D R A F T

FOR DISCUSSION ONLY

AMENDMENTS TO

UNIFORM COMMON INTEREST OWNERSHIP ACT

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

For February 2006 Drafting Committee Meeting in Dallas, Texas

WITH PREFATORY NOTE AND LIMITED [NEW] COMMENTS

Copyright ©2006 By

NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS

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

DRAFTING COMMITTEE ON AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT

The Committee appointed by and representing the National Conference of Commissioners on Uniform State Laws in preparing these Amendments to Uniform Common Interest Ownership Act consists of the following individuals: CARL H. LISMAN, 84 Pine St., P.O. Box 728, Burlington, VT 05402, Chair OWEN L. ANDERSON, University of Oklahoma College of Law, 300 Timberdell Rd., Norman,

OK 73019 MARION W. BENFIELD, JR., 10 Overlook Circle, New Braunfels, TX 78132 DAVID D. BIKLEN, 153 N. Beacon St., Hartford, CT 06105, Enactment Plan Coordinator ELLEN F. DYKE, 10400 Fernwood Rd., Bethesda, MD 20817 JOHN S. GILLIG, Office of the Speaker, State Capitol, Room 307, Frankfort, KY 40601 DALE G. HIGER, 1302 Warm Springs Ave., Boise, ID 83712 DONALD E. MIELKE, 7472 S. Shaffer Ln., Suite 100, Littleton, CO 80127 HIROSHI SAKAI, 3773 Diamond Head Circle, Honolulu, HI 96815 NATHANIEL STERLING, 4000 Middlefield Rd., Suite D-2, Palo Alto, CA 94303 YVONNE L. THARPES, P.O. Box 1690, St. Thomas, VI 00804 NORA WINKELMAN, Office of General Counsel, 333 Market St., 17th Flr., Harrisburg, PA

17101 LEE YEAKEL, P.O. Box 164196, Austin, TX 78716-4196 WILLIAM R. BREETZ, JR., 35 Elizabeth St., Room K-202, Hartford, CT 06105, National

Conference Reporter

EX OFFICIO HOWARD J. SWIBEL, 120 S. Riverside Plaza, Suite 1200, Chicago, IL 60606, President LEVI J. BENTON, State of Texas, 301 Fannin, Room 206, Houston, TX 77002, Division Chair

AMERICAN BAR ASSOCIATION ADVISOR

GARY A. POLIAKOFF, 3111 Stirling Rd., Fort Lauderdale, FL 33312-6525, American Bar Association Advisor

REBECCA ANDERSON FISCHER, 633 17th St., Suite 3000, Denver, CO 80202, American Bar Association Section Advisor

EXECUTIVE DIRECTOR

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

Copies of this Act may be obtained from:

NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS 211 E. Ontario Street, Suite 1300

Chicago, Illinois 60611 312/915-0195

www.nccusl.org

AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT

TABLE OF CONTENTS

PREFATORY NOTE...................................................................................................................... 1

[ARTICLE] 1

GENERAL PROVISIONS [PART] 1 - DEFINITIONS AND OTHER GENERAL PROVISIONS

SECTION 1-101. SHORT TITLE ................................................................................................. 4 SECTION 1-102. APPLICABILITY............................................................................................. 4 SECTION 1-103. DEFINITIONS ................................................................................................. 4 SECTION 1-104. VARIATION BY AGREEMENT ................................................................... 12 SECTION 1-105. SEPARATE TITLES AND TAXATION ........................................................ 12 SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, REGULATIONS, AND

BUILDING CODES ......................................................................................................... 13 SECTION 1-107. EMINENT DOMAIN..................................................................................... 13 SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW APPLICABLE...... 14 SECTION 1-109. CONSTRUCTION AGAINST IMPLICIT REPEAL..................................... 14 SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION ..................... 14 SECTION 1-111. SEVERABILITY............................................................................................ 15 SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF CONTRACT ........... 15 SECTION 1-113. OBLIGATION OF GOOD FAITH ................................................................. 16 SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED................................... 16 SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS................................................... 16 SECTION 1-201. APPLICABILITY TO NEW COMMON INTEREST COMMUNITIES ...... 17 SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES ............................................ 18 SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE LIABILITY

PLANNED COMMUNITIES........................................................................................... 18 SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST

COMMUNITIES .............................................................................................................. 18 SECTION 1-205. SAME; EXCEPTION FOR SMALL PRE-EXISTING COOPERATIVES

AND PLANNED COMMUNITIES................................................................................. 19 SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS. ............................... 19 SECTION 1-207. APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE COMMON

INTEREST COMMUNITIES .......................................................................................... 20 SECTION 1-208. APPLICABILITY TO OUT-OF-STATE COMMON INTEREST

COMMUNITIES .............................................................................................................. 21

[ARTICLE] 2 CREATION, ALTERATION, AND TERMINATION OF COMMON INTEREST

COMMUNITIES SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES.......................... 22 SECTION 2-102. UNIT BOUNDARIES .................................................................................... 22 SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND

BYLAWS.......................................................................................................................... 23

SECTION 2-104. DESCRIPTION OF UNITS ........................................................................... 23 SECTION 2-105. CONTENTS OF DECLARATION ................................................................ 24 SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES. ........................... 28 SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS........................................... 30 SECTION 2-108. LIMITED COMMON ELEMENTS............................................................... 31 SECTION 2-109. PLATS AND PLANS..................................................................................... 32 SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS ................................................. 34 SECTION 2-111. ALTERATIONS OF UNITS ........................................................................... 36 SECTION 2-112. RELOCATION OF UNIT BOUNDARIES.................................................... 36 SECTION 2-113. SUBDIVISION OF UNITS............................................................................ 38 [SECTION 2-114. EASEMENT FOR ENCROACHMENTS .................................................... 38 [SECTION 2-114. MONUMENTS AS BOUNDARIES............................................................. 38 SECTION 2-115. USE FOR SALES PURPOSES ...................................................................... 39 SECTION 2-116. EASEMENT RIGHTS.................................................................................... 39 SECTION 2-117. AMENDMENT OF DECLARATION ........................................................... 40 SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY...................... 42 SECTION 2-119. RIGHTS OF SECURED LENDERS.............................................................. 47 SECTION 2-120. MASTER ASSOCIATIONS........................................................................... 48 SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST

COMMUNITIES .............................................................................................................. 50 SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE.......................................... 51 SECTION 2-123. MASTER PLANNED COMMUNITIES ....................................................... 51 [NEW] SECTION 2-124. ARRANGEMENTS BETWEEN COMMON INTEREST

COMMUNITIES .............................................................................................................. 53

[ARTICLE] 3 MANAGEMENT OF THE COMMON INTEREST COMMUNITY

SECTION 3-101. ORGANIZATION OF UNIT OWNERS' ASSOCIATION ............................. 54 SECTION 3-102. POWERS OF UNIT OWNERS' ASSOCIATION.......................................... 54 SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS ................................. 62 SECTION 3-104. TRANSFER OF SPECIAL DECLARANT RIGHTS .................................... 67 SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES OF DECLARANT...... 71 SECTION 3-106. BYLAWS........................................................................................................ 71 SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY.................................. 72 SECTION 3-108. MEETINGS .................................................................................................... 73 SECTION 3-109. QUORUMS .................................................................................................... 76 SECTION 3-110. VOTING; PROXIES ...................................................................................... 77 SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF LIMITATION

PERIOD ............................................................................................................................ 79 SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON ELEMENTS........ 80 SECTION 3-113. INSURANCE.................................................................................................. 83 SECTION 3-114. SURPLUS FUNDS......................................................................................... 86 SECTION 3-115. ASSESSMENTS FOR COMMON EXPENSES............................................ 87 SECTION 3-116. LIEN FOR ASSESSMENTS.......................................................................... 88 SECTION 3-117. OTHER LIENS............................................................................................. 100 SECTION 3-118. ASSOCIATION RECORDS ......................................................................... 101

SECTION 3-119. ASSOCIATION AS TRUSTEE .................................................................... 107 SECTION 3-120. RULES.......................................................................................................... 107 SECTION 3-121. LITIGATION INVOLVING THE DECLARANT....................................... 109 SECTION 3-122. NOTICE........................................................................................................ 112 SECTION 3-123. RECALL OF OFFICERS AND DIRECTORS ............................................ 114

[ARTICLE] 4

PROTECTION OF PURCHASERS SECTION 4-101. APPLICABILITY; WAIVER ...................................................................... 118 SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT

REQUIREMENTS.......................................................................................................... 118 SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS............... 119 SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO

DEVELOPMENT RIGHTS............................................................................................ 123 SECTION 4-105. SAME; TIME SHARES ............................................................................... 125 SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES CONTAINING

CONVERSION BUILDINGS. ....................................................................................... 126 SECTION 4-107. SAME; COMMON INTEREST COMMUNITY SECURITIES. ................ 126 SECTION 4-108. PURCHASER'S RIGHT TO CANCEL ....................................................... 127 SECTION 4-109. RESALES OF UNITS .................................................................................. 127 SECTION 4-110. ESCROW OF DEPOSITS ............................................................................ 130 SECTION 4-111. RELEASE OF LIENS................................................................................... 130 SECTION 4-112. CONVERSION BUILDINGS...................................................................... 131 SECTION 4-113. EXPRESS WARRANTIES OF QUALITY.................................................. 132 SECTION 4-114. IMPLIED WARRANTIES OF QUALITY................................................... 133 SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED WARRANTIES OF

QUALITY....................................................................................................................... 134 SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES.................................. 135 SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION; ATTORNEY'S

FEES ............................................................................................................................... 136 SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL......................................... 137 SECTION 4-119. DECLARANT'S OBLIGATION TO COMPLETE AND RESTORE......... 138 SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS.............................................. 138

[OPTIONAL] [ARTICLE] 5

ADMINISTRATION AND REGISTRATION OF COMMON INTEREST COMMUNITIES

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AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT

PREFATORY NOTE

1. Introduction. The Uniform Common Interest Ownership Act (“UCIOA”) is the Conference’s long term effort to offer comprehensive legislation to the States governing the creation and administration of all forms of shared ownership of real estate, including the three most commonly found forms: Condominiums, planned communities and real estate cooperatives. All these forms of shared ownership of individual “units” – whether condominium apartments in a high rise building, lots in a single family subdivision to which common property is appurtenant, expensive real estate cooperatives in Manhattan or federally subsidized cooperatives throughout urban America – share certain important characteristics: namely, the owners pay periodic fees – usually monthly – to an association in which those owners are members, and that association in turn uses the income derived from its members to pay for the upkeep of common property that is owned or used by all those owners. UCIOA uses a generic term – “common interest community” – to refer to all three forms. As drafted, UCIOA today addresses the three areas where, historically, legal disputes and uncertainty arose in the common interest community field:

(1) the wide range of legal tools necessary to create and develop common interest communities of all sizes and types;

(2) basic governance issues of the unit owners association, whether that association is organized as a non-stock corporation under state law or any other form of entity; and

(3) consumer protection issues in the dealings between retail buyers of units and the developers of those projects.

That drafting effort has been broadly successful; today, in 2005, UCIOA is the law in at least seven States, while the Uniform Condominium Act or substantially similar laws exist in 14 other States and the Uniform Planned Community Act is the law in two States.1 2. Focus of the 2005 Drafting Committee. The Committee is focused primarily on two groups of issues.

1 UCIOA: Alaska, Colorado, Connecticut, Minnesota, Nevada, West Virginia, Vermont

UCA: Alabama, Arizona, Louisiana, Maine, Missouri, Nebraska, New Hampshire, New Mexico,

North Carolina, Pennsylvania, Rhode Island, Texas, Virginia, Washington

UPCA: Pennsylvania, North Carolina

2

First, we seek to address a variety of questions that have arisen in more than 25 years since States began to adopt UCIOA, UCA, UPCA and similar statutes. Some of these issues are really minor ‘tweaks’ to the Acts as drafted, while others pose more significant policy issues.

Second and more controversial are a whole category of issues involving disputes between

individual unit owners and the associations that manage the community. These disputes have arisen to varying degrees around the country, but most commonly in States such as California, Texas, Florida, Arizona and Nevada. These are States that have experienced explosive growth in their populations and a parallel explosion in the creation of projects – particularly in ‘planned community’-type subdivisions that would meet UCIOA’s and UPCA’s definition of a “planned community.” The legal framework in these states applicable to common interest communities is widely fragmented, and the outcomes of various disputes often depends on whether the project is a ‘condominium’ governed by a State’s condominium law, or a common law ‘planned community’ which has no statutory governance structure in place. It is the Drafting Committee’s present intention to draw together a number of existing UCIOA provisions (or modifications) and several new provisions into a free-standing assemblage of internally consistent sections which might be adopted apart from UCIOA as a so-called “Bill of Rights.” If adopted, it would apply to unit owners and associations in all forms of common interest communities, whether or not the adopting State had also adopted UCIOA or any of its constituent Acts.

The materials that follow identify a range of these issues, and the Drafting Committee seeks guidance from the Commissioners that we can take to our subsequent meetings with advisors and observers. 3. History of the Act. UCIOA is the result of a long drafting history in the Uniform Laws Conference.

The now withdrawn Uniform Land Transactions Act (“ULTA”) originally contained an article dealing with Condominiums as part of its effort to comprehensively address all forms of real estate ownership. After ULTA was promulgated in 1975, the Conference authorized a Drafting Committee to draft the Uniform Condominium Act, which was first promulgated in 1978. A revised draft of UCA was adopted in 1980, at the time the Conference also promulgated the Uniform Planned Community Act.

UCIOA was adopted at the 1982 Annual Meeting of the Conference . It combined, in a single comprehensive law, prior uniform laws in this area (the Uniform Condominium Act (1980), the Uniform Planned Community Act (1980), and the Model Real Estate Cooperative Act (1981)).

UCIOA was amended again in 1994 to incorporate the lessons learned in many States as a result of the dramatic growth of common interest communities in the 12 years since UCIOA was first adopted in 1978. A list of the principal changes made by the 1994 amendments to UCIOA appears in the Prefatory Note to the 1994 version of UCIOA.

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4. Drafting Committee Schedule. The Draft Committee has held two meetings since the 2004 Annual Meeting, and presents this draft for first reading. However, the potential scale of the project is large and there are a large number of stakeholders in this field who have to date been unable to have observers from their constituencies become involved in the drafting process. As a consequence, the Drafting Committee has recommended to the Executive Board that this Act not go to final reading until the Annual Meeting of 2007 and the Executive Committee has agreed.

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AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT 1

2

[ARTICLE] 1 3

GENERAL PROVISIONS 4

[PART] 1 - DEFINITIONS AND OTHER GENERAL PROVISIONS 5

6

SECTION 1-101. SHORT TITLE. This [act] may be cited as the Uniform Common 7

Interest Ownership Act. 8

SECTION 1-102. APPLICABILITY. Applicability of this [act] is governed by [Part] 9

2 of this [article]. 10

SECTION 1-103. DEFINITIONS. In the declaration and bylaws (Section 3-106), 11

unless specifically provided otherwise or the context otherwise requires, and in this [act]: 12

(1) “Affiliate of a declarant” means any person who controls, is controlled by, or 13

is under common control with a declarant. A person “controls” a declarant if the person (i) is a 14

general partner, officer, director, or employer of the declarant, (ii) directly or indirectly or acting 15

in concert with one or more other persons, or through one or more subsidiaries, owns, controls, 16

holds with power to vote, or holds proxies representing, more than 20 percent of the voting 17

interest in the declarant, (iii) controls in any manner the election of a majority of the directors of 18

the declarant, or (iv) has contributed more than 20 percent of the capital of the declarant. A 19

person “is controlled by” a declarant if the declarant (i) is a general partner, officer, director, or 20

employer of the person, (ii) directly or indirectly or acting in concert with one or more other 21

persons, or through one or more subsidiaries, owns, controls, holds with power to vote, or holds 22

proxies representing, more than 20 percent of the voting interest in the person, (iii) controls in 23

5

any manner the election of a majority of the directors of the person, or (iv) has contributed more 1

than 20 percent of the capital of the person. Control does not exist if the powers described in this 2

paragraph are held solely as security for an obligation and are not exercised. 3

(2) “Allocated interests” means the following interests allocated to each unit: (i) 4

In a condominium, the undivided interest in the common elements, the common expense 5

liability, and votes in the association; (ii) in a cooperative, the common expense liability and the 6

ownership interest and votes in the association; and (iii) in a planned community, the common 7

expense liability and votes in the association. 8

(3) “Association” or “unit owners’ association” means the unit owners’ 9

association organized under Section 3-101. 10

(4) “Common elements” means (i) in the case of (A) a condominium or 11

cooperative, all portions of the common interest community other than the units; and (B) a 12

planned community, any real estate within a planned community which is owned or leased by the 13

association, other than a unit; and (ii) in all common interest communities, any other interests in 14

real estate for the benefit of unit owners which are subject to the declaration. 15

(5) “Common expenses” means expenditures made by, or financial liabilities of, 16

the association, together with any allocations to reserves. 17

(6) “Common expense liability” means the liability for common expenses 18

allocated to each unit pursuant to Section 2-107. 19

(7) “Common interest community” means includes a condominium, cooperative 20

or planned community. In all common interest communities, a person, by virtue of his ownership 21

of a unit, is obligated by the declaration to pay for real estate taxes or insurance premiums on, 22

services for, or maintenance or improvements of, common elements or other units. real estate 23

6

with respect to which a person, by virtue of his ownership of a unit, is obligated to pay for real 1

estate taxes, insurance premiums, maintenance, or improvement of other real estate described in 2

a declaration. “Ownership of a unit” does not include holding a leasehold interest of less than 3

[20] years in a unit, including renewal options. 4

Commissioner’s Floor Comment 5 6 1. Definition changes – Common Interest Community, Condominium, Planned 7 Community, Cooperative – why repeat all the same text in each definition? Old definitions 8 seemed to work. What was problem? “N. Ossen” 9 10

Reporter comment – 1/16/05 11 12 I believe Ms. Stubblefield and I reached some accommodation on this definition – 13 revolving around the focus on common elements. This is significant – and I cannot recall the 14 outcome. 15 16 (8) “A Condominium” means a common interest community in which portions of 17

the real estate with respect to which any person, by virtue of his ownership of a unit, is obligated 18

by the declaration to pay for real estate taxes or insurance premiums on, services for, or 19

maintenance or improvements of, common elements or other units. In a condominium, portions 20

of the real estate are designated for separate ownership and the remainder of the real estate is 21

designated for common ownership solely by the owners of those portions. A common interest 22

community is not a condominium unless the undivided interests in the common elements are 23

vested in the unit owners. 24

(9) “Conversion building” means a building that at any time before creation of the 25

common interest community was occupied wholly or partially by persons other than purchasers 26

and persons who occupy with the consent of purchasers. 27

(10) “Cooperative” means a common interest community in which the real estate 28

with respect to which any person, by virtue of his ownership of a unit, is obligated by the 29

7

declaration to pay for real estate taxes or insurance premiums on, services for, or maintenance or 1

improvements of, common elements or other units. In a cooperative, all the real estate described 2

in the declaration is owned by an association, each of whose members is entitled by virtue of his 3

ownership interest in the association to exclusive possession of a unit. 4

(11) “Dealer” means a person in the business of selling units for his own account. 5

(12) “Declarant” means any person or group of persons acting in concert who (i) 6

as part of a common promotional plan, offers to dispose of his or its interest in a unit not 7

previously disposed of or (ii) reserves or succeeds to any special declarant right [, or (iii) applies 8

for registration of a common interest community under [Article] 5]. 9

(13) “Declaration” means any instruments, however denominated, that create a 10

common interest community, including any amendments to those instruments. 11

(14) “Development rights” means any right or combination of rights reserved by a 12

declarant in the declaration to (i) add real estate to a common interest community; (ii) create 13

units, common elements, or limited common elements within a common interest community; (iii) 14

subdivide units or convert units into common elements; or (iv) withdraw real estate from a 15

common interest community. 16

(15) “Dispose” or “disposition” means a voluntary transfer to a purchaser of any 17

legal or equitable interest in a unit, but the term does not include the transfer or release of a 18

security interest. 19

(16) “Executive board” means the body, regardless of name, designated in the 20

declaration to act on behalf of the association. 21

(17) “Identifying number” means a symbol or address that identifies only one unit 22

in a common interest community. 23

8

(18) “Leasehold common interest community” means a common interest 1

community in which all or a portion of the real estate is subject to a lease the expiration or 2

termination of which will terminate the common interest community or reduce its size. 3

(19) “Limited common element” means a portion of the common elements 4

allocated by the declaration or by operation of Section 2-102(2) or (4) for the exclusive use of 5

one or more but fewer than all of the units. 6

(20) “Master association” means an organization described in Section 2-120, 7

whether or not it is also an association described in Section 3-101. 8

(21) “Offering” means any advertisement, inducement, solicitation, or attempt to 9

encourage any person to acquire any interest in a unit, other than as security for an obligation. 10

An advertisement in a newspaper or other periodical of general circulation, or in any broadcast 11

medium to the general public, of a common interest community not located in this State, is not 12

an offering if the advertisement states that an offering may be made only in compliance with the 13

law of the jurisdiction in which the common interest community is located. 14

(22) “Person” means an individual, corporation, business trust, estate, trust, 15

partnership, association, joint venture, government, governmental subdivision or agency, or other 16

legal or commercial entity. [In the case of a land trust, however, “person” means the beneficiary 17

of the trust rather than the trust or the trustee.] 18

(23) “Planned community” means a common interest community real estate with 19

respect to which any person, by virtue of his ownership of a unit, is obligated by the declaration 20

to pay for real estate taxes or insurance premiums on, services for, or maintenance or 21

improvements of, common elements or other units. A common interest community is not a 22

planned community unless the common elements are owned by the association.that is not a 23

9

condominium or a cooperative. In a planned community, portions of the real estate described in 1

the declaration are designated for separate ownership and the remainder of the real estate is 2

designated for ownership by the association. A condominium or cooperative may be part of a 3

planned community. 4

Commissioner’s Floor Comment 5 6

Sec. 1-103(23) Why can’t the common elements be ground leased as well as ‘owned’ by 7 the association to be included in the definition? “B. Hawkins 8 9 (24) “Proprietary lease” means an agreement with the association pursuant to 10

which a member is entitled to exclusive possession of a unit in a cooperative. 11

(25) “Purchaser” means a person, other than a declarant or a dealer, who by 12

means of a voluntary transfer acquires a legal or equitable interest in a unit other than (i) a 13

leasehold interest (including renewal options) of less than 20 years, or (ii) as security for an 14

obligation. 15

(26) “Real estate” means any leasehold or other estate or interest in, over, or 16

under land, including structures, fixtures, and other improvements and interests that by custom, 17

usage, or law pass with a conveyance of land though not described in the contract of sale or 18

instrument of conveyance. “Real estate” includes parcels with or without upper or lower 19

boundaries, and spaces that may be filled with air or water. 20

(27) “Residential purposes” means use for dwelling or recreational purposes, or 21

both. 22

Commissioner’s Floor Comments 23 24 Use of the term “residential” – what is residential – sec. 1-103 (27)? Commercial is not 25 defined. But see 3-102 (c) – ‘refers to “residential purposes.” What about vacation rentals? 26 27

(27A) [REPORTER. Proposal – 1/16/06] “Rule” or “Rules” means any rule, 28

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procedure or regulation of the association, however denominated, that does not appear in the 1

declaration or bylaws and that governs either the management of the association or the common 2

interest community or the conduct of persons or property within the common interest 3

community. 4

Reporter Comment 1/16/05 5

Please consider this proposed definition in light of proposed changes to Section 3-120. 6

(28) “Security interest” means an interest in real estate or personal property, 7

created by contract or conveyance, which secures payment or performance of an obligation. The 8

term includes a lien created by a mortgage, deed of trust, trust deed, security deed, contract for 9

deed, land sales contract, lease intended as security, assignment of lease or rents intended as 10

security, pledge of an ownership interest in an association, and any other consensual lien or title 11

retention contract intended as security for an obligation. 12

(29) “Special declarant rights” means rights reserved for the benefit of a declarant 13

to (i) complete improvements indicated on plats and plans filed with the declaration (Section 2-14

109) or, in a cooperative, to complete improvements described in the public offering statement 15

pursuant to Section 4-103(a)(2); (ii) exercise any development right (Section 2-110); (iii) 16

maintain sales offices, management offices, signs advertising the common interest community, 17

and models (Section 2-115); (iv) use easements through the common elements for the purpose of 18

making improvements within the common interest community or within real estate which may 19

be added to the common interest community (Section 2-116); (v) make the common interest 20

community subject to a master association (Section 2-120); (vi) merge or consolidate a common 21

interest community with another common interest community of the same form of ownership 22

(Section 2-121); (vii) control any architectural or design review committee or process; or (viii) 23

11

appoint [10/05 Decision ] any executive board member during any period of declarant control 1

(Section 3-103(d)) or remove any officer of the association or any master association. or any 2

executive board member during any period of declarant control (Section 3-103(d)). 3

Reporter Comment. –1/16/05 4 5

Perhaps the Committee might reconsider this last change– the “during” clause modifies 6 both actions.] 7 8

(30) “Time share” means a right to occupy a unit or any of several units during 9

[five] or more separated time periods over a period of at least [five] years, including renewal 10

options, whether or not coupled with an estate or interest in a common interest community or a 11

specified portion thereof. 12

(31) “Unit” means a physical portion of the common interest community 13

designated for separate ownership or occupancy, the boundaries of which are described pursuant 14

to Section 2-105(a)(5). If a unit in a cooperative is owned by a unit owner or is sold, conveyed, 15

voluntarily or involuntarily encumbered, or otherwise transferred by a unit owner, the interest in 16

that unit which is owned, sold, conveyed, encumbered, or otherwise transferred is the right to 17

possession of that unit under a proprietary lease, coupled with the allocated interests of that unit, 18

and the association’s interest in that unit is not thereby affected. 19

(32) “Unit owner” means a declarant or other person who owns a unit, or a lessee 20

of a unit in a leasehold common interest community whose lease expires simultaneously with 21

any lease the expiration or termination of which will remove the unit from the common interest 22

community, but does not include a person having an interest in a unit solely as security for an 23

obligation. In a condominium or planned community, the declarant is the owner of any unit 24

community or cooperative, in contrast to a condominium, there is no common element interest 25

12

allocated to unit owners in a planned community or cooperative. 1

SECTION 1-104. VARIATION BY AGREEMENT. Except as expressly provided in 2

this [act], its provisions may not be varied by agreement, and rights conferred by it may not be 3

waived. Except as provided in Section 1-207, a declarant may not act under a power of attorney, 4

or use any other device, to evade the limitations or prohibitions of this [act] or the declaration. 5

SECTION 1-105. SEPARATE TITLES AND TAXATION. 6

(a) In a cooperative, unless the declaration provides that a unit owner’s interest in 7

a unit and its allocated interests is real estate for all purposes, that interest is personal property. 8

[That interest is subject to the provisions of [insert reference to state homestead exemptions], 9

even if it is personal property.] 10

(b) In a condominium or planned community: 11

(1) If there is any unit owner other than a declarant, each unit that has been 12

created, together with its interest in the common elements, constitutes for all purposes a separate 13

parcel of real estate. 14

(2) If there is any unit owner other than a declarant, each unit must be 15

separately taxed and assessed, and no separate tax or assessment may be rendered against any 16

common elements for which a declarant has reserved no development rights. 17

(c) Any portion of the common elements for which the declarant has reserved any 18

development right must be separately taxed and assessed against the declarant, and the declarant 19

alone is liable for payment of those taxes. 20

(d) If there is no unit owner other than a declarant, the real estate comprising the 21

common interest community may be taxed and assessed in any manner provided by law. 22

SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, 23

13

REGULATIONS, AND BUILDING CODES. 1

(a) A building code may not impose any requirement upon any structure in a 2

common interest community which it would not impose upon a physically identical development 3

under a different form of ownership. 4

(b) In condominiums and cooperatives, no zoning, subdivision, or other real estate 5

use law, ordinance, or regulation may prohibit the condominium or cooperative form of 6

ownership or impose any requirement upon a condominium or cooperative which it would not 7

impose upon a physically identical development under a different form of ownership. 8

(c) Except as provided in subsections (a) and (b), the provisions of this [act] do 9

not invalidate or modify any provision of any building code, zoning, subdivision, or other real 10

estate use law, ordinance, rule, or regulation governing the use of real estate. 11

SECTION 1-107. EMINENT DOMAIN. 12

(a) If a unit is acquired by eminent domain or part of a unit is acquired by eminent 13

domain leaving the unit owner with a remnant that may not practically or lawfully be used for 14

any purpose permitted by the declaration, the award must include compensation to the unit 15

owner for that unit and its allocated interests, whether or not any common elements are acquired. 16

Upon acquisition, unless the decree otherwise provides, that unit’s allocated interests are 17

automatically reallocated to the remaining units in proportion to the respective allocated interests 18

of those units before the taking, and the association shall promptly prepare, execute, and record 19

an amendment to the declaration reflecting the reallocations. Any remnant of a unit remaining 20

after part of a unit is taken under this subsection is thereafter a common element. 21

