the planet. In most condominium and planned communities, however, as in so-called “air rights” projects, ownership does not extend “from the center of the earth to the heavens” because units are stacked on top of units or units and common elements are interstratified. In such cases, the upper and lower boundaries must be identified with the same precision as the other boundaries.

22. The definition of “residential purposes” includes “recreational purposes.” This common sense definition is used in order to avoid repeated use of a lengthier defined term, such as “residential or consumer owned recreational purposes.”

The Act contemplates that “recreational purposes” would be “consumer owned” recreational purposes commonly marketed for sale to individual owners – uses such as dock spaces for boats, campgrounds, airplane tie downs, etc. By including these kinds of uses within the definition, the Act intends to provide the same consumer protections which it offers to individual residential purchasers – persons who typically buy for their own use – as distinguished from commercial users. Thus, the definition would exclude commercial recreational facilities which are operated as a business or available to the public on a fee for use basis, such as movie theaters, athletic or country clubs, golf courses, and the like.

Further, the definition is not intended to override, and thus perhaps expand on, existing local zoning ordinances which permit only “residential” use.

However, by including these recreational purposes within the defined term “residential purposes,” no change in the plain and traditional meaning of the word “residential” is intended. Thus, the drafters recognize that owners of residential units – i.e., a unit which is designed for use as a residential dwelling – may hold those units for investment purposes, or that individual owners may occasionally or regularly rent their units on an individual or rental pool basis. This is a common practice, for example, with residential communities built near ski or ocean resort areas. Rental occupancy does not change the residential character of the common interest community, or the consumer protections that must be offered to purchasers.

1. Definition (28) (32), “Security interest,” encompasses any interest in real or personal property which secures payment or performance of an obligation. Thus, for example, regardless of whether or not the units in a cooperative are treated as real or personal property pursuant to Section 1-105(a), a lender’s interest in a unit securing the debt is a “security interest.” This definition is adapted from Sections 3-102 and 3-103 of the Uniform Land Transactions Act.
2. Definition (29) (33), “Special declarant rights,” seeks to isolate those rights reserved for the benefit of a declarant which are unique to the declarant and not shared in common with other unit owners. The list, while short, encompasses virtually every significant right which a declarant might seek in the course of creating or expanding a common interest community.

Any person who possesses a special declarant right would be a “declarant,” including any who succeed under Section 3-104 to any of those rights. Thus, the concept of special declarant rights triggers the imposition of obligations on those who possess the rights. Under Section 3-104, those obligations vary significantly, depending upon the particular special declarant rights possessed by a particular declarant. These circumstances are described more fully in the Comments to Section 3-104.

The 2008 amendment created three new "special declarant rights" and, like all special declarant rights, they are rights which exist only to the extent they are "reserved for the benefit of a declarant" in the declaration. See § 2-105(a)(8). The most unusual of the 3 is the right to control what is commonly called a design review committee. Under the amended Act, no such committee may exist unless properly authorized in the declaration. See § 2-105(a)(14).

In contrast, the new special declarant rights to attend unit owner meetings and to access records of the association resolve questions that have arisen in practice and that track the reasonable expectations of the parties.

25. Definition (30) (34), “Time share,” is based on Section 1-102(14) and (18) of the Model Real Estate Time-Share Act.

When this Act was first promulgated in 1982, such concepts as “time share” and “interval ownership” were relatively new; they were neither fully developed nor generally accepted in the marketplace. Moreover, the nature of the relationship between the various forms of common interest ownership and time fractionalization of real estate was not at all clearly understood.

In these circumstances, the Conference adopted a “minimalist” approach in dealing with the concept of time sharing. To that end, the Act simply defined the term “time share” in Section 1-103(24) (34) and then required disclosure of any time share provisions in the common interest community; see Section 4-105. Otherwise, this Act did not attempt to regulate time sharing or any of the other forms of interval ownership. That task was left to the Model Real Estate Time Sharing Act.

Experience over the intervening dozen years suggests that this minimalist approach remains appropriate. Without a doubt, the evolving field of interval ownership of both personal and real property poses important issues of public policy. However, this Act does not regulate those substantive issues. Instead, whether or not a particular interval ownership project must comply with this Act depends on whether or not the ownership arrangement meets the definition of a “common interest community.” If it does, then the Act would apply in the same degree as it would to any common interest community.

26. Definition (31) (35), “Unit,” describes a tangible, physical part of the project rather than a right in, or claim to, a tangible physical part of the property. Therefore, for example, a “time-share” arrangement in which a unit is sold to 12 different persons, each of whom has the right to occupy the unit for one month does not create 12 new units – there are, rather, 12 owners of the unit. (Under the section on voting (Section 2-110), a majority of the time-share owners of a unit are entitled to cast the vote assigned to that unit.)

Similarly, in a cooperative, the unit remains a physical part of the real estate; its legal title is vested in the association while the right to possession is held by the unit owner under a proprietary lease. The definition, however, makes it clear that the associations’s interest in the unit is unaffected by transfers of interests in that unit to or by unit owners. The unit owner’s interest is a composite interest, which consists of an ownership interest in the association, coupled with the right to occupy a unit pursuant to a lease.

The definition makes clear that in the case of a cooperative, if a unit owned by a unit owner is sold, conveyed, or encumbered or otherwise transferred by the unit owner, the interest in such unit which is affected is the right to possession of that unit under a proprietary lease, coupled with the allocated interests of that unit. In recognizing the relationship between the physical “unit” and the nature of a unit owner’s interest in that unit, and by describing that relationship concisely in the definition, the merged Act was able to delete the definition of “cooperative interest” as it was used in MRECA.

27. Definition (32) (36), “Unit owner,” contemplates that a seller under a land installment contract would remain the unit owner until the contract is fulfilled. As between the seller and the buyer, various rights and responsibilities must be assigned to the buyer by the contract itself, but the association would continue to look to the seller (for payment of any arrears in common expense assessments, for example,) as long as the seller holds title.

The definition makes it clear that a declarant, so long as he owns units in a common interest community, is the unit owner of any unit created by the declaration, and is therefore subject to all of the obligations imposed on other unit owners, including the obligation to pay common expense assessments. This provision is designed to resolve ambiguities on this point which have arisen under several existing state statutes.

In the special case of a cooperative, the declarant is treated as the owner of a unit or “potential unit” to which allocated interests have been allocated, until that unit is conveyed to another.

28. The 2008 amendments create five new definitions: “Assessment” [Section 1-103(3)]; “Bylaws”, [Section 1-103(5)], “Common expense liability” [Section 1-103 (7)], “Record” [Section 1-103(29)] and “Rule” [Section 1-103(31)].

By defining the term “assessment” as the “sum attributable to each unit and due to the association pursuant to Section 3–115", the Act ties the term directly to the common expense liability of each unit, and to those sections of the Act where each unit’s common expense liability is calculated. It also distinguishes each unit’s assessment from the other sums that may be due from a unit owner - such as the sums described in Section 3-116(a) - which are not a part of the association's budget and therefore are not included in that unit's assessment but which “are enforceable in the same manner as unpaid assessments.”

The definition of “bylaws” reflects the common functional meaning of that term, regardless of what different phrase might be used in the declaration to describe this instrument. The definition makes clear that: (i) the bylaws is the instrument that “contains the procedures for conduct of the affairs of the association” - as distinguished from the substantive role played by the declaration; (ii) the functional role of the bylaws remains consistent under the Act even if the association is organized as, for example, a limited liability company where the term “bylaws” is not used in the statute authorizing such entities and the instrument serving that function is identified as an “operating agreement”; and (iii) amendments to the bylaws are incorporated into the amended document for purposes of this Act.

However, regardless of the name of the instrument used in the declaration, this Act mandates the minimum contents of the bylaws; see Section 3-106. Further, 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 overridden by this Act; see Section 1-108.

Third, “common expense liability” is defined primarily by reference to the substantive section of the Act where the term is used. The term appears in earlier versions of the Act without being defined.

The new definition of “Record” in Section 1-103 (29) makes clear that the definition applies only when the term is used as a noun. The definition derives directly from federal and statute statutes governing electronic signatures; the term is commonly substituted for the word “writing” or “written” in other law.

The new definition of “Rule” in Section 1-103 (31) focuses on the activities to which they apply. That is, rules either “govern the conduct of persons” or they “govern...the use or appearance of property.” In either case, the policy of the Act as expressed in Section 3-120 is that such restrictions ought to be the subject by unit owner review before adoption, and they must in all instances be reasonable; see Section 3-120(h).

In contrast, Section 3-120(g) states that the “association’s internal business operating procedures need not be adopted as rules”. This distinction permits the association’s executive board or its management company to adopt or amend at will the wide variety of internal management procedures that govern the association's daily business activities - as opposed to the conduct of persons or the use and appearance of property. It may be helpful to provide a few examples of what the drafters contemplate might be typical internal business procedures that need not be adopted as rules:

• The association wishes to solicit bids from potential contractors for a particular project or service and adopts a procedure for soliciting, reviewing and accepting those bids.
• The board approves a management contract with an outside management company. The management contract contains various 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. NO VARIATION BY AGREEMENT. Except as expressly

provided in this [act], the effect of its provisions may not be varied by agreement, and rights

conferred by it may not be waived. Except as otherwise 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.

Comment

1. The Act is generally designed to provide great flexibility in the creation of common

interest communities and, to that end, the Act permits the parties to vary many of its provisions. In many instances, however, provisions of the Act may not be varied, because of the need to protect purchasers, lenders, and declarants. Accordingly, this section adopts the approach of prohibiting variation by agreement except in those cases where it is expressly permitted by the terms of the Act itself.

1. One of the consumer protections in this Act is the requirement for consent by specified percentages of unit owners to particular actions or changes in the declaration. In order to prevent declarants from evading these requirements by obtaining powers of attorney from all unit owners, or in some other fashion controlling the votes of unit owners, this section forbids the use by a declarant of any device to evade the limitation or prohibition of the Act or of the declaration.
2. The second sentence of the section is an important limitation upon the rights of a declarant. Today it is the practice in many jurisdictions, particularly those proscribing expansion of a condominium or planned community by statute, for a declarant to secure powers of attorney from all unit purchasers permitting the declarant unilaterally to expand the condominium or planned community by “unanimous consent” to include new units and to reallocate common element interests, common expense liability, and votes. With such powers of attorney, many declarants have purported to comply with the typical provision of “first generation” condominium statutes requiring unanimous consent for amendments of the declaration concerning such matters. The Act bars this practice.

4. The following sections permit variation:

Section 1-103 (Definitions). All definitions used in the declaration and bylaws may be varied in the declaration, but not in interpretation of the Act.

Section 1-105 (Separate Titles and Taxation). This section permits the declarant of a cooperative to determine whether unit owners’ interests are real or personal property.

Section 1-107 (Eminent Domain). The formulas for reallocation upon taking a part of a unit, and for allocation of proceeds attributable to limited common elements, may be varied.

Article 1, Part 2, Sections 1-202, 1-203, 1-205, 1-206, and 1-207, permit a variety of elections to declarants and unit owners with respect to applicability.

Section 2-102 (Unit Boundaries). The declaration may vary the distinctions as to what constitutes the units and common elements.

Section 2-105 (Contents of Declaration). A declarant may add any information he desires to the required content of the declaration.

Section 2-108 (Limited Common Elements). The Act permits reallocation of limited common elements unless prohibited by the declaration.

Section 2-109 (Plats and Plans). There is a presumption regarding horizontal boundaries of units, unless the declaration provides otherwise.

Section 2-111 (Alterations Within Units). Subject to the provisions of the declaration, unit owners may make alterations and improvements to units.

Section 2-112 (Relocation of Boundaries Between Adjoining Units). Subject to the provisions of the declaration, boundaries between adjoining units may be relocated by affected unit owners.

Section 2-113 (Subdivision of Units). If the declaration expressly so permits, a unit may be subdivided into two or more units.

Section 2-115 (Use for Sales Purposes). The declarant may maintain sales offices, management offices, and model units only if the declaration so provides. Unless the declaration provides otherwise, the declarant may maintain advertising on the common elements.

