Part 1. General Provisions

Article 1. Definitions and Other General Provisions

§ 1-101. Short title.

This title shall be known and may be cited as the Vermont Common Interest Ownership Act.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

ANNOTATIONS

Applicability.

Condominium owners’ complaint sufficiently alleged that a covenant’s implementation violated the Vermont Common Interest Ownership Act (VCIOA), 27A V.S.A. §§ 1-101 to 4-120, in several ways, and defendants could not achieve dismissal of the VCIOA claims by simply asserting that the VCIOA did not apply to the covenant at issue. Bergman v. Spruce Peak Realty, LLC, 847 F. Supp. 2d 653, 2012 U.S. Dist. LEXIS 37229 (D. Vt. 2012).

Condominium owners’ complaint sufficiently alleged that a covenant’s implementation violated the Vermont Common Interest Ownership Act (VCIOA), 27A, V.S.A. §§ 1-101 to 4-120, in several ways and defendants could not achieve dismissal of the VCIOA claims by simply asserting that the VCIOA did not apply to the covenant at issue. Bergman v. Spruce Peak Realty, LLC, 847 F. Supp. 2d 653, 2012 U.S. Dist. LEXIS 37229 (D. Vt. 2012).

Nonjudicial foreclosure statute did not apply where defendant’s action arose not as the result of a mortgagor-mortgagee relationship — but rather because of the provisions of the Uniform Common Interest Ownership Act, which provides a statutory right to a condominium association to institute a nonjudicial foreclosure proceeding for nonpayment of condominium dues. Will v. Mill Condominium Owners' Association, 2004 VT 22, 176 Vt. 380, 848 A.2d 336, 2004 Vt. LEXIS 26 (2004).

§ 1-102. [Reserved.]

History

Editor’s note—

In the uniform act, § 1-102 relates to applicability of the act.

§ 1-103. Definitions.

In this title:

  1. “Affiliate of a declarant” means any person who controls, is controlled by or is under common control with a declarant.
    1. A person “controls” a declarant if the person:
      1. is a general partner, officer, director, or employer of the declarant;
      2. directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, holds with power to vote or holds proxies representing, more than 20 percent of the voting interest in the declarant;
      3. controls in any manner the election of a majority of the directors of the declarant; or
      4. has contributed more than 20 percent of the capital of the declarant.
    2. A person “is controlled by” a declarant if the declarant:
      1. is a general partner, officer, director, or employer of the person;
      2. directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, holds with power to vote, or holds proxies representing, more than 20 percent of the voting interest in the person;
      3. controls in any manner the election of a majority of the directors of the person; or
      4. has contributed more than 20 percent of the capital of the person.
    3. Control does not exist if the powers described in this subdivision are held solely as security for an obligation and are not exercised.
  2. “Allocated interests” mean the following interests allocated to each unit:
    1. In a condominium, the undivided interest in the common elements, the common expense liability, and votes in the association.
    2. In a planned community, the common expense liability and votes in the association.
  3. “Association” or “unit owners’ association” means the unit owners’ association organized under section 3-101 of this title.
  4. “Common elements” mean:
    1. In a condominium, all portions of the common interest community other than the units.
    2. In a planned community, any real estate within a planned community owned or leased by the association, other than a unit.
  5. “Common expenses” means expenditures made by or financial liabilities of the association together with any allocations to reserves.
  6. “Common expense liability” means the liability for common expenses allocated to each unit pursuant to section 2-107 of this title.
  7. “Common interest community” means real estate described in a declaration with respect to which a person, by virtue of the person’s ownership of a unit, is obligated to pay for a share of real estate taxes on, insurance premiums, maintenance, or improvement of, or services or other expenses related to common elements, other units, or other real estate other than that unit described in the declaration. The term does not include an arrangement described in section 1-207 of this title. For purposes of this subdivision, ownership of a unit does not include holding a leasehold interest of less than five years in a unit, including renewal options.
  8. “Condominium” means a common interest community in which portions of the real estate are designated for separate ownership and the remainder of the real estate is designated for common ownership solely by the owners of those portions. A common interest community is not a condominium unless the undivided interests in the common elements are vested in the unit owners.
  9. “Conversion building” means a building that at any time before creation of the common interest community was occupied wholly or partially by persons other than purchasers and persons who occupy with the consent of purchasers.
  10. “Cooperative” means a regime created pursuant to 11 V.S.A. chapter 14; a cooperative is not a common interest community for the purposes of this title.
  11. “Dealer” means a person in the business of selling units for his or her own account.
  12. “Declarant” means a person or group of persons acting in concert that:
    1. as a part of a common promotional plan, offers to dispose of the interest of the person or group of persons in a unit not previously disposed of; or
    2. reserves or succeeds to any special declarant right.
  13. “Declaration” means any instruments, however denominated, that create a common interest community and any amendments to those instruments.
  14. “Development rights” mean any right or combination of rights reserved by a declarant in the declaration to:
    1. add real estate to a common interest community;
    2. create units, common elements, or limited common elements within a common interest community;
    3. subdivide units or convert units into common elements; or
    4. withdraw real estate from a common interest community.
  15. “Dispose” or “disposition” means a voluntary transfer to a purchaser of any legal or equitable interest in a unit, but does not include the transfer or release of a security interest.
  16. “Executive board” means the body, regardless of name, designated in the declaration or bylaws, which has the power to act on behalf of the association.
  17. “Identifying number” means a symbol or address that identifies only one unit in a common interest community.
  18. “Leasehold common interest community” means a common interest community in which all or a portion of the real estate is subject to a lease the expiration or termination of which will terminate the common interest community or reduce its size.
  19. “Limited common element” means a portion of the common elements allocated by the declaration or by operation of subdivision 2-102(2) or (4) for the exclusive use of one or more but fewer than all of the units.
  20. “Master association” means an organization described in section 2-120 of this title, whether or not it is also an association described in section 3-101 of this title.
  21. “Offer” or “Offering” means any advertisement, inducement, solicitation, or attempt to encourage any person to acquire any interest in a unit, other than as security for an obligation. An advertisement in a newspaper or other periodical of general circulation or in any broadcast medium to the general public of a common interest community not located in this state is not an offering if the advertisement states that an offering may be made only in compliance with the law of the jurisdiction in which the common interest community is located.
  22. “Person” means an individual, corporation, limited liability company, limited liability partnership, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or other legal or commercial entity. In the case of a land trust, “person” means the beneficiary of the trust rather than the trust or trustee.
  23. “Planned community” means a common interest community which is not a condominium or cooperative. A condominium or cooperative may be part of a planned community.
  24. “Purchaser” means any person, other than a declarant or a dealer, who by means of a voluntary transfer acquires a legal or equitable interest in a unit other than:
    1. a leasehold interest, including renewal options, of less than 20 years; or
    2. as security for an obligation.
  25. “Real estate” means any leasehold or other estate or interest in, over or under land, including structures, fixtures, and other improvements and interests which by custom, usage, or law pass with a conveyance of land though not described in the contract of sale or instrument of conveyance. “Real estate” includes parcels with or without upper or lower boundaries, and spaces that may be filled with air or water.
  26. “Residential purposes” mean use for dwelling or recreational purposes, or both.
  27. “Security interest” means an interest in real estate or personal property, created by contract or conveyance, which secures payment or performance of an obligation. “Security interest” includes a lien created by a mortgage, deed of trust, trust deed, security deed, contract for deed, land sales contract, lease intended as security, assignment of lease or rents intended as security, pledge of an ownership interest in an association, and any other consensual lien or title retention contract intended as security for an obligation.
  28. “Special declarant rights” mean rights reserved for the benefit of a declarant to:
    1. complete improvements indicated on plats and plans filed with the declaration as provided in section 2-109 of this title or to complete improvements described in the public offering statement pursuant to subdivision 4-103(a)(2) of this title;
    2. exercise any declarant right pursuant to section 2-110 of this title;
    3. maintain sales offices, management offices, signs advertising the common interest community, and models (section 2-115);
    4. use easements through the common elements for the purpose of making improvements within the common interest community or within real estate which may be added to the common interest community (section 2-116);
    5. make the common interest community subject to a master association (section 2-120);
    6. merge or consolidate a common interest community with another common interest community of the same form of ownership (section 2-121);
    7. appoint or remove any officer of the association or any master association or any executive board member during any period of declarant control (section 3-103);
    8. control any construction, design review, or aesthetic standards committee or process;
    9. attend meetings of the unit owners and, except during an executive session, the executive board; and
    10. have access to the records of the association to the same extent as a unit owner.
  29. “Time share” means a time share estate as defined by 32 V.S.A. § 3619(a) .
  30. “Unit” means a physical portion of the common interest community designated for separate ownership or occupancy.
  31. “Unit owner” means a declarant or other person that owns a unit.
  32. “Assessment” means the sum attributable to each unit and due to the association pursuant to the budget adopted under section 3-123 of this title.
  33. “Association” means the unit owners association.
  34. “Bylaws” means the instruments, however denominated, that contain the procedures for conduct of the affairs of the association, regardless of the form in which the association is organized, including any amendments to the instruments.
  35. “Record,” used as a noun, means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
  36. “Residential purposes” means use for dwelling or recreational purposes, or both.
  37. “Rule” means a policy, guideline, restriction, procedure, or regulation of an association, however denominated, which is not set forth in the declaration or bylaws and which governs the conduct of persons or the use or appearance of property.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 1, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Rewrote the introductory paragraph and subdivs. (5), (7), (12), and (31), inserted “or bylaws, which has the power” following “declaration” in subdiv. (16), added subdivs. (28)(H)-(J), deleted “the boundaries of which are described pursuant to subdivision 2-105(a)(5) of this title” following “occupancy” in subdiv. (30), and added subdivs. (32)-(37).

OFFICIAL COMMENT

  1. The first clause of this section permits the defined terms used in the Act to be defined differently in the declaration and bylaws.  Regardless of how terms are used in those documents, however, terms have an unvarying meaning in the Act, and any restricted practice which depends on the definition of a term is not affected by a changed term in the documents.
  2. The definition of “Affiliate of a declarant” (Section 1-103(1)) is similar to the definition of 12 U.S.C. Section 1730a, which prescribes the authority of the Federal Savings and Loan Insurance Corporation to regulate the activities of savings and loan holding companies, and in 15 U.S.C. Section 78c(a)(18), which defines persons deemed to be associated with a broker or dealer for purposes of the federal securities laws.
  3. Definition (2), “Allocated interests,” refers to all of the interests which this Act requires the declaration to allocate to the common interest communities.
  4. Definition (4), “Common elements” is bifurcated.  The Act adopts the UCA and MRECA definition with respect to condominiums or cooperatives.  However, the Act adopts UPCA’s definition with respect to planned communities.
  5. Definitions (4) and (31), treating “Common elements” and “Units,” should be examined in light of Section 2-102, which specifies in detail how the differentiation between units and common elements is to be determined in any given common interest community to the extent that the declaration does not provide a different scheme.  No exhaustive list of items comprising the common elements is necessary in this Act or in the declaration, as long as the boundaries between units and common elements can be ascertained with reasonable certainty. The common elements include by definition all of the real estate in the condominium or cooperative not designated as part of the units.
  6. The 1994 amendment to the definition of common elements in Section 1-103(4) addresses and clarifies a real estate arrangement found in some common interest planned communities—that is, easements or other forms of servitudes which benefit the community and which run either to the unit owners association or to all the unit owners in the association.  Examples of such interests include access easements to a land locked parcel on which the community is located, easements for shared parking, etc.  This easement, as any commonly held interest in real estate, is and should be a common element.  In reciprocal easement communities, the easements may be the only common elements.
  7. The drafters also seek to distinguish between real estate owned or leased by the unit owners association which is subject to the declaration, and similar real estate which is not subject to the declaration.
  8. Definition (7), “Common interest community,” is new to this Act.  The term creates one comprehensive definition of those interests governed by the Act.  This generic definition, derived from the definition of planned community in UPCA, is used through the Act to refer collectively to the three particular forms of common interest community: condominiums, cooperatives, and planned communities.
  9. Definition (8), “Condominium” makes clear that, unless the real estate title to the common elements is vested in the owners of the units, the project is not a condominium.  Thus, for example, if title to the common elements is in an association in which each unit owner is a member, the project is not a condominium, but a planned community.
  10. Definition (9), “Conversion building,” is important because of the protection which the Act provides in Section 4-112 for tenants of buildings which are being converted into a common interest community.  The definition distinguishes between buildings which have never been occupied by any person before the time that the building is submitted to the cooperative form of ownership, and buildings, whether new or old, which have been previously occupied by tenants.  In the former case, because there have been no tenants in the building, the building would not be a conversion building, and no protection of tenants is necessary.
  11. Definition (10), “Cooperative,” makes clear that the Act applies only to cooperatives which constitute common interest communities.  The common interest community real estate, moreover, must be owned by the association, which, under Section 3-101, may be organized as a profit or non-profit corporation, trust, trustee, partnership, or depending on the option adopted in a particular State, as an unincorporated association.  In requiring, as does Section 3-101, that the association consist exclusively of “unit owners”—defined in MRECA as “proprietary lessees”—the definition tracks the usual requirements of cooperative instruments, which exclude from association membership persons who are not owners or proprietary lessees of the units.
  12. Definition (11), “Dealer,” is a newly defined term in UCIOA.  It was not used in any of the three separate Acts.  It replaces, in many sections, the words “person in the business of selling (either) real estate (or) cooperative interests for his own account.”  Use of the term in UCIOA does not change the substantive results in any of the three Acts.
  13. Definition (12), “Declarant,” is designed to exclude persons who may be called upon to execute the declaration in order to ratify the creation of the common interest community, but who are not intended to be charged with the responsibilities imposed on all declarants by this Act if that is all they do.  Examples of such persons include holders of pre-existing liens and, in the case of leasehold common interest communities, ground lessors.  (Of course, such a person may become a declarant by subsequently succeeding to a Special declarant right.)  Other persons similarly protected by the narrow wording of this definition include real estate brokers, because they do not offer to dispose of their own interest in a unit.  Similarly, unit owners reselling their units are not declarants because these units were ‘previously disposed of‘ when originally conveyed.
  14. Definition (13), “Declaration,” is defined as “any instruments, however denominated, that create a common interest community, including any amendments to those instruments.”  Thus, the term would not only include the traditional condominium declaration with which most practitioners are familiar, or the declaration of covenants, conditions, and restrictions (CC & R’s) so common in planned unit developments.  It would also include, for example, a series of deeds to units with common mutually beneficial restrictions, or to any other instruments which create the relationship which constitutes a common interest community. If those recorded instruments create that relationship, then those documents constitute a declaration and must contain, for new projects, the information required by Section 2-105.
  15. Definition (14), “Development rights,” includes a panoply of sophisticated development techniques that have evolved over time throughout the United States and which have been expressly recognized and regulated in the case of condominiums, in an increasing number of jurisdictions, beginning with Virginia in 1974.
  16. Definition (15), “Dispose” or “Disposition,” includes voluntary transfers to purchasers of any interest in a unit, other than as security for an obligation.  Consequently, the grant of a mortgage or other security interest is not a “disposition,” nor is any transfer of any interest to a person who is excluded from the definition of “Purchaser,” infra.  However, the term includes more than conveyances and would, for example, cover contracts of sale.
  17. Definition (18), “Leasehold common interest community,” should be distinguished from land which is leased to a common interest community but not subjected to the common interest community regime.  A leasehold common interest community means, by definition, real estate which has been subjected to the common interest community form of ownership.  In such a case, units located on the leasehold real estate are typically leased for long terms.  At the expiration of such a lease, the common interest community unit or the real estate underlying the unit would be removed from the common interest community if the lease were not exercised or renewed.  On the other hand, real estate may not be subjected to common interest community ownership, but may be leased directly to the association or to one or more unit owners for a term of years.
  18. In this Act, in contrast to UPCA, Definition (23), “Planned Community,” is a residual concept.  That is, any common interest community which fails to fall into the category of a condominium or a cooperative is, by definition, a planned community.  The definition also indicates that a planned community may have a condominium or cooperative as a constituent element.
  19. Definition (24), “proprietary lease,” describes that instrument initially executed by a cooperative association with the purchaser of a unit, granting the right of exclusive occupancy of a unit.  The term and its significance is more fully treated in the Comments to the definition of “Unit.”
  20. Definition (25), “Purchaser,” includes a person who acquires any interest in a unit, even as a tenant, if the lease including renewal options, entitles him to occupy the premises for more than 20 years.  Excluded from the definition, however, are mortgagees, declarants, and dealers. Persons excluded from the definition of “purchaser” do not receive certain benefits under Article 4, such as the right to a public offering statement (Section 4-102(c)) and the right to rescind (Section 4-108).
  21. Definition (26), “Real estate,” is very broad, and is very similar to the definition of “real estate” in Section 1-201(16) of the Uniform Land Transactions Act.
  22. The definition of “residential purposes” includes “recreational purposes.”  This common sense definition is used in order to avoid repeated use of a lengthier defined term, such as “residential or consumer owned recreational purposes.”
  23. Definition (28), “Security interest,” encompasses any interest in real or personal property which secures payment or performance of an obligation.  Thus, for example, regardless of whether or not the units in a cooperative are treated as real or personal property pursuant to Section 1-105(a), a lender’s interest in a unit securing the debt is a “security interest.” This definition is adapted from Sections 3-102 and 3-103 of the Uniform Land Transactions Act.
  24. Definition (29), “Special declarant rights,” seeks to isolate those rights reserved for the benefit of a declarant which are unique to the declarant and not shared in common with other unit owners.  The list, while short, encompasses virtually every significant right which a declarant might seek in the course of creating or expanding a common interest community.
  25. Definition (30), “Time share,” is based on Section 1-102(14) and (18) of the Model Real Estate Time-Share Act.
  26. Definition (31), “Unit,” describes a tangible, physical part of the project rather than a right in, or claim to, a tangible physical part of the property.  Therefore, for example, a ‘time-share‘ arrangement in which a unit is sold to 12 different persons, each of whom has the right to occupy the unit for one month does not create 12 new units—there are, rather, 12 owners of the unit.  (Under the section on voting (Section 2-110), a majority of the time-share owners of a unit are entitled to cast the vote assigned to that unit.)
  27. Definition (32), “Unit owner,” contemplates that a seller under a land installment contract would remain the unit owner until the contract is fulfilled.  As between the seller and the buyer, various rights and responsibilities must be assigned to the buyer by the contract itself, but the association would continue to look to the seller (for payment of any arrears in common expense assessments, for example,) as long as the seller holds title.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  1. Increase the size or density of a project, either by adding real property to it, or by creating new units, common elements or limited common elements on either the original land or within the original buildings, or on any other land or buildings subsequently added;
  2. Change the mix of units, common elements, and limited common elements, either by subdividing units, or by converting units into common elements or limited common elements; and
  3. Reduce the size of a project by withdrawing real property—whether land, entire buildings, or particular units—from it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ANNOTATIONS

Common elements.

Condominium association violated the terms of the amended declaration, the Condominium Ownership Act, and the Common Interest Ownership Act when it authorized dormer expansions that impacted commonly owned airspace without unanimous approval of the unit owners. While an expansion into the attic space from the unit immediately below did not alter the footprint of the unit, an allocation of a portion of the airspace to any individual unit resulted in a reallocation of that airspace from a common element to a part of a unit. Watson v. Vill. at Northshore I Ass'n, Inc., 2018 VT 8, 207 Vt. 154, 184 A.3d 1133, 2018 Vt. LEXIS 13 (2018).

Common interest community.

Plaintiffs’ properties were not part of a preexisting common interest community in that numerous deeds did not include any obligation for the grantee, by virtue of ownership of a lot, to pay for maintenance or improvement of the road, or any services or other expenses related to common units or other expenses. This inconsistent deed history did not suffice to show a declaration that identified common property that all lot owners were required to support by virtue of their ownership of a lot. Khan v. Alpine Haven Prop. Owners' Ass'n, 2016 VT 101, 203 Vt. 251, 153 A.3d 1218, 2016 Vt. LEXIS 94 (2016).

§ 1-104. Variation by agreement.

Except as expressly provided in this title, the effect of the provisions of this title may not be varied by agreement, and rights conferred by this title may not be waived. Except as otherwise provided in section 1-207 of this title, a declarant may not act under a power of attorney or use any other device to evade the limitations or prohibitions of this title or the declaration.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 2, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Inserted “the effect of the” preceding “provisions” in the first sentence and added “Except as otherwise provided in section 1-207 of this title” preceding “a declarant” in the second sentence.

OFFICIAL COMMENT

  1. The Act is generally designed to provide great flexibility in the creation of common interest communities and, to that end, the Act permits the parties to vary many of its provisions.  In many instances, however, provisions of the Act may not be varied, because of the need to protect purchasers, lenders, and declarants.  Accordingly, this section adopts the approach of prohibiting variation by agreement except in those cases where it is expressly permitted by the terms of the Act itself.
  2. One of the consumer protections in this Act is the requirement for consent by specified percentages of unit owners to particular actions or changes in the declaration. In order to prevent declarants from evading these requirements by obtaining powers of attorney from all unit owners, or in some other fashion controlling the votes of unit owners, this section forbids the use by a declarant of any device to evade the limitation or prohibition of the Act or of the declaration.
  3. The second sentence of the section is an important limitation upon the rights of a declarant.  Today it is the practice in many jurisdictions, particularly those proscribing expansion of a condominium or planned community by statute, for a declarant to secure powers of attorney from all unit purchasers permitting the declarant unilaterally to expand the condominium or planned community by “unanimous consent” to include new units and to reallocate common element interests, common expense liability, and votes.  With such powers of attorney, many declarants have purported to comply with the typical provision of ”first generation” condominium statutes requiring unanimous consent for amendments of the declaration concerning such matters.  The Act bars this practice.
  4. The following sections permit variation:
  5. While freedom of contract is a principle of this Act, and variation by agreement is accordingly widely available, freedom of contract does not extend so far as to permit parties to disclaim obligations of good faith, see Section 1-113, or to enter into contracts which are unconscionable when viewed as a whole, or which contain unconscionable terms.  See Section 1-112.  This section derives from Section 1-102(3) of the Uniform Commercial Code.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

§ 1-105. Separate titles and taxation.

  1. In a condominium or planned community:
    1. if there is any unit owner other than a declarant, each unit that has been created, together with its interest in the common elements, constitutes for all purposes a separate parcel of real estate;
    2. if there is any unit owner other than a declarant, each unit shall be separately taxed and assessed, and no separate tax or assessment may be rendered against any common elements for which a declarant has reserved no development rights; provided, however, that if a portion of the common elements is located in a town other than the town in which the unit is located, the town in which the common elements are located may designate that portion of the common elements within its boundaries as a parcel for property tax assessment purposes and may tax each unit owner at an appraisal value pursuant to 32 V.S.A. § 3481 .
  2. Any portion of the common elements for which the declarant has reserved any development right shall be separately taxed and assessed against the declarant, and the declarant alone is liable for payment of those taxes.
  3. If there is no unit owner other than a declarant, the real estate comprising a common interest community may be taxed and assessed in any manner provided by law.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2011, No. 143 (Adj. Sess.), § 33, eff. May 15, 2012.

History

Amendments

—2011 (Adj. Sess.). Subdivision (a)(2): Added the proviso at the end.

OFFICIAL COMMENT

  1. Subsection (a) of this section follows the MRECA provisions.  The classification of the unit and its allocated interests as real property or as personal property is significant for purposes of such matters as tenure, sales, recordation, transfer taxes, property taxes, estate and inheritance taxes, testate and intestate succession, mortgage lending, the perfection, priority and enforcement of liens, and rights of redemption.
  2. This Act, of course, would apply in all respects regardless of the characterization of the unit owner’s interests.  Thus, for example, recording to the declaration is required, whether or not the owner’s interest in a cooperative interest is real or personal property, because the cooperative itself is the real estate.
  3. Whether an institutional lender may lawfully make loans on the unit owner’s interest may or may not depend on whether that interest is characterized as real or personal property. That issue is not affected by this Act, however, but by other state law which may permit loans to be made by certain institutional lenders only if secured by an interest in real estate.
  4. If a unit owner’s interest is a real property interest, recordation of the proprietary lease in the land records is constructive notice of the unit owner’s rights.  If the unit owner’s interest is a personal property interest, recordation of the lease in the land records would be ineffective as constructive notice of that interest, and Article 9 of the Uniform Commercial Code does not provide a mechanism for filing evidence of that ownership interest.  It is likely, however, that holders of security interests in units which are personal property would adopt a procedure similar to that followed in Illinois with respect to land trusts, which have been held to be personal property in that State.  Under Article 9 of the Uniform Commercial Code and Illinois common law, the secured party files notice of the lien and the lien is thereby perfected for five years, when it must be renewed.
  5. Subsection (b) integrates the language of UCA and UPCA regarding condominiums and planned communities.  A condominium or planned community may be created, by the recordation of a declaration, long before the first unit is conveyed.  This happens frequently, for example, with existing rental apartment projects which are converted into either condominiums or planned communities.  Subsection (d) spares the local taxing authorities from having to assess each unit separately until such time as the declarant begins conveying units, although separate assessment from the date the common interest community is created may be permitted under general state law, which permits or requires separate taxation of individual parcels of real estate.  When separate tax assessments become mandatory under this section, the assessment for each unit must be based on the value of that individual unit, under whatever uniform assessment mechanism prevails in the State or locality.  Importantly, no separate tax bill on the common elements is to be rendered to the association or the unit owners collectively, even though, in the context of planned communities, the common elements owned by the association might be subject to taxation as a separately owned parcel of real estate, in the absence of this provision.  Any common element subject to development rights, however, must be separately assessed and taxed to the declarant, see subsection (c), in recognition of the independent economic value that those development rights have.  This would be true even if the real estate subject to development rights is a part of the common interest community and lawfully “owned” by the unit owners in common, since the rights are in fact an asset of the declarant.
  6. If there is any doubt in a particular State whether a unit occupied as a residential dwelling is entitled to treatment as any other residential single-family detached dwelling under the homestead status, this section should be modified to ensure that units are similarly treated.
  7. Unlike the law of some States, this section imposes no limitations on the power of a jurisdiction to tax units based on the fair market value of the individual units, rather than on the project as a whole.  In most jurisdictions, experience has shown that upon conversion of an apartment building to a common interest form of ownership, the fair market value of the units exceeds the fair market value of that building prior to conversion.  Accordingly, a jurisdiction under this Act may impose real estate taxes on common interest community units which reflect the fair market value of those units in the same way that the jurisdiction taxes other forms of real estate.
  8. Questions have arisen regarding the consequences of foreclosure of a tax lien on units or development rights in a common interest community.
  9. It is also possible that a taxing authority may seek to foreclose on a declarant’s development rights.  Foreclosure of real estate taxes levied against withdrawable real estate, just as in the case of a foreclosure by a voluntary lienholder, may result in removal of that real estate from the common interest community; see Section 2-118(k).  However, foreclosure of real estate owned by the declarant which has not yet been added to the common interest community will have no effect on the common interest community unless the taxing authority also acquires the development right to add that real estate to the common interest community.
  10. Under Section 3-104(c), of course, foreclosure of a tax lien for unpaid taxes levied against development rights would permit the taxing authority to take title to those development rights and exercise or transfer them as they could any other interest in real estate.  However, development rights lapse pursuant to Section 2-110 if they are not exercised within the time limit established by the declaration.  This result, implicit under the Act, is expressly the law in some States. See, e.g., Conn. Gen. Stat. Section 47-229(e).  If development rights lapse when a tax lien against those rights exists under Section 1-105(c), then whether or not those development rights apply to common elements which have previously been added to the common interest community makes no difference; the municipal lien holder is in no different position than a lender who holds a security interest in those development rights.  Accordingly, while the tax lien itself would not be enforceable against the land it would continue to be the obligation of the declarant, as provided in the last clause of this subsection.

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

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

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

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

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

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

ANNOTATIONS

Constitutionality.

Statute regarding separate titles and taxation of condominiums satisfies the principle of the Proportional Contribution Clause that Vermont’s property tax system must be based on fair market value to ensure that the tax burden is shared proportionately. Adams v. Town of Sudbury, 2016 VT 11, 201 Vt. 202, 139 A.3d 567, 2016 Vt. LEXIS 9 (2016).

Town’s appraisal method conformed to the Proportional Contribution Clause’s fair market value requirement. First, the starting schedule was based on actual sales data; second, the adjustment factors for properties such as land quality, depth, and lake frontage reflected those elements that the Court had previously recognized as giving property a market value; and finally, the town used proper bases for determining the degree of adjustment for each factor. Adams v. Town of Sudbury, 2016 VT 11, 201 Vt. 202, 139 A.3d 567, 2016 Vt. LEXIS 9 (2016).

Town’s method of apportioning the tax burden according to ownership interest rather than equally to each condominium unit was reasonable under the Equal Protection Clause and Vermont’s Proportional Contribution Clause because it took into account the benefits and burdens of condominium ownership. It comported with the fair market value principle of the Proportional Contribution Clause for the same reason; it reflected the actual value that the common property added to each unit. Adams v. Town of Sudbury, 2016 VT 11, 201 Vt. 202, 139 A.3d 567, 2016 Vt. LEXIS 9 (2016).

Statute regarding separate titles and taxation of condominiums is constitutionally valid under the Equal Protection Clause and Vermont’s Proportional Contribution Clause because it creates a tax regime that is not only reasonable but also results in fair and uniform tax treatment if implemented properly. Towns are prevented from taxing lands that lie outside their boundaries, but they are free to raise funds in accordance with the amount and value of land that lies within their boundaries, and assuming towns value their lands properly, landowners are treated uniformly because they pay like taxes, regardless of whether their lands lie in one town or multiple towns. Adams v. Town of Sudbury, 2016 VT 11, 201 Vt. 202, 139 A.3d 567, 2016 Vt. LEXIS 9 (2016).

Valuation.

Taxpayer, who owned three units in a condominium complex that mostly lay in Hubbardton but which had common land in Sudbury which fronted on a lake, offered no evidence to bolster his assertion that his particular property was valued or taxed at a rate higher than it would be if it were entirely located within just one town. Indeed, his own testimony was that he valued each of his units at $25,000 when considering their lakefront access, but at only $15,000 when not considering their lakefront access, and the trial court specifically found that Hubbardton assessed his units at just $12,800 each, a clear indication that they were not assessing them as having lakefront access. Adams v. Town of Sudbury, 2016 VT 11, 201 Vt. 202, 139 A.3d 567, 2016 Vt. LEXIS 9 (2016).

Sudbury and Hubbardton portions of a taxpayer’s condominium units together functioned as one tract; the Sudbury portion enhanced the whole by providing the units with lakefront access. Therefore, it was proper to value the Sudbury portion as part of the whole parcel. Adams v. Town of Sudbury, 2016 VT 11, 201 Vt. 202, 139 A.3d 567, 2016 Vt. LEXIS 9 (2016).

§ 1-106. Local ordinances, regulations, and building codes.

  1. A building code may not impose any requirement upon any structure in a common interest community which it would not impose upon a physically identical development under a different form of ownership.
  2. No zoning, building codes, subdivision ordinance, or other real property use law, ordinance, or regulation may prohibit the conversion of any building to the common interest community form of ownership.
  3. Except as provided in subsections (a) and (b) of this section, no provision of this title invalidates or modifies any provision of any zoning, subdivision, building code, or other real estate use law, ordinance, or regulation.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

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

§ 1-107. Eminent domain.

  1. If a unit is acquired by eminent domain or if a part of a unit is acquired by eminent domain leaving the unit owner with a remnant that may not practically or lawfully be used for any purpose permitted by the declaration, the award shall include compensation to the unit owner for that unit and its allocated interests, whether or not any common elements are acquired. Upon acquisition, unless the decree provides otherwise, the allocated interests of that unit are automatically reallocated to the remaining units in proportion to the respective allocated interests of those units before the taking, and the association shall promptly prepare, execute and record an amendment to the declaration reflecting the reallocations. Any remnant of a unit remaining after part of a unit is taken under this subsection is thereafter a common element.
  2. Except as provided in subsection (a) of this section, if part of a unit is acquired by eminent domain, the award shall compensate the unit owner for the reduction in value of the unit and its interest in the common elements, whether or not any common elements are acquired. Unless the decree provides otherwise, upon acquisition:
    1. the allocated interests of that unit shall be reduced in proportion to the reduction in the size of the unit or on any other basis specified in the declaration; and
    2. the portion of the allocated interests divested from the partially acquired unit shall be automatically reallocated to that unit and to the remaining units in proportion to the respective allocated interests of those units before the taking, with the partially acquired unit participating in the reallocation on the basis of its reduced allocated interests.
  3. If part of the common elements is acquired by eminent domain, the portion of the award attributable to the common elements taken shall be paid to the association. Unless the declaration provides otherwise, any portion of the award attributable to the acquisition of a limited common element shall be equally divided among the owners of the units to which that limited common element was allocated at the time of acquisition.
  4. The court decree shall be recorded in every municipality in which any portion of the common interest community is located.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. The provisions of this statute are not intended to supplant the usual rules of eminent domain but merely to supplement those rules in addressing the unique problems which eminent domain raises in the context of a common interest community.  Nevertheless, because the law of eminent domain differs widely among the various States, the law of each State should be reviewed to ensure that the eminent domain code and this section are properly integrated.  For example, subsection (a) uses the words “the award must include compensation to the unit owner.”  This language, a change first made in MRECA, suggests that, under other state law, compensation for other interests may be required in an appropriate case and the section does not limit that result.
  2. When a unit is taken or partially taken by eminent domain, this section provides for a recalculation of the allocated interests of all units.
  3. An important issue raised by this section is whether or not a governmental body acquiring a unit by eminent domain has a right to also take that unit’s allocated interests and thereby assume membership in the association by virtue of its power of eminent domain.  While there is no question that a governmental body may acquire any real property by eminent domain, there is no case law on the question of whether or not the governmental body may take a unit as part of a common interest community or must take the unit and have the unit excluded from the common interest community.
  4. In the circumstances of a taking of part of a unit, it is important to have some objective test by which to measure the portion of allocated interests to be reallocated.  Subsection (b) sets forth a formula based on relative size, but permits the declaration to vary that formula to some other more appropriate formula in a particular circumstance.  The right to vary the formula in the declaration is important, since it is clear that the formula set forth in the statute may in some instances result in gross inequities.
  5. Even before the amendment formally acknowledging the reallocation of percentages required by this section is recorded, the reallocation is deemed to have occurred simultaneously with the taking.  This rule is necessary to avoid the hiatus that otherwise could occur between the taking and the reallocation of interests, votes, and liabilities.

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

Suppose that one of the smaller units is removed from the common interest community by a condemning authority. Subsection (a) provides that the allocated interests would automatically shift, at the time of the taking, so that the larger unit would have 22 2/9% while each of the small units would have 11 1/9%.

Example 2: Suppose, in Example 1, that the condemnation only reduced the size of one of the smaller units by 50%, leaving the remaining half of the unit usable. Subsection (b) provides that the allocated interests would automatically shift to 55/19% for the partially taken unit, 2110/19% for the largest unit, and 1010/19% for each of the other units. Note that the fact that the partially taken unit was reduced to half its former size does not mean that its allocated interests are only half as large as before the taking. Rather, that unit participates in the reallocation in proportion to its reduced size. That is why the partially taken units’ reallocated interests are 55/19% rather than 5%.

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

Example 1: Suppose in a commercial common interest community consisting of four units, each unit consists of a factory and parking lot, and the declaration provides that each unit’s common expense liability, including utilities, is equal. Suppose further that the area of the factory building and parking lot in unit number one are equal, and that 1/2 the parking lot is taken by eminent domain, leaving the factory and 1/2 the lot intact. Under the formula set out in the statute, unit number one’s common expense liability would be reduced even though its utilities might not be reduced at all, thus resulting in a windfall for the unit owner.

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

§ 1-108. General principles of law applicable.

The principles of law and equity, including the law of corporations, any other form of organization authorized by the law of this state, unincorporated associations, the law of real estate, the law of contracts, principal and agent, and eminent domain, supplement the provisions of this title, except to the extent these principles are inconsistent with the title.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 3, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Deleted “but not limited to” following “including”, inserted “any other form of organization authorized by the law of this state”, deleted “and” preceding “unincorporated” and substituted “estate” for “property and” and made minor changes in punctuation.

OFFICIAL COMMENT

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

§ 1-109. Construction against implicit repeal.

This chapter is a general act intended to create unified coverage of its subject matter, and no part of it shall be construed to be repealed by subsequent legislation if that construction can be reasonably avoided.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

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

§ 1-110. Uniformity of application and construction.

This title shall be applied and construed to make uniform the law with respect to the subject of this title among states which enact it.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

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

§ 1-111. Severability.

If any provision of this title or the application of it to any person or circumstances is held invalid, the invalidity shall not affect other provisions or applications of this title which can be given effect without the invalid provision or applications, the provisions of this title are severable.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

§ 1-112. Unconscionable agreement or term of contract.

  1. The court, upon finding as a matter of law that a contract or contract clause was unconscionable at the time the contract was made, may refuse to enforce the contract, enforce the remainder of the contract without the unconscionable clause or limit the application of any unconscionable clause in order to avoid an unconscionable result.
  2. Whenever it is claimed or appears to the court that a contract or any clause of the contract is or may be unconscionable, the parties, in order to aid the court in making the determination shall be afforded a reasonable opportunity to present evidence regarding:
    1. the commercial setting of the negotiations;
    2. whether a party has knowingly taken advantage of the inability of the other party to reasonably protect his or her interests because of physical or mental infirmity, illiteracy, inability to understand the language of the agreement or similar factors;
    3. the effect and purpose of the contract or clause; and
    4. in the case of a sale, any gross disparity at the time of contracting between the amount charged for the property and the value of the property measured by the price at which similar property was readily obtainable in similar transactions. Such a disparity does not of itself render the contract unconscionable.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

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

§ 1-113. Good faith.

Every contract or duty governed by this title imposes an obligation of good faith on all parties in its performance or enforcement.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

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

§ 1-114. Remedies to be liberally administered.

  1. The remedies provided by this title shall be liberally administered so that the aggrieved party is placed in the position the aggrieved party would have been if the other party had fully performed. However, consequential, special, or punitive damages shall not be awarded except as specifically provided in this title or pursuant to other laws.
  2. [Repealed.]

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 4, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (b): Repealed.

§ 1-115. Adjustment of dollar amounts.

  1. From time to time the dollar amounts specified in section 1-203 of this title shall change as provided in subsections (b) and (c) of this section according to and to the extent of changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers: U.S. City Average, All Items 1967 = 100, compiled by the Bureau of Labor Statistics, United States Department of Labor (the “Index”). The Index for December 1990, which was 401, is the Reference Base Index.
  2. The dollar amount specified in section 1-203 of this title and any amount stated in the declaration pursuant to that section shall change annually on July 1 if the percentage of change, calculated to the nearest whole percentage point, between the Index at the end of the preceding year and the Reference Base Index is 10 percent or more, but:
    1. the portion of the percentage change in the Index in excess of a multiple of 10 percent shall be disregarded and the dollar amounts shall change only in multiples of 10 percent of the amounts appearing in this title on January 1, 1999;
    2. the dollar amounts shall not change if the amounts required by this section are those currently in effect pursuant to this title as a result of earlier application of this section; and
    3. in no event shall the dollar amounts be reduced below the amounts appearing in this title on the date of enactment.
  3. If the Index is revised after December 1979, the percentage of change pursuant to this section shall be calculated on the basis of the revised Index. If the revision of the Index changes the Reference Base Index, a revised Reference Base Index shall be determined by multiplying the Reference Base Index then applicable by the rebasing factor furnished by the Bureau of Labor Statistics. If the Index is superseded, the Index referred to in this section is the one represented by the Bureau of Labor Statistics as reflecting most accurately changes in the purchasing power of the dollar for consumers.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

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

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

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

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

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

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

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

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

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

§ 1-116. Relation to Electronic Signatures in Global and National Commerce Act.

This title modifies, limits, and supercedes the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., but does not modify, limit, or supercede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or authorize electronic delivery of any of the notices described in Section 103(b) of that act, 15 U.S.C. Section 7003(b).

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 5, eff. Jan. 1, 2012.

Article 2. Applicability

§ 1-201. New common interest communities.

  1. Except as otherwise provided in subsection (b) of this section and sections 1-203 and 1-204 of this title, this title applies to all condominiums in this state after the effective date of this title that may be used for residential purposes and to all other common interest communities that contain 12 or more units that may be used for residential purposes and are created within this state after the effective date of this title. The provisions of 27 V.S.A. chapter 15, subchapter 1 shall not apply to common interest communities created after December 31, 1998. Amendments to this title apply to all common interest communities that contain 12 or more units that may be used for residential purposes and are created after January 1, 2011, or are subject to this title by amendment of their declaration, regardless of when the amendment to this title is adopted in this state.
  2. A mobile home park, as defined in 10 V.S.A. chapter 153, existing before June 30, 1990, shall not be converted through the use of any device, directly or indirectly, into a common interest community pursuant to this title. Any person who offers for transfer ownership interests in a residential condominium unit in a mobile home park shall be subject to the provisions of 27 V.S.A. chapter 15, subchapter 3 and other applicable laws.
  3. Common interest communities created under this title shall be subject to 27 V.S.A. chapter 15, subchapter 2.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 6, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (a): Amended generally.