(b) Except as provided in subsection (a), if part of a unit is acquired by eminent 22

domain, the award must compensate the unit owner for the reduction in value of the unit and its 23

14

interest in the common elements, whether or not any common elements are acquired. Upon 1

acquisition, unless the decree otherwise provides, (i) that unit’s allocated interests are reduced in 2

proportion to the reduction in the size of the unit, or on any other basis specified in the 3

declaration and (ii) the portion of the allocated interests divested from the partially acquired unit 4

are automatically reallocated to that unit and to the remaining units in proportion to the 5

respective allocated interests of those units before the taking, with the partially-acquired unit 6

participating in the reallocation on the basis of its reduced allocated interests. 7

(c) If part of the common elements is acquired by eminent domain, the portion of 8

the award attributable to the common elements taken must be paid to the association. Unless the 9

declaration provides otherwise, any portion of the award attributable to the acquisition of a 10

limited common element must be equally divided among the owners of the units to which that 11

limited common element was allocated at the time of acquisition. 12

SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW 13

APPLICABLE. The principles of law and equity, including the law of corporations [and 14

unincorporated associations], the law of real property, and the law relative to capacity to 15

contract, principal and agent, eminent domain, estoppel, fraud, misrepresentation, duress, 16

coercion, mistake, receivership, substantial performance, or other validating or invalidating cause 17

supplement the provisions of this [act], except to the extent inconsistent with this [act]. 18

SECTION 1-109. CONSTRUCTION AGAINST IMPLICIT REPEAL. This [act] 19

being a general act intended as a unified coverage of its subject matter, no part of it shall be 20

construed to be impliedly repealed by subsequent legislation if that construction can reasonably 21

be avoided. 22

SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION. 23

15

This [act] shall be applied and construed so as to effectuate its general purpose to make uniform 1

the law with respect to the subject of this [act] among States enacting it. 2

SECTION 1-111. SEVERABILITY. If any provision of this [act] or the application 3

thereof to any person or circumstances is held invalid, the invalidity does not affect other 4

provisions or applications of this [act] which can be given effect without the invalid provisions 5

or applications, and to this end the provisions of this [act] are severable. 6

SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF 7

CONTRACT. 8

(a) The court, upon finding as a matter of law that a contract or contract clause 9

was unconscionable at the time the contract was made, may refuse to enforce the contract, 10

enforce the remainder of the contract without the unconscionable clause, or limit the application 11

of any unconscionable clause in order to avoid an unconscionable result. 12

(b) Whenever it is claimed, or appears to the court, that a contract or any contract 13

clause is or may be unconscionable, the parties, in order to aid the court in making the 14

determination, must be afforded a reasonable opportunity to present evidence as to: 15

(1) the commercial setting of the negotiations; 16

(2) whether a party has knowingly taken advantage of the inability of the 17

other party reasonably to protect his interests by reason of physical or mental infirmity, illiteracy, 18

inability to understand the language of the agreement, or similar factors; 19

(3) the effect and purpose of the contract or clause; and 20

(4) if a sale, any gross disparity, at the time of contracting, between the 21

amount charged for the property and the value of that property measured by the price at which 22

similar property was readily obtainable in similar transactions. A disparity between the contract 23

16

price and the value of the property measured by the price at which similar property was readily 1

obtainable in similar transactions does not, of itself, render the contract unconscionable. 2

SECTION 1-113. OBLIGATION OF GOOD FAITH. Every contract or duty 3

governed by this [act] imposes an obligation of good faith in its performance or enforcement. 4

SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED. 5

(a) The remedies provided by this [act] shall be liberally administered to the end 6

that the aggrieved party is put in as good a position as if the other party had fully performed. 7

However, consequential, special, or punitive damages may not be awarded except as specifically 8

provided in this [act] or by other rule of law. 9

(b) Any right or obligation declared by this [act] is enforceable by judicial 10

proceeding. 11

SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS. 12

(a) From time to time the dollar amount specified in Section 1-203 must change, 13

as provided in subsections (b) and (c), according to and to the extent of changes in the Consumer 14

Price Index for Urban Wage Earners and Clerical Workers: U.S. City Average, All Items 1967 = 15

100, compiled by the Bureau of Labor Statistics, United States Department of Labor, (the 16

“Index”). The Index for December, 1979, which was 230, is the Reference Base Index. 17

(b) The dollar amount specified in Section 1-203 and any amount stated in the 18

declaration pursuant to that section, must change on July 1 of each year if the percentage of 19

change, calculated to the nearest whole percentage point, between the Index at the end of the 20

preceding year and the Reference Base Index is 10 percent or more, but 21

(i) the portion of the percentage change in the Index in excess of a 22

multiple of 10 percent must be disregarded and the dollar amount shall change only in multiples 23

17

of 10 percent of the amount appearing in this [act] on the date of enactment; 1

(ii) the dollar amount must not change if the amount required by this 2

section is that currently in effect pursuant to this [act] as a result of earlier application of this 3

section; and 4

(iii) in no event may the dollar amount be reduced below the amount 5

appearing in this [act] on the date of enactment. 6

(c) If the Index is revised after December, 1979, the percentage of change 7

pursuant to this section must be calculated on the basis of the revised Index. If the revision of the 8

Index changes the Reference Base Index, a revised Reference Base Index must be determined by 9

multiplying the Reference Base Index then applicable by the rebasing factor furnished by the 10

Bureau of Labor Statistics. If the Index is superseded, the Index referred to in this section is the 11

one represented by the Bureau of Labor Statistics as reflecting most accurately changes in the 12

purchasing power of the dollar for consumers. 13

14 [PART] 2 15

APPLICABILITY 16

SECTION 1-201. APPLICABILITY TO NEW COMMON INTEREST 17

COMMUNITIES. Except as provided in Sections 1-202 and 1-203, this [act] applies to all 18

common interest communities created within this State after the effective date of this [act]. The 19

provisions of [insert reference to all present statutes expressly applicable to planned 20

communities, condominiums, cooperatives, or horizontal property regimes] do not apply to 21

common interest communities created after the effective date of this [act]. Amendments to this 22

[act] apply to all common interest communities created after the effective date of this [act] or 23

subjected to this [act], regardless of when the amendment is adopted in this State. 24

18

SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES. If a cooperative 1

contains no more than 12 units and is not subject to any development rights, it is subject only to 2

Sections 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes) and 1-107 3

(Eminent Domain) of this [act] unless the declaration provides that the entire [act] is applicable. 4

SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE 5

LIABILITY PLANNED COMMUNITIES. 6

(a) If a planned community that is not subject to any development right: 7

(1) contains no more than 12 units; or 8

(2) provides, in its declaration, that the annual average common expense 9

liability of all units restricted to residential purposes, exclusive of optional user fees and any 10

insurance premiums paid by the association, may not exceed $300 as adjusted pursuant to 11

Section 1-115 (Adjustment of Dollar Amounts), it is subject only to Sections 1-105 (Separate 12

Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and Building 13

Codes), and 1-107 (Eminent Domain) unless the declaration provides that this entire [act] is 14

applicable. 15

(b) The exemption provided in subsection (a)(2) applies only if: 16

(1) the declarant reasonably believes in good faith that the maximum 17

stated assessment will be sufficient to pay the expenses of the planned community; and 18

(2) the declaration provides that the assessment may not be increased 19

during the period of declarant control without the consent of all unit owners. 20

SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST 21

COMMUNITIES. Except as provided in Section 1-205 (Same; Exception for Small Pre-22

Existing Cooperatives and Planned Communities), Sections 1-105 (Separate Titles and 23

19

Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes), 1-107 1

(Eminent Domain), 2-103 (Construction and Validity of Declaration and Bylaws), 2-104 2

(Description of Units), 2-121 (Merger or Consolidation of Common Interest Communities), 3-3

102(a)(1) through (6) and (11) through (16) (Powers of Unit Owners’ Association), 3-111 (Tort 4

and Contract Liability), 3-116 (Lien for Assessments), 3-118 (Association Records), 4-109 5

(Resales of Units), and 4-117 (Effect of Violation on Rights of Action; Attorney’s Fees), and 6

Section 1-103 (Definitions) to the extent necessary in construing any of those sections, apply to 7

all common interest communities created in this State before the effective date of this [act]; but 8

those sections apply only with respect to events and circumstances occurring after the effective 9

date of this [act] and do not invalidate existing provisions of the [declaration, bylaws, or plats or 10

plans] of those common interest communities. 11

SECTION 1-205. SAME; EXCEPTION FOR SMALL PRE-EXISTING 12

COOPERATIVES AND PLANNED COMMUNITIES. If a cooperative or planned 13

community created within this State before the effective date of this [act] contains no more than 14

12 units and is not subject to any development rights, it is subject only to Sections 1-105 15

(Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and 16

Building Codes), and 1-107 (Eminent Domain) unless the declaration is amended in conformity 17

with applicable law and with the procedures and requirements of the declaration to take 18

advantage of the provisions of Section 1-206, in which case all the sections enumerated in 19

Section 1-204 apply to that cooperative or planned community. 20

SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS. 21

(a) The declaration, bylaws, or plats and plans of any common interest community 22

created before the effective date of this [act] may be amended to achieve any result permitted by 23

20

this [act], regardless of what applicable law provided before this [act] was adopted. 1

(b) An amendment to the declaration, bylaws, or plats and plans authorized by 2

this section must be adopted in conformity with any procedures and requirements for amending 3

the instruments specified by those instruments or, if there are none, in conformity with the 4

amendment procedures of this [act]. If an amendment grants to any person any rights, powers, or 5

privileges permitted by this [act], all correlative obligations, liabilities, and restrictions in this 6

[act] also apply to that person. 7

SECTION 1-207. APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE 8

COMMON INTEREST COMMUNITIES. 9

(a) “Nonresidential common interest community” means a common interest 10

community in which all units are restricted exclusively to nonresidential purposes. Except as 11

provided in subsection (e), this section applies only to nonresidential common interest 12

communities. 13

(b) A nonresidential common interest community is not subject to this [act] unless 14

the declaration otherwise provides. 15

(c) The declaration of a nonresidential common interest community may provide 16

that the entire [act] applies to the community or that only Sections 1-105 (Separate Titles and 17

Taxation), 1-106 (Applicability of Local Ordinances, Regulations and Building Codes), and 1-18

107 (Eminent Domain) apply. 19

(d) If the entire [act] applies to a nonresidential common interest community, the 20

declaration may also require, subject to Section 1-112 (Unconscionable Agreement or Term of 21

Contract), that: 22

(1) notwithstanding Section 3-105 (Termination of Contracts and Leases 23

21

of Declarant), any management contract, employment contract, lease of recreational or parking 1

areas or facilities, and any other contract or lease between the association and a declarant or an 2

affiliate of a declarant continues in force after the declarant turns over control of the association; 3

and 4

(2) notwithstanding Section 1-104 (Variation by Agreement), purchasers 5

of units must execute proxies, powers of attorney, or similar devices in favor of the declarant 6

regarding particular matters enumerated in those instruments. 7

(e) A common interest community that contains units restricted exclusively to 8

nonresidential purposes and other units that may be used for residential purposes is not subject to 9

this [act] unless the units that may be used for residential purposes would comprise a common 10

interest community in the absence of the nonresidential units or the declaration provides that this 11

[act] applies as provided in subsection (c) or (d). 12

SECTION 1-208. APPLICABILITY TO OUT-OF-STATE COMMON INTEREST 13

COMMUNITIES. This [act] does not apply to common interest communities or units located 14

outside this State, but the public offering statement provisions (Sections 4-102 through 4-108) 15

apply to all contracts for the disposition thereof signed in this State by any party unless exempt 16

under Section 4-101(b) [and the agency regulation provisions under [Article] 5 apply to any 17

offering thereof in this State]. 18

22

[ARTICLE] 2 1

CREATION, ALTERATION, AND TERMINATION OF COMMON INTEREST 2

COMMUNITIES 3

4

SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES. 5

(a) A common interest community may be created pursuant to this [act] only by 6

recording a declaration executed in the same manner as a deed and, in a cooperative, by 7

conveying the real estate subject to that declaration to the association. The declaration must be 8

recorded in every [county] in which any portion of the common interest community is located 9

and must be indexed [in the grantee’s index] in the name of the common interest community and 10

the association and [in the grantor’s index] in the name of each person executing the declaration. 11

(b) In a condominium, a declaration, or an amendment to a declaration, adding 12

units may not be recorded unless (i) all structural components and mechanical systems of all 13

buildings containing or comprising any units thereby created are substantially completed in 14

accordance with the plans, as evidenced by a recorded certificate of completion executed by an 15

independent [registered] engineer, surveyor, or architect [, or (ii) unless the agency has approved 16

the declaration or amendment in the manner prescribed in Section 5-103(b)]. 17

SECTION 2-102. UNIT BOUNDARIES. Except as provided by the declaration: 18

(1) If walls, floors, or ceilings are designated as boundaries of a unit, all lath, 19

furring, wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finished flooring, and 20

any other materials constituting any part of the finished surfaces thereof are a part of the unit, 21

and all other portions of the walls, floors, or ceilings are a part of the common elements. 22

(2) If any chute, flue, duct, wire, conduit, bearing wall, bearing column, or any 23

23

other fixture lies partially within and partially outside the designated boundaries of a unit, any 1

portion thereof serving only that unit is a limited common element allocated solely to that unit, 2

and any portion thereof serving more than one unit or any portion of the common elements is a 3

part of the common elements. 4

(3) Subject to paragraph (2), all spaces, interior partitions, and other fixtures and 5

improvements within the boundaries of a unit are a part of the unit. 6

(4) Any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, 7

patios, and all exterior doors and windows or other fixtures designed to serve a single unit, but 8

located outside the unit’s boundaries, are limited common elements allocated exclusively to that 9

unit. 10

SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND 11

BYLAWS. 12

(a) All provisions of the declaration and bylaws are severable. 13

(b) The rule against perpetuities does not apply to defeat any provision of the 14

declaration, bylaws, rules, or regulations adopted pursuant to Section 3-102(a)(1). 15

(c) In the event of a conflict between the provisions of the declaration and the 16

bylaws, the declaration prevails except to the extent the declaration is inconsistent with this [act]. 17

(d) Title to a unit and common elements is not rendered unmarketable or 18

otherwise affected by reason of an insubstantial failure of the declaration to comply with this 19

[act]. Whether a substantial failure impairs marketability is not affected by this [act]. 20

SECTION 2-104. DESCRIPTION OF UNITS. A description of a unit which sets 21

forth the name of the common interest community, the [recording data] for the declaration, the 22

[county] in which the common interest community is located, and the identifying number of the 23

24

unit, is a legally sufficient description of that unit and all rights, obligations, and interests 1

appurtenant to that unit which were created by the declaration or bylaws. 2

SECTION 2-105. CONTENTS OF DECLARATION. 3

(a) The declaration must contain: 4

(1) the names of the common interest community and the association and a 5

statement that the common interest community is either a condominium, cooperative, or planned 6

community; 7

(2) the name of every [county] in which any part of the common interest 8

community is situated; 9

(3) a legally sufficient description of the real estate included in the 10

common interest community; 11

(4) a statement of the maximum number of units that the declarant 12

reserves the right to create; 13

(5) in a condominium or planned community, a description of the 14

boundaries of each unit created by the declaration, including the unit’s identifying number or, in 15

a cooperative, a description, which may be by plats or plans, of each unit created by the 16

declaration, including the unit’s identifying number, its size or number of rooms, and its location 17

within a building if it is within a building containing more than one unit; 18

(6) a description of any limited common elements, other than those 19

specified in Section 2-102(2) and (4), as provided in Section 2-109(b)(10) and, in a planned 20

community, any real estate that is or must become common elements; 21

(7) a description of any real estate, except real estate subject to 22

development rights, that may be allocated subsequently as limited common elements, other than 23

25

limited common elements specified in Section 2-102(2) and (4), together with a statement that 1

they may be so allocated; 2

(8) a description of any development rights (Section 1-103(14)) and other 3

special declarant rights (Section 1-103(29)) reserved by the declarant, together with a legally 4

sufficient description of the real estate to which each of those rights applies, and a time limit 5

within which each of those rights must be exercised; 6

(9) if any development right may be exercised with respect to different 7

parcels of real estate at different times, a statement to that effect together with (i) either a 8

statement fixing the boundaries of those portions and regulating the order in which those portions 9

may be subjected to the exercise of each development right or a statement that no assurances are 10

made in those regards, and (ii) a statement as to whether, if any development right is exercised in 11

any portion of the real estate subject to that development right, that development right must be 12

exercised in all or in any other portion of the remainder of that real estate; 13

(10) any other conditions or limitations under which the rights described 14

in paragraph (8) may be exercised or will lapse; 15

(11) an allocation to each unit of the allocated interests in the manner 16

described in Section 2-107; 17

(12) any restrictions (i) on alienation of the units, including any 18

restrictions on leasing which exceed the restrictions on leasing units which executive boards may 19

impose pursuant to Section 3-102(c)(2), and (ii) on the amount for which a unit may be sold or 20

on the amount that may be received by a unit owner on sale, condemnation, or casualty loss to 21

the unit or to the common interest community, or on termination of the common interest 22

community; 23

26

Reporter note – 1/16/06 1 2

Mr. Benfield commented that certain bracketed text [my notes are unclear as to which 3 text] was already included in this sub-para. 12. 4 5

(13) the [recording data] for recorded easements and licenses appurtenant 6

to or included in the common interest community or to which any portion of the common interest 7

community is or may become subject by virtue of a reservation in the declaration; and 8

(14) [10/05 Decision] provisions that either: (i) mandate that the 9

association create and maintain reserves for the replacement of common elements, together with 10

a statement of the basis on which those reserves are to be calculated and funded; or (ii) a 11

[conspicuous] statement that the association may but is not required to create and maintain 12

reserves; and 13

REPORTER NOTE – 1/16/06 – 14

There was some discussion in Phoenix regarding whether either the declaration or 15 the POS address the “adequacy” of the reserves. As drafted, this new text ‘winks’ at that 16 issue, by requiring a statement of “the basis’ on which the reserves are calculated and 17 funded. The Comments could be expanded to give examples of what we think the 18 declaration might say. 19

20 [10/05 Decision] Proposed NEW Comment 21

22 The issue of whether state law should mandate that all common interest community 23 associations create a reserve fund for the replacement of common elements as they require repair 24 and replacement and, if so, the extent to which they should be mandated, is a subject of 25 considerable scholarly debate and widely varying statutory treatment in the States. 26 27 As of 2006, some states – Florida and Hawaii, for example – either mandate that reserves 28 be maintained [insert citations] or establish a default rule that such reserves be created in the 29 absence of an affirmative vote by the association membership not to create reserves. Other states 30 – Virginia and California for example, [insert citations] require that the association board 31 undertake periodic studies of the association’s need for reserves. 32 33 It is also true that the underwriting guidelines used by Fannie Mae when deciding 34 whether to purchase mortgages in common interest communities, [requires/once required] that 35 condominiums – but not planned communities – required not only that the association maintain 36

27

reserves but that those reserves be “adequate’ – without defining the meaning of that word. 1 2 The evidence presented to the drafting committee suggested that the needs, practices and 3 expectations of unit owners in common interest communities differ widely, depending on, for 4 example, the size, age, location and design of the physical structures as well as the age, economic 5 circumstances and other demographic characteristics of the unit owners. Evidence suggests, for 6 example, that small, self-managed associations commonly will maintain minimal reserves and 7 will typically self-assess for repairs as needed. Other larger common interest communities, 8 particularly in high maintenance buildings, may choose to maintain substantially higher reserves. 9 We are aware of very few associations that maintain reserves at a level which would be 10 actuarially required by evaluating the useful life of each component of the building and then 11 accumulating reserves through increases in the monthly common charges paid by each owner, 12 based on a schedule reflecting each component’s useful life. 13 14 The committee recognizes that associations confront the same choices that a single family 15 homeowner confronts in thinking about, for example, the future need to replace the roof on her 16 house. That owner has at least three choices: (i) she can set aside a sum of money each month in 17 a segregated fund – perhaps even calling it a ‘reserve’ fund – so that when the roof or other parts 18 of her home need to be replaced, she will have the needed funds; (2) she can maintain savings 19 which are not segregated and pay cash from those savings at the time the roof replacement 20 occurs; or (3) she can borrow the needed funds, and pay that money back during the years when 21 she is enjoying a dry home. Clearly, she can also use a combination of these techniques. 22 Today, encouraged by state laws such as UCIOA § 3-102(a)(8) – enabling associations to pledge 23 their future common charges as security for a loan, UCIOA § 3-112 - enabling associations to 24 mortgage the common elements as security for a loan and UCIOA § 2-119, confirming the rights 25 of lenders to enforce conventional loan terms against associations, associations are increasingly 26 engaged in borrowing as an alternative to self-funding of reserves by unit owners who may, in 27 fact, be unable to realize the economic value of those reserve payments if the sell their units early 28 in the life of the project. 29 30 The committee was also mindful of the impact of a possible law mandating reserves on 31 the needs of the elderly and those of limited economic means. In practice, older unit owners 32 often resist reserves, while younger families may perceive a greater long term value in their 33 creation. We were also made aware of the special concerns of lower income owners in common 34 interest communities, where poorer owners may simply walk away from their mortgages and 35 their units because of their inability to maintain mortgage payments and monthly common 36 charges. If a statute were to mandate fully funded reserve payments, we would be concerned 37 with two possible unintended consequences: first, such a mandate might so raise the monthly 38 common charges that many potential buyers might be disqualified from homeownership; and 39 second, the increases in charges might accelerate the collapse of common interest communities 40 housing marginal income existing owners, who might abandon their units in increased numbers. 41 Neither of these outcomes would be desirable. 42 43 At the same time, the committee understands the natural interest of elected officials, who 44 may often be faced with constituent demands that government ‘do something’ about a common 45 interest community that has not prudently managed its affairs, with the result that needed repairs 46

28

have not been made and the needed funding is not readily identifiable. 1 2 For these reasons, the drafting committee in the 2007 amendments to UCIOA determined 3 that the most appropriate statutory means of addressing this concern was to have the Declarant 4 address the issue of reserves in the Declaration. The new provision does not require a particular 5 outcome other than the fact that the Declarant must affirmatively address the issue one way or 6 the other. Presumably, once required to address the issue, the Declarant and its professional 7 advisors will draft a reasoned provision consistent with their best sense of the nature of the 8 particular community and the likely financial circumstances of their purchasers. 9 10 Note that this provision does not in any way interfere with the necessary flexibility of a 11 Declarant in addressing this and many other subjects. The provision does not mandate reserves at 12 all, nor fully funded reserves, or ‘adequate’ reserves and it does not prevent future unit owners, 13 after the end of the period of Declarant control, from changing the initial result created by the 14 declarant. Moreover, parallel amendments to UCIOA Section 4-109 insure that this issue will be 15 fully disclosed in the initial POS and later resale documents. 16 17 Thus, what this amendment accomplishes is to insure that the subject of reserves be 18 consciously addressed by the party best suited at the time to understand the likely expectations 19 and requirements of the unit owners. Over the long term, however, better education of declarants 20 and unit owners alike, and the growth of ‘best practices’ in the common interest community field 21 under the leadership of national and state interest groups, must provide the optimal outcome in 22 each particular circumstance. 23 24 (15) [10/05 Decision] Any authorization pursuant to which the 25

association may regulate the display of American flags or political signs within the common 26

interest community; and 27

Reporter’s note – see also Section 3-120 (c). 28

(16) all matters required by Sections 2-106, 2-107, 2-108, 2-109, 2-115, 2-29

116, and 3-103(d). [11/05 decision] 30

(b) The declaration may contain any other matters the declarant considers 31

appropriate, including any restrictions on the uses of a unit or the number or other qualifications 32

of persons who may occupy units. 33

SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES. 34

(a) Any lease the expiration or termination of which may terminate the common 35

29

interest community or reduce its size [, or a memorandum thereof,] must be recorded. Every 1

lessor of those leases in a condominium or planned community shall sign the declaration. The 2

declaration must state: 3

(1) the [recording data] for the lease [or a statement of where the complete 4

lease may be inspected]; 5

(2) the date on which the lease is scheduled to expire; 6

(3) a legally sufficient description of the real estate subject to the lease; 7

(4) any right of the unit owners to redeem the reversion and the manner 8

whereby those rights may be exercised, or a statement that they do not have those rights; 9

(5) any right of the unit owners to remove any improvements within a 10

reasonable time after the expiration or termination of the lease, or a statement that they do not 11

have those rights; and 12

(6) any rights of the unit owners to renew the lease and the conditions of 13

any renewal, or a statement that they do not have those rights. 14

(b) After the declaration for a leasehold condominium or leasehold planned 15

community is recorded, neither the lessor nor the lessor’s successor in interest may terminate the 16

leasehold interest of a unit owner who makes timely payment of a unit owner’s share of the rent 17

and otherwise complies with all covenants which, if violated, would entitle the lessor to 18

terminate the lease. A unit owner’s leasehold interest in a condominium or planned community is 19

not affected by failure of any other person to pay rent or fulfill any other covenant. 20

(c) Acquisition of the leasehold interest of any unit owner by the owner of the 21

reversion or remainder does not merge the leasehold and fee simple interests unless the leasehold 22

interests of all unit owners subject to that reversion or remainder are acquired. 23

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(d) If the expiration or termination of a lease decreases the number of units in a 1

common interest community, the allocated interests must be reallocated in accordance with 2

Section 1-107(a) as if those units had been taken by eminent domain. Reallocations must be 3

confirmed by an amendment to the declaration prepared, executed, and recorded by the 4

association. 5

SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS. 6

(a) The declaration must allocate to each unit: 7

(i) in a condominium, a fraction or percentage of undivided interests in the 8

common elements and in the common expenses of the association (Section 3-115(a)), and a 9

portion of the votes in the association; 10

(ii) in a cooperative, an ownership interest in the association, a fraction or 11

percentage of the common expenses of the association (Section 3-115(a)), and a portion of the 12

votes in the association; and 13

(iii) in a planned community, a fraction or percentage of the common 14

expenses of the association (Section 3-115(a)), and a portion of the votes in the association. 15

(b) The declaration must state the formulas used to establish allocations of 16

interests. Those allocations may not discriminate in favor of units owned by the declarant or an 17

affiliate of the declarant. 18

(c) If units may be added to or withdrawn from the common interest community, 19

the declaration must state the formulas to be used to reallocate the allocated interests among all 20

units included in the common interest community after the addition or withdrawal. 21

(d) The declaration may provide: (i) that different allocations of votes shall be 22

made to the units on particular matters specified in the declaration; (ii) for cumulative voting 23

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only for the purpose of electing members of the executive board; and (iii) for class voting on 1

specified issues affecting the class if necessary to protect valid interests of the class. A declarant 2

may not utilize cumulative or class voting for the purpose of evading any limitation imposed on 3

declarants by this [act] nor may units constitute a class because they are owned by a declarant. 4

(e) Except for minor variations due to rounding, the sum of the common expense 5

liabilities and, in a condominium, the sum of the undivided interests in the common elements 6

allocated at any time to all the units must each equal one if stated as a fraction or 100 percent if 7

stated as a percentage. In the event of discrepancy between an allocated interest and the result 8

derived from application of the pertinent formula, the allocated interest prevails. 9

(f) In a condominium, the common elements are not subject to partition, and any 10

purported conveyance, encumbrance, judicial sale, or other voluntary or involuntary transfer of 11

an undivided interest in the common elements made without the unit to which that interest is 12

allocated is void. 13

(g) In a cooperative, any purported conveyance, encumbrance, judicial sale, or 14

other voluntary or involuntary transfer of an ownership interest in the association made without 15

the possessory interest in the unit to which that interest is related is void. 16

SECTION 2-108. LIMITED COMMON ELEMENTS. 17

(a) Except for the limited common elements described in Section 2-102(2) and 18

(4), the declaration must specify to which unit or units each limited common element is 19

allocated. An allocation may not be altered without the consent of the unit owners whose units 20

are affected. 21

(b) Except as the declaration otherwise provides, a limited common element may 22

be reallocated by an amendment to the declaration executed by the unit owners between or 23

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among whose units the reallocation is made. The persons executing the amendment shall provide 1

a copy thereof to the association, which shall record it. The amendment must be recorded in the 2

names of the parties and the common interest community. 3

(c) A common element not previously allocated as a limited common element 4

may be so allocated only pursuant to provisions in the declaration made in accordance with 5

Section 2-105(a)(7). The allocations must be made by amendments to the declaration. 6

