D R A F T

FOR DISCUSSION ONLY

AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

For February 28 - March 2, 2008 Drafting Committee Meeting

WITHOUT PREFATORY NOTE OR COMMENTS

Copyright ©2006

By

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

The ideas and conclusions set forth in this draft, including the proposed statutory language and any comments or

reporter’s notes, have not been passed upon by the National Conference of Commissioners on Uniform State Laws

or the Drafting Committee. They do not necessarily reflect the views of the Conference and its Commissioners and

the Drafting Committee and its Members and Reporter. Proposed statutory language may not be used to ascertain

the intent or meaning of any promulgated final statutory proposal.

DRAFTING COMMITTEE ON AMENDMENTS TO UNIFORM COMMON INTERESTOWNERSHIP ACT

The Committee appointed by and representing the National Conference of Commissioners onUniform State Laws in amending this Act consists of the following individuals:

CARL H. LISMAN, 84 Pine St., P.O. Box 728, Burlington, VT 05402, ChairOWEN L. ANDERSON, University of Oklahoma College of Law, 300 Timberdell Rd., Norman,

OK 73019MARION W. BENFIELD, JR., 10 Overlook Circle, New Braunfels, TX 78132DAVID D. BIKLEN, 153 N. Beacon St., Hartford, CT 06105ELLEN F. DYKE, Legal Department 52/923, 10400 Fernwood Rd., Bethesda, MD 20817JOHN S. GILLIG, 120 W. Todd St., Frankfort, KY 40601DALE G. HIGER, 1302 Warm Springs Ave., Boise, ID 83712DONALD E. MIELKE, 7472 S. Shaffer Ln., Suite 100, Littleton, CO 80127HIROSHI SAKAI, 3773 Diamond Head Circle, Honolulu, HI 96815NATHANIEL STERLING, 4180 Oak Hill Ave., Palo Alto, CA 94306YVONNE L. THARPES, Legislature of the Virgin Islands, P.O. Box 1690, St. Thomas, VI

00804NORA WINKELMAN, Office of General Counsel, 333 Market St., 17th Flr., Harrisburg, PA

17101LEE YEAKEL, Western District of Texas, P.O. Box 164196, Austin, TX 78716-4196WILLIAM R. BREETZ, JR., Connecticut Urban Legal Initiative, 35 Elizabeth St. Rm K-202,

Hartford, CT 06105, National Conference Reporter

EX OFFICIO

MARTHA LEE WALTERS, Oregon Supreme Court, 1163 State St., Salem, OR 97301-2563,President

WILLIAM H. HENNING, University of Alabama, Box 870382, Tuscaloosa, AL 35487-0382,Division Chair

AMERICAN BAR ASSOCIATION ADVISOR

GARY A. POLIAKOFF, 3111 Stirling Rd., Ft. Lauderdale, FL 33312-6525, ABA AdvisorREBECCA ANDERSON FISCHER, 633 17th St., Suite 3000, Denver, CO 80202, ABA Section

Advisor

EXECUTIVE DIRECTOR

JOHN A. SEBERT, 111 N. Wabash Ave, Suite 1010, Chicago, IL 60602, Executive Director

Copies of this Act may be obtained from:NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS111 N. Wabash Ave., Suite 1010

Chicago, Illinois 60602312/450-6600

www.nccusl.org

AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT

TABLE OF CONTENTS

[ARTICLE] 1GENERAL PROVISIONS

[PART] 1DEFINITIONS AND OTHER GENERAL PROVISIONS

SECTION 1-101. SHORT TITLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1SECTION 1-102. APPLICABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1SECTION 1-103. DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1SECTION 1-104. NO VARIATION BY AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10SECTION 1-105. SEPARATE TITLES AND TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, REGULATIONS,

AND BUILDING CODES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11SECTION 1-107. EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW APPLICABLE.. . . 13SECTION 1-109. CONSTRUCTION AGAINST IMPLICIT REPEAL. . . . . . . . . . . . . . . . . . . 14SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION. . . . . . . . . . . 14SECTION 1-111. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF CONTRACT. . . . . . 14SECTION 1-113. OBLIGATION OF GOOD FAITH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED. . . . . . . . . . . . . . . . . . 15SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . 15

[PART] 2APPLICABILITY

SECTION 1-201. APPLICABILITY TO NEW COMMON INTEREST COMMUNITIES. . . . 17SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES. . . . . . . . . . . . . . . . . . . . . . . 17SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE LIABILITY

CONDOMINIUMS AND PLANNED COMMUNITIES. . . . . . . . . . . . . . . . . . . . . . . . . 17SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST

COMMUNITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18SECTION 1-205. SAME; EXCEPTION FOR APPLICABILITY TO SMALL PRE-

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

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

COMMUNITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21SECTION 1-209. OTHER EXEMPT REAL ESTATE AGREEMENTS. . . . . . . . . . . . . . . . . . 21SECTION 1-210. OTHER EXEMPT COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

[ARTICLE] 2CREATION, ALTERATION, AND

TERMINATION OF COMMON INTEREST COMMUNITIES

SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES.. . . . . . . . . . . . . 23SECTION 2-102. UNIT BOUNDARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND

BYLAWS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24SECTION 2-104. DESCRIPTION OF UNITS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24SECTION 2-105. CONTENTS OF DECLARATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES. . . . . . . . . . . . . . . 27SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS. . . . . . . . . . . . . . . . . . . . . . 28SECTION 2-108. LIMITED COMMON ELEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30SECTION 2-109. PLATS AND PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . 33SECTION 2-111. ALTERATIONS OF UNITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34SECTION 2-112. RELOCATION OF UNIT BOUNDARIES.. . . . . . . . . . . . . . . . . . . . . . . . . . 35SECTION 2-113. SUBDIVISION OF UNITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36[SECTION 2-114. EASEMENT FOR ENCROACHMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 37[SECTION 2-114. MONUMENTS AS BOUNDARIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37SECTION 2-115. USE FOR SALES PURPOSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37SECTION 2-116. EASEMENT RIGHTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38SECTION 2-117. AMENDMENT OF DECLARATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY.. . . . . . . . . . . 42SECTION 2-119. RIGHTS OF SECURED LENDERS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48SECTION 2-120. MASTER ASSOCIATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST

COMMUNITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE. . . . . . . . . . . . . . . . . . . . . 51SECTION 2-123. MASTER PLANNED COMMUNITIES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

[ARTICLE] 3MANAGEMENT OF THE COMMON INTEREST COMMUNITY

SECTION 3-101. ORGANIZATION OF UNIT OWNERS' ASSOCIATION.. . . . . . . . . . . . . . 54SECTION 3-102. POWERS AND DUTIES OF UNIT OWNERS' ASSOCIATION. . . . . . . . . 54SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS. . . . . . . . . . . . . . . . . 60SECTION 3-104. TRANSFER OF SPECIAL DECLARANT RIGHTS. . . . . . . . . . . . . . . . . . . 63SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES OF DECLARANT.. . . 67SECTION 3-106. BYLAWS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY. . . . . . . . . . . . . . . . . . 69SECTION 3-108. MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70[NEW] SECTION 3-108A.EXECUTIVE BOARD MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . 71SECTION 3-109. QUORUMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75SECTION 3-110. VOTING; PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF LIMITATION

PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON ELEMENTS. . . . 80SECTION 3-113. INSURANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83SECTION 3-114. SURPLUS FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88SECTION 3-115. ASSESSMENTS FOR COMMON EXPENSES.. . . . . . . . . . . . . . . . . . . . . . 88SECTION 3-116. LIEN FOR SUMS DUE THE ASSOCIATION ASSESSMENTS;

ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90SECTION 3-117. OTHER LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96SECTION 3-118. ASSOCIATION RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98SECTION 3-119. ASSOCIATION AS TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100SECTION 3-120. RULES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100SECTION 3-121. LITIGATION INVOLVING THE DECLARANT. . . . . . . . . . . . . . . . . . . . 102SECTION 3-1223-121. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104SECTION 3-1223-123. REMOVAL OF OFFICERS AND DIRECTORS. . . . . . . . . . . . . . . . 105SECTION 3-123 3-124. ADOPTION OF BUDGETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106SECTION 3-124 3-121. LITIGATION INVOLVING THE DECLARANT. . . . . . . . . . . . . . . 107

[ARTICLE] 4PROTECTION OF PURCHASERS

SECTION 4-101. APPLICABILITY; WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT

REQUIREMENTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS. . . . . . . . 112SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO

DEVELOPMENT RIGHTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116SECTION 4-105. SAME; TIME SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES CONTAINING

CONVERSION BUILDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119SECTION 4-107. SAME; COMMON INTEREST COMMUNITY SECURITIES. . . . . . . . . 119SECTION 4-108. PURCHASER'S RIGHT TO CANCEL.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 120SECTION 4-109. RESALES OF UNITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120SECTION 4-110. ESCROW OF DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123SECTION 4-111. RELEASE OF LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123SECTION 4-112. CONVERSION BUILDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124SECTION 4-113. EXPRESS WARRANTIES OF QUALITY. . . . . . . . . . . . . . . . . . . . . . . . . 125SECTION 4-114. IMPLIED WARRANTIES OF QUALITY. . . . . . . . . . . . . . . . . . . . . . . . . . 126SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED WARRANTIES

OF QUALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES. . . . . . . . . . . . . . . . . 128SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION;

ATTORNEY'S FEES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL. . . . . . . . . . . . . . . . . . . . . 130SECTION 4-119. DECLARANT'S OBLIGATION TO COMPLETE AND RESTORE. . . . . 130SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS.. . . . . . . . . . . . . . . . . . . . . . . 131

1

1 AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT

[ARTICLE] 12

3 GENERAL PROVISIONS

[PART] 14

5 DEFINITIONS AND OTHER GENERAL PROVISIONS

SECTION 1-101. SHORT TITLE. This [act] may be cited as the Uniform Common6

7 Interest Ownership Act.

SECTION 1-102. APPLICABILITY. Applicability of this [act] is governed by [Part]8

9 2 of this [article].