Section 2-116 (Easement to Facilitate Exercise of Special Declarant Rights). Subject to the provisions of the declaration, the declarant and unit owners have easements for the purposes described.

Section 2-117 (Amendment of Declaration). The declaration of a non-residential common interest community may specify less than a two-thirds vote to amend the declaration. Any declaration may require a larger majority.

Section 2-118 (Termination). The declaration may specify a majority larger than 80 percent to terminate and, in a non-residential common interest community, a smaller majority. The declarant may require that the units be sold following termination even though none of them have horizontal boundaries.

In a cooperative, upon termination, the declaration may specify that association creditors have priority over the rights of unit owners, and their creditors.

Section 2-119 (Rights of Secured Lenders). The declaration may require lender approval of specified actions of unit owners or the association.

Section 2-120 (Master Associations). The declaration may provide for some of the powers of the Executive Board to be exercised by a master association.

Section 2-122 (Addition of Unspecified Real Estate). The declaration of a planned community may grant a declarant the right to add additional real estate to the project without stating the location of that real estate in the original declaration.

Section 3-102 (Powers of the Association). The declaration may limit the right of the association to exercise any of the listed powers, except in a manner which discriminates in favor of a declarant. The declaration may authorize the association to assign its rights to future income.

Section 3-103 (Executive Board Members and Officers). Except as limited by the declaration or bylaws, the Executive Board may act for the association.

Section 3-106 (Bylaws). Subject to the provisions of the declaration, the bylaws may contain any matter in addition to that required by the Act.

Section 3-107 (Upkeep of the Common Interest Community). Except to the extent otherwise provided by the declaration, maintenance responsibilities are set forth in this section, and income from real estate subject to development rights inures to the declarant.

Section 3-108 (Meetings). The bylaws may provide for special meetings at the call of less than 20 percent of the Executive Board or the unit owners.

Section 3-109 (Quorums). This section permits statutory quorum requirements to be varied by the bylaws.

Section 3-110 (Voting; Proxies). A majority in interest of the multiple owners of a single unit determine how that units’ vote is to be cast unless the declaration provides otherwise. The declaration may require that lessees vote on specified matters.

Section 3-112 (Conveyance or Encumbrance of Common Elements). The declaration may vary the percentages of unit owners whose approval is required to convey or encumber common elements.

The declaration may also provide that a conveyance or encumbrance of common elements defeats prior encumbrances on those common elements.

Section 3-113 (Insurance). The declaration may vary the provisions of this section in non-residential common interest communities, and may require additional insurance in any community.

Section 3-114 (Surplus Funds). Unless otherwise provided in the declaration, surplus funds are paid or credited to unit owners in proportion to their common expense liabilities.

Section 3-115 (Assessments for Common Expenses). To the extent provided in the declaration, common expenses for limited common elements must be assessed against the units to which they are assigned, common expenses benefiting fewer than all the units must be assessed only against the units benefitted, insurance costs must be assessed in proportion to risk, and utility costs must be assessed in proportion to usage.

Section 3-116 (Lien for Assessment). Unless the declaration provides otherwise, fines, late charges, and other fees are treated as assessments for lien purposes.

Section 4-101 (Applicability; Waiver). All of Article 4 is modifiable or waivable by agreement in a common interest community restricted to non-residential use.

Section 4-115 (Warranties). Implied warranties of quality may be excluded or modified by agreement.

Section 4-116 (Statute of Limitation on Warranties). The six-year limitation may be modified by agreement of the parties.

5. While freedom of contract is a principle of this Act, and variation by agreement is accordingly widely available, freedom of contract does not extend so far as to permit parties to disclaim obligations of good faith, see Section 1-113, or to enter into contracts which are unconscionable when viewed as a whole, or which contain unconscionable terms. See Section 1-112. This section derives from Section 1-102(3) of the Uniform Commercial Code.

Comment

1. Subsection (a) of this section follows the MRECA provisions. The classification of the unit and its allocated interests as real property or as personal property is significant for purposes of such matters as tenure, sales, recordation, transfer taxes, property taxes, estate and inheritance taxes, testate and intestate succession, mortgage lending, the perfection, priority and enforcement of liens, and rights of redemption.

Subsection (a) resolves an important theoretical and practical issue which pervades the cooperative field: whether a unit owner in a cooperative holds an interest in real or in personal property. Subsection (a) permits the declarant to decide that issue for each cooperative on a project-by-project basis.

The issue arises from the fact that the unit owner’s interest in the cooperative typically has elements of both real and personal property. His interest includes both a beneficial interest in the association – either through stock ownership or membership – which is clearly a personal property interest, and a long term “proprietary” or ownership interest under a proprietary lease in an apartment – clearly an interest in real estate.

While this is in many ways a highly theoretical issue, it has many practical consequences. For example, if the unit owner’s interest is a real estate interest, then that interest – aside from the association’s interest – may be subject to real property taxes and conveyance taxes; the recording laws would apply to conveyance of those interests; and real estate foreclosure laws would apply to foreclosure of a lien against those interests. Moreover, a security interest in the unit owner’s stock or membership certificate would not be effective against the stock without a security instrument being recorded on the land records. In general, none of Article 9 of the Uniform Commercial Code would be applicable to that interest, and all of the conveyancing rules would apply.

On the other hand, if the interest is a personal property interest – the result required by this section in the absence of a provision in the declaration that the interest is real property – then all of Article 9 of the Uniform Commercial Code would apply to security interests in the unit, the real estate conveyancing rules would not apply, and the interest would be treated for all purposes as personal property.

1. This Act, of course, would apply in all respects regardless of the characterization of the unit owner’s interests. Thus, for example, recording to the declaration is required, whether or not the owner’s interest in a cooperative interest is real or personal property, because the cooperative itself is the real estate.
2. Whether an institutional lender may lawfully make loans on the unit owner’s interest may or may not depend on whether that interest is characterized as real or personal property. That issue is not affected by this Act, however, but by other state law which may permit loans to be made by certain institutional lenders only if secured by an interest in real estate.
3. If a unit owner’s interest is a real property interest, recordation of the proprietary lease in the land records is constructive notice of the unit owner’s rights. If the unit owner’s interest is a personal property interest, recordation of the lease in the land records would be ineffective as constructive notice of that interest, and Article 9 of the Uniform Commercial Code does not provide a mechanism for filing evidence of that ownership interest. It is likely, however, that holders of security interests in units which are personal property would adopt a procedure similar to that followed in Illinois with respect to land trusts, which have been held to be personal property in that State. Under Article 9 of the Uniform Commercial Code and Illinois common law, the secured party files notice of the lien and the lien is thereby perfected for five years, when it must be renewed.
4. Subsection (b) integrates the language of UCA and UPCA regarding condominiums and planned communities. A condominium or planned community may be created, by the recordation of a declaration, long before the first unit is conveyed. This happens frequently, for example, with existing rental apartment projects which are converted into either condominiums or planned communities. Subsection (d) spares the local taxing authorities from having to assess each unit separately until such time as the declarant begins conveying units, although separate assessment from the date the common interest community is created may be permitted under general state law, which permits or requires separate taxation of individual parcels of real estate. When separate tax assessments become mandatory under this section, the assessment for each unit must be based on the value of that individual unit, under whatever uniform assessment mechanism prevails in the State or locality. Importantly, no separate tax bill on the common elements is to be rendered to the association or the unit owners collectively, even though, in the context of planned communities, the common elements owned by the association might be subject to taxation as a separately owned parcel of real estate, in the absence of this provision. Any common element subject to development rights, however, must be separately assessed and taxed to the declarant, see subsection (c), in recognition of the independent economic value that those development rights have. This would be true even if the real estate subject to development rights is a part of the common interest community and lawfully “owned” by the unit owners in common, since the rights are in fact an asset of the declarant.
5. If there is any doubt in a particular State whether a unit occupied as a residential dwelling is entitled to treatment as any other residential single-family detached dwelling under the homestead status, this section should be modified to ensure that units are similarly treated.
6. Unlike the law of some States, this section imposes no limitations on the power of a jurisdiction to tax units based on the fair market value of the individual units, rather than on the project as a whole. In most jurisdictions, experience has shown that upon conversion of an apartment building to a common interest form of ownership, the fair market value of the units exceeds the fair market value of that building prior to conversion. Accordingly, a jurisdiction under this Act may impose real estate taxes on common interest community units which reflect the fair market value of those units in the same way that the jurisdiction taxes other forms of real estate.
7. Questions have arisen regarding the consequences of foreclosure of a tax lien on units or development rights in a common interest community.

Under one theory, because real estate taxes are liens on real estate which have priority over all subordinate interests, foreclosure of the real estate tax lien on a unit could result in partial termination of the common interest community, and thus remove the unit from the common interest community. This result would follow if the tax lien were treated under Section 2-118(l) as a “lien . . . against a portion of the real estate comprising the common interest community [which] has priority over the declaration . . . .”

Such a result, however, is inconsistent with the expectations of other unit owners in the complex. The appropriate result is that because, under this section, each parcel of real estate is a separate parcel for tax purposes, foreclosure of a tax lien on that parcel simply results in a sale or transfer of an interest in that parcel, as part of the common interest community, unless the parcel being foreclosed is withdrawable real estate.

1. It is also possible that a taxing authority may seek to foreclose on a declarant’s development rights. Foreclosure of real estate taxes levied against withdrawable real estate, just as in the case of a foreclosure by a voluntary lienholder, may result in removal of that real estate from the common interest community; see Section 2-118(k). However, foreclosure of real estate owned by the declarant which has not yet been added to the common interest community will have no effect on the common interest community unless the taxing authority also acquires the development right to add that real estate to the common interest community.
2. Under Section 3-104(c), of course, foreclosure of a tax lien for unpaid taxes levied against development rights would permit the taxing authority to take title to those development rights and exercise or transfer them as they could any other interest in real estate. However, development rights lapse pursuant to Section 2-110 if they are not exercised within the time limit established by the declaration. This result, implicit under the Act, is expressly the law in some States. See, e.g., Conn. Gen. Stat. Section 47-229(e). If development rights lapse when a tax lien against those rights exists under Section 1-105(c), then whether or not those development rights apply to common elements which have previously been added to the common interest community makes no difference; the municipal lien holder is in no different position than a lender who holds a security interest in those development rights. Accordingly, while the tax lien itself would not be enforceable against the land it would continue to be the obligation of the declarant, as provided in the last clause of this subsection.

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.

Comment

1. The purpose of this section is to resolve the relative roles of the state and local

communities in regulating the creation of common interest communities. The underlying concept is to make clear that the municipality has a legitimate interest in regulating the use of real estate, in accordance with long established zoning, building code, and similar practices, and that such practices continue to have equal applicability to common interest communities as they do to purely rental projects. With respect to forms of ownership, however, this Act, as a state enactment, preempts the field and accordingly, except as provided in the Act, the municipality may not regulate the form of ownership, as opposed to the use of that real estate.

1. Consistent with the concept described in Comment 1, subsection (a) prohibits discriminatory application of building codes against common interest communities by local law making authorities. Thus, if a building code imposes a requirement which cannot be met if property is owned as a common interest community but which would not be violated if all of the property constituting the common interest community were owned by a single owner, this section makes it unlawful to apply that requirement or restriction to the common interest community. For example, in the case of a high-rise apartment building, if a building code requirement imposing a minimum fire wall rating between apartments would not prevent a rental apartment building from being built, this Act would override any requirement that might impose a higher fire wall rating between apartments merely because the same building might be owned as a common interest community.
2. While subsection (a) prevents discrimination against all forms of common interest communities under building codes, subsection (b) does not prevent local law making authorities from using zoning, subdivision, and other real estate regulations to specifically regulate the planned community form of ownership, in ways different from rental project, or condominiums. This distinction simply recognizes the existing practice in some communities that permits a local zoning board, as a condition of granting a cluster housing zoning permit, to require the right of prior plan approval. However, such regulations may not be used to proscribe the condominium or cooperative form of ownership, or to discriminate against these two types of common interest communities. Accordingly, a community could not prevent a condominium conversion by applying setback requirements between apartments which would not apply if all the apartments were owned by a single owner, or by requiring more parking for condominiums than for rental apartments.
3. Subsection (c) makes clear that, except for the prohibition on discrimination against common interest communities under building codes, and except for the prohibition on the use of zoning, subdivision, and other real estate laws, ordinances, or regulations to ban or discriminate against cooperatives and condominiums, the Act has no effect on real estate or personal property laws. For example, a particular parcel of real estate submitted to the common interest community form of ownership might be of such size that all of the real estate is required to support a proposed density of units or to satisfy minimum setback requirements. Under this Act, part of the submitted real estate might be subject to a development right entitling the declarant to withdraw it from the common interest community, but the mere reservation of this right would not constitute a subdivision of the parcel into separate ownership. If a declarant or foreclosing lender at a later time sought to exercise the option to withdraw the real estate, however, withdrawal would constitute a subdivision and would be illegal if the effect of withdrawal would be to violate setback requirements, or to exceed the density of units permitted on the remaining parcel.