SECTION 2-109. PLATS AND PLANS. 7

(a) Plats and plans are a part of the declaration, and are required for all common 8

interest communities except cooperatives. Separate plats and plans are not required by this [act] 9

if all the information required by this section is contained in either a plat or plan. Each plat and 10

plan must be clear and legible and contain a certification that the plat or plan contains all 11

information required by this section. 12

(b) Each plat must show or project: 13

(1) the name and a survey or general schematic map of the entire common 14

interest community; 15

(2) the location and dimensions of all real estate not subject to 16

development rights, or subject only to the development right to withdraw, and the location and 17

dimensions of all existing improvements within that real estate; 18

(3) a legally sufficient description of any real estate subject to 19

development rights, labeled to identify the rights applicable to each parcel; 20

(4) the extent of any encroachments by or upon any portion of the 21

common interest community; 22

(5) to the extent feasible, a legally sufficient description of all easements 23

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serving or burdening any portion of the common interest community; 1

(6) except as provided in subsection (h), the approximate location and 2

dimensions of any vertical unit boundaries not shown or projected on plans recorded pursuant to 3

subsection (d) and that unit’s identifying number; 4

(7) except as provided in subsection (h), the approximate location with 5

reference to an established datum of any horizontal unit boundaries not shown or projected on 6

plans recorded pursuant to subsection (d) and that unit’s identifying number; 7

(8) a legally sufficient description of any real estate in which the unit 8

owners will own only an estate for years, labeled as “leasehold real estate;” 9

(9) the distance between non-contiguous parcels of real estate comprising 10

the common interest community; 11

(10) the approximate location and dimensions of any porches, decks, 12

balconies, garages, or patios allocated as limited common elements, and show or contain a 13

narrative description of any other limited common elements; and 14

(11) in the case of real estate not subject to development rights, all other 15

matters customarily shown on land surveys. 16

(c) A plat may also show the intended location and dimensions of any 17

contemplated improvement to be constructed anywhere within the common interest community. 18

Any contemplated improvement shown must be labeled either “MUST BE BUILT” or “NEED 19

NOT BE BUILT.” 20

(d) Except as provided in subsection (h), to the extent not shown or projected on 21

the plats, plans of the units must show or project: 22

(1) the approximate location and dimensions of the vertical boundaries of 23

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each unit, and that unit’s identifying number; 1

(2) the approximate location of any horizontal unit boundaries, with 2

reference to an established datum, and that unit’s identifying number; and 3

(3) the approximate location of any units in which the declarant has 4

reserved the right to create additional units or common elements (Section 2-110(c)), identified 5

appropriately. 6

(e) Unless the declaration provides otherwise, the horizontal boundaries of part of 7

a unit located outside a building have the same elevation as the horizontal boundaries of the 8

inside part and need not be depicted on the plats and plans. 9

(f) Upon exercising any development right, the declarant shall record either new 10

plats and plans necessary to conform to the requirements of subsections (a), (b), and (d), or new 11

certifications of plats and plans previously recorded if those plats and plans otherwise conform to 12

the requirements of those subsections. 13

(g) Any certification of a plat or plan required by this section or Section 2-101(b) 14

must be made by an independent [registered] surveyor, architect, or engineer. 15

(h) Plats and plans need not show the location and dimensions of the units’ 16

boundaries or their limited common elements if: 17

(1) the plat shows the location and dimensions of all buildings containing 18

or comprising the units; and 19

(2) the declaration includes other information that shows or contains a 20

narrative description of the general layout of the units in those buildings and the limited common 21

elements allocated to those units. 22

SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS. 23

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(a) To exercise any development right reserved under Section 2-105(a)(8), the 1

declarant shall prepare, execute, and record an amendment to the declaration (Section 2-117) and 2

in a condominium or planned community comply with Section 2-109. The declarant is the unit 3

owner of any units thereby created. The amendment to the declaration must assign an identifying 4

number to each new unit created, and, except in the case of subdivision or conversion of units 5

described in subsection (b), reallocate the allocated interests among all units. The amendment 6

must describe any common elements and any limited common elements thereby created and, in 7

the case of limited common elements, designate the unit to which each is allocated to the extent 8

required by Section 2-108 (Limited Common Elements). 9

(b) Development rights may be reserved within any real estate added to the 10

common interest community if the amendment adding that real estate includes all matters 11

required by Section 2-105 or 2-106, as the case may be, and, in a condominium or planned 12

community, the plats and plans include all matters required by Section 2-109. This provision 13

does not extend the time limit on the exercise of development rights imposed by the declaration 14

pursuant to Section 2-105(a)(8). 15

(c) Whenever a declarant exercises a development right to subdivide or convert a 16

unit previously created into additional units, common elements, or both: 17

(1) if the declarant converts the unit entirely to common elements, the 18

amendment to the declaration must reallocate all the allocated interests of that unit among the 19

other units as if that unit had been taken by eminent domain (Section 1-107); and 20

(2) if the declarant subdivides the unit into two or more units, whether or 21

not any part of the unit is converted into common elements, the amendment to the declaration 22

must reallocate all the allocated interests of the unit among the units created by the subdivision in 23

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any reasonable manner prescribed by the declarant. 1

(d) If the declaration provides, pursuant to Section 2-105(a)(8), that all or a 2

portion of the real estate is subject to a right of withdrawal: 3

(1) if all the real estate is subject to withdrawal, and the declaration does 4

not describe separate portions of real estate subject to that right, none of the real estate may be 5

withdrawn after a unit has been conveyed to a purchaser; and 6

(2) if any portion is subject to withdrawal, it may not be withdrawn after a 7

unit in that portion has been conveyed to a purchaser. 8

SECTION 2-111. ALTERATIONS OF UNITS. Subject to the provisions of the 9

declaration and other provisions of law, a unit owner: 10

(1) may make any improvements or alterations to his unit that do not impair the 11

structural integrity or mechanical systems or lessen the support of any portion of the common 12

interest community; 13

(2) may not change the appearance of the common elements, or the exterior 14

appearance of a unit or any other portion of the common interest community, without permission 15

of the association; 16

(3) after acquiring an adjoining unit or an adjoining part of an adjoining unit, may 17

remove or alter any intervening partition or create apertures therein, even if the partition in whole 18

or in part is a common element, if those acts do not impair the structural integrity or mechanical 19

systems or lessen the support of any portion of the common interest community. Removal of 20

partitions or creation of apertures under this paragraph is not an alteration of boundaries. 21

SECTION 2-112. RELOCATION OF UNIT BOUNDARIES. 22

(a) Subject to the provisions of the declaration and other provisions of law, the 23

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boundaries between adjoining units may be relocated by an amendment to the declaration upon 1

application to the association by the owners of those units. If the owners of the adjoining units 2

have specified a reallocation between their units of their allocated interests, the application must 3

state the proposed reallocations. Unless the executive board determines, within 30 days, that the 4

reallocations are unreasonable, the association shall prepare an amendment that identifies the 5

units involved and states the reallocations. The amendment must be executed by those unit 6

owners, contain words of conveyance between them, and, on recordation, be indexed in the name 7

of the grantor and the grantee, and [in the grantee’s index] in the name of the association. 8

(b) Subject to the provisions of the declaration and other provisions of law, 9

boundaries between units and common elements may be relocated to incorporate common 10

elements within a unit by an amendment to the declaration upon application to the association by 11

the owner of the unit who proposes to relocate a boundary. Unless the declaration provides 12

otherwise, the amendment may be approved only if persons entitled to cast at least [67] percent 13

of the votes in the association, including [67] percent of the votes allocated to units not owned by 14

the declarant, agree to the action. The amendment may describe any fees or charges payable by 15

the owner of the affected unit in connection with the boundary relocation and the fees and 16

charges are assets of the association. The amendment must be executed by the unit owner of the 17

unit whose boundary is being relocated and by the association, contain words of conveyance 18

between them, and on recordation be indexed in the name of the unit owner and the association 19

as grantor or grantee, as appropriate. 20

(c) The association (i) in a condominium or planned community shall prepare and 21

record plats or plans necessary to show the altered boundaries of affected units, and their 22

dimensions and identifying numbers, and (ii) in a cooperative shall prepare and record 23

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amendments to the declaration, including any plans, necessary to show or describe the altered 1

boundaries of affected units, and their dimensions and identifying numbers. 2

SECTION 2-113. SUBDIVISION OF UNITS. 3

(a) If the declaration expressly so permits, a unit may be subdivided into two or 4

more units. Subject to the provisions of the declaration and other provisions of law, upon 5

application of a unit owner to subdivide a unit, the association shall prepare, execute, and record 6

an amendment to the declaration, including in a condominium or planned community the plats 7

and plans, subdividing that unit. 8

(b) The amendment to the declaration must be executed by the owner of the unit 9

to be subdivided, assign an identifying number to each unit created, and reallocate the allocated 10

interests formerly allocated to the subdivided unit to the new units in any reasonable manner 11

prescribed by the owner of the subdivided unit. 12

[ALTERNATIVE A] 13

[SECTION 2-114. EASEMENT FOR ENCROACHMENTS. To the extent that any 14

unit or common element encroaches on any other unit or common element, a valid easement for 15

the encroachment exists. The easement does not relieve a unit owner of liability in case of his 16

willful misconduct nor relieve a declarant or any other person of liability for failure to adhere to 17

any plats and plans or, in a cooperative, to any representation in the public offering statement.] 18

[ALTERNATIVE B] 19

[SECTION 2-114. MONUMENTS AS BOUNDARIES. The existing physical 20

boundaries of a unit or the physical boundaries of a unit reconstructed in substantial accordance 21

with the description contained in the original declaration are its legal boundaries, rather than the 22

boundaries derived from the description contained in the original declaration, regardless of 23

39

vertical or lateral movement of the building or minor variance between those boundaries and the 1

boundaries derived from the description contained in the original declaration. This section does 2

not relieve a unit owner of liability in case of his willful misconduct or relieve a declarant or any 3

other person of liability for failure to adhere to any plats and plans or, in a cooperative, to any 4

representation in the public offering statement.] 5

SECTION 2-115. USE FOR SALES PURPOSES. A declarant may maintain sales 6

offices, management offices, and models in units or on common elements in the common interest 7

community only if the declaration so provides and specifies the rights of a declarant with regard 8

to the number, size, location, and relocation thereof. In a cooperative or condominium, any sales 9

office, management office, or model not designated a unit by the declaration is a common 10

element. If a declarant ceases to be a unit owner, he ceases to have any rights with regard thereto 11

unless it is removed promptly from the common interest community in accordance with a right to 12

remove reserved in the declaration. Subject to any limitations in the declaration, a declarant may 13

maintain signs on the common elements advertising the common interest community. This 14

section is subject to the provisions of other state law and to local ordinances. 15

SECTION 2-116. EASEMENT RIGHTS. 16

(a) Subject to the provisions of the declaration, a declarant has an easement 17

through the common elements as may be reasonably necessary for the purpose of discharging the 18

declarant’s obligations or exercising special declarant rights, whether arising under this [act] or 19

reserved in the declaration. 20

(b) In a planned community, subject to the provisions of Sections 3-102(a)(6) and 21

3-112, the unit owners have an easement (i) in the common elements for purposes of access to 22

their units and (ii) to use the common elements and all real estate that must become common 23

40

elements (Section 2-105(a)(6)) for all other purposes. 1

SECTION 2-117. AMENDMENT OF DECLARATION. 2

(a) Except in cases of amendments that may be executed by a declarant under 3

Section 2-109(f) or 2-110, or by the association under Section 1-107, 2-106(d), 2-108(c), 2-4

112(a), or 2-113, or by certain unit owners under Section 2-108(b), 2-112(a), 2-113(b), or 2-5

118(b), and except as limited by subsection (d), the declaration, including any plats and plans, 6

may be amended only by vote or agreement [10/05 discussion- look at the words “or 7

agreement”] of unit owners of units to which at least [67] percent of the votes in the association 8

are allocated, or any larger majority the declaration specifies. The declaration may specify a 9

smaller number only if all of the units are restricted exclusively to nonresidential use. 10

(b) No action to challenge the validity of an amendment adopted by the 11

association pursuant to this section may be brought more than one year after the amendment is 12

recorded. 13

(c) Every amendment to the declaration must be recorded in every [county] in 14

which any portion of the common interest community is located and is effective only upon 15

recordation. An amendment, except an amendment pursuant to Section 2-112(a), must be 16

indexed [in the grantee’s index] in the name of the common interest community and the 17

association and [in the grantor’s index] in the name of the parties executing the amendment. 18

(d) Except to the extent expressly permitted or required by other provisions of this 19

[act], no amendment may create or increase special declarant rights, increase the number of 20

units, change the boundaries of any unit or the allocated interests of a unit, in the absence of 21

unanimous consent of the unit owners. 22

(e) Amendments to the declaration required by the [act] to be recorded by the 23

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association must be prepared, executed, recorded, and certified on behalf of the association by 1

any officer of the association designated for that purpose or, in the absence of designation, by the 2

president of the association. 3

(f) By vote or agreement of unit owners of units to which at least 80 percent of the 4

votes in the association are allocated, or any larger percentage specified in the declaration, an 5

amendment to the declaration may prohibit or materially restrict the permitted uses of or 6

behavior in a unit or the number or other qualifications of persons who may occupy units. The 7

amendment must provide reasonable protection for a use or occupancy permitted at the time the 8

amendment was adopted. 9

(g) The time limits specified in the declaration pursuant to Section 2-105(a)(8) 10

(Contents of the Declaration) within which reserved development rights must be exercised may 11

be extended, and additional development rights may be created, if persons entitled to cast at least 12

80 percent of the votes in the association, including 80 percent of the votes allocated to units not 13

owned by the declarant, agree to that action. The agreement is effective 30 days after an 14

amendment to the declaration reflecting the terms of the agreement is recorded unless all the 15

persons holding the affected special declarant rights, or security interests in those rights, record a 16

written objection within the 30-day period, in which case the amendment is void, or consent in 17

writing at the time the amendment is recorded, in which case the amendment is effective when 18

recorded. 19

Reporter’s Comment – 1/16/06 20

Re:Connecticut text prohibiting amendment of Special Declarant Rights without 21 Declarant consent. 22

Connecticut adopted the following provision as part its original enactment; the outcome 23 seems obvious but there was considerable interest in the certainty it provides. 24

“(h) Provisions in the declaration creating special declarant rights may not be amended 25

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without the consent of the declarant.” 1

Reporter’s Comment – 1/16/06 – 2

Re: Connecticut Text on Mortgagee Consents and Unanimity Requirements 3

Practitioners in Connecticut – the only state with a nearly ‘pure’ UCIOA since 1984 – 4 find this provision [added at the end of CT’s version of §2-117] enormously helpful and urge it 5 upon the Conference. Their only recommendation is that the provision be added to those 6 sections that apply automatically to “old” or pre-Act projects in Section 1-204. 7

“(i) If any provision of this chapter or of the declaration of any common interest 8 community subject to this chapter requires the consent of a person holding a security interest in a 9 unit as a condition to the effectiveness of any amendment to the declaration, that consent shall be 10 deemed granted if no written refusal to consent is received by the association within forty-five 11 days after the association delivers notice of the proposed amendment to the holder of the interest 12 or mails the notice to the holder of the interest by certified mail, return receipt requested. The 13 association may rely on the last-recorded security interest of record in delivering or mailing 14 notice to the holder of that interest. 15

(j) If the declaration of a common interest community, whether created before or after 16 January 1, 1984, contains a provision requiring that amendments relating to the use of units, the 17 relocation of boundaries between units and common elements or the extension or creation of 18 development rights may be adopted only by the vote or agreement of unit owners of units to 19 which more than eighty per cent of the votes in the association are allocated, such a proposed 20 amendment shall be deemed approved if: 21

(1) (A) Unit owners of units to which more than eighty per cent of the votes in the 22 association are allocated vote for or agree to the proposed amendment; 23

(B) No unit owner votes against the proposed amendment; and 24

(C) Notice of the proposed amendment is delivered to the unit owners holding the 25 votes in the association that have not voted or agreed to the proposed amendment and no 26 written objection of the proposed amendment is received by the association within thirty 27 days after the association delivers notice; or 28

(2) Unit owners of units to which more than eighty per cent of the votes in the association 29 are allocated vote for or agree to the proposed amendment but at least one unit owner 30 objects to the proposed amendment and, pursuant to an action brought by the association 31 in the Superior Court against all objecting unit owners, the court finds that the objecting 32 unit owner or owners do not have a unique minority interest, different in kind from the 33 interests of the other unit owners, that the voting requirement of the declaration was 34 intended to protect.” 35

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SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY. 37

43

(a) Except in the case of a taking of all the units by eminent domain (Section 1-1

107) or in the case of foreclosure against an entire cooperative of a security interest that has 2

priority over the declaration, a common interest community may be terminated only by 3

agreement of unit owners of units to which at least 80 percent of the votes in the association are 4

allocated, or any larger percentage the declaration specifies. The declaration may specify a 5

smaller percentage only if all of the units are restricted exclusively to nonresidential uses. 6

(b) An agreement to terminate must be evidenced by the execution of a 7

termination agreement, or ratifications thereof, in the same manner as a deed, by the requisite 8

number of unit owners. The termination agreement must specify a date after which the 9

agreement will be void unless it is recorded before that date. A termination agreement and all 10

ratifications thereof must be recorded in every [county] in which a portion of the common 11

interest community is situated and is effective only upon recordation. 12

(c) In the case of a condominium or planned community containing only units 13

having horizontal boundaries described in the declaration, a termination agreement may provide 14

that all of the common elements and units of the common interest community must be sold 15

following termination. If, pursuant to the agreement, any real estate in the common interest 16

community is to be sold following termination, the termination agreement must set forth the 17

minimum terms of the sale. 18

(d) In the case of a condominium or planned community containing any units not 19

having horizontal boundaries described in the declaration, a termination agreement may provide 20

for sale of the common elements, but it may not require that the units be sold following 21

termination, unless the declaration as originally recorded provided otherwise or all the unit 22

owners consent to the sale. 23

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(e) The association, on behalf of the unit owners, may contract for the sale of real 1

estate in a common interest community, but the contract is not binding on the unit owners until 2

approved pursuant to subsections (a) and (b). If any real estate is to be sold following 3

termination, title to that real estate, upon termination, vests in the association as trustee for the 4

holders of all interests in the units. Thereafter, the association has all powers necessary and 5

appropriate to effect the sale. Until the sale has been concluded and the proceeds thereof 6

distributed, the association continues in existence with all powers it had before termination. 7

Proceeds of the sale must be distributed to unit owners and lien holders as their interests may 8

appear, in accordance with subsections (h), (i), and (j). Unless otherwise specified in the 9

termination agreement, as long as the association holds title to the real estate, each unit owner 10

and the unit owner’s successors in interest have an exclusive right to occupancy of the portion of 11

the real estate that formerly constituted the unit. During the period of that occupancy, each unit 12

owner and the unit owner’s successors in interest remain liable for all assessments and other 13

obligations imposed on unit owners by this [act] or the declaration. 14

(f) In a condominium or planned community, if the real estate constituting the 15

common interest community is not to be sold following termination, title to the common 16

elements and, in a common interest community containing only units having horizontal 17

boundaries described in the declaration, title to all the real estate in the common interest 18

community, vests in the unit owners upon termination as tenants in common in proportion to 19

their respective interests as provided in subsection (j), and liens on the units shift accordingly. 20

While the tenancy in common exists, each unit owner and the unit owner’s successors in interest 21

have an exclusive right to occupancy of the portion of the real estate that formerly constituted the 22

unit. 23

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(g) Following termination of the common interest community, the proceeds of any 1

sale of real estate, together with the assets of the association, are held by the association as 2

trustee for unit owners and holders of liens on the units as their interests may appear. 3

(h) Following termination of a condominium or planned community, creditors of 4

the association holding liens on the units, which were [recorded] [docketed] [insert other 5

procedures required under state law to perfect a lien on real estate as a result of a judgment] 6

before termination, may enforce those liens in the same manner as any lien holder. All other 7

creditors of the association are to be treated as if they had perfected liens on the units 8

immediately before termination. 9

(i) In a cooperative, the declaration may provide that all creditors of the 10

association have priority over any interests of unit owners and creditors of unit owners. In that 11

event, following termination, creditors of the association holding liens on the cooperative which 12

were [recorded] [docketed] [insert other procedures required under state law to perfect a lien on 13

real estate as a result of a judgment] before termination may enforce their liens in the same 14

manner as any lien holder, and any other creditor of the association is to be treated as if he had 15

perfected a lien against the cooperative immediately before termination. Unless the declaration 16

provides that all creditors of the association have that priority: 17

(1) the lien of each creditor of the association which was perfected against 18

the association before termination becomes, upon termination, a lien against each unit owner’s 19

interest in the unit as of the date the lien was perfected; 20

(2) any other creditor of the association is to be treated upon termination 21

as if the creditor had perfected a lien against each unit owner’s interest immediately before 22

termination; 23

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(3) the amount of the lien of an association’s creditor described in 1

paragraphs (1) and (2) against each of the unit owners’ interest must be proportionate to the ratio 2

which each unit’s common expense liability bears to the common expense liability of all of the 3

units; 4

(4) the lien of each creditor of each unit owner which was perfected before 5

termination continues as a lien against that unit owner’s unit as of the date the lien was perfected; 6

and 7

(5) the assets of the association must be distributed to all unit owners and 8

all lien holders as their interests may appear in the order described above. Creditors of the 9

association are not entitled to payment from any unit owner in excess of the amount of the 10

creditor’s lien against that unit owner’s interest. 11

(j) The respective interests of unit owners referred to in subsections (e), (f), (g), 12

(h), and (i) are as follows: 13

(1) Except as provided in paragraph (2), the respective interests of unit 14

owners are the fair market values of their units, allocated interests, and any limited common 15

elements immediately before the termination, as determined by one or more independent 16

appraisers selected by the association. The decision of the independent appraisers must be 17

distributed to the unit owners and becomes final unless disapproved within 30 days after 18

distribution by unit owners of units to which 25 percent of the votes in the association are 19

allocated. The proportion of any unit owner’s interest to that of all unit owners is determined by 20

dividing the fair market value of that unit owner’s unit and its allocated interests by the total fair 21

market values of all the units and their allocated interests. 22

(2) If any unit or any limited common element is destroyed to the extent 23

47

that an appraisal of the fair market value thereof before destruction cannot be made, the interests 1

of all unit owners are: (i) in a condominium, their respective common element interests 2

immediately before the termination, (ii) in a cooperative, their respective ownership interests 3

immediately before the termination, and (iii) in a planned community, their respective common 4

expense liabilities immediately before the termination. 5

(k) In a condominium or planned community, except as provided in subsection (l), 6

foreclosure or enforcement of a lien or encumbrance against the entire common interest 7

community does not terminate, of itself, the common interest community, and foreclosure or 8

enforcement of a lien or encumbrance against a portion of the common interest community, other 9

than withdrawable real estate, does not withdraw that portion from the common interest 10

community. Foreclosure or enforcement of a lien or encumbrance against withdrawable real 11

estate, or against common elements that have been subjected to a security interest by the 12

association under Section 3-112, does not withdraw, of itself, that real estate from the common 13

interest community, but the person taking title thereto may require from the association, upon 14

request, an amendment excluding the real estate from the common interest community. 15

(l) In a condominium or planned community, if a lien or encumbrance against a 16

portion of the real estate comprising the common interest community has priority over the 17

declaration and the lien or encumbrance has not been partially released, the parties foreclosing 18

the lien or encumbrance, upon foreclosure, may record an instrument excluding the real estate 19

subject to that lien or encumbrance from the common interest community. 20

SECTION 2-119. RIGHTS OF SECURED LENDERS. 21

(a) The declaration may require that all or a specified number or percentage of the 22

lenders who hold security interests encumbering the units or who have extended credit to the 23

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association approve specified actions of the unit owners or the association as a condition to the 1

effectiveness of those actions, but no requirement for approval may operate to (i) deny or 2

delegate control over the general administrative affairs of the association by the unit owners or 3

the executive board, or (ii) prevent the association or the executive board from commencing, 4

intervening in, or settling any litigation or proceeding, or (iii) prevent any insurance trustee or 5

the association from receiving and distributing any insurance proceeds except pursuant to 6

Section 3-113. 7

(b) A lender who has extended credit to an association secured by an assignment 8

of income (Section 3-102(14)) or an encumbrance on the common elements (Section 3-112) may 9

enforce its security agreement in accordance with its terms, subject to the requirements of this 10

[act] and other law. Requirements that the association must deposit its periodic common charges 11

before default with the lender to which the association’s income has been assigned, or increase 12

its common charges at the lender’s direction by amounts reasonably necessary to amortize the 13

loan in accordance with its terms, do not violate the prohibitions on lender approval contained in 14

subsection (a). 15

SECTION 2-120. MASTER ASSOCIATIONS. 16

(a) If the declaration provides that any of the powers described in Section 3-102 17

are to be exercised by or may be delegated to a profit or nonprofit corporation [or unincorporated 18

association] that exercises those or other powers on behalf of one or more common interest 19

communities or for the benefit of the unit owners of one or more common interest communities, 20

all provisions of this [act] applicable to unit owners’ associations apply to any such corporation 21

[or unincorporated association], except as modified by this section. 22

(b) Unless it is acting in the capacity of an association described in Section 3-101, 23

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a master association may exercise the powers set forth in Section 3-102(a)(2) only to the extent 1

expressly permitted in the declarations of common interest communities which are part of the 2

master association or expressly described in the delegations of power from those common 3

interest communities to the master association. 4

(c) If the declaration of any common interest community provides that the 5

executive board may delegate certain powers to a master association, the members of the 6

executive board have no liability for the acts or omissions of the master association with respect 7

to those powers following delegation. 8

(d) The rights and responsibilities of unit owners with respect to the unit owners’ 9

association set forth in Sections 3-103, 3-108, 3-109, 3-110, and 3-112 apply in the conduct of 10

the affairs of a master association only to persons who elect the board of a master association, 11

whether or not those persons are otherwise unit owners within the meaning of this [act]. 12

(e) Even if a master association is also an association described in Section 3-101, 13

the certificate of incorporation or other instrument creating the master association and the 14

declaration of each common interest community, the powers of which are assigned by the 15

declaration or delegated to the master association, may provide that the executive board of the 16

master association must be elected after the period of declarant control in any of the following 17

ways: 18

(1) All unit owners of all common interest communities subject to the 19

master association may elect all members of the master association’s executive board. 20

(2) All members of the executive boards of all common interest 21

communities subject to the master association may elect all members of the master association’s 22

executive board. 23

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(3) All unit owners of each common interest community subject to the 1

master association may elect specified members of the master association’s executive board. 2

(4) All members of the executive board of each common interest 3

community subject to the master association may elect specified members of the master 4

association’s executive board. 5

SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST 6

COMMUNITIES. 7

(a) Any two or more common interest communities of the same form of 8

ownership, by agreement of the unit owners as provided in subsection (b), may be merged or 9

consolidated into a single common interest community. In the event of a merger or consolidation, 10

unless the agreement otherwise provides, the resultant common interest community is the legal 11

successor, for all purposes, of all of the pre-existing common interest communities, and the 12

operations and activities of all associations of the pre-existing common interest communities are 13

merged or consolidated into a single association that holds all powers, rights, obligations, assets, 14

and liabilities of all pre-existing associations. 15

(b) An agreement of two or more common interest communities to merge or 16

consolidate pursuant to subsection (a) must be evidenced by an agreement prepared, executed, 17

recorded, and certified by the president of the association of each of the pre-existing common 18

interest communities following approval by owners of units to which are allocated the 19

percentage of votes in each common interest community required to terminate that common 20

interest community. The agreement must be recorded in every [county] in which a portion of the 21

common interest community is located and is not effective until recorded. 22

(c) Every merger or consolidation agreement must provide for the reallocation of 23

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the allocated interests in the new association among the units of the resultant common interest 1

community either (i) by stating the reallocations or the formulas upon which they are based or 2

(ii) by stating the percentage of overall allocated interests of the new common interest 3

community which are allocated to all of the units comprising each of the pre-existing common 4

interest communities, and providing that the portion of the percentages allocated to each unit 5

formerly comprising a part of the pre-existing common interest community must be equal to the 6

percentages of allocated interests allocated to that unit by the declaration of the pre-existing 7

common interest community. 8

SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE. In a planned 9

community, if the right is originally reserved in the declaration, the declarant in addition to any 10

other development right, may amend the declaration at any time during as many years as are 11

specified in the declaration for adding additional real estate to the planned community without 12

describing the location of that real estate in the original declaration; but, the amount of real estate 13

added to the planned community pursuant to this section may not exceed 10 percent of the real 14

estate described in Section 2-105(a)(3) and the declarant may not in any event increase the 15

number of units in the planned community beyond the number stated in the original declaration 16

pursuant to Section 2-105(a)(5). 17

SECTION 2-123. MASTER PLANNED COMMUNITIES. 18

(a) The declaration for a common interest community may state that it is a master 19

planned community if the declarant has reserved the development right to create at least [500] 20

units that may be used for residential purposes, and at the time of the reservation that declarant 21

owns or controls more than [500] acres on which the units may be built. 22

(b) If the requirements of subsection (a) are satisfied, the declaration for the 23