SECTION 1-103. DEFINITIONS. In the declaration and bylaws (Section 3-106),10

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

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

13 under common control with a declarant. A person “controls” a declarant if the person:

14 (i)(A) is a general partner, officer, director, or employer of the declarant,;

15 (ii)(B) directly or indirectly or acting in concert with one or more other persons,

16 or through one or more subsidiaries, owns, controls, holds with power to vote, or holds proxies

17 representing, more than 20 percent of the voting interest in the declarant,;

18 (iii)(C) controls in any manner the election of a majority of the directors of the

19 declarant,; or

20 (iv)(D) has contributed more than 20 percent of the capital of the declarant.

21 A person “is controlled by” a declarant if the declarant:

22 (i)(A) is a general partner, officer, director, or employer of the person,;

23 (ii)(B) directly or indirectly or acting in concert with one or more other persons,

2

1 or through one or more subsidiaries, owns, controls, holds with power to vote, or holds proxies

2 representing, more than 20 percent of the voting interest in the person,;

3 (iii)(C) controls in any manner the election of a majority of the directors of the

4 person,; or

5 (iv)(D) has contributed more than 20 percent of the capital of the person.

6 Control does not exist if the powers described in this paragraph are held solely as security for an

7 obligation and are not exercised.

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

9 (i)(A) In in a condominium, the undivided interest in the common elements, the

10 common expense liability, and votes in the association;

11 (ii)(B) in a cooperative, the common expense liability, and the ownership

12 interest, and votes in the association; and

13 (iii)(C) in a planned community, the common expense liability and votes in the

14 association.

15 (3) “Assessment” means the sums attributable to each unit and due to the association as

16 a result of the common expense liability allocated to the units pursuant to Section 3-115.

17 (3)(4) “Association” or “unit owners' association” means the unit owners' association

18 organized under Section 3-101.

19 (5) “Bylaws” mean the document instruments, however denominated, that together

20 contains the procedures for conduct of the affairs of the association regardless of the form in

21 which of the association is organized’s legal entity or the name by which the document

22 comprising the bylaws is identified.

23 (4)(6) “Common elements” means:

3

1 (i)(A) in the case of:

2 (A)(i) a condominium or cooperative, all portions of the common interest

3 community other than the units; and

4 (B)(ii) a planned community, any real estate within a planned community

5 which is owned or leased by the association, other than a unit; and

6 (ii)(B) in all common interest communities, any other interests in real estate for

7 the benefit of unit owners which are subject to the declaration.

8 (5)(7) “Common expenses” means expenditures made by, or financial liabilities of, the

9 association, together with any allocations to reserves.

10 (6)(8) “Common expense liability” means the liability for common expenses (, or

11 limited common expenses or voluntary charges (should we define that term?) allocated to each

12 unit pursuant to Section 2-107.

13 WRB TO DRAFT COMMENT

14 Between this definition, the definition of “assessment,” the power to charge for services

15 under 3-102(a)(10), on relation and Sections 3-115 and 3-116.

16 (7)(9) “Common interest community” means real estate described in a declaration with

17 respect to which a person, by virtue of his the person’s ownership of a unit, is obligated to pay

18 for a share of real estate taxes, insurance premiums, maintenance, or improvement of, or services

19 or other expenses related to, common elements, other units, or other real estate described in a

20 that declaration. The term does not include arrangements described in Sections 1-209 and 1–210.

21 For purposes of this paragraph, “Ownership ownership of a unit” does not include holding a

22 leasehold interest of less than [20] years in a unit, including renewal options.

23 (8)(10) “Condominium” means a common interest community in which portions of the

4

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

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

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

4 vested in the unit owners.

5 (9)(11) “Conversion building” means a building that at any time before creation of the

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

7 and persons who occupy with the consent of purchasers.

8 (10)(12) “Cooperative” means a common interest community in which the real estate is

9 owned by an association, each of whose members is entitled by virtue of his the member’s

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

11 (11)(13) “Dealer” means a person in the business of selling units for his the person’s

12 own account.

13 (12)(14) “Declarant” means any person or group of persons acting in concert who:

14 (i)(A) as part of a common promotional plan, offers to dispose of his or it’s the

15 interest of the person or group of persons in a unit not previously disposed of[;] [or]

16 (ii)(B) reserves or succeeds to any special declarant right [,; or

17 (iii)(C) applies for registration of a common interest community under [Article]

18 5].

19 (13)(15) “Declaration” means any the instruments, however denominated, that together

20 create a common interest community, including any amendments to those instruments.

21 (14)(16) “Development rights” means any right or combination of rights reserved by a

22 declarant in the declaration to:

23 (i)(A) add real estate to a common interest community;

5

1 (ii)(B) create units, common elements, or limited common elements within a

2 common interest community;

3 (iii)(C) subdivide units or convert units into common elements; or

4 (iv)(D) withdraw real estate from a common interest community.

5 (15)(17) “Dispose” or “disposition” means a voluntary transfer to a purchaser of any

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

7 security interest.

8 (16)(18) “Executive board” means the body, regardless of name, designated in the

9 declaration or bylaws to act on behalf of the association.

10 (17)(19) “Identifying number” means a symbol or address that identifies only one unit in

11 a common interest community.

12 (18)(20) “Leasehold common interest community” means a common interest community

13 in which all or a portion of the real estate is subject to a lease the expiration or termination of

14 which will terminate the common interest community or reduce its size.

15 (19)(21) “Limited common element” means a portion of the common elements allocated

16 by the declaration or by operation of Section 2-102(2) or (4) for the exclusive use of one or more

17 but fewer than all of the units.

18 (20)(22) “Master association” means an organization described in Section 2-120,

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

20 (21)(23) “Offering” means any advertisement, inducement, solicitation, or attempt to

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

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

23 medium to the general public, of a common interest community not located in this state, is not an

6

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

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

3 (22)(24) “Person” means an individual, corporation, business trust, estate, trust,

4 partnership, association, joint venture, public corporation, government, or governmental

5 subdivision or agency, or other legal or commercial entity. [In the case of a land trust, however,

6 “person” means the beneficiary of the trust rather than the trust or the trustee.]

7 (23)(25) “Planned community” means a common interest community that is not a

8 condominium or a cooperative. A condominium or cooperative may be part of a planned

9 community.

10 (24)(26) “Proprietary lease” means an agreement with the association pursuant to which

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

12 (25)(27) “Purchaser” means a person, other than a declarant or a dealer, who by means

13 of a voluntary transfer acquires a legal or equitable interest in a unit other than:

14 (i)(A) a leasehold interest (, including renewal options), of less than 20 years,; or

15 (ii)(B) as security for an obligation.

16 (26)(28) “Real estate” means any leasehold or other estate or interest in, over, or under

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

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

19 of conveyance. “Real estate” includes parcels with or without upper or lower boundaries, and

20 spaces that may be filled with air or water.

21 (29) “Record” means information that is inscribed on a tangible medium or that is stored

22 in an electronic or other medium and is retrievable in perceivable format.

23 (27)(30) “Residential purposes” means use for dwelling or recreational purposes, or

7

1 both.

(28)(31) “Rule” means any rule policy, guideline, restriction, procedure, or regulation of2

3 an association, however, denominated, which is not set forth in the declaration or bylaws and

4 that which governs either the conduct of persons or property in the common interest community.

5 or the use or appearance of property. The association’s internal business operating procedures

6 need not be adopted as rules.

7 NEW DRAFT COMMENT89 The term “rule” has appeared in this Act since its original promulgation in 1982; see,

10 e.g., § 3-102 (a):“…[t]he association may (1) adopt and amend…rules and regulations’.11 However, the definition of “Rule” is new in the 2008 amendments to UCIOA. It has been added12 for several reasons.1314 1. First, uncertainty existed regarding those subject matters that must be adopted as rules15 after notice to unit owners and an opportunity to comment, as provided in Section 3-120. In16 those appropriate cases, the Act makes clear that the association must follow formal adoption17 procedures, rather than simply approving informal policies or written guidelines. 18 The definition thus highlights two fundamental subject matters where the rule adoption process19 must be followed: one is personal conduct and the other is the use and appearance of property.2021 In addition, the committee recognizes that developing law in some jurisdictions permits22 the association to regulate to some degree the behavior of unit owners and their guests and23 tenants even when those persons are acting outside the boundaries of the common interest24 community. [insert citations to cases]. Most commonly, these issues arise when associations25 seek to regulate parking on public streets that serve the community. This Act takes no position26 on whether such an extension of the association’s authority is or is not appropriate in any27 instance and the Act cannot be read either to authorize or prohibit such authority. However, to28 the extent other law of an adopting State confirms that the association possesses such authority,29 the definition makes clear that the association’s policies in those regards – unless they appear in30 the declaration or bylaws for that common interest community - must be adopted only after31 notice and comment.3233 2. The Act recognizes that the same subject matters that may be regulated by ‘rules’ may34 instead be controlled by language in the declaration or bylaws. See, e.g., §3-106(d). Indeed, in35 some instances, certain conduct and use restrictions must appear in the declaration as a condition36 to their effectiveness. See, e.g., §2-105(1)(12). In other instances, the association may only37 adopt rules governing a particular subject matter if the declaration affirmatively empowers the38 association to do so. See, e.g., §2-105(a)(14). Thus, in any given common interest community,39 the pattern of various provisions of the declaration, the bylaws and the rules must be considered

8

1 together in order for those who live in that community to gain a full understanding of what they2 may and may not do. It is common, for that reason, for associations to compile the regulatory3 matters from those different sources into a single document for distribution to unit owners.45 3. Finally, in defining what subject matters may be subject to the rules adoption process,6 the definition clearly exempts the Association’s internal business operating procedures from that7 process. In those instances, there is no obligation that the procedures be adopted as rules. 8 Instead, the executive board or management company might adopt or amend such procedures at9 will. It may be useful to provide some examples.