OFFICIAL COMMENT

  1. The question of the extent to which a state statute should apply to particular common interest communities involves two major conceptual problems: (1) whether the statute should require or permit different results for common interest communities created before and after the statute takes effect; and (2) whether differences in the forms of ownership, and the history of their development, requires different levels of applicability to those various forms.
  2. The 1994 amendment makes clear that if an amendment to the Act is adopted after the Act is initially adopted in any State, the same body of law will thereafter apply to all common interest communities created under the Act or subjected to it.  This is the corporate model, and avoids perpetuating the retroactivity issue which this Act addressed initially in Sections 1-204, 1-205, and 1-206.  Note that the amendment would not automatically apply to common interest communities created before the original effective date of the Act even though limited provisions of the Act do apply retroactively. Instead, an “old” project would have to be “subjected” to the Act by vote of its unit owners under Section 1-206.

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

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

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

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

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

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

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

§ 1-202. [Reserved.]

History

Editor’s note—

In the uniform act, § 1-202 establishes an exception for small cooperatives.

§ 1-203. Exception for small projects and limited expense liability planned communities.

  1. If a planned community:
    1. contains no more than 24 units and is not subject to any development rights; or
    2. provides in its declaration that the annual average common expense liability of all units restricted to residential purposes, exclusive of optional user fees and any insurance premiums paid by the association may not exceed $300.00 as adjusted pursuant to section 1-115 of this title, it is subject only to sections 1-105, 1-106, and 1-107 of this title unless the declaration provides that this entire title is applicable.
  2. The exemption provided in subdivision (a)(2) of this section applies only if:
    1. the declarant reasonably believes in good faith that the maximum stated assessment will be sufficient to pay the expenses of the planned community; and
    2. the declarant provides that the assessment may not be increased above the limitation in subdivision (a)(2) of this section during the period of declarant’s control without the consent of all unit owners.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 7, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subdivision (b)(2): Inserted “above the limitation in subdivision (a)(2) of this section” and substituted “declarant’s “ for “declarant”.

OFFICIAL COMMENT

  1. Section 1-201 provides generally that the Act applies to all planned communities “created” within the State after the Act’s effective date.  Section 1-203, however, makes only a few of the Act’s sections applicable to either planned communities containing 12 or fewer units with no development rights or to de minimis planned communities—as measured by the size of its common expense assessments—unless the planned community’s declaration makes the entire Act applicable.
  2. The 1994 amendment incorporates into Section 1-203 two limitations that previously existed in Section 4-101(b)(7).
  1. Subsection (a), which was formerly all of Section 1-203, was amended to increase the number of planned communities which are not automatically subject to the full provisions of the Act. This has been accomplished by increasing the dollar amount in subsection (a)(2) from $100 per year to $300 per year.
  2. Subsection (b) was added to incorporate an important limitation on the flexibility granted to declarants to create planned communities which are subject to only a few sections of the Act.  Again, the limitation derives from former Section 4-101(b)(7).  Specifically, the exemption in (a)(2) applies to “de minimus” planned communities, that is, communities, regardless of size, with very few common elements and “commonness” measured by the fact that the maximum annual common charges, exclusive of optional fees and insurance premiums, were once only $100 a year and are now $300 a year. Under subsection (b), this cap must be reasonable and not amendable during the period of declarant control.

§ 1-204. Preexisting common interest communities.

    1. Unless excepted under section 1-203 of this title, the following sections of this title apply to a common interest community created in this state before January 1, 1999: sections 1-103, 1-105, 1-106, 1-107, 2-103, 2-104, 2-121, 3-102(a)(1) through (6) and (11) through (16), 3-111, 3-116, 3-118, 4-109 and 4-117 to the extent necessary to construe the applicable sections. The sections described in this subdivision apply only to events and circumstances occurring after December 31, 1998 and do not invalidate existing provisions of the declarations, bylaws, plats or plans of those common interest communities. (a) (1) Unless excepted under section 1-203 of this title, the following sections of this title apply to a common interest community created in this state before January 1, 1999: sections 1-103, 1-105, 1-106, 1-107, 2-103, 2-104, 2-121, 3-102(a)(1) through (6) and (11) through (16), 3-111, 3-116, 3-118, 4-109 and 4-117 to the extent necessary to construe the applicable sections. The sections described in this subdivision apply only to events and circumstances occurring after December 31, 1998 and do not invalidate existing provisions of the declarations, bylaws, plats or plans of those common interest communities.
    2. Unless excepted under section 1-203 of this title, the following sections of this title apply to a common interest community created in this state before January 1, 1999: sections 1-206; 2-102, 2-117(h) and (i), 2-124, 3-103, 3-108, 3-110, and 3-124. The sections described in this subdivision apply only to events and circumstances occurring after December 31, 2011 and do not invalidate existing provisions of the declarations, bylaws, plats, or plans of those common interest communities.
  1. If a planned community created within this state before the effective date of this title contains no more than 24 units and is not subject to development rights, it is subject only to sections 1-105, 1-106, and 1-107 of this title unless the declaration is amended in conformity with applicable law and with the procedures and requirements of the declaration to take advantage of the provisions of section 1-206 of this title, in which case all the sections enumerated in subsection (a) of this section apply to that planned community.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 8, eff. Jan. 1, 2012; 2011, No. 75 (Adj. Sess.), § 107, eff. March 7, 2012.

History

Amendments

—2011 (Adj. Sess.) Subdivision (a)(2): Substituted “December 31, 2011” for “December 31, 2010”.

—2009 (Adj. Sess.) Subsection (a): Amended generally.

Applicability of 2011 (Adj. Sess.) amendment of subdivision (a)(2). 2011, No. 75 (Adj. Sess.), § 118(d), provides that Sec. 107 of that act [which amended subdiv. (a)(2)] shall take effect on passage [March 7, 2012] and apply retroactively to January 1, 2012.

OFFICIAL COMMENT

  1. This section states the general rules of applicability of the Act to common interest communities which were created before the effective date of this Act.
  2. The Act adopts a novel three-step approach to common interest communities created before the effective date of the Act.  First, certain provisions of the Act described in Section 1-204 automatically apply to “old” common interest communities, but only prospectively, and only in a manner which does not invalidate provisions of declarations and bylaws valid under “old” law.  Second, “old” law remains applicable to previously created common interest communities where not automatically displaced by the Act.  Third, under Section 1-206, owners of “old” common interest communities may amend any provisions of their declaration or bylaws, even if the amendment would not be permitted by “old” law, so long as (a) the amendment is adopted in accordance with the procedure required by “old” law and the existing declaration and bylaws, and (b) the substance of the amendment does not violate this Act.  In addition, as in the case of “new” projects, special exceptions are provided, in Section 1-205, for “small” projects.
  3. Elaboration of the principles described in the last Comment may be helpful.

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

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

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

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

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

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

ANNOTATIONS

Cited.

Cited in Alpine Haven Property Owners Association v. Deptula, 2003 VT 51, 175 Vt. 559, 830 A.2d 78, 2003 Vt. LEXIS 126 (2003) (mem.).

§ 1-205. [Reserved.]

History

Editor’s note—

In the uniform act, § 1-205 establishes an exception for small pre-existing cooperatives and planned communities.

§ 1-206. Amendments to governing instruments.

  1. The declaration, bylaws, or plat and plans of any common interest community created before the effective date of this title may be amended to achieve any result permitted by this title, regardless of what applicable law provided before this title was enacted.
  2. Except as otherwise provided in subsections 2-117(i) and (j) of this title, an amendment to the declaration, bylaws, or plats and plans authorized by this section shall be adopted in conformity with any procedures and requirements for amending the instruments specified in those instruments or, if there are none, in conformity with the amendment procedures of this title. If an amendment grants to any person any rights, powers, or privileges permitted by this title, all correlative obligations, liabilities, and restrictions in this title also apply to that person.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 9, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (b): Added “Except as otherwise provided in subsections 2-117(i) and (j) of this title” preceding “an amendment”, deleted “to be made under this title” preceding “shall be adopted” and inserted “for amending the instruments” preceding “specified” in the first sentence.

OFFICIAL COMMENT

  1. This section tracks closely the provisions of the Uniform Planned Community Act and the Model Real Estate Cooperative Act and provides a straightforward mechanism by which the documents of pre-Act common interest communities may be amended to take advantage of desirable provisions of the Act. See the Comment to Section 1-205.
  2. In considering the permissible amendments under Section 1-206, it is important to distinguish between the law, governing the procedure for amending declarations, and the substance of the amendments themselves.  An amendment to the declaration of a community created under “old” law, even if permissible under this Act, must nevertheless be adopted “in conformity with the procedures and requirements specified” by the original instruments, and in compliance with the old law.
  3. This section does not address the issue of contract rights of unit purchasers which may be affected by amendments under the new Act.  Whether an amendment is effective against unit owners who purchased their units prior to the effective date of the Act and prior, therefore, to the amendment in question is controlled by the contract and constitutional law of the State.
  4. The last sentence of Section 1-206 addresses the potential problem of a declarant seeking to take undue advantage of the amendment provisions to assume a power granted by the Act without being subject to the Act’s limitations on the power. The last sentence insures that, if declarants or other persons assume any of the powers and rights which the Act grants, the correlative obligations, liabilities, and restrictions of the Act also apply to that person, even if the amendment itself does not require that result.
  5. In place of the words “declaration, bylaws, and plats and plans,” at the end of this section, each State should insert the appropriate terminology for those documents under the present state law, e.g., “master deed, rules and regulations,” etc.
  6. This section does not permit a pre-existing common interest community to elect to come entirely within the provisions of the Act, disregarding old law.  However, the owners of a pre-existing common interest community may elect to terminate the community under pre-existing law and create a new community which would be subject to all the provisions of this Act.
  7. The 1994 changes are not intended to alter the substantive rules contained in the original section.  However, in light of experience in several state legislatures, these changes should make clearer the intent of the original section.

Example: Suppose an “old” condominium declaration and “old” state law both provide that approval by 100% of the unit owners is required to amend the declaration, but the unit owners wish to amend the declaration to provide for only 67% of the unit owners’ approval of future amendments, as permitted by Section 2-117 of this Act. The amendment would not be valid unless 100% of the unit owners approved it, because of the procedural requirement of the declaration and “old” law. Once approved, however, only 67% would be required for subsequent amendments.

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

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

Nevertheless, if the declarant, before that extended time limit has expired, conveys 75 percent of the units that may ever be a part of the condominium, or fails for two years to exercise development rights or offer units for sale in the ordinary course of business, the period of declarant control would terminate by virtue of the limitations in Section 3-103(d). That limitation is imposed on the declarant even if the amendment called for retaining control for so long as any units were owned by declarant, and despite the provision in the “old” law permitting such a restriction.

§ 1-207. Applicability to nonresidential and mixed-use common interest communities.

  1. [Repealed.]
  2. A nonresidential common interest community is not subject to this title except to the extent the declaration provides that:
    1. this entire title applies to the community;
    2. Articles 1 and 2 of this title apply to the community; or
    3. in the case of a planned community, only sections 1-105, 1-106, and 1-107 of this title apply to the community.
  3. [Repealed.]
  4. If this entire title applies to a nonresidential common interest community, the declaration may also require, subject to section 1-112 of this title, that:
    1. notwithstanding section 3-105 of this title, any management contract, employment contract, lease of recreational or parking areas or facilities, and any other contract or lease between the association and a declarant or an affiliate of a declarant continues in force after the declarant turns over control of the association; and
    2. notwithstanding section 1-104 of this title, purchasers of units must execute proxies, powers of attorney, or similar devices in favor of the declarant regarding particular matters enumerated in those instruments.
  5. A common interest community that contains units restricted exclusively to nonresidential purposes and other units that may be used for residential purposes is not subject to this title unless the units that may be used for residential purposes would comprise a common interest community that would be subject to this title in the absence of the nonresidential units or the declaration provides that this title applies as provided in subsection (b) or (d) of this section.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 10, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Repealed subsecs. (a) and (c), rewrote subsec. (b), and inserted “that would be subject to this title” preceding “in the absence” and substituted “subsection (b)” for “subsection (c)” in subsec. (e).

OFFICIAL COMMENT

  1. The 1994 amendments to this section permit all nonresidential common interest communities to “opt out” of the Act; the original section was limited to planned communities.
  2. Finally, a declarant may find the full range of the Act to be a desirable outcome, particularly in light of those many sections which permit waiver or variation by agreement.  Those sections already permitting waiver are detailed in the Official Comments to Section 1-104.
  3. Subsection (e) addresses the Act’s applicability to mixed use projects.  The default rule is nonapplicability unless the definition of a common interest community would be met “in the absence of the nonresidential units.”  Thus, if the “residential” units and their obligations under the declaration did not satisfy the definitional threshold in Section 1-103(7)—basically, a payment obligation on the unit extending by covenant to “non-unit” expenses—the Act would not apply.

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

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

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

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

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

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

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

§ 1-208. Out-of-state common interest communities.

This title does not apply to a common interest community located outside this state, but sections 4-102 and 4-103, and to the extent applicable, sections 4-104 through 4-106 of this title, apply to a contract for the disposition of a unit in a common interest community signed in this state by any party unless exempt under subsection 4-101(b) of this title.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; 2009, No. 155 (Adj. Sess.), § 11, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Amended section generally.

OFFICIAL COMMENT

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

§ 1-209. Small condominiums; exception; access to mixed funding sources.

Subsection 2-101(b), subdivisions 2-109(b)(2) and (11), subsection 2-109(g), section 2-115, and Article 4 of this title shall not apply to a condominium if the declaration:

  1. creates fewer than 10 units; and
  2. restricts ownership of a unit to entities that are controlled by, affiliated with, or managed by the declarant.

HISTORY: Added 2005, No. 116 (Adj. Sess.), § 5, eff. April 26, 2006; amended 2011, No. 52 , § 25, eff. May 27, 2011.

History

Amendments

—2011. Rewrote the section.

Repeal of sunset date. 2009, No. 155 (Adj. Sess.), § 12, which had provided for the repeal of this section, effective January 1, 2012, was repealed by 2011, No. 52 , § 26.

§ 1-210. Other exempt real estate arrangements.

  1. An arrangement between the associations for two or more common interest communities to share the costs of real estate taxes, insurance premiums, services, maintenance or improvements of real estate, or other activities specified in their arrangement or declarations does not create a separate common interest community.
  2. An arrangement between an association and the owner of real estate that is not part of a common interest community to share the costs of real estate taxes, insurance premiums, services, maintenance or improvements of real estate, or other activities specified in their arrangement does not create a separate common interest community. However, assessments against the units in the common interest community required by the arrangement must be included in the periodic budget for the common interest community, and the arrangement must be disclosed in all public offering statements and resale certificates required by this title.

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 13, eff. Jan. 1, 2012.

§ 1-211. Covenants; cost-sharing agreements.

A covenant that requires the owners of separately owned parcels of real estate to share costs or other obligations associated with a party wall, driveway, well, or other similar use does not create a common interest community unless the owners otherwise agree.

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 14, eff. Jan. 1, 2012.

Part 2. Creation, Alteration, and Termination of Common Interest Communities

§ 2-101. Creation of common interest communities.

  1. A common interest community may be created pursuant to this title only by recording a declaration executed in the same manner as a deed. The declaration shall be recorded in each town in which any portion of the common interest community is located and shall be indexed in the grantee’s index in the name of the common interest community and the association and in the grantor’s index in the name of each person executing the declaration.
  2. In a condominium, a declaration or an amendment to a declaration to add units may not be recorded unless all structural components and mechanical systems of all building containing or comprising any units created by the declaration are substantially completed in accordance with the plans as evidenced by a recorded certificate of completion executed by an independent professional engineer, surveyor or architect, as appropriate and if authorized by the respective practice acts of each profession in 26 V.S.A. chapters 3, 20, and 45.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 1999, No. 133 (Adj. Sess.), § 35.

History

Amendments

—1999 (Adj. Sess.). Subsection (b): Added “as appropriate and if authorized by the respective practice acts of each profession in chapters 20, 45 and 3 of Title 26” at the end of the paragraph.

OFFICIAL COMMENT

  1. Under subsection (a), a common interest community is created pursuant to this Act only by recording a declaration. As with any instrument affecting real estate, the declaration must be recorded in every recording district in which any portion of the common interest community is located and must be indexed in the manner described in subsection (a). Specific indexing rules are suggested in brackets and should be used in those States where this result would not otherwise occur.  For example, the declaration commonly has not been indexed in the grantee’s index in the name of the common interest community. Moreover, when multiple persons execute the declaration, the declaration has often been indexed solely in the name of the declarant and not in the name, for example, of lenders and other persons who might have executed the declaration. Because it is important that the names of the association and all persons executing the declaration appear in the index in order to locate all instruments in the land records, that language is not included in brackets.
  2. In Section 1-103, the Act defines the term “Declaration” as any instruments, however denominated, which create a common interest community, including any amendments to those instruments; “common interest community” in turn is defined as “real estate with respect to which a person, by virtue of his ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration.[”] “Ownership of a unit” does not include “holding a leasehold interest of less than 20 years in a unit, including renewal options.”  It is important to realize that other covenants, conditions, or restrictions applicable to the real estate in the common interest community might be recorded before or after the instruments are recorded which divide the real estate into units and common elements.  Until the actual recordation of the document which accomplished that result, however, the common interest community has not been created.
  3. A common interest community has not been lawfully created unless the requirements of this section have been complied with.  Nevertheless, a project which meets the definition of a “common interest community” in Section 1-103(7) is subject to this Act even if this or other sections of the Act have not been complied with.
  4. Mortgagees and other lienholders need not execute the declaration, and foreclosure of a mortgage or other lien will not, of itself, terminate a condominium or planned community. However, if that lien is prior to the declaration itself, the lienholder may exclude that real estate from the condominium or planned community.  See Section 2-118(k) and (l). Moreover, the declarant may wish to obtain agreements from mortgagees or other lienholders that they will give partial releases permitting lien-free conveyance of condominium or planned community units.  See Section 4-111(a).
  5. Except when development proceeds pursuant to Section 5-103, this Act contemplates that substantial completion must be reached before a unit may be conveyed.  See Section 4-120. In the case of a condominium, substantial structural completion is also required before the condominium is created.  The purpose of imposing these requirements is to insure that a purchaser will in fact take title to a unit which may be used for its intended purpose.
  6. In the case of a condominium, Section 2-101(b) requires that “all structural components and mechanical systems of all buildings containing or comprising any units” which will be created by recording a declaration, must be substantially completed in accordance with the plans.  The intent of subsection (b) is that if any buildings are depicted on the plats and plans which are required by Section 2-109, and these buildings contain or comprise spaces which become units by virtue of recording the declaration, the structural components and mechanical systems of these buildings must be substantially complete before the declaration is recorded. This is required even though the plats and plans recorded pursuant to Section 2-109 depict only the boundaries of the buildings and the units created in those buildings, and not the structural components or mechanical systems (which need not be shown).  If the boundaries of units are not depicted, of course, then no units are created. If the declarant fails to comply with this section, title is not affected.  See Comment 8, below.
  7. Section 4-120 requires that, before an individual unit is conveyed, the unit must be “substantially completed.” “Substantial completion” is a well understood term in the construction industry.  For example, the American Institute of Architects Document A 201, General Conditions of the Contract for Construction (1976 Ed.) at para. 8.1.3, states:
  8. Sections 2-101(b) and 4-120 require that completion certificates be recorded, or local certificates of occupancy be issued, as evidence of the fact that the required levels of construction have been met.  In the case of “substantial completion,” issuance of “a certificate of occupancy authorized by law,” as is commonly required by local ordinance or state building codes, will suffice.  Once the certificates have been recorded or issued, as the case may be, good title to the units may be conveyed in reliance on the record.  It is possible, of course, that the declarant may have failed to complete the required levels of construction; no certificate of completion may have been filed or the architect, surveyor, or engineer (whichever is appropriate in a particular jurisdiction) may have filed a false certificate.  Such acts would create a cause of action in the purchaser under Section 4-117, but would not affect the validity of the purchaser’s title to the unit.
  9. The requirement of “substantial completion” does not mean that the declarant must complete all buildings in which all possible units would be located before creating the condominium.  If only some of the buildings in which units may ultimately be located have been “structurally” completed, the declarant may create a condominium in which he reserves particular development rights (Section 2-105(a)(8)).  In such a project, only the completed units might be treated as units from the outset, and the development rights would be reserved to create additional units, either by adding additional real estate and units to the condominium, by creating new units on common elements, or by subdividing units previously created. The optional units may never be completed or added to the condominium; however, this will not affect the integrity of the condominium as originally created.
  10. Requiring “substantial completion” of the structural components and mechanical systems in the buildings containing or comprising the units in a condominium may encourage creation of more phased condominiums under Section 2-105 in projects which were once in fact built in phases, but under a single non-expandable declaration.  Experience in the several States where significantly more rigorous requirements are imposed by statute, however, has shown that this does not create a difficult situation either for the developer or lender.  Moreover, it appears likely that the size of the initial phase of a multi-building project will be dictated largely by economics, as occurs in most jurisdictions today, rather than this Act.  Finally, many lenders and developers are increasingly sensitive to the secondary mortgage market requirements, particularly those of the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).  Experience indicates that the pre-sale requirements imposed by FNMA and FHLMC frequently dictate that multi-building projects be structured on a phased or expandable basis.
  11. The requirement of completion would be irrelevant in some types of common interest communities, such as campsite condominiums or some subdivision planned unit developments where the units might consist of unimproved lots and the airspace above them, within which each purchaser would be free to construct or not construct a residence.  Any residence actually constructed would ordinarily become a part of the “unit” by the doctrine of fixtures, but nothing in this Act would require any residence to be built before the lots could be treated as units.
  12. The term “independent” architect, surveyor, or engineer in subsection (b) and elsewhere in the Act distinguishes any such professional person who acts as an independent contractor in his relationship to the declarant or lender.

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

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

The concept of “structural components and mechanical systems” is one commonly understood in the construction field and this Comment is not intended as a comprehensive list of those components. For example, however, the term “structural components” is generally understood to include those portions of a building necessary to keep any part of the building from collapsing, and to maintain the building in a weather tight condition. This would include the foundations, bearing walls and columns, exterior walls, roof, floors, and similar components. It would clearly not include such components as interior non-bearing partitions, surface finishes, interior doors, carpeting, and the like. Similarly, typical examples of “mechanical systems” include the plumbing, heating, air conditioning, and other like systems. Whether or not “electrical systems” are included within the meaning of the term depends on local practice.

The Date of Substantial Completion of the Work . . . is the date certified by the Architect when construction is sufficiently complete, in accordance with the Contract Documents (that is, the owner-contractor agreement, the conditions of the contract, and the specifications and all addenda and modifications), so the Owner can occupy or utilize the Work . . . for the use for which it is intended.

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

§ 2-102. Unit boundaries.

Except as provided by the declaration in a common interest community:

  1. if walls, floors, or ceilings are designated as boundaries of a unit, all wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finished flooring, and any other materials constituting any part of the finished surfaces of the unit are part of the unit, and all other portions of the walls, floors, or ceilings are part of the common elements;
  2. if any chute, flue, duct, wire, conduit, bearing wall, bearing column, or any other fixture lies partially within and partially outside the designated boundaries of a unit, any portion of it serving only that unit is a limited common element allocated solely to that unit, and any portion of it serving more than one unit or any portion of the common elements is a part of the common elements;
  3. subject to the provisions of subdivision (2) of this section, all spaces, interior partitions, and other fixtures and improvements within the boundaries of a unit are part of the unit;
  4. any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, and all exterior doors and windows or other fixtures designed to serve a single unit but located outside the unit’s boundaries are limited common elements allocated exclusively to that unit.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. It is important for title purposes, for purposes of defining maintenance responsibilities, and for other reasons to have a clear guide as to which parts of a common interest community constitute the units and which parts constitute common elements. This section fills the gap left when the declaration merely defines unit boundaries in terms of floors, ceilings, and perimetric walls, and is particularly useful in the case of cooperatives, in which the recording of plats and plans is not required.  See Section 2-105(a)(5).
  2. The differentiations made clear here, in conjunction with the provisions of Section 3-107, will assist in minimizing disputes which have historically arisen in association administration with respect to liability for repair of such things as pipes, porches, and other components of a building which unit owners may expect the association to pay for and which the association may wish to have repaired by unit owners.  Problems which may arise as a result of negligence in the use of components—such as stoops and pipes—are resolved by Section 3-107, which imposes liability on a unit owner who causes damage to common elements, or under the broader provisions of Section 3-115(c), which permits the association to assess common expenses “caused by the misconduct of any unit owner” exclusively against that person.  This would include, of course, not only damages to common elements, but fines or unusual service fees, such as clean-up costs, incurred as a result of the unit owner’s misuse of the common elements.
  3. The differentiation between components constituting common elements and components which are part of the unit is particularly important in light of Section 3-107(a), which (subject to the exceptions therein mentioned) makes the association responsible for upkeep of common elements and each unit owner individually responsible for upkeep of his unit.
  4. The differentiation between unit components and common element components may or may not be important for insurance purposes under the Act.  While the common elements in a project must always be insured, the units themselves need not be insured by the Association unless the project contains units divided by horizontal boundaries.  See Section 3-113(a) and (b).  In a “high-rise” configuration, however, Section 3-113(a) contemplates that both will normally be insured by the association (exclusive of improvements and betterments in individual units) and that the cost of such insurance will be a common expense.  That common expense may be allocated, however, on the basis of risk if the declaration so requires. See Section 3-115(c)(3).

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

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

§ 2-103. Construction and validity of declaration and bylaws.

  1. All provisions of the declaration and bylaws are severable.
  2. The rule against perpetuities may not be applied to defeat any provision of the declaration, bylaws, or rules adopted pursuant to this title.
  3. If a conflict exists between the declaration and the bylaws, the declaration prevails except to the extent the declaration is inconsistent with this title.
  4. Title to a unit is not rendered unmarketable or otherwise affected by an insubstantial failure of the declaration to comply with this title. Whether a substantial failure impairs marketability is not affected by this title.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 15, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (b): Substituted “bylaws, or rules adopted” for “bylaws, rules, or regulations adopted” and deleted “subdivision 3-102(a)(1) of” preceding “this title”.

Subsection (c): Substituted “If a conflict exists between the declaration” for “In the event of a conflict between the provisions of the declaration” and inserted “except” following “prevails”.

OFFICIAL COMMENT

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

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

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

§ 2-104. Description of units.

A description of a unit which sets forth the name of the common interest community, the volume and page in which the declaration is recorded, the town in which the common interest community is located, and the identifying number of the unit is a legally sufficient description of that unit and all rights, obligations and interests appurtenant to that unit which were created by the declaration or bylaws.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

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

§ 2-105. Contents of declaration for a common interest community.

  1. The declaration shall contain all the following:
    1. The names of the common interest community and the association and a statement that the common interest community is either a condominium or planned community.
    2. The name of each municipality in which any part of the common interest community is located.
    3. A legally sufficient description of the real estate included in the common interest community.
    4. A statement of the maximum number of units which the declarant reserves the right to create.
    5. A description of the boundaries of each unit created by the declaration, including the identifying number of the unit.
    6. A description of any limited common elements other than those specified in subdivisions 2-102(2) and (4) of this title as provided in subdivision 2-109(b)(10) of this title and, in a planned community, any real estate which is or will be common elements.
    7. A description of any real estate, except real estate subject to development rights, which may be subsequently allocated as limited common elements, other than those specified in subdivisions 2-102(2) and (4) of this title and a statement that they may be so allocated.
    8. A description of any declarant rights required by subdivision 1-103(14) of this title and other special declarant rights required by subdivision 1-103(28) of this title reserved by the declarant, and a legally sufficient description of the real estate to which each of those rights applies and a time limit within which each right shall be exercised.
    9. A statement of any development rights which may be exercised with respect to different parcels of real estate at different times, and:
      1. either a statement fixing the boundaries of those portions and regulating the order in which those portions may be subjected to each development right or a statement that no assurances are made in that regard; and
      2. a statement as to whether, if any development right is exercised in any portion of the real estate subject to that development right, that development right must be exercised in all or in any other portion of that real estate.
    10. Any other conditions or limitations on the rights described in subdivision (8) of this subsection.
    11. An allocation to each unit of the allocated interests pursuant to section 2-107 of this title.
    12. Any restrictions:
      1. on alienation of the units, including any restrictions on leasing which exceed the restrictions on leasing units which executive boards may impose pursuant to subdivision 3-102(c)(2) of this title; and
      2. on the amount for which a unit may be sold or on the amount that may be received by a unit owner on sale, condemnation or casualty loss to the unit or to the common interest community, or on termination of the common interest community.
    13. The volume and page of recorded easements and licenses appurtenant to or included in the common interest community or to which any portion of the common interest community is or may be subject by a reservation in the declaration.
    14. All matters required by sections 2-106, 2-107, 2-108, 2-109, 2-110, 2-111, 2-112, 2-113, 2-114, 2-116, and 3-103(d) of this title.
    15. Any authorization pursuant to which the association may establish and enforce construction and design criteria and aesthetic standards as provided in sections 3-103 and 3-106 of this title.
  2. The declaration may contain any other matters which the declarant deems appropriate, including any restrictions on the uses of a unit or the number or other qualifications of persons who may occupy units.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 16, eff. Jan. 1, 2012.

History

References in text.

In subdiv. (a)(8), substituted “1-103(28)” for “1-103(29)” to correct an error in the reference and for purposes of clarity.

Amendments

—2009 (Adj. Sess.) Subdivision (a)(15): Added.

OFFICIAL COMMENT

  1. Many statutes and other regulatory schemes in the multi-owner project field do not separate the functions of a recorded declaration and an unrecorded public offering statement or disclosure documents.  As a result, many of the developer’s representations and assurances concerning his future plans must appear in the declaration as well as the public offering statement, even though they have nothing to do with the legal structure or title of the project.  This results in duplicative requirements and unnecessarily complex declarations.
  2. This section requires a statement of the name of the association for the common interest community itself, in order that the declaration may be indexed in the name of the association.  See Section 2-101.
  3. The Act requires that the declaration for a common interest community situated in two or more recording districts be recorded in each of those districts.  While the bracketed language refers to the “county” as the recording district in which the declaration is to be recorded, in States where recording is done at the city, town, or parish level the bracketed language should be amended accordingly.
  4. Paragraph (a)(4) requires the declarant to state the largest number of units he reserves the right to build.  This Act imposes no time limit, measured by an absolute number of years, at the expiration of which the declarant must relinquish control of the association.  Instead, declarant control ends when 75% of the maximum number of units which may be created by the declarant have been sold, or at the end of a two-year period during which development is not proceeding. See Section 3-103(d).  The flexibility afforded by this section may be important to a declarant as he responds to unanticipated future changes in his market.
  5. Paragraph (a)(5) requires that the boundaries of each unit created by the declaration be identified.  The words “created by the declaration” emphasize that, in an expandable project, new units may be created in the future by amendments to the declaration.  Until those new units are actually added to the project by amending the declaration, however, they are not units within the meaning of that defined term, and they need not be described.
  6. Section 2-102 makes it possible in many condominiums or planned communities to satisfy paragraph (a)(5) of this section by merely providing the identifying number of units and stating that each unit is bounded by its ceiling, floor, and walls.  The plats and plans will show where those ceilings, floors, and walls are located, and Section 2-102 provides all other details, except to the extent the declaration may make additional or contradictory specifications because of the unique nature of the project.
  7. Paragraph (a)(6) makes clear that the limited common elements described in Section 2-102(2) and (4) need not be described in the declaration.  These limited common elements are typically porches, balconies, patios, or other amenities which may be included in a project.  Such improvements are treated by the Act as limited common elements, rather than either common elements or parts of units, in order to minimize the attention which the documents need to give them, and to secure the result that would be desired in the usual case. Thus, if these improvements remain limited common elements, and no special provisions concerning them are included in the declaration, they may be used only by the units to which they are physically attached; maintenance of those improvements must be paid for by the association; and such improvements need not be specifically referred to in the declaration.  In the case of all common interest communities, except cooperatives, porches, balconies, and patios must be shown on the plats and plans (see Section 2-109(b)(10)), but other limited common elements described in Section 2-102(2) and (4) need not be shown.
  8. Paragraph (a)(7) contemplates that the common elements in the project may be allocated as limited common elements at some future time, either by the declarant or the association. For example, a swimming pool might serve an entire project during early phases of development.  At the outset that pool might be a common element which all the unit owners may use. At a later time, with more units and additional pools built in subsequent phases, either the declarant or the association might determine that the first pool should become a limited common element reserved for the use only of units in the first phase, while the other pools should be reserved exclusively for units in the subsequent phases.  Such a potential allocation should be described in the declaration pursuant to this section.  The method of subsequent allocation is discussed in Section 2-108.
  9. Paragraph (a)(8) requires that the declaration describe all development rights and other special declarant rights which the declarant reserves.  The declaration must describe the real estate to which each right applies, and state the time limit within which each of those rights must be exercised.  The Act imposes no maximum time limit for the exercise of those rights, and contemplates that those rights may be exercised after the period of declarant control terminates.
  10. Paragraph (a)(12)(ii) includes certain requirements which were not originally applicable to condominiums and planned communities under UCA and UPCA, respectively. Tracking MRECA, paragraph (a)(12)(ii) requires the declaration to include any information which restricts the amount for which a unit may be sold, or the amount to be received by a unit owner upon sale, condemnation, or casualty loss.  Such restrictions are increasingly common in the development of ‘limited equity‘ common interest communities or common interest communities which are designed to minimize the increased value of the common interest community upon resale in order to preserve housing for a particular income group. The Act in no way restricts the use of such provisions, but does require that explicit provisions concerning such restrictions appear in both the declaration and the Public Offering Statement.
  11. Paragraph (a)(14) is a cross-reference to other sections of the Act which require the declaration to contain particular matters.  Some of these sections, such as Section 2-107 on the allocation of allocated interests, will affect all projects. Others, such as Section 2-106 on leasehold common interest communities, will apply only to particular lands of [sic] projects.
  12. Subsection (b) contemplates that, in addition to the content required by subsection (a), other matters may also be included in the declaration if the declarant or lender feel they are appropriate to the particular project.  In particular, the draftsman should carefully consider any desired provisions which would vary any of the many sections of the Act where variation is permitted, including such matters as expanding or restricting the association’s powers.
  13. The 1994 amendments to subsections (a)(12) and (b) of this section are part of the drafters’ efforts to clarify the law of “use and occupancy” restrictions in common interest communities, and make that law more rational.

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

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

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

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

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

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

In the case of many cooperatives, it is possible to satisfy paragraph (a)(5) of this section by merely providing the identifying number of the unit, the size of the unit in square feet or its number of rooms, and its location within a building if it is in a building containing more than one unit. Thus, for example, it would be possible to describe a cooperative unit as follows: “Unit Number 243, consisting of 800 square feet, located on the fourth floor of Building A.”

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

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

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

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

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

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

§ 2-106. Leasehold common interest communities.

  1. Any lease the expiration or termination of which may terminate the common interest community or reduce its size shall be recorded. Every lessor of those leases in a condominium or planned community shall sign the declaration. The declaration shall state all the following:
    1. The volume and page in which the lease is recorded or a statement of where the complete lease may be inspected.
    2. The date on which the lease is scheduled to expire.
    3. A legally sufficient description of the real estate subject to the lease.
    4. Any right of the unit owners to redeem the reversion and the manner in which those rights may be exercised, or a statement that the owners do not have those rights.
    5. Any right of the unit owners to remove any improvements within a reasonable time after the expiration or termination of the lease, or a statement that the owners do not have those rights.
    6. Any rights of the unit owners to renew the lease and the conditions of any renewal, or a statement that the owners do not have those rights.
  2. After the declaration for a leasehold condominium or leasehold planned community is recorded, neither the lessor nor the lessor’s successor in interest may terminate the leasehold interest of a unit owner who makes timely payment of his or her share of the rent and otherwise complies with all covenants which if violated would entitle the lessor to terminate the lease. A unit owner’s leasehold interest in a condominium or planned community is not affected by failure of any other person to pay rent or fulfill any other covenant.
  3. Acquisition of the leasehold interest of any unit owner by the owner of the reversion or remainder does not merge the leasehold and reversionary or remainder interests unless the leasehold interests of all unit owners subject to that reversion or remainder are acquired.
  4. If the expiration or termination of a lease decreases the number of units in a common interest community, the allocated interests shall be reallocated proportionately in accordance with section 1-107 of this title. Reallocations shall be confirmed by an amendment to the declaration prepared, executed and recorded by the association.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

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

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

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

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

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

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

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

§ 2-107. Allocation of allocated interests.

  1. The declaration shall allocate to each unit:
    1. In a condominium, a fraction or percentage of undivided interests in the common elements and in the common expenses of the association pursuant to subsection 3-115(a) of this title and a portion of the votes in the association; and
    2. In a planned community, a fraction or percentage of the common expenses of the association pursuant to subsection 3-115(a) of this title and a portion of the votes in the association.
  2. The declaration shall state the formulas used to establish allocations of interests. Those allocations may not discriminate in favor of units owned by the declarant or an affiliate of the declarant.
  3. If units may be added to or withdrawn from the common interest community, the declaration shall state the formulas to be used to reallocate the allocated interests among all units included in the common interest community after the addition or withdrawal.
  4. The declaration may provide:
    1. different allocations of votes to the units on particular matters specified in the declaration;
    2. cumulative voting only for the purpose of electing members of the executive board; and
    3. class voting on specified issues affecting the class if necessary to protect valid interests of the class.

      A declarant may not utilize cumulative or class voting for the purpose of evading any limitation imposed on declarants by this title nor may units constitute a class because they are owned by a declarant.

  5. Except for minor variations due to rounding, the sum of the common expense liabilities and, in a condominium, the sum of the undivided interests in the common elements allocated at any time to all the units shall each equal one if stated as a fraction or 100 percent if stated as a percentage. In the event of discrepancy between an allocated interest and the result derived from application of the pertinent formula, the allocated interest prevails.
  6. In a condominium, the common elements are not subject to partition, and any purported conveyance, encumbrance, judicial sale, or other voluntary or involuntary transfer of an undivided interest in the common elements made without the unit to which that interest is allocated, is void.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. Subsection (a) treats allocated interests differently in each type of common interest community.  The distinctions made in parts (i)-(iii) track those made in the corresponding subsection of UCA, UPCA, and MRECA, for condominiums, planned communities, and cooperatives, respectively.
  2. Most existing condominium statutes and cooperative documents require a single common basis, usually related to the “value” of the units, to be used in the allocation of common element interests, or ownership interests in cooperatives, votes in the association and common expense liabilities.  Following UCA, UPCA, and MRECA, this Act departs radically from such requirements by permitting each of these allocations to be made on different bases, and by permitting allocations which are unrelated to value.
  3. While the flexibility permitted in allocations is broader than that commonly used today, it is likely that the traditional bases for allocation will continue to be used, and that the allocation for all allocated interests will often be based on the same formulas.  Most commonly, those bases include size, equality, or value of units.  Each of these is discussed below.
  4. If size is chosen as a basis of allocation, the declarant must choose between reliance on area or volume, and the choice must be indicated in the declaration.  The declarant might further refine the formula by, for example, excluding unheated areas from the calculation or by partially discounting such areas by means of a ratio.  Again, the declarant must indicate the choices he has made and explain the formula he has chosen.
  5. Most existing condominium statutes require that “value” be used as the basis of all allocations.  Under this Act a declarant is free to select such a basis if he wishes to do so.  For example, he might designate the “par value” of each unit as a stated number of dollars or points.  However, the formula used to develop the par values of the various units would have to be explained in the declaration.  For example, the declaration for a high rise project might disclose that the par value of each unit is based on the relative area of each unit on the lower floors, but increases by specified percentages at designated higher levels.  The formula for determining area in this example could be further refined in the manner suggested in Comment 4, above, and any other factors (such as the direction in which a unit faces) could also be given weight so long as the weight given to each factor is explained in the declaration.
  6. The purpose of subsection (c) is to require a comprehensive scheme for reallocation of allocated interests in a common interest community subject to development rights, and afford some advance disclosure to purchasers of units in the first phase of an expandable common interest community of how allocated interests will be reallocated if additional units are added.
  7. Subsection (d) represents a significant departure from the practice in most States concerning the allocation of votes. The usual rule is that a single allocation of votes is made to each unit, and that allocation applies to all matters on which those votes may be cast.  This section recognizes that the increasingly complex nature of some projects requires different allocations on particular questions.  Different allocations may be appropriate, for example, in a project where common expense liabilities, or questions concerning rules and regulations, affect different units differently.
  8. This section recognizes that there may be certain instances in which class voting in the association would be desirable.  For example, in a mixed-use planned community or condominium consisting of both residential and commercial units, there may be certain kinds of issues upon which the residential or commercial unit owners should have a special voice, and the device described in Comment 7 is not desired. To prevent abuse of class voting by the declarant, subsection (d) permits class voting only with respect to specified issues directly affecting the designated class and only insofar as necessary to protect valid interests of the designated class.
  9. The last clause of subsection (d) prohibits a practice common in planned communities, where units owned by declarant constitute a separate class of units for voting and other purposes.  Upon transfer of title, those units lose these more favorable voting rights.  This section makes clear that the votes and other attributes of ownership of a unit may not change by virtue of the identity of the owner.  The Act provides other, more balanced, devices for those circumstances which such classes were legitimately intended to address, principally declarant control of the association.  See Section 3-103(d).

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

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

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

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

§ 2-108. Limited common elements.

  1. Except for the limited common elements described in subdivisions 2-102(2) and (4) of this title and except to the extent that a right to allocate a limited common element is reserved pursuant to subsection (c) of this section, the declaration shall specify to which unit or units each limited common element is allocated. That allocation may not be altered without the consent of the unit owners whose units are affected.
  2. Except as the declaration otherwise provides, a limited common element may be reallocated by an amendment to the declaration executed by the unit owners between or among whose units the reallocation is made. The persons executing the amendment shall provide a copy thereof to the association, which shall record it. The amendment shall be recorded in the names of the parties and the common interest community.
  3. A common element not previously allocated as a limited common element may be allocated only pursuant to the declaration made in accordance with subdivision 2-105(a)(7) of this title. The allocations shall be made by amendments to the declaration.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

History

Editor’s note

—2004. This section is set out in the supplement to correct an error in subsection (c) in the main volume as “not” preceding “be allocated only pursuant to” was deleted.