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master planned community need not state a maximum number of units and need not contain any 1

of the information required by Section 2-105(a)(3) through (14) until the declaration is amended 2

under subsection (c). 3

(c) When each unit in a master planned community is conveyed to a purchaser, 4

the declaration must contain (i) a sufficient legal description of the unit and all portions of the 5

master planned community in which any other units have been conveyed to a purchaser; and (ii) 6

all the information required by Section 2-105(a)(3) through (14) with respect to that real estate. 7

(d) The only real estate in a master planned community which is subject to this 8

[act] is units that have been declared or which are being offered for sale and any other real estate 9

described pursuant to subsection (c). Other real estate that is or may become part of the master 10

planned community is only subject to other law and to any other restrictions and limitations that 11

appear of record. 12

(e) If the public offering statement conspicuously identifies the fact that the 13

community is a master planned community, the disclosure requirements contained in [Article] 4 14

apply only with respect to units that have been declared or are being offered for sale in 15

connection with the public offering statement and to the real estate described pursuant to 16

subsection (c). 17

(f) Limitations in this [act] on the addition of unspecified real estate (Section 2-18

122) do not apply to a master planned community. 19

(g) The period of declarant control of the association for a master planned 20

community terminates in accordance with any conditions specified in the declaration or 21

otherwise at the time the declarant, in a recorded instrument and after giving written notice to all 22

the unit owners, voluntarily surrenders all rights to control the activities of the association. 23

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[NEW] SECTION 2-124. ARRANGEMENTS BETWEEN COMMON INTEREST 1

COMMUNITIES 2

(a) Two or more common interest communities may by contract [or in their 3

declarations] agree to share the costs of real estate taxes, insurance premiums, services, 4

maintenance or improvements of real estate or other activities specified in their contract [or 5

declarations]. 6

(b) An agreement to share costs in this manner does not, of itself, comprise an 7

additional common interest community unless the cost sharing agreement was intended to evade 8

the limitations of this Act. 9

(c) If the declarants of the contracting common interest communities are the same 10

or are affiliates, the cost sharing agreement may not unreasonably allocate the costs among those 11

common interest communities. 12

Drafters Note – The section - and perhaps the Act - likely will require a conflicts provision 13 between this Act and the corporate statue under which the association is organized. 14

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[ARTICLE] 3 1

MANAGEMENT OF THE COMMON INTEREST COMMUNITY 2

3

SECTION 3-101. ORGANIZATION OF UNIT OWNERS’ ASSOCIATION. A unit 4

owners’ association must be organized no later than the date the first unit in the common interest 5

community is conveyed. The membership of the association at all times consists exclusively of 6

all unit owners or, following termination of the common interest community, of all former unit 7

owners entitled to distributions of proceeds under Section 2-118 or their heirs, successors, or 8

assigns. The association must be organized as a profit or nonprofit corporation, trust, limited 9

liability company, [or] partnership, [or] any other form of organization authorized by the laws of 10

this State [, or as an unincorporated association]. 11

Drafters Note: We will add a comment on why the declarant is a member of the association – 12 see definition of unit owner and the fact that the declarant is a unit owner of all units created 13 [See definition and and 2-110(a)] 14 15

SECTION 3-102. POWERS OF UNIT OWNERS ASSOCIATION. 16

(a) Except as provided in subsection (b) [10/05 Decision] and other provisions of 17

this Act, and subject to the provisions of the declaration, the association [, even if 18

unincorporated,] may: 19

(1) adopt and amend bylaws [Reporter Proposal 1/16/05] in accordance 20

with section 3-106 and [10/05 Decision] reasonable rules and regulations [Reporter Proposal 21

1/16/05] in accordance with section 3-120; 22

(2) adopt and amend budgets for revenues, expenditures, and reserves 23

[Reporter Proposal 1/16/05] in accordance with section 3-103(c), and collect assessments for 24

common expenses from unit owners and invest any reserves; 25

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[10/05 Decision] Draft Comment 1

RE: Applicability of Uniform Prudent Investor Act [Expanding on John Langbein Text] 2

The Uniform Prudent Investor Act, as drafted, would not apply to the association’s 3 investment of reserves. The Drafting Committee has considered the question of whether UCIOA 4 should be amended to require that the principles imbedded in UPIA should be applied to 5 association boards and, for the reasons stated below, concludes that it should not so apply. 6 7 The drafters understand from anecdotal evidence that the reserves of most common 8 interest community associations, as a matter of practice, are invested in cash or near-cash (i.e., 9 short term bond fund) equivalents. 10 11 The UPIA by its terms applies to trust investing. It is the nearly universal practice for 12 associations to be organized as corporations or – occasionally – other forms of business entities 13 but rarely as trusts. In these cases, the business judgment rule rather than the prudence norm of 14 trust law applies. 15 16 Beyond that, however, and regardless of the form of organization, the Committee 17 concluded that it ought not to make special provision for association investments in this Act 18 because actual or contingent liquidity needs will predominate in most circumstances affecting the 19 association. Unlike a family trust, an association board is not meant to be doing long-term 20 investing for capital growth and, accordingly, most such investing is appropriately done in 21 interest-bearing cash equivalents. 22 23 Finally, because the subject has not been problematic in practice, the committee sees no 24 need to make special provision for it. Of course, in those unusual cases where long term capital 25 growth might be appropriate, and subject to the business judgment rule, UCIOA would not bar a 26 board’s decision to invest the reserves in suitable vehicles designed to achieve that goal. 27 28

(3) hire and discharge managing agents and other employees, agents, and 29

independent contractors; 30

(4) institute, defend, or intervene in litigation or administrative 31

proceedings in its own name on behalf of itself or two or more unit owners on matters affecting 32

the common interest community[10/05 Decision] subject to, in the case of litigation involving 33

the declarant, the notice and right to cure provisions contained in Section 3-121; 34

Questions for the Commissioners – 35 We are not here dealing with litigation against the developer, which UCIOA deals with 36 separately; see subsection (b)]. 37

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There has been an explosion of construction defect litigation against developers over the years. 1 Most developers believe this has been driven by the possibility of attorneys fees due to 2 association counsel and less by the desire to fix genuine problems. Counsel for the associations, 3 naturally, disagree and suggest there is no reason to treat the law here differently than existing 4 law on home owner defects litigation.Some states have enacted laws requiring that notice be 5 given to developers together with an opportunity to cure, as a condition precedent to 6 commencement of litigation. 7 8 This is clearly not a common requirement in other areas of the law, but this position is being 9 vigorously pressed on the committee by some of its advisors. The committee seeks advice from 10 the Conference on this matter. 11 12 The issue of unfettered rights of the elected board to commence litigation on behalf of the 13 association is an increasingly contentious matter. Issues include: 14 15 10/05 Decision- see amended 3-102(b)] Should we either restrict in the Act or allow, as 16 we now do, the declaration to restrict, any of the following: 17 18 a. suits under a minimum amount 19 b. foreclosure of assessment liens against the units for less than a certain amount, or at all, 20 or otherwise constrain collection of assessement to small claims judgments? 21 c. Rules enforcement? 22 23 d. Zoning matters outside the common interest community – at least without a vote of unit 24 owners? 25 e. Should we prohibit an increasing practice of the developer imposing a broad prohibition 26 on institution of any litigation by the association absent a super majority vote of unit owners? 27 28

COMMISSIONER’S COMMENT – 29 30 1. Re” Section 4 – As a matter of practice, none of these issues have gone to juries; courts 31 have uniformly decided them on summary judgment, have they not? “Elizabeth” 32 33 9. Page 54- question re (e): Having the declarant be able to impose a super majority 34 requirement would be a very bad idea in my judgment. Why should the declarant be able to 35 protect itself and impose limitations of the Board? “B. Hawkins” 36 37

(5) make contracts and incur liabilities; 38

(6) regulate the use, maintenance, repair, replacement, and modification of 39

common elements; 40

(7) cause additional improvements to be made as a part of the common 41

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elements; 1

(8) acquire, hold, encumber, and convey in its own name any right, title, or 2

interest to real estate or personal property, but (i) common elements in a condominium or 3

planned community may be conveyed or subjected to a security interest only pursuant to Section 4

3-112 and (ii) part of a cooperative may be conveyed, or all or part of a cooperative may be 5

subjected to a security interest, only pursuant to Section 3-112; 6

(9) grant easements, leases, licenses, and concessions through or over the 7

common elements; 8

(10) impose and receive any payments, fees, or charges for the use, rental, 9

or operation of the common elements, other than limited common elements described in Section 10

2-102(2) and (4), and for services provided to unit owners; 11

(11) impose charges for late payment of assessments and, after notice and 12

an opportunity to be heard, levy reasonable fines for violations of the declaration, bylaws, rules, 13

and regulations of the association; 14

Proposed New Comment to 3-102(a)(11) 15

Under UCIOA, fines levied by the Association may not be arbitrary nor may they be 16 discriminatorily applied – thus we reach the same result as critiques of the UCIOA from the 17 AARP urge upon us. 18 19

(12) impose reasonable charges for the preparation and recordation of 20

amendments to the declaration, resale certificates required by Section 4-109, or statements of 21

unpaid assessments; 22

(13) provide for the indemnification of its officers and executive board 23

and maintain directors’ and officers’ liability insurance; 24

(14) assign its right to future income, including the right to receive 25

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common expense assessments, but only except to the extent limited by the declaration expressly 1

so provides; 2

Reporter Proposal [1/16/06] 3

Connecticut practitioners, based on their experience, urge this reversal of the default rule. 4

(15) exercise any other powers conferred by the declaration or bylaws; 5

(16) exercise all other powers that may be exercised in this State by legal 6

entities of the same type as the association; 7

(17) exercise any other powers necessary and proper for the governance 8

and operation of the association; and 9

(18) by regulation rule, require that disputes between the executive board 10

and unit owners or between two or more unit owners regarding the common interest community 11

must be submitted to nonbinding alternative dispute resolution in the manner described in the 12

regulation as a prerequisite to commencement of a judicial proceeding. 13

Drafter’s Note on Arbitration – 14

This issue of mandating binding arbitration in such situations was discussed and rejected by the 15 drafting committee. Other states are considering alternative proposals – see, e.g., Texas and 16 California proposals. 17 18

(19) [Reporter Proposal 1/16/06] Subject to any special declarant right 19

reserved by a declarant to control any architectural or design review committee or process; the 20

association may establish and enforce architectural and design criteria and aesthetic standards as 21

provided in [new] Section 3-120. 22

(b) The declaration may not impose limitations on the power of the association to: 23

[10/05 Decision] 24

(i) deal with the declarant which are more restrictive than the limitations 25

59

imposed on the power of the association to deal with other persons; or 1

(ii) commence litigation against any person, but (A) the association must 2

comply with Section 3-121 before commencing any proceeding against a declarant or other 3

person in connection with construction defects; and (B) the executive board shall promptly 4

provide notice to the unit owners of any litigation filed by or against the association [other than 5

suits involving enforcement of rules and claims for common charges]. [Need to add any needed 6

text on ADR]. 7

(c) Unless otherwise permitted by the declaration or this [act], an association may 8

adopt rules and regulations that affect the use of or behavior in units that may be used for 9

residential purposes only to: 10

(1) prevent any use of a unit which violates the declaration; 11

(2) regulate any behavior in or occupancy of a unit which violates the 12

declaration or adversely affects the use and enjoyment of other units or the common elements by 13

other unit owners; or 14

(3) restrict the leasing of residential units to the extent those rules are 15

reasonably designed to meet underwriting requirements of institutional lenders who regularly 16

lend money secured by first mortgages on units in common interest communities or regularly 17

purchase those mortgages. Otherwise, the association may not regulate any use of or behavior in 18

units. 19

Reporter Proposal 1/16/06 20

In Phoenix, I was directed to move most of new Sec. 3-120 to existing sec. 3-102(c)- that 21 is, the text deleted above this text. It seemed – at least to me – to create a ponderous sub-section 22 and a very lengthy section. I therefore propose the reverse – that is, I have moved this sub-23 section (c) to 3-120 as new sub (d) and expanded the treatment of all rules there. 24 25

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(dc) If a tenant of a unit owner violates the declaration, bylaws, or rules and 1

regulations of the association, in addition to exercising any of its powers against the unit owner, 2

the association may: 3

(1) exercise directly against the tenant the powers described in subsection 4

(a)(11); 5

(2) after giving notice to the tenant and the unit owner and an opportunity 6

to be heard, levy reasonable fines against the tenant for the violation; and 7

(3) enforce any other rights against the tenant for the violation which the 8

unit owner as landlord could lawfully have exercised under the lease or which the association 9

could lawfully have exercised directly against the unit owner, or both. 10

(ed) The rights granted under subsection (dc)(3) may only be exercised if the 11

tenant or unit owner fails to cure the violation within 10 days after the association notifies the 12

tenant and unit owner of that violation. 13

(fe) Unless a lease otherwise provides, this section does not: 14

(1) affect rights that the unit owner has to enforce the lease or that the 15

association has under other law; or 16

(2) permit the association to enforce a lease to which it is not a party in the 17

absence of a violation of the declaration, bylaws, or rules and regulations. 18

(f) [NEW] (was “g” in Phoenix) [Text After 10/05 Decisions] The association, in 19

the exercise of its discretion, need not take action with respect to every each alleged or actual 20

violation of the declaration, bylaws or rules and regulations of the association but a decision to 21

act or not act must not be arbitrary or capricious. The association’s failure to do so in any 22

instance will not adversely affect its ability act on one occasion is not a waiver of its right to 23

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enforce those instruments on another occasion. 1

Reporter’s Notes [1/15/06] 2

1. I understand that the comments here should: 3 4 (a) refer to the appropriate provisions of the UCC [Reporter welcomes 5 guidance] and 6 (b) make clear that we are not intending to change the usual law of waiver. 7 8 2. I do not recall reviewing materials from David Ramsey on this subject, but he 9 may have sent them. 10 11 3. Don Mielke proposed amending Sec. 4-107 to enable a private action to force 12 enforcement of a rule – my notes are unclear as to what decision was made on this proposal. 13 14 4. My notes state that I was to “put in a provision that this Act trumps other 15 statutes.” [?] 16 17 5. My notes show a debate between Ms. Winkelman and Ms. Stubblefield on this 18 sub-section, with Ms. Stubblefield observing that a rules restriction on “no commercial writing” 19 or “no towels on railings” ought not to require universal enforcement. [Not sure what the debate 20 was; perhaps this text meets all needs.] 21 22 6. I’d also like to review the following comment made on the floor at the 2005 23 annual meeting – which my notes tell me I am to incorporate into the comments; 24 25

“COMMISSIONER’S COMMENT- 26 27

“Section 3-102(g) should be subject to other principles of law and equity, including the 28 law of waiver and course of performance. If the second sentence of 3-102 g is intended to 29 modify these principles, some more clarification seems appropriate. The policy set forth in the 30 second sentence is worthwhile, but the law of waiver and course of performance should be 31 entirely displaced. “ 32 33

(g) [NEW] the association may [10/05 Decision], in the exercise of discretion, 34

compromise any claim made by or against it, including claims for unpaid assessments. 35

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SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS. 1

(a) Except as provided in the declaration, the bylaws, subsection (b), or other 2

provisions of this [act], the executive board may act in all instances on behalf of the association. 3

In the performance of their duties, officers and members of the executive board appointed by the 4

declarant shall exercise the degree of care and loyalty [10/05 Decision] to the association 5

required of a trustee. Officers and members of the executive board not appointed by the 6

declarant shall exercise the degree of care and loyalty [10/05 Decision] to the association 7

required of an officer or director of a corporation organized under [insert reference to state non-8

profit corporation law] and are subject to the conflict of interest rules governing directors and 9

officers of that law. [10/05 Decision] [ The standards of care and loyalty described in this section 10

apply regardless of the form of entity in which the association is organized ] 11

Reporter Notes [1/15/06] 12 13

The Committee discussed the last (new) sentence at length in Phoenix. There were 14 proposals to both delete this sentence and to leave it in, in brackets. This issue arises in a number 15 of contexts – indeed, it arises whenever we state a rule in UCIOA that varies the result that might 16 obtain under the entity form in the absence of UCIOA. 17 18 One answer may be to state the policy directly that if there is a conflict between the rules 19 and standards that govern executive boards stated in UCIOA and the rules stated in the law 20 governing the association’s entity law, UCIOA applies. Indeed, it is hard to imagine a different 21 result is intended – but then we must confront the text of the new proposed penultimate sentence 22 of 3-102(a). 23 24

Proposed Substance of New Comment 25 26 “As long as directors of a corporation decide matters rationally, honestly, and without a 27 disabling conflict of interest, the decision will not be reviewed by the courts.” Atkins v. Hibernia 28 Corp., 182 F3d 320, 324, (5th cir. 1999) quoted in Block, Barton & Radin, The Business 29 Judgment Rule, (5th ed. 1998) in 2002 Supp. Page 6. 30 31 The business judgment rule is a tool of judicial review, not a standard of conduct. The 32 rule (1) shields directors from liability and protects decisions made by directors when the rule’s 33 elements – a business decision, disinterestedness, and independence, due care, good faith and no 34 abuse of discretion – are present and a challenged decision does not constitute fraud, illegality, 35

63

ultra-vires conduct or waste, and (2) creates a presumption that directors have acted in 1 accordance with each of the elements of the rule [Block et al at page 110.) 2 3 (b) The executive board may not act on behalf of the association to amend the 4

declaration (Section 2-117), to terminate the common interest community (Section 2-118), or to 5

elect members of the executive board or determine the qualifications, powers and duties, or terms 6

of office of executive board members (Section 3-103(f)), but the executive board may fill 7

vacancies in its membership for the unexpired portion of any term. 8

(c) Within [30] days after adoption of any proposed budget for the common 9

interest community, the executive board shall provide a summary of the budget [10/05 10

Decision], including any reserves, to all the unit owners, and shall set a date for a meeting of the 11

unit owners to consider ratification of the budget not less than 14 nor more than 30 days after 12

mailing of the summary. Unless at that meeting a majority of all unit owners or any larger vote 13

specified in the declaration reject the budget, the budget is ratified, whether or not a quorum is 14

present. In the event the proposed budget is rejected, the periodic budget last ratified by the unit 15

owners must be continued until such time as the unit owners ratify a subsequent budget proposed 16

by the executive board. 17

Reporter’s Notes [1/16/06] 18 19 1. In Phoenix, in the late morning of Saturday, my notes show we discussed the subjects 20 of Special Assessments, Transfer Fees and so-called “Capital Investment” fees and Seller 21 conveyance taxes due to the association. Various committee members and advisors expressed 22 opinions and offered comments. Some of them were these: 23 24 a. David Ramsey introduced the question of whether UCIOA ought to 25 address the issue of special assessments at all. 26 27 b. After Phoenix, I identified at least the Virginia statute [55-515, separately 28 distributed] that addresses this subject. 29 30 c. Bob Diamond suggested that some documents require a selling unit 31 owner to make a contribution to a 501c3 tax exempt organization at the time of sale. 32

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1 d. Apparently, some documents require a 3% or 5% ‘kicker’ paid at the time 2 of sale to the Declarant. 3 4 e. Joanne Stubblefield noted that California prohibits a payment of ‘transfer 5 fees’ but that she drafts a mandated transfer fee into her clients’ documents at times for ‘good 6 purposes’ – such as common area reserves or improvements. 7 8 f. Doug Klein, on Sunday am, addressed the subject again; under what my 9 notes show as a different slant on the subject “Separate Assessments, Fines and Other Charges.” 10 He gave examples of insurance deductibles, user fees, charges for trimming the hedge when 11 owner failed to do it, amenity charges. I do not show a decision having been made. 12 13 g. Mr. Lisman asked about a community where there are tiered assessments 14 [such as a master association?] Should we have an assessment charge [?] 15 16 I have no notes suggesting what (if anything) the Committee concluded, and what (if 17 anything) I am directed to include in any comments, or where. [I picked this section to deal with 18 the thought, but it might better be addressed in Sec. 4-103 (7) – POS disclosures [if there are to 19 be no restrictions] or in a separately drafted section if the Committee intends any fee restrictions. 20 [Please note that I do suggest a change there in part to deal with this issue.] 21 22 I don’t think there is anything in UCIOA that limits the imposition of such fees; by 23 writing this, I am not urging a particular policy result regarding any such fees. 24 25 It does seem to me that UCIOA as drafted [Section 2-105(a)(12)] might arguably require 26 any transfer fee or conveyance tax to appear in the declaration. And I’d certainly argue that the 27 POS provisions require disclosure of any such fees in the POS and resale certificates. I have in 28 fact added any such fee as a mandated disclosure in § 4-103 (a)(7). 29 30 2. I have worked with this text in the Connecticut version of UCIOA for 21 years. In 31 hindsight, I wish we had created a separate section on the Executive Board’s obligation to adopt 32 an annual budget, since the provision is so completely buried in sub-section (c) and the subject is 33 so often a subject of inquiry. Might we do it now? 34 35 3. In Phoenix, there was an inconclusive discussion of the Board’s power to adopt a 36 budget as provided in this section; the reality under UCIOA practice is that the Board proposes a 37 budget and it is usually [but not universally, based on my experience] approved. Unit owners 38 have the right to call a special meeting, but rarely do. Question – is there a need for further 39 consideration here? 40 41 (d) Subject to subsection (e), the declaration may provide for a period of declarant 42

control of the association, during which a declarant, or persons designated by him, may appoint 43

and remove the officers and members of the executive board. Regardless of the period provided 44

65

in the declaration, and except as provided in Section 2-123(g) (Master Planned Communities), a 1

period of declarant control terminates no later than the earlier of: (i) [60] days after conveyance 2

of [75] percent of the units that may be created to unit owners other than a declarant; (ii) [2] 3

years after all declarants have ceased to offer units for sale in the ordinary course of business; 4

(iii) [2] years after any right to add new units was last exercised; or (iv) the day the declarant, 5

after giving written notice to unit owners, records an instrument voluntarily surrendering all 6

rights to control activities of the association. A declarant may voluntarily surrender the right to 7

appoint and remove officers and members of the executive board before termination of that 8

period, but in that event the declarant may require, for the duration of the period of declarant 9

control, that specified actions of the association or executive board, as described in a recorded 10

instrument executed by the declarant, be approved by the declarant before they become effective. 11

(e) Not later than [10/05 Decision] [60] days after conveyance of 25 percent of 12

the units that may be created to unit owners other than a declarant, at least one member and not 13

less than [25] percent of the members of the executive board must be elected by unit owners 14

other than the declarant. Not later than [10/05 Decision] [60] days after conveyance of 50 15

percent of the units that may be created to unit owners other than a declarant, not less than [10/05 16

Decision] [33 1/3] percent one third of the members of the executive board must be elected by 17

unit owners other than the declarant. 18

(f) Except as otherwise provided in Sections 2-120(e) [10/05 Decision] and 3-19

103(g), , not later than the termination of any period of declarant control, the unit owners shall 20

must elect an executive board of at least three members, at least a majority of whom must be unit 21

owners. [10/05 Decision] Unless the declaration provides for the election of officers by the unit 22

owners, the executive board shall elect the officers. The executive board members and officers 23

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shall take office upon election [10/05 Decision] or appointment. Notwithstanding the termination 1

of declarant control, any directors appointed by the declarant during the declarant control period 2

may continue to serve for not more than two years unless re-elected by the unit owners. 3

4 Reporter Notes 1/15/06 5

6 1. The last sentence of (f) was a suggestion of Bob Diamond; my notes indicate that Bob 7 sought staggered terms for declarant directors after the period of control ends. He indicated that, 8 at transition, there were 3 choices: (i) unit owners elect all new directors, (ii) unit owners elect a 9 majority of new directors; or (iii) leave the text as is; my sense is that this third choice is in fact 10 the same result as (i). 11 12 2. Upon reflection, I think the last new sentence of (f) as drafted is hard to justify and in 13 any event will require additional drafting; otherwise the effect will be to extend the period of 14 Declarant control. Also, my notes indicate that Owen Anderson’s comments at the time seemed 15 to reject the text as drafted. 16 17 [Note this is the existing UCIOA recall section with amendments from 18

Phoenix – now moved] (g) [10/05 Decision] Notwithstanding any provision of the declaration 19

or bylaws to the contrary, The unit owners, by a two-thirds vote of all persons present and 20

entitled to vote at any meeting of the unit owners at which a quorum is present, may remove any 21

member of the executive board with or without cause, [10/05 Decision] except that: a member 22

appointed by the declarant may not be removed by unit owner vote during the period of 23

declarant control, and a person appointed under subsection (h) may only be removed by 24

the person that appointed that member. 25

New Comment on 3-103 (g) This is recall – 26 27

Reporter Note 1/16/06 28 29 The Recall Section has been relocated to a new free-standing Section 3-123. It might, 30 alternatively, become part of Section 3-108 on Meetings. 31 32 [NEW] (g) [Reporter- my notes say delete this clause; why?] [Notwithstanding 33

subsections (f) and (g),] The declaration may provide for the appointment of members of the 34

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executive board [10/05 Decision] before or after the period of declarant control [10/05 Decision] 1

and the method of filling vacancies in appointed memberships, rather than election of those 2

members by the unit owners, provided that the appointed members: 3

(a) are not appointed by the declarant or an affiliate of the declarant; 4

(b) do not comprise more than [10/05 Decision] [30] percent one third of 5

the entire board; and 6

(c) have no greater authority than any other [director][member of the 7

executive board]. 8

PROPOSED NEW COMMENTS to new (g) 9 10 1. This section is designed to accommodate the possibility, especially in elderly projects 11 and in subsidized and ‘first time home buyer’ complexes, that it may be valuable and assist the 12 long term viability of the project if a small percentage of the directors – appointed by persons 13 other than unit owners – could provide independent outside expertise to the Board, even if those 14 directors are not directly responsive to the owners themselves. As drafted, the new provision 15 contains safeguards that the committee feels adequately guard against the potential for abuse by 16 the original declarant or outside lenders. 17 18 2. [10/05 Decision] The committee emphasizes that the fiduciary duty of the directors 19 appointed by others is to the association – as it is with any director – and not to the appointing 20 authority. We believe this clear statement of duty should ameliorate the concerns of undue 21 influence that may flow from potential conflicting interests. 22 23 3. [10/05 Decision] The comments should discuss why we have 2 different standards of 24 care – the Declarant appointed directors have an inherent conflict of interest and the Declarant 25 has total control of the board during the period of Declarant control; that is why we impose a 26 higher duty. 27 28 4. [10/05 Decision] The final comments on this subject need to articulate how all of the 29 matters described in this sub-section will function. 30 31 32 SECTION 3-104. TRANSFER OF SPECIAL DECLARANT RIGHTS. 33 34 (a) A special declarant right (Section 1-103(29)) created or reserved under this 35

[act] may be transferred only by an instrument evidencing the transfer recorded in every [county] 36

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in which any portion of the common interest community is located. The instrument is not 1

effective unless executed by the transferee. 2

(b) Upon transfer of any special declarant right, the liability of a transferor 3

declarant is as follows: 4

(1) A transferor is not relieved of any obligation or liability arising before 5

the transfer and remains liable for warranty obligations imposed upon him by this [act]. Lack of 6

privity does not deprive any unit owner of standing to maintain an action to enforce any 7

obligation of the transferor. 8

(2) If a successor to any special declarant right is an affiliate of a declarant 9

(Section 1-103(1)), the transferor is jointly and severally liable with the successor for any 10

obligations or liabilities of the successor relating to the common interest community. 11

(3) If a transferor retains any special declarant rights, but transfers other 12

special declarant rights to a successor who is not an affiliate of the declarant, the transferor is 13

liable for any obligations or liabilities imposed on a declarant by this [act] or by the declaration 14

relating to the retained special declarant rights and arising after the transfer. 15

(4) A transferor has no liability for any act or omission or any breach of a 16

contractual or warranty obligation arising from the exercise of a special declarant right by a 17

successor declarant who is not an affiliate of the transferor. 18

(c) Unless otherwise provided in a mortgage instrument, deed of trust, or other 19

agreement creating a security interest, in case of foreclosure of a security interest, sale by a 20

trustee under an agreement creating a security interest, tax sale, judicial sale, or sale under 21

Bankruptcy Code or receivership proceedings, of any units owned by a declarant or real estate in 22

a common interest community subject to development rights, a person acquiring title to all the 23

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property being foreclosed or sold, but only upon his request, succeeds to all special declarant 1

rights related to that property held by that declarant, or only to any rights reserved in the 2

declaration pursuant to Section 2-115 and held by that declarant to maintain models, sales 3

offices, and signs. The judgment or instrument conveying title must provide for transfer of only 4

the special declarant rights requested. 5

(d) Upon foreclosure of a security interest, sale by a trustee under an agreement 6

creating a security interest, tax sale, judicial sale, or sale under Bankruptcy Code or receivership 7

proceedings, of all interests in a common interest community owned by a declarant: 8