1011 • The association chooses to solicit bids from potential contractors for a particular12 project, or for services that it requires. To the extent the executive board wishes to13 adopt a procedure for soliciting, reviewing and accepting bids, such a policy would14 not require notice to unit owners or the right to comment. Indeed, since it is not15 subject to the rules adoption process, the executive board is free to act in the absence16 of any formal policy whatsoever.1718 • The Board approves a management contract with an outside management company.19 That contract may contain a variety of procedures governing how the manager must20 carry out its duties in the management of the association.2122 • The Board may adopt filing procedures, check writing procedures, document23 retention policies or an employee handbook, all without the need to adopt rules in24 those respects.2526 • There will be cases, of course, where the line between ‘conduct’ or ‘use’ on the one27 hand and ‘internal operating procedures’ may be less clear. The principle set out in28 the definition, however, should guide the decision-maker to the appropriate result.2930 (32) “Security interest” means an interest in real estate or personal property, created by

31 contract or conveyance, which secures payment or performance of an obligation. The term

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

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

34 pledge of an ownership interest in an association, and any other consensual lien or title retention

35 contract intended as security for an obligation.

36 (29)(33) “Special declarant rights” means rights reserved for the benefit of a declarant

37 to:

9

1 (i)(A) complete improvements indicated on plats and plans filed with the

2 declaration (Section 2-109) or, in a cooperative, to complete improvements described in the

3 public offering statement pursuant to Section 4-103(a)(2);

4 (ii)(B) exercise any development right (Section 2-110);

5 (iii)(C) maintain sales offices, management offices, signs advertising the

6 common interest community, and models (Section 2-115);

7 (iv)(D) use easements through the common elements for the purpose of making

8 improvements within the common interest community or within real estate which may be added

9 to the common interest community (Section 2-116);

10 (v)(E) make the common interest community subject to a master association

11 (Section 2-120);

12 (vi)(F) merge or consolidate a common interest community with another

13 common interest community of the same form of ownership (Section 2-121); or

14 (vii)(G) appoint or remove any officer of the association or any master

15 association or any executive board member during any period of declarant control (Section

16 3-103(d)).;

17 (H) control any construction, or design review, or aesthetic standards committee

18 or process;

19 (I) attend meetings of the unit owners and, except during an executive session,

20 the executive board; or and

21 (J) have access to the records of the association to the same extent as a unit

22 owner.

23 (30)(34) “Time share” means a right to occupy a unit or any of several units during

10

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

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

3 specified portion thereof.

4 (31)(35) “Unit” means a physical portion of the common interest community designated

5 for separate ownership or occupancy, the boundaries of which are described pursuant to Section

6 2-105(a)(5). If a unit in a cooperative is owned by a unit owner or is sold, conveyed, voluntarily

7 or involuntarily encumbered, or otherwise transferred by a unit owner, the interest in that unit

8 which is owned, sold, conveyed, encumbered, or otherwise transferred is the right to possession

9 of that unit under a proprietary lease, coupled with the allocated interests of that unit, and the

10 association's interest in that unit is not thereby affected.

11 (32)(36) “Unit owner” means a declarant or other person who owns a unit, or a lessee of

12 a unit in a leasehold common interest community whose lease expires simultaneously with any

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

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

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

16 created by the declaration. In a cooperative, the declarant is treated as the owner of any unit to

17 which allocated interests have been allocated (Section 2-107) until that unit has been conveyed

18 to another person.

SECTION 1-104. NO VARIATION BY AGREEMENT. Except as expressly19

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

21 may not be waived. Except as provided in Section 1-207, a declarant may not act under a power

22 of attorney, or use any other device, to evade the limitations or prohibitions of this [act] or the

23 declaration.

11

SECTION 1-105. SEPARATE TITLES AND TAXATION.1

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

3 and its allocated interests is real estate for all purposes, that interest is personal property. [That

4 interest is subject to the provisions of [insert reference to state homestead exemptions], even if it

5 is personal property.]

6 (b) In a condominium or planned community:

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

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

9 parcel of real estate.

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

11 taxed and assessed, and no separate tax or assessment may be rendered against any common

12 elements for which a declarant has reserved no development rights.

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

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

15 alone is liable for payment of those taxes.

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

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

SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES,18

19 REGULATIONS, AND BUILDING CODES.

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

21 interest community which it would not impose upon a physically identical development under a

22 different form of ownership.

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

12

1 law, ordinance, or regulation may prohibit the condominium or cooperative form of ownership

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

3 a physically identical development under a different form of ownership.

4 (c) Except as provided in subsections (a) and (b), the provisions of this [act] do not

5 invalidate or modify any provision of any building code, zoning, subdivision, or other real estate

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

SECTION 1-107. EMINENT DOMAIN.7

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

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

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

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

12 Upon acquisition, unless the [decree] otherwise provides, that unit's allocated interests are

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

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

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

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

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

18 the award must compensate the unit owner for the reduction in value of the unit and its interest

19 in the common elements, whether or not any common elements are acquired. Upon acquisition,

20 unless the [decree] otherwise provides, :

21 (i)(1) that unit's allocated interests are reduced in proportion to the reduction in

22 the size of the unit, or on any other basis specified in the declaration; and

23 (ii)(2) the portion of the allocated interests divested from the partially acquired

13

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

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

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

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

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

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

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

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

9 (d) The [court decree] must be recorded in every [county] in which any portion of the

10 common interest community is located.

11 Reporter Note – (11/07)

12 The 2008 amendments added a bracket around the word “decree” in recognition of the13 fact that the practice of the states may vary with respect to the documentation of eminent domain14 awards.15

SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW16

17 APPLICABLE. The principles of law and equity, including the law of corporations [,] [and] any

18 other form of business organization authorized by law in this state [,and unincorporated

19 associations], the law of real property, and the law relative to capacity to contract, principal and

20 agent, eminent domain, estoppel, fraud, misrepresentation, duress, coercion, mistake,

21 receivership, substantial performance, or other validating or invalidating cause supplement the

22 provisions of this [act], except to the extent inconsistent with this [act]. Without limiting the

23 foregoing, tThe laws of this state that apply to the association’s form of legal entity organization

24 apply to the association except to the extent that law is inconsistent with this [act], in which case

25 this [act] governs.

14

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

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

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

4 be avoided.

SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION. 5

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

7 the law with respect to the subject of this [act] among states enacting it.

SECTION 1-111. SEVERABILITY. If any provision of this [act] or the application8

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

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

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

12 Reporter Note – WRB TO DRAFT

13 (11/07) I have a note to draft a “Legislative Note” on “better drafting” re §§109, 110 and14 111.15

SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF16

17 CONTRACT.

18 (a) The court, upon finding as a matter of law that a [servitude] contract or contract

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

20 enforce the remainder of the [servitude was (recorded) (effective) (etc.)] contract without the

21 unconscionable clause, or limit the application of any unconscionable clause in order to avoid an

22 unconscionable result.

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

24 is or may be unconscionable, the parties, in order to aid the court in making the determination,

15

1 must be afforded a reasonable opportunity to present evidence as to:

2 (1) the commercial setting of the negotiations;

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

4 party reasonably to protect his the party’s interests by reason of physical or mental infirmity,

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

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

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

8 charged for the property and the value of that property measured by the price at which similar

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

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

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

SECTION 1-113. OBLIGATION OF GOOD FAITH. Every contract or duty12

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

SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED.14

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

16 aggrieved party is put in as good a position as if the other party had fully performed. However,

17 consequential, special, or punitive damages may not be awarded except as specifically provided

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

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

SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS. 20

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

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

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

16

1 100, compiled by the Bureau of Labor Statistics, United States Department of Labor, (the

2 “Index”). The Index for December, 1979 2006, which was 230 587, is the Reference Base

3 Index.

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

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

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

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

8 (i) the portion of the percentage change in the Index in excess of a multiple of 10

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

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

11 (ii) the dollar amount must not change if the amount required by this section is

12 that currently in effect pursuant to this [act] as a result of earlier application of this section; and

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

14 in this [act] on the date of enactment.

15 (c) If the Index is revised after December, 1979 2006, the percentage of change pursuant

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

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

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

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

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

21 purchasing power of the dollar for consumers.

[PART] 222

23 APPLICABILITY

17

SECTION 1-201. APPLICABILITY TO NEW COMMON INTEREST1

2 COMMUNITIES. Except as otherwise provided in Sections 1-202 and 1-203 this [part], this

3 [act] applies to all common interest communities created within this state after the effective date

4 of this [act]. The provisions of [insert reference to all present statutes expressly applicable to

5 planned communities, condominiums, cooperatives, or horizontal property regimes] do not apply

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

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

8 or subjected to this [act], regardless of when the amendment is adopted in this state.

SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES. If a cooperative9

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

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

12 (Eminent Domain)1-106 and 1-107 of this [act] unless the declaration provides that the entire

13 [act] is applicable.

SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE14

15 LIABILITY CONDOMINIUMS AND PLANNED COMMUNITIES.

16 (a) If a condominium or planned community that is not subject to any development right:

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

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

19 of all units restricted to residential purposes, exclusive of optional user fees and any insurance

20 premiums paid by the association, may not exceed $300 $7668 as adjusted pursuant to Section

21 1-115 (Adjustment of Dollar Amounts), it is subject only to Sections 1-105 (Separate Titles and

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

23 1-107 (Eminent Domain) unless the declaration provides that this entire [act] is applicable.

18

1 (a) Unless the declaration provides that this entire [act] is applicable, a planned

2 community that is not subject to any development right is subject only to Section 1-105, 1-106,

3 and 1-107, if the community:

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

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

6 of all units restricted to residential purposes, exclusive of optional user fees and any insurance

7 premiums paid by the association, may not exceed $768, as adjusted pursuant to Section 1-115.

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

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

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

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

12 limitation stated in subsection (a)(2) during the period of declarant control without the consent of

13 all unit owners.

SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST14

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

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

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

18 (Eminent Domain), 2-102, 2-103 (Construction and Validity of Declaration and Bylaws), 2-104

19 (Description of Units), 2-117 (Merger or Consolidation of Common Interest Communities),

20 3-102(a)(1) through (6) and (11) through (16) (Powers of Unit Owners' Association), 3-103 (Tort

21 and Contract Liability), 3-116 (Lien for Assessments), 3-118 (Association Records), 3-124, 4-

22 109 (Resales of Units), and 4-117 (Effect of Violation on Rights of Action; Attorney's Fees), and

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

19

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

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

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

4 plans] of those common interest communities.

SECTION 1-205. SAME; EXCEPTION FOR APPLICABILITY TO SMALL PRE-5

6 EXISTING COOPERATIVES AND PLANNED COMMUNITIES. If a cooperative or

7 planned community created within this state before the effective date of this [act] contains no

8 more than 12 units and is not subject to any development rights, it is subject only to Sections

9 1-105 (Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations,

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

11 conformity with applicable law and with the procedures and requirements of the declaration to

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

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

SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS.14

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

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

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

18 (b) [Except as otherwise provided in Section 2-117(j), an]An amendment to the

19 declaration, bylaws, or plats and plans authorized by this section must be adopted in conformity

20 with any procedures and requirements for amending the instruments specified by those

21 instruments or, if there are none, in conformity with the amendment procedures of this [act]. If

22 an amendment grants to any person any rights, powers, or privileges permitted by this [act], all

23 correlative obligations, liabilities, and restrictions in this [act] also apply to that person.

20

SECTION 1-207. APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE1

2 COMMON INTEREST COMMUNITIES.

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

4 in which all units are restricted exclusively to nonresidential purposes. Except as provided in

5 subsection (e), this section applies only to nonresidential common interest communities.

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

7 except to the extent the declaration otherwise provides.

8 (c) The If the declaration of a nonresidential common interest community may provide

9 that provides that the common interest community is subject to this [act], it must also provide

10 that:

11 (1) the entire [act] applies to the community;

12 (2) only [Articles] 1 and 2 apply; or that

13 (3) in the case of a planned community or a cooperative, only Sections 1-105

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

15 Building Codes), and 1-107 (Eminent Domain) apply.

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

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

18 Contract), that:

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

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

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

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

23 and

21

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

2 must execute proxies, powers of attorney, or similar devices in favor of the declarant regarding

3 particular matters enumerated in those instruments.

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

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

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

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

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

SECTION 1-208. APPLICABILITY TO OUT-OF-STATE COMMON INTEREST9

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

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

12 4-108)state, but Sections 4-102 and 4-103 and, to the extent applicable, Sections 4-104 through

13 4-106 apply to all contracts for the disposition thereof signed in this state by any party unless

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

15 any offering thereof in this state].

SECTION 1-209. OTHER EXEMPT REAL ESTATE AGREEMENTS.16

17 (a) An agreement between the associations for two or more common interest

18 communities to share the costs of real estate taxes, insurance premiums, services, maintenance

19 or improvements of real estate, or other activities specified in their agreement or declarations

20 does not create a separate common interest community. If the declarants of those common

21 interest communities are affiliates, the agreement may not unreasonably allocate the costs among

22 those common interest communities.

23 (b) An agreement between an association and the owner of real estate that is not part of a

22

1 common interest community to share the costs of real estate taxes, insurance premiums, services,

2 maintenance or improvements of real estate, or other activities specified in their agreement does

3 not create a separate common interest community. However, the assessments against the units in

4 the common interest community required by the agreement must be included in the periodic

5 budget for the common interest community and the agreement must be disclosed in all public

6 offering statements and resale certificates required by this [act].

SECTION 1-210. OTHER EXEMPT COVENANTS. A covenant that requires the7

8 owners of separately owned parcels of real estate to share costs or other obligations associated

9 with a party wall, driveway, well, or other similar [use] [property] does not create a common

10 interest community unless those owners otherwise agree.

23

[ARTICLE] 21

2 CREATION, ALTERATION, AND

3 TERMINATION OF COMMON INTEREST COMMUNITIES

SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES.4

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

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

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

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

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

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

11 (b) In a condominium, a declaration, or an amendment to a declaration, adding units may

12 not be recorded unless (i) all structural components and mechanical systems of all buildings

13 containing or comprising any units thereby created are substantially completed in accordance

14 with the plans, as evidenced by a recorded certificate of completion executed by an independent

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

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

SECTION 2-102. UNIT BOUNDARIES. Except as provided by the declaration:17

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

19 wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finished flooring, and any other

20 materials constituting any part of the finished surfaces thereof are a part of the unit, and all other

21 portions of the walls, floors, or ceilings are a part of the common elements.

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

23 fixture lies partially within and partially outside the designated boundaries of a unit, any portion

24

1 thereof serving only that unit is a limited common element allocated solely to that unit, and any

2 portion thereof serving more than one unit or any portion of the common elements is a part of

3 the common elements.

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

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

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

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

8 outside the unit's boundaries, are limited common elements allocated exclusively to that unit.

SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND9

10 BYLAWS.

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

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

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

14 (c) In the event of a conflict between the provisions of the declaration and the bylaws,

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

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

17 affected by reason of an insubstantial failure of the declaration to comply with this [act].

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

SECTION 2-104. DESCRIPTION OF UNITS. A description of a unit which sets19

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

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

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

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

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SECTION 2-105. CONTENTS OF DECLARATION.1

2 (a) The declaration must contain:

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

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

5 community;

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

7 community is situated;

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

9 interest community;

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

11 right to create;

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

13 each unit created by the declaration, including the unit's identifying number or, in a cooperative,

14 a description, which may be by plats or plans, of each unit created by the declaration, including

15 the unit's identifying number, its size or number of rooms, and its location within a building if it

16 is within a building containing more than one unit;

17 (6) a description of any limited common elements, other than those specified in

18 Section 2-102(2) and (4), as provided in Section 2-109(b)(10) and, in a planned community, any

19 real estate that is or must become common elements;

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

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

22 common elements specified in Section 2-102(2) and (4), together with a statement that they may

23 be so allocated;

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

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

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

4 each of those rights must be exercised;

5 (9) if any development right may be exercised with respect to different parcels of

6 real estate at different times, a statement to that effect together with (i) either a statement fixing

7 the boundaries of those portions and regulating the order in which those portions may be

8 subjected to the exercise of each development right or a statement that no assurances are made in

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

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

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

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

13 paragraph (8) may be exercised or will lapse;

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

15 in Section 2-107;

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

17 leasing which exceed the restrictions on leasing units which executive boards may impose

18 pursuant to Section 3-102(c)(2) 3-120(d), and (ii) on the amount for which a unit may be sold or

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

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

21 community;

22 (13) the [recording data] for recorded easements and licenses appurtenant to or

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

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

2 (14) any authorization pursuant to which the association may adopt rules to

3 establish and enforce construction and design criteria and aesthetic standards in the manner

4 provided in either Section 3-106 or 3-120; and

5 (15) all matters required by Sections 2-106, 2-107, 2-108, 2-109, 2-115, 2-116,

6 and 3-103(d).

7 (b) The declaration may contain any other matters the declarant considers appropriate,

8 including any restrictions on the uses of a unit or the number or other qualifications of persons

9 who may occupy units.

SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES.10

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

12 community or reduce its size [, or a memorandum thereof,] must be recorded. Every lessor of

13 those leases in a condominium or planned community shall sign the declaration. The declaration

14 must state:

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

16 may be inspected];

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

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

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

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

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

22 time after the expiration or termination of the lease, or a statement that they do not have those

23 rights; and

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

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

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

4 is recorded, neither the lessor nor the lessor's successor in interest may terminate the leasehold

5 interest of a unit owner who makes timely payment of a unit owner's share of the rent and

6 otherwise complies with all covenants which, if violated, would entitle the lessor to terminate the

7 lease. A unit owner's leasehold interest in a condominium or planned community is not affected

8 by failure of any other person to pay rent or fulfill any other covenant.

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

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

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

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

13 interest community, the allocated interests must be reallocated in accordance with Section

14 1-107(a) as if those units had been taken by eminent domain. Reallocations must be confirmed

15 by an amendment to the declaration prepared, executed, and recorded by the association.

SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS.16

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

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

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

20 portion of the votes in the association;

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

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

23 votes in the association; and

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

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

3 (b) The declaration must state the formulas used to establish allocations of interests.

4 Those allocations may not discriminate in favor of units owned by the declarant or an affiliate of

5 the declarant.

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

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

8 included in the common interest community after the addition or withdrawal.

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

10 the units on particular matters specified in the declaration; (ii) for cumulative voting only for the

11 purpose of electing members of the executive board; and (iii) for class voting on specified issues

12 affecting the class if necessary to protect valid interests of the class. A declarant may not utilize

13 cumulative or class voting for the purpose of evading any limitation imposed on declarants by

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

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

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

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

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

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

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

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

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

23 allocated is void.

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

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

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

SECTION 2-108. LIMITED COMMON ELEMENTS.4

5 (a) Except for the limited common elements described in Section 2-102(2) and (4), the

6 declaration must specify to which unit or units each limited common element is allocated. An

7 allocation may not be altered without the consent of the unit owners whose units are affected.

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

9 reallocated by an amendment to the declaration executed by the unit owners between or among

10 whose units the reallocation is made. The persons executing the amendment shall provide a

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

12 names of the parties and the common interest community.

13 (c) A common element not previously allocated as a limited common element may be so

14 allocated only pursuant to provisions in the declaration made in accordance with Section

15 2-105(a)(7). The allocations must be made by amendments to the declaration.

SECTION 2-109. PLATS AND PLANS.16

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

18 communities except cooperatives. Separate plats and plans are not required by this [act] if all the

19 information required by this section is contained in either a plat or plan. Each plat and plan must

20 be clear and legible and contain a certification that the plat or plan contains all information

21 required by this section.