OFFICIAL COMMENT

  1. Like all other common elements, limited common elements in a condominium are ‘owned‘ by all the unit owners on an undivided interest basis but managed by the Association, unless the declaration otherwise provides.  In a planned community or cooperative, the common elements are owned by the association.  The use of a limited common element in all cases, however, is reserved to less than all of the unit owners.  Unless the declaration provides otherwise, the association is responsible for the upkeep of a limited common element and the cost of such upkeep is assessed against all the units.  See Sections 3-107(a) and 3-115(c)(1).  This might include the costs of repainting all shutters or balconies, for example, which are limited common elements pursuant to Section 2-102(4).  Accordingly, there may be occasions where, to meet the expectations of owners and to have costs borne directly by those who benefit from those amenities, the declaration might provide that the costs will be borne, not by all unit owners as part of their common expense assessments, but only by the owners to which the limited common elements are assigned.
  2. The use of common elements which are not “limited” within the meaning of this Act may nevertheless be restricted by the unit owners’ association pursuant to the powers set forth in Section 3-102(a)(6) and (10), unless that power is limited in the declaration.  For example, the association might assign reserved parking spaces to designated unit owners, or even to persons who are not unit owners.  Such a parking space would differ from a limited common element in that its use would be merely a personal right of the person to whom it is assigned and this section would not have to be complied with to allocate it or to reallocate it.
  3. Because a mortgage, deed of trust, or security interest may restrict the borrower’s right to transfer the use of a limited common element without the lender’s consent, the terms of the encumbrance should be examined to determine whether the lender’s consent or release is needed to transfer that right of use to another person.
  4. See also Comments 7 and 8 to Section 2-105.

§ 2-109. Plats and plans.

  1. Plats and plans are a part of the declaration, and required for condominiums and planned communities. Separate plats and plans are not required by this title if all the information required by this section is contained in either a plat or plan. Each plat and plan shall be clear and legible and contain a certification that the plat or plan contains all information required by this section.
  2. Each plat shall show or project:
    1. the name and a plat or general schematic map of the entire common interest community;
    2. the location and dimensions of all real estate not subject to development rights, or subject only to the development right to withdraw, and the location and dimensions of all existing improvements within that real estate;
    3. a legally sufficient description of any real estate subject to development rights, labeled to identify the rights applicable to each parcel, but plats and plans need not designate or label which development rights are applicable to each parcel if that information is clearly delineated in the declaration;
    4. the extent of any encroachments by or on any portion of the common interest community;
    5. to the extent feasible, a legally sufficient description of all easements serving or burdening any portion of the common interest community;
    6. except as otherwise provided in subsection (h) of this section, the approximate location and dimensions of any vertical unit boundaries not shown or projected on plans recorded pursuant to subsection (d) of this section and that unit’s identifying number;
    7. except as otherwise provided in subsection (h) of this section, the approximate location with reference to an established datum of any horizontal unit boundaries not shown or projected on plans recorded pursuant to subsection (d) of this section and that unit’s identifying number;
    8. a legally sufficient description of any real estate in which the unit owners will own only an estate for years, labeled as “leasehold real estate”;
    9. the distance between noncontiguous parcels of real estate comprising the common interest community;
    10. the approximate location and dimensions of porches, balconies and patios and excluding parking spaces allocated as limited common elements, and show or contain a narrative description of any other limited common elements; and
    11. in the case of real estate not subject to development rights, all other matters customarily shown on land plats.
  3. A plat may also show the intended location and dimensions of any contemplated improvement to be constructed anywhere within the common interest community. Any contemplated improvement shown shall be labeled either “must be built” or “need not be built.”
  4. Except as otherwise provided in subsection (h) of this section, to the extent not shown or projected on the plats, plans of the units shall show or project:
    1. the approximate location and dimensions of the vertical boundaries of each unit and that unit’s identifying number;
    2. the approximate location of any horizontal unit boundaries with reference to an established datum and that unit’s identifying number; and
    3. the approximate location of any units in which the declarant has reserved the right to create additional units or common elements pursuant to subsection 2-111(3) of this title, identified appropriately.
  5. Unless the declaration provides otherwise, the horizontal boundaries of part of a unit located outside a building which have the same elevation as the horizontal boundaries of the inside part need not be depicted on the plats and plans.
  6. Upon exercising any development right, the declarant shall record either new plats and plans necessary to conform to the requirements of subsections (a), (b), and (d) of this section or new certifications of plats and plans previously recorded if those plats and plans otherwise conform to the requirements of those subsections.
  7. Any certification of a plat or plan required by this section shall be made by an independent professional surveyor, architect, or engineer, as appropriate and if authorized by the respective practice acts of each profession in 26 V.S.A. chapters 3, 20, and 45.
  8. Plats and plans need not show the location and dimensions of the units’ boundaries or their limited common elements if:
    1. the plat shows the location and dimensions of all buildings containing or comprising the units; and
    2. the declaration includes other information that shows or contains a narrative description of the general layout of the units in those buildings and the limited common elements allocated to those units.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 1999, No. 133 (Adj. Sess.), § 36; 2009, No. 155 (Adj. Sess.), § 17, eff. Jan. 1, 2012.

History

References in text.

In subdiv. (d)(3), substituted “2-111(3)” for “2-111(c)” since that section does not have a subsection (c) and for purposes of clarity.

Amendments

—2009 (Adj. Sess.) Added “but plats and plans need not designate or label which development rights are applicable to each parcel if that information is clearly delineated in the declaration” in subdivision (b)(3) and inserted “otherwise” preceding “provided” in subdivs. (b)(6) and (7) and in subsec. (d).

—1999 (Adj. Sess.). Subsection (g): Added “as appropriate and if authorized by the respective practice acts of each profession in chapters 45, 3 and 20 of Title 26” at the end of the paragraph.

OFFICIAL COMMENT

  1. This section makes clear that plats and plans are a part of the declaration and are required for condominiums and planned communities, but not for cooperatives.  That distinction tracks that made by UCA, UPCA, and MRECA.
  2. The terms “plat” or “plan” have been given a variety of meanings by custom and usage in the various jurisdictions. Under this Act, it is important to recognize that a “plat” need not mean “survey” of the entire real estate constituting a project at the time the initial plat is recorded, although through amendments to the plat as development proceeds, it ultimately becomes a survey of the entire project.
  3. Subsection (c) permits, but does not require, the plats to show the location of contemplated improvements.  Since construction of contemplated improvements by a declarant involves the exercise of development rights, a declarant may not create any improvement within real estate where no development rights have been reserved, unless the plats actually show that proposed improvement or unless the association (which the declarant may control) makes the improvement pursuant to Section 3-102(a)(7).  Of course, as to existing unit owners, the improvements which may be made by the declarant and the areas within which they may be made, are limited by his contract with those unit owners.  Since this is true, the Declarant may not violate that contract directly—by undertaking improvements for which he reserved no rights—or indirectly by making improvements through the association which he controls or by seeking to amend the declaration in violation of the contract.  Moreover, under Section 2-117(d), no amendment to the declaration may create or increase special declarant rights without the unanimous consent of the unit owners.
  4. As noted in the Comments to Section 2-101, a condominium or planned community unit may consist of unenclosed ground and/or airspace, with no “building” involved.  If this were true of all units in a particular condominium, the provisions of Section 2-109 relating to plans (but not plats) would be inapplicable.
  5. In detailing the required contents of the plats, two different types of legal description are contemplated.  First, in subsection (b)(1), the plat must show at least a general schematic map of the entire project.  While this may be by survey, the Act recognizes that a survey may be unduly expensive or impractical in a large project, and accordingly permits a general schematic map of the entire project at the commencement of development.  With respect to those portions of the project, however, where no future development may take place, the flexibility of a general schematic map is not permitted by the statute.  As development ceases in particular phases, subsection (b)(2) contemplates that the locations and dimensions of that real estate will be identified.  As this process continues, all of the real estate originally shown in a general schematic map will have been surveyed, and the location and dimensions of that real estate identified, at the expiration of development rights.  In addition, subsection (2) contemplates that existing improvements must be shown within real estate where no further development will take place. This does not include the units which may be within each building, but it does include the external physical dimensions of the buildings themselves.  The nature of “existing improvements” required to be surveyed under subsection (2) should be determined by local practices in the particular State.
  6. Subsection (f) describes the amendments to the plats and plans which must be made as development rights are exercised. This section requires that the plats and plans be amended at each stage of development to reflect actual progress to date. If an original schematic map was recorded as permitted by subsection (b)(1), the survey required by subsection (b)(2) would also constitute the amendments required by subsection (f).
  7. The terms “horizontal” and “vertical” are now commonly understood to refer, respectively, to “upper and lower” and “lateral or perimetric.”  Thus, Section 2-102 contemplates that the perimetric walls may be designated as the “vertical” boundaries of a unit and the floor and ceiling as its “horizontal” boundaries.  That is the sense in which the words “horizontal” and “vertical” are to be understood in this section and throughout this Act.
  8. Sections 4-118 and 4-119 state the effect of labeling an improvement “MUST BE BUILT” or “NEED NOT BE BUILT,” as required by subsection (b)(3).
  9. The 1994 amendments to subsections (6), (7), and (10) seek to balance the need for disclosure and certainty in understanding what a unit owner “owns,” with the practical limitations of the surveying profession.  The balance struck in the 1994 amendments to this section requires that the plat or survey—as a minimum—actually show only the kinds of limited common elements that most people would understand to be an important appurtenance to their units.  All other kinds of limited common elements—parking spaces, window boxes, etc.,—may be either shown on the survey or simply described in words.
  10. New subsection (h) eliminates the need for any unit boundary survey so long as the building location is shown on the project survey and a practical means exists by which the potential purchaser can understand the unit layout and its assigned common elements.  This is a common practice in the sale of cooperative units.

As to “plan,” the Act does not use that term to mean the actual building plans used for construction of the project. Instead, the required content of the plans in this Act is described in subsection (d). Essentially, the plans constitute a boundary survey of each unit. Typically, the walls will be the vertical (“up and down” or “perimetric”) boundaries, and the floors and ceilings will be the horizontal boundaries. Importantly, these boundaries need not be physically measured, but may instead be projected from the plat or from actual building construction plans. Thus, the plans under this Act are not conceived to be “as built” plans.

Within land subject to development rights construction may take place in accordance with the reserved rights, even if no contemplated improvements are shown on the plats. As to the declarant’s obligation to complete an improvement that is shown, see Section 4-119(a).

§ 2-110. Exercise of development rights.

  1. To exercise any development right reserved under subdivision 2-105(a)(8) of this title, the declarant shall prepare, execute and record an amendment to the declaration pursuant to section 2-117 of this title and in a condominium or planned community comply with section 2-109 of this title. The declarant is the unit owner of any units created. The amendment to the declaration shall assign an identifying number to each new unit created and, except in the case of subdivision or conversion of units described in subsection (b) of this section, reallocate the allocated interests among all units. The amendment shall include a description of any common elements and any limited common elements thereby created and, in the case of limited common elements, designate the unit to which each is allocated to the extent required by section 2-108 of this title.
  2. Development rights may be reserved within any real estate added to the common interest community if the amendment adding that real estate includes all matters required by section 2-105 or 2-106 of this title and the plats and plans include all matters required by section 2-109 of this title. This provision does not extend the time limit on the exercise of development rights imposed by the declaration pursuant to subdivision 2-105(a)(8) of this title.
  3. Whenever a declarant exercises a development right to subdivide or convert a unit previously created into additional units, common elements, or both:
    1. if the declarant converts the unit entirely to common elements, the amendment to the declaration shall reallocate all the allocated interests of that unit among the other units as if that unit had been taken by eminent domain; and
    2. if the declarant subdivides the unit into two or more units, whether or not any part of the unit is converted into common elements, the amendment to the declaration must reallocate all the allocated interests of the unit among the units created by the subdivision in any reasonable manner prescribed by the declarant.
  4. If the declaration provides, pursuant to subdivision 2-105(a)(8) of this title, that all or a portion of the real estate is subject to the development right of withdrawal:
    1. if all the real estate is subject to withdrawal, and the declaration does not describe separate portions of real estate subject to that right, none of the real estate may be withdrawn after a unit has been conveyed to a purchaser; and
    2. if a portion or portions are subject to withdrawal, no portion may be withdrawn after a unit in that portion has been conveyed to a purchaser.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section generally describes the method by which any development right may be exercised.  Importantly, while new development rights may be reserved within new real estate which is added to the common interest community, the original time limits on the exercise of these rights which the declarant must include in the original declaration may not be extended.  Thus, the development process may continue only within the self-determined constraints originally described by the declarant.
  2. The reservation and exercise of development rights is typically closely coordinated with financing for the project. As a result, lender review and control of that process is common, and the financing documents reflect the proposed development process.
  3. A lender who holds a mortgage lien on one portion of a condominium or planned community may not cause that portion to be withdrawn from the condominium or planned community unless the portion constitutes withdrawable real estate in which there is no unit owner other than the declarant.  Even then, except in the case of foreclosure, the amendment effectuating the withdrawal must be executed by the declarant.
  4. As indicated in the Comments to Section 1-106, the withdrawal of real estate from a common interest community may constitute a subdivision of land under the applicable subdivision ordinance.  Under most subdivision ordinances, the owner of the real estate is regarded as the ‘subdivider.‘  In the event of a withdrawal under this section, however, the declarant is in fact the subdivider because of his unique interest in and control over the real estate, even though the real estate, for title purposes, is a common element until withdrawn.  Accordingly, he would bear the cost of compliance with any subdivision ordinance required to withdraw a part of the real estate from the common interest community
  5. Subsection (c) deals with special problems surrounding allocated interests when the declarant subdivides or converts units which were originally created in the declaration into additional units, common elements, or both.  This development right permits the declarant to defer a final decision as to the size of certain units by permitting the subdivision of larger interior spaces into smaller units.  The declarant may thus “build to suit” for purchasers’ needs or to meet changing market demand.

A typical construction loan mortgage on a portion of a phased condominium or planned community might provide that as soon as that portion of land is added (or, if the portion is also designated withdrawable land, as soon thereafter as anyone other than the declarant becomes the unit owner of a unit in the withdrawable land) the mortgage on that land and on any buildings containing units built on that land before it was added converts into a mortgage on all of the units located within that portion, together in the case of a condominium, with their respective common element interests. In the case of a condominium, the common element interest of those units will, of course, extend to the common elements in other sections of the condominium. Therefore, conveyance of the units in that phase to the lender or to a purchaser at a foreclosure sale would automatically transfer all of those units’ common element interest, as a result of the requirements of Sections 2-107(f) and 2-110(a).

Therefore, a lender may wish to require that an amendment withdrawing the portion on which he has a mortgage be executed by the declarant and placed in escrow at the time the loan is made in order to protect against a recalcitrant borrower. Alternatively, a lender after foreclosure under Section 2-118(k) may require an amendment from the association. Also a lender could itself execute the amendment if the lender buys in at a foreclosure sale or takes a deed in lieu of foreclosure and elects to become a declarant under Section 3-104(c) or (a).

For example, a declarant of a five-story office building common interest community may have purchasers committed at the time of the filing of the common interest community declaration but a lack of purchasers for the upper two floors. In such a circumstance, the declarant could designate the upper two floors as a unit, reserving to himself the right to subdivide or convert that unit into additional units, common elements or a combination of units and common elements as needed to suit the requirements of ultimate purchasers.

If, at a later time, a purchaser wishes to purchase half of one floor as a unit, the declarant could exercise the development right to subdivide his two-floor unit into two or more units. He may also wish to reserve a portion of the divided floor as a corridor which will constitute common elements. In that case, he would proceed pursuant to this subsection to reallocate the allocated interests among the units in the manner described in this section.

Alternatively, the declarant may ultimately decide that the entire two floors should be turned over to the unit owners’ association not as a unit but as common elements to be used perhaps as a cafeteria serving the balance of the building, or for retail space to be rented by the association. In that case, should he choose to make the entire two floors common elements, the provisions of paragraph (c)(1) would apply.

The declarant may state in his declaration any conditions or limitations on the time limits reserved for the exercise of development rights which would cause that development right to lapse before the time established in the declaration. It would, of course, be possible for a declarant to voluntarily relinquish those rights prior to the time that they automatically lapsed, and an instrument recorded by the declarant would be effective to cause that lapse, subject, of course, to any constraints imposed on voluntary relinquishment by the declarant’s lender.

§ 2-111. Alterations of units.

Subject to the provisions of the declaration and other provisions of law, a unit owner:

  1. may make any improvements or alterations to his or her unit that do not impair the structural integrity or mechanical systems or lessen the support of any portion of the common interest community;
  2. may not change the appearance of the common elements or the exterior appearance of a unit or any other portion of the common interest community without permission of the association;
  3. after acquiring an adjoining unit or an adjoining part of an adjoining unit, may remove or alter any intervening partition or create apertures in it even if the partition in whole or in part is a common element if those acts do not impair the structural integrity or mechanical systems or lessen the support of any portion of the common interest community. Removal of partitions or creation of apertures under this subdivision is not an alteration of boundaries.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section deals with permissible alterations of the interior of a unit, and impermissible alterations of the exterior of a unit and the common elements, in ways which reflect common practice.  The stated rules, of course, may be varied by the declaration where desired.
  2. Subsection (3) deals in a unique manner with the problem of creating access between adjoining units owned by the same person.  The subsection provides a specific rule which would permit a door, stairwell, or removal of a partition wall between those units, so long as structural integrity is not impaired.  That alteration would not be an alteration of boundaries, but would be an exception to the basic rule stated in subsection (2).
  3. In considering permissible alteration of the interior of a unit, an example may be useful.  A nail driven by a unit owner to hang a picture might enter a portion of the wall designated as part of the common elements, but this section would not be violated because structural integrity would not be impaired. Moreover, no trespass would be committed because each unit owner, as a part or beneficial owner of the common elements, has a right to utilize them subject only to such restrictions as may be created by the Act, the declaration, bylaws, and the unit owners’ association pursuant to Section 3-102.
  4. Removal of a partition or the creation of an opening between adjoining units would permit the units to be used as one, but they would not become one unit.  They would continue to be separate units within the meaning of Section 1-105 and would continue to be treated separately for the purposes of this Act.
  5. In addition to the restrictions placed on unit owners by this section, the declaration or bylaws may restrict a unit owner from altering the interior appearance of his unit. Although this might be an undue restriction if imposed upon the primary residence of a unit owner, it may be appropriate in the case of time-share or other common interest communities.

§ 2-112. Relocation of boundaries between adjoining units.

  1. Subject to the provisions of the declaration and other provisions of law, the boundaries between adjoining units may be relocated by an amendment to the declaration upon application to the association by the owners of those units. If the owners of the adjoining units have specified a reallocation between their units of their allocated interests, the application must state the proposed reallocations. Unless the executive board determines, within 30 days after receipt of the application, that the reallocations are unreasonable, the association shall prepare an amendment that identifies the units involved and states the reallocations. The amendment shall be executed by those unit owners, shall contain words of conveyance between them, and, on recordation, shall be indexed in the name of the grantor and the grantee and in the grantee’s index in the name of the association.
  2. Subject to the provisions of the declaration and other provisions of law, boundaries between units and common elements may be relocated to incorporate common elements within a unit by an amendment to the declaration upon application to the association by the owner of the unit who proposes to relocate a boundary. Unless the declaration provides otherwise, the amendment may be approved only if persons entitled to cast at least 67 percent of the votes in the association, including 67 percent of the votes allocated to units not owned by the declarant, agree to the action. The amendment may describe any fees or charges payable by the owner of the affected unit in connection with the boundary relocation and the fees and charges are assets of the association. The amendment must be executed by the unit owner of the unit whose boundary is being relocated and by the association, contain words of conveyance between them, and on recordation be indexed in the name of the unit owner and the association as grantor or grantee, as appropriate.
  3. The association:
    1. in a condominium or planned community shall prepare and record plats or plans necessary to show the altered boundaries of affected units, and their dimensions and identifying numbers; and
    2. in a cooperative shall prepare and record amendments to the declaration, including any plans, necessary to show or describe the altered boundaries of affected units, and their dimensions and identifying numbers.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section changes the effect of most current declarations, under which the boundaries between units may not be altered without unanimous or nearly unanimous consent of the unit owners.  As the section makes clear, this result may be varied by restrictions in the declaration.
  2. This section contemplates that upon relocation of the unit boundaries, no reallocation of allocated interests will occur if none is specified in the application.  If a reallocation is specified but the executive board deems it unreasonable, then the applicants have the choice of resubmitting the application with a reallocation more acceptable to the board, or going to court to challenge the board’s findings as unreasonable.
  3. The distinctions made by this section as to information required in the amendment, track the distinctions found in the corresponding UCA, UPCA, and MRECA provisions, for condominiums, planned communities, and cooperatives, respectively.
  4. Experience under the original Act indicates that it does not adequately address the frequently occurring issue of new additions to existing units, which commonly encroach on the common elements.  While the use of limited common elements is a possible device to address this question—and while this new subsection does not prohibit use of that device—the drafters believe that new subsection (b), added in the 1994 amendment, offers a more direct means to address this situation.
  5. If the only common element being incorporated into a unit is a wall separating two adjoining units owned by different owners, the amendment should be made under Section 2-112(a), not (b).  However, if one owner owns two adjoining units, the wall may be removed pursuant to Section 2-111 without altering the boundaries, and without the need for any amendment to the declaration.

While this section sets the default rule for such additions, local zoning and other rules would continue to limit its applicability.

This revision provides a mechanism to alter the boundary between a unit and the common elements and sets out a default rule with respect to association action to accomplish that result. In the absence of this rule, Section 2-117(d) mandates that a change in a unit boundary requires unanimous consent of all owners. With this amendment, unanimity is no longer required.

In addition, the Act contemplates that the declaration of a particular project may be drafted or amended in order to address the particular concerns of those unit owners most directly affected by such a relocation as a result of the addition’s proximity, or by its aesthetic impact.

Thus, for example, the declaration may state who is entitled to vote and what percentage of unit owners’ approval is required. For instance, the declaration may provide for voting only by owners in a particular building or neighborhood, or it may delegate that decision to the executive board on a case by case basis.

An amendment pursuant to this subsection may not, by itself, alter the allocated interests in the community; such a change may be made only pursuant to Section 2-117(d). As a consequence, a fee or charge described in the amendment will likely be in the nature of either a single one time fee or charge, or a recurring surcharge which is payable in addition to the periodic common expense charge originally set out in the declaration, or both.

Example: The declaration might be amended to state that the owner of a unit with a 100 square foot addition shall, in addition to regularly calculated monthly common charges, pay a monthly fee of $10, increased each year by a percentage equal to the percentage increase in the association budget.

§ 2-113. Subdivision of units.

  1. If the declaration expressly so permits, a unit may be subdivided into two or more units. Subject to the declaration and law other than this title, upon application to subdivide a unit, the association shall prepare, execute, and record an amendment to the declaration, including the plats and plans, subdividing that unit.
  2. The amendment to the declaration shall be executed by the owner of the unit to be subdivided, shall assign an identifying number to each unit created, and reallocate the allocated interests formerly allocated to the subdivided unit to the new units in any reasonable manner prescribed by the owner of the subdivided unit or on any other basis the declaration requires.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 18, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Deleted “the provisions of” preceding “the declaration” and “other provisions” thereafter, and inserted “other than this title” preceding “upon application” in the second sentence of subsec. (a), and added “or on any other basis the declaration requires” following “subdivided unit” in subsec. (b).

OFFICIAL COMMENT

  1. This section provides for subdivision of units by unit owners, thereby creating more and smaller units than were originally created.  The underlying policy of this section is that the original development plan of the project must be followed, and the expectations of unit owners realized. Accordingly, unless subdivision of the units is expressly permitted by the original declaration, a unit may not be subdivided into two or more units unless the declaration is amended to permit it.  A subdivision itself is accomplished by an amendment to the declaration.
  2. At the same time, situations will often occur where future subdivision is appropriate, and this section permits the declaration to provide for it.
  3. An analogous concept in the context of development rights is subdivision of units by a declarant.
  4. If a unit owned only by the declarant—as opposed to the same unit if owned by another person—may be subdivided into two or more units but cannot be converted in whole or in part into common elements, it is still a unit that may be subdivided or converted into two or more units or common elements, within the meaning of the definition of development rights.  It is therefore governed by Section 2-110 and not by this section.

§ 2-114. Easement for encroachments.

To the extent that any unit or common element in a common interest community encroaches on any other unit or common element, a valid easement for the encroachment exists. The easement does not relieve a unit owner of liability for the owner’s willful misconduct nor relieve a declarant or any other person of liability for failure to adhere to any plats and plans.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

History

Editor’s note—

This section in Alternative “A” in the uniform act.

OFFICIAL COMMENT

Two approaches are presented here as alternatives, since uniformity on this issue is not essential, and various States have adopted one approach or the other. Both theories recognize the fact that the actual physical boundaries may differ somewhat from what is shown on the plats and plans, and the practical effect of both is the same.

The easement approach of Alternative A creates easements for whatever discrepancies may arise, while the “monuments as boundaries” approach of Alternative B would make the title lines move to follow movement of the physical boundaries caused by such discrepancies or subsequent settling or shifting.

§ 2-115. Use for sales purposes.

A declarant may maintain sales offices, management offices and models in units or on common elements in the common interest community only if the declaration so provides and specifies the rights of a declarant with regard to the number, size, location and relocation of it. In a condominium, any sales office, management office or model not designated a unit by the declaration is a common element. If a declarant ceases to be a unit owner, that declarant ceases to have any rights with regard to the common element unless it is removed promptly in accordance with a right to remove reserved in the declaration. Subject to any limitations in the declaration, a declarant may maintain signs on the common elements advertising the common interest community. The provisions of this section are subject to local ordinances.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section prescribes the circumstances under which portions of the common interest community—either units or common elements—may be used for sales offices, management offices, or models.  The basic requirement is that the declarant must describe his rights to maintain such offices in the declaration.  There are no limitations on that right, so that either units owned by the declarant or other persons, or the common elements themselves, may be used for that purpose. Typical common element uses might include a sales booth in the lobby of a building, or a trailer or temporary building located outside the buildings on the grounds of the property.
  2. In addition, this section contains a permissive provision permitting advertising on the common elements.  The declarant may choose to limit his rights in terms of the size, location, or other matters affecting the advertising.  The Act, however, imposes no limitations.  At the same time, the last sentence of the section recognizes that state or local zoning or other laws may limit advertising, both in terms of size and content of the advertising, or the use of the units or common elements for such purposes.  This section makes it clear that local law would apply in those cases.

§ 2-116. Easement rights.

  1. Subject to the declaration, a declarant has such easement through the common elements as may be reasonably necessary for the purpose of discharging a declarant’s obligations or exercising special declarant rights, whether arising under this title or reserved in the declaration.
  2. Subject to subdivision 3-102(a)(6) and section 3-112 of this title, the unit owners have an easement in the common elements for access to their units.
  3. Subject to the declaration and the rules, the owners have a right to use the common elements that are not limited common elements and all real estate that must become common elements for the purposes for which they were intended.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 19, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Amended section generally.

OFFICIAL COMMENT

  1. This section grants to declarant an easement across the common elements, subject to any self-imposed restrictions on that easement contained in the declaration.  At the same time, the easement is not an easement for all purposes and under all circumstances, but only a grant of such rights as may be reasonably necessary for the purpose of exercising the declarant’s rights.  Thus, for example, if other access were equally available to the land where new units are being created, which did not require the declarant’s construction equipment to pass and repass over the common elements in a manner which significantly inconvenienced the unit owners, a court might apply the “reasonably necessary” test contained in this section to consider limitations on the declarant’s easement.  The rights granted by this section may be enlarged by a specific reservation in the declaration.
  2. The declarant is also required to repair and restore any portion of the common interest community used for the easement granted under this section.  See Section 4-119(b).
  3. This section also grants unit owners in a planned community an easement for access, support, and enjoyment in the common elements because unit owners hold a beneficial, but no fee, interest in the common elements.  These rights may be limited by the declaration.

§ 2-117. Amendment of declaration.

  1. Except in cases of amendments that may be executed by a declarant under subsection 2-109(f) or section 2-110 of this title, or the association under subsection 2-106(d), 2-108(c), and 2-112(a) or section 2-113 of this title, or by certain unit owners under subsections 2-108(b), 2-112(a), 2-113(b), or 2-118(b) of this title, and except as limited by other subsections of this section, the declaration, including any plats and plans, may be amended only by vote or agreement of unit owners of units to which at least 67 percent of the votes in the association is allocated unless the declaration specifies a different percentage for all amendments or for specific subjects of amendment. If the declaration requires the approval of another person as a condition of its effectiveness, the amendment is not valid without that approval.
  2. No action to challenge the validity of an amendment adopted by the association pursuant to this section may be brought more than one year after the amendment is recorded.
  3. Every amendment to the declaration shall be recorded in every town in which any portion of the common interest community is located, and is effective only upon recordation. An amendment, except an amendment pursuant to subsection 2-112(a) of this title, shall be indexed in the grantee’s index in the name of the common interest community and the association, and in the grantor’s index in the name of the parties executing the amendment.
  4. Except to the extent expressly permitted or required by other provisions of this title, no amendment may create or increase special declarant rights, increase the number of units, change the boundaries of any unit, or change the allocated interests of a unit, or the uses to which any unit is restricted, in the absence of unanimous consent of the unit owners.
  5. Amendments to the declaration required by this title to be recorded by the association shall be prepared, executed, recorded, and certified on behalf of the association by any officer of the association designated for that purpose or, in the absence of designation, by the president of the association.
  6. Provisions in the declaration creating special declarant rights that have not expired may not be amended without the consent of the declarant.
  7. The time limits specified in the declaration pursuant to subdivision 2-105(a)(8) of this title within which reserved development rights must be exercised may be extended, and additional development rights may be created, if persons entitled to cast at least 80 percent of the votes in the association, including 80 percent of the votes allocated to units not owned by the declarant, agree to that action. The agreement is effective 30 days after an amendment to the declaration reflecting the terms of the agreement is recorded unless all the persons holding the affected special declarant rights, or security interests in those rights, record a written objection within the 30-day period, in which case the amendment is void, or consent in writing at the time the amendment is recorded, in which case the amendment is effective when recorded.
  8. If any provision of this title or of the declaration requires the consent of a holder of a security interest in a unit as a condition to the effectiveness of an amendment to the declaration, that consent is deemed granted if a refusal to consent in a record is not received by the association within 60 days after the association delivers notice of the proposed amendment to the holder at an address for notice provided by the holder or mails the notice to the holder by certified mail, return receipt requested, at that address. If the holder has not provided to the association an address for notice, the association shall provide notice to the address in the security interest of record. Notwithstanding this section, an amendment to the declaration that affects the priority of a holder’s security interest or the ability of that holder to foreclose its security interest may not be adopted without that holder’s consent in a record if the declaration requires that consent as a condition to the effectiveness of the amendment.
  9. If the declaration contains a provision requiring that amendments to the declaration may be adopted only by the vote or agreement of unit owners of units to which more than 80 percent of the votes in the association are allocated, the amendment is approved:
    1. if:
      1. unit owners of units to which at least 80 percent of the votes in the association are allocated vote for or agree to the proposed amendment;
      2. no unit owner votes against the proposed amendment; and
      3. notice of the proposed amendment is delivered to the unit owners holding the votes in the association which have not voted or agreed to the proposed amendment and no written objection to the proposed amendment is received by the association within 60 days after the association delivers notice; or
    2. unit owners of units to which at least 80 percent of the votes in the association are allocated vote for or agree to the proposed amendment but at least one unit owner objects to the proposed amendment and, pursuant to an action brought by the association in the superior court for the county in which the common interest community is located against all objecting unit owners, the court finds that the objecting unit owners do not have an interest, different in kind from the interests of the other unit owners, that the voting requirement of the declaration was intended to protect.
  10. An amendment to the declaration may prohibit or materially restrict the permitted uses of or behavior in a unit or the number or other qualifications of persons who may occupy units only by vote or agreement of unit owners of units to which at least 80 percent of the votes in the association are allocated, unless the declaration specifies that a larger percentage of unit owners must vote or agree to that amendment or that such an amendment may be approved by unit owners of units having at least 80 percent of the votes of a specified group of units that would be affected by the amendment. An amendment approved under this subsection must provide reasonable protection for a use or occupancy permitted at the time the amendment was adopted.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 20, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Rewrote subsec. (a), inserted “or change” preceding “the allocated” in subsec. (d), “that have not expired” following “declarant rights” in subsec. (f), and added subsecs. (h)-(j).

OFFICIAL COMMENT

  1. This section recognizes that the declaration, as the perpetual governing instrument for the common interest community, may be amended by various parties at various times in the life of the project.  The basic rule, stated in subsection (a), is that the declaration, including the plats and plans, may only be amended by vote of 67% of the unit owners.  The section permits a larger percentage to be required by the declaration, and also recognizes that, in an entirely non-residential common interest community, a smaller percentage might be appropriate.
  2. Section 1-104 does not permit the declarant to use any device, such as powers of attorney executed by purchasers at closings, to circumvent subsection (d)’s requirement of unanimous consent.  This section does not supplant any requirements of common law or of other statutes with respect to conveyancing if title to real property is to be affected.
  3. Subsection (c) describes the mechanics by which amendments recorded by the association are filed, and resolves a number of matters often neglected by bylaws.
  4. The 1994 revision to subsection (d) deletes the prohibition on amendments which restrict the uses of units. Before 1994, Section 2-105(a)(12) required that the declaration specify all restrictions on use, occupancy, and alienation of units.  The deleted provision in subsection (d) created the anomaly that unanimous consent was required to amend a use restriction but a lesser number could amend restrictions on occupancy or alienation of a unit.
  5. New subsection (f), also adopted in 1994, responds to the growing belief that restrictions on use and occupancy which unit owners would like to impose after the declaration is recorded ought to be adopted only by a super majority and only after providing protection for those whose use or occupancy will be affected by the amendment.  For example, a community may seek to prohibit pets after a number of owners have purchased and occupied their units in reliance on the absence of such a restriction.  Under this amendment, if the community votes to impose the limitation, it can do so only with the vote of a high percentage of owners and only on such conditions as reasonably protect the interests of existing pet owners.  Whether the amendment “grandfathers” the right of the existing pet to remain or the right of the current owner to have a pet is not determined by the language of the subsection but will depend on the circumstances of each community and its owners.
  6. New subsection (g) addresses the possibility that development rights may be about to expire—and thus potentially halt completion of the project—at a time which neither the association nor the unit owners find desirable. This section allows extension of development rights, or creation of new rights, by a vote of the same percentage of unit owners as would be required to sell the common elements in the common interest community.

In addition to that basic rule, subsection (a) lists the other instances where the declaration may be amended by the declarant alone without association approval, or by the association acting through its board.

ANNOTATIONS

Common elements.

Condominium association violated the terms of the amended declaration, the Condominium Ownership Act, and the Common Interest Ownership Act when it authorized dormer expansions that impacted commonly owned airspace without unanimous approval of the unit owners. While an expansion into the attic space from the unit immediately below did not alter the footprint of the unit, an allocation of a portion of the airspace to any individual unit resulted in a reallocation of that airspace from a common element to a part of a unit. Watson v. Vill. at Northshore I Ass'n, Inc., 2018 VT 8, 207 Vt. 154, 184 A.3d 1133, 2018 Vt. LEXIS 13 (2018).

§ 2-118. Termination of common interest community.

  1. Except in the case of a taking of all the units by eminent domain or in the circumstances described in section 2-124 of this title, a common interest community may be terminated only by agreement of unit owners of units to which at least 80 percent of the votes in the association is allocated or any larger percentage the declaration specifies, and with any other approvals required by the declaration. The declaration may specify a smaller percentage only if all the units are restricted exclusively to nonresidential uses.
  2. An agreement to terminate shall be executed or ratified in the same manner as a deed by the requisite number of unit owners. The termination agreement shall specify a date after which the agreement is void unless it is recorded. A termination agreement and all ratifications of it shall be recorded in each town in which a portion of the common interest community is situated.
  3. In the case of a common interest community containing only units having horizontal boundaries described in the declaration, a termination agreement may provide that all the common elements and units of the common interest community shall be sold following termination. If, pursuant to the agreement, any real estate in the common interest community is to be sold following termination, the termination agreement shall set forth the minimum terms of the sale.
  4. In the case of a common interest community containing any units not having horizontal boundaries described in the declaration, a termination agreement may provide for sale of the common elements, but may not require that the units be sold following termination, unless the declaration as originally recorded provided otherwise or unless all the unit owners consent to the sale.
  5. The association on behalf of the unit owners may contract for the sale of real estate in a common interest community, but the contract is not binding on the unit owners until approved pursuant to subsections (a) and (b) of this section. If any real estate is to be sold following termination, title to that real estate upon termination vests in the association as trustee for the holders of all interests in the units. Thereafter, the association has all powers necessary and appropriate to effect the sale. Until the sale has been concluded and the proceeds distributed, the association continues in existence with all powers it had before termination. Proceeds of the sale shall be distributed to unit owners and lienholders as their interests appear, in accordance with subsections (h), (i), and (j) of this section. Unless otherwise specified in the termination agreement, while the association holds title to the real estate, each unit owner and the unit owner’s successors in interest have an exclusive right to occupy the portion of the real estate that formerly constituted his or her unit. During the period of that occupancy, each unit owner and the unit owner’s successors in interest remain liable for all assessments and other obligations imposed on unit owners by this title or the declaration.
  6. If the real estate constituting the common interest community is not to be sold following termination, title to the common elements and, in a common interest community containing only units having horizontal boundaries described in the declaration, title to all the real estate in the common interest community vests in the unit owners upon termination as tenants in common in proportion to their respective interests as provided in subsection (j) of this section and liens on the units shift accordingly. While the tenancy in common exists, each unit owner and the unit owner’s successors in interest have an exclusive right to occupy the portion of the real estate that formerly constituted his or her unit.
  7. Following termination of the common interest community, the proceeds from the sale of real estate and assets of the association are held by the association as trustee for unit owners and holders of liens on the units as their interests may appear.
  8. Following termination of the common interest community, creditors of the association holding liens on the units which were recorded pursuant to 12 V.S.A. § 2904 before termination may enforce those liens in the same manner as any lienholder. All other creditors of the association shall be treated as if they had perfected liens on the units immediately before termination.
  9. The respective interests of unit owners referred to in subsections (e), (f), (g), and (h) of this section are as follows:
    1. Except as otherwise provided in subdivision (2) of this subsection, the respective interests of unit owners are the fair market values of their units, allocated interests and any limited common elements immediately before the termination as determined by one or more independent appraisers selected by the association. The independent appraisals shall be distributed to the unit owners and become final unless the unit owners to whom 25 percent or more of the votes in the association are allocated disapprove the appraisal. A unit owner’s interest is determined by dividing the fair market value of that unit owner’s unit and its allocated interests by the total fair market value of all the units and their allocated interests.
    2. If any unit or any limited common element is destroyed to the extent that an appraisal of its fair market value before destruction cannot be made, the interests of all unit owners are:
      1. in a condominium, their respective common element interests immediately before the termination;
      2. in a planned community, their respective common expense liabilities immediately before the termination.
  10. Except as provided in subdivision (i)(1) of this section, foreclosure or enforcement of a lien or encumbrance against the entire common interest community does not terminate the common interest community, and foreclosure or enforcement of a lien or encumbrance against a portion of the common interest community, other than withdrawable real estate, does not withdraw that portion from the common interest community. Foreclosure or enforcement of a lien or encumbrance against withdrawable real estate does not, of itself, withdraw that real estate from the common interest community, but the person taking title to it has the right to request from the association an amendment excluding the real estate from the common interest community.
  11. If a lien or encumbrance against a portion of the real estate comprising the common interest community has priority over the declaration and the lien or encumbrance has not been partially released, the parties foreclosing the lien or encumbrance may, upon foreclosure, record an instrument excluding the real estate subject to that lien or encumbrance from the common interest community.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 21, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Inserted “or in the circumstances described in section 2-124 of this title” and “and with any other approvals required by the declaration” in the first sentence of subsec. (a), made a minor punctuation change in subsec. (i), and inserted “otherwise” preceding “provided in” in the first sentence of subdiv. (i)(1).