(1) the declarant ceases to have any special declarant rights, and 9

(2) the period of declarant control (Section 3-103(d)) terminates unless the 10

judgment or instrument conveying title provides for transfer of all special declarant rights held 11

by that declarant to a successor declarant. 12

(e) The liabilities and obligations of a person who succeeds to special declarant 13

rights are as follows: 14

(1) A successor to any special declarant right who is an affiliate of a 15

declarant is subject to all obligations and liabilities imposed on the transferor by this [act] or by 16

the declaration. 17

(2) A successor to any special declarant right, other than a successor 18

described in paragraph (3) or (4) or a successor who is an affiliate of a declarant, is subject to the 19

obligations and liabilities imposed by this [act] or the declaration: 20

(i) on a declarant which relate to the successor’s exercise or 21

nonexercise of special declarant rights; or 22

(ii) on his transferor, other than: 23

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(A) misrepresentations by any previous declarant; 1

(B) warranty obligations on improvements made by any 2

previous declarant, or made before the common interest community was created; 3

(C) breach of any fiduciary obligation by any previous 4

declarant or his appointees to the executive board; or 5

(D) any liability or obligation imposed on the transferor as 6

a result of the transferor’s acts or omissions after the transfer. 7

(3) A successor to only a right reserved in the declaration to maintain 8

models, sales offices, and signs (Section 2-115), may not exercise any other special declarant 9

right, and is not subject to any liability or obligation as a declarant, except the obligation to 10

provide a public offering statement [,] and any liability arising as a result thereof [, and 11

obligations under [Article] 5]. 12

(4) A successor to all special declarant rights held by a transferor who 13

succeeded to those rights pursuant to a deed or other instrument of conveyance in lieu of 14

foreclosure or a judgment or instrument conveying title under subsection (c), may declare in a 15

recorded instrument the intention to hold those rights solely for transfer to another person. 16

Thereafter, until transferring all special declarant rights to any person acquiring title to any unit 17

or real estate subject to development rights owned by the successor, or until recording an 18

instrument permitting exercise of all those rights, that successor may not exercise any of those 19

rights other than any right held by his transferor to control the executive board in accordance 20

with Section 3-103(d) for the duration of any period of declarant control, and any attempted 21

exercise of those rights is void. So long as a successor declarant may not exercise special 22

declarant rights under this subsection, the successor declarant is not subject to any liability or 23

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obligation as a declarant other than liability for his acts and omissions under Section 3-103(d). 1

(f) Nothing in this section subjects any successor to a special declarant right to 2

any claims against or other obligations of a transferor declarant, other than claims and 3

obligations arising under this [act] or the declaration. 4

SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES OF 5

DECLARANT. Except as provided in Section 1-207, if entered into before the executive board 6

elected by the unit owners pursuant to Section 3-103(f) takes office, (i) any management 7

contract, employment contract, or lease of recreational or parking areas or facilities, (ii) any 8

other contract or lease between the association and a declarant or an affiliate of a declarant, or 9

(iii) any contract or lease that is not bona fide or was unconscionable to the unit owners at the 10

time entered into under the circumstances then prevailing, may be terminated without penalty by 11

the association at any time after the executive board elected by the unit owners pursuant to 12

Section 3-103(f) takes office upon not less than [90] days’ notice to the other party. This section 13

does not apply to: (i) any lease the termination of which would terminate the common interest 14

community or reduce its size, unless the real estate subject to that lease was included in the 15

common interest community for the purpose of avoiding the right of the association to terminate 16

a lease under this section, or (ii) a proprietary lease. 17

SECTION 3-106. BYLAWS. 18 19 (a) The bylaws of the association must provide [10/05 Decision] for: 20

(1) the number of members of the executive board and the titles of the 21

officers of the association; 22

(2) election by the executive board [Reporter 1/16/06] or, if the 23

declaration so requires, by the unit owners, of a president, treasurer, secretary, and any other 24

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officers of the association the bylaws specify; 1

(3) the qualifications (if any), powers and duties, terms of office, and 2

manner of electing and removing executive board members and offices and filling vacancies; 3

(4) which, if any, of its powers the executive board or officers may 4

delegate to other persons or to a managing agent; 5

(5) which of its officers may prepare, execute, certify, and record 6

amendments to the declaration on behalf of the association; and 7

(6) a method for amending the bylaws. 8

(b) Subject to the provisions of the declaration, the bylaws may provide for any 9

other matters the association deems necessary and appropriate. 10

[10/05 Decision] Proposed New Comment 11 12

– The Committee is of the view that this section authorizes a by-law provision that one of the 13 qualifications for running is that the candidate may not be in violation of any existing rule, or 14 similar restrictions on seeking office. This does raise certain policy issues, particularly if the rule 15 is being challenged by the unit owner. 16 17 The by-laws might include a broad range of qualifications for directors and officers and 18 this Act neither imposes constraints on what they might be or mandates any such qualifications, 19 other than the requirement that, after the period of declarant control ends, a majority of directors 20 must be unit owners. Other law, of course, such as laws prohibiting various forms of 21 discrimination, may independently impose limits on permissible qualifications. 22 23

SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY. 24

(a) Except to the extent provided by the declaration, subsection (b), or Section 3-25

113(h), the association is responsible for maintenance, repair, and replacement of the common 26

elements, and each unit owner is responsible for maintenance, repair, and replacement of his 27

unit. Each unit owner shall afford to the association and the other unit owners, and to their agents 28

or employees, access through his unit reasonably necessary for those purposes. If damage is 29

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inflicted on the common elements or on any unit through which access is taken, the unit owner 1

responsible for the damage, or the association if it is responsible, is liable for the prompt repair 2

thereof. 3

(b) In addition to the liability that a declarant as a unit owner has under this [act], 4

the declarant alone is liable for all expenses in connection with real estate subject to development 5

rights. No other unit owner and no other portion of the common interest community is subject to 6

a claim for payment of those expenses. Unless the declaration provides otherwise, any income or 7

proceeds from real estate subject to development rights inures to the declarant. 8

(c) In a planned community, if all development rights have expired with respect to 9

any real estate, the declarant remains liable for all expenses of that real estate unless, upon 10

expiration, the declaration provides that the real estate becomes common elements or units. 11

SECTION 3-108. MEETINGS. 12 13 (a) A meeting of the association must be held at least once each year. Special 14

meetings of the association may be called by the president, a majority of the executive board, or 15

by unit owners having 20 percent, or any lower percentage specified in the bylaws, of the votes 16

in the association. Not less than [10] nor more than [60] days in advance of any [10/05 Decision] 17

regular or special [and emergency?] meeting of the members, the secretary or other officer 18

specified in the bylaws shall cause notice to be hand-delivered or sent prepaid by United States 19

mail to the mailing address of each unit or to any other mailing address designated in writing 20

deliver notice of that meeting to the each unit owner by any means described in Section 3-122. 21

The notice of any meeting must state the time and place of the meeting and the items on the 22

agenda, including the general nature of any proposed amendment to the declaration or bylaws, 23

any budget changes, and any proposal to remove an officer or member of the executive board. 24

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Reporter Notes - 1/16/06 1 2 1. In Phoenix, the Chair raised the possibility of no longer requiring annual meetings. 3 Molly Foley-Healy [CAI] stated that having an annual meeting was a good idea – owners need at 4 least one opportunity to meet with the executive board and vent. Eliminating meetings was not 5 adopted, according to my notes. 6 7 2. Owen Anderson then proposed that we respond to CAI’s suggestion by calling for a 8 face-to-face opportunity to meet with the board, at least as part of any homeowners bill of rights. 9 This might be characterized a separate event, separate from elections and budgets, it may but 10 need not be the annual meeting, but would be a time for owners to dialog with the board – have 11 no quorum requirements. 12 13 In that connection, consider this text from the 2005 North Carolina act: 14 15

“At regular intervals, the executive board meeting shall provide lot owners an 16 opportunity to attend a portion of an executive board meeting and to speak to the 17 executive board about their issues or concerns. The executive board may place 18 reasonable restrictions on the number of persons who speak on each side of an issue and 19 may place reasonable time restrictions on persons who speak.” 20

21 3. One person suggested that a separate rule be created for timeshare and commercial 22 projects. The Reporter’s response is that (i) getting into timeshare issues could dramatically 23 complicate this Act; and (ii) non-residential projects are exempt from the Act unless they opt in 24 [see § 1-207] and, even if they opt in, they can always vary the results of this Act by contract 25 with their purchasers; see 1-207 (d) (1) and (2). 26 27 4. We also discussed the concept of permitting a unit owners’ meeting to be recessed – 28 whether or not a quorum present – to enable solicitation of votes or proxies in order to 29 accomplish a particular result. The Reporter believes this could be done under current practice 30 and that a comment may suffice – but I seek further guidance. In any event, that concept is 31 imbedded in the new recall section – §3-123. 32 33 (b) A meeting of the executive board must be held at least once each year. 34

Special meetings of the executive board may be called by the president, or a majority of the 35

executive board. Unless a schedule of meetings has been distributed to unit owners that 36

identifies the meeting in question, the secretary or other officer specified in the bylaws shall 37

cause notice to be hand-delivered or sent prepaid by United States mail to the mailing address of 38

each unit or to any other mailing address designated in writing by [10/05 Decision] delivered to 39

each the unit owner by any means described in Section 3-122 not less than [10] nor more than 40

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[60] days in advance of any meeting [10/05 Decision] but not later than the time notice of the 1

meeting is sent to members of the executive board. 2

COMMISSIONER’S COMMENT 3 4 Section 3-108 (b) meetings – What about timing for notice for emergency meetings ? 5 i.e., emergency repairs after a fire? “D. Behr.” 6 7 (c) The notice of any meeting must state the time and place of the meeting and 8

the items on the agenda. That agenda must include an opportunity for unit owners to offer 9

comments to the executive board regarding any matter affecting the common interest community. 10

(d) All meetings of the executive board shall be open to the unit owners at all 11

times except for executive sessions held for purposes of (i) consulting with the association’s 12

attorney; (ii) discussion of [11/05 decision] pending litigation, mediation, arbitration or 13

administrative proceedings or any pending contract matters; (iii) labor or personnel matters; or 14

(iv) discussion of any pending complaint from or any alleged violation by a unit owner, when the 15

executive board determines that premature public knowledge would either violate the privacy of 16

the unit owner [?or place the association at a substantial disadvantage?].[Reporter is unsure of 17

the source of this text.] 18

Commissioner’s Comment – 19 20 Section 3-108 (d) – line 4, end of sub-(ii) – “Labor negotiations- i.e., wage positions for 21 state – attorney might not be present – Also, what constitutes a meeting – see Alaska public 22 meetings law for governmental bodies. We have a statutory definition. This is a real issue. “D. 23 Bebr.” 24 25

Reporter Comments 1/16/06 26 27 1. The principal discussion in Phoenix on this subject revolved around the issues raised 28 by Commissioner Bebr – that is: (i) what is a “meeting” of the Executive Board; (ii) do we need 29 more detail as to what subjects are appropriate for an executive session; and (iii) what are the 30 consequences of a failure to give notice of a meeting of the executive committee. 31 32 2. Conceptually, the Reporter proposes to first define “meetings of the Executive Board” 33

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by exclusion as follows: 1 2 “A meeting of the executive board must be held at least once each year. The president, 3 or a majority of the executive board may call special meetings of the executive board. For 4 purposes of this section, “meetings of the executive board” do not include incidental and 5 unscheduled meetings of two or more directors for social or other purposes or any meetings 6 where no decisions regarding association business are made or discussed. The executive board 7 and individual directors shall not use incidental, unscheduled or other informal gatherings of 8 directors to circumvent the open meeting requirements of this section.” 9 10 Thereafter, the statute might contain ‘open meeting” and broad executive session text, 11 along the lines of the Virginia Act, and a provision insulating any decision made at a board 12 meeting from challenge because of defective notice to unit owners. In this respect, the concept is 13 consistent with the Uniform Environmental Covenants Act, Section 11, on which this is based: 14 15

“A unit owner may maintain a civil action for injunctive or other equitable relief if the 16 executive board fails to comply with the requirements of this section, but a contract 17 entered into with a third party who had no knowledge of that failure is not invalid solely 18 because of the board’s failure to give notice of the meeting at which the contract was 19 approved.” 20

21

SECTION 3-109. QUORUMS. 22

(a) Unless the bylaws provide otherwise, a quorum is present throughout any 23

meeting of the association if persons entitled to cast [20] percent of the votes that may be cast for 24

election of the executive board are present in person or by proxy at the beginning of the meeting 25

[1/15/06 – Reportr Insert] or if written ballots solicited in accordance with Section 3-110 (f) are 26

delivered to the secretary in a timely manner by persons who, if present at the meeting, would 27

comprise a quorum for that meeting. 28

(b) Unless the bylaws specify a larger percentage, a quorum is deemed present 29

throughout any meeting of the executive board if persons entitled to cast [50] percent of the votes 30

on that board are present at the beginning of the meeting. 31

Reporter Note – 1/16/06 32 33 The 50% figure in (b) seems unworkable in many instances – especially as a minimum 34 figure, as it is here. 35

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1

SECTION 3-110. VOTING; PROXIES. 2

(a) If only one of several owners of a unit is present at a meeting of the 3

association, that owner is entitled to cast all the votes allocated to that unit. If more than one of 4

the owners are present, the votes allocated to that unit may be cast only in accordance with the 5

agreement of a majority in interest of the owners, unless the declaration expressly provides 6

otherwise. There is majority agreement if any one of the owners casts the votes allocated to that 7

unit without protest being made promptly to the person presiding over the meeting by any of the 8

other owners of the unit. 9

(b) Votes allocated to a unit may be cast pursuant to a proxy duly executed by a 10

unit owner. If a unit is owned by more than one person, each owner of the unit may vote or 11

register protest to the casting of votes by the other owners of the unit through a duly executed 12

proxy. A unit owner may revoke a proxy given pursuant to this section only by actual notice of 13

revocation to the person presiding over a meeting of the association. A proxy is void if it is not 14

dated or purports to be revocable without notice. A proxy terminates one year after its date, 15

unless it specifies a shorter term. 16

(c) If the declaration requires that votes on specified matters affecting the 17

common interest community be cast by lessees rather than unit owners of leased units: (i) the 18

provisions of subsections (a) and (b) apply to lessees as if they were unit owners; (ii) unit owners 19

who have leased their units to other persons may not cast votes on those specified matters; and 20

(iii) lessees are entitled to notice of meetings, access to records, and other rights respecting those 21

matters as if they were unit owners. Unit owners must also be given notice, in the manner 22

provided in Section 3-108, of all meetings at which lessees are entitled to vote. 23

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(d) No votes allocated to a unit owned by the association may be cast. 1

[10/05 Decision] (e) The association may not prohibit a unit owner from voting 2

because of non-payment of assessments. 3

Reporter Note – 1/15/06 4 5 Should we draft a comment on the subject of deleted (e)? 6 7

[NEW] (f) ACTION BY [WRITTEN] BALLOT 8

(1) Unless prohibited or limited by the declaration or bylaws, any action 9

that the association may take at any annual, regular or special meeting of members [Reporter 10

Note 1/15/06- added to Arizona text] including without limitation a meeting to remove a 11

director pursuant to Section 3-103(g), may be taken without a meeting if the association delivers 12

a written ballot to every member entitled to vote on the matter. 13

(2) A written ballot shall: 14

(i) Set forth each proposed action; and 15

(ii) Provide an opportunity to vote for or against each proposed 16

action. 17

(3) Approval by written ballot pursuant to this section is valid only if both: 18

(i) The number of votes cast by ballot equals or exceeds the 19

quorum required to be present at a meeting authorizing the action; and 20

(ii) The number of approvals equals or exceeds the number of 21

votes that would be required to approve the matter at a meeting at which the total number of 22

votes cast was the same as the number of votes cast by ballot. 23

(4) All solicitations for votes by written ballot shall: 24

(i) Indicate the number of responses needed to meet the quorum 25

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requirements. 1

(ii) State the percentage of approvals necessary to approve each 2

matter other than election of directors. 3

(iii) Specify the time by which a ballot must be delivered to the 4

association in order to be counted, which time shall not be less than three days after the date that 5

the association delivers the ballot. 6

(5) Except as otherwise provided in the declaration or bylaws, a written 7

ballot shall not be revoked [by what events – the Arizona statute is silent]. 8

Reporter Notes – 1/16/05 9 10 1. The subject of a statute enabling voting outside of a formal unit owners meeting was 11 discussed at length in Phoenix; I have added this text from Arizona Rev. Stat. § 10-3708 – that 12 state’s non-stock corporate law. Thanks to one of you for drawing it to my attention; it is 13 illustrative of one possible approach. 14 15 2. In Phoenix, David Ramsey referred to a New Jersey statute on the subject of voting by 16 electronic proxy – yet another possible approach. That material was distributed with the memo 17 sent to you and might be discussed. 18 19

SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF 20

LIMITATION PERIOD. 21

(a) A unit owner is not liable, solely by reason of being a unit owner, for an injury 22

or damage arising out of the condition or use of the common elements. Neither the association 23

nor any unit owner except the declarant is liable for that declarant’s torts in connection with any 24

part of the common interest community which that declarant has the responsibility to maintain. 25

(b) An action alleging a wrong done by the association, including an action 26

arising out of the condition or use of the common elements, may be maintained only against the 27

association and not against any unit owner. If the wrong occurred during any period of declarant 28

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control and the association gives the declarant reasonable notice of and an opportunity to defend 1

against the action, the declarant who then controlled the association is liable to the association or 2

to any unit owner for (i) all tort losses not covered by insurance suffered by the association or 3

that unit owner, and (ii) all costs that the association would not have incurred but for a breach of 4

contract or other wrongful act or omission. Whenever the declarant is liable to the association 5

under this section, the declarant is also liable for all expenses of litigation, including reasonable 6

attorney’s fees, incurred by the association. 7

(c) Except as provided in Section 4-116(d) with respect to warranty claims, any 8

statute of limitation affecting the association’s right of action against a declarant under this [act] 9

is tolled until the period of declarant control terminates. A unit owner is not precluded from 10

maintaining an action contemplated by this section because he is a unit owner or a member or 11

officer of the association. Liens resulting from judgments against the association are governed by 12

Section 3-117 (Other Liens). 13

SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON 14

ELEMENTS. 15

(a) In a condominium or planned community, portions of the common elements 16

may be conveyed or subjected to a security interest by the association if persons entitled to cast 17

at least [80] percent of the votes in the association, including [80] percent of the votes allocated 18

to units not owned by a declarant, or any larger percentage the declaration specifies, agree to that 19

action; but all owners of units to which any limited common element is allocated must agree in 20

order to convey that limited common element or subject it to a security interest. The declaration 21

may specify a smaller percentage only if all of the units are restricted exclusively to non-22

residential uses. Proceeds of the sale are an asset of the association, but the proceeds of the sale 23

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of limited common elements must be distributed equitably among the owners of units to which 1

the limited common elements were allocated. 2

(b) Part of a cooperative may be conveyed and all or part of a cooperative may be 3

subjected to a security interest by the association if persons entitled to cast at least [80] percent 4

of the votes in the association, including [80] percent of the votes allocated to units not owned by 5

a declarant, or any larger percentage the declaration specifies, agree to that action; but, if fewer 6

than all of the units or limited common elements are to be conveyed or subjected to a security 7

interest, then all unit owners of those units, or the units to which those limited common elements 8

are allocated, must agree in order to convey those units or limited common elements or subject 9

them to a security interest. The declaration may specify a smaller percentage only if all of the 10

units are restricted exclusively to nonresidential uses. Proceeds of the sale are an asset of the 11

association. Any purported conveyance or other voluntary transfer of an entire cooperative, 12

unless made pursuant to Section 2-118, is void. 13

(c) An agreement to convey common elements in a condominium or planned 14

community, or to subject them to a security interest, or in a cooperative, an agreement to convey 15

any part of a cooperative or subject it to a security interest, must be evidenced by the execution 16

of an agreement, or ratifications thereof, in the same manner as a deed, by the requisite number 17

of unit owners. The agreement must specify a date after which the agreement will be void unless 18

recorded before that date. The agreement and all ratifications thereof must be recorded in every 19

[county] in which a portion of the common interest community is situated, and is effective only 20

upon recordation. 21

(d) The association, on behalf of the unit owners, may contract to convey an 22

interest in a common interest community pursuant to subsection (a), but the contract is not 23

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enforceable against the association until approved pursuant to subsections (a), (b), and (c). 1

Thereafter, the association has all powers necessary and appropriate to effect the conveyance or 2

encumbrance, including the power to execute deeds or other instruments. 3

(e) Unless made pursuant to this section, any purported conveyance, 4

encumbrance, judicial sale, or other voluntary transfer of common elements or of any other part 5

of a cooperative is void. 6

(f) A conveyance or encumbrance of common elements or of a cooperative 7

pursuant to this section does not deprive any unit of its rights of access and support. 8

(g) Unless the declaration otherwise provides, if the holders of first security 9

interests on 80 percent of the units that are subject to security interests on the day the unit 10

owners’ agreement under subsection (c) is recorded consent in writing: 11

(1) a conveyance of common elements pursuant to this section terminates 12

both the undivided interests in those common elements allocated to the units and the security 13

interests in those undivided interests held by all persons holding security interests in the units; 14

and 15

(2) an encumbrance of common elements pursuant to this section has 16

priority over all preexisting encumbrances on the undivided interests in those common elements 17

held by all persons holding security interests in the units. 18

(h) The consents by holders of first security interests on units described in 19

subsection (g), or a certificate of the secretary affirming that those consents have been received 20

by the association, may be recorded at any time before the date on which the agreement under 21

subsection (c) becomes void. Consents or certificates so recorded are valid from the date they are 22

recorded for purposes of calculating the percentage of consenting first security interest holders, 23

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regardless of later sales or encumbrances on those units. Even if the required percentage of first 1

security interest holders so consent, a conveyance or encumbrance of common elements does not 2

affect interests having priority over the declaration, or created by the association after the 3

declaration was recorded. 4

(i) In a cooperative, the association may acquire, hold, encumber, or convey a 5

proprietary lease without complying with this section. 6

SECTION 3-113. INSURANCE. 7

(a) Commencing not later than the time of the first conveyance of a unit to a 8

person other than a declarant, the association shall maintain, to the extent reasonably available: 9

(1) property insurance on the common elements and, in a planned 10

community, also on property that must become common elements, insuring against all risks of 11

direct physical loss commonly insured against or, in the case of a conversion building, against 12

fire and extended coverage perils. The total amount of insurance after application of any 13

deductibles must be not less than 80 percent of the actual cash value of the insured property at 14

the time the insurance is purchased and at each renewal date, exclusive of land, excavations, 15

foundations, and other items normally excluded from property policies; and 16

(2) liability insurance, including medical payments insurance, in an 17

amount determined by the executive board but not less than any amount specified in the 18

declaration, covering all occurrences commonly insured against for death, bodily injury, and 19

property damage arising out of or in connection with the use, ownership, or maintenance of the 20

common elements and, in cooperatives, also of all units. 21

(b) In the case of a building that is part of a cooperative or that contains units 22

having horizontal boundaries described in the declaration, the insurance maintained under 23

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subsection (a)(1), to the extent reasonably available, must include the units, but need not include 1

improvements and betterments installed by unit owners. 2

(c) If the insurance described in subsections (a) and (b) is not reasonably 3

available, the association promptly shall cause notice of that fact to be hand-delivered or sent 4

prepaid by United States mail to all unit owners. The declaration may require the association to 5

carry any other insurance, and the association in any event may carry any other insurance it 6

considers appropriate to protect the association or the unit owners. 7

(d) Insurance policies carried pursuant to subsections (a) and (b) must provide 8

that: 9

(1) each unit owner is an insured person under the policy with respect to 10

liability arising out of his interest in the common elements or membership in the association; 11

(2) the insurer waives its right to subrogation under the policy against any 12

unit owner or member of his household; 13

(3) no act or omission by any unit owner, unless acting within the scope of 14

his authority on behalf of the association, will void the policy or be a condition to recovery under 15

the policy; and 16

(4) if, at the time of a loss under the policy, there is other insurance in the 17

name of a unit owner covering the same risk covered by the policy, the association’s policy 18

provides primary insurance. 19

(e) Any loss covered by the property policy under subsections (a)(1) and (b) must 20

be adjusted with the association, but the insurance proceeds for that loss are payable to any 21

insurance trustee designated for that purpose, or otherwise to the association, and not to any 22

holder of a security interest. The insurance trustee or the association shall hold any insurance 23

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proceeds in trust for the association, unit owners, and lien holders as their interests may appear. 1

Subject to the provisions of subsection (h), the proceeds must be disbursed first for the repair or 2

restoration of the damaged property, and the association, unit owners, and lien holders are not 3

entitled to receive payment of any portion of the proceeds unless there is a surplus of proceeds 4

after the property has been completely repaired or restored, or the common interest community is 5

terminated. 6

(f) An insurance policy issued to the association does not prevent a unit owner 7

from obtaining insurance for his own benefit. 8

(g) An insurer that has issued an insurance policy under this section shall issue 9

certificates or memoranda of insurance to the association and, upon written request, to any unit 10

owner or holder of a security interest. The insurer issuing the policy may not cancel or refuse to 11

renew it until [30] days after notice of the proposed cancellation or non-renewal has been mailed 12

to the association, each unit owner and each holder of a security interest to whom a certificate or 13

memorandum of insurance has been issued at their respective last known addresses. 14

(h) Any portion of the common interest community for which insurance is 15

required under this section which is damaged or destroyed must be repaired or replaced promptly 16

by the association unless (i) the common interest community is terminated, in which case Section 17

2-118 applies (ii) repair or replacement would be illegal under any state or local statute or 18

ordinance governing health or safety, or (iii) [80] percent of the unit owners, including every 19

owner of a unit or assigned limited common element that will not be rebuilt, vote not to rebuild. 20

The cost of repair or replacement in excess of insurance proceeds and reserves is a common 21

expense. If the entire common interest community is not repaired or replaced, (i) the insurance 22

proceeds attributable to the damaged common elements must be used to restore the damaged area 23

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to a condition compatible with the remainder of the common interest community, and (ii) except 1

to the extent that other persons will be distributees (Section 2-105(a)(12)(ii)), (A) the insurance 2

proceeds attributable to units and limited common elements that are not rebuilt must be 3

distributed to the owners of those units and the owners of the units to which those limited 4

common elements were allocated, or to lien holders, as their interests may appear, and (B) the 5

remainder of the proceeds must be distributed to all the unit owners or lien holders, as their 6

interests may appear, as follows: (1) in a condominium, in proportion to the common element 7

interests of all the units and (2) in a cooperative or planned community, in proportion to the 8

common expense liabilities of all the units. If the unit owners vote not to rebuild any unit, that 9

unit’s allocated interests are automatically reallocated upon the vote as if the unit had been 10

condemned under Section 1-107(a), and the association promptly shall prepare, execute, and 11

record an amendment to the declaration reflecting the reallocations. 12

(i) The provisions of this section may be varied or waived in the case of a 13

common interest community all of whose units are restricted to non-residential use. 14

Reporter Notes 1/16/06 – 15 16 1. Please see the list of insurance issues discussed in Phoenix that is attached to the 17 memo accompanying this draft of UCIOA. 18 19 2. Also attached to that memo is an excerpt prepared by Bob Diamond from his standard 20 documents, describing his firm’s current approach to mandated insurance. 21 22 23 SECTION 3-114. SURPLUS FUNDS. Unless otherwise provided in the declaration, 24

any surplus funds of the association remaining after payment of or provision for common 25

expenses and any prepayment of reserves must be paid to the unit owners in proportion to their 26

common expense liabilities or credited to them to reduce their future common expense 27

assessments. 28

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SECTION 3-115. ASSESSMENTS FOR COMMON EXPENSES. 1

(a) Until the association makes a common expense assessment, the declarant shall 2

pay all common expenses. After an assessment has been made by the association, assessments 3

must be made at least annually, based on a budget adopted at least annually by the association. 4

(b) Except for assessments under subsections (c), (d), and (e), all common 5

expenses must be assessed against all the units in accordance with the allocations set forth in the 6

declaration pursuant to Section 2-107(a) and (b). Any past due common expense assessment or 7

installment thereof bears interest at the rate established by the association not exceeding [18] 8

percent per year. 9

(c) To the extent required by the declaration: 10

(1) any common expense associated with the maintenance, repair, or 11

replacement of a limited common element must be assessed against the units to which that 12

limited common element is assigned, equally, or in any other proportion the declaration 13

provides; 14

(2) any common expense or portion thereof benefiting fewer than all of the 15

units must be assessed exclusively against the units benefitted; and 16

(3) the costs of insurance must be assessed in proportion to risk and the 17

costs of utilities must be assessed in proportion to usage. 18

(d) Assessments to pay a judgment against the association (Section 3-117(a)) may 19

be made only against the units in the common interest community at the time the judgment was 20

entered, in proportion to their common expense liabilities. 21

(e) If any common expense is caused by the misconduct of any unit owner, the 22

association may assess that expense exclusively against his unit. 23

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(f) If common expense liabilities are reallocated, common expense assessments 1

and any installment thereof not yet due must be recalculated in accordance with the reallocated 2

common expense liabilities. 3

SECTION 3-116. LIEN FOR ASSESSMENTS. 4

(a) The association has a statutory lien on a unit for any assessment levied against 5

that unit or fines imposed against its unit owner. Unless the declaration otherwise provides, fees, 6

charges, late charges, fines, and interest charged pursuant to Section 3-102(a)(10), (11), and (12) 7

are enforceable as assessments under this section. If an assessment is payable in installments, the 8

lien is for the full amount of the assessment from the time the first installment thereof becomes 9

due. 10

(b) A lien under this section is prior to all other liens and encumbrances on a unit 11

except (i) liens and encumbrances recorded before the recordation of the declaration and, in a 12

cooperative, liens and encumbrances which the association creates, assumes, or takes subject to, 13