22 (b) Each plat must show or project:

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

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1 interest community;

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

3 rights, or subject only to the development right to withdraw, and the location and dimensions of

4 all existing improvements within that real estate;

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

6 rights, labeled to identify the rights applicable to each parcel;

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

8 interest community;

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

10 or burdening any portion of the common interest community;

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

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

13 subsection (d) and that unit's identifying number;

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

15 to an established datum of any horizontal unit boundaries not shown or projected on plans

16 recorded pursuant to subsection (d) and that unit's identifying number;

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

18 own only an estate for years, labeled as “leasehold real estate;”

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

20 common interest community;

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

22 garages, or patios allocated as limited common elements, and show or contain a narrative

23 description of any other limited common elements; and

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

2 customarily shown on land surveys.

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

4 improvement to be constructed anywhere within the common interest community. Any

5 contemplated improvement shown must be labeled either “MUST BE BUILT” or “NEED NOT

6 BE BUILT.”

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

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

9 (1) the approximate location and dimensions of the vertical boundaries of each

10 unit, and that unit's identifying number;

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

12 an established datum, and that unit's identifying number; and

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

14 right to create additional units or common elements (Section 2-110(c)), identified appropriately.

15 (e) Unless the declaration provides otherwise, the horizontal boundaries of part of a unit

16 located outside a building have the same elevation as the horizontal boundaries of the inside part

17 and need not be depicted on the plats and plans.

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

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

20 certifications of plats and plans previously recorded if those plats and plans otherwise conform

21 to the requirements of those subsections.

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

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

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1 (h) Plats and plans need not show the location and dimensions of the units' boundaries or

2 their limited common elements if:

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

4 comprising the units; and

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

6 description of the general layout of the units in those buildings and the limited common elements

7 allocated to those units.

SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS.8

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

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

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

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

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

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

15 amendment must describe any common elements and any limited common elements thereby

16 created and, in the case of limited common elements, designate the unit to which each is

17 allocated to the extent required by Section 2-108 (Limited Common Elements).

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

19 interest community if the amendment adding that real estate includes all matters required by

20 Section 2-105 or 2-106, as the case may be, and, in a condominium or planned community, the

21 plats and plans include all matters required by Section 2-109. This provision does not extend the

22 time limit on the exercise of development rights imposed by the declaration pursuant to Section

23 2-105(a)(8).

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

2 previously created into additional units, common elements, or both:

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

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

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

6 (2) if the declarant subdivides the unit into two or more units, whether or not any

7 part of the unit is converted into common elements, the amendment to the declaration must

8 reallocate all the allocated interests of the unit among the units created by the subdivision in any

9 reasonable manner prescribed by the declarant.

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

11 the real estate is subject to a right of withdrawal:

12 (1) if all the real estate is subject to withdrawal, and the declaration does not

13 describe separate portions of real estate subject to that right, none of the real estate may be

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

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

16 that portion has been conveyed to a purchaser.

SECTION 2-111. ALTERATIONS OF UNITS. Subject to the provisions of the17

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

19 (1) may make any improvements or alterations to his that owner’s unit that do not impair

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

21 interest community;

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

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

35

1 association;

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

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

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

5 mechanical systems or lessen the support of any portion of the common interest community.

6 Removal of partitions or creation of apertures under this paragraph is not an alteration of

7 boundaries.

SECTION 2-112. RELOCATION OF UNIT BOUNDARIES.8

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

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

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

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

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

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

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

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

17 of the grantor and the grantee, and [in the grantee's index] in the name of the association.

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

19 between units and common elements may be relocated to incorporate common elements within a

20 unit by an amendment to the declaration upon application to the association by the owner of the

21 unit who proposes to relocate a boundary. Unless the declaration provides otherwise, the

22 amendment may be approved only if persons entitled to cast at least [67] percent of the votes in

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

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1 agree to the action. The amendment may describe any fees or charges payable by the owner of

2 the affected unit in connection with the boundary relocation and the fees and charges are assets

3 of the association. The amendment must be executed by the unit owner of the unit whose

4 boundary is being relocated and by the association, contain words of conveyance between them,

5 and on recordation be indexed in the name of the unit owner and the association as grantor or

6 grantee, as appropriate.

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

8 plats or plans necessary to show the altered boundaries of affected units, and their dimensions

9 and identifying numbers, and (ii) in a cooperative shall prepare and record amendments to the

10 declaration, including any plans, necessary to show or describe the altered boundaries of affected

11 units, and their dimensions and identifying numbers.

SECTION 2-113. SUBDIVISION OF UNITS.12

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

14 units. Subject to the provisions of the declaration and other provisions of law, upon application

15 of a unit owner to subdivide a unit, the association shall prepare, execute, and record an

16 amendment to the declaration, including, in a condominium or planned community, the plats and

17 plans, subdividing that unit.

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

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

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

21 prescribed by the owner of the subdivided unit or on any other basis the declaration requires.

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1 Alternative A

[SECTION 2-114. EASEMENT FOR ENCROACHMENTS. To the extent that any2

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

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

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

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

7 Alternative B

[SECTION 2-114. MONUMENTS AS BOUNDARIES. The existing physical8

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

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

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

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

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

14 not relieve a unit owner of liability in case of his for willful misconduct or relieve a declarant or

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

16 any representation in the public offering statement.]

17 (End of Alternatives)

SECTION 2-115. USE FOR SALES PURPOSES. A declarant may maintain sales18

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

20 interest community only if the declaration so provides and specifies the rights of a declarant with

21 regard to the number, size, location, and relocation thereof. In a cooperative or condominium,

22 any sales office, management office, or model not designated a unit by the declaration is a

23 common element. If a declarant ceases to be a unit owner, he ceases to have any rights with

38

1 regard thereto unless it is removed promptly from the common interest community in accordance

2 with a right to remove reserved in the declaration. Subject to any limitations in the declaration, a

3 declarant may maintain signs on the common elements advertising the common interest

4 community. This section is subject to the provisions of other state law and to local ordinances.

SECTION 2-116. EASEMENT RIGHTS.5

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

7 common elements as may be reasonably necessary for the purpose of discharging the declarant's

8 obligations or exercising special declarant rights, whether arising under this [act] or reserved in

9 the declaration.

10 (b) In a planned community, subject to the provisions of Sections 3-102(a)(6) and 3-112,

11 the unit owners have an easement (i) in the common elements for purposes of access to their

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

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

SECTION 2-117. AMENDMENT OF DECLARATION.14

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

16 2-109(f) or 2-110, or by the association under Section 1-107, 2-106(d), 2-108(c), 2-112(a), or

17 2-113, or by certain unit owners under Section 2-108(b), 2-112(a), 2-113(b), or 2-118(b), or by

18 secured lenders pursuant to Section 2-119, and except as limited by subsection (d), the

19 declaration, including any plats and plans, may be amended only by:

20 (1) vote or agreement of unit owners of units to which at least [67] percent of the

21 votes cast at any meeting of the unit owners to consider the amendment, if the number of votes

22 cast in favor of the amendment would constitute [a quorum for a meeting of the unit owners]

23 [Alternative - a majority of all the votes in the assocation]; in the association are allocated, or

39

1 (2) by agreement of [unit owners of units to which at least the number of votes

2 are allocated to constitute a quorum for a meeting of the unit owners] [Alternative - a majority

3 of the unit owners] or any larger majority the declaration specifies.

4 (b) The declaration may specify a smaller number for amendments under subsection (a)

5 only if all of the units are restricted exclusively to nonresidential use or as permitted under

6 Section 2-119.

7 REPORTER NOTE OF 11/07:

8 I think the drafting committee’s vote in this matter assumed that there would be9 only be a vote of unit owners, when in fact it is permissible for the board to seek

10 an agreement rather than a vote. The 2 alternatives provided address both11 methods of approval.1213 (b)(c) No action to challenge the validity of an amendment adopted by the association

14 pursuant to this section may be brought more than one year after the amendment is recorded.

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

16 any portion of the common interest community is located and is effective only upon recordation.

17 An amendment, except an amendment pursuant to Section 2-112(a), must be indexed [in the

18 grantee's index] in the name of the common interest community and the association and [in the

19 grantor's index] in the name of the parties executing the amendment.

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

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

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

23 unanimous consent of the unit owners.

24 (e)(f) Amendments to the declaration required by thethis [act] to be recorded by the

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

40

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

2 president of the association.

3 (f)(g) By vote or agreement of unit owners of units [that would be affected by a

4 proposed amendment to the declaration and] to which at least 80 percent of the votes in the

5 association of those affected units are allocated, [(including 80 percent of the affected units)] or

6 any larger percentage specified in the declaration, an amendment to the declaration may prohibit

7 or materially restrict the permitted uses of or behavior in a unit or the number or other

8 qualifications of persons who may occupy units. The amendment must provide reasonable

9 protection for a use or occupancy permitted at the time the amendment was adopted.

10 REPORTER’S NOTE – TO BE DRAFTED

11 Regarding rationale for changes in §2-117.

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

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

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

15 80 percent of the votes in the association, including 80 percent of the votes allocated to units not

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

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

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

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

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

21 recorded.

22 (h)(i) A provision in the declaration creating special declarant rights that which has not

23 expired may not be amended without the consent of the declarant.

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1 [(i)(j)] [If any provision of this [act] or of the declaration of any common interest

2 community in this state, whether created before or after the [insert effective date of this [act] or

3 the amendments to this [act], as appropriate,] requires the consent of a person holding a security

4 interest in a unit as a condition to the effectiveness of an amendment to the declaration, that

5 consent is granted if no written refusal to consent is received by the association within 45 days

6 after the association delivers notice of the proposed amendment to the holder of the interest or

7 mails the notice to the holder of the interest by certified mail, return receipt requested. The

8 association may rely on the last-recorded security interest of record in delivering or mailing

9 notice to the holder of that interest.]