Comment

1. The provisions of this statute are not intended to supplant the usual rules of eminent domain but merely to supplement those rules in addressing the unique problems which eminent domain raises in the context of a common interest community. Nevertheless, because the law of eminent domain differs widely among the various States, the law of each State should be reviewed to ensure that the eminent domain code and this section are properly integrated. For example, subsection (a) uses the words “the award must include compensation to the unit owner.” This language, a change first made in MRECA, suggests that, under other state law, compensation for other interests may be required in an appropriate case and the section does not limit that result.
2. When a unit is taken or partially taken by eminent domain, this section provides for a recalculation of the allocated interests of all units.

Example 1: Suppose that all allocated interests in a nine-unit common interest community were originally allocated to the units on the basis of size. If eight of the units are all equal in size and one is twice as large as the others, the allocated interests would be 20% for the largest unit and 10% for each of the other eight units.

Suppose that one of the smaller units is removed from the common interest community by a condemning authority. Subsection (a) provides that the allocated interests would automatically shift, at the time of the taking, so that the larger unit would

%.9/1% while each of the small units would have 119/2have 22

Example 2: Suppose, in Example 1, that the condemnation only reduced the size of one of the smaller units by 50%, leaving the remaining half of the unit usable.

%91/5Subsection (b) provides that the allocated interests would automatically shift to 5

for the partially taken unit, 21other units. Note that the fact that the partially taken unit was reduced to half its former size does not mean that its allocated interests are only half as large as before the taking. Rather, that unit participates in the reallocation in proportion to its reduced size. That is

01

% for each of the91/01% for the largest unit, and 1091/

% rather than 5%.91/5why the partially taken units’ reallocated interests are 5

3. An important issue raised by this section is whether or not a governmental body acquiring a unit by eminent domain has a right to also take that unit’s allocated interests and thereby assume membership in the association by virtue of its power of eminent domain. While there is no question that a governmental body may acquire any real property by eminent domain, there is no case law on the question of whether or not the governmental body may take a unit as part of a common interest community or must take the unit and have the unit excluded from the common interest community.

Subsection (a) merely requires that the taking body compensate the unit owner for all of his unit and its allocated interests, whether or not any common elements are acquired. The Act also requires that the allocated interests are automatically reallocated upon taking to the remaining units unless the decree provides otherwise. Whether or not the decree may constitutionally provide otherwise in the case of a particular taking (for example, by allocating the allocated interests to the government) is an unanswered question.

4. In the circumstances of a taking of part of a unit, it is important to have some objective test by which to measure the portion of allocated interests to be reallocated. Subsection (b) sets forth a formula based on relative size, but permits the declaration to vary that formula to some other more appropriate formula in a particular circumstance. The right to vary the formula in the declaration is important, since it is clear that the formula set forth in the statute may in some instances result in gross inequities.

Example 1: Suppose in a commercial common interest community consisting of four units, each unit consists of a factory and parking lot, and the declaration provides that each unit’s common expense liability, including utilities, is equal. Suppose further that the area of the factory building and parking lot in unit number one are equal, and that ½ the parking lot is taken by eminent domain, leaving the factory and ½ the lot intact. Under the formula set out in the statute, unit number one’s common expense liability would be reduced even though its utilities might not be reduced at all, thus resulting in a windfall for the unit owner.

Example 2: Suppose that a common interest community contains ten units, each of which is allocated a 1/10 undivided interest in the association. Suppose further that a taking by eminent domain reduces the size of one of the units by 50%. In such case, the ownership interest of all the units will be reallocated so that the partially-taken unit has a 1/19 undivided interest in the common elements and the remaining nine units each has a 2/19 undivided interest in the common elements. Thus, the partially-taken unit has a common element interest equal to ½ of the common element interest allocated to each of the other units. Note that this is not equivalent to the partially-taken unit having a 5% undivided interest and the remaining nine units each having a 10% undivided interest.

5. Even before the amendment formally acknowledging the reallocation of percentages required by this section is recorded, the reallocation is deemed to have occurred simultaneously with the taking. This rule is necessary to avoid the hiatus that otherwise could occur between the taking and the reallocation of interests, votes, and liabilities.

Legislative Note – (11/07): The practice of the states may vary with respect to the documentation of eminent domain awards, and the word “decree” should therefore be considered for amendment as appropriate.

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 organization authorized by the law of this state [,and unincorporated

associations], the law of real property estate, 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].

Comment

1. This Act displaces existing law relating to common interest communities and other law only as stated by specific sections and by reasonable implication therefrom. Moreover, unless specifically displaced by this statute, common law rights are retained. The listing given in this section is merely an illustration, no listing could be exhaustive.
2. The bracketed language concerning unincorporated associations should be deleted if the enacting State requires incorporation of a unit owners’ association. See the parallel language contained in Section 3-101.

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.

Comment

This section derives from Section 1-104 of the Uniform Commercial Code.

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.

Comment

This Act should be construed in accordance with its underlying purpose of making the law uniform with respect to all forms of common interest communities, as well as the purposes stated in the Prefatory Note of simplifying, clarifying, and modernizing the law of common interest communities, promoting the interstate flow of funds to common interest communities, and protecting consumers, purchasers, and borrowers against common interest community practices which may cause unreasonable risk of loss to them. Accordingly, the test of each section should be read in light of the purpose and policy of the rule or principle in question, and also of the Act as a whole.

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.

Legislative Note: Include this section only if this state lacks a general severability statute or a decision by the highest court of this state stating a general rule of severability.

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 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.

Comment

This section is similar to Section 2-302 of the Uniform Commercial Code and Section 1-311 of the Uniform Land Transactions Act. The rationale and Comments provided in those sections are equally applicable to this section.

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.

Comment

This section sets forth a basic principle running throughout this Act: in transactions involving common interest communities, good faith is required in the performance and enforcement of all agreements and duties. Good faith, as sued in this Act, means observance of two standards: “honesty in fact,” and observance of reasonable standards of fair dealing. While the term is not defined, the term is derived from and used in the same manner as in Section 1-201 of the Uniform Simplification of Land Transfers Act, and Sections 2-103(i)(b) and 7-404 of the Uniform Commercial Code.

Comment

The 2008 deletion of subsection (b) in Section 1-114 does not substantively amend the Act, since the same concept is embedded in amended Section 4-117 of the Act.

Comment

1. The 1994 revision deleted the reference to Section 4-101(b)(7) to reflect the fact that another amendment deletes that section from the Act.
2. Subsection (c) requires recalculation of the Consumer Price Index if the Reference Base Index should be changed by the Department of Labor.

In 1987, the Bureau of Labor Statistics did in fact change the CPI for Urban and Clerical Workers, which used a 1967 base year, by adopting a rebasing factor. The new Index uses a base year of “1982-84 = 100.”

While the index referenced in this Uniform Act is now obsolete, the drafters declined to modify the Uniform Act to delete reference to the old index. As of mid-1993, all the States which had adopted a version of UCIOA incorporated this indexing section. There is no reason to suggest that those adoptions were in error or that they even require amendment, since the statute as drafted has a functioning and mandatory self-correction mechanism.

However, States which choose to adopt this Act after 1994 should revise subsection (a) – as Nevada did, for example – to refer to “1982-84 = 100,” rather than “1967 = 100.”

Subsection (c) of the Act requires an adopting State to revise the Reference Base Index when, as is now the case, the “revision of the index changes the Reference Base Index.” The rebasing factor for the 1967 Index furnished by the Bureau of Labor Statistics is 0.3357175. Applying that rebasing factor to the original December, 1979 Reference Base Index of 230 yields a Revised Reference Base Index of 77.215, or 77.

The December 1994 Index (using the 1982-84 = 100 Base) was 147.2. Accordingly, a recalculation of the $300 figure in Section 1-203 as of July 1, 1995 would be done as follows:

December 1979 Index = 77(1967 Reference Base Index of 230, multiplied by the rebasing factor and rounded to the nearest whole percent).

December 1994 Index = 147.0 (Using 1982-84 = 100 Index for the end of 1994, the year preceding 1995, rounded to the nearest whole percent).

Difference = 70.0

70 is 90.9% of the Reference Base Index, or more than a 10% increase. Thus, on July 1, 1995, the $300 amount specified in Section 1-203 would increase. Because the amount of increase “in excess of a multiple of 10% must be disregarded,” the dollar amount of $300 increases by 90%, or $270. Therefore, as of July 1, 1995 the triggering dollar amount would be $570, or $47.50 per month.

SECTION 1-116. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL

AND NATIONAL COMMERCE ACT. This [act] modifies, limits, and supersedes the federal

Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001, et seq.,

but does not modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or

authorize electronic delivery of any of the notices described in Section 103(b) of that act, 15

U.S.C. Section 7003(b).

Comment

In 2000, Congress enacted the "Electronic Signatures in Global and National Commerce Act", 106 PUB.L.NO. 229, 114 Stat. 464, 15 U.S.C. § 7001, et seq. (popularly known as “ESign”). E-Sign largely tracks the Uniform Electronic Transactions Act (UETA). Section 102 of E-Sign, entitled "Exemption to preemption", provides in pertinent part that:

(a)

A State statute, regulation, or other rule of law may modify, limit, or supersede the provisions of section 101 with respect to State law only if such statute, regulation, or rule of law–

(1)

constitutes an enactment or adoption of the Uniform Electronic Transactions Act as approved and recommended for enactment in all the States by the National Conference of Commissioners on Uniform State Laws in 1999" [with certain exceptions] or

(2)(A) specifies the alternative procedures or requirements for the use or acceptance (or both) of electronic records or electronic signatures to establish the legal effect, validity, or enforceability of contracts or other records, if [they meet certain criteria] and

(B)

if enacted or adopted after the date of the enactment of this Act, makes specific reference to this Act.

15 U.S.C. § 7002(a). The inclusion of this section is necessary to comply with the requirement that the act “make[] specific reference to this Act” pursuant to 15 U.S.C. § 7002(a)(2)(B) if the act contains a provision authorizing electronic records or signatures in place of writings or written signatures.

[PART] 2 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 made subject to this [act] by amendment of the declaration of the common interest community, regardless of when the amendment is adopted in this state to this [act] becomes effective.

Comment

1. The question of the extent to which a state statute should apply to particular common interest communities involves two major conceptual problems: (1) whether the statute should require or permit different results for common interest communities created before and after the statute takes effect; and (2) whether differences in the forms of ownership, and the history of their development, requires different levels of applicability to those various forms.

Two conflicting policies are posed when considering the applicability of this Act to “old” and “new” common interest communities in the enacting State. On the one hand, it is desirable, for reasons of uniformity, for the Act to apply to all common interest communities located in a particular State, regardless of whether the common interest community was created before or after adoption of the Act in that State. To the extent that different laws apply within the same State to different common interest communities, confusion results in the minds of both lenders and consumers. Moreover, because of the inadequacies and uncertainties of common interest communities created under prior law, if any, and because of the requirements placed on declarants and unit owners’ associations by this Act which might increase the costs of new common interest communities, different markets might tend to develop for common interest communities created before and after adoption of the Act.