OFFICIAL COMMENT

  1. This section integrates the corresponding UCA, UPCA, and MRECA provisions governing termination of condominiums, planned communities, and cooperatives, respectively.  This section continues the distinctions made by UCA, UPCA, and MRECA, for each type of common interest community.  Each such distinction is discussed in the Comments to this section, below.
  2. Historically, there were instances, particularly during the 1930’s where cooperatives were terminated, often as a result of foreclosure following the association’s failure to pay debt service.  Those terminations created enormously complex problems for the cooperatives concerned.  While few planned communities or condominiums have yet been terminated under present law, a number of problems are certain to arise upon termination which have not been adequately addressed by most of those statutes.
  3. Recognizing that unanimous consent from all unit owners would be impossible to secure as a practical matter in a project of any size, and recognizing as well that a vote of the stockholders of a corporation under state corporate law may not adequately protect the interests of the minority, subsection (a) states a general rule that 80% of the votes in the association are required for termination of a project. The declaration may require a larger percentage of the votes and in a non-residential project, it may also permit a smaller percentage.  Pursuant to Section 2-119 (Rights of Secured Lenders), lenders may require that the declaration specify a larger percentage of unit owner consent or, more typically, require the consent of a percentage of the lenders before the project may be terminated.
  4. As a result of subsection (a) unless the declaration requires unanimous consent for termination, the declarant may be able to terminate the common interest community despite the unanimous opposition of other unit owners if the declarant owns units to which the requisite number of votes are allocated.  Such a result might occur, for example, should a declarant be unable to continue sales in a project where some sales have been made.  However, in such a case, other unit owners may have rights against the declarant under other law of the State, including the law of equity and contract.
  5. Subsection (b) describes the procedure for execution of the termination agreement.  It recognizes that not all unit owners will be able to execute the same instrument, and permits execution or ratification of the master termination agreement.  Since the transfer of an interest in real estate is being accomplished by the agreements, each of the ratifications must be executed in the same manner as a deed. Importantly, the agreement must specify the time within which it will be effective; otherwise, the project might be indefinitely in ‘limbo‘ if ratifications had been signed by some, but not all, required unit owners, and the signing unit owners fail to revoke their agreements.  The agreement becomes effective only when it is recorded.
  6. Subsections (c) and (d) deal with the question of when all the real estate in a planned community or condominium, or the common elements, may be sold without unanimous consent of the unit owners.  The sections reach a different result based on the physical configuration of the project.
  7. Subsection (e) describes the powers of the association during the pendency of the termination proceedings.  It empowers the association to negotiate for the sale, but makes the validity of any contract dependent on the unit owner approval.  This subsection also makes clear that, upon termination, title to the real estate shall be held by the association, so that the association may convey title without the necessity of each unit owner signing the deed.  Finally, this subsection makes clear that, until the association delivers title to the property, the project will continue to operate as it had prior to the termination, thus insuring that the practical necessities of operation of the real estate regime will not be impaired.
  8. Subsection (f) contemplates the possibility that a planned community or condominium might be terminated but the real estate not sold.
  9. Subsections (g), (h), and (i) deal with the very complex calculations and priorities which might result upon termination of a common interest community.  Those questions involve competing claims of first mortgage holders on individual units, other secured and unsecured creditors of individual unit owners, judgment creditors of the association, creditors of the association to whom a security interest in the common elements has been granted and unsecured creditors of the association.

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For all common interest communities, this Act seeks to deal comprehensively with the problems created by both voluntary and involuntary termination. These include such matters as the percentage of unit owners which should be required for termination; the time frame within which written consents from all unit owners must be secured; the manner in which common elements and units should be disposed of following termination, both in the case of sale and non-sale of all of the real estate; the circumstance under which sale of units may be imposed on dissenting owners; the powers held by the board of directors on behalf of the association to negotiate a sales agreement; the practical consequences to the project from the time the unit owners approve the termination until the transfer of title and occupancy actually occurs; the impact of termination on liens on the units and common elements; distribution of sales proceeds; the effect of foreclosure or enforcement of liens against the entire common interest community with respect to the validity of the project; and other matters.

Subsection (c) states that if a planned community or condominium contains only units having horizontal boundaries—a typical high rise building—the unit owners may be required to sell their units upon termination despite objection. Under subsection (d), however, if the project contains any units which do not have horizontal boundaries then the termination agreement may not force dissenting unit owners to sell their units unless the declaration as originally recorded provides otherwise. The reason for the rule stated in subsection (d) is that owners of units not having horizontal boundaries—single family homes, for example—may wish to terminate the common interest community regime and sell the real estate which they supported with their common charges, but continue to own the homes which they occupy.

Obviously, if all the unit owners consent to the sale of the units, sale of the entire development would be possible.

Subsections (b) and (g), the parallel provisions to Section 2-117(b) and (d) of MRECA, contemplate the same possibility in the case of cooperatives. Termination without sale is not likely to be the usual case, but might occur if the unit owners plan conversion to another form of common interest community, for example, conversion from a cooperative to a condominium. In the case of a cooperative, title to the real estate upon termination would remain in the name of the association as trustee for the unit owners; see subsection (g). In a condominium or planned community, title to the common elements following termination vests in the unit owners as tenants in common if that real estate is not to be sold, see subsection (f), but until a sale occurs vests in the association if the real estate is to be sold; see subsection (e). In the case of a condominium or planned community which contains only units with horizontal boundaries, these title rules also apply to all the units. (See subsection (f).) In the remaining case, i.e., the case where there are some units with horizontal boundaries and some without horizontal boundaries, the Act provides, in subsection (f), that unit owners become tenants in common of the common elements, but continue to hold individual titles to their units. Therefore, in a condominium or planned community with units located in both a high rise building and in single story structures, the unit owners in the high rise building will hold individual title to their unit upon termination, and either the declaration or the termination agreement should address the needs for easements of support and access for the high rise units over the real estate which all the unit owners will own as tenants in common. Undoubtedly, the unit owners will immediately reconstitute themselves as some form of common interest community.

Since, after termination of a cooperative title to the real estate remains in the association, it could record a new declaration corresponding to the new form of common interest community adopted, convey the units to the former unit holders, and then itself continue as the new common interest community’s association.

Those subsections accord different treatment to these issues, depending upon the type of common interest community involved. The separate approaches continue the distinctive treatment which condominiums, planned communities and cooperatives have received under UCA, UPCA, and MRECA, respectively. Each approach will be discussed and demonstrated in the Comments below.

Termination of Condominiums and Planned Communities 10. Subsection (h) establishes general rules with respect to competing claims, but leaves to state law the resolution of the priorities of those competing claims.

The examples which follow illustrate the relative effects of several provisions set out in the Act, based on application of an assumed state lien priority rule of “first in time, first in right.” In those instances, particularly involving mechanics’ liens, where state law often establishes priorities at variance with that rule, that result is also indicated.

Example 1:

Hypothetical for Examples 1A-1H: A planned community consists of five detached single family homes on five individually owned lots, together with a sixth lot which is undeveloped but intended for future construction of a swimming pool serving all units. The development is served by a private road. Lot 6 and the private road are common elements owned by the association.

The declaration provides that the Act applies to this development (which would otherwise be exempt as a “small” planned community under Section 1-203). The documents also provide that: (1) upon termination, all units and the common elements must be sold; (2) the association is permitted to encumber Lot 6, and to grant a security interest in that lot for any purpose; and (3) votes and common expense liabilities are allocated equally among the units. For purposes of the example, we have assumed that the documents do not require the consent of first mortgage holders before the unit owners may vote to terminate.

The five units were originally sold at equal prices of $50,000. Common expenses in the project are $100 per unit, per month, and are used for a variety of purposes, including insurance and upkeep of the units and common elements. At the time the units were conveyed, each of them was released from all liens affecting the planned community which were senior to the declaration, and the common elements were deeded to the association free of all liens.

A shopping center developer has offered $380,000 for the purchase of the entire planned community. The association’s members unanimously vote in favor of termination, and otherwise comply with Section 2-118. The appraisal required by Section 2-118(j) shows that the units are still of equal value.

Example 1A: At the time of termination, the five units were financed as follows:

Unit 1: The owner’s first mortgage had an unpaid balance of $50,000.

Unit 2: The owner’s first mortgage had an unpaid balance of $40,000.

Unit 3: The owner’s first mortgage had an unpaid balance of $25,000.

Units 4 and 5: The owners paid cash, and there is no mortgage on either unit.

In addition, all common expenses had been paid when due. The other assets of the association, including reserves, bank account, and all other personal property, total $20,000.

Under the Act (Section 2-118(g)), the association, following sale, holds the proceeds of sale together with the assets of the association, “as trustee for unit owners and holders of liens on the units as their interests may appear.” In these circumstances, the interests of each party in the total value of $400,000 would be as follows: =font8

UNIT # 1 2 3 4 5 Share of Proceeds 80,000 80,000 80,000 80,000 80,000 Due 1st Mortgage Holders 50,000 40,000 25,000 -0- -0- Due Owners 30,000 40,000 55,000 80,000 80,000

Example 1B: The facts stated in Example 1A remain true. However, at termination, Unit 1 has failed to pay its common expenses for 12 months. In these circumstances, the interests of each party would be as follows: =font8

UNIT # 1 2 3 4 5 Share of Proceeds 80,000 80,000 80,000 80,000 80,000 Due Association (Priming 1st Mortgage) 600 -0- -0- -0- -0- Due 1st Mortgage Holders 50,000 40,000 25,000 -0- -0- Due Association (Not Priming 1st Mortgage) 600 -0- -0- -0- -0- Due Owners 28,000 40,000 55,000 80,000 80,000

In this example, both the lenders and the association are fully paid because the sales proceeds exceed the liens on the units. Note, however, that six months of the unpaid assessments prime the first mortgage pursuant to Section 3-116(b). Thus, if the sales proceeds had been only $50,000 per unit, rather than $80,000, the results with respect to Unit 1 would have been as follows:

Sales Proceeds $50,000 6-Month Assessment Due Association 600 Balance $49,400 Paid to 1st Mortgage Holder $49,400 Loss to 1st Mortgage Lender (600) Loss to Association (600)

Of course, the association has, and the lender may have, a claim against the unit owner, personally, for the unpaid sums due them. Importantly, however, neither the other unit owners nor their units are subject to any liability for those claims.

Because the lien of the first mortgage holder, at termination or foreclosure, is junior to the first six months of unpaid assessments due the association, lenders may protect themselves under the Act by requiring the escrow of six months’ common expense assessments, as they often do for real property taxes.

Example 1C: The facts stated in Example 1B remain true. However, after all the units were initially sold, but before termination, 80% of the unit owners agree to build a swimming pool on Lot 6. The association contracts with XYZ Pool Company to build the pool for $100,000. XYZ does not take a security interest in the common elements, as it might have done under Section 3-112; and does not act to perfect any available mechanics’ lien under state law. The pool is properly completed. When the association fails to pay, XYZ sues the association, secures a judgment, and properly perfects its judgment pursuant to Section 3-111 (Tort and Contract Liability). As provided in Section 3-111, liens resulting from judgments against the association are governed by Section 3-117. At the time of termination, XYZ has not been paid, and its claim amounts to $100,000.

Section 3-117(a) provides that a “judgment for money against the association,” if perfected as a lien on real property under state law, “is a lien in favor of the judgment lienholder against all of the units.” However, the last sentence also provides that the judgment is not a lien on the common elements. Accordingly, XYZ holds a $20,000 lien on each of the units as of the date the lien is perfected. In these circumstances, the interests of the parties are as follows: =font8

UNIT # 1 2 3 4 5 Share of Proceeds 80,000 80,000 80,000 80,000 80,000 Due Association (Priming 1st Mortgage) 600 -0- -0- -0- -0- Due 1st Mortgage Holders 50,000 40,000 25,000 -0- -0- Due Association (Not Priming 1st Mortgage) 600 -0- -0- -0- -0- Due XYZ 20,000 20,000 20,000 20,000 20,000 Due Owners 8,800 20,000 35,000 60,000 60,000

Example 1D: All facts stated in Example 1C remain true, except that XYZ Pool Company, at the time it contracts to build the pool, takes a security interest in Lot 6, pursuant to Section 3-112, and that security interest includes a release of that real estate, upon default, from all restrictions imposed on the real estate by the declaration. At termination, XYZ has not instituted any action against the association to enforce its claim.

In these circumstances, XYZ, as a secured creditor with respect to Lot 6, holds an interest superior to the declaration, and would have the right to exclude that real estate from the project. Any sale of the entire planned community would be subject to the superior interest of XYZ. For that reason, in the normal circumstances, the association would not be able to secure a release of that lien unless XYZ were paid in full from the proceeds of the sale, which would have the effect of reducing the value of the sale to $280,000. Note that this has the economic effect of placing the XYZ claim, at termination, ahead of prior first mortgages. For this reason, first mortgage holders will typically require their consent before common elements may be subjected to a lien.

Example 1E: The facts stated in Example 1C remain true so that XYZ holds only a perfected judgment lien, not a security interest in the common elements.

After the XYZ lien was perfected, a $50,000 uninsured judgment is entered against the owner of Unit 4, resulting from his personal business. The lien is perfected, and rests only against Unit 4. In these circumstances, the interests of the parties are as follows: =font8

UNIT # 1 2 3 4 5 Share of Proceeds 80,000 80,000 80,000 80,000 80,000 Due Association (Priming 1st Mortgage) 600 -0- -0- -0- -0- Due 1st Mortgage Holders 50,000 40,000 25,000 -0- -0- Due Association (Not Priming 1st Mortgage) 600 -0- -0- -0- -0- Due XYZ 20,000 20,000 20,000 20,000 20,000 Personal Lien, Unit 4 -0- -0- -0- 50,000 -0- Due Owners 8,800 20,000 35,000 10,000 60,000

Example 1F: The facts stated in Example 1E remain true. After the swimming pool is built, a neighbor’s child falls into the untended and unfenced pool, and is injured. The child sues the association. One month after the personal judgment against Unit 4 is perfected, the child secures a judgment against the association for $100,000 more than the association’s insurance. Under state law, the tort judgment, when perfected, constitutes a lien only from the date judgment is entered, and does not enjoy a higher priority. In these circumstances, the interests of the parties are as follows: =font8

UNIT # 1 2 3 4 5 Share of Proceeds 80,000 80,000 80,000 80,000 80,000 Due Association (Priming 1st Mortgage) 600 -0- -0- -0- -0- Due 1st Mortgage Holders 50,000 40,000 25,000 -0- -0- Due Association (Not Priming 1st Mortgage) 600 -0- -0- -0- -0- Due XYZ 20,000 20,000 20,000 20,000 20,000 Personal Lien, Unit 4 -0- -0- -0- 50,000 -0- Tort Lien 8,800 20,000 20,000 10,000 20,000 Due Owners -0- -0- 15,000 -0- 40,000

Note that the child’s lien realizes only $78,800; the estate is not entitled to participate in the proceeds available to Units 3 and 5 to satisfy the unmet claims against Units 1 and 4, because those units are liable only for their pro rata share of the claim, which is the same amount any of those units would have had to pay prior to termination in order to secure a partial release. Thus, if Unit 5, prior to termination, had secured a partial release for $20,000 from the estate, the result would be the same.

Note also that the value of the common elements is not segregated from the values of the units, since the sales’ values of the units reflect all of the value of the real estate. Similarly, note that, after termination, the tort claimant is not entitled to reach or segregate the personal property of the corporation, valued before termination at $20,000, even though he could have reached the bank account or other assets prior to termination. Any other rule would create enormous complexity, would impose arbitrary losses on creditors out of priority, and would tend to shift economic losses to unit owners who had paid their share of claims.

Example 1G: The facts stated in Example 1F remain true. After the Unit 4 personal lien is perfected, but, one week before the tort judgment against the association is perfected, P Paving Company begins repaving the private road. Work is completed one week after the tort judgment is perfected. The association fails to pay P $50,000 upon completion as agreed, and P immediately records its mechanics’ lien. Under state law, a mechanics’ lien, if recorded within 60 days of the time work is completed, holds priority as of the day work began. State law does not, however, grant the mechanics’ lien priority over any liens perfected before work began. P Paving sues on its lien, and secures a judgment. In these circumstances, the interests of the parties are as follows: =font8

UNIT # 1 2 3 4 5 Share of Proceeds 80,000 80,000 80,000 80,000 80,000 Due Association (Priming 1st Mortgage) 600 -0- -0- -0- -0- Due 1st Mortgage Holders 50,000 40,000 25,000 -0- -0- Due Association (Not Priming 1st Mortgage) 600 -0- -0- -0- -0- XYZ Pool Lien 20,000 20,000 20,000 20,000 20,000 Personal Lien, Unit 4 -0- -0- -0- 50,000 -0- Paving Lien 8,800 10,000 10,000 10,000 10,000 Tort Lien -0- 10,000 20,000 -0- 20,000 Due Owners -0- -0- 5,000 -0- 30,000

Note that, just as in the case of the tort lien, when Unit 1 could not contribute its share of the mechanics’ lien, the remaining units are not liable for the balance.

In the example, the common expense lien arises before the P Paving lien had arisen. If the common expense lien arose after the P Paving lien, we would be faced with circular liens, where: (a) the P Paving lien would prime the common expense lien; (b) six months of the common expense lien would prime the mortgage; and (c) the mortgage would prime the P Paving lien. Such circular lien problems, however, are not unique in the law.

Example 1H: The facts stated in example 1G remain true. Assume Unit 5, before termination, paid its pro rata share of both the P Paving lien and the tort lien. This reduces the P Paving lien to $40,000, and the tort lien to $80,000. Under Section 3-117, this entitles Unit 5 to a partial release of both claims, and neither P Paving nor the child has a further claim against Unit 5. The interests of the parties are as follows:

UNIT # 1 2 3 4 5 Share of Proceeds 80,000 80,000 80,000 80,000 80,000 Common Expense Lien 600 -0- -0- -0- -0- First Mortgage Liens 50,000 40,000 25,000 -0- -0- Common Expense Lien 600 -0- -0- -0- -0- XYZ Pool Lien 20,000 20,000 20,000 20,000 -0- Personal Lien, Unit 4 -0- -0- -0- 50,000 -0- P Paving Lien 8,800 10,000 10,000 10,000 -0- Tort Lien -0- 10,000 20,000 -0- -0- Due Owners -0- -0- 5,000 -0- 80,000

All the results stated above would be the same as to a condominium.

Example 2: The facts stated in example 1G remain true. Assume, however, that, at the outset, Unit 5 was twice as large as the others, sold for $100,000, or twice as much as the others, and twice the common expense liability was allocated to it. At termination, it remains twice as valuable. In those circumstances, the results on sale are as follows: =font8

UNIT # 1 2 3 4 5 Sale Proceeds 66,666 66,666 66,666 66,666 133,332 Common Expense Lien 600 -0- -0- -0- -0- First Mortgage Lien 50,000 40,000 25,000 -0- -0- Common Expense Lien 600 -0- -0- -0- -0- XYZ Pool Lien 15,466 16,666 16,666 16,666 33,333 Personal Lien, Unit 4 -0- -0- -0- 50,000 -0- P Paving Lien -0- 10,000 13,333 -0- 26,666 Tort Lien -0- 1,667 16,666 -0- 33,333 Due Owners -0- -0- -0- -0- 50,000

Note that all the liens are allocated in accordance with each unit’s common expense liability, since no special provision was made for allocating the costs of the pool, the paving, or the tort claim. Unit 5 probably did not contemplate the size of its exposure; nevertheless, fewer dollars were available to creditors upon termination than in Example 1G.

Example 3: The facts stated in Example 1G remain true, including the fact that Unit 5 was originally sold at the same price ($50,000) as the remaining units. Upon appraisal, however, assume that, because of improvements, Unit 5 is now worth $75,000. Three other units have remained at $50,000, while Unit 1 was neglected, and is now worth only $40,000. Common expense liabilities never changed. In this example, the total value of the units is now $265,000. Since sales proceeds are distributed in accordance with fair market values, the following distribution of proceeds would apply: =font8

Unit 1: (15.09433%) $ 60,377 Unit 2: (18.86793%) $ 75,472 Unit 3: (18.86793%) $ 75,472 Unit 4: (18.86793%) $ 75,472 Unit 5: (28.30188%) $113,207 100.00000% $400,000

UNIT # 1 2 3 4 5 Sale Proceeds 60,377 75,472 75,472 75,472 113,207 Common Expense Lien 600 -0- -0- -0- -0- First Mortgage Lien 50,000 40,000 25,000 -0- -0- Common Expense Lien 600 -0- -0- -0- -0- XYZ Pool Lien 9,177 20,000 20,000 20,000 20,000 Personal Lien, Unit 4 -0- -0- -0- 50,000 -0- P Paving Lien -0- 10,000 10,000 5,472 10,000 Tort Lien -0- 5,472 20,000 -0- 20,000 Due Owners -0- -0- 472 -0- 63,207

In this example, the equal distribution of common expense liability coupled with the “fair value” distribution of sales proceeds create the greatest losses for the creditors of the association.

11. Subsection (j)(2) is an exception to the “fair market value” rule. It provides that, if appraisal of any condominium unit cannot be made, either through pictures or comparison with other units, so that any unit’s appropriate share in the overall proceeds cannot be calculated, then the distribution will fall back on the only objective, albeit artificial, standard available, which is the common element interest allocated to each unit.

13. A mortgage or deed of trust on a unit may provide for the lien to shift, upon termination, to become a lien on what will then be the borrower’s undivided interest in the whole property. However, such a shift would be deemed to occur even in the absence of express language, pursuant to subsection (f).

Termination of Cooperatives 14. Subsection (i) deals with the very complex calculations and priorities which might result upon termination of a cooperative, in light of the possibility that the association itself might have its own secured creditors, while unit owners and their creditors would seek to enforce their own claims against the proceeds of sale. The Act recognizes, in considering this issue, that there are two competing interests to be resolved. On the one hand, cooperative developers and lenders have traditionally financed cooperatives through loans to the cooperative association secured by one or more blanket mortgages on the cooperative’s real estate. Any uniform proposal to reduce the priorities of some or all such mortgages in favor of creditors secured only by interests in some of the units would have a negative effect on that traditional form of financing.

At the same time, it has become increasingly evident that the frequent inability of unit owners to readily resell their units may be traced in part to the reluctance of spot lenders to place mortgages on individual units which may always be subordinate to the claims of the association’s secured creditors, even when those associations creditors obtain their security interest at a date later than the date of the spot loan. As a result, the Conference was urged to draft the Act in a manner which would enhance the financing of individual units.

This section became the focal point for much of that debate. In resolving it, the Act takes a middle approach, by providing the declarant an election among priority systems.

Subsection (i) permits the declarant to include in the declaration a provision that all the association’s creditors, upon termination, will have priority over all the interests of unit owners and their creditors. If the declaration does so provide, the association’s creditors would enforce their liens in their normal priority, while unsecured creditors of the association would be treated as if they had perfected their liens immediately prior to termination. Only when all of the association’s creditors had been satisfied would the unit owners and their creditors be entitled to participate in the proceeds of sale. Such a result, while significantly different from the result flowing under UCA or UPCA, is a recognition of the fundamental differences between the financing of condominiums and cooperatives. Such a provision would likely maximize the ability of the cooperative to secure initial and subsequent blanket financing, while tending to discourage spot loans for units. Alternatively, subsection (i) contemplates that the declarant may wish to enhance the finance ability of units while insuring that the initial blanket financing of a cooperative will not be jeopardized. Accordingly, it provides that, in the absence of a provision in the declaration which grants senior priority to the association’s creditors, the liens of all creditors with an interest in the cooperative’s property would be fractionalized upon termination, and would constitute a lien against each unit proportionate to that unit’s common expense liability. No lien would lie against the cooperative’s real estate as a whole, but a senior blanket mortgage, for example, would constitute a first lien against every unit in proportion to the common expense liabilities of the various units.

15. In the case of fractionalized liens, a particularly complex series of creditors’ rights questions arise upon termination. Those questions involve competing claims of holders of first security interests on individual units, the secured and unsecured creditors of individual unit owners, as well as blanket mortgagees and judgment creditors of the association. The second part of subsection (i) attempts to establish general rules with respect to these competing claims, but leaves to state law the resolution of the priorities of those claims. In considering his problem, in the analogous context of condominiums and planned communities, which mandate fractionalized liens upon termination, Comment 10 above includes examples of how these competing claims might be resolved. If all creditors of the association have priority over all creditors of unit owners, of course, the examples set out in Comment 10 have to be adjusted appropriately.

Other Provisions 16. Subsection (j) describes the method by which the interests of proprietary lessees are to be calculated, and adopts an appraisal procedure for allocation of the sales proceeds in all three forms of ownership.

It departs significantly from the usual result under most condominium acts. Under those acts the proceeds of the sale of the entire project are distributed upon termination to each unit owner in accordance with the common element interest which was allocated at the outset of the project. Of course, in an older development, those original allocations will bear little resemblance to the actual value of the units. For that reason, the Act adopts an appraisal procedure for distribution of the sales proceeds. As suggested in the examples on the distribution of proceeds, this appraisal may dramatically affect the amount of dollars actually received by unit owners. Accordingly, it is likely the appraisal will be required to be distributed prior to the time the termination agreement is approved, so that unit owners may understand the likely financial consequences of the termination. If an initial appraisal made pursuant to subsection (j) were rejected by vote of the unit owners, the association would be obligated to secure a new appraisal.

17. With respect to the association’s role as trustee under subsection (g), see Section 3-119.

18. “Foreclosure” in subsection (k) includes deeds in lieu of foreclosure, and “liens” includes tax and other liens on real estate which may be converted or withdrawn from the project.

19. The termination agreement should adopt or contain any restrictions, covenants, and other provisions for the governance and operation of the property formerly constituting the common interest community which the owners deem appropriate. These might closely parallel the provisions of the declaration and bylaws. This is particularly important in the case of a common interest community which is not to be sold pursuant to the terms of the termination agreement. In the absence of such provisions, the general law of the State governing tenancies in common would apply.

20. Subsection (l) recognizes the possibility that a pre-existing lien might not have been released prior to the time the condominium or planned community declaration was recorded. Recordation of the declaration should not constitute a changing of the priority of those liens; and it is contrary to all expectations that a prior lienholder may be involuntarily subjected to the condominium or planned community documents. For that reason, this section permits the non-consenting prior lienholder upon foreclosure to exclude the real estate subject to his lien from the condominium or planned community.

21. The 1994 amendment to subsection (k) clarifies the effect of foreclosure of a security interest in common elements which the association may have granted under Section 3-112.

§ 2-119. Rights of secured lenders.

  1. The declaration may require that all or a specified number or percentage of the lenders who hold security interests in the units or common elements approve specified actions of the unit owners or the association as a condition to the effectiveness of those actions, but lack of approval will not have the effect of:
    1. denying or delegating control over the general administrative affairs of the association by the unit owners or the executive board; or
    2. preventing the association or the executive board from participating in any litigation or proceeding; or
    3. preventing an insurance trustee or the association from receiving and distributing insurance proceeds except pursuant to section 3-113 of this title.
  2. A lender who has extended credit to an association secured by an assignment of income (subdivision 3-102(a)(14) of this title) or an encumbrance on the common elements (section 3-112) may enforce its security agreement in accordance with its terms, subject to the requirements of this title and other law. Requirements that the association must deposit its periodic common charges before default with the lender to which the association’s income has been assigned, or increase its common charges at the lender’s direction by amounts reasonably necessary to amortize the loan in accordance with its terms, do not violate the prohibitions on lender approval contained in subsection (a) of this section.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

History

References in text.

In subsec. (b), substituted “3-102(a)(14)” for “3-102(14)” for purposes of clarity.

Revision note

—2012. In subdivision (a)(3), substituted “section 3-113” for “section 1571” to correct a cross reference.

OFFICIAL COMMENT

  1. In a number of instances, particularly sale or encumbrances of common elements, or termination of a planned community, a lender’s security may be dramatically affected by acts of the association.  For that reason this section permits the declaration to provide that lender ratification of specified actions of the association is a condition of their effectiveness.
  2. There are three important limitations on the rights of lender consent.  They are: (1) a prohibition on control over the general administrative affairs of the association; (2) restrictions on control over the association’s powers during litigation or other proceedings; and (3) prohibition of receipt or distribution of insurance proceeds prior to application of those proceeds for rebuilding.
  3. It is important that lenders not be able to step in and unilaterally act as receiver or trustee of the association. There may, of course, be occasions when a court of competent jurisdiction would order appointment of a receiver for an association.  While this would be possible in a court proceeding, the Act prohibits private contractual granting of such a power.
  4. Since it may well be that the association might find itself involved in litigation which would be adverse to the interests of the lender or the declarant, it is inappropriate for a secured party to be able to control the course of litigation in the absence of the consent of the other parties.  In an appropriate case, of course, where the lenders’ interests are affected, a lender might seek to intervene as a party.
  5. Section 3-113 specifies the distribution of insurance proceeds.  In particular, it prevents distribution of those proceeds to lenders until the intended purpose of the insurance has been met.  For that reason, under this section the declaration may not provide the lender a right to receive insurance proceeds in any manner except the manner provided in Section 3-113.
  6. In addition to the provisions of the declaration, the provisions of individual deeds to units may require that unit owner to secure his lender’s consent before taking particular actions.
  7. The delegation of consent powers to the lenders may, of course, be limited to particular kinds or classes of lenders—such as holders of first security interests—and may also establish eligibility criteria.  Such criteria may include, for example, notice requirements.  It is possible, for example, to require that only those lenders who notify the association may have consent powers, or be for a specified period of time—say, during the period of declarant control.
  8. The 1994 changes in subsections (a) and (b) are designed to resolve issues which lenders to associations have raised regarding their authority to require approval of association activities as conditions of the effectiveness of those actions, and to include otherwise standard lending requirements in their loan documents.

§ 2-120. Master associations.

  1. If the declaration provides that any of the powers described in section 3-102 of this title may be exercised by or may be delegated to a corporation or association on behalf of one or more common interest communities or for the benefit of the unit owners of one or more common interest communities, the provisions of this title applicable to unit owners’ associations apply to that corporation or unincorporated association, except as modified by this section.
  2. Unless a master association is acting in the capacity of an association described in section 3-101 of this title, it may exercise the powers provided in subdivision 3-102(a)(2) of this title only to the extent permitted in the declaration or described in the delegations of power of those common interest communities to the master association.
  3. If the declaration provides that the executive board may delegate certain powers to a master association, the members of the executive board shall not be liable for acts or omissions of the master association with respect to those powers after the delegation.
  4. The rights and responsibilities of unit owners with respect to the unit owners’ association as provided in sections 3-103, 3-106, and 3-109 of this title apply only to the conduct of the affairs of a master association in regard to those persons who elect the board of a master association, whether or not those persons are unit owners.
  5. Even if a master association is also an association under section 3-101 of this title, the instrument creating the master association and the declaration may provide that the executive board of the master association shall be elected after the period of declarant control in any one of the following ways:
    1. All unit owners of all common interest communities subject to the master association may elect all members of that executive board.
    2. All members of the executive boards of all common interest communities subject to the master association may elect all members of that executive board.
    3. All unit owners of each common interest community subject to the master association may elect specified members of that executive board.
    4. All members of the executive board of each common interest community subject to the master association may elect specified members of that executive board.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section adopts the approach uniformly adopted by UCA, UPCA, and MRECA.
  2. It is common in large or multi-phased condominiums or planned communities, particularly those developed under existing laws, for the declarant to create a master or umbrella association which provides management services or decision-making functions for a series of smaller projects. While it is expected that this phenomenon will be less necessary under this Act because of the permissible period of time for declarant control over the project, it is nonetheless possible in larger developments that this form of management will continue.
  3. Subsection (a) states the general rule that the powers of a unit owners’ association may only be exercised by, or delegated to, a master association if the declaration for the common interest community permits that result.  The declaration may have originally provided for a master association; alternatively, the unit owners of several common interest communities may amend their declarations in similar fashion to provide for this power.  Subsection (a) makes it clear that, if any of the powers of the unit owners’ association may be exercised by, or delegated to, a master association, all other provisions of this Act, which apply to a unit owners’ association apply to that master association except as modified by this section.  Accordingly, provisions on notice, voting, quorums, records, meetings, and other matters which apply to the unit owners’ association would apply with equal validity to such a master association.
  4. Subsection (b) limits the ability of a master association to exercise the powers of the unit owners’ association, except in those cases where the master association is actually acting as the only association for one or more common interest communities.  In those cases where it is not so acting, however, the only powers of the unit owners’ association which the master association may exercise are the ones expressly permitted in the declaration or in the delegation of power. This is in significant contrast with the rule of Section 3-102 that all of the powers described in that section may be exercised unless limited by the declaration.
  5. Subsection (c) clarifies the liability of the members of the executive board of a unit owners’ association when the common interest community for which the unit owners’ association acts has delegated some of its powers to a master association.  In that instance, subsection (c) makes it clear that the members of the executive board of the unit owners’ association have no liability for acts and omissions of the master association board; under subsection (a), that liability lies with the members of the master association.
  6. Subsection (d) addresses the question of the rights and responsibilities of the unit owners in their dealings with the master board.  A variety of sections enumerated in subsection (d) provide certain rights and powers to unit owners in their dealings with their association.  In the affairs of the master association, however, it would be incongruous for the unit owners to maintain those same rights if those unit owners were not in fact electing the master board.  Thus, for example, the question of election of directors, meetings, notice of meetings, quorums, and other matters enumerated in those sections would have little meaning if those sections were read literally when applied to a master board which was not elected by all members of the common interest community subject to the master board.  For that reason, the rights of notice, voting, and other rights enumerated in the Act are available only to the persons who actually elect the board.
  7. Subsection (e) recognizes that there may be reasons for a representative form of election of directors of the master association.  Alternatively, there may be cases where at-large election is reasonable.  For that reason, subsection (e) provides that, after the period of declarant control has terminated, there may be four ways of electing the master association board.  Those four ways are: (1) at-large election of the master board among all the common interest communities subject to the master association, (2) at-large election of the master board only among the members of the executive boards of all common interest communities subject to the master association, (3) each common interest community might have designated positions on the master board, and those spaces could be filled by an at-large election among all the members of each common interest community, or (4) the designated positions could be filled by an election only among the members of the executive board of the unit owners’ association for each common interest community.  It would only be in the case of an at-large election of the master board among all common interest communities that subsection (d) would have no relevance.

§ 2-121. Merger or consolidation of common interest communities.

  1. Any two or more common interest communities with the same form of ownership, by agreement of the unit owners as provided in subsection (b) of this section, may be merged or consolidated into a single common interest community by agreement of the unit owners. In the event of a merger or consolidation, unless the agreement otherwise provides, the resultant common interest community is the successor, for all purposes, of all the preexisting common interest communities, and the operations and activities of all associations of the preexisting common interest communities are merged or consolidated into a single association that holds the powers, rights, obligations, assets and liabilities of the preexisting associations.
  2. An agreement of two or more common interest communities to merge or consolidate pursuant to subsection (a) of this section shall be evidenced by an agreement prepared, executed, recorded and certified by the president of the association of each of the preexisting common interest communities following approval by owners of units to which are allocated the percentage of votes in each common interest community required to terminate that common interest community. The agreement shall not be effective until it is recorded in all municipalities in which the common interest community is located.
  3. Every merger or consolidation agreement shall provide for the reallocation of the allocated interests in the new association among the units of the resultant common interest community either:
    1. by stating the reallocations or the formulas upon which they are based; or
    2. by stating the percentage of overall allocated interests of the new common interest community which are allocated to all of the units comprising each of the preexisting common interest communities, and providing that the portion of the percentages allocated to each unit formerly comprising a part of a preexisting common interest community must be equal to the percentages of allocated interests allocated to that unit by the declaration of the preexisting common interest community.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. There may be circumstances where common interest communities may wish to merge or consolidate their activities by the creation of a single common interest community; this section provides for that possibility.
  2. Under subsection (b), the merger or consolidation agreement is treated for recording purposes as an amendment to the declaration, and the same requirements for approval are mandated as for termination.
  3. Subsection (c) does not state a minimum requirement for the contents of a merger or consolidation agreement, and any additional clauses not inconsistent with subsection (c) may be included.  The important point that subsection (c) makes is that the reallocation of the allocated interests must be carefully stated.

Subsection (a) makes it clear that a merger or consolidation may occur by the same vote of the unit owners necessary to terminate the common interest community. If two or more common interest communities are merged or consolidated, the resulting common interest community is for all purposes the legal successor of the pre-existing common interest community, with a single association for all purposes. In the event common interest communities did not wish to completely merge or consolidate their affairs, it would also be possible for them to create a master association pursuant to Section 2-120.

Subsection (c) states two alternative rules in this respect. First, the reallocations may be accomplished by stating specifically the allocation of allocated interests to each unit, or by stating the formulas by which those interests may be allocated to each unit in all of the pre-existing common interest communities. Alternatively, the merger or consolidation agreement may state the percentage of overall allocated interests allocated to “all of the units comprising each of the pre-existing common interest communities.” The agreement might then also provide that the position of the percentage allocated to each unit from along the shares allocated to each common interests community will be equal to the percentage of allocated interests allocated to that unit by the declaration of the pre-existing common interest community. An example of how this alternative formulation would operate may be useful.

Example: Assume that two adjoining planned communities wish to merge their activities into one planned community. Assume that the first planned community consists of 10 one-bedroom units, with an annual budget of $10,000. Assume further that each of the units, being identical, has an equal common expense liability of 10% and one vote per unit.

The second planned community consists of 40 units, with 20 two-bedroom units and 20 three-bedroom units. The budget of the second planned community consists of $70,000 per year. Each of the two-bedroom units has been allocated a 2% common expense liability, while each of the three-bedroom units has been allocated a 3% common expense liability. Finally, each of the units in the second planned community also has an equal vote.

There is no provision in the Act which mandates a particular allocation among planned communities one and two as to either common expense liabilities or votes. Should the unit owners wish to retain as much similarity to their previous common expense liabilities, however, and should they wish to retain equal voting in a merged project, it would be possible for them, pursuant to subsection (c)(ii), to state “the percentage of overall common expense liabilities and votes in the new association” as follows: as to common expense liabilities, they might allocate 12.5% of the common expense liabilities in the merged project to planned community 1, and 87.5% thereof to planned community 2. If the agreement further provided that “the portion of the percentages allocated to each unit formerly comprising a part on the pre-existing planned community must be equal to the percentages of allocated interests allocated to that unit by the declaration of the pre-existing planned community” as required by subsection (c), each unit in planned community one would then have allocated to it 1.25% of the common expense liabilities in the new planned community. It happens that 1.25% of the common expenses of a merged planned community which has a budget of $80,000 equals $1,000.

Under the same rationale, if each of the two-bedroom units in the second planned community, to which were formerly allocated 2% of the common expense liabilities, now has allocated 2% of the 87.5% allocated to the second planned community, each of those units would then have allocated to it 1.75% of the common expense liabilities of the new planned community. 1.75% of $80,000 is $1,400. Similarly, each of the three-bedroom units would then have allocated to it 2.625% of the common expense liabilities in the merged planned community. That percentage of the common expense liabilities of $80,000 would yield an annual cost of $2,100, the same cost as previously obtained in planned community 2.

Further, the unit owners are free to allocate votes among the units in any way which they see fit. Of course, if they choose to allocate equal votes to all the units, which was the method previously used in both planned communities, this would have the effect of giving 20% of the votes to planned community 1, even though planned community one had only 12.5% of the common expense liabilities. It may be, however, that this tracks with the expectations of the unit owners in both planned communities. Alternatively, planned community one might be allocated 12.5% of the votes, which, when divided up among the 10 units, would give each one-bedroom unit a .125 vote. If 87.5% of the votes were allocated equally among the unit owners in the second planned community, then each of the unit owners in planned community two would have .21875 votes.

If some other configuration was to be desired, then the allocations would of necessity be made pursuant to paragraph (c)(i) rather than (c)(ii).

The same result would be reached in a merger of planned communities or cooperatives.

§ 2-122. Addition of unspecified real estate.

If the right to add unspecified real estate is reserved in the declaration of a planned community, the declarant, in addition to any other development right, may amend the declaration at any time during the time specified in the declaration to add additional real estate to the planned community without describing that real estate in the original declaration; provided, the amount of real estate added to the planned community does not exceed 10 percent of the real estate described in subdivision 2-105(a)(3) of this title and the number of units is not increased beyond the number stated in the original declaration.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

In assembling land for large “new town” planned communities, developers have from time to time been unable to secure small parcels of real estate within the outer boundaries of the development at the time the original covenants for the development were recorded. Subsequently, however, for a variety of reasons, those parcels may become available and would logically form a part of the overall development. As a matter of policy, there is no reason to prohibit the amendment of the declaration to permit the addition of that land to the development, so long as that addition does not substantially increase the potential common expenses of the unit owners, nor the density of the project as originally project by the declarant in his public offering statement.

This section was designed to address this relatively unusual problem. It permits the declarant to add those after-acquired parcels of real estate to the development. This power is available only if the declarant makes clear in his original declaration that this development right has been reserved. The section also requires the declarant to impose his own time limit on the period during which this development right may be exercised. To foreclose the possibility of an increase in the density of the project beyond that which was originally contemplated, the section also prohibits the declarant from increasing the number of units in the planned community beyond the number originally stated in the declaration. Finally, to impose a reasonable limitation on the amount of new land that may be added, the amount of real estate added to the planned community pursuant to this section may not exceed 10% of the real estate originally subjected to the declaration.

§ 2-123. Master planned communities.

  1. The declaration for a common interest community may state that it is a master planned community if the declarant has reserved the development right to create at least 500 units that may be used for residential purposes, and at the time of the reservation that declarant owns or controls more than 500 acres on which the units may be built.
  2. If the requirements of subsection (a) of this section are satisfied, the declaration for the master planned community need not state a maximum number of units and need not contain any of the information required by subdivisions 2-105(a)(3) through (14) of this title until the declaration is amended under subsection (c) of this section.
  3. When each unit in a master planned community is conveyed to a purchaser, the declaration must contain:
    1. a sufficient legal description of the unit and all portions of the master planned community in which any other units have been conveyed to a purchaser; and
    2. all the information required by subdivisions 2-105(a)(3) through (14) of this title with respect to that real estate.
  4. The only real estate in a master planned community which is subject to this title is units that have been declared or which are being offered for sale and any other real estate described pursuant to subsection (c) of this section. Other real estate that is or may become part of the master planned community is only subject to other law and to any other restrictions and limitations that appear as encumbrances duly recorded and indexed in the town clerk’s office.
  5. If the public offering statement conspicuously identifies the fact that the community is a master planned community, the disclosure requirements contained in Article 4 of this title apply only with respect to units that have been declared or are being offered for sale in connection with the public offering statement and to the real estate described pursuant to subsection (c) of this section.
  6. Limitations in this title on the addition of unspecified real estate (section 2-122 of this title) do not apply to a master planned community.
  7. The period of declarant control of the association for a master planned community terminates in accordance with any conditions specified in the declaration or otherwise at the time the declarant, in a recorded instrument and after giving notice in a record to all the unit owners, voluntarily surrenders all rights to control the activities of the association.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 22, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (g): Deleted “written” preceding “notice” and inserted “in a record” thereafter.