10 [(j)] [If the declaration of a common interest community, whether created before or after

11 the [insert effective date of this [act] or the amendments to this [act], as appropriate,] contains a

12 provision requiring that amendments may be adopted only by the vote or agreement of unit

13 owners of units to which more than 80 per cent of the votes in the association are allocated, such

14 a proposed amendment shall be deemed approved if:

15 (1) (A) unit owners of units to which at least 80 per cent of the votes in the

16 association are allocated vote for or agree to the proposed amendment;

17 (B) no unit owner votes against the proposed amendment; and

18 (C) notice of the proposed amendment is delivered to the unit owners

19 holding the votes in the association that have not voted or agreed to the proposed amendment

20 and no written objection of the proposed amendment is received by the association within thirty

21 days after the association delivers notice; or

22 (2) unit owners of units to which at least 80 per cent of the votes in the

23 association are allocated vote for or agree to the proposed amendment but at least one unit owner

42

1 objects to the proposed amendment and, pursuant to an action brought by the association in the

2 [insert appropriate court] against all objecting unit owners, the court finds that the objecting unit

3 owners do not have a unique minority interest, different in kind from the interests of the other

4 unit owners, that the voting requirement of the declaration was intended to protect.]

SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY. 5

6 (a) Except in the case of a taking of all the units by eminent domain (Section 1-107) or

7 in the case of foreclosure against an entire cooperative of a security interest that has priority over

8 the declaration, a common interest community may be terminated only by agreement of unit

9 owners of units to which at least 80 percent of the votes in the association are allocated, or any

10 larger percentage the declaration specifies. The declaration may specify a smaller percentage

11 only if all of the units are restricted exclusively to nonresidential uses.

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

13 agreement, or ratifications thereof, in the same manner as a deed, by the requisite number of unit

14 owners. The termination agreement must specify a date after which the agreement will be void

15 unless it is recorded before that date. A termination agreement and all ratifications thereof must

16 be recorded in every [county] in which a portion of the common interest community is situated

17 and is effective only upon recordation.

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

19 horizontal boundaries described in the declaration, a termination agreement may provide that all

20 of the common elements and units of the common interest community must be sold following

21 termination. If, pursuant to the agreement, any real estate in the common interest community is

22 to be sold following termination, the termination agreement must set forth the minimum terms of

23 the sale.

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

2 horizontal boundaries described in the declaration, a termination agreement may provide for sale

3 of the common elements, but it may not require that the units be sold following termination,

4 unless the declaration as originally recorded provided otherwise or all the unit owners consent to

5 the sale.

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

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

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

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

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

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

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

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

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

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

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

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

18 owner and the unit owner's successors in interest remain liable for all assessments and other

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

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

21 interest community is not to be sold following termination, title to the common elements and, in

22 a common interest community containing only units having horizontal boundaries described in

23 the declaration, title to all the real estate in the common interest community, vests in the unit

44

1 owners upon termination as tenants in common in proportion to their respective interests as

2 provided in subsection (j), and liens on the units shift accordingly. While the tenancy in

3 common exists, each unit owner and the unit owner's successors in interest have an exclusive

4 right to occupancy of the portion of the real estate that formerly constituted the unit.

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

6 of real estate, together with the assets of the association, are held by the association as trustee for

7 unit owners and holders of liens on the units as their interests may appear.

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

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

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

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

12 of the association are to be treated as if they had perfected liens on the units immediately before

13 termination.

14 (i) In a cooperative, the declaration may provide that all creditors of the association have

15 priority over any interests of unit owners and creditors of unit owners. In that event, following

16 termination, creditors of the association holding liens on the cooperative which were [recorded]

17 [docketed] [insert other procedures required under state law to perfect a lien on real estate as a

18 result of a judgment] before termination may enforce their liens in the same manner as any lien

19 holder, and any other creditor of the association is to be treated as if he had perfected a lien

20 against the cooperative immediately before termination. Unless the declaration provides that all

21 creditors of the association have that priority:

22 (1) the lien of each creditor of the association which was perfected against the

23 association before termination becomes, upon termination, a lien against each unit owner's

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1 interest in the unit as of the date the lien was perfected;

2 (2) any other creditor of the association is to be treated upon termination as if the

3 creditor had perfected a lien against each unit owner's interest immediately before termination;

4 (3) the amount of the lien of an association's creditor described in paragraphs (1)

5 and (2) against each of the unit owners' interest must be proportionate to the ratio which each

6 unit's common expense liability bears to the common expense liability of all of the units;

7 (4) the lien of each creditor of each unit owner which was perfected before

8 termination continues as a lien against that unit owner's unit as of the date the lien was perfected;

9 and

10 (5) the assets of the association must be distributed to all unit owners and all lien

11 holders as their interests may appear in the order described above. Creditors of the association

12 are not entitled to payment from any unit owner in excess of the amount of the creditor's lien

13 against that unit owner's interest.

14 (j) The respective interests of unit owners referred to in subsections (e), (f), (g), (h), and

15 (i) are as follows:

16 (1) Except as provided in paragraph (2), the respective interests of unit owners

17 are the fair market values of their units, allocated interests, and any limited common elements

18 immediately before the termination, as determined by one or more independent appraisers

19 selected by the association. The decision of the independent appraisers must be distributed to

20 the unit owners and becomes final unless disapproved within 30 days after distribution by unit

21 owners of units to which 25 percent of the votes in the association are allocated. The proportion

22 of any unit owner's interest to that of all unit owners is determined by dividing the fair market

23 value of that unit owner's unit and its allocated interests by the total fair market values of all the

46

1 units and their allocated interests.

2 (2) If any unit or any limited common element is destroyed to the extent that an

3 appraisal of the fair market value thereof before destruction cannot be made, the interests of all

4 unit owners are: (i) in a condominium, their respective common element interests immediately

5 before the termination, (ii) in a cooperative, their respective ownership interests immediately

6 before the termination, and (iii) in a planned community, their respective common expense

7 liabilities immediately before the termination.

8 (k) In a condominium or planned community, except as provided in subsection (l),

9 foreclosure or enforcement of a lien or encumbrance against the entire common interest

10 community does not terminate, of itself, the common interest community, and foreclosure or

11 enforcement of a lien or encumbrance against a portion of the common interest community,

12 other than withdrawable real estate, does not withdraw that portion from the common interest

13 community. Foreclosure or enforcement of a lien or encumbrance against withdrawable real

14 estate, or against common elements that have been subjected to a security interest by the

15 association under Section 3-112, does not withdraw, of itself, that real estate from the common

16 interest community, but the person taking title thereto may require from the association, upon

17 request, an amendment excluding the real estate from the common interest community.

18 (l) In a condominium or planned community, if a lien or encumbrance against a portion

19 of the real estate comprising the common interest community has priority over the declaration

20 and the lien or encumbrance has not been partially released, the parties foreclosing the lien or

21 encumbrance, upon foreclosure, may record an instrument excluding the real estate subject to

22 that lien or encumbrance from the common interest community.

23 (m) Unless the declaration otherwise provides, if substantially all [or a significant group

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1 of?] units in a common interest community are rendered uninhabitable by acts of terrorism,

2 weather event or other calamity, so that it is not feasible for the association or its unit owners to

3 consider termination under this section, the executive board [or any unit owner] [or any

4 interested person] may commence an action in the [insert competent court] to terminate the

5 common interest community [or reduce its size?]. The court shall provide such notice of the

6 commencement of the action as is feasible to all persons holding an interest in the common

7 interest community. The court may, during the pendency of the matter, appoint a receiver or

8 take such other actions as it may deem appropriate and may, after a hearing, terminate the

9 common interest community or reduce its size or take such other actions as it deems appropriate,

10 all on terms that the court deems fair and reasonable.

11 (m) [revised] If substantially all of the units are destroyed or become uninhabitable as

12 the result of [force majeure] [fire, war, riot, storm, earthquake, flood or similar event] and as a

13 result the methods for giving notice of a special meeting of the association to consider

14 termination of the common interest community will not reasonably result in receipt of the notice

15 by the necessary number of unit owners; the executive board [or any unit owner] [or any

16 interested person] may commence an action in the [insert competent court] to terminate the

17 common interest community [or reduce its size]. The court shall provide notice of the action as is

18 feasible to all persons holding an interest in the common interest community. During the

19 pendency of the matter, the court may appoint a receiver or take other actions as it may consider

20 appropriate. After a hearing, the court may terminate the common interest community, reduce its

21 size or take other actions as it considers in the best interests of the unit owners and other persons

22 holding interests in the common interest community.

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SECTION 2-119. RIGHTS OF SECURED LENDERS.1

2 (a) The declaration may require that all or a specified number or percentage of the

3 lenders who hold security interests encumbering the units or who have extended credit to the

4 association approve specified actions of the unit owners or the association as a condition to the

5 effectiveness of those actions, but no requirement for approval may operate to (i) deny or

6 delegate control over the general administrative affairs of the association by the unit owners or

7 the executive board, or (ii) prevent the association or the executive board from commencing,

8 intervening in, or settling any litigation or proceeding, or (iii) prevent any insurance trustee or

9 the association from receiving and distributing any insurance proceeds except pursuant to

10 Section 3-113.

11 (b) A lender who has extended credit to an association secured by an assignment of

12 income (Section 3-102(14)) or an encumbrance on the common elements (Section 3-112) may

13 enforce its security agreement in accordance with its terms, subject to the requirements of this

14 [act] and other law. Requirements that the association must deposit its periodic common charges

15 before default with the lender to which the association's income has been assigned, or increase

16 its common charges at the lender's direction by amounts reasonably necessary to amortize the

17 loan in accordance with its terms, do not violate the prohibitions on lender approval contained in

18 subsection (a).

SECTION 2-120. MASTER ASSOCIATIONS.19

20 (a) If the declaration provides that any of the powers described in Section 3-102 are to be

21 exercised by or may be delegated to a profit or nonprofit corporation [or unincorporated

22 association] that exercises those or other powers on behalf of one or more common interest

23 communities or for the benefit of the unit owners of one or more common interest communities,

49

1 all provisions of this [act] applicable to unit owners' associations apply to any such corporation

2 [or unincorporated association], except as modified by this section.