On the other hand, to make all provisions of this Act automatically applicable to “old” common interest communities might violate the constitutional prohibition of impairment of contracts. In addition, aside from the constitutional issue, automatic applicability of the entire Act almost certainly would unduly alter the legitimate expectations of some present unit owners and declarants.

Accordingly, the philosophy of this part reflects a desire to maximize the uniform applicability of the Act to all common interest communities in the enacting State, while avoiding the difficulties raised by automatic application of the entire Act to preexisting common interest communities.

In carrying out this philosophy with respect to “new projects, the Act applies to all common interest communities “created” within the State after the Act’s effective date; at the same time, special limitations on that applicability are provided in the case of certain new cooperatives and planned communities in the following sections. This is the effect of the first sentence of the section. The second sentence makes clear that the provisions of old statutes expressly applicable to common interest communities do not apply to common interest communities created after the effective date of this Act.

“Creation” of a common interest community pursuant to this Act occurs upon recordation of a declaration pursuant to Section 2-101; however, the definition of “Common Interest Community” in Section 1-103(7) contemplates that de facto common interest communities may exist, if the nature of the ownership interest fits the definition, and the Act would apply to such a project. Any real estate project which includes individually owned units meeting the definition is therefore subject to the Act if created within the State after the Act’s effective date. No intent to subject the project to the Act is required, and an express intention to the contrary would be invalid and ineffective.

The reference in this section to “all present statutes expressly applicable to condominiums or horizontal property regimes” is intended to distinguish between a State’s condominium and other enabling statutes and those statutes which apply not only to common interest communities, but to other forms of real estate, such as taxation statutes or subdivision statutes. Thus, reference to the State’s condominium or horizontal property regime enabling statutes should be included here, while references to taxation, subdivision, or other statutes which are not restricted solely to condominiums should not be included.

2. The 1994 amendment makes clear that if an amendment to the Act is adopted after the Act is initially adopted in any State, the same body of law will thereafter apply to all common interest communities created under the Act or subjected to it. This is the corporate model, and avoids perpetuating the retroactivity issue which this Act addressed initially in Sections 1-204, 1-205, and 1-206. Note that the amendment would not automatically apply to common interest communities created before the original effective date of the Act even though limited provisions of the Act do apply retroactively. Instead, an “old” project would have to be “subjected” to the Act by vote of its unit owners under Section 1-206.

Since the Act permits the declaration to vary the default results under the Act, the drafters also contemplate that, in those cases where the pre-existing declaration conflicts with the new amendment to the Act, the old declaration will prevail, unless the owners vote to amend the declaration to change that result.

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) of this [act] unless the declaration provides that the entire [act] is applicable.

Comment

1. Section 1-201 provides generally that the Act applies to all cooperatives “created” within the State after the Act’s effective date. Under Section 1-202, however, only two sections of this Act automatically apply to a cooperative created after the effective date of this Act if that cooperative contains only 12 units or less and is not subject to development rights. Importantly, Section 1-105, which permits the declarant to determine whether the cooperative interests are real or personal property, does not apply unless the declarant elects to have the entire Act apply. Thus, the determination of whether the cooperative interests in a small cooperative created after the effective date of the Act are real or personal property may depend on other state laws. The Act, however, also permits such a cooperative to elect to be subject to the entire Act.
1. The default rule of the Act is that only two sections of the Act automatically apply to a “small” cooperative. However, the fact that the declarant may choose not to have the entire Act apply to a cooperative which meets the criteria of this section does not mean that the same declarant may not also choose to incorporate discrete provisions of the Act directly into the documents creating that cooperative. This might be done by simply repeating the text of the statute as a provision of the declaration. If this were to occur, those provisions would then apply
2. as a matter of contract rather than by statute, and a reviewing court would presumably review them under the common law or other statutory law of the State, rather than under this Act.
2. The 1994 amendment to Section 1-207 adopts the policy that a non-residential common interest community of any type is not subject to the Act unless the declarant elects that result. The 1994 amendment to this section reflects that policy, since the original text was more restrictive for nonresidential cooperatives.

SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE LIABILITY PLANNED COMMUNITIES.

(a) If a 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 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 above the limitation in subsection (a)(2) during the period of declarant control without the consent of all unit owners.

Comment

1. Section 1-201 provides generally that the Act applies to all planned communities “created” within the State after the Act’s effective date. Section 1-203, however, makes only a few of the Act’s sections applicable to either planned communities containing 12 or fewer units with no development rights or to de minimis planned communities – as measured by the size of its common expense assessments – unless the planned community’s declaration makes the entire Act applicable.
2. The 1994 amendment incorporates into Section 1-203 two limitations that previously existed in Section 4-101(b)(7).

(a)

Subsection (a), which was formerly all of Section 1-203, was amended to increase the number of planned communities which are not automatically subject to the full provisions of the Act. This has been accomplished by increasing the dollar amount in subsection (a)(2) from $100 per year to $300 per year.

(b)

Subsection (b) was added to incorporate an important limitation on the flexibility granted to declarants to create planned communities which are subject to only a few sections of the Act. Again, the limitation derives from former Section 4-101(b)(7). Specifically, the exemption in (a)(2) applies to "de minimus" planned communities, that is, communities, regardless of size, with very few common elements and “commonness” measured by the fact that the maximum annual common charges, exclusive of optional fees and insurance premiums, were once only $100 a year and are now $300 a year. Under subsection (b), this cap must be reasonable and not amendable during the period of declarant control.

SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST COMMUNITIES.

(a)

Except for a cooperative or planned community described as provided in Section 1-205 or a nonresidential common interest community described in Section 1-207, (Same; Exception for Small Pre-Existing Cooperatives and Planned Communities), the following sections apply to a common interest community created in this state before [the effective date of this act]:

(1)

Sections 1-105 (Separate Titles and Taxation),;

(2)

Section 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes),;

(3)

Section 1-107 (Eminent Domain),;

(4)

Section 1-206;

(5)

Section 2-102;

(6)

Section 2-103 (Construction and Validity of Declaration and Bylaws),;

(7)

Section 2-104 (Description of Units),;

(8)

Section 2-117 (h) and (i);

(9)

Section 2-121 (Merger or Consolidation of Common Interest Communities),;

(10)

Section 2-124;

(11)

Section 3-102(a)(1) through (6) and (11) through (16) (Powers of Unit Owners’ Association),;

(12)

Section 3-103;

(13)

Section 3-108

(14)

Section 3-111 (Tort and Contract Liability),;

(15)

Section 3-116 (Lien for Assessments),;

(16)

Section 3-118 (Association Records),;

(17)

Section 3-124;

(18)

Section 4-109 (Resales of Units), and;

(19)

Section 4-117 (Effect of Violation on Rights of Action; Attorney’s Fees),; and

(20)

Section 1-103 (Definitions) to the extent necessary in to construing construe any of those sections., apply to all common interest communities created in this state before the effective date of this [act];

(b)

but those The sections described in subsection (a) 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.

Comment

1. This section states the general rules of applicability of the Act to common interest communities which were created before the effective date of this Act.
2. The Act adopts a novel three-step approach to common interest communities created before the effective date of the Act. First, certain provisions of the Act described in Section 1-204 automatically apply to “old” common interest communities, but only prospectively, and only in a manner which does not invalidate provisions of declarations and bylaws valid under “old” law. Second, “old” law remains applicable to previously created common interest communities where not automatically displaced by the Act. Third, under Section 1-206, owners of “old” common interest communities may amend any provisions of their declaration or bylaws, even if the amendment would not be permitted by “old” law, so long as (a) the amendment is adopted in accordance with the procedure required by “old” law and the existing declaration and

bylaws, and (b) the substance of the amendment does not violate this Act. In addition, as in the case of “new” projects, special exceptions are provided, in Section 1-205, for “small” projects.

3. Elaboration of the principles described in the last Comment may be helpful.

First, Section 1-204 provides that the enumerated provisions automatically apply to common interest communities created under pre-existing law, even though no action is taken by the unit owners. Many of the sections which do apply should measurably increase the ability of the unit owners to effectively manage the association, and should help to encourage the marketability of common interest communities created under early condominium statutes, or under common law. To avoid possible constitutional challenges, these provisions, as applied to “old” common interest communities, apply only to “events and circumstances occurring after the effective date of this Act;” moreover, the provisions of this Act are subject to the provisions of the instruments creating the common interest community, and this Act does not invalidate those instruments.

Example 1: Under Section 1-204, Section 4-109 (Resale of Units) automatically applies to “old” common interest communities. Accordingly, unit owners in common interest communities established prior to adoption of the Act would be obligated after the Act’s effective date to provide resale certificates to future purchasers of units. However, the failure of a unit owner to provide such a certificate to a purchaser who acquired the unit before the effective date of the Act would not create a cause of action in the purchaser, because the conveyance was an event occurring before the effective date of the Act.

Example 2: Under Section 1-204, Section 3-118 (Association Records) automatically applies to “old” common interest communities. As a result, a unit owners’ association of an “old” common interest community must maintain certain financial records, and all the records of the association “shall be made reasonably available for examination by any unit owner and his authorized agents,” even if the “old” law did not require that records be kept, or access provided. If the declaration or bylaws, however, provided that unit owners could not inspect the records of the association without permission of the president of the association, the restriction in the declaration would continue to be valid and enforceable.

Second, the prior laws of the State relating to common interest communities are not repealed by this Act because those laws will still apply to previously-created projects, except when displaced. Some States at one point made certain provisions of their condominium statutes automatically applicable to pre-existing condominiums. In certain instances, this attempted retroactive application has raised serious constitutional questions, has caused doubts to arise as to the continued validity of those condominiums, and has created general confusion as to what statutory rules should be applied.

Third, the Act seeks to alleviate any undesirable consequences of “old” law, by a limited “opt-in” provision, as provided in Section 1-206. More specifically, Section 1-206 permits the owners of a pre-existing common interest community to take advantage of the salutory provisions of this statute to the extent that can be accomplished consistent with the procedures for amending the project instruments as specified in those instruments and in the pre-existing statute or common law.

Example 3: Under most “first generation” condominium statutes, unit owners have no power to relocate boundaries between adjoining units. Under Section 2-112 of this Act, unit owners have such power, unless limited by the declaration. While Section 2-112 does not automatically apply to “old” common interest communities, if the unit owners of a pre-existing community amend their declaration to permit unit owners to relocate boundaries, this section would validate that amendment, even if it were invalid under old law.

4. The 2008 amendments to this section add several existing and new sections of the Act that apply to projects created before the effective date of this Act in a particular state. Those new sections are:

Section 1-206, which addresses amendments to governing instruments of a project;

Section 2-102, dealing with Unit boundaries;

Section 2-117 (h) and (i), which ease the amendment process, both for amendments that require lender consent and for amendments requiring a greater than 80% vote of unit owners;

Section 2-124, a new section dealing with termination of a project following a catastrophe;

Section 3-103 dealing with the make-up of the executive board and the declarant's right to control the association at the outset of the project;

Section 3-108 dealing with meetings of unit owners and of the executive board; and

Section 3-124, a new section dealing with litigation involving the declarant.

5. In considering which sections of the Act might be applied automatically to projects created under other law, the drafters remain concerned to avoid constitutional infirmity as a consequence of challenges under Article I, Section 10 of the United States Constitution, which bars a State - but not the federal government - from passing any law "...impairing the Obligation of Contracts...."

That subject, which was addressed in Comment 3 to this section in the original version of this Act, has subsequently been raised in a number of litigated cases, with mixed results. Compare, e.g., Fourth La Costa Condominium Owners Ass'n v. Seith, 159 Cal. App. 4^th 563 (2008) (statute not unconstitutional) with Association of Apartment Owners of Maalaea Kai, Inc.