(ii) a first security interest on the unit recorded before the date on which the assessment sought to 14

be enforced became delinquent, or, in a cooperative, the first security interest encumbering only 15

the unit owner’s interest and perfected before the date on which the assessment sought to be 16

enforced became delinquent, and (iii) liens for real estate taxes and other governmental 17

assessments or charges against the unit or cooperative. The lien is also prior to all security 18

interests described in clause (ii) above to the extent of the common expense assessments based 19

on the periodic budget adopted by the association pursuant to Section 3-115(a) which would 20

have become due in the absence of acceleration during the six months immediately preceding 21

institution of an action to enforce the lien. This subsection does not affect the priority of 22

mechanics’ or materialmen’s liens, or the priority of liens for other assessments made by the 23

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association. [The lien under this section is not subject to the provisions of [insert appropriate 1

reference to state homestead, dower and curtesy, or other exemptions].] 2

(c) Unless the declaration otherwise provides, if two or more associations have 3

liens for assessments created at any time on the same property, those liens have equal priority. 4

(d) Recording of the declaration constitutes record notice and perfection of the 5

lien. No further recordation of any claim of lien for assessment under this section is required. 6

(e) A lien for unpaid assessments is extinguished unless proceedings to enforce 7

the lien are instituted within [3] years after the full amount of the assessments becomes due. 8

(f) This section does not prohibit actions to recover sums for which subsection (a) 9

creates a lien or prohibit an association from taking a deed in lieu of foreclosure. 10

(g) A judgment or decree in any action brought under this section must include 11

costs and reasonable attorney’s fees for the prevailing party. 12

(h) The association upon written request shall furnish to a unit owner a statement 13

setting forth the amount of unpaid assessments against the unit. If the unit owner’s interest is real 14

estate, the statement must be in recordable form. The statement must be furnished within [10] 15

business days after receipt of the request and is binding on the association, the executive board, 16

and every unit owner. 17

(i) In a cooperative, upon nonpayment of an assessment on a unit, the unit owner 18

may be evicted in the same manner as provided by law in the case of an unlawful holdover by a 19

commercial tenant, and the lien may be foreclosed as provided by this section. 20

(j) The association’s lien may be foreclosed as provided in this subsection: 21

(1) In a condominium or planned community, the association’s lien must 22

be foreclosed in like manner as a mortgage on real estate [or by power of sale under [insert 23

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appropriate state statute]] [Reporter Note 1/16/06– this is subject to such limitations as may 1

be adopted in Dallas]; 2

(2) In a cooperative whose unit owners’ interests in the units are real estate 3

(Section 1-105), the association’s lien must be foreclosed in like manner as a mortgage on real 4

estate [or by power of sale under [insert appropriate state statute]] [or by power of sale under 5

subsection (k)]; or 6

(3) In a cooperative whose unit owners’ interests in the units are personal 7

property (Section 1-105), the association’s lien must be foreclosed in like manner as a security 8

interest under [insert reference to Article 9, Uniform Commercial Code.] 9

[(4) In the case of foreclosure under [insert reference to state power of sale 10

statute], the association shall give reasonable notice of its action to all lien holders of the unit 11

whose interest would be affected.] [Reporter Note 1/16/06 – consider in light of any Dallas 12

limitations.] 13

[(k) In a cooperative, if the unit owner’s interest in a unit is real estate (Section 1-14

105): 15

(1) The association, upon non-payment of assessments and compliance 16

with this subsection, may sell that unit at a public sale or by private negotiation, and at any time 17

and place. Every aspect of the sale, including the method, advertising, time, place, and terms 18

must be reasonable. The association shall give to the unit owner and any lessees of the unit 19

owner reasonable written notice of the time and place of any public sale or, if a private sale is 20

intended, or the intention of entering into a contract to sell and of the time after which a private 21

disposition may be made. The same notice must also be sent to any other person who has a 22

recorded interest in the unit which would be cut off by the sale, but only if the recorded interest 23

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was on record seven weeks before the date specified in the notice as the date of any public sale 1

or seven weeks before the date specified in the notice as the date after which a private sale may 2

be made. The notices required by this subsection may be sent to any address reasonable in the 3

circumstances. Sale may not be held until five weeks after the sending of the notice. The 4

association may buy at any public sale and, if the sale is conducted by a fiduciary or other person 5

not related to the association, at a private sale. 6

(2) Unless otherwise agreed, the debtor is liable for any deficiency in a 7

foreclosure sale. 8

(3) The proceeds of a foreclosure sale must be applied in the following 9

order: 10

(i) the reasonable expenses of sale; 11

(ii) the reasonable expenses of securing possession before sale; 12

holding, maintaining, and preparing the unit for sale, including payment of taxes and other 13

governmental charges, premiums on hazard and liability insurance, and, to the extent provided 14

for by agreement between the association and the unit owner, reasonable attorney’s fees and 15

other legal expenses incurred by the association; 16

(iii) satisfaction of the association’s lien; 17

(iv) satisfaction in the order of priority of any subordinate claim of 18

record; and 19

(v) remittance of any excess to the unit owner. 20

(4) A good faith purchaser for value acquires the unit free of the 21

association’s debt that gave rise to the lien under which the foreclosure sale occurred and any 22

subordinate interest, even though the association or other person conducting the sale failed to 23

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comply with the requirements of this section. The person conducting the sale shall execute a 1

conveyance to the purchaser sufficient to convey the unit and stating that it is executed by him 2

after a foreclosure of the association’s lien by power of sale and that he was empowered to make 3

the sale. Signature and title or authority of the person signing the conveyance as grantor and a 4

recital of the facts of non-payment of the assessment and of the giving of the notices required by 5

this subsection are sufficient proof of the facts recited and of his authority to sign. Further proof 6

of authority is not required even though the association is named as grantee in the conveyance. 7

(5) At any time before the association has disposed of a unit in a 8

cooperative or entered into a contract for its disposition under the power of sale, the unit owners 9

or the holder of any subordinate security interest may cure the unit owner’s default and prevent 10

sale or other disposition by tendering the performance due under the security agreement, 11

including any amounts due because of exercise of a right to accelerate, plus the reasonable 12

expenses of proceeding to foreclosure incurred to the time of tender, including reasonable 13

attorney’s fees of the creditor.] 14

(l) In an action by an association to collect assessments or to foreclose a lien for 15

unpaid assessments, the court may appoint a receiver to collect all sums alleged to be due and 16

owing to a unit owner before commencement or during pendency of the action. The receivership 17

is governed by [insert state law generally applicable to receiverships]. The court may order the 18

receiver to pay any sums held by the receiver to the association during pendency of the action to 19

the extent of the association’s common expense assessments based on a periodic budget adopted 20

by the association pursuant to Section 3-115. 21

Reporter’s Notes – 1/16/06 – special foreclosure procedures 22

1. These points were made in Phoenix but I saw no decisions on them: 23 24

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Ellen Dyke: We should prohibit the association from selling liens for unpaid common 1 charges. 2 3 Marion Benfield – the current foreclosure system contemplated foreclosures for 4 substantially larger sums. In some states the foreclosure rules for mechanics liens are different 5 than the mortgage foreclosure laws. It may make sense to impose a minimum foreclosure limit 6 – say, $500 and index it. 7 8 [On this issue, Mr. Lisman disagreed, while Mr. Ramsey proposed a 3 months of 9 common charges minimum.] 10 11

The following Comment was proposed: 12 13

“Few issues have been more contentious than the prospect of unit owners losing their 14 homes as a consequence of non payment of common charges – and the loss of all or most 15 of their equity – when the association foreclosures. The reaction in state legislatures has 16 been widespread – cite some statutory changes in various states. At the same time, it is 17 crucial that the association be able to secure payment of common charges in a timely way 18 in order to satisfy the board’s fiduciary obligations to all the residents of the common 19 interest community. 20 21 In an effort to balance these competing interests, the drafting committee proposes 22 additional procedures governing foreclosure of liens for unpaid common charges.” 23

24 3. On Sunday morning in Phoenix, I was asked to adopt the North Carolina approach to 25 fines enforcement and collection, as reflected in legislation adopted there in September, 26 amending the North Carolina Planned Community Act and the North Carolina Condominium 27 Act. Taken together, the appropriate excerpts from the North Carolina statutes read as follows: 28 29 § 3-102. Powers of owners’ association. 30 31

Unless the articles of incorporation or the declaration expressly provides to the contrary, 32 the association may: 33 … 34 (11) Impose reasonable charges for late payment of assessments, not to exceed the greater 35 of twenty dollars ($20.00) per month or ten percent (10%) of any assessment installment 36 unpaid and, after notice and an opportunity to be heard, suspend privileges or services 37 provided by the association (except rights of access to lots) during any period that 38 assessments or other amounts due and owing to the association remain unpaid for a 39 period of 30 days or longer; 40 ….” 41

42 § 3-107.1. Procedures for fines and suspension of planned community privileges or 43 services. 44 45 Unless a specific procedure for the imposition of fines or suspension of planned 46

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community privileges or services is provided for in the declaration, a hearing shall be held before 1 the executive board or an adjudicatory panel appointed by the executive board to determine if 2 any lot owner should be fined or if planned community privileges or services should be 3 suspended pursuant to the powers granted to the association in G.S. 47F-3-102(11) and (12). Any 4 adjudicatory panel appointed by the executive board shall be composed of members of the 5 association who are not officers of the association or members of the executive board. If the 6 executive board fails to appoint an adjudicatory panel to hear such matters, hearings under this 7 section shall be held before the executive board. [Reporter. – note this change!] The lot owner 8 charged shall be given notice of the charge, opportunity to be heard and to present evidence, and 9 notice of the decision. If it is decided that a fine should be imposed, a fine not to exceed one 10 hundred fifty dollars ($150.00) ($100.00) may be imposed for the violation and without further 11 hearing, for each day more than five days after the decision that the violation occurs. Such fines 12 shall be shall be assessments secured by liens under Section 3-116. If it is decided that a 13 suspension of planned community privileges or services should be imposed, the suspension may 14 be continued without further hearing until the violation or delinquency is cured. The lot owner 15 may appeal the decision of an adjudicatory panel to the full executive board by delivering written 16 notice of appeal to the executive board within 15 days after the date of the decision. The 17 executive board may affirm, vacate, or modify the prior decision of the adjudicatory body.” 18 19 “§ 3-116. Lien for assessments. 20 21 (a) Any assessment levied against a lot remaining unpaid for a period of 30 days or 22 longer shall constitute a lien on that lot when a claim of lien is filed of record in the office of the 23 clerk of superior court of the county in which the lot is located in the manner provided herein. 24 Unless the declaration otherwise provides, fees, charges, late charges, and other charges imposed 25 pursuant to G.S. 47F-3-102, 47F-3-107, 47F-3-107.1, and 47F-3-115 are enforceable as 26 assessments under this section. The Except as provided in subsections (a1) and (a2) of this 27 section, the association may foreclose the claim of lien in like manner as a mortgage on real 28 estate under power of sale under Article 2A of Chapter 45 of the General Statutes. Unless the 29 declaration otherwise provides, fees, charges, late charges, fines, interest, and other charges 30 imposed pursuant to G.S. 47F-3-102, 47F-3-107, 47F-3-107.1, and 47F-3-115 are enforceable as 31 assessments under this section. 32 33 (a1) [Reporter. – here is the crucial text] An association may not foreclose an 34 association assessment lien under Article 2A of Chapter 45 of the General Statutes [that is, non-35 judicial foreclosure] if the debt securing the lien consists solely of fines imposed by the 36 association, interest on unpaid fines, or attorneys’ fees incurred by the association solely 37 associated with fines imposed by the association. The association, however, may enforce the lien 38 by judicial foreclosure as provided in Article 29A of Chapter 1 of the General Statutes. 39 40 (a2) An association shall not levy, charge, or attempt to collect a service, collection, 41 consulting, or administration fee from any lot owner unless the fee is expressly allowed in the 42 declaration. Any lien securing a debt consisting solely of these fees may only be enforced by 43 judicial foreclosure as provided in Article 29A of Chapter 1 of the General Statutes. 44 45 **** 46

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(e) A judgment, decree, or order in any action brought under this section shall include 1 costs and reasonable attorneys’ fees for the prevailing party. If the lot owner does not contest the 2 collection of debt and enforcement of a lien after the expiration of the 15-day period following 3 notice as required in subsection (e1) of this section, then reasonable attorneys’ fees shall not 4 exceed one thousand two hundred dollars ($1,200), not including costs or expenses incurred. The 5 collection of debt and enforcement of a lien remain uncontested as long as the lot owner does not 6 dispute, contest, or raise any objection, defense, offset, or counterclaim as to the amount or 7 validity of the debt and lien asserted or the association’s right to collect the debt and enforce the 8 lien as provided in this section. The attorneys’ fee limitation in this subsection shall not apply to 9 judicial foreclosures or to proceedings authorized under subsection (d) of this section or 10 G.S. 47F-3-120. 11 12 (e1) A lot owner may not be required to pay attorneys’ fees and court costs until the lot 13 owner is notified in writing of the association’s intent to seek payment of attorneys’ fees and 14 court costs. The notice must be sent by first-class mail to the property address and, if different, to 15 the mailing address for the lot owner in the association’s records. The notice shall set out the 16 outstanding balance due as of the date of the notice and state that the lot owner has 15 days from 17 the mailing of the notice by first-class mail to pay the outstanding balance without the attorneys’ 18 fees and court costs. If the lot owner pays the outstanding balance within this period, then the lot 19 owner shall have no obligation to pay attorneys’ fees and court costs. The notice shall also 20 inform the lot owner of the opportunity to contact a representative of the association to discuss a 21 payment schedule for the outstanding balance as provided in subsection (e2) of this section and 22 shall provide the name and telephone number of the representative. 23 24 (e2) The association, acting through its executive board and in the board’s sole 25 discretion, may agree to allow payment of an outstanding balance in installments. Neither the 26 association nor the lot owner is obligated to offer or accept any proposed installment schedule. 27 Reasonable administrative fees and costs for accepting and processing installments may be added 28 to the outstanding balance and included in an installment payment schedule. Reasonable 29 attorneys’ fees may be added to the outstanding balance and included in an installment schedule 30 only after the lot owner has been given notice as required in subsection (e1) of this section. 31 32 **** 33 34 4. On a less serious note, I found this language in the North Carolina statutes and I am 35 pleased to share it with y’all. 36 37

§ 149-2. “A Toast” to North Carolina. “The song referred to as “A Toast” to North 38 Carolina is hereby adopted and declared to be the official toast to the State of North 39 Carolina, said toast being in words as follows: 40

41 “Here’s to the land of the long leaf pine, 42 The summer land where the sun doth shine, 43 Where the weak grow strong and the strong grow great, 44 Here’s to ‘Down Home,’ the Old North State! 45 “Here’s to the land of the cotton bloom white, 46

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Where the scuppernong perfumes the breeze at night, 1 Where the soft southern moss and jessamine mate, 2 ‘Neath the murmuring pines of the Old North State! 3 “Here’s to the land where the galax grows, 4 Where the rhododendron’s rosette glows, 5 Where soars Mount Mitchell’s summit great, 6 In the ‘Land of the Sky,’ in the Old North State! 7 “Here’s to the land where maidens are fair, 8 Where friends are true and cold hearts rare, 9 The near land, the dear land whatever fate, 10 The blest land, the best land, the Old North State!” 11

12 5. The Committee has considered the possibility of tracking the Uniform Non-Judicial 13 Foreclosure Act. In thinking about that subject, the following statutory text tracks notes from the 14 annual meeting which we discussed in Phoenix: 15 16 a. In addition to the procedures set out in [insert reference to state lien foreclosure law], 17 the following rules apply to the association’s efforts to collect sums due it as a result of a unit 18 owner’s failure to pay any sums due the association under this Act or under the declaration, 19 bylaws or rules of the common interest community: 20 21 1. Default Notice [tracking UNJFA sec. 202] 22 23 (a) Before the association commences a foreclosure action for unpaid common 24 expense assessments due the association under section 3-116, the association must deliver a 25 notice of default to a unit owner. The notice must contain: 26 27

1. A statement that a default in payment of assessments levied on that unit or fines 28 against its unit owner has occurred; 29 2. The amount that must be paid to cure that default, including the daily rate of accrual 30 for amounts accruing over time; and 31 3. The time within which the payment must be made to avoid foreclosure, which time 32 must be not less than [30] days; 33 4. The name, mailing address and telephone number of an individual with whom a unit 34 owner may communicate for further information concerning the default; 35 5. A statement that foreclosure may be commenced on account of the default unless the 36 default is cured in a timely manner; and 37 6. A statement that the association will charge the association’s legal fees manager’s 38 fees, or other charges to the unit owner in a specified amount or at a specified rate if the 39 default is not cured in a timely manner. 40

2. Notice Of Foreclosure: Manner Of Giving. [Tracking UNJFA Sec. 203] 41

(a) If the association has given a notice of default under [Section 1] and the unit owner 42 has failed to either pay all sums due within the time allowed or to enter into a mutually 43 acceptable contract for payment, the association may commence foreclosure by giving a notice 44

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of foreclosure. The notice is a prerequisite to foreclosure and must comply with subsections (b) 1 and (c) and [Section 204]. 2

(b) The association shall record a copy of the notice of foreclosure in [the office of the 3 county recorder] of each [county] in which the common interest community is located. All 4 persons acquiring an interest in the unit after the notice of foreclosure is recorded have 5 knowledge of its existence and contents. If a notice of foreclosure is not recorded, a foreclosure 6 under this [act] is void. 7

(c) Except as otherwise provided in subsection (d), the association shall give a notice of 8 foreclosure to each of the following persons no later than five days after recording the notice of 9 foreclosure pursuant to subsection (b) if the person can be identified as of the time the notice of 10 foreclosure is recorded: 11

(1) every unit owner; 12

(2) any person shown by the public records in [the office of the county recorder] 13 of the [county] in which the common interest community is located to be an interest holder in the 14 unit; and 15

(3) any other person the association knows is an interest holder in the unit. 16

(d) Within 10 days before or after recording a notice of foreclosure, the association shall 17 affix a conspicuous sign on the unit stating that foreclosure has been commenced by the 18 association. 19

3. Notice Of Foreclosure: Content.[Tracking UNJFA Sec. 204] 20

(a) The heading of a notice of foreclosure must be conspicuous and must contain the 21 following: “NOTICE OF FORECLOSURE. YOU ARE HEREBY NOTIFIED THAT YOU 22 MAY LOSE YOUR RIGHTS TO CERTAIN PROPERTY. READ THIS NOTICE 23 IMMEDIATELY AND CAREFULLY.” 24

(b) A notice of foreclosure must contain: 25

(1) a statement that the association is commencing foreclosure; 26

(2) a statement that the foreclosure will terminate the rights in the unit of the unit 27 owner and any interest holder; 28

(3) the date of the notice and the name and address of the unit owner; 29

(4) the recording data for the unit; and 30

(5) a statement that a default exists under the declaration and the facts establishing 31 with particularity the default. 32

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(6) a statement that the association has accelerated or, by virtue of the notice, is 1 accelerating the due date fir the balance of the annual common charges owed with respect to that 2 unit, making that amount immediately due, or a statement that the association elects not to 3 accelerate the due date; 4

(7) a statement that the unit may be redeemed from the association by payment or 5 performance of the obligation in full before foreclosure, the amount to be paid or other action 6 necessary to redeem, including a daily amount that will allow calculation of the total balance 7 owed as of future dates, and an estimate of any further amount the association anticipates 8 expending to protect the unit; 9

(8) a statement of the method or methods of foreclosure the association elects to 10 use and the earliest date on which foreclosure will occur if redemption is not made; 11

[?? Needed ??(9) if applicable, an explanation of what the unit owner can do to 12 avoid a claim for a deficiency under Section 607][ will we allow deficiencies?]; 13

(10) a statement: 14

(A) that the unit owner may request a meeting with a representative of the 15 association to object to the foreclosure as provided by Section 206; 16

(B) that the unit owner may be advised or assisted by another person at the 17 meeting; and 18

(C) of the last date on which the request must be received by the 19 association; 20

(11) the name, street and mailing addresses, and telephone number of the 21 association or of an individual who is a representative of the association, with whom a person 22 may communicate for further information concerning the foreclosure; and 23

(12) an explanation of any workout or loss mitigation plan generally available 24 from the association. 25

4. Meeting To Object To Foreclosure.[Tracking UNJFA Sec. 206] 26

(a) A unit owner may request a meeting to object to a foreclosure. The request must be 27 made by a notice received by the association within 30 days after the notice of foreclosure is 28 given to the owner. 29

(b) If the association receives a timely request for a meeting, the association or a 30 responsible representative of the association shall schedule and attend a meeting with the unit 31 owner requesting it at a mutually agreeable time. The foreclosure may not be completed until the 32 meeting is held or the unit owner requesting the meeting fails without reasonable cause to appear 33 at the scheduled meeting. The representative may be an employee, agent, servicer, or attorney of 34

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the association. The meeting may be held in person or by telephone, video conferencing, or other 1 reasonable means at the election of the association. If the meeting is held in person, it must be 2 held at a location reasonably convenient to the unit. 3

(c) A meeting held pursuant to this section is informal, and the rules of evidence do not 4 apply. The parties may be represented by legal counsel, and the unit owner may be advised or 5 assisted by another person to the meeting. Documents that provide evidence of the grounds for 6 foreclosure must be available to the association and provided to the unit owner at or before the 7 meeting. The association shall consider the objections to foreclosure stated by the unit owner. No 8 later than 10 days after the meeting, the association shall give to each unit owner who requested 9 the meeting a written statement indicating whether the foreclosure will be discontinued or will 10 proceed and the reasons for the determination. Neither the objections to foreclosure stated by the 11 unit owner nor the reasons stated by the association preclude any person from raising those or 12 other grounds for objecting to or supporting foreclosure in any judicial proceeding. A statement 13 or representation made by a person at the meeting may not be introduced as evidence in any 14 judicial proceeding. Each party bears its own expenses in connection with the meeting. 15

5. Period Of Limitation For Foreclosure. [tracking UNJFA sec. 207] 16

The time of foreclosure may not be less than 90 days nor more than one year after an 17 original notice of foreclosure is recorded and not less than 30 days after any subsequent notice of 18 foreclosure is recorded. All periods provided in this section are tolled for not more than 180 days 19 while a court order expressly enjoining or staying the foreclosure is in effect and for the period 20 of, and for 45 days after the end of, an automatic stay under Section 362 of the federal 21 Bankruptcy Act (11 U.S.C. Section 101 et. seq.). 22

6. Judicial Supervision Of Foreclosure. [tracking UNJFA sec. 208] 23

A unit owner may commence a judicial proceeding for a violation of this [act] or of other 24 law or principle of equity in the conduct of the foreclosure and a bond or other security may not 25 be required as a condition for the granting of injunctive relief. The court may issue any order 26 within the authority of the court in a foreclosure of a mortgage by judicial action, including 27 injunction or postponement of the foreclosure. 28

7. Redemption [tracking UNJFA sec. 209] 29

A unit owner may not redeem after the time of foreclosure. Unless precluded from doing 30 so by law other than this [act], upon request an association shall cooperate with a person that 31 attempts to redeem the unit before the time of foreclosure by promptly providing information 32 concerning the amount due or performance required to redeem. 33

8. Commencement of Foreclosure [New – tie in with existing state procedures] 34

If a unit owner fails to either pay all sums due within the time allowed or to enter into a 35 mutually acceptable contract for payment, and the association has satisfied the procedures 36 described in sections z through y, the association may proceed to foreclose on the unit in 37

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accordance with [insert reference to state foreclosure law]. Any sale in foreclosure must be 1 conducted in good faith and in a commercially reasonable manner. [After a foreclosure sale, title 2 in the buyer will not be disturbed but the unit owner has a claim against the association for the 3 difference between the sales price and the price that would have been obtained if the sale had 4 been commercially reasonable.] 5 6 [ add comment, See the Vermont case arising under UCIOA, Will v. Mill Condominium 7 Owners Association et al, 176 VT 380, 848 A2d 336 [2004]. 8 9 The comment should also refer also to cases arising under Article 9 in the Bankruptcy 10 courts where the sales price is not determined to constitute ‘reasonably equivalent value” – see 11 Madrid and others. [get citations] 12 13 9. Exception for Foreclosure of Judgment Liens [10/05 Decision] 14 15 If the association seeks to foreclose a judgment lien which the association secured as a 16 result a lawsuit against the unit owner with respect to common charges or other sums due the 17 association from that unit owner, the association is not required to provide the notices or 18 procedures identified in sections x through y. 19 20 SECTION 3-117. OTHER LIENS. 21 22 (a) In a condominium or planned community: 23

(1) Except as provided in paragraph (2), a judgment for money against the 24

association [if recorded] [if docketed] [if [insert other procedures required under state law to 25

perfect a lien on real estate as a result of a judgment] ], is not a lien on the common elements, but 26

is a lien in favor of the judgment lien holder against all of the units in the common interest 27

community at the time the judgment was entered. No other property of a unit owner is subject to 28

the claims of creditors of the association. 29

(2) If the association has granted a security interest in the common 30

elements to a creditor of the association pursuant to Section 3-112, the holder of that security 31

interest shall exercise its right against the common elements before its judgment lien on any unit 32

may be enforced. 33

(3) Whether perfected before or after the creation of the common interest 34

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community, if a lien, other than a deed of trust or mortgage (including a judgment lien or lien 1

attributable to work performed or materials supplied before creation of the common interest 2

community), becomes effective against two or more units, the unit owner of an affected unit may 3

pay to the lien holder the amount of the lien attributable to his unit, and the lien holder, upon 4

receipt of payment, promptly shall deliver a release of the lien covering that unit. The amount of 5

the payment must be proportionate to the ratio which that unit owner’s common expense liability 6

bears to the common expense liabilities of all unit owners whose units are subject to the lien. 7

After payment, the association may not assess or have a lien against that unit owner’s unit for 8

any portion of the common expenses incurred in connection with that lien. 9

(4) A judgment against the association must be indexed in the name of the 10

common interest community and the association and, when so indexed, is notice of the lien 11

against the units. 12

(b) In a cooperative: 13

(1) If the association receives notice of an impending foreclosure on all or 14

any portion of the association’s real estate, the association shall promptly transmit a copy of that 15

notice to each unit owner of a unit located within the real estate to be foreclosed. Failure of the 16

association to transmit the notice does not affect the validity of the foreclosure. 17

(2) Whether or not a unit owner’s unit is subject to the claims of the 18

association’s creditors, no other property of a unit owner is subject to those claims. 19

SECTION 3-118. ASSOCIATION RECORDS. The association shall keep financial 20

records sufficiently detailed to enable the association to comply with Section 4-109. All 21

financial and other records must be made reasonably available for examination by any unit 22

owner and his authorized agents. 23

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Reporter’s Notes – 1/16/06 1 2 1. After our March 2005 meeting in Chicago, the Committee stated that it “intended to 3 replace the ‘minimalist’ provisions of UCIOA in this respect with the cognate provisions of the 4 Revised Model Nonprofit Corporation Act, supplemented by specific provisions from proposed 5 Texas Planned Community Act Section 83.170.” 6 7 We also stated that “In addition, as a matter of policy, the drafting committee will 8 authorize a unit owner to have access to a mailing list of unit owners, although the association 9 may retain the right to mail materials to unit owners at their last known addresses, in order to 10 maintain the unit owners’ privacy.” 11 12 Finally, we said that “the Committee as a matter of policy wishes to insure that minutes 13 of all meetings must be kept.” 14 15 2. The two major issues in this field are: (i) what records must the association maintain; 16 and (2) what records should be available to members. The existing text deals with both of these 17 issues in the two existing sentences, but both issues are not adequately addressed for modern 18 tastes. 19 20 3. There are several possible drafting policies in both areas. It turns out that the Texas 21 Act and the Model Non-Stock Corporation Act [represented in this draft by the CT statute, which 22 I readily found] conflict in significant ways, as you will see. So, I have prepared 3 alternative 23 drafting approaches to each of the two major issues and seek the Committee’s views as to the 24 preferred mix. The next draft will incorporate the Committee’s collective choices. 25 26 (a) [Maintenance of Records] [Alternative 1- existing UCIOA provision] 27 28 The association shall keep financial records sufficiently detailed to enable the 29 association to comply with Section 4-109. [We could add a “minutes” provision]. 30 31 (a) [Maintenance of Records] [Alternative 2- incorporation by reference] 32 33 The association, (regardless of its form of organization) shall keep financial 34 records consistent with the requirements of [insert reference to appropriate section of State non-35 stock corporation act] 36 37 (a) [Maintenance of Records] [Alternative 3-Substantive statement of records 38 requirements][taken from the Model Act as adopted in CT] 39 40 The association shall maintain the following records in written form or in another 41 form capable of conversion into written form within a reasonable time: 42 43 1. Detailed records of receipts and expenditures affecting the operation and 44 administration of the association and other appropriate accounting records. All financial books 45 and records shall be kept in accordance with generally accepted accounting practices. 46