3 (b) Unless it is acting in the capacity of an association described in Section 3-101, a

4 master association may exercise the powers set forth in Section 3-102(a)(2) only to the extent

5 expressly permitted in the declarations of common interest communities which are part of the

6 master association or expressly described in the delegations of power from those common

7 interest communities to the master association.

8 (c) If the declaration of any common interest community provides that the executive

9 board may delegate certain powers to a master association, the members of the executive board

10 have no liability for the acts or omissions of the master association with respect to those powers

11 following delegation.

12 (d) The rights and responsibilities of unit owners with respect to the unit owners'

13 association set forth in Sections 3-103, 3-108, 3-109, 3-110, and 3-112 apply in the conduct of

14 the affairs of a master association only to persons who elect the board of a master association,

15 whether or not those persons are otherwise unit owners within the meaning of this [act].

16 (e) Even if a master association is also an association described in Section 3-101, the

17 certificate of incorporation or other instrument creating the master association and the

18 declaration of each common interest community, the powers of which are assigned by the

19 declaration or delegated to the master association, may provide that the executive board of the

20 master association must be elected after the period of declarant control in any of the following

21 ways:

22 (1) All unit owners of all common interest communities subject to the master

23 association may elect all members of the master association’s executive board.

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1 (2) All members of the executive boards of all common interest communities

2 subject to the master association may elect all members of the master association's executive

3 board.

4 (3) All unit owners of each common interest community subject to the master

5 association may elect specified members of the master association's executive board.

6 (4) All members of the executive board of each common interest community

7 subject to the master association may elect specified members of the master association's

8 executive board.

SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST9

10 COMMUNITIES.

11 (a) Any two or more common interest communities of the same form of ownership, by

12 agreement of the unit owners as provided in subsection (b), may be merged or consolidated into

13 a single common interest community. In the event of a merger or consolidation, unless the

14 agreement otherwise provides, the resultant common interest community is the legal successor,

15 for all purposes, of all of the pre-existing common interest communities, and the operations and

16 activities of all associations of the pre-existing common interest communities are merged or

17 consolidated into a single association that holds all powers, rights, obligations, assets, and

18 liabilities of all pre-existing associations.

19 (b) An agreement of two or more common interest communities to merge or consolidate

20 pursuant to subsection (a) must be evidenced by an agreement prepared, executed, recorded, and

21 certified by the president of the association of each of the pre-existing common interest

22 communities following approval by owners of units to which are allocated the percentage of

23 votes in each common interest community required to terminate that common interest

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1 community. The agreement must be recorded in every [county] in which a portion of the

2 common interest community is located and is not effective until recorded.

3 (c) Every merger or consolidation agreement must provide for the reallocation of the

4 allocated interests in the new association among the units of the resultant common interest

5 community either (i) by stating the reallocations or the formulas upon which they are based or

6 (ii) by stating the percentage of overall allocated interests of the new common interest

7 community which are allocated to all of the units comprising each of the pre-existing common

8 interest communities, and providing that the portion of the percentages allocated to each unit

9 formerly comprising a part of the pre-existing common interest community must be equal to the

10 percentages of allocated interests allocated to that unit by the declaration of the pre-existing

11 common interest community.

SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE. In a planned12

13 community, if the right is originally reserved in the declaration, the declarant in addition to any

14 other development right, may amend the declaration at any time during as many years as are

15 specified in the declaration for adding additional real estate to the planned community without

16 describing the location of that real estate in the original declaration; but, the amount of real

17 estate added to the planned community pursuant to this section may not exceed 10 percent of the

18 real estate described in Section 2-105(a)(3) and the declarant may not in any event increase the

19 number of units in the planned community beyond the number stated in the original declaration

20 pursuant to Section 2-105(a)(5).

SECTION 2-123. MASTER PLANNED COMMUNITIES.21

22 (a) The declaration for a common interest community may state that it is a master

23 planned community if the declarant has reserved the development right to create at least [500]

52

1 units that may be used for residential purposes, and at the time of the reservation that declarant

2 owns or controls more than [500] acres on which the units may be built.

3 (b) If the requirements of subsection (a) are satisfied, the declaration for the master

4 planned community need not state a maximum number of units and need not contain any of the

5 information required by Section 2-105(a)(3) through (14) until the declaration is amended under

6 subsection (c).

7 (c) When each unit in a master planned community is conveyed to a purchaser, the

8 declaration must contain (i) a sufficient legal description of the unit and all portions of the

9 master planned community in which any other units have been conveyed to a purchaser; and (ii)

10 all the information required by Section 2-105(a)(3) through (14) with respect to that real estate.

11 (d) The only real estate in a master planned community which is subject to this [act] is

12 units that have been declared or which are being offered for sale and any other real estate

13 described pursuant to subsection (c). Other real estate that is or may become part of the master

14 planned community is only subject to other law and to any other restrictions and limitations that

15 appear of record.

16 (e) If the public offering statement conspicuously identifies the fact that the community

17 is a master planned community, the disclosure requirements contained in [Article] 4 apply only

18 with respect to units that have been declared or are being offered for sale in connection with the

19 public offering statement and to the real estate described pursuant to subsection (c).

20 (f) Limitations in this [act] on the addition of unspecified real estate (Section 2-122) do

21 not apply to a master planned community.

22 (g) The period of declarant control of the association for a master planned community

23 terminates in accordance with any conditions specified in the declaration or otherwise at the time

53

1 the declarant, in a recorded instrument and after giving written notice to all the unit owners,

2 voluntarily surrenders all rights to control the activities of the association.

3

54

[ARTICLE] 31

2 MANAGEMENT OF THE COMMON INTEREST COMMUNITY

SECTION 3-101. ORGANIZATION OF UNIT OWNERS' ASSOCIATION. A unit3

4 owners’ association must be organized no later than the date the first unit in the common interest

5 community is conveyed. The association must have an executive board and tThe membership of

6 the association at all times consists exclusively of all unit owners or, following termination of

7 the common interest community, of all former unit owners entitled to distributions of proceeds

8 under Section 2-118 or their heirs, successors, or assigns. The association must have an

9 executive board. The association must be organized as a profit or nonprofit corporation, trust,

10 [or] limited liability company, partnership, [, or as an unincorporated association],] [or] any

11 other form of legal entity organization authorized by the laws of this state.

12 NEW DRAFT COMMENT TO SECTION 3-101.1314 This section allows the document drafter to select any form of legal organization permitted15 under state law for the Unit Owners Association; this Act then supplements the requirements of16 those ‘entity’ statutes by a number of requirements unique to unit owner associations.17 Notwithstanding this permitted flexibility, experience under both this Act, most non-UCIOA18 condominium statutes and most planned communities created at common law indicates that nearly19 all unit owner associations are organized as non-stock corporations under the States’ non-stock20 corporation acts. 2122 In the rare case where the association may be organized as another form of legal entity, such23 as a limited liability company, the drafter will be required to address the differences between this24 Act and the requirements of the State’s LLC statute. In the limited liability company context, it may25 well be that the ‘bylaws’ mandated by this Act will in fact be part either of the declaration or the26 management agreement required by the LLC statute. So long as the mandated content in Section27 3-106 appears in whatever document the drafter chooses, the requirements of this Act will have been28 satisfied.29

SECTION 3-102. POWERS AND DUTIES OF UNIT OWNERS' ASSOCIATION.30

31 (a) Except as otherwise provided in subsection (b), and subject to the other provisions of

32 the declaration this [act], the association [, even if unincorporated,] may:

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1 (1) must shall adopt and may amend bylaws and may adopt and amend rules and

2 regulations;

3 (2) must shall adopt and may amend budgets for revenues, expenditures, and

4 reserves pursuant to Section 3-124 3-123 and collect assessments for common expenses from

5 unit owners and may invest any funds of the association;

6 (3) may hire and discharge managing agents and other employees, agents, and

7 independent contractors;

8 (4) may institute, defend, or intervene in litigation, arbitration, or administrative

9 proceedings in its own name on behalf of itself or two or more unit owners on matters affecting

10 the common interest community subject to, in the case of litigation proceedings involving the

11 declarant, Section 3-121 3-124;

12 (5) may make contracts and incur liabilities;

13 (6) may regulate the use, maintenance, repair, replacement, and modification of

14 common elements;

15 (7) may cause additional improvements to be made as a part of the common

16 elements;

17 (8) may acquire, hold, encumber, and convey in its own name any right, title, or

18 interest to real estate or personal property, but:

19 (i)(A) common elements in a condominium or planned community may

20 be conveyed or subjected to a security interest only pursuant to Section 3-112; and

21 (ii)(B) part of a cooperative may be conveyed, or all or part of a

22 cooperative may be subjected to a security interest, only pursuant to Section 3-112; [Note: The

23 committee awaits further comment on co-op refinancing.]