V. Stillson, 116 P.3d 644 (Hawaii 2005) (statute unconstitutional as applied).

The policy issues are not free from difficulty. On the one hand, for reasons of consistent management, judicial interpretation and consumer expectations among common interest communities in the same State, a single body of law that applies with equal force to all common interest communities in a State regardless of when created, would be greatly preferable. This, of course, is the general result in the field of corporate law, where all amendments to corporate statutes generally apply to all corporations in a state, regardless of whether they have retroactive application.

On the other hand, aside from the issue of possible constitutional infirmity, at least one practical reason - that being the "law of the project", which is known to all residents of a common interest community from the time they first became residents - is often raised to justify a refusal to apply new real estate laws retroactively to older projects.

The 2008 amendments continue to strike a middle ground between these positions.

SECTION 1-205. SAME; EXCEPTION FOR APPLICABILITY TO SMALL PREEXISTING PREEXISTING 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 right, 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(a) apply to that cooperative or planned community.

Comment

Recognizing that pre-Act cooperatives or planned communities of fewer than 12 units ought not to be subject to more rigorous requirements than small cooperatives or planned communities created under the Act, this section provides that only the same sections applicable to small new cooperatives or planned communities will apply to small pre-Act cooperatives and planned communities, unless the declaration of a small pre-Act cooperative or planned community is amended to take advantage of the amendment provisions of Section 1-206. If such an amendment is made pursuant to Section 1-206, the small pre-Act cooperative or planned community would be subject to all of the provisions applicable to large pre-Act cooperatives and planned communities, and further elections under Section 1-206 would then be possible.

Comment

1. This section tracks closely the provisions of the Uniform Planned Community Act and the Model Real Estate Cooperative Act and provides a straightforward mechanism by which the documents of pre-Act common interest communities may be amended to take advantage of desirable provisions of the Act. See the Comment to Section 1-205.
1. In considering the permissible amendments under Section 1-206, it is important to distinguish between the law, governing the procedure for amending declarations, and the substance of the amendments themselves. An amendment to the declaration of a community created under “old” law, even if permissible under this Act, must nevertheless be adopted “in conformity with the procedures and requirements specified” by the original instruments, and in compliance with the old law.
2. Example: Suppose an “old” condominium declaration and “old” state law both provide that approval by 100% of the unit owners is required to amend the declaration, but the unit owners wish to amend the declaration to provide for only 67% of the unit owners’ approval of future amendments, as permitted by Section 2-117 of this Act. The amendment would not be valid unless 100% of the unit owners approved it, because of the procedural requirement of the declaration and “old” law. Once approved, however, only 67% would be required for subsequent amendments.
2. This section does not address the issue of contract rights of unit purchasers which may be affected by amendments under the new Act. Whether an amendment is effective against unit owners who purchased their units prior to the effective date of the Act and prior, therefore, to the amendment in question is controlled by the contract and constitutional law of the State.

Example: Assume “old” state law required that 5% of the purchase price of each unit sold by a declarant must be held in escrow until all the common elements in the condominium are completed. Assume further that a declarant created a condominium under “old” law, sold 10 units to purchasers prior to the effective date of the Act, and now is holding 5% of the purchase prices for those 10 units in escrow, since the common elements are not yet completed. Immediately following the effective date of the Act, the declarant amends the declaration pursuant to Section 1-206 to provide that no escrow of any portion of the purchase price is required. The amendment is approved by the requisite votes – all held by declarant – but not by any of the 10 unit owners. On its face, the amendment would appear to comply with the provisions of this Act, since it accomplishes a result – no escrow – which is permitted by this Act and was not permitted by “old” law. Whether that amendment is effective, however, to either permit the declarant to terminate the escrow with respect to the 10 unit owners, or even to terminate the escrow scheme with respect to future unit owners (since the original 10 owners may reasonably have expected that 5% of all purchase prices would be held in escrow) is not addressed by this Act. That determination must be based on the contractual and constitutional rights of the original purchasers.

4. The last sentence of Section 1-206 addresses the potential problem of a declarant seeking to take undue advantage of the amendment provisions to assume a power granted by the Act without being subject to the Act’s limitations on the power. The last sentence insures that, if declarants or other persons assume any of the powers and rights which the Act grants, the correlative obligations, liabilities, and restrictions of the Act also apply to that person, even if the amendment itself does not require that result.

Example: Assume that, pursuant to the provisions of “old” condominium law, a declarant may exercise control over the association for only three years from the date the condominium is created, but the control may be maintained during that period for so long as declarant owns any units. In the absence of any amendment, a provision in the declaration taking full advantage of the “old” law would be valid and enforceable. Assume further that, in the second year following creation of the condominium in question, this Act is adopted. The declarant then properly amends the declaration pursuant to Section 1-206 to extend the period of declarant control for five years from the date of creation. The amendment would effectively extend control for two additional years, because Section 3-103(d) does not limit the number of the years the declarant may specify as a control period.

Nevertheless, if the declarant, before that extended time limit has expired, conveys 75

percent of the units that may ever be a part of the condominium, or fails for two years to exercise

development rights or offer units for sale in the ordinary course of business, the period of

declarant control would terminate by virtue of the limitations in Section 3-103(d). That

limitation is imposed on the declarant even if the amendment called for retaining control for so

long as any units were owned by declarant, and despite the provision in the “old” law permitting

such a restriction.

1. In place of the words “declaration, bylaws, and plats and plans,” at the end of this section, each State should insert the appropriate terminology for those documents under the present state law, e.g., “master deed, rules and regulations,” etc.
2. This section does not permit a pre-existing common interest community to elect to come entirely within the provisions of the Act, disregarding old law. However, the owners of a pre-existing common interest community may elect to terminate the community under preexisting law and create a new community which would be subject to all the provisions of this Act.
3. The 1994 changes are not intended to alter the substantive rules contained in the original section. However, in light of experience in several state legislatures, these changes should make clearer the intent of the original section.
4. The 2008 changes to subsection (b) are important exceptions to the general rule that amendments to existing declarations and bylaws must be adopted in conformity with the procedures for amendments contained in those documents. Any effort to change by statute the amendment provisions of existing documents confronts the same constitutional issues discussed in the comments to Section 1-204 by the "impairment of contract" clause of the United States Constitution; similar provisions often appear in state constitutions.

At the same time, lawyers in the field have long recognized that the amendment process can be fatally impeded by provisions commonly found in the declarations of existing communities. Two of the most significant are requirements that amendments cannot be effective unless approved by a specified number of unit lenders, or unless approved by very large and often unrealistic majorities of unit owners. Recognizing this issue, Connecticut approved amendments to Connecticut's version of Section 2-117(i) and (j) in 1995 which are very similar to those appearing here; see Connecticut Public Act 95-187. Practice under those amendments demonstrates the significant value these relaxed procedures add in accomplishing desired amendments in pre-act declarations.

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 otherwise provided in subsection (e) (d), this section applies only to nonresidential common interest communities a common interest community in which all units are restricted exclusively to nonresidential purposes.

(b)

A nonresidential common interest community is not subject to this [act] unless except to the extent the declaration otherwise provides. that:

(c) The declaration of a nonresidential common interest community may provide that

(1)

the this entire [act] applies to the community;

(2)

[Articles] 1 and 2 apply to the community; or that

(3)

in the case of a planned community or a cooperative, only Sections 1-105 (Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations and

Building Codes), and 1-107 (Eminent Domain) apply to the community.

(d)(c) If the this 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 maintenance, operations, or 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)(d) 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 that would be subject to this [act] in the absence of the nonresidential units or the declaration provides that this [act] applies as provided in subsection (b) or (c) or (d).

Comment

1. The 1994 amendments to this section permit all nonresidential common interest communities to “opt out” of the Act; the original section was limited to planned communities.

However, the 2008 amendment to subsection (b)(3) now precludes the possibility that the declaration for a non-residential project organized as a condominium may provide that only Sections 1-105 (Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations and Building Codes), and 1-107 (Eminent Domain) apply to the community. The judgement of the drafters was that, by definition, a condominium was a creature of statute and it was therefore statutorily improper to suggest that a statutorily created form of ownership could exist without the other provisions of the statute also applying to it.

However, except for mixed use projects, the revised section continues to be restricted to common interest communities which contain only nonresidential units. The term “residential purposes” is defined and discussed in detail in Section 1-103(27) and its Comments.

In addition, the revised section offers the declarant of a nonresidential common interest community significantly more flexibility than was allowed in the original section. This change responds to those concerns which commentators have identified as important to developers of commercial common interest communities.

The default rule is that the Act does not apply at all to a nonresidential common interest community.

However, the declarant may want the Act to apply in at least some circumstances. Therefore, subsection (c) (b) provides a mechanism by which the declarant may elect simply to have the Act’s rules on eminent domain, separate taxation, and applicability of local ordinances apply to the project. These three sections all establish default rules which are likely to be desirable from both the declarant’s and future owners’ perspectives.

The 2008 amendment to subsection (b) of this section increases the flexibility of document drafters in non-residential projects. Previously, the drafter was limited to 3 choices: (i) applying the default rule, that is, none of the Act applies, which would require a very substantial drafting effort to address all the issues covered by the statute; (ii) the entire Act applies, which brings the consumer protection complexities of Articles 3 and 4 of the Act, even with the drafting exceptions permitted by subsection (c), or (iii) only 3 sections of the Act apply, which resolve important issues of other state statutes but are otherwise insignificant in the drafting process.

With the new option contained in (b)(2), the drafter has an additional choice, and that is to apply only Articles 1 and 2 of the Act to the non-residential project. By electing this option, the document drafter can take advantage of the provisions validating legal structures of the common interest community, and thus allow shorter, clearer and more certain documents for non-residential projects than practice has permitted under the existing Act.

2. Finally, a declarant may find the full range of the Act to be a desirable outcome, particularly in light of those many sections which permit waiver or variation by agreement. Those sections already permitting waiver are detailed in the Official Comments to Section 1-104.

However, even in that case, the revised section provides two additional major enhancements to flexibility.

First, the section contemplates that the declaration may provide that the entire Act applies but that the declarant may require that the association must continue certain contracts and leases in place after turnover, even though such contracts would otherwise be subject to cancellation by the Association under Section 3-105.

Second, the section allows the declarant to use proxies, powers of attorney, or other devices to accomplish other results which would be prohibited in the case of residential common interest communities. The sole limitation in both instances is the rule of unconscionability in Section 1-112.

3. Subsection (e) (d) addresses the Act’s applicability to mixed use projects. The default rule is nonapplicability unless the definition of a common interest community would be met “in the absence of the nonresidential units.” Thus, if the “residential” units and their obligations under the declaration did not satisfy the definitional threshold in Section 1-103(7) – basically, a payment obligation on the unit extending by covenant to “non-unit” expenses – the Act would not apply.

SECTION 1-208. APPLICABILITY TO OUT-OF-STATE COMMON INTEREST COMMUNITIES. This [act] does not apply to a common interest communities community 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 a contracts contract for the disposition thereof of a unit in that common interest community 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].

Comment

This section reflects the fact that there are practical as well as constitutional limits regarding the extent to which a State should or may extend its jurisdiction to out of state transactions. A State may, of course, properly exercise its authority to protect its citizens from false or misleading information regarding common interest communities located in other States but sold in that State. However, where sales contracts are executed wholly outside the enacting State and relate to common interest communities located outside the State, it seems more appropriate for the courts of the jurisdiction(s) in which the common interest community is located and where the transaction occurs to have jurisdiction over the transaction.

Comment

This section, adopted in 2008, addresses once again the scope of the Act. It should be considered in connection with the revised definition of “Common Interest Community”. The sub-sections address two separate aspects of this issue:

*

Whether contractual arrangements for cost sharing between two or more common interest communities require creation of a third separate common interest community; and

*

Whether contractual arrangements for cost sharing between an association and an owner of real estate located outside the common interest community’s boundaries require creation of a separate common interest community.

The following analysis may help frame the issues.

First, there appear to be 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 unit owners association 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 examples of common situations:

1) A homeowners association maintains the entry features, median and right-ofway 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 it 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. There is no need here for another association in which the property owners and hotel are members, with organizational documents, contracts, meetings, etc. The hotel doesn’t want to be subject to membership in an association controlled by other property owners and 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 condominium projects 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. Again, there is little benefit conferred in mandating creation of a master association to own and maintain the road.