OFFICIAL COMMENT

Section 2-123 was adopted in 1994 in response to concerns expressed from the development community. Developers’ counsel asserted that the Act’s constraints on the development process were not realistic in very large communities. First, they argued, the size and time parameters suggested in Section 2-105 were illusory in large projects. Those self-imposed limits presumably have value in smaller projects, where buyers might reasonably expect an end to the development process in the vicinity of their homes and where the limits could therefore form part of the basis for the bargain between buyer and seller. However, those limits could not serve that purpose in very large projects. There, development might reasonably be expected to continue for decades, and the ultimate number of units could simply not be projected with any degree of certainty at the outset of the project. Furthermore, while a developer could impose purely artificial limits to satisfy the legal requirements of the Act—say, a 1000 year development period and a one million unit density cap—such statements could not possibly give comfort or certainty to any buyer, and would create a certain tone of cynicism if they became routinely used.

Other constraints on the development process—such as the period of declarant control of the association—seemed equally difficult to justify in the abstract, once the drafters assumed a sufficiently large project of the sort currently being developed throughout the United States. The drafters adopted the “500 units/500 acres” standard as an objective cut off point after ample evidence suggested that developers of smaller projects could readily satisfy the Act’s existing requirements for documentation.

The drafters accordingly determined that the appropriate concept was to view the development process from the perspective of potential buyers of the units being offered for sale at any time in a large project. At that point, the developer should be required to describe what units and common elements were subject to the Act, and how the various relationships which the Act imposes exist at that time with respect to the submitted real estate.

The drafters also expect that the common law doctrines of good faith and unconscionability will continue to be applied by the courts in appropriate circumstances to impose subjective limitations on developer practices. See, e.g., Barclay v. Deveau, 384 Mass. 676 (1981) holding that a declarant must surrender control of the association to the unit owners after a reasonable time.

§ 2-124. Termination following catastrophe.

If substantially all the units in a common interest community have been destroyed or are uninhabitable and the available methods for giving notice under section 3-121 of this title of a meeting of unit owners to consider termination under section 2-118 of this title will not likely result in receipt of the notice, the executive board or any other interested person may commence an action in superior court seeking to terminate the common interest community. During the pendency of the action, the court may issue whatever orders it considers appropriate, including appointment of a receiver. After a hearing, the court may terminate the common interest community or reduce its size and may issue any other order the court considers to be in the best interest of the unit owners and persons holding an interest in the common interest community.

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 23, eff. Jan. 1, 2012.

Part 3. Management of the Common Interest Community

§ 3-101. Organization of unit owners’ association.

A unit owners’ association shall be organized no later than the date the first unit in the common interest community is conveyed. The membership of the association at all times shall consist exclusively of all unit owners or, following termination of the common interest community, of all former unit owners entitled to distributions of proceeds, or their heirs, successors, or assigns. The association must have an executive board. The association shall be organized as a profit or nonprofit corporation, trust, limited liability company, partnership, unincorporated association, or any other form of organization authorized by the law of this state.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 24, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Amended section generally.

OFFICIAL COMMENT

  1. The first purchaser of a unit is entitled to have in place the legal structure of the unit owners’ association.  The existence of the structure clarifies the relationship between the developer and other unit owners and makes it easy for the developer to involve unit owners in the governance of the common interest community even during a period of declarant control reserved pursuant to Section 3-103(d).
  2. The bracketed language preserves the flexibility existing in practically all States today to organize the association of a condominium, cooperative or planned community as a profit or nonprofit corporation, trust or partnership.  Most associations are either corporations or unincorporated associations, but occasionally developers or their lawyers have found trust or partnership forms valuable.  Although at least one State (Georgia) requires the organization of a condominium association in corporate form, it is not desirable to mandate this result in a uniform act.  If a State wishes to mandate incorporation, it should delete the bracketed language.

§ 3-102. Powers of unit owners’ association.

  1. Except as otherwise provided in subsection (b) of this section and other provisions of this title, the association:
    1. shall adopt and may amend bylaws and may adopt and amend rules;
    2. shall adopt and may amend budgets for revenues, expenditures, and reserves under section 3-123 of this title, may collect assessments for common expenses from unit owners, and may invest funds of the association;
    3. may hire and discharge managing agents and other employees, agents, and independent contractors;
    4. may initiate, defend, or intervene in litigation, arbitration, mediation, or administrative proceedings in its name on behalf of itself or two or more unit owners on matters affecting the common interest community, subject to section 3-124 of this title;
    5. may make contracts and incur liabilities;
    6. may regulate the use, maintenance, repair, replacement, and modification of common elements;
    7. may make additional improvements to the common elements;
    8. may acquire, hold, encumber, and convey in its name any right, title, or interest to real estate or personal property, except as provided by section 3-112 of this title;
    9. may grant easements, leases, licenses, and concessions through or over the common elements;
    10. may impose and receive payments, fees, or charges:
      1. for the use, rental, or operation of the common elements, other than limited common elements described in subdivisions 2-102(2) and (4) of this title, and
      2. for services provided to unit owners;
    11. may impose charges for late payment of assessments and, after notice and a hearing, may impose reasonable fines for violations of the declaration, bylaws, and rules of the association;
    12. may impose reasonable charges for the preparation and recordation of amendments to the declaration, resale certificates required by section 4-109 of this title, or statements of unpaid assessments;
    13. may provide indemnification for its officers and executive board and maintain directors’ and officers’ liability insurance;
    14. except to the extent limited by the declaration, may assign its right to future income, including the right to receive assessments;
    15. may exercise any other power conferred by the declaration or bylaws or that is legally provided for similar entities or that is necessary and proper to govern and operate the association;
    16. may require that disputes between the executive board and unit owners or between two or more unit owners regarding the common interest community must be submitted to nonbinding alternative dispute resolution as a prerequisite to commencement of a judicial proceeding;
    17. may exercise all other powers that may be exercised in this State by organizations of the same type as the association; and
    18. may suspend any right or privilege of a unit owner that fails to pay an assessment, but may not:
      1. except as otherwise provided in subsection 3-116(q) of this title, deny a unit owner or other occupant access to the owner’s unit;
      2. suspend a unit owner’s right to vote;
      3. prevent a unit owner from seeking election as a director or officer of the association; or
      4. withhold services provided to a unit or a unit owner by the association if the effect of withholding the service would be to endanger the health, safety, or property of any person.
  2. The declaration may not limit the power of the association beyond the limit authorized in subdivision (a)(18) of this section to:
    1. deal with the declarant if the limit is more restrictive than the limit imposed on the power of the association to deal with other persons; or
    2. institute litigation or an arbitration, mediation, or administrative proceeding against any person, subject to the following:
      1. the association shall comply with section 3-124 of this title, if applicable, before instituting any proceeding described in subsection 3-124(a) of this title in connection with construction defects; and
      2. the executive board promptly shall provide notice to the unit owners of any legal proceeding in which the association is a party other than proceedings involving enforcement of rules or to recover unpaid assessments or other sums due the association.
  3. [Repealed.]
  4. If a tenant of a unit owner violates the declaration, bylaws, or rules of the association, in addition to exercising any of its powers against the unit owner, the association may:
    1. exercise directly against the tenant the powers described in subdivision (a)(11) of this section;
    2. after giving notice to the tenant and the unit owner and an opportunity to be heard, levy reasonable fines against the tenant for the violation; and
    3. enforce any other rights against the tenant for the violation that the unit owner as landlord could lawfully have exercised under the lease or that the association could lawfully have exercised directly against the unit owner, or both.
  5. The rights referred to in subdivision (d)(3) of this section may be exercised only if the tenant or unit owner fails to cure the violation within 10 days after the association notifies the tenant and unit owner of that violation.
  6. Unless a lease otherwise provides, this section does not:
    1. affect rights that the unit owner has to enforce the lease or that the association has under other law; or
    2. permit the association to enforce a lease to which it is not a party in the absence of a violation of the declaration, bylaws, or rules.
  7. The executive board may determine whether to take enforcement action by exercising the association’s power to impose sanctions or commencing an action for a violation of the declaration, bylaws, and rules, including whether to compromise any claim for unpaid assessments or other claim made by or against it. The executive board does not have a duty to take enforcement action if it determines that, under the facts and circumstances presented:
    1. the association’s legal position does not justify taking any or further enforcement action;
    2. the covenant, restriction, or rule being enforced is or is likely to be construed as inconsistent with law;
    3. although a violation may exist or may have occurred, it is not so material as to be objectionable to a reasonable person or to justify expending the association’s resources; or
    4. it is not in the association’s best interests to pursue an enforcement action.
  8. The executive board’s decision under subsection (g) of this section not to pursue enforcement under one set of circumstances does not prevent the executive board from taking enforcement action under another set of circumstances, but the executive board may not be arbitrary or capricious in taking enforcement action.
  9. The executive board shall establish a reasonable method for unit owners to communicate among themselves and with the executive board on matters concerning the association.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 55 (Adj. Sess.), § 25, eff. Jan. 1, 2012; 2013, No. 102 (Adj. Sess.), § 1.

History

Amendments

—2013 (Adj. Sess.). Subdiv. (a)(18)(A): Inserted “except as otherwise provided in subsection 3-116(q) of this title,” preceding “deny”.

—2009 (Adj. Sess.) Amended section generally.

OFFICIAL COMMENT

  1. This section permits the declaration, subject to the limitations of subsection (b), to include limitations on the exercise of any of the enumerated powers.  The bracketed language making a specific reference to unincorporated associations is not intended to exclude other forms of association; the unincorporated association would have such powers, subject to the declaration, regardless of the legal status of an unincorporated association in the State.  If a State wishes to permit the association to be unincorporated and the law of the State is unclear whether an unincorporated association would have such powers in the absence of the language, the bracketed language should be retained and the brackets removed.
  2. Required provisions of the bylaws of the association, referenced in paragraph (1), are set forth in Section 3-106.
  3. This Act makes clear that the association can sue or defend suits even though the suit may involve only units as to which the association itself has no ownership interest.  In the absence of a statutory grant of standing such as that set forth in paragraph (4), some courts have held that a condominium association, because it has no ownership interest in the condominium, has no standing to bring, defend, or to intervene in litigation or administrative proceedings in its own name.
  4. Paragraph (8) refers to the power granted by Section 3-112, upon a vote of the requisite number of unit owners, to sell or encumber common elements in a condominium or planned community or to sell part or encumber all or part of a cooperative without a termination of the common interest community.  Paragraph (9) permits the association to grant easements, leases, licenses, and concessions with respect to the common elements without a vote of the unit owners.
  5. The powers granted the association in paragraph (11) to impose charges for late payment of assessments and to levy reasonable fines for violations of the association’s rules reflect the need to provide the association with sufficient powers to exercise its “governmental” functions as the ruling body of the common interest community.  These powers are intended to be in addition to any rights which the association may have under other law.
  6. Under paragraph (14), the declaration may provide for the assignment of income of the association, including common expense assessment income, as security for, or payment of, debts of the association.  The power may be limited in any manner specified in the declaration—for example, the power might be limited to specified purposes such as repair of existing structures, or to income from particular sources such as income from tenants, or to a specified percentage of common expense assessments.  The power, in many instances, should help materially in securing credit for the association at favorable interest rates.  The inability of associations to borrow because of a lack of assets, in spite of its income stream, has been a significant problem.
  7. If the association is incorporated, it may, pursuant to paragraph (16), exercise all other powers of a corporation. Similarly, if the association is unincorporated, the association may, by virtue of paragraph (16), exercise all other powers of an unincorporated association.  Inconsistent provisions of state corporation or unincorporated association law are subject to the provisions of this Act, as provided in Section 1-108.
  8. The 1994 amendment to this section provides important new statutory authority to an association, but also states limits on the association’s power.
  9. New subsections (d), (e), and (f) enable the association to enforce directly against a tenant or other occupant of a leased unit all the powers which either the statutes or the project documents provide against that person.  The section also provides the association all the powers the owner itself would have under the lease against the tenant, so long as the violation of the lease also violates the project documents. Finally, subsection (d) permits the association, landlord, and tenant to contract in the lease itself for powers beyond those granted by the statute.
  10. New subsection (a)(18) permits the association to impose mandatory nonbinding arbitration or other non-judicial procedures to resolve disputes in the development before litigation commences.  The drafters believe that non-judicial dispute resolution should be available to parties as an economical and efficient form of alternative dispute resolution.
  11. Subsection (c) imposes clear limits on the association’s power to control the use, occupancy, and leasing of units in residential projects.  Basically, these amendments adopt the policy that unless the declaration otherwise provides, “use” restrictions must appear in the declaration in order to be enforceable by the association, and the association’s regulatory power over “occupancy” activities is limited to those situations in which a unit owner’s activities inside a unit affect other owners.

§ 3-103. Executive board members and officers.

  1. Except as otherwise provided in the declaration, bylaws, subsection (b) of this section, or other provisions of this title, the executive board acts on behalf of the association. In the performance of their duties, officers and members of the executive board appointed by the declarant shall exercise the degree of care and loyalty required of a trustee. Officers and members of the executive board not appointed by the declarant shall exercise the degree of care and loyalty to the association required of an officer or director of a corporation organized, and are subject to the conflict of interest rules governing directors and officers, under Title 11B. The standards of care and loyalty described in this section apply regardless of the form in which the association is organized.
  2. The executive board shall not:
    1. amend the declaration, except as provided in section 2-117 of this title;
    2. amend the bylaws;
    3. terminate the common interest community;
    4. elect members of the executive board, but may fill vacancies in its membership for the unexpired portion of any term, or, if earlier, until the next regularly scheduled election of executive board members; or
    5. determine the qualifications, powers, duties, or terms of office of executive board members.
  3. The executive board shall adopt budgets as provided in section 3-123 of this title.
    1. Subject to subsection (e) of this section, the declaration may provide for a period of declarant control of the association during which a declarant or the declarant’s designee may appoint and remove the officers and members of the executive board. A declarant may voluntarily surrender the right to appoint and remove officers and members of the executive board before the period ends. In that event, the declarant may require during the remainder of the period that specified actions of the association or executive board, as described in a recorded instrument executed by the declarant, be approved by the declarant before they become effective. Regardless of the period provided in the declaration, and except as provided in subsection 2-123(g) of this title, a period of declarant control shall terminate on the earliest of: (d) (1) Subject to subsection (e) of this section, the declaration may provide for a period of declarant control of the association during which a declarant or the declarant’s designee may appoint and remove the officers and members of the executive board. A declarant may voluntarily surrender the right to appoint and remove officers and members of the executive board before the period ends. In that event, the declarant may require during the remainder of the period that specified actions of the association or executive board, as described in a recorded instrument executed by the declarant, be approved by the declarant before they become effective. Regardless of the period provided in the declaration, and except as provided in subsection 2-123(g) of this title, a period of declarant control shall terminate on the earliest of:
      1. 60 days after three-fourths of the created units is conveyed to unit owners other than a declarant;
      2. two years after all declarants have ceased to offer units for sale in the ordinary course of business;
      3. two years after any development right to add new units is last exercised; or
      4. the day the declarant, after giving notice in a record to unit owners, records an instrument voluntarily surrendering all rights to control activities of the association.
    2. [Repealed.]
  4. At least one-fourth of the members of the executive board shall be elected by unit owners who are not declarants within 60 days after one-fourth of the created units is conveyed to owners other than a declarant. At least one-third of the executive board shall be elected by unit owners who are not declarants within 60 days after one-half of the created units is conveyed to unit owners other than declarants.
  5. Except in elections pursuant to subsection 2-120(e) of this title, before the termination of declarant control, the unit owners shall elect an executive board of at least three members, of which a majority shall be unit owners. Unless the declaration provides for the election of officers by the unit owners, the executive board shall elect its officers who shall take office upon election or appointment.
  6. A declaration may provide for the appointment of specified positions on the executive board by persons other than the declarant during or after the period of declarant control. It also may provide a method for filling vacancies in those positions, other than by election by the unit owners. However, after the period of declarant control, appointed members:
    1. may not make up more than one-third of the board; and
    2. have no greater authority than any other member of the board.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 26, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Amended section generally.

OFFICIAL COMMENT

  1. Subsection (a) makes members of the executive board appointed by the declarant liable as trustees of the unit owners with respect to their actions or omissions as members of the board.  This provision imposes a very high standard of duty because the board is vested with great power over the property interests of unit owners, and because there is a great potential for conflicts of interest between the unit owners and the declarant.
  2. The provisions of paragraph (c) permit the unit owners to disapprove any proposed budget, but a rejection of the budget does not result in cessation of assessments until a budget is approved.  Rather, assessments continue on the basis of the last approved periodic budget until the new budget is in effect.
  3. Subsections (d) and (e) recognize the practical necessity for the declarant to control the association during the developmental phases of a project.  However, any executive board member appointed by the declarant pursuant to subsection (d) is liable as a fiduciary to any unit owner for his acts or omissions in such capacity.
  4. Subsection (d) permits a declarant to surrender his right to appoint and remove officers and executive board members prior to the termination of the period of declarant control in exchange for a veto right over certain actions of the association or its executive board.  This provision is designed to encourage transfer of control by declarants to unit owners as early as possible, without impinging upon the declarant’s rights (for the duration of the period of declarant control) to maintain ultimate control of those matters which he may deem particularly important to him.  It might be noted that the declarant at all times (even after the expiration of the period of declarant control) is entitled to cast the votes allocated to his units in the same manner as any other unit owner.
  5. Subsection (e), in combination with subsection (d), provides for a gradual transfer of control of the association to the unit owners from the declarant.  Such a gradual transfer is preferable to a one-time turnover of control since it assures that the unit owners will be involved, to some extent, in the affairs of the association from a relatively early date and that some unit owners will acquire experience in dealing with association matters.
  6. The 1994 amendment to subsection (a) is intended to conform the Act to expectations of owners, members of executive boards, and courts.  The duty owed by an elected member of an executive board ought to parallel the standard imposed on directors of non-profit corporations.  The original text set out a lesser standard.  By making reference to the non-profit corporate model, members will also obtain the benefits of the business judgment rule, now commonly applied by courts in the non-profit context; see, for example, Levandusky v. One Fifth Avenue Apartment Corp., 75 N.Y.2d 530 (1990).
  7. Subsection (d) has been amended in the 1994 amendment to add a new fourth category regarding voluntary relinquishment of retained rights to control any aspect of the affairs of the association.  This category frequently has been written into declarations under the Act.  The amendment incorporates this practice and is important in order to track the time when statutes of limitation involving the declarant begin to run. See Section 3-111.

The change from “fiduciary” to “trustee” as the standard of care for declarant-appointed directors makes the standard of care more precise. The law contemplates many forms of fiduciary relationships; among them, the trustee’s duty is the highest.

§ 3-104. Transfer of special declarant rights.

  1. A special declarant right may be transferred only by an instrument executed by the transferee and recorded in each municipality in which any portion of the common interest community is located.
  2. Upon transfer of a special declarant right, the liabilities are as follows:
    1. A transferor remains liable for obligations and actions arising before the transfer of special declarant rights and warranty obligations imposed by this title. Lack of privity does not deprive any unit owner of standing to bring an action to enforce any obligation of the transferor.
    2. If a successor to a special declarant right is an affiliate of a declarant, the transferor is jointly and severally liable with the successor for any obligations or liabilities of the successor relating to the common interest community.
    3. If a transferor retains special declarant rights, but transfers other special declarant rights to a successor who is not an affiliate of the declarant, the transferor remains liable in regard to the retained special declarant rights.
    4. A transferor has no liability for any act or omission or any breach of a contractual or warranty obligation arising from the exercise of a special declarant right by a successor declarant who is not an affiliate of the transferor.
  3. Unless otherwise provided in a mortgage instrument, deed of trust, or other agreement creating a security interest, in case of foreclosure of a security interest, sale by a trustee under an agreement creating a security interest, tax sale, judicial sale, or sale under bankruptcy code or receivership proceedings, of any units owned by a declarant or real estate in a common interest community subject to development rights, a person acquiring title to all the property being foreclosed or sold, but only upon his or her request, succeeds to all special declarant rights related to that property held by that declarant, or only to any rights reserved in the declaration pursuant to section 2-115 of this title and held by that declarant to maintain models, sales offices, and signs. The judgment or instrument conveying title must provide for transfer of only the special declarant rights requested.
  4. Upon foreclosure of a security interest, sale by a trustee under an agreement creating a security interest, tax sale, judicial sale, or sale under bankruptcy code or receivership proceedings, of all interest in a common interest community owned by a declarant:
    1. the declarant ceases to have any special declarant rights, and
    2. the period of declarant control (subsection 3-103(d) of this title) terminates unless the judgment or instrument conveying title provides for transfer of all special declarant rights held by that declarant to a successor declarant.
  5. The liabilities and obligations of a person who succeeds to special declarant rights are as follows:
    1. A successor to any special declarant right who is an affiliate of a declarant is subject to all obligations and liabilities imposed on the transferor by this title or by the declaration.
    2. A successor to any special declarant right, other than a successor described in subdivision (3) or (4) of this subsection or a successor who is an affiliate of a declarant, is subject to the obligations and liabilities imposed by this title or the declaration:
      1. on a declarant which relate to the successor’s exercise or nonexercise of special declarant rights; or
      2. on his or her transferor, other than:
        1. misrepresentations by any previous declarant;
        2. warranty obligations on improvements made by any previous declarant, or made before the common interest community was created;
        3. breach of any fiduciary obligation by any previous declarant or his or her appointees to the executive board; or
        4. any liability or obligation imposed on the transferor as a result of the transferor’s acts or omissions after the transfer.
    3. A successor to only a right reserved in the declaration to maintain models, sales offices, and signs (section 2-115 of this title), may not exercise any other special declarant right, and is not subject to any liability or obligation as a declarant, except the obligation to provide a public offering statement and any liability arising as a result thereof.
    4. A successor to all special declarant rights held by a transferor who succeeded to those rights pursuant to a deed or other instrument of conveyance in lieu of foreclosure or a judgment or instrument conveying title under subsection (c) of this section, may declare in a recorded instrument the intention to hold those rights solely for transfer to another person. Thereafter, until transferring all special declarant rights to any person acquiring title to any unit or real estate subject to development rights owned by the successor, or until recording an instrument permitting exercise of all those rights, that successor may not exercise any of those rights other than any right held by his or her transferor to control the executive board in accordance with subsection 3-103(d) of this title for the duration of any period of declarant control, and any attempted exercise of those rights is void. So long as a successor declarant may not exercise special declarant rights under this subsection, the successor declarant is not subject to any liability or obligation as a declarant other than liability for his or her acts and omissions under subsection 3-103(d) of this title.
  6. Nothing in this section subjects any successor to a special declarant right to any claims against or other obligations of a transferor declarant, other than claims and obligations arising under this title or the declaration.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section deals with the issue of the extent to which obligations and liabilities imposed upon a declarant by this Act are transferred to a third party by a transfer of the declarant’s interest in a common interest community.  There are two parts to the problem.  First, what obligations and liabilities to unit owners (both existing and future) should a declarant retain, notwithstanding his transfer of interests. Second, what obligations and liabilities may fairly be imposed upon the declarant’s successor in interest.
  2. This section strikes a balance between the obvious need to protect the interests of unit owners and the equally important need to protect innocent successors to a declarant’s rights, especially persons such as mortgagees whose only interest in the project is to protect their debt security.  The general scheme of the section is to impose upon a declarant continuing obligations and liabilities for promises, acts, or omissions undertaken during the period that he was in control of the community, while relieving a declarant who transfers all or part of his special declarant rights in a project of such responsibilities with respect to the promises, acts, or omissions of a successor over whom he has no control. Similarly, the section absolves a non-affiliated transferee of responsibility for the promises, acts, or omissions of a transferor declarant over which he had no control.  Finally, the section makes special provision for the interests of certain successor declarants (e.g., a mortgagee who succeeds to the rights of the declarant pursuant to a “deed in lieu of foreclosure” and who holds the project solely for transfer to another person) by relieving such persons of virtually all of the obligations and liabilities imposed upon declarants by this Act.
  3. Subsection (a) provides that a successor in interest to a declarant may acquire the special rights of the declarant only by recording an instrument which reflects a transfer of those rights.  This recordation requirement is important to determine the duration of the period of declarant control pursuant to Section 3-103(d) and (e), as well as to place unit owners on notice of all persons entitled to exercise the special rights of a declarant under this Act.  The transfer by a declarant of all of his interest in a project to a successor without a concomitant transfer of the special rights of a declarant pursuant to this subsection, results in the automatic termination of such special declarant rights and of any period of declarant control.
  4. Under subsection (b), a transferor declarant remains liable to unit owners (both existing and future) for all obligations and liabilities, including warranty obligations on all improvements made by him, arising prior to the transfer. If a declarant transfers any special declarant right to an affiliate (as defined in Section 1-103(1)), the transferor remains subject to all liabilities specified in paragraph (1) of subsection (b) and, in addition, is jointly and severally liable with his successor in interest for all obligations and liabilities of the successor.
  5. The obligations and liabilities imposed upon transferee declarants under the Act are set forth in subsection (e).  In general, a transferee declarant (other than an affiliate of the original declarant and other than a successor by foreclosure or conveyance in lieu of foreclosure) becomes subject to all obligations and liabilities imposed upon a declarant by the Act or by the declaration with respect to any promises, acts, or omissions undertaken subsequent to the transfer which relate to the rights he holds.  Such a transferee also is liable for the promises, acts, or omissions of the original declarant undertaken prior to the transfer, except as set forth in paragraph (e)(2)(ii).  For example, because of the exclusions in (e)(2)(ii), a successor declarant would not be liable for the warranty obligations of the original declarant with respect to improvements to the project made by the original declarant.  Similarly, a successor would not be liable, under normal circumstances, for any misrepresentation or breach of fiduciary duty by the original declarant prior to the transfer.  The successor is liable, however to complete improvements which the developer is obligated to complete under Section 4-119.
  6. To preclude declarants from evading their obligations and liabilities under this Act by transferring their interests to affiliated companies, paragraph (1) of subsection (e) makes clear that any successor declarant who is an affiliate of the original declarant is subject to all obligations and liabilities imposed upon the original declarant by the Act or by the declaration.  Similarly, as previously noted, paragraph (2) of subsection (b) provides that an original declarant who transfers his rights to an affiliate remains jointly and severally liable with his successor for all obligations and liabilities imposed upon declarants by the Act or by the declaration.
  7. The section handles the problem of certain successor declarants (i.e., persons whose sole interest in the project is the protection of debt security) in three ways.  First, subsection (c) provides that, in the case of a foreclosure of a security interest or a sale by a trustee in bankruptcy of any units owned by a declarant, any person acquiring title to all of the units being foreclosed or sold may request the transfer of special declarant rights.  In that event, and only upon such request, such rights will be transferred in the instrument conveying title to the units and such transferee will thereafter become a successor declarant subject to the other provisions of this section.  In the event of a foreclosure, sale by a trustee under a deed of trust, or sale by a trustee in bankruptcy of all units owned by a declarant, if the transferee of such units does not request the transfer of special declarant rights then, under subsection (d), those special declarant rights cease to exist and any period of declarant control terminates.

A declarant may wish to transfer special declarant rights as a part of his transfer to another person of units already constructed in a cooperative. If the declaration has specified that units are personal property, the transfer of the units themselves will be personal property transfers not subject to the real estate recording act. However, under subsection (a), if special declarant rights are to be transferred, that transfer must be evidenced by an instrument recorded in every county in which the cooperative lies. The intent of that provision is that the recording be in the land records and identify the real estate involved so that a title examination relating to the land in the cooperative would reveal the transfer of the special declarant right.

In a common interest community, a mortgage recorded prior to the recordation of the declaration would have priority over any rights of declarants or unit owners arising under the declaration. However, under Section 2-118(k) and (l), foreclosure of such a mortgage does not automatically terminate the effectiveness of a condominium or planned community declaration; the declaration becomes ineffective as to the land covered by the prior mortgage only if the purchaser at the foreclosure sale records an instrument excluding the real estate from the condominium or planned community. If the purchaser on the foreclosure of the prior mortgage elects to have the real estate remain in the condominium or planned community, it becomes a successor declarant subject to the general rules of this section, including those applicable to persons who acquire special declarant rights by virtue of foreclosure sales (subsection c).

However, under the Act, foreclosure of a mortgage which is prior to a cooperative declaration automatically removes the real estate from the cooperative since there is nothing in the Act which would change the ordinary rule that the foreclosure of a mortgage which is prior to any restrictive covenants or easements results in a transfer free of those “junior interests.” (See Section 2-118(k) and (l).)

Therefore, in the absence of some contractual arrangement between the mortgagee and the association under which the buyer at the foreclosure sale has a right to reconvey the property to the association, the purchaser at the foreclosure sale could not succeed to any development rights of the declarant since the property would be removed from the cooperative by the foreclosure sale itself. However, there is nothing in the act which would preclude the developer from having the association contractually obligate itself to retake title to foreclosed property on specified terms. If the underlying mortgage is of the entire cooperative property, there would probably be no advantage in such an arrangement since the foreclosing mortgagee with the entire project could set up his own cooperative association and undertake new marketing efforts without regard to the obligations and liabilities of the prior cooperative association. If, on the other hand, the mortgage is on only a portion of the cooperative project there may be distinct advantage in giving the purchaser at the foreclosure sale the power to reconvey the property to the association and having the purchaser become owner of the units which would exist or could be created in the property. In such a case, the position of the mortgagee would be essentially the same as that of a declarant who acquires the special declarant right to add additional land to the cooperative.

If the developer, while in control of the cooperative association, has had the cooperative association grant a mortgage in its real estate and has subordinated the declaration to the mortgage, the situation is the same as that just described: on foreclosure, that real estate would no longer be a part of the cooperative. Again, in the ordinary case no special declarant rights could pass to the purchaser at the foreclosure sale since he would not have any real estate in the cooperative. If, however, the association is obligated to accept a reconveyance of the real estate which has been foreclosed the purchaser at the foreclosure sale would have special declarant rights as just described.

If the declarant in a cooperative has given a mortgage or security interest in his own special declarant rights or in his unsold units, purchasers at the foreclosure sale would acquire rights as to property still in the cooperative and would therefore be able to succeed to the declarant’s special declarant rights.

Second, any person who succeeds to special declarant rights as a result of the transfers just described, or by a conveyance in lieu of foreclosure, may, pursuant to paragraph (4) of subsection (e), declare his intention (in a recorded instrument) to hold those rights solely for transfer to another person. Thereafter, such a successor may transfer all special declarant rights to a third party acquiring title to any units owned by the successor but may not, prior to such transfer, exercise any special declarant rights other than the right to control the executive board of the association in accordance with the provisions of Section 3-103(c). A successor declarant who holds special declarant rights solely for transfer is relieved of any liability under the Act except liability for any acts or omissions related to his control of the executive board of the association. This provision is designed to deal with the typical problem of a foreclosing lender who opts to bid in and obtain the project at the foreclosure sale solely for the purpose of subsequent resale. It permits a foreclosing lender to undertake such a transaction without incurring the full burden of declarant obligations and liabilities. At the same time, the provision recognizes the need for continuing operation of the association and, to that end, permits a foreclosing lender to assume control of the association for the purpose of ensuring a smooth transition.

Third, paragraph (3) of subsection (e) provides that a successor who has only the right to maintain model units, sales offices, and signs does not thereby become subject to any obligations or liabilities as a declarant, except for the obligation to provide a public offering statement and any liability resulting therefrom. This provision also is designed to protect mortgage lenders and contemplates the situation where a lender takes over a project and desires to sell out existing units without making any additional improvements to the project. This provision facilitates such a transaction by relieving the mortgage lender, in that instance, from the full burden of obligations and liabilities ordinarily imposed upon a declarant under the Act.

Under Section 2-110, a declarant may reserve the right to create additional units in portions of a common interest community which were originally designated as common elements, even though, in a condominium, rights of unit owners have otherwise attached to the common elements, and even though, in a planned community or cooperative, the common elements have been conveyed to the association. The declarant, upon creation, becomes the owner of any units created. The right to create the units is an interest in land which may be sold or in which a security interest may be granted. If the mortgagee of that interest forecloses, the purchaser at the foreclosure sale has the choices concerning development rights and resulting liability which are described in the preceding paragraph. That is, under subsections (c) and (d), the purchaser may limit his liability by agreeing to hold the developments only for the purpose of transfer as provided by paragraph (e)(4) or may buy the rights under paragraph (c).

§ 3-105. Termination of contracts and leases of declarant.

  1. Within two years after the executive board elected by the unit owners pursuant to subsection 3-103(f) of this title takes office, the association may terminate without penalty, upon at least 90 days’ notice to the other party, any of the following if entered into before the executive board was elected:
    1. any management, maintenance, operations, or employment contract, or lease of recreational or parking areas or facilities; or
    2. any other contract or lease between the association and a declarant or an affiliate of a declarant.
  2. At any time after the executive board elected by the unit owners pursuant to subsection 3-103(f) of this title takes office, the association may terminate without penalty, upon at least 90 days’ notice to the other party, any contract or lease that is not bona fide or was unconscionable to the unit owners at the time the contract was entered into.
  3. This section does not apply to a lease which if terminated would terminate the common interest community or reduce its size, unless the real estate subject to that lease was included in the common interest community for the purpose of avoiding the right of the association to terminate a lease under this section.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 27, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Amended section generally.

OFFICIAL COMMENT

  1. This section deals with a common problem in the development of condominium, planned community, and cooperative projects: the temptation on the part of the developer, while in control of the association, to enter into, on behalf of the association, long-term contracts and leases with himself or with an affiliated entity.
  2. In addition to contracts or leases made by a declarant with himself or with an affiliated entity, there are also certain contracts and leases so critical to the operation of the common interest community and to the unit owners’ full enjoyment of their rights of ownership that they too should be voidable by the unit owners upon the expiration of any period of declarant control.  At the same time, a statutorily-sanctioned right of cancellation should not be applicable to all contracts or leases which a declarant may enter into in the course of developing a project.  For example, a commercial tenant would not be willing to invest substantial amounts in equipment and other improvements for the operation of his business if the lease could unilaterally be canceled by the association.  Accordingly, this section provides that (subject to the exception set forth in the last sentence thereof), upon the expiration of any period of declarant control, the association may terminate without penalty, any “critical” contract (i.e., any management contract, employment contract, or lease of recreational or parking areas or facilities) entered into during a period of declarant control, any contract or lease to which the declarant or an affiliate of the declarant is a party, or any contract or lease previously entered into by the declarant which is not bona fide or which was unconscionable to the unit owners at the time entered into under the circumstances then prevailing.
  3. The last sentence of the section addresses the usual leasehold common interest community situation where the underlying real estate is subject to a long-term ground lease.  Because termination of the ground lease would terminate the community, this sentence prevents cancellation.  However, in order to avoid the possibility that recreation and other leases otherwise cancelable under subsection (a) will be restructured to come within the exception, a subjective test of “intent” is imposed.  Under the test, if a declarant’s principal purpose in subjecting the leased real estate to the common interest community was to prevent termination of the lease, the leave may nevertheless be terminated.
  4. The 1994 amendment to this section tracks the greater flexibility given declarants of nonresidential common interest communities in Section 1-207.

The Act deals with this problem in two ways. First, Section 3-103(a) imposes upon all executive board members appointed by the declarant liability as fiduciaries of the unit owners for all of their acts or omissions as members of the board. Second, Section 3-105 provides for the termination of certain contracts and leases made during a period of declarant control.

§ 3-106. Bylaws.

  1. The bylaws of the association shall:
    1. provide the number of members of the executive board and the titles of the officers of the association;
    2. provide for election by the executive board or, if the declaration requires, by the unit owners, of a president, treasurer, secretary, and any other officers the bylaws specify;
    3. specify the qualifications, powers and duties, terms of office, and manner of electing and removing executive board members and officers and filling vacancies;
    4. specify the powers that the executive board or officers may delegate to other persons or to a managing agent;
    5. specify the officers who may prepare, execute, certify, and record amendments to the declaration on behalf of the association;
    6. establish the frequency of association meetings, which in no case shall be less than one per year;
    7. establish the number of voters constituting a quorum, which shall not be less than 20 percent of the persons entitled to vote for the executive board. Proxy votes may be included for a quorum;
    8. specify a method for the unit owners to amend the bylaws;
    9. contain any other provisions necessary to satisfy requirements of this title or the declaration concerning meetings, voting, quorums, and other activities of the association; and
    10. provide for any matter required by the laws of this state other than this title that is required to appear in the bylaws of organizations of the same type as the association.
  2. Subject to the declaration and this title, the bylaws may provide for any other necessary or appropriate matters, including matters that could be adopted as rules.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 28, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Inserted “or, if the declaration requires, by the unit owners” in subdiv. (a)(2), substituted “establish the number of voters constituting” for “specification of” in subdiv. (a)(7), rewrote subdiv. (a)(8), added subdivs. (a)(9) and (10), and made minor stylistic changes throughout subsec. (a), and rewrote subsec. (b).

OFFICIAL COMMENT

  1. Because the Act does not require the recordation of bylaws, it is contemplated that unrecorded bylaws will set forth only matters relating to the internal operations of the association and various “housekeeping” matters with respect to the common interest community.  The Act requires specific matters to be set forth in the recorded declaration and not in the bylaws, unless the bylaws are to be recorded as an exhibit to the declaration.
  2. The requirement, set forth in subsection (a)(5), that the bylaws designate which of the officers of the association has the responsibility to prepare, execute, certify, and record amendments to the declaration reflects the obligation imposed upon the association by several provisions of this Act to record such amendments in certain circumstances.  These provisions include Section 1-107 (Eminent Domain), Section 2-106 (expiration of certain leases), Section 2-112 (Relocation of Boundaries Between Adjoining Units), and Section 2-113 (subdivision or conversion of units).  Section 2-117(e) provides that, if no officer is designated for this purpose, it shall be the duty of the president.

§ 3-107. Upkeep of common interest community.

  1. Except to the extent provided by the declaration and subsections 3-113(b) and (h) of this title, the association shall be responsible for maintenance, repair and replacement of the common elements, and each unit owner shall be responsible for the maintenance, repair and replacement of his or her unit. Each unit owner shall provide to the association and the other unit owners, their agents or employees, access through his or her unit reasonably necessary for those purposes. A unit owner or association is liable for the prompt repair of any damages caused to the common elements or to any unit through which access was taken.
  2. In addition to the liability that a declarant as a unit owner has under this title, the declarant alone is liable for all expenses in connection with real estate subject to development rights. No other unit owner and no other portion of the common interest community is subject to a claim for payment of those expenses. Unless the declaration provides otherwise, any income or proceeds from real estate subject to development rights inures to the declarant.
  3. In a planned community, if all development rights have expired with respect to any real estate, the declarant remains liable for all expenses of that real estate unless, upon expiration, the declaration provides that the real estate becomes common elements or units.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. The Act permits the declaration to separate maintenance responsibility from ownership.  This is commonly done in practice.  In the absence of any provision in the declaration, maintenance responsibility follows ownership of the unit or rests with the association in the case of common elements. Under this Act, limited common elements (which might include, for example, patios, balconies, and parking spaces) are common elements.  See Section 1-103(19).  As a result, under subsection (a), unless the declaration provides that unit owners are responsible for the upkeep of such limited common elements, the association will be responsible for their maintenance.  Under Section 3-115(c), the cost of maintenance, repair, and replacement for such limited common elements is assessed against all the units in the common interest community, unless the declaration provides for such expenses to be paid only by the units benefitted.  See Comment 1 to Section 2-108.
  2. Under Section 2-110, a declarant may reserve the right to create units in portions of the common interest community originally designated as common elements.  However, under Section 3-107(b), the developer is obligated to pay all of the expenses of (including real estate taxes properly apportionable to) that real estate even though, in the case of a planned community or cooperative, it has been conveyed to the association.  As to real estate taxes, see Section 1-105(c).

ANNOTATIONS

Authority to enter unit.

To the extent that an amended declaration of condominium granted the condominium association the authority to enter a unit in order to maintain, repair, or replace common elements, the amended declaration was a valid exercise of the association’s power because the Common Interest Ownership Act expressly contemplated that a condominium’s governing organization would have that authority. Watson v. Vill. at Northshore I Ass'n, Inc., 2018 VT 8, 207 Vt. 154, 184 A.3d 1133, 2018 Vt. LEXIS 13 (2018).

§ 3-108. Meetings.