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2. Minutes of all meetings of its members and board of directors, a record of all actions 1 taken by the members or board of directors without a meeting, and a record of all actions taken 2 by a committee of the board of directors in place of the board or directors on behalf of the 3 association. 4

3. A record of its members in a form that permits preparation of a list of the names and 5 addresses of all members, in alphabetical order by class, showing the number of votes each 6 member is entitled to cast and the members’ class of membership, if any; and 7

4. In addition, the Association shall keep a copy of the following records at its principal 8 office: (1) Its certificate of incorporation or restated certificate of incorporation and all 9 amendments to it currently in effect; (2) its bylaws or restated bylaws and all amendments to 10 them currently in effect; (3) the minutes of all members’ meetings and records of all action taken 11 by members without a meeting for the past three years; (4) the financial statements prepared for 12 the past three years under section 33-1241; (5) a list of the names and business addresses of its 13 current directors and officers; and (6) its most recent annual report delivered to the Secretary of 14 the State under section 33-1243. [Reporter Note - this sub-section becomes important for 15 inspection purposes under the Model Act] 16 17 (b) Access [Alternative 1 – the Texas Act] 18 19 (1) An owner, on written request stating the purpose of the inspection, is entitled to 20 examine and copy, in person or by agent, accountant, or attorney, by appointment, at the 21 association’s registered office or its principal office in this state, at a reasonable time, and for a 22 proper purpose, the books and records of the association relevant to the stated purpose. 23 24 (2) The board may adopt a policy by which the association may limit the availability of, 25 or decline to make available, the following records for inspection and photocopying by an owner 26 or the owner’s agent: 27 28 (a) any association file or record that is older than 4 years; 29 30 (b) personnel records of an association employee; 31 32 (c) records relating to the owner or resident of another lot; 33 34 (d) minutes of an executive session of the board; 35 36 (e) records pertaining to threatened or pending litigation; and 37 38 (f) records from the association’s attorney marked “confidential,” “privileged,” or 39 bearing some similar notation. 40 41 (3) An attorney’s files and records relating to the association are not records of the 42 association and are not subject to inspection by owners or production in a legal proceeding for 43 examination by owners. 44 45

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(4) The association may require an owner to pay a reasonable fee for copies of 1 documents or records requested by the owner. 2 3 (b) Access [Alternative 2 – the Virginia Act] 4

B. Subject to the provisions of subsection C, all books and records kept by or on behalf of 5 the association, including, but not limited to, the association’s membership list and addresses, 6 which shall not be used for purposes of pecuniary gain or commercial solicitation, and aggregate 7 salary information of employees of the association, shall be available for examination and 8 copying by a member in good standing or his authorized agent so long as the request is for a 9 proper purpose related to his membership in the association. This right of examination shall exist 10 without reference to the duration of membership and may be exercised (i) only during reasonable 11 business hours or at a mutually convenient time and location and (ii) upon five days’ written 12 notice reasonably identifying the purpose for the request and the specific books and records of 13 the association requested. 14

C. Books and records kept by or on behalf of an association may be withheld from 15 inspection and copying to the extent that they concern: 16

1. Personnel matters relating to specific, identified persons or a person’s medical 17 records; 18

2. Contracts, leases, and other commercial transactions to purchase or provide 19 goods or services, currently in or under negotiation; 20

3. Pending or probable litigation. Probable litigation means those instances where 21 there has been a specific threat of litigation from a party or the legal counsel of a party; 22

4. Matters involving state or local administrative or other formal proceedings 23 before a government tribunal for enforcement of the association documents or rules and 24 regulations promulgated pursuant to § 55-513; 25

5. Communications with legal counsel which relates to subdivisions 1 through 4 26 or which is protected by the attorney-client privilege or the attorney work product doctrine; 27

6. Disclosure of information in violation of law; 28

7. Meeting minutes or other confidential records of an executive session of the 29 board of directors held in accordance with subsection C of § 55-510.1; 30

8. Documentation, correspondence or management or board reports compiled for 31 or on behalf of the association or the board by its agents or committees for consideration by the 32 board in executive session; or 33

9. Individual unit owner or member files, other than those of the requesting lot 34 owner, including any individual lot owner’s or member’s files kept by or on behalf of the 35

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association. 1

D. Prior to providing copies of any books and records to a member in good standing 2 under this section, the association may impose and collect a charge, reflecting the reasonable 3 costs of materials and labor, not to exceed the actual costs thereof. 4

(b) Access [Alternative 3 – the Revised Model Non-Stock Corporation Act – as 5 adopted in Connecticut] 6

(1) A member is entitled to inspect and copy, during regular business hours at the 7 corporation’s principal office, any of the records of the corporation described in subsection (e) of 8 section 33-1235 [that is the records that must be maintained at the principal office] if he 9 gives the corporation written notice of his demand at least five business days before the date on 10 which he wishes to inspect and copy. 11

(2) A member is entitled to inspect and copy, during regular business hours at a 12 reasonable location specified by the corporation, any of the following records of the corporation 13 if he meets the requirements of subsection (3) of this section and gives the corporation written 14 notice of his demand at least five business days before the date on which he wishes to inspect 15 and copy: (1) Excerpts from minutes of any meeting of the board of directors, records of any 16 action of a committee of the board of directors while acting in place of the board of directors on 17 behalf of the corporation, minutes of any meeting of the members, if any, and records of action 18 taken by the members, if any, or board of directors without a meeting, to the extent not subject to 19 inspection under subsection (a) of this section; (2) accounting records of the corporation; and (3) 20 the membership list. 21

(3) A member may inspect and copy the records described in subsection (b) of this 22 section only if: (1) His demand is made in good faith and for a proper purpose; (2) he describes 23 with reasonable particularity the purpose and the records he desires to inspect; and (3) the 24 records are directly connected with this purpose. 25

(4) The right of inspection granted by this section may not be abolished or limited by a 26 corporation’s certificate of incorporation or bylaws. 27

(5) This section does not affect: (1) The right of a member to inspect records under 28 section 33-1070 or, if the member is in litigation with the corporation, to the same extent as any 29 other litigant; or (2) the power of a court, independently of sections 33-1000 to 33-1290, 30 inclusive, to compel the production of corporate records for examination. 31

Sec. 33-1237. Scope of inspection right. (a) A member’s agent or attorney has the same 32 inspection and copying rights as the member represented. 33

(b) The right to copy records under section 33-1236 includes, if reasonable, the right to 34 receive copies by xerographic or other means, including copies through an electronic 35 transmission if available and so requested by the member. 36

(c) The corporation may comply at its expense with a member’s demand to inspect the 37

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membership list under subdivision (3) of subsection (b) of section 33-1236 by providing the 1 member with a membership list that was compiled no earlier than the date of the member’s 2 demand. 3

(d) The corporation may impose a reasonable charge, covering the costs of labor and 4 material, for copies of any documents provided to the member. The charge may not exceed the 5 estimated cost of production, reproduction or transmission of the records. 6

Sec. 33-1238. Court-ordered inspection. (a) If a corporation does not allow a member 7 who complies with subsection (a) of section 33-1236 to inspect and copy any records required by 8 that subsection to be available for inspection, the superior court for the judicial district where the 9 corporation’s principal office or, if none in this state, its registered office is located may 10 summarily order inspection and copying of the records demanded at the corporation’s expense 11 upon application of the member. 12

(b) If a corporation does not within a reasonable time allow a member to inspect and copy 13 any other record, the member who complies with subsections (b) and (c) of section 33-1236 may 14 apply to the superior court for the judicial district where the corporation’s principal office or, if 15 none in this state, its registered office is located for an order to permit inspection and copying of 16 the records demanded. The court shall dispose of an application under this subsection on an 17 expedited basis. 18

(c) If the court orders inspection and copying of the records demanded, it shall also order 19 the corporation to pay the member’s costs, including reasonable attorney’s fees, incurred to 20 obtain the order unless the corporation proves that it refused inspection in good faith because it 21 had a reasonable basis for doubt about the right of the member to inspect the records demanded. 22

(d) If the court orders inspection and copying of the records demanded, it may impose 23 reasonable restrictions on the use or distribution of the records by the demanding member. 24

Sec. 33-1239. Inspection of records by directors. (a) A director of a corporation is 25 entitled to inspect and copy the books, records and documents of the corporation at any 26 reasonable time to the extent reasonably related to the performance of the director’s duties as a 27 director, including duties as a member of a committee, but not for any other purpose or in any 28 manner that would violate any duty to the corporation. 29

(b) The superior court for the judicial district where the corporation’s principal office or, 30 if none in this state, its registered office is located may order inspection and copying of the 31 books, records and documents at the corporation’s expense, upon application of a director who 32 has been refused such inspection rights, unless the corporation establishes that the director is not 33 entitled to such inspection rights. The court shall dispose of an application under this subsection 34 on an expedited basis. 35

(c) If an order is issued, the court may include provisions protecting the corporation from 36 undue burden or expense, and prohibiting the director from using information obtained upon 37 exercise of the inspection rights in a manner that would violate a duty to the corporation, and 38 may also order the corporation to reimburse the director for the director’s costs, including 39

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reasonable counsel fees, incurred in connection with the application. 1 2 SECTION 3-119. ASSOCIATION AS TRUSTEE. With respect to a third person 3

dealing with the association in the association’s capacity as a trustee, the existence of trust 4

powers and their proper exercise by the association may be assumed without inquiry. A third 5

person is not bound to inquire whether the association has power to act as trustee or is properly 6

exercising trust powers. A third person, without actual knowledge that the association is 7

exceeding or improperly exercising its powers, is fully protected in dealing with the association 8

as if it possessed and properly exercised the powers it purports to exercise. A third person is not 9

bound to assure the proper application of trust assets paid or delivered to the association in its 10

capacity as trustee. 11

[NEW] SECTION 3-120. RULES. [10/05 Decision] AND CHARGES 12

(a) Before the executive board adopts [10/16/06 – per Hawkins] or substantially 13

amends any rule or regulation, it must give written notice to all unit owners of its intention to 14

adopt the proposed rules or regulations and notice of a date on which the executive board will 15

convene a meeting to receive comments on them from the unit owners. 16

COMMISSIONER’S COMMENT 17 18

Sec. 3-120(a) – Add “or substantially amends” between “adopts” and “any”. “B. 19 Hawkins” 20 21 22 (b) As permitted by Section 3-102 (a) (19), [Reporter - 10/16/06 ] Subject to any 23

special Declarant right reserved by a declarant to control any architectural or design review 24

committee or process, [Reporter – should this be a more generally stated provision in the 25

section on SDRS?] the association may adopt rules and regulations relating to establish and 26

enforce architectural and design criteria and aesthetic standards. If it does so, the association 27

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must also adopt procedures for obtaining approval and enforcing enforcement of those standards, 1

and for approval of applications, including a reasonable time within which the association must 2

act after an application is submitted must be acted on and a statement that if the application is not 3

approved within that time, the application is deemed approved. 4

Reporter Notes on Draft Comment [1-15-06] 5 6

Assuming I have correctly stated the committee’s substantive intentions on architectural 7 approval, I understand the comments are to state that if the committee or other group fails to act 8 on an application within the time frame stated, then the effect of that failure is that the 9 application will be deemed approved. 10 11

Commissioner’s Floor Comments 12 13 Sec. 3-120(b) - line 10. Add “or the time period is extended by written agreement of the 14 party seeking such approval” after “time” and before “the”. “B. Hawkins” [1/16/06 – Reporter 15 recommends rejection as too detailed’] 16 17 In section 3-120 (B) [Rules and Charges] the 2 participles [obtaining] and [enforcing] do 18 not have the same implied antecedent.[1/16/06 – incorporated] 19 20 (c) [10/05 Decision] Notwithstanding subsection (b), neither the declaration nor 21

any No rule or regulation may prohibit the display of American flags, religious symbols, or 22

political signs or signs advertising units for sale or lease, but if the declaration pursuant to 23

Section 2-105(a)(15) so permits, the association may adopt rules and regulations governing their 24

size, location and duration for the display of those flags and signs. 25

Commissioner’s Floor Comments- 26 27 A Christmas tree is not a religious symbol- US Supreme Court. “Feldman” 28

29 Sec. 3-120(c) – lines 12-13. Consider deleting or placing in brackets the phrase 30 “signs advertising units for sale or lease”. This provision is distinctly different in kind 31 from flags, religious or political signs. It is commercial speech, subject to permissible 32 regulation or prohibition and is a very, very hot button issue in many communities, where 33 the specter of multiple ‘for sale’ signs would absolutely terrorize non-selling owners. “B. 34 Hawkins 35

36 Section 3-120 - WRB notes –perhaps we should refer only to “American” flags. 37

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1 (d) [Old §3-102(c)] Unless otherwise permitted by the declaration or this [act], an 2

association may adopt rules and regulations that affect the [10/05 Decision] appearance, use of 3

or behavior in units that may be used for residential purposes only to: 4

(1) prevent any use of a unit which violates the declaration; 5

(2) regulate any behavior in or occupancy of a unit which violates the 6

declaration or adversely affects the use and enjoyment of other units or the common elements by 7

other unit owners; or 8

(3) restrict the leasing of residential units to the extent those rules are 9

reasonably designed to meet underwriting requirements of institutional lenders who regularly 10

lend money secured by first mortgages on units in common interest communities or regularly 11

purchase those mortgages. Otherwise, the association may not regulate any use of or behavior in 12

units. 13

(e) [10/05 Decision] All rules adopted by the association must be reasonable. 14 15

Reporter Note –[1/15/06] 16 17

My notes state that Ms. Stubblefield suggested adding “data” to old 3-102(c) [now 3-18 120(d)]. The Reporter seeks further guidance. 19 20

[NEW] SECTION 3-121. [10/05 Decision] LITIGATION INVOLVING THE 21

DECLARANT. 22

(a) Notwithstanding the association’s authority under Section 3-102 (a)(3) to 23

commence and pursue litigation involving the common interest community: 24

(1) [mandated notice] Before the association commences litigation, 25

arbitration or any administrative proceedings against a Declarant or any person employed by a 26

Declarant involving any alleged construction defect with respect to the common interest 27

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community, the association shall provide written notice of its claims to the Declarant and those 1

persons whom the association seeks to hold responsible for the claimed defects (the “responsible 2

persons”). [form of notice] The text of the notice may be in any form reasonably calculated to 3

put the responsible persons on notice of the general nature of the association’s claims including, 4

without limitation, a list of the claimed defects. [method of service] The notice may be 5

delivered by any method of service and may be addressed to any person provided that the 6

method of service and the person who is actually served either:(i) provides actual notice to the 7

responsible persons named in the claim; or (ii) the method of service used would be sufficient 8

under local law to confer personal jurisdiction over the responsible person in connection with 9

commencement of a lawsuit by the association against that person. 10

(2) [Delay in commencement of Litigation; Tolling of Statute] The 11

association may not commence litigation, arbitration or any administrative proceedings against a 12

responsible person for a period of [ ] days after the association sends notice of the its claim to 13

that responsible person. 14

(3) [Presentation of Proposed Repair Plans] During the [ ] day period, 15

the Declarant and any other responsible person may present to the Association a plan to repair or 16

otherwise remedy the construction defects described in the notice. If the association does not 17

receive a timely remediation plan from each responsible person to whom it directed notice, the 18

association shall be entitled to commence any proceedings against that responsible persons as the 19

board determines to be appropriate and lawful. 20

(4) If the Association does receive one or more timely plans to repair or 21

otherwise remedy the construction defects described in the notice, then the Association board 22

shall promptly consider those plans and then notify the responsible persons of whether or not 23

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each such plan is acceptable as presented, acceptable with stated conditions, or not accepted. 1

(5) If the association accepts a repair plan form a responsible person, or if 2

a responsible person agrees to stated conditions to an otherwise acceptable plan, then the parties 3

shall agree on a timeframe for implementation of that plan, and the association shall not 4

commence litigation, arbitration or any administrative proceedings against that responsible 5

person during the time that the plan is being diligently implemented. 6

(6) [Consequences of No Agreement] If a responsible person submits a 7

timely repair plan but the association and the responsible party cannot agree to the terms of the 8

plan or its implementation, then [ Alt. 1 - the association is entitled to commence litigation etc. ] 9

or [Alt. 2 – either party is entitled to binding arbitration.] 10

(7) [Tolling of Limitation Period] Except as provided in Section 4-11

116(d) with respect to warranty claims, any statute of limitation affecting the association’s right 12

of action against a declarant or other responsible person under this [act] is tolled during the [ ] 13

day period described in (2) and during any extension of that time because the responsible person 14

has commenced and is diligently pursuing the remediation plan. [taken from UCIOA sec. 3-15

111(c). 16

(8) [Other Suits] Whether or not the association agrees to any repair plan, 17

nothing in this section or otherwise is a bar to the commencement of litigation by: 18

(a) the association against: a responsible person: (i) who fails to 19

submit a timely repair plan or (ii) whose plan is not acceptable or who fails to diligently pursue 20

implementation of that plan; or 21

(b) A unit owner, regardless of any actions of the association. 22

(9) [Emergency Repairs] Nothing in this section precludes the 23

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association from making emergency repairs to correct any defect that poses a significant and 1

immediate health or safety risk. 2

(10) [No Unit Owner Vote] Subject to the other provisions of this section 3

and the declaration, the determination of whether and when the association may commence any 4

proceedings may be made by the executive board and nothing in this section requires a vote by 5

any number or percentage of unit owners a pre-condition to litigation. 6

Reporter’s notes [1/16/06] 7 8 1. This policy and much of the proposed text is taken from the CAI proposal dated Oct. 9 31, 2003. 10 11 2. This text was drafted without reference to other statutory text that may have been 12 adopted in this or similar contexts in other states. 13 3. This text does not address: 14 (i) issues arising under the warranty provisions of UCIOA; see Sec. 4-113 through 15 4-116; 16 (ii) litigation against the Declarant under other theories; 17 (iii) express prohibitions limiting the right of the association to sue the Declarant 18 [except to the extent addressed now in UCIOA – see 3-102(a): 19 20 “The declaration may not impose limitations on the power of the association to deal with 21 the declarant which are more restrictive than the limitations imposed on the power of the 22 association to deal with other persons.” 23 24 In theory, this section might allow the declaration to prohibit commencement of any suit 25 by the board in the absence of a unit owner vote. But there is a proposed amendment to 3-102(a) 26 on this subject. 27 28 29 [NEW] SECTION 3-122 NOTICE. [Drafted by Reporter 1-15-06] 30

(a) When this [act] or the governing documents for any common interest 31

community requires that any notice be given to unit owners, then, notwithstanding any specific 32

form of notice required by that Act or those documents, that notice may be: (i) hand-delivered to 33

each unit; (ii) sent prepaid by United States mail to the mailing address of each unit or to any 34

other mailing address designated in writing by that owner; [or] (iii) sent by electronic means in 35

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the manner described in sub-section (b); [or (iv) conspicuously posted on bulletin boards within 1

the common interest community.] 2

(b) An association provides effective notice of a meeting or effectively delivers 3

information to a unit owner by electronic transmission if: (i) The unit owner gives the association 4

prior written authorization to provide that notice, together with an electronic address; and (ii) An 5

officer or agent of the association certifies in writing that the association has provided the notice 6

as authorized by the unit owner. 7

(c) notice or delivery by electronic transmission is ineffective if: (i) the 8

association is unable to deliver two consecutive electronic notices; and (ii) the inability to deliver 9

the electronic transmission becomes known to the person responsible for sending that 10

transmission. 11

(d) The inadvertent failure to deliver notice by electronic transmission does not 12

invalidate any meeting or other action. 13

Reporter Comments – 1/16/06 14 15 1. The alternatives listed in sub-section (a) include all the forms of notice currently 16 authorized in UCIOA section 3-108, which requires that unit owners be given notice of meetings. 17 The new additional forms of notice are electronic transmissions and posting on bulletin boards, 18 both as discussed in Phoenix. 19 20 2. This text on electronic transmissions is taken from a 2004 Maryland statute, § 11B-21 113.1. Additional editing of this text is plainly required, but the text highlights some of the 22 issues raised by such a form of notice. 23 24 3. As suggested in Phoenix, I have superficially searched for other uniform act 25 provisions on electronic notice and have failed to locate any appropriate text. I plan to make 26 further inquiry. 27 28 4. My Phoenix notes indicate these further discussion points [none of which are reflected 29 in this draft]: 30 31 a. CAI/Ms. Foley-Healy- we ought not to assume that drafters will get the notice 32 text right in their documents – specific statutory guidance would be helpful. 33

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1 b. The Chair – It may be that the statute just has to require the bylaws to specify 2 how the notice is to be given; and state that the notice must be reasonably calculated to give the 3 unit owner notice of the time date and location of the meeting and the subject matter. 4 5 c. Ms. Stubblefield – Perhaps a solution would be to define “notice” and then 6 simply require that notice be given. It may not be our task to say how notice is to be given or that 7 is has to be given. We might also state that unit owners should get the same meeting notice to 8 which the executive board is entitled. 9 10 d. Mr. Diamond – offered to send me paragraph 11.5 [of some document] 11 addressing “new technology”. 12 13 e. Finally, we suggested that the comment might state that the Act doesn’t 14 designate how or when to give notice. [Note that this is a departure from the current Act]. 15 16 17 [NEW] SECTION 3-123. RECALL OF OFFICERS AND DIRECTORS. [note- this 18

is former 3-102 (g)] 19

Reporter’s Notes – 1/16/05 20 21 1. On Sunday morning, our last significant topic of discussion was on Removal. Two 22 particular concerns were: (1) how practical in most cases is it to require a quorumed meeting for 23 a recall, and (2) how could one ever consider recall in a large association? 24 25 2. The consensus seemed to be that this is a real world problem. 26 27 3. These additional views were expressed: 28 29 a. Ms. Foley-Healy [CAI] – there is a number somewhere between the statute’s 30 current requirement of 2/3 of those present at a quorumed meeting, and whoever shows up at a 31 meeting, whether or not there is a quorum present, that is the appropriate number. 32 33 b. Don Mielke - We definitely need a clearer procedure. 34 35 c. The Chair - UCIOA has already dealt with this – see 3-102(g). 36 37 d. Nora Winkelman - We need a specific and stand-alone recall section [this 38 seems to be a consensus position]. 39 40 e. Lee Yeakel – I agree that we need a special section – or perhaps an expanded 41 section on meetings. 42 43 4. My notes then suggest that I “pull some of these things out”: 44

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1 a) Change 2/3s to something else – perhaps a majority of those who vote at a 2

meeting. 3 b) Can we use proxies in a removal fight. [Why not?] 4 c) Should the vote be on removal of x and y as directors AND election of their 5

successors? 6 d) Owen Anderson – Responding to # 3, he asserted that the model should be 7

judicial retention – that is, the new election is a separate decision from removal 8 of the incumbent. 9

e) Make certain that the removal section does not apply to removal of appointed 10 directors 11

f) There ought to be an opportunity to talk [at the removal meeting – or perhaps at 12 every meeting] and then include some procedures for extended voting and for 13 electronic voting or extended voting or whatever. 14

g) The vote on the removal ought not to take place until after that point in time 15 when the talk takes place. 16

h) The act should require the association to have to have a meeting and then allow 17 balloting by mail – instead of simply a vote at that time. 18

i) Marion Benfield – I would not require quorums but I would make it easy to 19 vote – ok to be done by ballot and no quorum needed. 20

j) Elections should also be easy. 21 22 The present text on removal, as amended in Phoenix, reads as follows: 23

24 3-102 (g) Notwithstanding any provision of the declaration or bylaws to the contrary, The 25

unit owners, by a two-thirds vote of all persons present and entitled to vote at any meeting of the 26

unit owners at which a quorum is present, may remove any member of the executive board with 27

or without cause, except that: a member appointed by the declarant may not be removed by a unit 28

owner vote during the period of declarant control, and a person appointed under subsection (h) 29

may only be removed by the person that appointed that member. 30

31 The Reporter proposes this alternative Draft for the Committee’s consideration; it seeks 32 to incorporate the ideas expressed in the comments. 33 34 (a) The unit owners may consider the question of whether to remove a member of 35

the executive board either (1) at any meeting of the unit owners at which a quorum is present if 36

that subject was listed in the notice of the meeting, or (2) at a special meeting called for the 37

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purpose of removing a member of the executive board, whether or not a quorum is present, so 1

long as the voting at the special meeting is conducted in the manner described in sub-section (x). 2

(b) An any meeting at which a vote to remove a member of the executive board is 3

to be taken, a reasonable opportunity for speaking shall be provided before the voting to all 4

persons favoring and opposing removal of that member, including without limitation the member 5

being considered for removal. 6

(c) If a special meeting is called pursuant to this sub-section for the purpose of 7

removing a member of the executive board, then the following rules apply, whether or not a 8

quorum is present at that meeting in person or by proxy: 9

(1) After all persons present at the meeting have been given a reasonable 10

opportunity to speak, the meeting shall be recessed for a period calculated in the manner 11

described in sub-section 2. 12

(2) Promptly following the recess, the association shall notify all unit 13

owners of the recessed meeting in any manner described in Section 3-122 and inform the unit 14

owners of their opportunity to cast votes either in favor or against removal during the [ ] day 15

period following the day that the notice is sent. 16

(3) The notice sent to unit owners shall specifically inform them of their 17

right to cast votes either: in a secret written ballot, on a form provided to the unit owners; or by 18

electronic means. [The Reporter needs assistance in describing this procedure.][ We undoubtedly 19

require additional provisions]. 20

(d) Notwithstanding sub-section (a), a member of the executive board appointed 21

by the declarant may not be removed by a unit owner vote during the period of declarant control, 22

and a member of the executive board appointed under subsection (g) of Section 3-102 may only 23

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be removed by the person that appointed that member. 1

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[ARTICLE] 4 1

PROTECTION OF PURCHASERS 2

3

SECTION 4-101. APPLICABILITY; WAIVER. 4

(a) This [article] applies to all units subject to this [act], except as provided in 5

subsection (b) or as modified or waived by agreement of purchasers of units in a common 6

interest community in which all units are restricted to non-residential use. 7

(b) Neither a public offering statement nor a resale certificate need be prepared or 8

delivered in the case of: 9

(1) a gratuitous disposition of a unit; 10

(2) a disposition pursuant to court order; 11

(3) a disposition by a government or governmental agency; 12

(4) a disposition by foreclosure or deed in lieu of foreclosure; 13

(5) a disposition to a dealer; 14

(6) a disposition that may be canceled at any time and for any reason by 15

the purchase without penalty; or 16

(7) a disposition of a unit restricted to nonresidential purposes. 17

COMMISSIONER’S COMMENT 18 19 7. Section 4-101(b) Applicability – add a disposition by operation of law due to the 20 death of the owner. “D. Behr – Alaska” 21 22 23 SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT 24

REQUIREMENTS. 25

(a) Except as provided in subsection (b), a declarant, before offering any interest 26

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in a unit to the public, shall prepare a public offering statement conforming to the requirements 1

of Sections 4-103, 4-104, 4-105, and 4-106. 2

(b) A declarant may transfer responsibility for preparation of all or a part of the 3

public offering statement to a successor declarant (Section 3-104) or to a dealer who intends to 4

offer units in the common interest community. In the event of any such transfer, the transferor 5

shall provide the transferee with any information necessary to enable the transferee to fulfill the 6

requirements of subsection (a). 7

(c) Any declarant or dealer who offers a unit to a purchaser shall deliver a public 8

offering statement in the manner prescribed in subsection 4-108(a). The person who prepared all 9

or a part of the public offering statement is liable under Sections 4-108 and [,] 4-117 [, 5-105, 10

and 5-106] for any false or misleading statement set forth therein or for any omission of a 11

material fact therefrom with respect to that portion of the public offering statement which he 12

prepared. If a declarant did not prepare any part of a public offering statement that he delivers, he 13

is not liable for any false or misleading statement set forth therein or for any omission of a 14

material fact therefrom unless he had actual knowledge of the statement or omission or, in the 15

exercise of reasonable care, should have known of the statement or omission. 16

(d) If a unit is part of a common interest community and is part of any other real 17

estate regime in connection with the sale of which the delivery of a public offering statement is 18

required under the laws of this State, a single public offering statement conforming to the 19

requirements of Sections 4-103, 4-104, 4-105, and 4-106 as those requirements relate to each 20

regime in which the unit is located, and to any other requirements imposed under the laws of this 21

State, may be prepared and delivered in lieu of providing two or more public offering statements. 22

SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS. 23

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(a) Except as provided in subsection (b), a public offering statement must contain 1

or fully and accurately disclose: 2

(1) the name and principal address of the declarant and of the common 3

interest community, and a statement that the common interest community is either a 4

condominium, cooperative, or planned community; 5

(2) a general description of the common interest community, including to 6

the extent possible, the types, number, and declarant’s schedule of commencement and 7

completion of construction of buildings, and amenities that the declarant anticipates including in 8

the common interest community; 9

(3) the number of units in the common interest community; 10

(4) copies and a brief narrative description of the significant features of the 11

declaration, other than any plats and plans, and any other recorded covenants, conditions, 12

restrictions, and reservations affecting the common interest community; the bylaws, and any 13

rules or regulations of the association; copies of any contracts and leases to be signed by 14

purchasers at closing, and a brief narrative description of any contracts or leases that will or may 15

be subject to cancellation by the association under Section 3-105; 16

(5) any current balance sheet and a projected budget for the association, 17

either within or as an exhibit to the public offering statement, for [one] year after the date of the 18

first conveyance to a purchaser, and thereafter the current budget of the association, a statement 19

of who prepared the budget, and a statement of the budget’s assumptions concerning occupancy 20

and inflation factors. The budget must include, without limitation: 21

(i) a statement of the amount, or a statement that there is no 22

amount, included in the budget as a reserve for repairs and replacement; 23

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(ii) a statement of any other reserves; 1

(iii) the projected common expense assessment by category of 2

expenditures for the association; and 3

(iv) the projected monthly common expense assessment for each 4

type of unit; 5

(6) any services not reflected in the budget that the declarant provides, or 6

expenses that he pays and which he expects may become at any subsequent time a common 7

expense of the association and the projected common expense assessment attributable to each of 8

those services or expenses for the association and for each type of unit; 9

(7) any initial or special fee due from the purchaser [or seller ?] at closing 10

[Reporter Note 1/15/06 - or at the time of sale? See notes at Sec. 3-103], together with a 11

description of the purpose and method of calculating the fee; 12

(8) a description of any liens, defects, or encumbrances on or affecting the 13

title to the common interest community; 14

(9) a description of any financing offered or arranged by the declarant; 15

(10) the terms and significant limitations of any warranties provided by 16

the declarant, including statutory warranties and limitations on the enforcement thereof or on 17

damages; 18

(11) a statement that: 19

(i) within 15 days after receipt of a public offering statement a 20

purchaser, before conveyance, may cancel any contract for purchase of a unit from a declarant, 21

(ii) if a declarant fails to provide a public offering statement to a 22

purchaser before conveying a unit, that purchaser may recover from the declarant [10] percent of 23

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the sales price of the unit plus [10] percent of the share, proportionate to his common expense 1

liability, of any indebtedness of the association secured by security interests encumbering the 2

common interest community, and 3

(iii) if a purchaser receives the public offering statement more than 4

15 days before signing a contract, he cannot cancel the contract; 5

(12) a statement of any unsatisfied judgments or pending suits against the 6

association, and the status of any pending suits material to the common interest community of 7

which a declarant has actual knowledge; 8

(13) a statement that any deposit made in connection with the purchase of 9

a unit will be held in an escrow account until closing and will be returned to the purchaser if the 10

purchaser cancels the contract pursuant to Section 4-108, together with the name and address of 11

the escrow agent; 12

(14) any restraints on alienation of any portion of the common interest 13

community and any restrictions: (i) on use, occupancy, and alienation of the units, and (ii) on the 14

amount for which a unit may be sold or on the amount that may be received by a unit owner on 15

sale, condemnation, or casualty loss to the unit or to the common interest community, or on 16

termination of the common interest community; 17

(15) a description of the insurance coverage provided for the benefit of 18

unit owners; 19

(16) any current or expected fees or charges to be paid by unit owners for 20

the use of the common elements and other facilities related to the common interest community; 21

(17) the extent to which financial arrangements have been provided for 22

completion of all improvements that the declarant is obligated to build pursuant to Section 4-119 23

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(Declarant’s Obligation to Complete and Restore); 1

(18) a brief narrative description of any zoning and other land use 2

requirements affecting the common interest community; 3

(19) all unusual and material circumstances, features, and characteristics 4

of the common interest community and the units; and 5

(20) in a cooperative, (i) whether the unit owners will be entitled, for 6

federal, state, and local income tax purposes, to a pass-through of deductions for payments made 7

by the association for real estate taxes and interest paid the holder of a security interest 8

encumbering the cooperative, and (ii) a statement as to the effect on every unit owner if the 9

association fails to pay real estate taxes or payments due the holder of a security interest 10

encumbering the cooperative. 11

(b) If a common interest community composed of not more than 12 units is not 12

subject to any development rights and no power is reserved to a declarant to make the common 13

interest community part of a larger common interest community, group of common interest 14

communities, or other real estate, a public offering statement may but need not include the 15

information otherwise required by paragraphs (9), (10), (15), (16), (17), (18), and (19) of 16

subsection (a) and the narrative descriptions of documents required by subsection (a)(4). 17

(c) A declarant promptly shall amend the public offering statement to report any 18

material change in the information required by this section. 19

SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO 20

DEVELOPMENT RIGHTS. If the declaration provides that a common interest community is 21

subject to any development rights, the public offering statement must disclose, in addition to the 22

information required by Section 4-103: 23

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(1) the maximum number of units, and the maximum number of units per acre, 1

that may be created; 2

(2) a statement of how many or what percentage of the units that may be created 3

will be restricted exclusively to residential use, or a statement that no representations are made 4

regarding use restrictions; 5

(3) if any of the units that may be built within real estate subject to development 6

rights are not to be restricted exclusively to residential use, a statement, with respect to each 7

portion of that real estate, of the maximum percentage of the real estate areas, and the maximum 8

percentage of the floor areas of all units that may be created therein, that are not restricted 9

exclusively to residential use; 10

(4) a brief narrative description of any development rights reserved by a declarant 11

and of any conditions relating to or limitations upon the exercise of development rights; 12

(5) a statement of the maximum extent to which each unit’s allocated interests 13

may be changed by the exercise of any development right described in paragraph (3); 14

(6) a statement of the extent to which any buildings or other improvements that 15

may be erected pursuant to any development right in any part of the common interest community 16

will be compatible with existing buildings and improvements in the common interest community 17

in terms of architectural style, quality of construction, and size, or a statement that no assurances 18

are made in those regards; 19

(7) general descriptions of all other improvements that may be made and limited 20

common elements that may be created within any part of the common interest community 21

pursuant to any development right reserved by the declarant, or a statement that no assurances 22

are made in that regard; 23

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(8) a statement of any limitations as to the locations of any building or other 1

improvement that may be made within any part of the common interest community pursuant to 2

any development right reserved by the declarant, or a statement that no assurances are made in 3

that regard; 4

(9) a statement that any limited common elements created pursuant to any 5

development right reserved by the declarant will be of the same general types and sizes as the 6

limited common elements within other parts of the common interest community, or a statement 7

of the types and sizes planned, or a statement that no assurances are made in that regard; 8

(10) a statement that the proportion of limited common elements to units created 9

pursuant to any development right reserved by the declarant will be approximately equal to the 10

proportion existing within other parts of the common interest community, or a statement of any 11

other assurances in that regard, or a statement that no assurances are made in that regard; 12

(11) a statement that all restrictions in the declaration affecting use, occupancy, 13

and alienation of units will apply to any units created pursuant to any development right reserved 14

by the declarant, or a statement of any differentiations that may be made as to those units, or a 15

statement that no assurances are made in that regard; and 16

(12) a statement of the extent to which any assurances made pursuant to this 17

section apply or do not apply in the event that any development right is not exercised by the 18

declarant. 19

SECTION 4-105. SAME; TIME SHARES. If the declaration provides that ownership 20

or occupancy of any units, is or may be in time shares, the public offering statement shall 21

disclose, in addition to the information required by Section 4-103: 22

(1) the number and identity of units in which time shares may be created; 23

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(2) the total number of time shares that may be created; 1

(3) the minimum duration of any time shares that may be created; and 2

(4) the extent to which the creation of time shares will or may affect the 3

enforceability of the association’s lien for assessments provided in Section 3-116. 4

SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES CONTAINING 5

CONVERSION BUILDINGS. 6

(a) The public offering statement of a common interest community containing any 7

conversion building must contain, in addition to the information required by Section 4-103: 8

(1) a statement by the declarant, based on a report prepared by an 9

independent [registered] architect or engineer, describing the present condition of all structural 10

components and mechanical and electrical installations material to the use and enjoyment of the 11

building; 12

(2) a statement by the declarant of the expected useful life of each item 13

reported on in paragraph (1) or a statement that no representations are made in that regard; and 14

(3) a list of any outstanding notices of uncured violations of building code 15

or other municipal regulations, together with the estimated cost of curing those violations. 16

(b) This section applies only to buildings containing units that may be occupied 17

for residential use. 18

SECTION 4-107. SAME; COMMON INTEREST COMMUNITY SECURITIES. 19

If an interest in a common interest community is currently registered with the Securities and 20

Exchange Commission of the United States, a declarant satisfies all requirements relating to the 21

preparation of a public offering statement of this [act] if he delivers to the purchaser [and files 22

with the agency] a copy of the public offering statement filed with the Securities and Exchange 23

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Commission. [An interest in a common interest community is not a security under the provisions 1

of [insert appropriate state securities regulation statutes].] 2

SECTION 4-108. PURCHASER’S RIGHT TO CANCEL. 3

(a) A person required to deliver a public offering statement pursuant to Section 4-4

102(c) shall provide a purchaser with a copy of the public offering statement and all amendments 5

thereto before conveyance of the unit, and not later than the date of any contract of sale. Unless a 6

purchaser is given the public offering statement more than 15 days before execution of a contract 7

for the purchase of a unit, the purchaser, before conveyance, may cancel the contract within 15 8

days after first receiving the public offering statement. 9

(b) If a purchaser elects to cancel a contract pursuant to subsection (a), he may do 10

so by hand delivering notice thereof to the offeror or by mailing notice thereof by prepaid United 11

States mail to the offeror or to his agent for service of process. Cancellation is without penalty, 12

and all payments made by the purchaser before cancellation must be refunded promptly. 13

(c) If a person required to deliver a public offering statement pursuant to Section 14

4-102(c) fails to provide a purchaser to whom a unit is conveyed with that public offering 15

statement and all amendments thereto as required by subsection (a), the purchaser, in addition to 16

any rights to damages or other relief, is entitled to receive from that person an amount equal to 17

[10] percent of the sale price of the unit, plus [10] percent of the share, proportionate to his 18

common expense liability, of any indebtedness of the association secured by security interests 19

encumbering the common interest community. 20

SECTION 4-109. RESALES OF UNITS. 21

(a) Except in the case of a sale in which delivery of a public offering statement is 22

required, or unless exempt under Section 4-101(b), a unit owner shall furnish to a purchaser 23

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before the earlier of conveyance or transfer of the right to possession of a unit, a copy of the 1

declaration (other than any plats and plans), the bylaws, the rules or regulations of the 2

association, and a certificate containing: 3

(1) a statement disclosing the effect on the proposed disposition of any 4

right of first refusal or other restraint on the free alienability of the unit held by the association; 5

(2) a statement setting forth the amount of the periodic common expense 6

assessment and any unpaid common expense or special assessment currently due and payable 7

from the selling unit owner; 8

(3) a statement of any other fees payable by the owner of the unit being 9

sold; 10

(4) a statement of any capital expenditures approved by the association for 11

the current and succeeding fiscal years; 12

(5) a statement of the amount of any reserves for capital expenditures and 13

of any portions of those reserves designated by the association for any specified projects; 14

(6) the most recent regularly prepared balance sheet and income and 15

expense statement, if any, of the association; 16

(7) the current operating budget of the association; 17

(8) a statement of any unsatisfied judgments against the association and 18

the status of any pending suits in which the association is a defendant; 19

(9) a statement describing any insurance coverage provided for the benefit 20

of unit owners; 21

(10) a statement as to whether the executive board has given or received 22

written notice that any existing uses, occupancies, alterations, or improvements in or to the unit 23

129

or to the limited common elements assigned thereto violate any provision of the declaration; 1

(11) a statement as to whether the executive board has received written 2

notice from a governmental agency of any violation of environmental, health, or building codes 3

with respect to the unit, the limited common elements assigned thereto, or any other portion of 4

the common interest community which has not been cured; 5

(12) a statement of the remaining term of any leasehold estate affecting the 6

common interest community and the provisions governing any extension or renewal thereof; 7

(13) a statement of any restrictions in the declaration affecting the amount 8

that may be received by a unit owner upon sale, condemnation, casualty loss to the unit or the 9

common interest community, or termination of the common interest community; 10

(14) in a cooperative, an accountant’s statement, if any was prepared, as to 11

the deductibility for federal income tax purposes by the unit owner of real estate taxes and 12

interest paid by the association; 13

(15) a statement describing any pending sale or encumbrance of common 14

elements; and 15

(16) a statement disclosing the effect on the unit to be conveyed of any 16

restrictions on the owner’s right to use or occupy the unit or to lease the unit to another person. 17

(b) The association, within 10 days after a request by a unit owner, shall furnish a 18

certificate containing the information necessary to enable the unit owner to comply with this 19

section. A unit owner providing a certificate pursuant to subsection (a) is not liable to the 20

purchaser for any erroneous information provided by the association and included in the 21

certificate. 22

(c) A purchaser is not liable for any unpaid assessment or fee greater than the 23

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amount set forth in the certificate prepared by the association. A unit owner is not liable to a 1

purchaser for the failure or delay of the association to provide the certificate in a timely manner, 2

but the purchase contract is voidable by the purchaser until the certificate has been provided and 3

for [five] days thereafter or until conveyance, whichever first occurs. 4

SECTION 4-110. ESCROW OF DEPOSITS. Any deposit made in connection with 5

the purchase or reservation of a unit from a person required to deliver a public offering statement 6

pursuant to Section 4-102(c) must be placed in escrow and held either in this State or in the State 7

where the unit is located in an account designated solely for that purpose by [a licensed title 8

insurance company] [an attorney] [a licensed real estate broker] [an independent bonded escrow 9

company or] an institution whose accounts are insured by a governmental agency or 10

instrumentality until (i) delivered to the declarant at closing; (ii) delivered to the declarant 11

because of the purchaser’s default under a contract to purchase the unit; or (iii) refunded to the 12

purchaser. 13

SECTION 4-111. RELEASE OF LIENS. 14

(a) In the case of a sale of a unit where delivery of a public offering statement is 15

required pursuant to Section 4-102(c), a seller 16

(1) before conveying a unit, shall record or furnish to the purchaser 17

releases of all liens, except liens on real estate that a declarant has the right to withdraw from the 18

common interest community, that the purchaser does not expressly agree to take subject to or 19

assume and that encumber: 20

(i) in a condominium, that unit and its common element interest, 21

and 22

(ii) in a cooperative or planned community, that unit and any 23

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limited common elements assigned thereto, or 1

(2) shall provide a surety bond or substitute collateral for or insurance 2

against the lien as provided for liens on real estate in [insert appropriate references to general 3

state law or Sections 5-211 and 5-212 of the State Uniform Simplification of Land Transfers 4

Act]. 5

(b) Before conveying real estate to the association, the declarant shall have that 6

real estate released from: (1) all liens the foreclosure of which would deprive unit owners of any 7

right of access to or easement of support of their units, and (2) all other liens on that real estate 8

unless the public offering statement describes certain real estate that may be conveyed subject to 9

liens in specified amounts. 10

SECTION 4-112. CONVERSION BUILDINGS. 11

(a) A declarant of a common interest community containing conversion buildings, 12

and any dealer who intends to offer units in such a common interest community, shall give each 13

of the residential tenants and any residential subtenant in possession of a portion of a conversion 14

building notice of the conversion and provide those persons with the public offering statement no 15

later than 120 days before the tenants and any subtenant in possession are required to vacate. The 16

notice must set forth generally the rights of tenants and subtenants under this section and must be 17

hand delivered to the unit or mailed by prepaid United States mail to the tenant and subtenant at 18

the address of the unit or any other mailing address provided by a tenant. No tenant or subtenant 19

may be required to vacate upon less than 120 days’ notice, except by reason of nonpayment of 20

rent, waste, or conduct that disturbs other tenants’ peaceful enjoyment of the premises, and the 21

terms of the tenancy may not be altered during that period. Failure to give notice as required by 22

this section is a defense to an action for possession. 23

132

(b) For [60] days after delivery or mailing of the notice described in subsection 1

(a), the person required to give the notice shall offer to convey each unit or proposed unit 2

occupied for residential use to the tenant who leases that unit. If a tenant fails to purchase the 3

unit during that [60]-day period, the offeror may not offer to dispose of an interest in that unit 4

during the following [180] days at a price or on terms more favorable to the offeree than the 5

price or terms offered to the tenant. This subsection does not apply to any unit in a conversion 6

building if that unit will be restricted exclusively to non-residential use or the boundaries of the 7

converted unit do not substantially conform to the dimensions of the residential unit before 8

conversion. 9

(c) If a seller, in violation of subsection (b), conveys a unit to a purchaser for 10

value who has no knowledge of the violation, the recordation of the deed conveying the unit or, 11

in a cooperative, the conveyance of the unit, extinguishes any right a tenant may have under 12

subsection (b) to purchase that unit if the deed states that the seller has complied with subsection 13

(b), but the conveyance does not affect the right of a tenant to recover damages from the seller 14

for a violation of subsection (b). 15

(d) If a notice of conversion specifies a date by which a unit or proposed unit must 16

be vacated and otherwise complies with the provisions of [insert appropriate state summary 17

process statute], the notice also constitutes a notice to vacate specified by that statute. 18

(e) Nothing in this section permits termination of a lease by a declarant in 19

violation of its terms. 20

SECTION 4-113. EXPRESS WARRANTIES OF QUALITY. 21

(a) Express warranties made by any seller to a purchaser of a unit, if relied upon 22

by the purchaser, are created as follows: 23

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(1) any affirmation of fact or promise which relates to the unit, its use, or 1

rights appurtenant thereto, area improvements to the common interest community that would 2

directly benefit the unit, or the right to use or have the benefit of facilities not located in the 3

common interest community, creates an express warranty that the unit and related rights and uses 4

will conform to the affirmation or promise; 5

(2) any model or description of the physical characteristics of the common 6

interest community, including plans and specifications of or for improvements, creates an 7

express warranty that the common interest community will conform to the model or description; 8

(3) any description of the quantity or extent of the real estate comprising 9

the common interest community, including plats or surveys, creates an express warranty that the 10

common interest community will conform to the description, subject to customary tolerances; 11

and 12

(4) a provision that a purchaser may put a unit only to a specified use is an 13

express warranty that the specified use is lawful. 14

(b) Neither formal words, such as “warranty” or “guarantee,” nor a specific 15

intention to make a warranty, are necessary to create an express warranty of quality, but a 16

statement purporting to be merely an opinion or commendation of the real estate or its value does 17

not create a warranty. 18

(c) Any conveyance of a unit transfers to the purchaser all express warranties of 19

quality made by previous sellers. 20

SECTION 4-114. IMPLIED WARRANTIES OF QUALITY. 21

(a) A declarant and any dealer warrants that a unit will be in at least as good 22

condition at the earlier of the time of the conveyance or delivery of possession as it was at the 23

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time of contracting, reasonable wear and tear excepted. 1

(b) A declarant and any dealer impliedly warrants that a unit and the common 2

elements in the common interest community are suitable for the ordinary uses of real estate of its 3

type and that any improvements made or contracted for by him, or made by any person before 4

the creation of the common interest community, will be: 5

(1) free from defective materials; and 6

(2) constructed in accordance with applicable law, according to sound 7

engineering and construction standards, and in a workmanlike manner. 8

(c) In addition, a declarant and any dealer warrants to a purchaser of a unit that 9

may be used for residential use that an existing use, continuation of which is contemplated by the 10

parties, does not violate applicable law at the earlier of the time of conveyance or delivery of 11

possession. 12

(d) Warranties imposed by this section may be excluded or modified as specified 13

in Section 4-115. 14

(e) For purposes of this section, improvements made or contracted for by an 15

affiliate of a declarant (Section 1-103(1)) are made or contracted for by the declarant. 16

(f) Any conveyance of a unit transfers to the purchaser all of the declarant’s 17

implied warranties of quality. 18

SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED 19

WARRANTIES OF QUALITY. 20

(a) Except as limited by subsection (b) with respect to a purchaser of a unit that 21

may be used for residential use, implied warranties of quality: 22

(1) may be excluded or modified by agreement of the parties; and 23

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(2) are excluded by expression of disclaimer, such as “as is,” “with all 1

faults,” or other language that in common understanding calls the purchaser’s attention to the 2

exclusion of warranties. 3

(b) With respect to a purchaser of a unit that may be occupied for residential use, 4

no general disclaimer of implied warranties of quality is effective, but a declarant and any dealer 5

may disclaim liability in an instrument signed by the purchaser for a specified defect or specified 6

failure to comply with applicable law, if the defect or failure entered into and became a part of 7

the basis of the bargain. 8

SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES. 9

(a) Unless a period of limitation is tolled under Section 3-111 or affected by 10

subsection (d), a judicial proceeding for breach of any obligation arising under Section 4-113 or 11

4-114 must be commenced within six years after the [claim for relief][cause of action] accrues, 12

but the parties may agree to reduce the period of limitation to not less than two years. With 13

respect to a unit that may be occupied for residential use, an agreement to reduce the period of 14

limitation must be evidenced by a separate instrument executed by the purchaser. 15

(b) Subject to subsection (c), a [claim for relief] [cause of action] for breach of 16

warranty of quality, regardless of the purchaser’s lack of knowledge of the breach, accrues: 17

(1) as to a unit, at the time the purchaser to whom the warranty is first 18

made enters into possession if a possessory interest was conveyed or at the time of acceptance of 19

the instrument of conveyance if a nonpossessory interest was conveyed; and 20

(2) as to each common element, at the time the common element is 21

completed or, if later, as to (i) a common element that is added to the common interest 22

community by exercise of development rights, at the time the first unit which was added to the 23

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condominium by the same exercise of development rights is conveyed to a bona fide purchaser, 1

or (ii) a common element within any other portion of the common interest community, at the 2

time the first unit is conveyed to a bona fide purchaser. 3

(c) If a warranty of quality explicitly extends to future performance or duration of 4

any improvement or component of the common interest community, the [claim for relief] [cause 5

of action] accrues at the time the breach is discovered or at the end of the period for which the 6

warranty explicitly extends, whichever is earlier. 7

(d) During the period of declarant control, the association may authorize an 8

independent committee of the executive board to evaluate and enforce by any lawful means 9

warranty claims involving the common elements, and to compromise those claims. Only 10

members of the executive board elected by unit owners other than the declarant and other 11

persons appointed by those independent members may serve on the committee, and the 12

committee’s decision must be free of any control by the declarant or any member of the 13

executive board or officer appointed by the declarant. All costs reasonably incurred by the 14

committee, including attorney’s fees, are common expenses, and must be added to the budget 15

annually adopted by the association under Section 3-115. If the committee is so created, the 16

period of limitation for claims for these warranties begins to run from the date of the first 17

meeting of the committee, regardless of when the period of declarant control terminates. 18

SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION; 19

ATTORNEY’S FEES. 20

(a) If a declarant or any other person subject to this [act] fails to comply with any 21

of its provisions or any provision of the declaration or bylaws, any person or class of persons 22

adversely affected by the failure to comply has a claim for appropriate relief. Punitive damages 23

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may be awarded for a willful failure to comply with this [act]. The court, in an appropriate case, 1

may award court costs and reasonable attorney’s fees. 2

(b) Parties to a dispute arising under this [act], the declaration, or the bylaws may 3

agree to resolve the dispute by any form of binding or nonbinding alternative dispute resolution, 4

but: 5

(1) a declarant may agree with the association to do so only after the 6

period of declarant control passes unless the agreement is made with an independent committee 7

of the executive board elected pursuant to Section 4-116(d); and 8

(2) an agreement to submit to any form of binding alternative dispute 9

resolution must be in a writing signed by the parties. 10

New Comment 11 12 The language of sub-section (a) is intentionally broad, and emphasizes the traditional 13 authority of a court in equity to fashion a remedy suited to the circumstances of the case. 14 Importantly, the provisions of this section would apply with equal force to a violation of either 15 this Act or the declaration or by-laws by “any person” besides the declarant – including, for 16 example, the association in its dealings with unit owners, a property manager or unit owners 17 whose own behavior violates those same laws or instruments. 18 19 In appropriate cases involving association or executive board activities, the court might 20 grant relief in the form of a requiring new elections, removal of officers from office, and orders 21 requiring offending parties to make the association whole for improperly expended funds. These 22 examples are not intended to exhaust the traditional authority of a judge to grant “appropriate 23 relief”, and that authority is emphasized by the specific grant of discretion to authorize punitive 24 damages or attorneys fees, as the circumstances warrant. 25 26

SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL. No promotional 27

material may be displayed or delivered to prospective purchasers which describes or portrays an 28

improvement that is not in existence unless the description or portrayal of the improvement in 29

the promotional material is conspicuously labeled or identified either as “MUST BE BUILT” or 30

as “NEED NOT BE BUILT.” 31

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SECTION 4-119. DECLARANT’S OBLIGATION TO COMPLETE AND 1

RESTORE. 2

(a) Except for improvements labeled “NEED NOT BE BUILT,” the declarant 3

shall complete all improvements depicted on any site plan or other graphic representation, 4

including any plats or plans prepared pursuant to Section 2-109, whether or not that site plan or 5

other graphic representation is contained in the public offering statement or in any promotional 6

material distributed by or for the declarant. 7

(b) The declarant is subject to liability for the prompt repair and restoration, to a 8

condition compatible with the remainder of the common interest community, of any portion of 9

the common interest community affected by the exercise of rights reserved pursuant to or created 10

by Section 2-110, 2-111, 2-112, 2-113, 2-115, or 2-116. 11

SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS. In the case of a sale 12

of a unit in which delivery of a public offering statement is required, a contract of sale may be 13

executed, but no interest in that unit may be conveyed, until the declaration is recorded and is 14

substantially completed, as evidenced by a recorded certificate of substantial completion 15

executed by an independent [registered] architect, surveyor, or engineer, or by issuance of a 16

certificate of occupancy authorized by law. 17

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[OPTIONAL] 1

[ARTICLE] 5 2

ADMINISTRATION AND REGISTRATION OF COMMON INTEREST 3

COMMUNITIES 4

5 The Drafting Committee notes that no State has ever adopted Optional Article 5 on 6 administration and registration of common interest communities. 7 8 At the same time, a number of jurisdictions have now adopted or are considering local or 9 state laws imposing a tax on units in common interest communities in order to fund agencies to 10 mediate or finally decide disputes between associations and unit owners. 11 12 The Drafting Committee wishes to generally discuss this subject with the Conference and 13 is considering the addition of an optional provision to Article 5 on this subject. 14 15

Commissioner’s Floor Comments 16 17 Re: Mediation – I’d suggest putting it in the Act but not performed by government – 18 use private mediation and an additional $ 1.00 / month fee for funding it. Or let the 19 Association and disgruntled member pay. I suspect that there are many disgruntled 20 members and to encourage their ‘venting’ may be some mistake. 21 22 Hawaii Revised Statutes Section 514A-121.5 Mediation; Condominium 23 Management Dispute Resolution; Request for Hearing. [ This from a female 24 commissioner from Hawaii]. 25 26 (a) If an apartment owner or the Board of Directors requests mediation of a dispute 27 involving the interpretation or enforcement of the association’s declaration, bylaws or 28 house rules, or involving sections …[delineated] ..the other parties in the dispute shall be 29 required to participate in the mediation. Each party shall be wholly responsible for its 30 owns costs of participating in mediation unless at the end of mediation process* [* author 31 notes that “I don’t love the idea of waiting to the end to decide”] both parties agree that 1 32 party shall pay all or a specified portion of the mediation costs. If an apartment owner or 33 the Board of Directors refuses to participate in the mediation of a particular dispute, a 34 court may take the refusal into consideration when awarding expenses , costs and attorney 35 fees in accordance with sec. 514A-94. 36 37 (b) Hearing [another option] The parties may jointly select a person to conduct the 38 mediation. If the parties are unable to jointly select a mediator, within 10 days of the 39 referral to mediation, the agency shall select the mediator. All costs of the mediation shall 40 be borne equally by the parties unless otherwise agreed, ordered by the agency or provided 41 by law. 42

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1 No mediation communications shall be admitted into any subsequent proceedings, 2 including the case. 3 4 Mandated Mediation – Part 5 – WRB notes – as follows: 5 6 The alternatives seem to be: 7 8 i. Good to mandate mediation as in the Florida Ombudsman. 9 ii. Mediation Task Force – chief justice of PA. 10 iii. The big picture – various programs in Montgomery County, California, and Nevada. 11 We would need to decide the dollar tax per unit, and 12 13 Possibly, stepped procedures – 14 1. mediation 15 2. binding arbitration 16 3. appeal to court [Think about the Tuna Court paper] 17 18