Subsection (a) makes clear that in the case of arrangements between associations, a separate association would not be required in any of the foregoing instances.

However, the drafters did not intend that the section result in an arrangement where the unit owners are left without a remedy in those instances where, for example, the sharing arrangement appears to unreasonably allocate the costs or other important aspects of the arrangement between the parties.

Cost, of course, would be only one concern of unit owners and their associations arising out of an agreement to share in the use of and expenses for other land. The drafters are aware of situations in which developers have included amenities, such as clubhouses, swimming pools, tennis courts, as well as access roads, 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. Such arrangements have the potential to breed frustration, acrimony, and abuse.

One of the examples above suggests that a residential association and a commercial venture such as a hotel share certain common facilities and expenses and that the hotel might defer to the residential association for the operation of these amenities. This may not always be realistic. 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 developer of the hotel may seek to negotiate a deal best suited to its needs, perhaps to the detriment of the unit owners. Whether or not the deal as it is finally structured contains some semblance of a “reasonable” formula for cost sharing, the other, non-financial terms of the arrangement may vest control, decision making, etc., including the level of maintenance desired, solely with the hotel.

In several provisions, the Act does offer remedies for such circumstances, and those provisions would apply here with equal force. By way of example, if the arrangement were created for purposes of avoiding the limitations of the Act, if the organizers of the arrangement had not acted in good faith, or if the allocated interests between the associations were unconscionable, the mandates of sections 1-104, 1-108 and 1-112 would apply.

In the case of arrangements between associations and third parties other than associations, sub-section (b) avoids the need for a separate unit owner 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.

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 does not create a common interest

community unless the owners otherwise agree.

Comment

While these various forms of simple shared arrangements might arguably satisfy the definition of “common interest community,” there is no policy reason to vary common practice, which is to treat these arrangements as governed exclusively by the agreement of the parties, supplemented by common law. Accordingly, the 2008 amendments expressly exclude these arrangements from the Act.

[ARTICLE] 2CREATION, ALTERATION, ANDTERMINATION OF COMMON INTEREST COMMUNITIESSECTION 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)].

Comment

1. Under subsection (a), a common interest community is created pursuant to this Act only by recording a declaration. As with any instrument affecting real estate, the declaration must be recorded in every recording district in which any portion of the common interest community is located and must be indexed in the manner described in subsection (a). Specific indexing rules are suggested in brackets and should be used in those States where this result would not otherwise occur. For example, the declaration commonly has not been indexed in the grantee’s index in the name of the common interest community. Moreover, when multiple persons execute the declaration, the declaration has often been indexed solely in the name of the declarant and not in the name, for example, of lenders and other persons who might have executed the declaration. Because it is important that the names of the association and all persons executing the declaration appear in the index in order to locate all instruments in the land records, that language is not included in brackets.

In the case of a cooperative, there is a second requirement for creation in addition to the recording requirements applicable to all common interest communities discussed above. The declarant must convey the real estate subject to that declaration to the association, since the association (in the form of a corporation, trust, or other entity described in Section 3-101) must hold title to that real estate. This requirement may contrast with the current practice in some jurisdictions under which the declarant may retain title to the real estate until proprietary leases for all or most units have been executed. This requirement tracks the language of the Model Real Estate Cooperative Act.

1. In Section 1-103, the Act defines the term “Declaration” as any instruments the instrument, however denominated, which create a common interest community, including any amendments to those instruments the instrument; “common interest community” in turn is defined as “real estate with respect to which a person, by virtue of his ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration. “Ownership of a unit” does not include “holding a leasehold interest of less than 20 years in a unit, including renewal options.” It is important to realize that other covenants, conditions, or restrictions applicable to the real estate in the common interest community might be recorded before or after the instruments are recorded which divide the real estate into units and common elements. Until the actual recordation of the document which accomplished that result, however, the common interest community has not been created.
2. A common interest community has not been lawfully created unless the requirements of this section have been complied with. Nevertheless, a project which meets the definition of a “common interest community” in Section 1-103(7) is subject to this Act even if this or other sections of the Act have not been complied with.
3. Mortgagees and other lienholders need not execute the declaration, and foreclosure of a mortgage or other lien will not, of itself, terminate a condominium or planned community. However, if that lien is prior to the declaration itself, the lienholder may exclude that real estate from the condominium or planned community. See Section 2-118(k) and (l). Moreover, the declarant may wish to obtain agreements from mortgagees or other lienholders that they will give partial releases permitting lien-free conveyance of condominium or planned community units. See Section 4-111(a).
4. Except when development proceeds pursuant to Section 5-103, this Act contemplates that substantial completion must be reached before a unit may be conveyed. See Section 4-120. In the case of a condominium, substantial structural completion is also required before the condominium is created. The purpose of imposing these requirements is to insure that a purchaser will in fact take title to a unit which may be used for its intended purpose.

If a condominium were said to consist from the beginning of a certain number of units, even though some of those units had not yet been completed or even begun, serious problems would arise if the remaining units were never constructed and if no obligation to complete the construction could be enforced against any solvent person. If the insolvent owner of the unbuilt units failed to pay his common expense assessments, for example, the unit owners’ association might be left with no remedy except a lien of doubtful value against mere cubicles of airspace. Moreover, votes in the unit owners’ association could be assigned to units, and those votes could be cast, even though the units were never built. The Act, therefore, requires that significant construction take place before units are assigned an interest in the common elements, a vote in the association, and a share of the common expense liabilities, and before units are conveyed. This requirement of substantial structural and mechanical completion (or the alternative bonding procedure and other assurances required by Section 5-103) reduces the possibility that a failure to complete will upset the expectations of purchasers or otherwise harm their interests in case the declarant becomes insolvent and no solvent person has the obligation to complete the unit.

1. In the case of a condominium, Section 2-101(b) requires that “all structural components and mechanical systems of all buildings containing or comprising any units” which will be created by recording a declaration, must be substantially completed in accordance with the plans. The intent of subsection (b) is that if any buildings are depicted on the plats and plans which are required by Section 2-109, and these buildings contain or comprise spaces which become units by virtue of recording the declaration, the structural components and mechanical systems of these buildings must be substantially complete before the declaration is recorded. This is required even though the plats and plans recorded pursuant to Section 2-109 depict only the boundaries of the buildings and the units created in those buildings, and not the structural components or mechanical systems (which need not be shown). If the boundaries of units are not depicted, of course, then no units are created. If the declarant fails to comply with this section, title is not affected. See Comment 8, below.
2. The concept of “structural components and mechanical systems” is one commonly understood in the construction field and this Comment is not intended as a comprehensive list of those components. For example, however, the term “structural components” is generally understood to include those portions of a building necessary to keep any part of the building from collapsing, and to maintain the building in a weather tight condition. This would include the foundations, bearing walls and columns, exterior walls, roof, floors, and similar components. It would clearly not include such components as interior non-bearing partitions, surface finishes, interior doors, carpeting, and the like. Similarly, typical examples of “mechanical systems” include the plumbing, heating, air conditioning, and other like systems. Whether or not “electrical systems” are included within the meaning of the term depends on local practice.
1. Section 4-120 requires that, before an individual unit is conveyed, the unit must be “substantially completed.” “Substantial completion” is a well understood term in the construction industry. For example, the American Institute of Architects Document A 201, General Conditions of the Contract for Construction (1976 Ed.) at para. 8.1.3, states:

The Date of Substantial Completion of the Work . . . is the date certified by the

Architect when construction is sufficiently complete, in accordance with the

Contract Documents (that is, the owner-contractor agreement, the conditions of

the contract, and the specifications and all addenda and modifications), so the

Owner can occupy or utilize the Work . . . for the use for which it is intended.

This standard is also one often used by building officials in issuing certificates of occupancy. It does not suggest that the unit is “entirely completed” as that term is understood in the construction industry; lesser details, such as sticking doors, leaking windows, or some decorative items, might still remain, and the Act contemplates that they need not be completed prior to lawful conveyance.

1. Sections 2-101(b) and 4-120 require that completion certificates be recorded, or local certificates of occupancy be issued, as evidence of the fact that the required levels of construction have been met. In the case of “substantial completion,” issuance of “a certificate of occupancy authorized by law,” as is commonly required by local ordinance or state building codes, will suffice. Once the certificates have been recorded or issued, as the case may be, good title to the units may be conveyed in reliance on the record. It is possible, of course, that the declarant may have failed to complete the required levels of construction; no certificate of completion may have been filed or the architect, surveyor, or engineer (whichever is appropriate in a particular jurisdiction) may have filed a false certificate. Such acts would create a cause of action in the purchaser under Section 4-117, but would not affect the validity of the purchaser’s title to the unit.
2. The requirement of “substantial completion” does not mean that the declarant must complete all buildings in which all possible units would be located before creating the condominium. If only some of the buildings in which units may ultimately be located have been “structurally” completed, the declarant may create a condominium in which he reserves particular development rights (Section 2-105(a)(8)). In such a project, only the completed units might be treated as units from the outset, and the development rights would be reserved to create additional units, either by adding additional real estate and units to the condominium, by creating new units on common elements, or by subdividing units previously created. The optional units may never be completed or added to the condominium; however, this will not affect the integrity of the condominium as originally created.
3. Requiring “substantial completion” of the structural components and mechanical systems in the buildings containing or comprising the units in a condominium may encourage creation of more phased condominiums under Section 2-105 in projects which were once in fact built in phases, but under a single non-expandable declaration. Experience in the several States where significantly more rigorous requirements are imposed by statute, however, has shown that this does not create a difficult situation either for the developer or lender. Moreover, it appears likely that the size of the initial phase of a multi-building project will be dictated largely by economics, as occurs in most jurisdictions today, rather than this Act. Finally, many lenders and developers are increasingly sensitive to the secondary mortgage market requirements, particularly those of the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Experience indicates that the pre-sale requirements imposed by FNMA and FHLMC frequently dictate that multi-building projects be structured on a phased or expandable basis.
4. The requirement of completion would be irrelevant in some types of common interest communities, such as campsite condominiums or some subdivision planned unit developments where the units might consist of unimproved lots and the airspace above them, within which each purchaser would be free to construct or not construct a residence. Any residence actually constructed would ordinarily become a part of the “unit” by the doctrine of fixtures, but nothing in this Act would require any residence to be built before the lots could be treated as units.
5. The term “independent” architect, surveyor, or engineer in subsection (b) and elsewhere in the Act distinguishes any such professional person who acts as an independent contractor in his relationship to the declarant or lender.

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.

Comment

1. It is important for title purposes, for purposes of defining maintenance responsibilities, and for other reasons to have a clear guide as to which parts of a common interest community constitute the units and which parts constitute common elements. This section fills the gap left when the declaration merely defines unit boundaries in terms of floors, ceilings, and perimetric walls, and is particularly useful in the case of cooperatives, in which the recording of plats and plans is not required. See Section 2-105(a)(5).

The provisions of this section may be varied, of course, to the extent that the declarant wishes to modify the details for a particular common interest community.

For example, in a townhouse project structured as a condominium or planned community, it may be desirable that the unit boundaries constitute the exterior surfaces of the roof and exterior walls, with the center line of the party walls constituting the perimetric boundaries of the units in that plane, and the undersurface of the bottom slab dividing the unit itself from the underlying land. Alternately, the boundaries of the units at the party walls might be extended to include actual division of underlying land itself. In those cases it would be inappropriate for walls, floors, and ceilings to be designated as boundaries, and the declaration would describe the boundaries in the above manner.