  1. The following requirements apply to unit owner meetings:
    1. An association shall hold a meeting of unit owners annually at a time, date, and place stated in or fixed in accordance with the bylaws.
    2. An association shall hold a special meeting of unit owners to address any matter affecting the common interest community or the association if its president, a majority of the executive board, or unit owners having at least 20 percent, or any lower percentage specified in the bylaws, of the votes in the association request that the secretary call the meeting. If the association does not notify unit owners of a special meeting within 30 days after the requisite number or percentage of unit owners request the secretary to do so, the requesting members may directly notify all the unit owners of the meeting. Only matters described in the meeting notice required by subdivision (3) of this subsection may be considered at a special meeting.
    3. An association shall notify unit owners of the time, date, and place of each annual and special unit owners meeting not less than 10 days or more than 60 days before the meeting date. Notice may be by any means described in section 3-121 of this title. The notice of any meeting must state the time, date, and place of the meeting and the items on the agenda, including:
      1. a statement of the general nature of any proposed amendment to the declaration or bylaws;
      2. any budget changes; and
      3. any proposal to remove an officer or member of the executive board.
    4. The minimum time to give notice required by subdivision (3) of this subsection may be reduced or waived for a meeting called to deal with an emergency.
    5. Unit owners shall be given a reasonable opportunity at any meeting to comment regarding any matter affecting the common interest community or the association.
    6. The declaration or bylaws may allow for meetings of unit owners to be conducted by telephonic, video, or other conferencing process, if the alternative process is consistent with subdivision (b)(7) of this section.
  2. The following requirements apply to meetings of the executive board and committees of the association authorized to act for the association:
    1. Meetings shall be open to the unit owners except during executive sessions. The executive board and those committees may hold an executive session only during a regular or special meeting of the board or a committee. No final vote or action may be taken during an executive session. An executive session may be held only to:
      1. consult with the association’s attorney concerning legal matters;
      2. discuss existing or potential litigation or mediation, arbitration, or administrative proceedings;
      3. discuss labor or personnel matters;
      4. discuss contracts, leases, and other commercial transactions to purchase or provide goods or services currently being negotiated, including the review of bids or proposals, if premature general knowledge of those matters would place the association at a disadvantage; or
      5. prevent public knowledge of the matter to be discussed if the executive board or committee determines that public knowledge would violate the privacy of any person.
    2. For purposes of this section, a gathering of board members at which the board members do not conduct association business is not a meeting of the executive board. The executive board and its members may not use incidental or social gatherings of board members or any other method to evade the open meeting requirements of this section.
    3. During the period of declarant control, the executive board shall meet at least four times a year. At least one of those meetings must be held at the common interest community or at a place convenient to the community. After termination of the period of declarant control, all executive board meetings shall be at the common interest community or at a place convenient to the community unless the unit owners amend the bylaws to vary the location of those meetings.
    4. At each executive board meeting, the executive board shall provide a reasonable opportunity for unit owners to comment regarding any matter affecting the common interest community and the association.
    5. Unless the meeting is included in a schedule given to the unit owners or the meeting is called to deal with an emergency, the secretary or other officer specified in the bylaws shall give notice of each executive board meeting to each board member and to the unit owners. The notice shall be given at least 10 days before the meeting and shall state the time, date, place, and agenda of the meeting.
    6. If any materials are distributed to the executive board before the meeting, the executive board at the same time shall make copies of those materials reasonably available to unit owners, except:
      1. the board need not make available copies of unapproved minutes or materials that are to be considered in executive session; and
      2. the board of an association composed exclusively of time-share unit owners shall be required to make reasonably available to the unit owners only those materials concerning matters on which action will be taken at the meeting.
    7. Unless the declaration or bylaws otherwise provide, the executive board may meet by telephonic, video, or other conferencing process if:
      1. the meeting notice states the conferencing process to be used and provides information explaining how unit owners may participate in the conference directly or by meeting at a central location or conference connection; and
      2. the process provides all unit owners the opportunity to hear or perceive the discussion and to comment as provided in subdivision (4) of this subsection.
    8. After termination of the period of declarant control, unit owners may amend the bylaws to vary the procedures for meetings described in subdivision (7) of this subsection.
    9. Instead of meeting, the executive board may act by unanimous consent as documented in a record authenticated by all its members. The secretary promptly shall give notice to all unit owners of any action taken by unanimous consent. After termination of the period of declarant control, the executive board may act by unanimous consent only to undertake ministerial actions or to implement actions previously taken at a meeting of the executive board.
    10. Even if an action by the executive board is not in compliance with this section, it is valid unless set aside by a court. A challenge to the validity of an action of the executive board for failure to comply with this section may not be brought more than 60 days after the minutes of the executive board of the meeting at which the action was taken are approved or the record of that action is distributed to unit owners, whichever is later.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 29, eff. Jan. 1, 2012; 2013, No. 102 (Adj. Sess.), § 2.

History

Amendments

—2013 (Adj. Sess.). Subdiv. (6)(A): Deleted “that” preceding “board” and inserted “; and” at the end.

Subdiv. (6)(B): Added.

—2009 (Adj. Sess.) Amended section generally.

ANNOTATIONS

Opportunity to comment.

Court must interpret the phrase “reasonable opportunity” in the context of the statute governing the opportunity to comment at meetings of common interest community owners, and generally, what is reasonable must be determined on a case-by-case basis. Watson v. Vill. at Northshore I Ass'n, Inc., 2018 VT 8, 207 Vt. 154, 184 A.3d 1133, 2018 Vt. LEXIS 13 (2018).

Rule requiring unit owners to give 48 hours’ notice of their wish to address the condominium board did not violate the Common Interest Ownership Act, as it did not impair the owners’ actual ability to be heard or to give comment, but the rule could not apply to open forum periods. Watson v. Vill. at Northshore I Ass'n, Inc., 2018 VT 8, 207 Vt. 154, 184 A.3d 1133, 2018 Vt. LEXIS 13 (2018).

§ 3-109. Quorum.

  1. Unless the bylaws provide otherwise, a quorum is present throughout any meeting of the unit owners if persons entitled to cast 20 percent of the votes in the association:
    1. are present in person or by proxy at the beginning of the meeting;
    2. have cast absentee ballots solicited in accordance with subdivision 3-110(c)(4) of this title which have been delivered to the secretary in a timely manner; or
    3. are present by any combination of subdivisions (1) and (2) of this subsection.
  2. Unless the bylaws specify a larger number, a quorum of the executive board is present for purposes of determining the validity of any action taken at a meeting of the executive board only if individuals entitled to cast 50 percent of the votes on that board are present at the time a vote regarding that action is taken. If a quorum is present when a vote is taken, the affirmative vote of a majority of the board members present is the act of the executive board unless a greater vote is required by the declaration or bylaws.
  3. Except as otherwise provided in the bylaws, meetings of the association shall be conducted in accordance with the most recent edition of Roberts’ Rules of Order Newly Revised.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 30, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Amended section generally.

OFFICIAL COMMENT

Mandatory quorum requirements lower than 50 percent for meetings of the association are often justified because of the common difficulty of inducing unit owners to attend meetings. The problem is particularly acute in the case of resort common interest communities where many owners may reside elsewhere, often at considerable distances, for most of the year.

§ 3-110. Voting; proxies; ballots.

  1. Unless prohibited or limited by the declaration or bylaws, unit owners may vote at a meeting in person, by absentee ballot pursuant to subdivision (b)(4) of this section, by a proxy pursuant to subsection (c) of this section or, when a vote is conducted without a meeting, by electronic or paper ballot pursuant to subsection (d) of this section.
  2. At a meeting of unit owners, the following requirements apply:
    1. Unit owners who are present in person may vote by voice vote, show of hands, standing, or any other method for determining the votes of unit owners, as designated by the person presiding at the meeting.
    2. If only one of multiple owners of a unit is present, that owner is entitled to cast all the votes allocated to that unit. If more than one of the owners are present, the votes allocated to that unit may be cast only in accordance with the agreement of a majority in interest of the owners, unless the declaration expressly provides otherwise. There is majority agreement if any one of the owners casts the votes allocated to the unit without protest being made promptly to the person presiding over the meeting by any of the other owners of the unit.
    3. Unless a greater number or fraction of the votes in the association is required by this chapter or the declaration, a majority of the votes cast determines the outcome of any action of the association.
    4. Subject to subsection (a) of this section, a unit owner may vote by absentee ballot without being present at the meeting. The association promptly shall deliver an absentee ballot to an owner that requests it if the request is made at least three days before the scheduled meeting. Votes cast by absentee ballot must be included in the tally of a vote taken at that meeting.
    5. When a unit owner votes by absentee ballot, the association must be able to verify that the ballot is cast by the unit owner having the right to do so.
  3. Except as otherwise provided in the declaration or bylaws, the following requirements apply with respect to proxy voting:
    1. Votes allocated to a unit may be cast pursuant to a directed or undirected proxy duly executed by a unit owner.
    2. If a unit is owned by more than one person, each owner of the unit may vote or register protest to the casting of votes by the other owners of the unit through a duly executed proxy.
    3. A unit owner may revoke a proxy given pursuant to this section only by actual notice of revocation to the person presiding over a meeting of the association.
    4. A proxy is void if it is not dated or purports to be revocable without notice.
    5. A proxy is valid only for the meeting at which it is cast and any recessed session of that meeting.
    6. A person may not cast undirected proxies representing more than 15 percent of the votes in the association.
  4. Unless prohibited or limited by the declaration or bylaws, an association may conduct a vote without a meeting. In that event, the following requirements apply:
    1. The association shall notify the unit owners that the vote will be taken by ballot.
    2. The association shall deliver a paper or electronic ballot to every unit owner entitled to vote on the matter.
    3. The ballot must set forth each proposed action and provide an opportunity to vote for or against the action.
    4. When the association delivers the ballots, it shall also:
      1. indicate the number of responses needed to meet the quorum requirements;
      2. state the percent of votes necessary to approve each matter other than election of directors;
      3. specify the time and date by which a ballot must be delivered to the association to be counted, which time and date may not be fewer than three days after the date the association delivers the ballot; and
      4. describe the time, date, and manner by which a unit owner wishing to deliver information to all unit owners regarding the subject of the vote may do so.
    5. Except as otherwise provided in the declaration or bylaws, a ballot is not revoked after delivery to the association by death or disability or attempted revocation by the person that cast that vote.
    6. Approval by ballot pursuant to this subsection is valid only if the number of votes cast by ballot equals or exceeds the quorum required to be present at a meeting authorizing the action.
  5. If the declaration requires that votes on specified matters affecting the common interest community be cast by lessees rather than unit owners of leased units:
    1. this section applies to lessees as if they were unit owners;
    2. unit owners that have leased their units to other persons may not cast votes on those specified matters; and
    3. lessees are entitled to notice of meetings, access to records, and other rights respecting those matters as if they were unit owners.
  6. Unit owners must also be given notice of all meetings at which lessees are entitled to vote.
  7. Votes allocated to a unit owned by the association shall be cast in any vote of the unit owners in the same proportion as the votes cast on the matter by unit owners other than the association.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 31, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Amended section generally.

OFFICIAL COMMENT

Subsection (c) addresses an increasingly important matter in the governance of common interest communities: the role of tenants occupying units owned by investors or other persons. Most present statutes require voting by owners in the association. However, it may be desirable to give lessees, rather than lessors, of units the right to vote on issues involving day-to-day operation both because the lessees may have a greater interest than the lessors and because it is desirable to have lessees feel they are an integral part of the common interest community.

§ 3-111. Tort and contract liability.

  1. A unit owner is not liable, solely by reason of being a unit owner, for any injury or damage arising out of the condition or use of the common elements. Neither the association nor any unit owner except the declarant is liable for that declarant’s torts in connection with any part of the common interest community which the declarant has the responsibility to maintain.
    1. An action alleging a wrong done by the association, including an action arising out of the condition or use of the common elements, must be brought only against the association and not against any unit owner. If the wrong occurred during any period of declarant control and the association gives the declarant reasonable notice of and an opportunity to defend against the action, the declarant who then controlled the association is liable to the association or to any unit owner for: (b) (1) An action alleging a wrong done by the association, including an action arising out of the condition or use of the common elements, must be brought only against the association and not against any unit owner. If the wrong occurred during any period of declarant control and the association gives the declarant reasonable notice of and an opportunity to defend against the action, the declarant who then controlled the association is liable to the association or to any unit owner for:
      1. all tort losses not covered by insurance, suffered by the association or that unit owner; and
      2. all costs which the association would not have incurred but for a breach of contract or other wrongful act or omission.
    2. Whenever the declarant is liable to the association under this title, the declarant is also liable for all litigation expenses, including reasonable attorneys’ fees, incurred by the association.
  2. Except as provided in section 4-116 of this title with respect to warranty claims, any statute of limitation affecting the association’s right of action under this title does not begin to run until the period of declarant control terminates. A unit owner is not precluded from bringing an action contemplated by this section because he or she is a unit owner or a member or officer of the association. Liens resulting from judgments against the association are governed by section 3-114 of this title.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section provides that any action in tort or contract arising out of acts or omissions of the association shall be brought against the association and not against the individual unit owners.  This changes the law in States where plaintiffs are forced to name individual unit owners as the real parties in interest to any action brought against the association. The subsection also provides that a unit owner is not precluded from bringing an action in tort or contract against the association solely because he is a unit owner or a member or officer of the association.
  2. In recognition of the practical control that can (and in most cases will) be exercised by a declarant over the affairs of the association during any period of declarant control permitted pursuant to Section 3-103, subsection (a) provides that the association or any unit owner has a right of action against the declarant for any losses (including both payment of damages and attorneys’ fees) suffered by the association or any unit owner as a result of an action based upon a tort or breach of contract arising during any period of declarant control.  To assure that the decision to bring such an action can be made by an executive board free from the influence of the declarant, the subsection also provides that any statute of limitations affecting such a right of action by the association shall be tolled until the expiration of any period of declarant control.
  3. If a suit based on a claim which accrued during the period of developer control is brought against the association after control of the association has passed from the developer, reasonable notice to, and grant of an opportunity to the developer to defend, are conditions to developer liability. If, however, suit is brought against the association while the developer is still in control, obviously the developer cannot later resist a suit by the association for reimbursement on the grounds of failure to notify.
  4. This draft makes clear what the drafters of the Uniform Condominium Act and the first version of this Act intended: that the form in which common elements are owned—whether in a condominium, planned community or cooperative—should not impose joint and several personal liability on condominium owners, when no such liability exists for owners in planned communities. Thus, the 1994 amendment to Section 3-111(a) rejects the decision in Ruoff v. Harbor Creek Community Association, 10 Cal.App.4th 1624, 13 Cal. Rptr 2d 755 (Cal.App. 1992).  Rather, the result under both this section and Section 3-117—which imposes liability on unit owners for unsatisfied judgments against the association in proportion to their common expense liabilities—is consistent with the decision in Dutcher v. Owens, 647 S.W.2d 948 (Texas 1983).
  5. The 1994 amendment to new subsection (b) of this section makes clear that no period of limitation regarding an association’s claim against the declarant, including a limit appearing in this or any other section of this Act, begins to run against the association until the period of declarant control terminates.  This would include warranty claims for common elements arising under Section 4-116, unless a declarant elects to permit an independent unit owner review as described in that section.  See Section 4-116(d) and Comments.

Thus, for example, the six-year—or two-year—limitation period within which a claim for breach of warranty must be brought under Section 4-116(a) would not commence until the earlier of either: (a) the date on which the period of declarant control terminates by operation of law (see Sections 3-103(d) and 3-111(b)), or the date the declarant empowers an independent executive board committee to evaluate and enforce warranty claims. (See Section 4-116(d).)

§ 3-112. Conveyance or encumbrance of common elements.

  1. Portions of the common elements may be conveyed or subject to a security interest by the association, if persons entitled to cast at least 80 percent of the votes in the association, including 80 percent of the votes allocated to units not owned by a declarant, or any larger percentage specified in the declaration, agree to that action; but all owners of units to which any limited common element is allocated must agree in order to convey that limited common element or be subjected to a security interest. The declaration may specify a smaller percentage only if all the units are restricted exclusively to nonresidential uses. Proceeds of the sale are an asset of the association; but the proceeds of the sale of limited common elements shall be distributed equitably among the owners of units to which the limited common elements were allocated.
  2. An agreement to convey common elements or subject them to a security interest shall be evidenced by an agreement executed or ratified in the same manner as a deed by the requisite number of unit owners. The agreement shall specify a date after which the agreement will be void unless recorded. The agreement and all ratifications shall be recorded in every town in which a portion of the common interest community is situated and is effective only upon recordation.
  3. The association, on behalf of the unit owners, may contract to convey an interest in a common interest community pursuant to subsection (a) of this section, but the contract is not enforceable against the association until approved pursuant to subsections (a) and (b) of this section. Thereafter, the association has all powers necessary and appropriate to effect the conveyance or encumbrance, including the power to execute deeds or other instruments.
  4. Unless made pursuant to this section, any purported conveyance or encumbrance, judicial sale or other voluntary transfer of common elements is void.
  5. Unless the declaration otherwise provides, if the holders of first security interests on 80 percent of the units that are subject to security interests on the day the unit owners’ agreement under subsection (c) of this section is recorded consent in writing:
    1. a conveyance of common elements pursuant to this section terminates both the undivided interests in those common elements allocated to the units and the security interests in those undivided interests held by all persons holding security interests in the units; and
    2. an encumbrance of common elements pursuant to this section has priority over all preexisting encumbrances on the undivided interests in those common elements held by all persons holding security interests in the units.
  6. The consents by holders of first security interests on units described in subsection (e) of this section, or a certificate of the secretary affirming that those consents have been received by the association, may be recorded at any time before the date on which the agreement under subsection (c) of this title becomes void. Consents or certificates so recorded are valid from the date they are recorded for purposes of calculating the percentage of consenting first security interest holders, regardless of later sales or encumbrances on those units. Even if the required percentage of first security interest holders so consents, a conveyance or encumbrance of common elements does not affect interests having priority over the declaration, or created by the association after the declaration was recorded.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. Subsection (a) provides that a condominium or planned community association may sell or encumber portions of the common elements and subsection (b) provides that a cooperative association may sell part, or encumber all, of the cooperative.  The difference in treatment of condominiums and planned communities, on the one hand, and cooperatives, on the other, arises out of the fact that in a cooperative title to the entire cooperative is in the association.  Also, historically, cooperative associations have had greater control over the regime real estate, including the units, than has been the case in condominiums or planned communities.
  2. Subsection (c) requires that the agreement for sale or encumbrance be evidenced by the execution of an agreement in the same manner as a deed by the requisite majority of the unit owners.  The agreement then must be recorded in the land records.  The recorded agreement signed by the unit owners is not the conveyance itself, but is rather a supporting document which shows that the association has full power to execute a deed or mortgage.  Under subsection (d) it is contemplated that the association will execute the actual instrument of conveyance.  Under subsection (f), a conveyance or encumbrance under this section may not deprive a unit owner of rights of access and support.
  3. As originally written, subsection (g) was intended to cut off the interests of unit lenders whose lien extended to the owner’s undivided interest, in the case of a condominium, or beneficial interest, in the case of a cooperative or planned community, in the common elements.  The 1994 revision simply clarifies this intent, and states precisely the procedure needed to accomplish the desired result.
  4. The introductory clause, “unless the declaration otherwise provides,” contemplates the possibility that the declarant or his construction lender may desire to completely prohibit the conveyance or encumbrance of common elements, may require unanimous consent of first mortgagees, or may require another outcome which varies the result of the default rule of this section.  Nonetheless, the drafters believe that the default rule strikes an appropriate balance between the interests of security holders and the interests of the association.  A rule which requires the consent of every holder of every interest in every unit in a common interest community imposes unreasonable transaction costs for an otherwise rational economic transaction.
  5. The effect of foreclosure of security interests granted pursuant to this section is governed by Section 2-118 (Termination).

The power given by subsections (a) and (b) can be exercised only on agreement of unit owners holding 80% of the votes in the association (80% is the percentage required for termination of a common interest community under Section 2-118). This power may be exercised during the period of declarant control, but, in order to be effective, 80% of non-declarant unit owners must approve the action. The ability, without termination, to sell common elements in a condominium or planned community or to sell part of a cooperative gives common interest communities desirable flexibility. For example, the unit owners, some years after the initial creation of the common interest community may decide to convey away a portion of the open space which has been reserved as a part of the common elements because they no longer find the area useful or because they wish to use sale proceeds to make other improvements. Similarly, the ability to encumber real estate in the common interest community gives the association power to raise money for improvements through the device of mortgaging the improvements themselves. Of course, recreational improvements will frequently not be sufficient security for a loan for their construction. Nevertheless, the ability to take a security interest in such improvements may lead lenders to be more favorably disposed toward making a loan in larger amounts and at lower interest rates.

To the extent that a lien on a unit (whether in the nature of a security interest, tax lien, attachment, or construction lien) also reaches the owner’s interest in the common elements, this amendment makes clear that a proper vote of unit owners and first mortgage holders cuts off that lien.

This section does not affect the interests of persons who hold a direct lien on the common elements nor does it affect the priority or validity of any interest with respect to the unit itself.

On the other hand, the association ought not be able to dispose of its assets automatically and in all cases to the detriment of persons who have made loans to unit owners in reliance on the value of the common elements, without the consent of those persons. Thus, a default rule requiring the consent of a super-majority of first mortgagees should ensure that in the usual case, the interests of all lenders will be adequately protected without unduly restricting the needs of the association.

§ 3-113. Insurance.

  1. After no later than the date of the first conveyance of a unit to a person other than a declarant, to the extent reasonably available and subject to reasonable deductibles, the association shall maintain the following insurance coverage:
    1. Property insurance on the common elements and, in a planned community, also on property which will become common elements, to insure against risks of direct physical loss commonly insured against, which insurance, after application of any deductibles, shall be not less than 80 percent of the actual cash value of the insured property at the time the insurance is purchased and at each renewal date, exclusive of items normally excluded from property policies.
    2. Commercial general liability insurance, including medical payments insurance, in an amount determined by the executive board but not less than any amount specified in the declaration, covering all occurrences commonly insured against for bodily injury or property damage arising out of or in connection with the use, ownership, or maintenance of the common elements.
    3. Fidelity insurance.
  2. In the case of a building which contains units divided by horizontal boundaries described in the declaration, or vertical boundaries that comprise common walls between units, to the extent reasonably available, the insurance maintained under subdivision (a)(1) of this section shall include the units but need not include improvements and betterments installed by unit owners.
  3. If insurance described in subsections (a) and (b) of this section is not reasonably available, the association shall promptly so notify all unit owners by United States mail or hand delivery. The declaration may require the association to carry any other insurance, and the association may carry any other insurance it deems appropriate to protect the association or the unit owners.
  4. Insurance policies carried pursuant to subsections (a) and (b) of this section shall provide all the following:
    1. Liability coverage for each unit owner arising out of his or her interest in the common elements or membership in the association.
    2. Waiver by the insurer of its right to subrogation under the policy against any unit owner or member of the owner’s household.
    3. That no act or omission by any unit owner, unless acting within the scope of his or her authority on behalf of the association, will void the policy or be a condition to recovery under the policy.
    4. Primary coverage by the association policy in the event other insurance in the name of the unit owner is in effect to cover the same risk.
  5. Any loss covered by the property policy under subdivision (a)(1) and subsection (b) of this section shall be adjusted with the association, but the insurance proceeds for that loss are payable to any insurance trustee designated for that purpose, or otherwise to the association, and not to a holder of a security interest. The insurance trustee or the association shall hold insurance proceeds in trust for the association, unit owners and lien holders as their interests may appear. Subject to the provisions of subsection (g) of this section, the proceeds shall be spent first for the repair or restoration of the damaged property. The association, unit owners, and lienholders are not entitled to payment of any portion of the proceeds unless there is a surplus after the property has been completely repaired or restored or the common interest community is terminated.
  6. An insurance policy issued to the association does not prevent a unit owner from insuring for his or her own benefit.
  7. An insurer that has issued an insurance policy under this section shall issue certificates or memoranda of insurance to the association and, upon written request, to any unit owner or holder of a security interest. All insurance notices shall be mailed to the association, each unit owner, and each holder of a security interest to whom a certificate or memorandum of insurance has been issued at their respective last known addresses.
    1. Any portion of the common interest community for which insurance is required under this section which is damaged or destroyed shall be repaired or replaced promptly by the association unless: (h) (1) Any portion of the common interest community for which insurance is required under this section which is damaged or destroyed shall be repaired or replaced promptly by the association unless:
      1. the common interest community is terminated, in which case section 2-118 of this title shall apply;
      2. the repair or replacement is illegal under state or municipal law; or
      3. 80 percent or more of the unit owners, including the affected owners of units or units allocated limited common elements vote not to rebuild. The cost of repair or replacement in excess of insurance proceeds and reserves is a common expense.
    2. If the entire common interest community is not repaired or replaced:
      1. the insurance proceeds attributable to the damaged common elements shall be used to restore the damaged area to a condition compatible with the remainder of the common interest community; and
      2. except to the extent that other persons will be distributees:
        1. the insurance proceeds attributable to units and limited common elements which are not rebuilt must be distributed to the owners of those units and the owners of the units to which those limited common elements were allocated, or to lienholders, as their interests may appear in proportion to the common expense liabilities of all the units; and
        2. the remainder of the proceeds shall be distributed to all the unit owners or lienholders, as their interests may appear, in proportion to the common expense liabilities of those units.
    3. If the unit owners vote not to rebuild any unit, that unit’s allocated interests are automatically reallocated upon the vote, and the association promptly shall prepare, execute, and record an amendment to the declaration reflecting the reallocations.
  8. The provisions of this section may be varied or waived in the case of a common interest community in which all units are restricted to nonresidential use.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 32, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (a): Inserted “and subject to reasonable deductibles” following “available” in the introductory paragraph, rewrote the former first and second sentences of subdiv. (1) as the present first sentence, added “Commercial general” preceding “liability insurance” and deleted “death” preceding “bodily injury” in subdiv. (2).

Subsection (b): Substituted “divided by” for “having” following “units” and inserted “or vertical boundaries that comprise common walls between units”.

OFFICIAL COMMENT

  1. Subsections (a) and (b) provide that the required insurance must be maintained only to the extent reasonably available.  This permits the association to comply with the insurance requirements even if certain coverages are unavailable or unreasonably expensive.
  2. Subsection (b) represents a significant departure from the present law as to condominiums and planned communities in virtually all States by requiring that the association obtain and maintain property insurance on both the common elements and the units within buildings with “stacked” units.  See Comment 3.  While it has been common practice in many parts of the country (either by custom or as mandated by statute) for associations to maintain property insurance on the common elements, it has generally not been the practice for the property insurance policy to cover individual units as well. However, given the great interdependence of the unit owners in the stacked unit situation, mandating property insurance for the entire building is the preferable approach.  Moreover, such an approach will greatly simplify claims procedures, particularly where both common elements and portions of a unit have been destroyed.  If common elements and units are insured separately, the insurers could be involved in disputes as to the coverage provided by each policy.
  3. The distinction between what is a common element and what is a unit with respect to the insurance coverage required by this section is complex.  The definitions of common elements and a unit in Section 1-103(4) and (31) are not sufficient for this purpose.  To determine the distinction between the common elements and units, one must refer first to the declaration’s section on unit boundaries.  That section will define the unit boundaries.  If the declaration fails to do so, and if ceilings, walls, or floors are boundaries, the provisions of Section 2-102 apply.
  4. Although “all risk” coverage is not required as to conversion buildings, but merely fire and extended coverage, this is not intended to imply that such coverage is unnecessary. “All risk” coverage is not required because it may not be appropriate in the case of an unrenovated conversion where cost is a critical factor.
  5. The minimum requirement as to the amount of insurance, which is 80% of the actual cash value, should not be viewed as a recommendation; rather, the 80% is a floor.  Typically, many common interest community documents require insurance in an amount equal to 100% of the replacement cost of the insured property.  The Act permits greater flexibility, however, inasmuch as different types of construction and varieties of projects may not require such total coverage with its attendant higher premium cost.
  6. Subsection (a)(2) covers only the liability of the association, and unit owners as members, but does not cover the unit owner’s individual liability for his acts or omissions or liability for occurrences within his unit.
  7. Clause (i) of the third sentence of subsection (h) would operate as follows: (1) if the common interest community consists of campsites, restoration after fire damage might consist of merely resodding the area damaged; (2) if the common interest community consists of separate garden-type buildings, restoration after fire damage might consist of demolishing the remaining structure and paving or landscaping the area; and (3) if the common interest community consists of a single high-rise building, restoration may not be required (if the building is substantially destroyed) inasmuch as “a condition compatible with the remainder of the common interest community” would be damaged and unrestored.
  8. The scheme of this section, as set forth in subsection (h), is that any damage or destruction to any portion of the common interest community must be repaired (if repairs can be made consistent with applicable safety and health laws) absent a decision to terminate the common interest community or a decision by 80% of the unit owners (including the owners of any damaged units) not to rebuild.  Unless a decision is made not to rebuild, any available insurance proceeds must be used to effectuate such repairs.  For this reason, subsection (e) provides that any loss covered by the association’s property insurance policy shall be adjusted with the association and that the proceeds for any loss shall be payable to the association or to any insurance trustee that may be designated for such purpose.  Significantly, such insurance proceeds may not be paid to any mortgagee or other outside party.  This provision is necessary to insure that insurance proceeds are available to effectuate any repairs or restoration to the common interest community that may be required.

The Act does not mandate association insurance on condominium or planned community units in town house or other arrangements in which there are no stacked units. However, if the developer wishes, the declaration may require association insurance as to units having shared walls or as to all units in the development. Many developments will have some units with horizontal boundaries and other units with no horizontal boundaries. In that case, association insurance as to the units having horizontal boundaries is required, but it is not necessary as to other units.

In a cooperative, the association must carry insurance on all units since legal title to all units is in the association.

Section 2-102 provides that, if the declaration is silent, all non-loadbearing and non-structural portions of the walls, floors, and ceilings are part of the unit, while all loadbearing and structural portions of the walls, floors, and ceilings are common elements. Further, with respect to any structure partially within and partially outside of the boundaries of a unit, any portion thereof serving only that unit is a limited common element (see definition in Section 1-103(19)), and any portion thereof serving more than one unit or any portion of the common elements is a part of the common elements.

Under Section 2-102, all spaces, interior partitions, electrical, plumbing, and mechanical systems, and all other items within the boundaries of the unit which are attached to the unit boundaries, whether or not deemed fixtures under state law, are part of the unit.

Put simply, if any item is installed, constructed, repaired, or replaced by the declarant or his successor in connection with the original sale of a stacked unit, the item is insured by the association. Clearly, this does not include items of personal property easily movable within the unit or easily removable from the unit (whether or not deemed a fixture under state law), such as a vase, table, or other furnishings. If improvements or betterments are made to a unit by a unit owner, they will typically be covered under the owner’s insurance policy, even if the unit itself is generally covered by the association’s policy, since most policies exclude “improvements or betterments made by the owner,” and the Act does not mandate improvements and betterments coverage. The subject is a complex one, and careful attention should be paid to it by the association’s insurance advisor.

If units or limited common elements are not rebuilt, insurance proceeds are to be distributed to lienholders or owners of units unless the declaration provides that such payments are to go to some other person.

§ 3-114. Surplus funds.

Unless otherwise provided in the declaration, any surplus funds of the association remaining after payment of or provision for common expenses and any prepayment of reserves shall be paid annually to the unit owners in proportion to their common expense liabilities or credited to them to reduce their future common expense assessments.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 33, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Inserted “annually” following “paid”.

OFFICIAL COMMENT

Surplus funds of the association are generally used first for the pre-payment of reserves, and remaining funds are thereafter credited to the account of unit owners or paid to them. In some cases, however, unit owners might prefer that surplus funds be used for other purposes (e.g., the purchase of recreational equipment). Accordingly, this section permits the declaration to specify any other use of surplus funds.

§ 3-115. Assessments for common expenses.

  1. Until the association makes a common expense assessment, the declarant shall pay all common expenses. After any assessment has been made by the association, assessments shall be made at least annually, based on a budget adopted at least annually by the association.
  2. Except for assessments under subsections (c), (d), and (e) of this section, or as otherwise provided in this title, all common expenses shall be assessed against all the units in accordance with the allocations set forth in the declaration. The association may charge interest on any past due assessment or portion thereof at a rate established by the association, not exceeding the legal rate.
  3. To the extent required by the declaration:
    1. a common expense associated with the maintenance, repair, or replacement of a limited common element shall be assessed against the units to which that limited common element is assigned, equally or in any other proportion the declaration provides;
    2. a common expense benefiting fewer than all of the units or their owners may be assessed exclusively against the units or unit owners benefited; and
    3. the cost of insurance shall be assessed in proportion to risk and the cost of utilities shall be assessed in proportion to usage.
  4. Assessments to pay a judgment against the association may be assessed only against the units in the common interest community at the time the judgment was entered, in proportion to their common expense liabilities.
  5. If damage to a unit or other part of the common interest community, or if any other common expense is caused by the willful misconduct or gross negligence of any unit owner, guest, or invitee of a unit owner, the association may, after notice and hearing, assess that expense exclusively against that owner’s unit, even if the association maintains insurance with respect to that damage or common expense.
  6. If common expense liabilities are reallocated, common expense assessments and any installment not yet due shall be recalculated in accordance with the reallocated common expense liabilities.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 34, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (b): Inserted “or as otherwise provided in this title” in the first sentence, added “The association may charge interest on” preceding “any past”, deleted “common expense” preceding “assessment” and substituted “portion thereof” for “installment shall accrue interest” thereafter in the second sentence.

Subsection (c): Rewrote subdiv. (2) and made minor stylistic changes throughout the subsection.

Subsection (e): Amended generally.

OFFICIAL COMMENT

  1. This section contemplates that a declarant might find it advantageous, particularly in the early stages of project development, to pay all of the expenses of the common interest community himself rather than assessing each unit individually.  Such a situation might arise, for example, where a declarant owns most of the units in the project and wishes to avoid building the costs of each unit separately and crediting payment to each unit.  It might also arise in the case of a declarant who, although willing to assume all expenses of the common interest community, is unwilling to make payments for replacement reserves or for other expenses which he expects will ultimately be part of the association’s budget.  Subsection (a) grants the declarant such flexibility while at the same time providing that once an assessment is made against any unit, all units, including those owned by the declarant, must be assessed for their full portion of the common expense liability.
  2. Under subsection (c), the declaration may provide for assessment on a basis other than the allocation made in Section 2-107 as to limited common elements, other expenses benefiting less than all units, insurance costs, and utility costs.
  3. If additional units are added to a common interest community after a judgment has been entered against the association, the new units are not assessed any part of the judgment debt.  Since unit owners will know the assessment, and since such unpaid judgment assessments would affect the price paid by purchasers of units, it would be complicated and unnecessary to fairness to reallocate judgment assessments when new units are added.
  4. Subsection (f) refers to those instances in which various provisions of this Act require that common expense liabilities be reallocated among the units of a common interest community by amendment to the declaration.  These provisions include Section 1-107 (Eminent Domain), Section 2-106(d) (expiration of certain leases), Section 2-110 (Exercise of Development Rights), and Section 2-113(b) (subdivision of units).

§ 3-116. Lien for sums due association; enforcement.

  1. The association has a statutory lien on a unit for any assessment attributable to that unit or fines imposed against its unit owner. Unless the declaration otherwise provides, reasonable attorney’s fees and costs, other fees, charges, late charges, fines, and interest charged pursuant to subdivisions 3-102(a)(10), (11), and (12) of this title, and any other sums due to the association under the declaration, this title, or as a result of an administrative, arbitration, mediation, or judicial decision, are enforceable in the same manner as unpaid assessments under this section. If an assessment is payable in installments, the full amount of the assessment is a lien from the time the first installment becomes due.
  2. A lien under this section is prior to all other liens and encumbrances on a unit except:
    1. liens and encumbrances recorded before the recordation of the declaration; and
    2. except as otherwise provided in subsection (c) of this section, a first mortgage or deed of trust on the unit recorded before the date on which the assessment to be enforced became delinquent; and
    3. liens for real estate taxes and other governmental assessments or charges against the unit.
  3. A lien under this section is also prior to all security interests described in subdivision (b)(2) of this section to the extent of the common expense assessments based on the periodic budget adopted by the association pursuant to subsection 3-115(a) of this title that would have become due in the absence of acceleration during the six months immediately preceding institution of an action to enforce the lien. Subsections (b) and (c) of this section do not affect the priority of mechanics’ or materialmen’s liens, or the priority of liens for other assessments made by the association. A lien under this section is not subject to the provisions of 27 V.S.A. chapter 3.
  4. Unless the declaration otherwise provides, if two or more associations have liens for assessments created at any time on the same property, those liens have equal priority.
  5. Recording the declaration constitutes record notice and perfection of the lien. No further recording of any claim or lien for assessment under this section is required.
  6. A lien for unpaid assessments is extinguished unless proceedings to enforce the lien are instituted within three years after the full amount of the assessment becomes due.
  7. This section does not prohibit an action against unit owners to recover sums for which subsection (a) of this section creates a lien or an association from taking a deed in lieu of foreclosure.
  8. A judgment or decree in any action brought under this section shall include an award of costs and reasonable attorney’s fees to the prevailing party.
  9. The association, upon request made in a record, shall furnish to a unit owner a statement of the amount of unpaid assessments against that unit. If the unit owner’s interest is real estate, the statement shall be recordable. The statement shall be provided within 10 business days after receipt of the request and is binding on the association, the executive board, and every unit owner.
  10. The association’s lien may be foreclosed pursuant to 12 V.S.A. chapter 172 and subsection (o) of this section. The association shall give the notice required by statute, or if there is no such requirement, reasonable notice of its action to all lienholders of the unit whose interest would be affected.
  11. A unit owner is not exempt from liability for payment of common expenses by a waiver of the use or enjoyment of any of the common elements or by abandonment of the unit.
  12. In an action by an association to collect assessments or to foreclose a lien on a unit under this section, the court may appoint a receiver to collect all sums alleged to be due and owing to a unit owner before commencement or during pendency of the action. The court may order the receiver to pay any sums held by the receiver to the association during pendency of the action to the extent of the association’s common expense assessments based on a periodic budget adopted by the association pursuant to section 3-115 of this title.
  13. An association may not commence an action to foreclose a lien on a unit under this section unless:
    1. the unit owner, at the time the action is commenced, owes a sum equal to at least three months of common expense assessments based on the periodic budget last adopted by the association pursuant to subsection 3-115(a) of this title and the unit owner has failed to accept or comply with a payment plan offered by the association; and
    2. the executive board votes to commence a foreclosure action specifically against that unit.
  14. Unless the parties otherwise agree, the association shall apply any sums paid by unit owners that are delinquent in paying assessments in the following order:
    1. unpaid assessments;
    2. late charges;
    3. reasonable attorney’s fees and costs and other reasonable collection charges; and
    4. all other unpaid fees, charges, fines, penalties, interest, and late charges.
  15. Notwithstanding subsection (a) of this section, unless sums due the association include an unpaid assessment, a foreclosure action may not be commenced against the unit unless the association has a judgment against the unit owner for the sums due the association and has perfected a judgment lien against the unit.
  16. Every aspect of a foreclosure, sale, or other disposition under this section, including the method, advertising, time, date, place, and terms, must be commercially reasonable.
  17. Unless other procedures are provided in the declaration, bylaws, or rules, an association of time-share unit owners may not deny an owner of a time-share access to the owner’s time-share for failure to pay an assessment unless:
    1. the time-share owner is delinquent in payment of that owner’s common expense assessments based on the periodic budget last adopted by the association pursuant to subsection 3-115(a) of this title; and
    2. the association provides written notice of the delinquency to the time-share owner no less than 30 days after the date the assessment was due, but in no case later than 30 days before the date the time-share owner is entitled to occupy that owner’s time-share.
    3. The following provisions apply to the notice required in subdivision (2) of this subsection:
      1. The notice shall clearly state the total amount of any delinquency that then exists, including any accrued interest and late charges permitted to be imposed under the terms of the declaration or bylaws and including a per diem amount, if any, to account for further accrual of interest and late charges between the stated effective date of the notice and the first date of use.
      2. The notice shall clearly state that the time-share owner will not be permitted to use his or her time-share interest, that the time-share owner will not be permitted to make a reservation in the time-share property’s reservation system, or that any confirmed reservation may be canceled, as applicable, until the total amount of such delinquency is satisfied in full or until the time-share owner produces satisfactory evidence that the delinquency does not exist.
      3. The notice shall be mailed to the time-share owner at his or her last known address as recorded in the books and records of the time-share property, and the notice shall be effective to bar the use of the time-share owner and those claiming use rights under the time-share owner, including his or her guests, lessees, and the third parties receiving use rights in the time-share in question through a nonaffiliated exchange program, until such time as the unit owner is no longer delinquent.
      4. If the association elects to deny use of the owner’s time-share to any third party receiving use rights through an affiliated exchange program, the association shall at the same time provide similar written notice of the owner’s delinquency as required in subdivision (2) of this subsection to any affiliated exchange program. Receipt of the written notice by the affiliated exchange program is effective to bar the use of all third parties claiming through the affiliated exchange program.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2001, No. 46 , § 13; 2009, No. 155 (Adj. Sess.), § 35, eff. Jan. 1, 2012; 2013, No. 102 (Adj. Sess.), § 3.

History

References in text.

12 V.S.A. § 4531a , referred to in subsec. (j), was repealed by 2011, No. 102 (Adj. Sess.), § 2. For present provisions, see 12 V.S.A. chapter 172.

Amendments

—2013 (Adj. Sess.). Subsection (j): Substituted “chapter 172” for “§ 4531a” following “12 V.S.A.”.

Subsection (q): Added.

—2009 (Adj. Sess.) Amended section generally.

—2001. Subdivision (b)(3): Substituted “chapter 3 of Title 27” for “Article 3 of this title” at the end of the last sentence.

OFFICIAL COMMENT

  1. Section 3-116(a) was amended in 1994 to delete the language “from the time the assessment or fine becomes due.”  The deleted clause was intended to make clear that the lien was enforceable at the time the assessment became due. Commentators have observed, however, that the language caused confusion with respect to priority issues.  The intention of the statute, as demonstrated by the Comments, was that the inchoate statutory lien was the functional equivalent of real estate taxes except with respect to the special priorities identified in subsection (b) of the section.  The deletion of the language as suggested makes clear that the lien arises immediately upon the effective date of the statute for old common interest communities and upon recording of the declaration for new common interest communities.
  2. To ensure prompt and efficient enforcement of the association’s lien for unpaid assessments, such liens should enjoy statutory priority over most other liens.  Accordingly, subsection (b) provides that the association’s lien takes priority over all other liens and encumbrances except those recorded prior to the recordation of the declaration, those imposed for real estate taxes or other governmental assessments or charges against the unit, and first security interests recorded before the date the assessment became delinquent.  However, as to prior first security interests the association’s lien does have priority for six months’ assessments based on the periodic budget.  A significant departure from existing practice, the six months’ priority for the assessment lien strikes an equitable balance between the need to enforce collection of unpaid assessments and the obvious necessity for protecting the priority of the security interests of lenders.  As a practical matter, secured lenders will most likely pay the six months’ assessments demanded by the association rather than having the association foreclose on the unit.  If the lender wishes, an escrow for assessments can be required.  Since this provision may conflict with the provisions of some state statutes which forbid some lending institutions from making loans not secured by first priority liens, the law of each State should be reviewed and amended when necessary.
  3. Units may be part of two common interest communities.  For example, a large real estate development may consist of one or more condominiums which are also part of a larger planned community.  In that case, the planned community association might assess the condominium units for the general maintenance expenses of the planned community and the condominium association would assess for the direct maintenance expenses of the building itself.  In such a situation, subsection (c) provides that unpaid liens of the two associations have equal priority regardless of the relative time of creation of the two regimes and regardless of the time the assessments were made or became delinquent.
  4. Subsection (f) makes clear that the association may have remedies short of foreclosure of its lien that can be used to collect unpaid assessments.  The association, for example, might bring an action in debt or breach of contract against a recalcitrant unit owner rather than resorting to foreclosure.
  5. The rights of the association against a unit upon nonpayment of an assessment on that unit depends on whether the common interest community is a condominium or planned community on the one hand, or a cooperative on the other.
  6. New subsection (l) makes clear that the courts have authority to appoint receivers upon request by associations to aid in collection of common charges.

As a result of this deletion, it is clear that in the absence of an exception in a title insurance policy for common charges, a title insurer would be liable for post-insurance obligations which have a priority established prior to the time the policy was issued. This, however, is no different than in other inchoate liens such as real estate taxes and mechanics liens, all of which have become standard exceptions in the title industry.

In cooperatives, the association has legal title to the units and depending on the election made in the declaration pursuant to Section 2-118(i) may have power to create, assume, or take subject to security interests in the units which have priority over the interest of unit owners. Obviously, the cooperative association’s lien should not have priority over an interest which the association itself has given, assumed, or taken subject to and subsection (b) expressly so provides.

The special reference to cooperatives in subsection (b)(ii) merely recognizes that in a cooperative both the association and the unit owner have an interest in a unit.

In the typical cooperative the association will have a substantial underlying mortgage on all or a substantial portion of the real estate in the cooperative and a large part of each unit owner’s periodic assessment will go toward payment of that particular unit’s proportionate share of the mortgage. If the unit owner fails to pay his assessment on time, the association may be forced into default on its own mortgage payments with consequent possible foreclosure of the underlying mortgage and loss by all unit owners of their interests in the cooperative. Therefore, in the cooperative context it is essential that the cooperative association have a fast and effective remedy for failure of a unit owner to pay his assessment. The act provides in subsection (i) that upon nonpayment the cooperative unit owner may be evicted in the same manner as an unlawfully holding over commercial tenant. Those rules will ordinarily be the most rapid and efficient rules in the State as to eviction of tenants.

If the unit owner’s interest is real estate, subsection (j)(2) then offers the State two alternatives as to nonjudicial foreclosure of a cooperative association’s lien. The first alternative is power of sale under any existing state statute authorizing power of sale under mortgages. If there is no power of sale statute or if the legislature chooses to adopt a special power of sale provision for foreclosure of the lien on cooperative units, the State can choose the 2d alternative: power of sale under subsection (k) of this section.

Subsection (k), which is patterned after the power of sale foreclosure provisions of the Uniform Land Transactions Act, is a modern power of sale provision which frees private power of sale foreclosure from many of the costly, time consuming, and inefficiency producing strictures of most existing private power of sale statutes. At the same time, it provides reasonable protection to the unit owner and junior interests.

If the unit owners’ interest in a cooperative is personal property, the association’s lien is foreclosed as if it were a security interest under Article 9 of the Uniform Commercial Code. Article 9 foreclosure is generally less expensive and faster than either judicial or power of sale real estate foreclosure. This difference in cost and speed of foreclosure, both for association liens and security interests, is one of the major factors to be considered in choosing whether, under Section 1-105, the unit owner’s interest in a cooperative will be real property or personal property. Article 9 foreclosure is currently used in foreclosing security interests in mobile homes, and has been accepted in the various States as a permissible method of foreclosure in that housing area without serious challenge.

In a condominium or planned community, there is not likely to be a substantial underlying mortgage for which unit owners are assessed. Therefore, failure to pay assessments on time will have less serious consequences for the association than in the case of cooperatives. The section provides that the association lien in a condominium or planned community is to be foreclosed according to the rules generally applicable to real estate mortgages in the State rather than setting out a special faster method of foreclosure in the statute.

ANNOTATIONS

Construction.

Statute governing liens for assessments of condominium associations allows for the treatment of units in cooperatives as personal property instead of realty, so that they can be foreclosed under the generally less expensive and faster procedure provided for under Article 9 of the Uniform Commercial Code. Will v. Mill Condominium Owners' Association, 2004 VT 22, 176 Vt. 380, 848 A.2d 336, 2004 Vt. LEXIS 26 (2004).

Enforcement.

Enforcement mechanisms provided for in statute governing liens for assessments of condominium associations must be conducted in good faith as defined in the statute; that is, in a commercially reasonable manner. Will v. Mill Condominium Owners' Association, 2004 VT 22, 176 Vt. 380, 848 A.2d 336, 2004 Vt. LEXIS 26 (2004).

Evidence.

Where the claim at issue was an in rem claim for foreclosure of a lien, which was a claim against the condominiums purchased by defendants, as opposed to a claim against the defendants, the statute of limitations for the claim was not tolled pursuant to 12 V.S.A. § 555 because that section allows for tolling only with respect to personal, or in personam, actions. Lodge at Bolton Valley Condominium Ass'n v. Hamilton, 2006 VT 41, 180 Vt. 497, 905 A.2d 611, 2006 Vt. LEXIS 94 (2006) (mem.).

Where a condominium association alleged that defendants, as fiduciaries, failed to disclose material financial information with respect to condominium units, the association raised a colorable argument that it was actively misled by defendants’ behavior, and that it failed to file a timely claim due to its reliance on defendants’ actions. These claims could have provided a basis for equitable tolling or equitable estoppel of defendants’ statute-of-limitations argument, and it was therefore inappropriate for the superior court to grant defendants’ motion to dismiss. Lodge at Bolton Valley Condominium Ass'n v. Hamilton, 2006 VT 41, 180 Vt. 497, 905 A.2d 611, 2006 Vt. LEXIS 94 (2006) (mem.).

Evidence supported a finding that, as a matter of law, the sale of plaintiff’s condominium for failure to pay dues did not conform with the requirements of good faith and commercial reasonableness set forth by the statute governing liens for assessments because of the disparity between the condominium’s sale price and its fair market value. Will v. Mill Condominium Owners' Association, 2004 VT 22, 176 Vt. 380, 848 A.2d 336, 2004 Vt. LEXIS 26 (2004).

Foreclosure based on condominium assessment liens.

Where defendants purchased condominiums with actual or constructive knowledge of the units’ arrears, the full amount of the assessments became due from defendants on that date, not the date the notice of lien issued. Lodge at Bolton Valley Condominium Ass'n v. Hamilton, 2006 VT 41, 180 Vt. 497, 905 A.2d 611, 2006 Vt. LEXIS 94 (2006) (mem.).

Foreclosures based on condominium assessment liens are subject to the same ten-day permission-to-appeal requirement as mortgage foreclosures. Woodbine Condominium Association v. Lowe, 174 Vt. 457, 806 A.2d 1001, 2002 Vt. LEXIS 143 (2002) (mem.).

“Reasonableness.”.

In private sales, the seller’s exclusive reliance on one bid may be a factor against a finding of reasonableness, and, although sale of plaintiff’s condominium for failure to pay dues was a public sale, that factor weighed against such a finding as well, considering the alleged statement from seller informing the buyer as to the minimum acceptable bid for this property which amounted to an assurance that the condominium would be sold for exactly that low amount. Will v. Mill Condominium Owners' Association, 2004 VT 22, 176 Vt. 380, 848 A.2d 336, 2004 Vt. LEXIS 26 (2004).

§ 3-117. Other liens.

  1. Except as otherwise provided in subsection (b) of this section, a judgment for money against the association pursuant to 12 V.S.A. § 4531a , if recorded, is not a lien on the common elements, but is a lien in favor of the judgment lienholder against all of the other real estate of the association and all of the units in the common interest community at the time the judgment was entered. No other property of a unit owner is subject to the claims of creditors of the association.
  2. If the association has granted a security interest in the common elements to a creditor of the association pursuant to section 3-108 of this title, the holder of that security interest shall exercise its right against the common elements before its judgment lien on any unit may be enforced.
  3. Whether perfected before or after the creation of the common interest community, if a lien, other than a deed of trust or mortgage, becomes effective against two or more units, the unit owner of an affected unit may pay to the lienholder the amount of the lien attributable to that unit, and the lienholder, upon receipt of payment, shall promptly deliver a release of the lien covering that unit. The amount of payment shall be proportional to the ratio of that unit owner’s common expense liability to the common expense liabilities of all unit owners whose units are subject to the lien. After payment, the association shall not have a lien or assessment against that unit owner’s unit for any portion of the common expenses incurred in connection with that lien.
  4. A judgment against the association shall be indexed in the name of the common interest community and the association and after it is indexed is notice of the lien against the units.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 36, eff. Jan. 1, 2012.

History

References in text.

12 V.S.A. § 4531a , referred to in subsec. (a), was repealed by 2011, No. 102 (Adj. Sess.), § 2. For present provisions, see 12 V.S.A. chapter 172.

Amendments

—2009 (Adj. Sess.) Subsection (a): Inserted “otherwise” preceding “provided” and “of the other real estate of the association and all” following “lienholder against all” in the first sentence.

OFFICIAL COMMENT

  1. This section deals with the effect on unit owners of judgments against the association.  The issue is not free from difficulty.  Presently, in most States, if the association is organized as a corporation, the unit owners are likely to receive the insulation from liability given shareholders of a corporation, so that the judgment lienholder can satisfy his judgment only against the property of the association.  On the other hand, if the association is organized as an unincorporated association, under the law of most States each unit owner would have joint and several liability on the judgment.  This Act strikes a balance between the two extremes.
  2. In condominiums and planned communities, the Act makes the judgment lien a direct lien against each individual unit, but allows the individual unit owner to discharge the lien by payment of his pro-rata share of the judgment based on that unit’s relative common expense liability.  The judgment would also create a lien against any property owned by the association.  In cooperatives, title to the units is in the cooperative so that it is not necessary for the Act to provide that a judgment against the association creates a lien against units.  The Act does provide, however, that no property of a cooperative unit owner other than the unit is subject to the claims of association creditors.  The result is that the relationship between creditors of the association and unit owners is similar in all three forms of ownership.

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  3. The provisions of Section 3-117 applicable to condominiums and planned communities were adopted after substantial consideration by the Committee and the National Conference and achieve what the drafters believe is appropriate unit owner liability for association debts.  The somewhat different treatment given cooperatives arises out of the different history of cooperatives and out of the different tradition as to financing of cooperatives.  The rules just stated in effect continue the existing law as to the relationship between cooperative unit owners (today commonly called proprietary lessees) and association creditors.  The provisions also take account of a common way of financing cooperatives: in the typical cooperative, the cooperative association will take title to the real estate and will assume or take subject to existing mortgages on the real estate, or if there are no existing mortgages, will borrow a significant portion of the purchase price of the cooperative real estate and secure that price by a mortgage on the real estate.  Thereafter, when individual units are conveyed (leased) to individual unit owners, the unit owner’s interest will be subject to the prior recorded underlying mortgage.  The unit owner also will commonly borrow money on the security of his lease interest to pay the purchase price of the unit owner’s interest.  Unless a subordination agreement has been taken from the unit owner or subordination of unit owner interest to subsequent association creditors is provided for in the declaration, the unit purchase financing lender who lends on the security of the unit owner’s interest can assess his risk on the assumption that he will never be subject to a greater proportion of the underlying debt than he is at the time the loan is originally made.  If there is a subordination agreement, the unit financing lender knows that his security interest is subject to being entirely defeated by subsequent transactions between the association and its creditors.  In the cooperative context, that system has worked reasonably well, and many people with substantial experience with housing cooperatives wished to continue that system in the Model Real Estate Cooperative Act and in the Uniform Common Interest Ownership Act.
  4. It should be noted that, while the judgment lien runs directly against unit owners in condominiums and planned communities, the actual liability of the unit owner is almost identical with what it would be if the ordinary corporation rule insulating the unit owner from direct liability were applied.  If the incorporated condominium or planned community association only is liable for a judgment, it will, of course, have no assets to satisfy the judgment except whatever personal property and real estate not a part of the common elements it owns.  If a checking account or other cash funds of the association are attached or garnisheed by the creditor, the association, in order to maintain its operations and fulfill its other obligations, will be obliged to make an additional assessment against the unit owners to cover the judgment.  The same result follows if the association is to prevent the sale of other assets at an execution sale.  That additional assessment would be in precisely the amount for which this Act gives a direct lien against the individual unit owners.  Further, if an association which is without sufficient assets to satisfy a judgment refuses to make assessments from which the creditor can have his claim satisfied, it is very likely that a court, in a supplemental proceeding on the judgment, would direct the association to make the necessary assessments against the unit owners. Unpaid assessments made by the association constitute liens against units just as do judgments.
    1. The unit owner can discharge his unit from the lien and free it from the possibility of being subsequently assessed by the association for the judgment by making a payment directly to the lien holder.  This ability may be valuable to a unit owner who is in the process of selling or securing a mortgage on his unit during the period between the time the judgment is entered and the time the association makes a formal assessment against individual unit owners for the amount of the judgment lien.
    2. The judgment creditor through his ability to threaten to foreclose the lien on an individual unit if the judgment is not paid is given some leverage over individual unit owners to encourage them to see that the association pays the judgment. Procuring an assessment through pressure on individual unit owners may be quicker and cheaper for the judgment creditor than using supplemental proceedings and having a judge order that the board of directors make the necessary assessment.
  5. In the rare case where, under corporation law an association could avoid payment of a judgment by dissolution of the association and vesting of title to the units or common elements the unit owners as tenants-in-common or otherwise, the National Conference of Commissioners on Uniform State Laws believes that that result is inappropriate, and that the unit in the condominium or planned community itself should be viewed as equity property of the association capable of being reached by judgment creditors in satisfaction of the judgment.  As a matter of social policy the condominium or planned community association is in quite a different position than the ordinary corporation.  The corporation statutes provide shareholders immunity from liability for debts of the corporation to encourage investment in corporations whose entrepreneurial activities in the marketplace contribute to the general wealth and well-being of society.  The condominium or planned community association, in managing the affairs of the homeowners, does not serve the same entrepreneurial function.  It seems reasonable, as a matter of social policy, that an individual homeowner who would be fully liable for debts incurred in the renovation and maintenance of his home or for torts caused by his failure to adequately maintain the premises should not be able to entirely avoid that liability through the device of organizing with other homeowners into a condominium or planned community association.  On the other hand, it is perhaps not fair to a unit owner in a condominium or planned community regime to have all of his assets at risk based on the contracts of the association over which he has little control and as to which he has only a fractional interest or benefit.

There are, however, significant differences between cooperatives and condominiums or planned communities as to the position of unit owners as against association creditors. In one respect cooperative unit owners have greater liability than condominium or planned community unit owners and in another respect they have lesser liability.

They have greater liability in that, in a cooperative, if a judgment lien has priority over a unit owner’s interest in a unit, the lien against the unit is not limited to the unit’s common expense liability percentage. In contrast, in a condominium or planned community, the lien against a unit is only for the unit owner’s pro rata share of the judgment.

Example: Suppose a four unit project in which there is a judgment against the association for $50,000. Further suppose that each of the units has a value of $100,000 and that there are outstanding mortgages as follows:

Unit A Unit B Unit C Unit D Value $100,000 $100,000 $100,000 $100,000 Mortgage 50,000 90,000 90,000 75,000 Equity 50,000 10,000 10,000 25,000

In a condominium or planned community, the judgment lien attaches to each unit in proportion to that unit’s liability for common expense liability. If, in the above example, the common expense liability is equal, the lien would attach to each unit for $12,500. Therefore, the association judgment creditor could reach the full equity of Unit owners B and C in their units, but could reach only $12,500 of the interest of Unit owners A and D. Since the association cannot assess A and D for any additional amounts of the judgment, if B and C allow their interest to be foreclosed and foreclosure produces only $20,000, the association judgment creditor will collect only $45,000 of its $50,000 judgment. That is less than it would collect if all unit owners’ interests in units were fully liable, but more than it would collect if only association assets were subject to attachment. (The judgment creditor may, however, satisfy his judgment in full by reaching the income stream of the association by appropriate creditor process.)

In a cooperative, on the other hand, the association creditor can reach the entire interest of any of the unit owners in their units and will have its judgment satisfied in full.

The liability of cooperative unit owners to association judgment creditors is less than that of unit owners in condominiums and planned communities in that there is no statutory provision giving the judgment creditor a direct lien against units. Since, in a cooperative, title to the units is in the cooperative, a judgment creditor of the association will have a lien on the units, but under ordinary recording and priority rules, that lien will be subordinate to unit owner interests in units if those interests were recorded prior to the attachment of the judgment lien. Therefore, in a cooperative, there is a possibility that the judgment lienor will have no rights as against the interests of the unit owners. However, the declaration may provide that association creditors have priority over the interests of cooperative unit owners, and, if it does so, such a provision is effective (see Section 2-118), and even in the absence of Section 2-118 would be effective, as a general subordination of unit owner interests to creditors of the association. (The Act in Section 2-118 requires that all creditors of the association be treated in the same way as to priority against unit owners so that the declaration cannot provide, for example, that only contract creditors have priority over unit owners or, for another example, that only regulated financial institution debt has priority. However, the unit owners might subordinate their interest to the rights of individual creditors of the association by giving that individual creditor a subordination agreement.)

However, upon termination of the cooperative, liens against the cooperative which did not have priority over the cooperative interests do become proportional fractional liens against each individual cooperative interest (see Section 2-118(i) and the Comments thereto).

In the case of condominiums and planned communities, while the condominium or planned community judgment creditor has a direct lien against the units, the lien against a particular unit is limited to that unit’s common interest percentage liability, and based on ordinary priority rules, the association judgment creditor’s lien will be junior to any prior perfected liens or security interests in the unit owner’s unit. Since the priority between association judgment creditors and holders of security interests or liens against individual units in condominiums or planned communities will be determined according to ordinary priority rules, as is the case of cooperatives in the absence of subordination agreements, the result as between association judgment creditors and holders of security interest or liens on individual units is essentially the same under all three acts. However, as pointed out above, as against the unit owner himself, the cooperative association lien creditor who has priority over a unit owner’s interest will have greater rights than does the association judgment creditor in the case of condominiums and planned communities.

Therefore, whether the lien of the judgment creditor runs against the units directly, or whether the lien is only against the association which finds it necessary to make additional assessments to satisfy the judgment, the unit owner who does not pay his proportionate share will end up with a lien against his unit.

The differences, therefore, between the lien system established by Section 3-117 for condominiums and planned communities and the system which would be applicable if ordinary corporation rules were applied are these:

It should be noted that, except for situations in which the association has given a mortgage or deed of trust on common elements, the judgment creditor cannot assert a lien against common elements, but is rather left to a lien against the units. That is, the judgment creditor has no power to levy on the golf course or on the swimming pool or other open spaces and sell them independently of the units to satisfy the judgment.

§ 3-118. Association records.

  1. An association shall retain the following:
    1. detailed records of receipts and expenditures affecting the operation and administration of the association and other appropriate accounting records;
    2. minutes of all meetings of its unit owners and executive board other than executive sessions, a record of all actions taken by the unit owners or executive board without a meeting, and a record of all actions taken by a committee in place of the executive board on behalf of the association;
    3. the names of unit owners in a form that permits preparation of a list of the names of all owners and the addresses at which the association communicates with them, in alphabetical order showing the number of votes each owner is entitled to cast;
    4. its original or restated organizational documents, if required by law other than this title, bylaws and all amendments to them, and all rules currently in effect;
    5. all financial statements and tax returns of the association for the past three years;
    6. a list of the names and addresses of its current executive board members and officers;
    7. its most recent annual report delivered to the secretary of state;
    8. financial and other records sufficiently detailed to enable the association to comply with section 4-109 of this title;
    9. copies of current contracts to which it is a party;
    10. records of executive board or committee actions to approve or deny any requests for design or architectural approval from unit owners; and
    11. ballots, proxies, and other records related to voting by unit owners for one year after the election, action, or vote to which they relate.
  2. Subject to subsections (c) and (d) of this section, all records retained by an association must be available for examination and copying by a unit owner or the owner’s authorized agent:
    1. during reasonable business hours or at a mutually convenient time and location; and
    2. upon five days’ notice in a record reasonably identifying the specific records of the association requested.
  3. Records retained by an association may be withheld from inspection and copying to the extent that they concern:
    1. personnel, salary, and medical records relating to specific individuals;
    2. contracts, leases, and other commercial transactions to purchase or provide goods or services currently being negotiated;
    3. existing or potential litigation or mediation, arbitration, or administrative proceedings;
    4. existing or potential matters involving federal, state, or local administrative or other formal proceedings before a governmental tribunal for enforcement of the declaration, bylaws, or rules;
    5. communications with the association’s attorney which are otherwise protected by the attorney-client privilege or the attorney work-product doctrine;
    6. information the disclosure of which would violate law other than this title;
    7. records of an executive session of the executive board; or
    8. individual unit files other than those of the requesting owner.
  4. An association may charge a reasonable fee for providing copies of any records under this section and for supervising the unit owner’s inspection.
  5. A right to copy records under this section includes the right to receive copies by photocopying or other means, including copies through an electronic transmission if available upon request by the unit owner.
  6. An association is not obligated to compile or synthesize information.
  7. Information provided pursuant to this section may not be used for commercial purposes.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 37, eff. Jan. 1, 2012.

History

Revision note

—2011 (Adj. Sess.). In subsec. (a), substituted “shall” for “must” to conform with V.S.A. style.

Amendments

—2009 (Adj. Sess.) Amended section generally.

§ 3-119. Association as trustee.

A third person dealing with the association in the association’s capacity as a trustee may assume without inquiry that the association has trust powers and will properly exercise them. A third person, without actual knowledge that the association is exceeding or improperly exercising its powers, is fully protected in dealing with the association as if the association possessed and properly exercised the powers it purports to exercise. A third person is not bound to assure the proper application of trust assets paid or delivered to the association in its capacity as trustee.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

§ 3-120. Rules.

  1. Before adopting, amending, or repealing any rule, the executive board shall give all unit owners notice of:
    1. its intention to adopt, amend, or repeal a rule and provide the text of the rule or the proposed change; and
    2. a date on which the executive board will act on the proposed rule or amendment after considering comments from unit owners.
  2. Following adoption, amendment, or repeal of a rule, the association shall notify the unit owners of its action and provide a copy of any new or revised rule.
  3. An association may adopt rules to establish and enforce construction and design criteria and aesthetic standards if the declaration so provides. If the declaration so provides, the association shall adopt procedures for enforcement of those standards and for approval of construction applications, including a reasonable time within which the association must act after an application is submitted and the consequences of its failure to act.
  4. A rule regulating display of the flag of the United States must be consistent with federal law. In addition, the association may not prohibit display on a unit or on a limited common element adjoining a unit of the flag of this state, or signs regarding candidates for public or association office or ballot questions, but the association may adopt rules governing the time, place, size, number, and manner of those displays.
  5. Unit owners may peacefully assemble on the common elements to consider matters related to the common interest community, but the association may adopt rules governing the time, place, and manner of those assemblies.
  6. An association may adopt rules that affect the use of or behavior in units that may be used for residential purposes, only to:
    1. implement a provision of the declaration;
    2. regulate any behavior in or occupancy of a unit which violates the declaration or adversely affects the use and enjoyment of other units or the common elements by other unit owners; or
    3. restrict the leasing of residential units to the extent those rules are reasonably designed to meet underwriting requirements of institutional lenders that regularly make loans secured by first mortgages on units in common interest communities or regularly purchase those mortgages.
  7. An association’s internal business operating procedures need not be adopted as rules.
  8. Every rule must be reasonable.

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 38, eff. Jan. 1, 2012.

§ 3-121. Notice to unit owners.

  1. An association shall deliver any notice required to be given by the association under this title to any mailing or electronic mail address a unit owner designates. Otherwise, the association may deliver notices by:
    1. hand delivery to each unit owner;
    2. hand delivery, United States mail postage paid, or commercially reasonable delivery service to the mailing address of each unit;
    3. electronic means, if the unit owner has given the association an electronic address; or
    4. any other method reasonably calculated to provide notice to the unit owner.
  2. The ineffectiveness of a good faith effort to deliver notice by an authorized means does not invalidate action taken at or without a meeting.

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 39, eff. Jan. 1, 2012.

§ 3-122. Removal of officers and directors.

  1. Notwithstanding any provision of the declaration or bylaws to the contrary, unit owners present in person, by proxy, or by absentee ballot at any meeting of the unit owners at which a quorum is present may remove any member of the executive board and any officer elected by the unit owners, with or without cause, if the number of votes cast in favor of removal exceeds the number of votes cast in opposition to removal, but:
    1. a member appointed by the declarant may not be removed by a unit owner vote during the period of declarant control;
    2. a member appointed under subsection 3-103(g) of this title may be removed only by the person that appointed that member; and
    3. the unit owners may not consider whether to remove a member of the executive board or an officer elected by the unit owners at a meeting of the unit owners unless that subject was listed in the notice of the meeting.
  2. At any meeting at which a vote to remove a member of the executive board or an officer is to be taken, the member or officer being considered for removal must have a reasonable opportunity to speak before the vote.

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 40, eff. Jan. 1, 2012.

§ 3-123. Adoption of budgets; special assessments.

  1. The executive board, at least annually, shall adopt a proposed budget for the common interest community for consideration by the unit owners. Not later than 30 days after adoption of a proposed budget, the executive board shall provide to all the unit owners a summary of the budget, including any reserves, and a statement of the basis on which any reserves are calculated and funded. Simultaneously, the board shall set a date not less than 10 days or more than 60 days after providing the summary for a meeting of the unit owners to consider ratification of the budget. Unless at that meeting a majority of all unit owners or any larger number specified in the declaration reject the budget, the budget is ratified, whether or not a quorum is present. If a proposed budget is rejected, the budget last ratified by the unit owners continues until unit owners ratify a subsequent budget.
  2. The executive board, at any time, may propose a special assessment. Except as otherwise provided in subsection (c) of this section, the assessment is effective only if the executive board follows the procedures for ratification of a budget described in subsection (a) and the unit owners do not reject the proposed assessment.
  3. If the executive board determines by a two-thirds vote that a special assessment is necessary to respond to an emergency:
    1. the special assessment becomes effective immediately in accordance with the terms of the vote;
    2. notice of the emergency assessment must be provided promptly to all unit owners; and
    3. the executive board may spend the funds paid on account of the emergency assessment only for the purposes described in the vote.

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 41, eff. Jan. 1, 2012.

§ 3-124. Litigation involving declarant.

  1. The following requirements apply to an association’s authority under subdivision 3-102 (a)(4) of this title to institute and maintain a proceeding alleging a construction defect with respect to the common interest community, whether by litigation, mediation, arbitration, or administratively, against a declarant or an employee, independent contractor, or other person directly or indirectly providing labor or materials to a declarant:
    1. Subject to subsection (e) of this section, before the association institutes a proceeding described in this section, it shall provide notice in a record of its claims to the declarant and those persons that the association seeks to hold liable for the claimed defects. The text of the notice may be in any form reasonably calculated to give notice of the general nature of the association’s claims, including a list of the claimed defects. The notice may be delivered by any method of service and may be addressed to any person if the method of service used:
      1. provides actual notice to the person named in the claim; or
      2. would be sufficient to give notice to the person in connection with commencement of an action by the association against the person.
    2. Subject to subsection (e) of this section, the association may not institute a proceeding against a person until 45 days after the association sends notice of its claim to that person.
    3. During the period described in subdivision (2) of this subsection, the declarant and any other person to which the association gave notice may present to the association a plan to repair or otherwise remedy the construction defects described in the notice. If the association does not receive a timely remediation plan from a person to which it gave notice, or if the association does not accept the terms of any plan submitted, the association may institute a proceeding against the person.
    4. If the association receives one or more timely remediation plans, the executive board shall consider promptly those plans and notify the persons to which it directed notice whether the plan is acceptable as presented, acceptable with stated conditions, or not accepted.
    5. If the association accepts a remediation plan from a person the association seeks to hold liable for the claimed defect, or if a person agrees to stated conditions to an otherwise acceptable plan, the parties shall agree on a period for implementation of the plan. The association may not institute a proceeding against the person during the time the plan is being diligently implemented.
    6. Except as otherwise provided in subsection 4-116(d) of this title for warranty claims, any statute of limitation affecting the association’s right of action against a declarant or other person is tolled during the period described in subdivision (2) of this section and during any extension of that time because a person to which notice was directed has commenced and is diligently pursuing the remediation plan.
  2. After the time described in subdivision (a)(2) of this section expires, whether or not the association agrees to any remediation plan, a proceeding may be instituted by:
    1. the association against a person to which notice was directed which fails to submit a timely remediation plan, the plan of which is not acceptable, or which fails to pursue diligent implementation of that plan; or
    2. a unit owner with respect to the owner’s unit and any limited common elements assigned to that unit, regardless of any action of the association.
  3. This section does not preclude the association from making repairs necessary to mitigate damages or to correct any defect that poses a significant and immediate health or safety risk.
  4. Subject to the other provisions of this section, the determination of whether and when the association may institute a proceeding described in this section may be made by the executive board. The declaration may not require a vote by any number or percent of unit owners as a condition to institution of a proceeding.
  5. This section does not prevent an association from seeking equitable relief at any time without complying with subdivision (a)(1) or (2) of this section.

HISTORY: Added 2009, No. 155 (Adj. Sess.), § 42, eff. Jan. 1, 2012.

Part 4. Protection of Purchasers

§ 4-101. Waiver.

  1. This article applies to all units subject to this title, except as provided in subsection (b) of this section or as modified or waived by agreement of purchasers of units in a common interest community in which all units are restricted to nonresidential use.
  2. Neither a public offering statement nor a resale certificate need be prepared or delivered in the case of:
    1. a gratuitous disposition of a unit;
    2. a disposition pursuant to court order;
    3. a disposition by a government or governmental agency;
    4. a disposition by foreclosure or deed in lieu of foreclosure;
    5. a disposition to a dealer;
    6. a disposition that may be canceled at any time and for any reason by the purchaser without penalty;
    7. a disposition of a unit restricted to nonresidential purposes.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. In the case of commercial and industrial common interest communities, the purchaser is often more sophisticated than the purchaser of residential units and thus better able to bargain for the protections he believes necessary.  While this may not always be true, no objective test can be developed which easily distinguishes those commercial purchasers who are able to protect themselves from those who, in the ordinary course of business, have not developed such sophistication. At the same time, the cost of protection imposed by Article 4 may be substantial.  Accordingly, subsection (a) permits waiver or modification of Article 4 protections in common interest communities where all units are restricted to non-residential use.  However, except for certain waivers of implied warranties of quality (see Section 4-115) and certain exemptions from public offering statement and resale certificate requirements (see subsection (b)), no express waiver of the protections of this article with respect to the purchasers of residential units is permitted by this subsection.  Accordingly, by operation of Section 1-104, the rights provided by this article may not be waived in the case of residential purchasers.  Moreover, because of the interrelated rights of residential and commercial owners in mixed-use common interest communities, waiver or modification of rights conferred by this article is restricted to purchasers in wholly non-residential common interest communities.
  2. The 1994 amendment changed subsection (b)(7).  The rationale for the change is contained in the revised Comment to Section 1-203.

§ 4-102. Liability for public offering statement requirements.

  1. Except as otherwise provided in subsection (b) of this section, a declarant shall prepare a public offering statement conforming to the requirements of sections 4-103, 4-104, 4-105, and 4-106 of this title before offering any interest in a unit to the public.
  2. A declarant may transfer responsibility for preparation of all or a part of the public offering statement to a successor declarant or to a dealer who intends to offer units in the common interest community. In the event of any such transfer, the transferor shall provide the transferee with any information necessary to enable the transferee to fulfill the requirements of subsection (a) of this section.
  3. Any declarant or dealer who offers a unit to a purchaser shall deliver a public offering statement in the manner prescribed in subsection 4-103(a) of this title. The declarant who prepared all or a part of the public offering statement is liable under section 4-117 of this title for any false or misleading statement stated in it or for any omission of material fact therefrom.
  4. If a unit is part of a common interest community and is part of any other real estate regime in connection with the sale of which the delivery of a public offering statement is required under the laws of this state, a single public offering statement conforming to the requirements of sections 4-103, 4-104, 4-105, and 4-106 of this title, as they relate to each regime in which the unit is located, and to any other requirements imposed by law may be prepared and delivered in lieu of providing two or more public offering statements.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 43, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Inserted “otherwise” preceding “provided” in subsec. (a), and rewrote subsec. (c).

OFFICIAL COMMENT

This section permits declarants to transfer responsibility for preparation of a public offering statement to successor declarants or dealers, provided the declarant furnishes the information needed by the successor or dealer to complete the statement. The person who prepares the public offering statement is liable for his own misrepresentations and material omissions. A person who delivers a public offering statement prepared by others is responsible for any such deficiencies only to the extent he knows or reasonably should have known of them.

§ 4-103. Public offering statement; general provisions.

  1. Except as otherwise provided in subsection (b) of this section, a public offering statement shall contain or fully and accurately disclose all the following:
    1. The name and principal address of the declarant and of the common interest community, and a statement that the common interest community is either a condominium or planned community.
    2. A general description of the common interest community, including to the extent known, the types, number, and declarant’s schedule of commencement and completion of construction of buildings, and amenities that the declarant anticipates including in the common interest community.
    3. The number of units in the common interest community.
    4. Copies and a brief narrative description of the significant features of the declaration, other than any plats and plans, and any other recorded covenants, conditions, restrictions, and reservations affecting the common interest community; the bylaws and any rules or regulations of the association; copies of any contracts and leases to be signed by purchasers at closing; and a brief narrative description of any contracts or leases that will or may be subject to cancellation by the association or managing entity under section 3-105 of this title.
    5. The financial information required by subsection (d) of this section.
    6. Any services not reflected in the budget that the declarant provides, or expenses that the declarant pays, and that the declarant expects may become a common expense of the association and the projected common expense assessment attributable to each of those services or expenses for the association and for each type of unit.
    7. Any initial or special fee due from the purchaser or seller at the time of sale and a description of the purpose and method of calculating the fee.
    8. A description of any liens, defects or encumbrances on or affecting the title to the common interest community.
    9. A description of any financing offered or arranged by the declarant.
    10. The terms and significant limitations of any warranties provided by the declarant, including statutory warranties and limitations on the enforcement thereof or on damages.
    11. A statement of any unsatisfied judgments or pending suits against the association and the status of any pending suits material to the common interest community of which a declarant has actual knowledge.
    12. Any restraints on alienation of any portion of the common interest community and any restrictions:
      1. on use, occupancy, and alienation of the units, and
      2. on the amount for which a unit may be sold or on the amount that may be received by a unit owner on sale, condemnation, or casualty loss to the unit or to the common interest community, or on termination of the common interest community.
    13. A description of the insurance coverage provided for the benefit of unit owners.
    14. Any current or expected fees or charges to be paid by unit owners for the use of the common elements and other facilities related to the common interest community.
    15. The extent to which financial arrangements have been provided for completion of all improvements which the declarant is obligated to build pursuant to section 4-119 of this title.
    16. A brief narrative description of any zoning and other land use requirements affecting the common interest community.
    17. All unusual and material circumstances, features, and characteristics of the common interest community and the units.
    18. A description of any arrangement described in section 1-209 of this title that binds the association.
  2. If a common interest community composed of not more than four units is not subject to any development rights and no power is reserved to a declarant to make the common interest community part of a larger common interest community, group of common interest communities or other real estate, a public offering statement need not include the information otherwise required by subdivisions (a)(4), (9), (10), (15), (16), and (17) of this section.
  3. A declarant shall promptly amend the public offering statement to report any material change in the information required by this section.
  4. The public offering statement must contain any current balance sheet and a projected budget for the association, either within or as an exhibit to the public offering statement, for one year after the date of the first conveyance to a purchaser, and thereafter the current budget of the association, a statement of who prepared the budget, and a statement of the budget’s assumptions concerning occupancy and inflation factors. The budget must include:
    1. a statement of the amount, or a statement that there is no amount, included in the budget as a reserve for repairs and replacement;
    2. a statement of any other reserves;
    3. the projected common expense assessment by category of expenditures for the association; and
    4. the projected monthly common expense assessment for each type of unit.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 44, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (a): Inserted “otherwise” preceding “provided” in the introductory paragraph, rewrote subdiv. (5), inserted “or seller” following “purchaser” and substituted “at the time of sale” for “closing” in subdiv. (7), and added subdiv. (18).

Subsection (d): Added.

OFFICIAL COMMENT

  1. The best “consumer protection” that the law can provide to any purchaser is to insure that he has an opportunity to acquire an understanding of the nature of the products which he is purchasing.  Such a result is difficult to achieve, however, in the case of the common interest community purchaser because of the complex nature of the bundle of rights and obligations which each unit owner obtains.  For this reason, the Act, adopting the approach of many so-called “second generation” condominium statutes, sets forth a lengthy list of information which must be provided to each purchaser before he contracts for a unit.  This list includes a number of important matters not typically required in public offering statements under existing law.  The requirement for providing the public offering statement appears in Section 4-102(c), and Section 4-108 provides purchasers with cancellation rights and imposes civil penalties upon declarants not complying with the public offering statement requirements of the Act.
  2. Paragraph (a)(2) requires a general description of the common interest community and, to the extent possible, the declarant’s schedule for commencement and completion of construction for all building amenities that will comprise portions of the common interest community.
  3. Paragraph (4) requires the public offering statement to include copies of the declaration, bylaws, and any rules and regulations of the common interest community, as well as copies of any contracts or leases to be executed by the purchaser.  In addition, the paragraph requires the public offering statement to include a brief narrative description of the significant features of those documents, as well as of any management contract, leases of recreational facilities, and other sorts of contracts which may be subject to cancellation by the association after the period of declarant control expires, as provided in Section 3-105.  This latter requirement is intended to encourage the preparation of brief summaries of all common interest community documents in laymen’s terms, i.e., the “brief narrative description” should be more than a simple explanation of what a declaration (or other document) is, but less than an extended legal analysis duplicating the contents of the documents themselves.  The summary requirement is intended to alleviate the common problem of public offering statements being drafted in lawyers’ terms and being no more comprehensible to laymen than the documents themselves.
  4. The disclosure requirement of paragraph (6) is intended to eliminate the common deceptive sales practice known as “lowballing,” a practice by which a declarant intentionally underestimates the budget for the association by providing many of the services himself during the initial sales period. In such a circumstance, the declarant commonly intends that, after a certain time, these services (which might include lawn maintenance, painting, security, bookkeeping, or other services) will become expenses of the association, thereby substantially increasing the periodic common expense assessments which association members must ultimately bear. By requiring the disclosure of these services (including the projected common expense assessment attributable to each) in paragraph (6), the Act seeks to minimize “lowballing.”  In order to comply fully with the provisions of paragraph (5), the declarant must calculate the budget on the basis of his best estimate of the number of units which will be part of the common interest community during that budget year.  This requirement as well operates to negate the effects of any attempted “lowballing.”
  5. Paragraph (9) requires disclosure of any financing “offered” by the declarant.  The paragraph contemplates that a declarant disclose any arrangements for financing that may have been made, including arrangements with any unaffiliated lender to provide mortgages to qualified purchasers.
  6. Under paragraph (10), the declarant is required to disclose the terms of all warranties provided by the declarant (including the statutory warranties set forth in Section 4-114) and to describe any significant limitations on such warranties, the enforcement thereof, or damages which may be collectible as a result of a breach thereof.  This latter requirement would necessitate a description by the declarant of any exclusions or modifications of statutory warranties undertaken pursuant to Section 4-115.  The statute of limitations for warranties set forth at Section 4-116, together with any separate written agreement (as required by Section 4-116) providing for reduction of the period of such statute of limitations, must also be disclosed.
  7. Paragraph (14) requires that the declarant disclose the existence of any right of first refusal or other restrictions on the uses for which or classes of persons to whom units may be sold.  It also requires disclosure of any provisions limiting the amount for which units may be sold or on the part of the sales price which may be retained by the selling unit owner.  In some existing housing cooperatives for low income families the unit owner is required to sell at no more than a fixed sum; sometimes the amount which the unit owner paid; sometimes that plus a fixed appreciation.  In addition to that practice, the section contemplates other possible limitations on the owner’s right to receive sales proceeds such as a provision under which the developer shares in any appreciation in value.
  8. Under paragraph (16), the declarant is obligated to disclose any current or expected fees or charges which unit owners may be required to pay for the use of the common elements and other facilities related to the common interest community.  Such fees or charges might include swimming pool fees, golf course fees, or required membership fees for recreation associations.  Such fees can represent a substantial addition to monthly assessments.
  9. The “financial arrangements” required to be disclosed pursuant to paragraph (17) may vary substantially from one development to another.  It is the intent of the paragraph to give purchasers as much information as possible with which to assess the declarant’s ability to carry out his obligations to complete the improvements.  For example, if a declarant has a commitment from a bank to provide construction financing for a swimming pool when 50% of the units in the common interest community are completed, that fact should be disclosed to potential purchasers.
  10. In addition to the information required to be disclosed by paragraphs (1) through (18), paragraph (19) requires that the declarant disclose all other “unusual and material circumstances, features, and characteristics” of the common interest community and all units therein.  This requires only information which is both “unusual and material.”  Thus, the provision does not require the disclosure of “material” factors which are commonly understood to be part of the common interest community, e.g., the fact that buildings have a roof, walls, doors, and windows.  Similarly, the provision does not require the disclosure of “unusual” information about the common interest community which is not also “material,” e.g., the fact that a common interest community is the first development of its type in a particular locality.  Information which would normally be required to be disclosed pursuant to paragraph (19) might include, to the extent that they are unusual and material, environmental conditions affecting the use or enjoyment of the common interest community, features of the location of the common interest community, e.g., near the end of an airport runway or a planned rendering plant, and the like.
  11. The cost of preparing a public offering statement can be substantial and may, particularly in the case of small common interest communities, represent a significant portion of the cost of a unit.  For that reason, subsection (b) permits a declarant to exclude from a public offering statement certain information in the case of a small common interest community (i.e., less than 12 units) which is not subject to development rights and which is not potentially part of a larger common interest community or group of common interest communities. Essentially, subsection (b) permits a declarant to exclude from a public offering statement those materials which, as a practical matter, require extended preparation effort by an attorney or engineer in addition of the normal effort which must be exerted to provide the declaration, bylaws, plats and plans, or other documents required by the Act.