1. The differentiations made clear here, in conjunction with the provisions of Section 3-107, will assist in minimizing disputes which have historically arisen in association administration with respect to liability for repair of such things as pipes, porches, and other components of a building which unit owners may expect the association to pay for and which the association may wish to have repaired by unit owners. Problems which may arise as a result of negligence in the use of components – such as stoops and pipes – are resolved by Section 3-107, which imposes liability on a unit owner who causes damage to common elements, or under the broader provisions of Section 3-115(c), which permits the association to assess common expenses “caused by the misconduct of any unit owner” exclusively against that person. This would include, of course, not only damages to common elements, but fines or unusual service fees, such as clean-up costs, incurred as a result of the unit owner’s misuse of the common elements.
2. The differentiation between components constituting common elements and components which are part of the unit is particularly important in light of Section 3-107(a), which (subject to the exceptions therein mentioned) makes the association responsible for upkeep of common elements and each unit owner individually responsible for upkeep of his unit.
3. The differentiation between unit components and common element components may or may not be important for insurance purposes under the Act. While the common elements in a project must always be insured, the units themselves need not be insured by the Association unless the project contains units divided by horizontal boundaries. See Section 3-113(a) and (b). In a “high-rise” configuration, however, Section 3-113(a) contemplates that both will normally be insured by the association (exclusive of improvements and betterments in individual units) and that the cost of such insurance will be a common expense. That common expense may be allocated, however, on the basis of risk if the declaration so requires. See Section 3-115(c)(3).

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

(c)

In the event of If a conflict exists between the provisions of the declaration and the

(d)

Title to a unit and common elements is not rendered unmarketable or otherwise

declaration, bylaws, or rules, or regulations adopted pursuant to Section 3-102(a)(1).

bylaws, the declaration prevails except to the extent the declaration is inconsistent with this [act].

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].

Comment

1. Subsection (b) does not totally invalidate the rule against perpetuities as applied to common interest communities. The language does provide that the rule against perpetuities is ineffective as to documents which govern the common interest community during the entire life of the project, regardless how long that should be. With respect to deeds or devises of units, however, the policies underlying the rule against perpetuities continue to have validity and remain applicable under this Act.
2. In considering the effect of failures to comply with this Act on title matters, subsection (a) refers only to defects in the declaration – which includes the plats and plans in the case of condominiums and planned communities – because the declaration is the instrument which creates and defines the units and common elements. No reference is made to other instruments, such as bylaws, because these instruments have no impact on title, whether or not recorded. However, in all cases of violations of the Act, a failure of the bylaws – or any other instrument – to comply with the Act, would entitle any affected person to appropriate relief under Section 4-117.
3. No special prohibition against racial or other forms of discrimination is included in this Act because the provisions of generally applicable state and federal law apply as much to common interest communities as to other forms of real estate.
4. Some examples may help to clarify what sort of defects in the declaration are to be regarded as “insubstantial” within the meaning of the first sentence of subsection (d).

Suppose the declaration allocates common element interests to all the units, but fails to indicate the formula for the allocation as required by Section 2-107. This would be a substantial defect if the assigned interests were unequal, but if all units were assigned identical interests it would be possible to infer that the basis of the allocation was equality – and the failure of the declaration to say so would be an insubstantial defect. Were this to happen in a common interest community where the right to add new units is reserved, however, it should be noted that a subsequent amendment to the declaration adding new units could not use any formula other than equality for reallocating the common elements interests unless a different formula were specified pursuant to Section 2-107(c).

Other examples of insubstantial defects that might occur include failure of the declaration to include the word “condominium,” “cooperative,” or “planned community,” as required by Section 2-105(a)(1), or failure of the plats or plans in the case of condominium and planned communities, to comply satisfactorily with the requirements of Section 2-109(a) that they be “clear and legible,” so long as they can at least be deciphered by persons with proper expertise. Failure to organize the unit owners’ association at the time specified in Section 3-101 would not be a defect in the declaration at all, and would not affect the validity or marketability of titles in the common interest community. It would, however be a violation of this Act, and create a claim for relief under Section 4-117.

5. Each State has case or statutory law dealing with marketability of titles, and the

question of whether substantial failure of the declaration to comply with the Act affects marketability of title should be determined by that law and not 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.

Comment

1. The intent of this section is that no description of a unit in a deed, lease, deed of trust, mortgage, or any other instrument or document shall be subject to challenge for failure to meet any common law or other requirements, so long as the requirements of this section are satisfied, and so long as the declaration itself, together with the plats and plans which are a part of the declaration, provides a legally sufficient description.
2. The last sentence makes clear that an instrument which does meet those requirements includes all interests appurtenant to the unit. As a result, it will not be necessary under this Act to continue the practice, common in some jurisdictions, of describing in the instrument conveying title to a unit the common element interests, or limited common elements, that are appurtenant to that unit or make reference to surveys or subsequent amendments to declarations.

Comment

1. Many statutes and other regulatory schemes in the multi-owner project field do not separate the functions of a recorded declaration and an unrecorded public offering statement or disclosure documents. As a result, many of the developer’s representations and assurances concerning his future plans must appear in the declaration as well as the public offering statement, even though they have nothing to do with the legal structure or title of the project. This results in duplicative requirements and unnecessarily complex declarations.

This Act makes a functional distinction between the declaration and the public offering statement. It only requires the declaration to contain those matters which affect the legal structure or title of the common interest community. This includes the reserved powers of the declarant to exercise development rights within the common interest community. A narrative description of those rights, however, and the possible consequences flowing from their exercise, are required to be disclosed only in the public offering statement and not in the declaration.

In the case of condominiums and planned communities, plats and plans are made part of the declaration by Section 2-109, and their content may in part provide some of the information required by this section.

1. This section requires a statement of the name of the association for the common interest community itself, in order that the declaration may be indexed in the name of the association. See Section 2-101.
2. The Act requires that the declaration for a common interest community situated in two or more recording districts be recorded in each of those districts. While the bracketed language refers to the “county” as the recording district in which the declaration is to be recorded, in States where recording is done at the city, town, or parish level the bracketed language should be amended accordingly.
3. Paragraph (a)(4) requires the declarant to state the largest number of units he reserves the right to build. This Act imposes no time limit, measured by an absolute number of years, at the expiration of which the declarant must relinquish control of the association. Instead, declarant control ends when 75% of the maximum number of units which may be created by the declarant have been sold, or at the end of a two-year period during which development is not proceeding. See Section 3-103(d). The flexibility afforded by this section may be important to a declarant as he responds to unanticipated future changes in his market.

In theory, a declarant might overstate the maximum number of units in an attempt to artificially extend the period of declarant control, since the time might never come when a declarant had sold 75% of that number of units. As a practical matter, however, as the following example points out, such a practice would not likely achieve long-term control.

Example: A declarant reserves the right to build 100 units, even though zoning would permit only 75 units on the site, and the declarant actually plans on building only 50 units. As a result of the reservation, the declarant would not loss control of the association under the 75% rule stated in Section 3-103(d)(i) even when all 50 units had been built and sold, because that percentage applies to all potential units, not units actually built. See Section 3-103(d)(i)(1).

However, there are practical constraints on the declarant’s decision in this matter. Substantial exaggeration of the future density of the development might tend to impede sales of units in that project. Moreover, such a statement might also produce negative governmental reaction to proposals which might require local approval.

Even if the declarant did overstate the number of units to retain control, however, other limitations imposed by Section 3-103(d) will require turnover at an appropriate time. In the example, once the declarant had exercised the right to add the last of the 50 units which he intended to build, the two-year period imposed by Section 3-103(d)(ii) and (iii) would begin to run and the declarant would lose the right to control the association two years from the time the last units were added, even though he had reserved the right to add more units.

1. Paragraph (a)(5) requires that the boundaries of each unit created by the declaration be identified. The words “created by the declaration” emphasize that, in an expandable project, new units may be created in the future by amendments to the declaration. Until those new units are actually added to the project by amending the declaration, however, they are not units within the meaning of that defined term, and they need not be described.
1. Section 2-102 makes it possible in many condominiums or planned communities to satisfy paragraph (a)(5) of this section by merely providing the identifying number of units and stating that each unit is bounded by its ceiling, floor, and walls. The plats and plans will show where those ceilings, floors, and walls are located, and Section 2-102 provides all other details, except to the extent the declaration may make additional or contradictory specifications because of the unique nature of the project.
2. In the case of many cooperatives, it is possible to satisfy paragraph (a)(5) of this section by merely providing the identifying number of the unit, the size of the unit in square feet or its number of rooms, and its location within a building if it is in a building containing more than one unit. Thus, for example, it would be possible to describe a cooperative unit as follows: “Unit Number 243, consisting of 800 square feet, located on the fourth floor of Building A.”
2. Paragraph (a)(6) makes clear that the limited common elements described in Section 2-102(2) and (4) need not be described in the declaration. These limited common elements are typically porches, balconies, patios, or other amenities which may be included in a project. Such improvements are treated by the Act as limited common elements, rather than either common elements or parts of units, in order to minimize the attention which the documents need to give them, and to secure the result that would be desired in the usual case. Thus, if these improvements remain limited common elements, and no special provisions concerning them are included in the declaration, they may be used only by the units to which they are physically attached; maintenance of those improvements must be paid for by the association; and such improvements need not be specifically referred to in the declaration. In the case of all common interest communities, except cooperatives, porches, balconies, and patios must be shown on the plats and plans (see Section 2-109(b)(10)), but other limited common elements described in Section 2-102(2) and (4) need not be shown.
1. Paragraph (a)(7) contemplates that the common elements in the project may be allocated as limited common elements at some future time, either by the declarant or the association. For example, a swimming pool might serve an entire project during early phases of development. At the outset that pool might be a common element which all the unit owners may use. At a later time, with more units and additional pools built in subsequent phases, either the declarant or the association might determine that the first pool should become a limited common element reserved for the use only of units in the first phase, while the other pools should be reserved exclusively for units in the subsequent phases. Such a potential allocation should be
2. described in the declaration pursuant to this section. The method of subsequent allocation is discussed in Section 2-108.
3. Paragraph (a)(8) requires that the declaration describe all development rights and other special declarant rights which the declarant reserves. The declaration must describe the real estate to which each right applies, and state the time limit within which each of those rights must be exercised. The Act imposes no maximum time limit for the exercise of those rights, and contemplates that those rights may be exercised after the period of declarant control terminates.
4. Paragraph (a)(12)(ii) includes certain requirements which were not originally applicable to condominiums and planned communities under UCA and UPCA, respectively. Tracking MRECA, paragraph (a)(12)(ii) requires the declaration to include any information which restricts the amount for which a unit may be sold, or the amount to be received by a unit owner upon sale, condemnation, or casualty loss. Such restrictions are increasingly common in the development of “limited equity” common interest communities or common interest communities which are designed to minimize the increased value of the common interest community upon resale in order to preserve housing for a particular income group. The Act in no way restricts the use of such provisions, but does require that explicit provisions concerning such restrictions appear in both the declaration and the Public Offering Statement.
5. Paragraph (a)(14) is a cross-reference to other sections of the Act which require the declaration to contain particular matters. Some of these sections, such as Section 2-107 on the allocation of allocated interests, will affect all projects. Others, such as Section 2-106 on leasehold common interest communities, will apply only to particular lands of projects.
6. Subsection (b) contemplates that, in addition to the content required by subsection (a), other matters may also be included in the declaration if the declarant or lender feel they are appropriate to the particular project. In particular, the draftsman should carefully consider any desired provisions which would vary any of the many sections of the Act where variation is permitted, including such matters as expanding or restricting the association’s powers.
7. The 1994 amendments to subsections (a)(12) and (b) of this section are part of the drafters’ efforts to clarify the law of “use and occupancy” restrictions in common interest communities, and make that law more rational.

Specifically, these amendments describe the pattern of what use and occupancy restrictions must appear in the declaration, what amendment procedures must be used to change those use and occupancy restrictions, what discretion the executive board has in enforcing such restrictions, and what protection the Act provides to unit owners, either to be free of regulation inside their units, or to be protected from new restrictions on a once permitted activity.

This is a complex subject, and amendments in several sections of the Act were required.

The amendments begin in Section 2-105. Previously, the Act required all use, occupancy, and alienation restrictions to appear in the declaration; see old Section 2-105(a)(12). No amendment to a “use” restriction was allowed, except with unanimous consent; see old Section 2-117(d). The Act was unclear as to whether or not such things as leasing restrictions or pet rules were “use” restrictions requiring unanimous consent.