Under Section 4-119 the declarant is obligated to complete all improvements shown on a site plan or other graphic representation in the public offering statement or other promotional materials unless they are labeled “NEED NOT BE BUILT.” The estimated schedule of commencement and completion of construction dates provides a standard for judging whether a declarant has complied with those requirements.

§ 4-104. Common interest communities subject to development rights.

If the declaration provides that a common interest community is subject to any development rights, the public offering statement shall disclose, in addition to the information required by section 4-103 of this title:

  1. the maximum number of units, and the maximum number of units per acre, that may be created;
  2. how many or what percentage of the units that may be created will be restricted exclusively to residential use, or a statement that no representations are made regarding use restrictions;
  3. if any of the units that may be built within real estate subject to development rights are not to be restricted exclusively to residential use, a statement, with respect to each portion of that real estate, of the maximum percentage of the real estate areas and the maximum percentage of the floor areas of all units that may be created therein, that are not restricted exclusively to residential use;
  4. a brief narrative description of any development rights reserved by a declarant and of any conditions or limitations upon the exercise of development rights;
  5. the maximum extent to which each unit’s allocated interest may be changed by the exercise of any development right described in subdivision (3) of this section;
  6. the extent to which any buildings or other improvements that may be erected pursuant to any development right in any part of the common interest community will be compatible with existing buildings and improvements in the common interest community in terms of architectural style, quality of construction and size, or a statement that no assurances are made regarding compatibility;
  7. description of all other improvements that may be made and limited common elements that may be created within any part of the common interest community pursuant to any development right reserved by the declarant, or a statement that no assurances are made in that regard;
  8. limitations on the location of any building or other improvement that may be made within any part of the common interest community pursuant to any development right reserved by the declarant, or a statement that no assurances are made in that regard;
  9. a statement that any limited common elements created pursuant to any development right reserved by the declarant will be of the same general types and sizes as the limited common elements within other parts of the common interest community, or a statement of the types and sizes planned, or a statement that no assurances are made in that regard;
  10. a statement that the proportion of limited common elements to units created pursuant to any development right reserved by the declarant will be approximately equal to the proportion existing within other parts of the common interest community, or a statement of any other assurances in that regard, or a statement that no assurances are made in that regard; and
  11. the extent to which any assurances made pursuant to this section apply or do not apply in the event that any development right is not exercised by the declarant.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

This section requires disclosure in the public offering statement of the manner in which the declarant’s exercise of development rights may affect purchasers who acquire units before those rights have been fully exercised. The purpose is to put the purchaser on notice of the extent to which the exercise of those rights may alter, sometimes quite dramatically, both the physical and the legal aspects of the project. For example, the prospective purchaser may be contemplating the acquisition of a particular unit because it enjoys a view of open, undeveloped land over which the declarant has, however, reserved development rights. It may be that the boundary of the parcel as to which development rights have been reserved actually coincides with, or runs quite close to, the outer wall of the unit in question. The disclosures or statements made pursuant to paragraphs (8) and (12) of this section will indicate to the prospective purchaser the extent (if any) to which he can rely on the declarant not to do anything which would radically alter the view from the unit.

§ 4-105. Time shares.

If the declaration provides that ownership or occupancy of any unit is or may be in time shares, the public offering statement shall disclose in addition to the information required by section 4-103 of this title:

  1. the number and identity of units in which time shares may be created;
  2. the total number of time shares that may be created;
  3. the minimum duration of any time share that may be created; and
  4. the extent to which the creation of time shares may affect the enforceability of the association’s lien for assessments provided in section 3-116 of this title.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. Time sharing has become increasingly important in recent years, particularly with respect to resort common interest communities.  In recognition of this fact, this section requires the disclosure of certain information with respect to time sharing.
  2. Virtually all existing state statutes dealing with condominiums, planned communities, or cooperatives are silent with respect to time-share ownership.  The inclusion of disclosure provisions for certain forms of time sharing in this Act, however, does not imply that other law regulating time sharing is affected in any way in a State merely because that State enacts this Act.

The Uniform Law Commissioners’ Model Real Estate Time-Share Act specifies more extensive disclosures for time-share properties. A “time-share property” may include part or all of the common interest community, and Section 1-109 of the Model Act governs conflicts between this Act and time-share legislation.

§ 4-106. Conversion buildings.

  1. The public offering statement of a common interest community containing any conversion building which may be occupied for residential use shall contain, in addition to the information required by section 4-103 of this title:
    1. a statement by the declarant, based on a report by an independent architect or engineer, describing the present condition of all structural components and mechanical and electrical installations material to the use and enjoyment of the building;
    2. a statement by the declarant of the expected useful life of each item reported in subdivision (1) of this section, or a statement that no representations are made in that regard; and
    3. a list of any outstanding notices of uncured violation of the building code or other municipal regulations and the cost of curing those violations.
  2. This section applies to any buildings containing units that may be occupied for residential use.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. In the case of a common interest community containing one or more conversion buildings, the disclosure of additional information relating to the condition of those buildings is required in the public offering statement because of the difficulty inherent in a single purchaser attempting to determine the condition of what is likely to be an older building being renovated for the purpose of common interest community sales.
  2. Paragraph (a)(1) requires the person who gives the public offering statement to retain an independent architect or engineer to report on the present condition of all structural components and fixed mechanical and electrical installations in the conversion building.  Such information is as useful to declarant as to the purchaser since, under the implied warranty provisions of Section 4-114, a declarant impliedly warrants all improvements made by any person to the building “before creation of the common interest community” unless such improvements are specifically excluded from the implied warranty of quality pursuant to Section 4-115(b).
  3. See Comment 6 to Section 2-101 concerning the meaning of “structural components” as used in paragraph (a)(1).  Any material changes in the “present condition” of these systems must be reported by an amendment to the public offering statement.
  4. Under paragraph (a)(3), the person required to give the public offering statement is required to provide purchasers with a list of all outstanding notices of uncured violations of building codes or other municipal regulations.  The literal wording of this provision does not require disclosure of known violations of such building codes or municipal regulations (at least violations having no effect upon the structural components or fixed mechanical and electrical installations of the planned community) unless actual ‘notices‘ of such violations have been received.  To the extent that outstanding notices of uncured violations do exist, the cost of curing such violations would become a liability of the unit owners or the association following transfer of the unit to a purchaser.  For that reason, the estimated cost of curing any outstanding violations must also be disclosed.
  5. For the reasons set forth in the Comment to Section 4-101(a), this section does not apply to units which are restricted exclusively to non-residential use.

§ 4-107. Common interest community securities.

If an interest in a common interest community is currently registered with the Securities and Exchange Commission of the United States, a declarant satisfies all requirements relating to the preparation of a public offering statement under this title if the declarant delivers to the purchaser a copy of the public offering statement filed with the Securities and Exchange Commission. An interest in a common interest community is not a security under the provisions of 9 V.S.A. chapter 131.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. Some common interest communities will be regarded as “investment contracts” or other “securities” under federal law because they exhibit certain investment features such as mandatory rental pools.  See SEC Securities Act Release No. 5347 (January 1973).  The purpose of this section is to permit the declarant to file or deliver, in lieu of a public offering statement specifically prepared to comply with the provisions of this Act, the prospectus filed with and distributed pursuant to the regulations of the United States Securities and Exchange Commission.  Absent this provision, prospective purchasers of common interest communities classified by the SEC as “securities” would have to be given two public offering statements, one prepared pursuant to this Act and the other prepared pursuant to the Securities Act of 1933.  Not only would this result increase the declarant’s costs (and thus the price) of units, it might also reduce the likelihood of either public offering statement actually being read by prospective purchasers.
  2. The bracketed language in the first sentence of this section should be inserted by States which choose to adopt the agency provisions of Article 5 of the Act.  The second sentence should also be inserted by States opting to incorporate Article 5 of the Act to avoid duplicative regulation of common interest communities by the agency administering the State’s securities regulation statutes.

§ 4-108. [Reserved.]

History

Editor’s note—

In the uniform act, § 4-108 relates to the purchaser’s right to cancel.

§ 4-109. Resales of units.

  1. Except in the case of a sale where delivery of a public offering statement is required or is exempt under subsection 4-101(b) of this title, a unit owner shall furnish to a purchaser before the conveyance or transfer of the right of possession of a unit, whichever is earlier, a copy of the declaration, without any plats and plans, the bylaws, the rules or regulations of the association and a certificate which discloses the following:
    1. The effect on the proposed disposition of any right of first refusal or other restraint on the free alienability of the unit held by the association.
    2. The amount of the periodic common expense assessment and any unpaid common expense or special assessment currently due and payable from or by the seller.
    3. Any other fees payable by the owner of the unit being sold.
    4. The amount of any reserves for capital expenditures and of any portions of those reserves designated by the association for any specified projects.
    5. The most recent regularly prepared balance sheet and income and expense statement, if any, of the association.
    6. The current operating budget of the association.
    7. Any unsatisfied judgments against the association and the status of any pending suits in which the association is a defendant.
    8. The amount of any insurance coverage provided for the benefit of unit owners.
    9. Any alterations or improvements to the unit, or to the limited common elements assigned to it which violate any provision of the declaration within the knowledge of the executive board.
    10. Any violations of the health or building codes with respect to the unit, the limited common elements assigned to it, or any other portion of the common interest community within the knowledge of the executive board or managing entity.
    11. The remaining term of any leasehold estate affecting the common interest community and the provisions governing any extension or renewal of it.
    12. Any restrictions in the declaration affecting the amount that may be received by a unit owner upon sale, condemnation, casualty loss to the unit or the common interest community, or termination of the common interest community.
  2. The association, within 10 days after a request by a unit owner, shall furnish to the unit owner a certificate containing the information necessary to enable the unit owner to comply with this section. A unit owner providing a certificate pursuant to subsection (a) of this section is not liable to the purchaser for any erroneous information provided by the association and included in the certificate.
  3. A purchaser is not liable for any unpaid assessment or fee greater than the amount set forth in the certificate prepared by the association. A unit owner is not liable to a purchaser for the failure or delay of the association to provide the certificate in a timely manner, but the purchase contract is voidable by the purchaser until the certificate has been provided and for five days thereafter.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. In the case of the resale of a unit by a private unit owner who is not a declarant or a person in the business of selling real estate for his own account, a public offering statement need not be provided.  See Section 4-102(c). Nevertheless, there are important facts which a purchaser should have in order to make a rational judgment about the advisability of purchasing the particular unit.  Accordingly, each unit owner not required to furnish a public offering statement under Section 4-102(c) and not exempt under Section 4-101(b) is required to furnish to a resale purchaser, before the execution of any contract of sale, a copy of the declaration, bylaws, and rules and regulations of the association and a variety of fiscal, insurance, and other information concerning the common interest community and the unit.
  2. While the obligation to provide the information required by this section rests upon each unit owner (since the purchaser is in privity only with that unit owner), the association has an obligation to provide the information to the unit owner within 10 days after a request for such information.  Under Section 3-102(a)(12), the association is entitled to charge the unit owner a reasonable fee for the preparation of the certificate.  Should the association fail to provide the certificate as required, the unit owner would have a right to action against the association pursuant to Section 4-117.
  3. Under subsection (c), if a purchaser receives a resale certificate which fails to state the proper amount of the unpaid assessments due from the purchased unit, the purchaser is not liable for any amount greater than that disclosed in the resale certificate.  Because a resale purchaser is dependent upon the association for information with respect to the outstanding assessments against the unit which he contemplates buying, it is altogether appropriate that the association should be prohibited from later collecting greater assessments than those disclosed prior to the time of the resale purchase.
  4. The 1994 revisions to this section track amendments in adopting States which simplified the contents of the resale certificate.

§ 4-110. Escrow of deposits.

Any deposit made in connection with the purchase or reservation of a unit from a person required to deliver a public offering statement pursuant to subsection 4-102(c) of this title shall be placed in escrow and held either in this state or in the state where the unit is located in an account designated solely for that purpose by a licensed real estate broker, an attorney licensed in that state or a banking institution the accounts of which are insured by an agency or instrumentality of the government until the deposit is:

  1. delivered to the declarant at closing;
  2. delivered to the declarant after the purchaser’s default under a contract to purchase; or
  3. refunded to the purchaser.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section applies to the sale by persons required to furnish public offering statements of residential units and of non-residential units unless waived pursuant to the provisions of Section 4-101.  It does not apply, however, to resales of units between private parties.
  2. This section provides declarant a number of choices as to the appropriate escrow agent.  Whether the escrow agent must deposit the funds in an insured institutional depository, or in a particular type of account, depends on state law or the agreement of the parties.  To minimize record keeping, of course, the institutional depository could itself be the escrow agent.  The section does not require a separate account for each unit, so that mingling of funds in a single escrow account would be permitted.  The account may be held either in the State where the unit is located, or in the enacting State, in recognition that buyers are often from outside the State where the unit is located.
  3. The escrow requirements of this section apply in connection with any deposit made by a purchaser, whether such deposit is made pursuant to a binding contract or pursuant to a nonbinding reservation agreement (with respect to which no public offering statement is required under Section 4-101(b)(6)).
  4. In some States current practice permits escrows to be held by certain title insurance or escrow companies, attorneys, or real estate brokers.  Accordingly, the bracketed language should be included or deleted in accordance with local practice.
  5. Under this section, any interest earned on an escrow deposit may, but need not, be credited to the purchaser at closing, added to any deposit forfeited to the seller, or added to any deposit refunded to the purchaser.  In short, disposition of any interest is left to agreement of the parties.
  6. In some States, such as New York, the substitution of a bond in place of a deposit escrow is permitted.  The evidence indicates, however, that in many instances the use of the bonding device has forced purchasers to incur substantial costs and delay prior to obtaining refunds to which they are entitled.  For this reason, this Act does not include bonding as an alternative to the required escrow of deposits.

§ 4-111. Release of liens.

  1. In the case of a sale of a unit where delivery of a public offering statement is required pursuant to subsection 4-102(c) of this title, before conveying a unit, a seller shall:
    1. record or furnish to the purchaser releases of all liens, except liens on real estate that a declarant has the right to withdraw from the common interest community, which the purchaser does not expressly agree to take subject to or assume and which encumber:
      1. in a condominium, that unit and its common element interest; and
      2. in a planned community, that unit and any limited common elements assigned to it; or
    2. provide a surety bond or substitute collateral for or insurance against the lien.
  2. Before conveying real estate to the association, the declarant shall have that real estate released from:
    1. all liens the foreclosure of which would deprive unit owners of any right of access to or easement of support of their units; and
    2. all other liens on that real estate unless the public offering statement describes certain real estate which may be conveyed subject to liens in specified amounts.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. The exemption for withdrawable real estate set forth in subsection (a) is designed to preserve flexibility for the declarant in terms of financing arrangements.  It deals with the unusual case in which a unit has been assigned a limited common element (for example, a parking space) on real estate which the developer has the right to withdraw from the common interest community.  In that case, the limited common element can be assigned to the unit without release of liens or assumption of them by the unit owner.  Theoretically, a developer might partially avoid the lien release requirement of subsection (a) by placing part of the limited common element improvements such as a parking garage on withdrawable real estate.  By doing so, it could separately mortgage that part of the limited common elements without being obligated to discharge the mortgage or secure partial releases when individual units to which the limited common elements are assigned are sold.
  2. Subsection (b) will most commonly apply in the case of a planned community, where all of the common elements, whatever they may be in a particular project, must be owned by the association, see Section 1-103(4), or in a cooperative, where Section 2-101 requires that all the real estate comprising the cooperative must be conveyed to the association at the time the cooperative is created.  The section would also apply, however, in the event other real estate, such as units or other real property not subject to the declaration, is conveyed to the association.

If a mortgage or other lien created by or arising against the developer attaches to withdrawable real estate after the declaration has been recorded, a lapse of the developer’s right to withdraw the real estate would also terminate the rights of the lienors, since the lien would attach only to the developer’s interest (the right to withdraw). However, an alert lienor would not permit the right to withdraw to lapse without taking steps to see that the right to withdraw is exercised. If the mortgage or other lien attached to the real estate and was perfected before the planned community declaration was recorded, lapse of the right to withdraw would not affect the lienor’s rights and it could foreclose on the real estate whether or not the developer had lost the right to withdraw. As a practical matter, whether the mortgage or other lien against withdrawable real estate arises before or after the declaration is recorded, unit owners may find that, if the association does not release liens on withdrawable real estate containing limited common elements, the lienor will be able to withdraw the land and deprive the unit owners of its use. Therefore, unit purchasers and their counsel should be alert to that possibility.

§ 4-112. [Reserved.]

History

Editor’s note—

In the uniform act, § 4-112 relates to conversion buildings.

§ 4-113. Express warranties of quality.

  1. Express warranties made by a declarant to a purchaser of a unit are created as follows:
    1. Any affirmation of fact or promise which relates to the unit, its use or rights appurtenant to it, area improvements to the common interest community that would directly benefit the unit, or the right to use or have the benefit of facilities not located in the common interest community warranties conformity of the unit and related rights and uses.
    2. Any model or description of the physical characteristics of the common interest community, including plans and specifications of or for improvements, creates an express warranty that the common interest community will conform to the model or description, unless the model or description clearly discloses that it is only proposed or is subject to change.
    3. Any description of the quantity or extent of the real estate comprising the common interest community, including plats or surveys warranties conformity of the common interest community to the description, subject to customary tolerances.
    4. A provision that a purchaser may put a unit only to a specified use warranties the legality of the specified use.
  2. Neither formal words, such as “warranty” or “guarantee,” nor a specific intention to make a warranty is necessary to create an express warranty of quality, but a statement purporting to be merely an opinion or commendation of the real estate or its value does not create a warranty.
  3. A conveyance of a unit transfers to the purchaser all express warranties of quality made by the declarant.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 45, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Substituted “declarant” for “seller” in the introductory paragraph of subsec. (a), rewrote subdiv. (a)(2), and substituted “the declarant” for “previous sellers” in subsec. (c).

OFFICIAL COMMENT

  1. This section, together with Sections 4-114, 4-115, and 4-116, are adapted from the real estate warranty provisions contained in the Uniform Land Transactions Act (ULTA).
  2. This section, which parallels Section 2-308 of ULTA, deals with express warranties, that is, with the expectations of the purchaser created by particular conduct of the declarant in connection with inducement of the sale.  It is based on the principle that, once it is established that the declarant has acted so as to create particular expectations in the purchaser, warranty should be found unless it is clear that, prior to the time of final agreement, the declarant has negated the conduct which created the expectation.
  3. Subsection (b) makes it clear that no specific intention to make a warranty is necessary if any of the factors mentioned in subsection (a) are made part of the basis of the bargain between the parties.  In actual practice, representations made by a declarant concerning common interest community property during the bargaining process are typically regarded as a part of the description.  Therefore, no particular reliance on the representations need be shown in order to weave them into the fabric of the agreement.  Rather, the burden is on the declarant to show that representations made in the bargaining process were not relied upon by the purchaser at the time of contracting.
  4. Subsection (a)(1) provides that representations as to improvements and facilities not located in the common interest community may create express warranties.  Declarants often assert that recreational facilities, such as swimming pools, golf courses, tennis courts, etc., will be constructed in the future and that unit owners will have the right to utilize such facilities once constructed.  Such assertions are intended to be included within the language “have the benefit of facilities not located in the planned community.”  If, under the circumstances, such improvements would benefit the unit being sold, then the declarant may be liable for breach of express warranty if they are not completed.  Such liability is distinct from the declarant’s obligations, under Section 4-119, to complete all improvements labeled “MUST BE BUILT” on plats and plans.
  5. Under subsection (a)(4), a contract provision permitting the purchaser to use a common interest community unit only for a specified use or uses creates an express warranty that the unit may lawfully be used for that purpose.  Therefore, if there is a limitation on use, the resulting express warranty could not be disclaimed by a disclaimer of implied warranties under Section 4-115.
  6. The precise time when representations set forth in subsection (a) are made is not material.  The sole question is whether the language or other representations of the declarant are fairly to be regarded as part of the contract between the parties.
  7. Subsection (b) makes clear that it is not necessary to the existence of a warranty that the declarant have intended to assume a warranty obligation.  On the other hand, mere statements of opinion or commendations by the declarant do not necessarily create warranties.  Whether a particular statement purports to be merely opinion or commendation is basically a question of whether the purchaser could reasonably rely upon the statement as a meaningful representation or promise with respect to the planned community.  That determination depends, in turn, not merely upon the words used but also upon the relative characteristics and skills of the parties.  Thus, a representation by a declarant to a novice purchaser that a particular planned community unit is in “good condition” may be more than mere opinion or commendation, while the same statement by a novice seller to a professional buyer would likely be only opinion or commendation, and thus not a warranty.
  8. The provision of subsection (c) that the conveyance of a unit transfers to the purchaser all express warranties made by prior declarants is intended, in part, to avoid the possibility that a declarant could negate his warranty obligations through the device of transferring a unit through a shell entity to the ultimate purchaser.

§ 4-114. Implied warranties of quality.

  1. A declarant and any dealer warrant that a unit will be in at least as good condition at the time of the conveyance or delivery of possession, whichever is earlier, as it was at the time of contracting, reasonable wear and tear excepted.
  2. A declarant and any dealer impliedly warrant that a unit and the common elements in the common interest community are suitable for the ordinary uses of real estate of its type and that any improvements made or contracted for by him or her, or made by any person before the creation of the common interest community, will be:
    1. free from defective materials; and
    2. constructed in accordance with applicable law, according to sound engineering and construction standards, and in a workerlike manner.
  3. In addition, a declarant and any dealer warrant to a purchaser of a unit that may be used for residential use that an existing use, continuation of which is contemplated by the parties, does not violate applicable law at the time of conveyance or delivery of possession, whichever is earlier.
  4. Warranties imposed by this section may be excluded or modified as specified in section 4-113 of this title.
  5. For purposes of this section, improvements made or contracted for by an affiliate of a declarant are made or contracted for by the declarant.
  6. A conveyance of a unit transfers to the purchaser all the declarant’s implied warranties of quality.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section, which is based upon Section 2-309 of ULTA, overturns the rule still applied in many States that a professional seller of real estate makes no implied warranties of quality (the rule of “caveat emptor”).  In recent years, that rule has been increasingly recognized as a relic of an earlier age whose continued existence defeats reasonable expectations of purchasers.  Since the 1930’s, more and more courts have completely or partially abolished the caveat emptor rule, and it is clear that the judicial tide is now running in favor of seller liability.
  2. The principal warranty imposed under this section is that of suitability of both the unit and common elements for ordinary uses of real estate of similar type, and of quality of construction.  Both of these warranties, which arise under subsection (b), are imposed only against declarants and dealers and not against unit owners selling their units to others.
  3. Many recent cases have held that a seller of new housing impliedly warrants that the houses sold are habitable.  The warranty of suitability under this Act is similar to the warranty of habitability.  However, under the Act, the warranty of suitability applies to both units and common elements in both commercial and residential common interest communities.  If, for example, a commercial unit is sold for commercial use and is not suitable for the ordinary uses of common interest community units of that type, the warranty of suitability has been breached.  Moreover, this warranty of suitability arises in the case of used, as well as new, buildings or other improvements in the common interest community.
  4. The warranty of suitability and of quality of construction arises only against a declarant and dealers.  As in the case of sales of goods, a non-professional seller is liable, if at all, only the any express warranties made by him.  However, if a non-professional seller fails to disclose defects of which he is aware, he may be liable to the purchaser for fraud or misrepresentation under the common law of the State where the transaction occurred.  Also, the warranties imposed by this section may be used to give content to a general “guarantee” by a non-professional seller.
  5. The warranty as to quality of construction for improvements made or contracted for by the declarant or made by any person before the creation of the common interest community is broader than the warranty of suitability. Particularly, it imposes liability for defects which may not be so serious as to render the units or common elements unsuitable for ordinary purposes of real estate of similar type.  Moreover, subsection (e) prevents a declarant from avoiding liability with respect to the quality of construction warranty by having an affiliated entity make the desired improvements.
  6. Under subsection (c), a declarant also warrants to a residential purchaser that an existing use contemplated by the parties does not violate applicable law.  The declarant, therefore, is liable for any violation of housing codes or other laws which renders any existing use of the unit or common elements unlawful.
  7. The issue of declarant liability for warranties is an important one in cases where a transfer of the declarant’s rights occurs, either as an arm’s length transaction, as a transfer to an affiliate, or as a transfer by foreclosure or a deed in lieu of foreclosure.  Subsection (f) makes clear that a conveyance of a unit transfers to the purchaser all warranties of quality made by any declarant, and Section 3-104(b)(1) makes clear that the original declarant remains liable for all warranties of quality with respect to improvements made by him, even after he transfers all declarant rights, regardless of whether the unit is purchased from the declarant who made the improvements.  If the successor declarant is an affiliate of the original declarant, it is clear, under both Sections 3-104(b)(2) and 4-114(f), that the original declarant remains liable for warranties of quality or improvements made by his successor even after the declarant himself ceases to have any special declarant rights.
  8. As to the liabilities of successor declarants for warranties of quality, a successor who is an affiliate of a declarant is liable, pursuant to Section 3-104(e)(1), for warranties or improvements made by his predecessor.  However, any non-affiliated successor of the original declarant is liable only for warranties of quality for improvements made or contracted for by him, and is not liable for warranties which may lie against the original declarant even if the successor sells units completed by the original declarant to a purchaser.  See Section 3-104(e)(2).  In the case of a foreclosing lender, this is the same result as that reached under Section 2-309(f) of ULTA.  The same result is also reached under ULTA in the case of a successor who, under ULTA Section 3-309(b), would be a dealer since under that subsection the seller is liable only for warranties for improvements made or contracted for by him.

§ 4-115. Exclusion or modification of implied warranties of quality.

  1. Except as limited by subsection (b) of this section, with respect to a purchaser of a unit that may be used for residential use, implied warranties of quality:
    1. may be excluded or modified by agreement of the parties; and
    2. are excluded by express disclaimer, such as “as is,” “with all faults,” or other language that implies the exclusion of warranties.
  2. With respect to a purchaser of a unit that may be occupied for residential use, no general disclaimer of implied warranties of quality is effective, but a declarant and any dealer may disclaim liability in an instrument signed by the purchaser for a specified defect or specified failure to comply with applicable law, if the defect or failure was a part of the basis of the bargain.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. This section parallels Section 2-311(b) and (c) of ULTA.
  2. Under this section, implied warranties of quality may be disclaimed.  However, a warranty disclaimer clause, like any other contract clause, is subject to a possible court holding of unconscionability.  Although the section imposes no requirement that a disclaimer be in writing, except in the case of residential units, an oral disclaimer might be ineffective under the law of parole and extrinsic evidence.
  3. Except as against purchasers of residential units, there are no formal standards for the effectiveness of a disclaimer clause.  All that is necessary under this section is that the disclaimer be calculated to effectively notify the purchaser of the nature of the disclaimer.
  4. Under subsection (b), general disclaimers of implied warranties are not permitted with respect to purchasers of residential units.  However, a declarant may disclaim liability for a specified defect or a specified failure to comply with applicable law in an instrument signed by such a purchaser.  The requirement that the disclaimer as to each defect or failure be in a signed instrument is designed to insure that the declarant sufficiently calls each defect or failure to the purchaser’s attention and that the purchaser has the opportunity to consider the effect of the particular defect or failure upon the bargain of the parties. Consequently, this section imposes a special burden upon the declarant who desires to make a “laundry list” of defects or failures by requiring him to emphasize each item on such a list and make its import clear to prospective purchasers.  For example, the declarant of a conversion common interest community might, consistent with this subsection, disclaim certain warranties for “all electrical wiring and fixtures in the building, the furnace, all materials comprising or supporting the roof, and all components of the air conditioning system.”
  5. This section is not intended to be inconsistent with, or to prevent, the use of insured warranty programs offered by some home builders.  However, under the Act, the implied warranty that a new unit will be suitable for ordinary uses (i.e., habitable) and will be constructed in a sound, workmanlike manner, and free of defective materials, cannot be disclaimed by general language.

§ 4-116. Statute of limitations for warranties.

  1. Unless a period of limitation is tolled under section 3-111 of this title or affected by subsection (d) of this section, a judicial proceeding for breach of any obligation arising under section 4-113 or 4-114 of this title shall be commenced within six years after the cause of action accrues, but the parties may agree to reduce the period of limitation to not less than two years. An agreement to reduce the six-year period shall be evidenced by a separate instrument executed by the purchaser.
  2. Subject to subsection (c) of this section, a cause of action for breach of warranty of quality, regardless of the purchaser’s lack of knowledge of the breach, accrues:
    1. as to a unit, at the time the purchaser to whom the warranty is first made enters into possession if a possessory interest was conveyed or at the time of acceptance of the instrument of conveyance if a nonpossessory interest was conveyed; and
    2. as to each common element, at the time the common element is completed or, if later, as to:
      1. a common element that may be added to the common interest community or portion of it, at the time the first unit is conveyed to a bona fide purchaser; or
      2. a common element within any other portion of the common interest community, at the time the first unit is conveyed to a bona fide purchaser.
  3. If a warranty of quality explicitly extends to future performance or duration of any improvement or component of the common interest community, the cause of action accrues at the time the breach is discovered or at the end of the period for which the warranty explicitly extends, whichever is earlier.
  4. During the period of declarant control, the association may authorize an independent committee of the executive board to evaluate and enforce by any lawful means warranty claims involving the common elements, and to compromise those claims. Only members of the executive board elected by unit owners other than the declarant and other persons appointed by those independent members may serve on the committee, and the committee’s decision must be free of any control by the declarant or any member of the executive board or officer appointed by the declarant. All costs reasonably incurred by the committee, including attorney’s fees, are common expenses, and must be added to the budget annually adopted by the association under section 3-115 of this title. If the committee is so created, the period of limitation for a warranty claim considered by the committee begins to run from the date of the first meeting of the committee.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 46, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (d): Substituted “a warranty claim considered by the committee” for “claims for these warranties” following “limitation for” and deleted “regardless of when the period of declarant control terminates” following “meeting of the committee” in the fourth sentence.

OFFICIAL COMMENT

  1. Under subsection (a), the parties may agree that the statute of limitations be reduced to as little as two years. However, such a contract provision (which, in the case of residential units, must be reflected in a separate written instrument executed by the purchaser) could, like other contract provisions, be subject to attack on grounds of unconscionability in particular cases.
  2. Except for warranties of quality which explicitly refer to future performance or duration, a cause of action for breach of a warranty of quality would normally arise when the purchaser to whom it is first made enters into possession. Suit on such a warranty would thus have to be brought within six years thereafter.  Even an inability to discover the breach would not delay the running of the statute of limitations in this regard.
  3. Real estate sales frequently include warranties that certain components (e.g., furnaces, hot water heaters, air conditioning systems, and roofs) will last for a particular period of time.  In the case of such warranties, the statute of limitations would not start running until the breach is discovered, or, if not discovered before the end of the warranty term, until the end of the term.
  4. The common elements typically have many components.  While always dependent on the particular unit boundaries of the particular project, typical common elements include retaining walls, a swimming pool, water lines, sidewalks, party walls, etc.  A phase for this purpose consists of the units, common elements and limited common elements created upon each occasion of the exercise by the declarant of development rights reserved by such declarant.
  5. Under subsection (b)(2)(ii), if the declarant has not reserved development rights to expand the community by adding units and common elements or limited common elements, the claim for relief or cause of action for a common element accrues at the later of the time of the first unit sale or the time that common element is completed.  However, under amended Section 3-111, that period does not begin to run until declarant control terminates.
  6. New subsection (d) creates an alternative mechanism by which a declarant may create an independent board committee to evaluate and enforce warranty claims.  The committee is analogous to an independent audit committee composed of outside directors in a publicly held corporation.  This section strikes a balance between the legitimate interest of a declarant in not having to provide warranties on the common elements for an unreasonable time, and the equally legitimate interest of unit owners in having an independent analysis of warranty claims before those claims expire.

On the other hand, if the declarant has retained development rights to expand the community, the cause of action accrues upon the first conveyance of a unit within the phase which includes that particular common element.

§ 4-117. Effect of violations on rights of action.

  1. A declarant, association, unit owner, or any other person subject to this title may bring an action to enforce a right granted or obligation imposed by this title, the declaration, or the bylaws. The court may award reasonable attorney fees and costs.
  2. Parties to a dispute arising under this title, the declaration, or the bylaws may agree to resolve the dispute by any form of binding or nonbinding alternative dispute resolution, but:
    1. a declarant may agree with the association to do so only after the period of declarant control has expired unless the agreement is made with an independent committee of the executive board elected pursuant to subsection 4-116(d) of this title; and
    2. an agreement to submit to any form of binding alternative dispute resolution must be in a record authenticated by the parties.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999; amended 2009, No. 155 (Adj. Sess.), § 47, eff. Jan. 1, 2012.

History

Amendments

—2009 (Adj. Sess.) Subsection (a): Amended generally.

Subsection (b): Substituted “has expired” for “passes” following “declarant control” in subdiv. (1), and “record authenticated” for “writing signed” in subdiv. (2).

OFFICIAL COMMENT

  1. This section provides a general cause of action or claim for relief for failure to comply with the Act by either a declarant or any other person subject to the Act’s provisions.  Such persons might include unit owners, persons exercising a declarant’s rights of appointment pursuant to Section 3-103(d), or the association itself.  A claim for appropriate relief might include damages, injunctive relief, specific performance, rescission, or reconveyance if appropriate under the law of the State, or any other remedy normally available under state law.  The section specifically refers to “any person or class of persons” to indicate that any relief available under the state class action statute would be available in circumstances where a failure to comply with this Act has occurred.  This section specifically permits punitive damages to be awarded in the case of willful failure to comply with the Act and also permits court costs and attorney’s fees to be awarded in the discretion of the court to any party that prevails in an action.
  2. The 1994 amendments reflect the Conference’s judgment that resolving disputes by non-judicial means is a desirable outcome, subject to the limitations contained in this section.

ANNOTATIONS

Attorney’s fees.

In awarding attorney’s fees under the Vermont Common Interest Ownership Act (VCIOA), the trial court did not abuse its discretion in determining that most of the evidence presented was relevant to all claims. Defendant’s conduct leading up to and throughout the course of these proceedings was the basis for a number of the VCIOA violations found by the trial court; it was also relevant to plaintiffs’ common-law nuisance claim, especially with respect to their claim for punitive damages. Post & Beam Equity Group, LLC v. Sunne Vill. Dev. Prop. Owners Ass'n, 2015 VT 60, 199 Vt. 313, 124 A.3d 454, 2015 Vt. LEXIS 51 (2015).

Trial court did not err in awarding attorney’s fees to individual unit owners under the Common Interest Ownership Act. Numerous courts had interpreted the United States Supreme Court’s decision in Buckhannon to allow attorney’s fees where, as here, the parties’ settlement had been specifically incorporated into a court order or had otherwise received judicial approval; furthermore, the suit was “causally related” to the stipulated settlement in which the planned unit development owner agreed to void certain disputed amendments. Montgomery v. 232511 Invs., Ltd., 2012 VT 31, 191 Vt. 624, 49 A.3d 143, 2011 Vt. LEXIS 139 (2012) (mem.).

There was no merit to the argument that individual unit owners suffered no “adverse effects” from the disputed amendments apart from the costs of the litigation itself, and therefore were not entitled to attorney’s fees. Any amendment that materially alters the character of a development without clear notice under the declaration adversely affects the interests of purchasers, and any purchaser who incurs litigation costs in suing to invalidate such a provision has been adversely affected; indeed, attorney-fee provisions of the nature of that in the Common Interest Ownership Act are designed precisely to ensure and encourage the bringing of meritorious claims. Montgomery v. 232511 Invs., Ltd., 2012 VT 31, 191 Vt. 624, 49 A.3d 143, 2011 Vt. LEXIS 139 (2012) (mem.).

Construction.

Both the earlier version of the Vermont Common Interest Ownership Act’s fee provision and the current iteration allow for an award when an action is brought to enforce compliance with the law, the declaration, or the by-laws. The difference in language in the two versions is of no moment. Arapaho Owners Ass'n, Inc. v. Alpert, 2015 VT 93, 199 Vt. 553, 128 A.3d 397, 2015 Vt. LEXIS 69 (2015).

Particular actions.

Trial court properly awarded attorney’s fees to appellees under the Vermont Common Interest Ownership Act’s fee provision. Appellees’ pursuit of relief resulted in a judicial determination contrary to the resolution sought by the condominium board of directors, and appellees prevailed on their claim rejecting a hybrid formula for assessment and in obtaining a “true-up” of assessments consistent with the reformation they proffered. Arapaho Owners Ass'n, Inc. v. Alpert, 2015 VT 93, 199 Vt. 553, 128 A.3d 397, 2015 Vt. LEXIS 69 (2015).

In awarding appellees attorney’s fees under the Vermont Common Interest Ownership Act, the trial court properly limited its award to $40,000, given the extensive litigation, the positions taken by both sides, the oddity of the situation faced by the condominium board of directors created years earlier by a phantom un-built unit, and the struggles of both sides and the trial court to resolve this situation. Arapaho Owners Ass'n, Inc. v. Alpert, 2015 VT 93, 199 Vt. 553, 128 A.3d 397, 2015 Vt. LEXIS 69 (2015).

Even if a development was a part of a common scheme development governed by the Vermont Uniform Common Interest Ownership Act, this did not give a water cooperative the right to charge the owner for water it did not receive. The trial court had construed a covenant to require the owner to provide only for water it received; by not challenging this point, the cooperative had conceded that the owner had not violated the covenant. 171234 Canada Inc. v. AHA Water Coop., 2008 VT 115, 184 Vt. 633, 968 A.2d 303, 2008 Vt. LEXIS 142 (2008) (mem.).

§ 4-118. Labeling of promotional material.

No promotional material may be displayed or delivered to prospective purchasers which describes an improvement which is not in existence unless the description of the improvement in the promotional material is conspicuously labeled or identified either as “must be built” or as “need not be built.”

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

This section requiring the labeling of improvements depicted on promotional material is necessary to assure that purchasers are not deceived with respect to improvements the declarant indicates he intends to make in a common interest community.

§ 4-119. Declarant’s obligation to complete and restore.

  1. Unless an improvement is labeled “need not be built,” the declarant shall complete all improvements depicted on any site plan or other graphic representation, if the site plan or other graphic representation is contained in the public offering statement or in any promotional material distributed by or for the declarant.
  2. The declarant is subject to liability for the prompt repair and restoration, to a condition compatible with the remainder of the common interest community, of any portion of the common interest community affected by the exercise of rights reserved pursuant to or created by section 2-110, 2-111, 2-112, 2-113, 2-115, or 2-116 of this title.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

  1. The duty imposed by subsection (a) is a fundamental obligation of the declarant and is one with which a successor declarant is obligated to comply under Section 3-104.
  2. Section 4-119(b) requires the declarant to repair and restore the common interest community following the exercise of any rights reserved or created to exercise a development right (Section 2-110), to alter units (Section 2-112), relocate the boundaries between adjoining units (Section 2-112), subdivide units (Section 2-113), use units or common elements for sales purposes (Section 2-115), or exercise of easement rights (Section 2-116).  Plainly, this obligation on the declarant exists only if the declarant, in his capacity as a unit owner, exercises these rights.  If any right to, for example, alter units, is exercised by another unit owner, that unit owner and not the declarant, would be responsible for the consequences of those acts.

§ 4-120. Substantial completion of units.

If delivery of a public offering statement is required for the sale of a unit, a contract of sale may be executed, but interest in that unit shall be conveyed only after the declaration is recorded and the unit is substantially completed, as evidenced by a recorded certificate of substantial completion executed by an independent architect, professional surveyor, or engineer, or by issuance of a certificate of occupancy.

HISTORY: Added 1997, No. 104 (Adj. Sess.), § 3, eff. Jan. 1, 1999.

OFFICIAL COMMENT

The purpose of this section, complemented by Section 4-110, is to assure that the declarant is not able to obtain use of the purchaser’s money until the purchaser is able to get a completed unit.