The 1994 amendment to this section makes made two important changes. First, leasing restrictions which exceed the restrictions allowed by the secondary mortgage market, see Section 3-102(c)(2), still must appear in the declaration. No other use or occupancy restrictions must appear in the declaration, but any such restrictions may so appear. See Section 2-105(b). Presumably, a provision in the declaration pursuant to this subsection (b) could permit the executive board to develop evolving use restrictions, in its discretion.

New subsection (b) also seeks generally to distinguish between “uses of a unit” and “the number or qualifications of persons who occupy units;” this distinction emphasizes that “occupancy” focuses on characteristics of individual persons while “use” focuses on the purposes to which the space is devoted.

Amendments to other sections bear on these issues in important ways. See, e.g., Section 2-117(d) and (f) and Section 3-102.

14. Subsection (a)(14) was adopted in 2008; it requires that if the unit owners association is to be authorized to establish and enforce construction and design criteria or aesthetic standards, that authority must appear in the declaration. This mandate tracks the requirement that if the declarant is to have that power during the time it is developing the project, the declarant must treat that power as a special declarant right; see Section 1-103 (33)(H).

If the association is so empowered, then, pursuant to Section 3-106(a)(4) and (7), the bylaws would have to provide for administration of that program if administration is to be done by any committee or officer other than the executive board. Further, under Section 3-120(c), the association would adopt criteria for consideration of design criteria, and procedures for enforcing them.

Taken together, these requirements are intended to instill a reasonable and transparent process regarding a subject which has been controversial in the common interest community field.

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

(2)

the date on which the lease is scheduled to expire;

(3)

a legally sufficient description of the real estate subject to the lease;

may be inspected];

(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.

Comment

1. Subsection (a) requires that the lessor of any lease in a condominium or planned community which, upon termination, will terminate the condominium or planned community or reduce its size, must sign the declaration. This requirement insures that the lessor has consented to use of his land as a condominium or planned community. Note that such a signature is not
2. required in the case of a lease in a cooperative. This distinction between the types of common interest communities tracks that made by UCA, UPCA, and MRECA.
1. Subsection (a)(1) provides alternative bracketed language which should be considered by each State based on its practice. In any State where the recording acts do not specify the essential terms which must be included in a memorandum of lease, either this section should be supplemented to specify the essential terms, or the bracketed language relating to such memoranda should be deleted.
2. This section sets out requirements concerning leasehold common interest communities which are not typically contained in the laws of most States. In particular, it requires that the declaration describe the rights of the unit owners, or state that they have no rights concerning a variety of significant matters. This section also contains a number of other consumer protection provisions. However, in contrast to the result under some States’ condominium laws, neither the unit owners nor the association have a statutory right to renewal of a lease upon termination.
3. In the case of leasehold condominiums and planned communities, the most significant matter of consumer protection in this section is subsection (b), which provides that unit owners who pay their share of the rent of the underlying lease may not be deprived of their enjoyment of the leasehold premises.

Subsection (b) is intended to protect the leasehold condominium or planned community “unit owner” regardless of whether he is a lessee, sublessee, or even further down in a chain of transfer of leasehold interests. See Section 1-103(32). Thus, for example, if the “unit owner” is a sublessee, the term “lessor (or) his successor in interest” includes not only the lessor, but also the lessee.

Subsection (b) further protects the unit owner by assuring that he will not share with his fellow unit owners any collective obligations toward their common lessor. All obligations are instead fractionalized so that no unit owner can be made liable or otherwise penalized for a default by any of his fellows. Thus, a default by the association in payment of the rent due to a lessor, in a case where the lease of common elements ran to the association, would not permit the lessor to terminate continued use of those common elements by those unit owners who then pay their share of the rent.

Subsection (b) does not address the issue of whether a unit owner’s tenant may cure a default by the unit owner under the unit owner’s lease so as to prevent termination of the unit owner’s lease.

Example: Assume that A leases 100 acres of land to B for 50 years. B, in turn, leases the same 100 acres to C, for the duration of the 50 year term. C creates a condominium on the leasehold land, and thereby becomes the declarant; thereafter, he leases a unit in the condominium to D, together with a lease of this allocated undivided interest in the leasehold underlying the unit, for the duration of the 50 year term. D then leases his unit to E for a term of five years.

Both A and B must execute the declaration; see Section 2-106(a). So long as D meets his obligations to C – or any other persons – under the declaration and his sublease, D’s interest in the leasehold may not be terminated by either A, B, or C; see Section 2-106. For that reason, A and B will likely take appropriate steps to protect their interests in the event that D makes timely payment to C, if called for in the declaration or lease, but C fails to meet his obligations to either A or B. If D fails to make timely payment to C – or to B or A if those persons have so required – then D’s interest may be terminated by the person entitled to payment, unless E is entitled to cure. E may cure and thereby prevent default, however, only if other law of the State permits transferees of partial interests to cure defaults of his transferor. Since E is not a unit owner, he is not entitled to rights under this Act.

However, this section does not permit a unit owner in a cooperative to preserve his interest in the cooperative by paying his pro-rata share of the rent in the event the association fails to pay rent due under a ground lease. This distinction flows from the differences in the nature of a cooperative and a condominium or a planned community, and it tracks the distinction made by UCA and UPCA, and MRECA.

5. Subsection (d) considers the problems created when termination of a lease reduces the size of a common interest community. In the event that some units are thereby withdrawn from the common interest community, reallocation of the allocated interests would be required; the section describes how that reallocation would occur.

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.

Comment

1. Subsection (a) treats allocated interests differently in each type of common interest community. The distinctions made in parts (i) - (iii) track those made in the corresponding subsection of UCA, UPCA, and MRECA, for condominiums, planned communities, and cooperatives, respectively.

2. Most existing condominium statutes and cooperative documents require a single common basis, usually related to the “value” of the units, to be used in the allocation of common element interests, or ownership interests in cooperatives, votes in the association and common expense liabilities. Following UCA, UPCA, and MRECA, this Act departs radically from such requirements by permitting each of these allocations to be made on different bases, and by permitting allocations which are unrelated to value.

Thus, a common interest community’s applicable allocations might be made equally among all units, or in proportion to the relative size of each unit, or on the basis of any other formula the declarant may select, regardless of the value of those units. Moreover, “size” might be used, for example, in allocating common expenses and common element interests (or ownership interest), while equality is used in allocating votes in the association. This section does not require that the formulas used by the declarant be justified, but it does require that the formulas be explained. The sole restriction on the formulas to be used in these allocations is that they not discriminate in favor of the units owned by the declarant. Otherwise, each of the separate allocations may be on any basis which the declarant chooses, and none of the allocations need be tied to any other allocation.

1. While the flexibility permitted in allocations is broader than that commonly used today, it is likely that the traditional bases for allocation will continue to be used, and that the allocation for all allocated interests will often be based on the same formulas. Most commonly, those bases include size, equality, or value of units. Each of these is discussed below.
2. If size is chosen as a basis of allocation, the declarant must choose between reliance on area or volume, and the choice must be indicated in the declaration. The declarant might further refine the formula by, for example, excluding unheated areas from the calculation or by partially discounting such areas by means of a ratio. Again, the declarant must indicate the choices he has made and explain the formula he has chosen.
3. Most existing condominium statutes require that “value” be used as the basis of all allocations. Under this Act a declarant is free to select such a basis if he wishes to do so. For example, he might designate the “par value” of each unit as a stated number of dollars or points. However, the formula used to develop the par values of the various units would have to be explained in the declaration. For example, the declaration for a high rise project might disclose that the par value of each unit is based on the relative area of each unit on the lower floors, but increases by specified percentages at designated higher levels. The formula for determining area in this example could be further refined in the manner suggested in Comment 4, above, and any other factors (such as the direction in which a unit faces) could also be given weight so long as the weight given to each factor is explained in the declaration.
4. The purpose of subsection (c) is to require a comprehensive scheme for reallocation of allocated interests in a common interest community subject to development rights, and afford some advance disclosure to purchasers of units in the first phase of an expandable common interest community of how allocated interests will be reallocated if additional units are added.
5. Subsection (d) represents a significant departure from the practice in most States concerning the allocation of votes. The usual rule is that a single allocation of votes is made to each unit, and that allocation applies to all matters on which those votes may be cast. This section recognizes that the increasingly complex nature of some projects requires different

allocations on particular questions. Different allocations may be appropriate, for example, in a project where common expense liabilities, or questions concerning rules and regulations, affect different units differently.

Example: In a mixed commercial and residential project, the declaration might provide that each unit owner would have an equal vote for the election of the Board of Directors. However, on matters concerning ratification of the common expense budget, where the commercial unit owners pay a much larger share than their proportion of the total units, the vote of commercial unit owners might be increased so that they exceed the number of votes the residential owners hold. Alternatively, of course, it might be possible to treat this question as a class voting matter, but the draftsman is provided flexibility in this section to choose the most appropriate solution.

8. This section recognizes that there may be certain instances in which class voting in the association would be desirable. For example, in a mixed-use planned community or condominium consisting of both residential and commercial units, there may be certain kinds of issues upon which the residential or commercial unit owners should have a special voice, and the device described in Comment 7 is not desired. To prevent abuse of class voting by the declarant, subsection (d) permits class voting only with respect to specified issues directly affecting the designated class and only insofar as necessary to protect valid interests of the designated class.

Example: Owners of town house units, in a single project consisting of both town house and high-rise buildings, might properly constitute a separate class for purposes of voting on expenditures affecting only the town house units, but they might not be permitted to vote by class on rules for the use of facilities used by all the units.

The subsection further provides that the declarant may not use the class voting device for the purpose of evading any limitation imposed on declarants by this Act (e.g., to maintain declarant control beyond the period permitted by Section 3-103).

1. The last clause of subsection (d) prohibits a practice common in planned communities, where units owned by declarant constitute a separate class of units for voting and other purposes. Upon transfer of title, those units lose these more favorable voting rights. This section makes clear that the votes and other attributes of ownership of a unit may not change by virtue of the identity of the owner. The Act provides other, more balanced, devices for those circumstances which such classes were legitimately intended to address, principally declarant control of the association. See Section 3-103(d).
2. Questions have arisen concerning the drafters’ intent regarding the language in subsection (b), which prohibits the declaration in allocating votes and common expense liabilities among the units, 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 1/37^th 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 for an indefinite period 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.

Comment

1. Like all other common elements, limited common elements in a condominium are “owned” by all the unit owners on an undivided interest basis but managed by the Association, unless the declaration otherwise provides. In a planned community or cooperative, the common elements are owned by the association. The use of a limited common element in all cases, however, is reserved to less than all of the unit owners. Unless the declaration provides otherwise, the association is responsible for the upkeep of a limited common element and the cost of such upkeep is assessed against all the units. See Sections 3-107(a) and 3-115(c)(1). This might include the costs of repainting all shutters or balconies, for example, which are limited common elements pursuant to Section 2-102(4). Accordingly, there may be occasions where, to meet the expectations of owners and to have costs borne directly by those who benefit from those amenities, the declaration might provide that the costs will be borne, not by all unit owners as part of their common expense assessments, but only by the owners to which the limited common elements are assigned.
2. The use of common elements which are not “limited” within the meaning of this Act may nevertheless be restricted by the unit owners’ association pursuant to the powers set forth in Section 3-102(a)(6) and (10), unless that power is limited in the declaration. For example, the association might assign reserved parking spaces to designated unit owners, or even to persons who are not unit owners. Such a parking space would differ from a limited common element in that its use would be merely a personal right of the person to whom it is assigned and this section would not have to be complied with to allocate it or to reallocate it.
3. Because a mortgage, deed of trust, or security interest may restrict the borrower’s right to transfer the use of a limited common element without the lender’s consent, the terms of the encumbrance should be examined to determine whether the lender’s consent or release is needed to transfer that right of use to another person.

4. See also Comments 7 and 8 to Section 2-105.

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, but plats and plans need not designate or label which development rights are applicable to each parcel if that information is clearly delineated in the declaration;

(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 otherwise 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 otherwise 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 for 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