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1 (9) may grant easements, leases, licenses, and concessions through or over the

2 common elements;

3 (10) may impose and receive any payments, fees, or charges for: (a) the use,

4 rental, or operation of the common elements, other than limited common elements described in

5 Section 2-102(2) and (4), and (b) for services provided to unit owners;

6 (11) may suspend any privileges of unit owners other than the right of a unit

7 owner to vote on any matter submitted to a vote of unit owners or [to receive (we have a

8 comment)] services provided to unit owners by the association for non-payment of assessments,

9 may impose charges for late payment of assessments; and, after notice and an opportunity to be

10 heard, may levy reasonable fines for violations of the declaration, bylaws, and rules, and

11 regulations of the association;

12 (12) may impose reasonable charges for the preparation and recordation of

13 amendments to the declaration, resale certificates required by Section 4-109, or statements of

14 unpaid assessments;

15 (13) may provide for the indemnification of its officers and executive board and

16 maintain directors' and officers' liability insurance;

17 (14) except to the extent limited or varied by the declaration, may assign its right

18 to future income, including the right to receive assessments; but only to the extent the

19 declaration expressly so decides;

20 (15) may exercise any other powers conferred by the declaration or bylaws;

21 (16) may exercise all other powers that may be exercised in this state by legal

22 entities organizations of the same type as the association;

23 (17) may exercise any other powers necessary and proper for the governance and

57

1 operation of the association; and

2 (18) by regulation, may require that disputes between the executive board and

3 unit owners or between two or more unit owners regarding the common interest community

4 must be submitted to nonbinding alternative dispute resolution in the manner described in the

5 regulation as a prerequisite to commencement of a judicial proceeding.; and

6 (19) may suspend any right or privileges of a unit owners who fails to pay an

7 assessment, but may not:

8 (A) deny an owner or other occupant access to the owner’s unit;

9 (B) suspend the unit owner’s right of a unit owner to vote; on any matter

10 submitted to a vote of unit owners or [to receive (we have a comment)]

11 (C) prevent a unit owner from seeking election as a director or officer of

12 the association; or

13 (D) withhold services provided to the unit or the unit owners by the

14 association if the effect of withholding the service would be to endanger the health or safety or

15 property of any person for non-payment of assessments,

16 (b) The declaration may not impose limitations on the power of the association to:

17 (1) deal with the declarant which are more restrictive than the limitations

18 imposed on the power of the association to deal with other persons.; or

19 (2) commence litigation against any person, but subject to the following

20 limitations:

21 (A) the association must comply with Section 3-121 3-124, if applicable,

22 before commencing any action against any person in connection with construction defects; and

23 (B) the executive board shall promptly provide notice to the unit owners

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1 of any litigation in which the association is a party other than litigation involving enforcement of

2 rules or to recover unpaid common charges.

3 (c) Unless otherwise permitted by the declaration or this [act], an association may adopt

4 rules and regulations that affect the use of or behavior in units that may be used for residential

5 purposes only to:

6 (1) prevent any use of a unit which violates the declaration;

7 (2) regulate any behavior in or occupancy of a unit which violates the declaration

8 or adversely affects the use and enjoyment of other units or the common elements by other unit

9 owners; or

10 (3) restrict the leasing of residential units to the extent those rules are reasonably

11 designed to meet underwriting requirements of institutional lenders who regularly lend money

12 secured by first mortgages on units in common interest communities or regularly purchase those

13 mortgages.

14 Otherwise, the association may not regulate any use of or behavior in units.

15 (d)(c) If a tenant of a unit owner violates the declaration, bylaws, or rules and

16 regulations of the association, in addition to exercising any of its powers against the unit owner,

17 the association may:

18 (1) exercise directly against the tenant the powers described in subsection

19 (a)(11);

20 (2) after giving notice to the tenant and the unit owner and an opportunity to be

21 heard, levy reasonable fines against the tenant for the violation; and

22 (3) enforce any other rights against the tenant for the violation which the unit

23 owner as landlord could lawfully have exercised under the lease or which the association could

59

1 lawfully have exercised directly against the unit owner, or both.

2 (e)(d) The rights granted under subsection (d)(c)(3) may only be exercised if the tenant

3 or unit owner fails to cure the violation within 10 days after the association notifies the tenant

4 and unit owner of that violation.

5 (f)(e) Unless a lease otherwise provides, this section does not:

6 (1) affect rights that the unit owner has to enforce the lease or that the association

7 has under other law; or

8 (2) permit the association to enforce a lease to which it is not a party in the

9 absence of a violation of the declaration, bylaws, or rules. and regulations.

10 (f) The executive board shall use its reasonable judgment to may determine whether to

11 exercise the association's powers to impose sanctions and pursue legal action for violations of

12 the declaration, bylaws, and rules including, without limitation, whether to compromise any

13 claim for unpaid assessments or other claim made by or against it,. including claims for unpaid

14 assessments. The association executive board shall have no duty to take enforcement action if

15 the executive board, acting in good faith and without a conflict of interest, it determines that,

16 under the facts and circumstances presented,

17 (i) the association's legal position does not justify taking any or further

18 enforcement action;

19 (ii) the covenant, restriction, or rule being enforced is, or is likely to be construed

20 as, inconsistent with current law;

21 (iii) although a technical violation may exist or may have occurred, it is not of

22 such a material nature as to be objectionable to a reasonable person or to justify expending the

23 association's resources; or

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1 (iv) it is not in the association's best interests, based upon hardship, expense, or

2 other reasonable criteria, to pursue an enforcement action.

3 (g) The executive board's decision under subsection (f) not to pursue enforcement under

4 one set of circumstances does not prevent the association from later taking enforcement action

5 under another set of circumstances, except the executive board may not be arbitrary or capricious

6 in taking enforcement action. Whether the association’s course of performance with respect to

7 enforcement of any provision of the declaration, bylaws, and rules constitutes a waiver or

8 modification of that provision is not affected by this [act].

9 (h) The executive board shall establish a reasonable method for unit owners to

10 communicate among themselves and with the executive board regarding any matter concerning

11 the association.

12 COMMENT ON NEW (h)

13 Derived from Virginia Condominium Act §55-79.75:1

SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS.14

15 (a) Except as provided in the declaration, the bylaws, subsection (b), or other provisions

16 of this [act], the executive board may acts in all instances on behalf of the association. In the

17 performance of their duties, officers and members of the executive board appointed by the

18 declarant shall exercise the degree of care and loyalty to the association required of a trustee.

19 Officers and members of the executive board not appointed by the declarant shall exercise the

20 degree of care and loyalty to the association required of an officer or director of a corporation

21 organized under [insert reference to state non-profit corporation law]. and are subject to the

22 conflict of interest rules governing directors and officers of that law [insert reference to state

23 non-profit corporation law]. The standards of care and loyalty described in this section apply

61

1 regardless of the form of legal entity in which the association is organized.

2 (b) The executive board may not act on behalf of the association to:

3 (1) amend the declaration except as provided in Section 2-117; (Section 2-117)

4 (2) amend or the bylaws,;

5 (3) to terminate the common interest community (Section 2-118),;

6 (4) or to elect members of the executive board; or

7 (5) determine the qualifications, powers, and duties, or terms of office of

8 executive board members (Section 3-103(f)), but although the executive board may fill vacancies

9 in its membership for the unexpired portion of any term.

10 (c) The executive board shall adopt budgets as provided in Section 3-123 . Within [30]

11 days after adoption of any proposed budget for the common interest community, the executive

12 board shall provide a summary of the budget to all the unit owners, and shall set a date for a

13 meeting of the unit owners to consider ratification of the budget not less than 14 nor more than

14 30 days after mailing of the summary. Unless at that meeting a majority of all unit owners or

15 any larger vote specified in the declaration reject the budget, the budget is ratified, whether or

16 not a quorum is present. In the event the proposed budget is rejected, the periodic budget last

17 ratified by the unit owners must be continued until such time as the unit owners ratify a

18 subsequent budget proposed by the executive board.

19 (d)(c) Subject to subsection (e)(d), the declaration may provide for a period of declarant

20 control of the association, during which a declarant, or persons designated by him the declarant,

21 may appoint and remove the officers and members of the executive board. A declarant may

22 voluntarily surrender the right to appoint and remove officers and members of the executive

23 board before termination of that period, but in that event the declarant may require, for the

62

1 duration of the period of declarant control, that specified actions of the association or executive

2 board, as described in a recorded instrument executed by the declarant, be approved by the

3 declarant before they become effective. Regardless of the period provided in the declaration, and

4 except as provided in Section 2-123(g) (Master Planned Communities), a period of declarant

5 control terminates no later than the earlier of:

6 (1) (i) [60] days after conveyance of [75] percent of the units that may be created

7 to unit owners other than a declarant;

8 (2) (ii) [2] years after all declarants have ceased to offer units for sale in the

9 ordinary course of business;

10 (3) (iii) [2] years after any right to add new units was last exercised; or

11 (4) (iv) the day the declarant, after giving written notice to unit owners, records

12 an instrument voluntarily surrendering all rights to control activities of the association. A

13 declarant may voluntarily surrender the right to appoint and remove officers and members of the

14 executive board before termination of that period, but in that event the declarant may require, for

15 the duration of the period of declarant control, that specified actions of the association or

16 executive board, as described in a recorded instrument executed by the declarant, be approved by

17 the declarant before they become effective.

18 (e)(d) Not later than [60] days after conveyance of [25] percent of the units that may be

19 created to unit owners other than a declarant, at least one member and not less than [25] percent

20 of the members of the executive board must be elected by unit owners other than the declarant.

21 Not later than [60] days after conveyance of [50] percent of the units that may be created to unit

22 owners other than a declarant, not less than [33-1/3] percent one-third of the members of the

23 executive board must be elected by unit owners other than the declarant.

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1 (f)(e) Except as otherwise provided in Section 2-120(e) and (f), not later than the

2 termination of any period of declarant control, the unit owners shall elect an executive board of

3 at least three members, at least a majority of whom must be unit owners. The Unless the

4 declaration provides for the election of officers by the unit owners, the executive board shall

5 elect the officers. The executive board members and officers shall take office upon election or

6 appointment.

7 (g) Notwithstanding any provision of the declaration or bylaws to the contrary, the unit

8 owners, by a two-thirds vote of all persons present and entitled to vote at any meeting of the unit

9 owners at which a quorum is present, may remove any member of the executive board with or

10 without cause, other than a member appointed by the declarant.

11 (g)(f) A declaration may provide for the appointment of members of the executive board

12 before or after the period of declarant control and the method of filling vacancies in appointed

13 memberships, rather than election of those members by the unit owners. However, appointed

14 members:

15 (1) may not be appointed by the declarant or an affiliate of the declarant;

16 (2) may not comprise more than [one- third] of the entire board; and

17 (3) have no greater authority than any other member of the executive board.

SECTION 3-104. TRANSFER OF SPECIAL DECLARANT RIGHTS.18

19 (a) A special declarant right (Section 1-103(29)) created or reserved under this [act] may

20 be transferred only by an instrument evidencing the transfer recorded in every [county] in which

21 any portion of the common interest community is located. The instrument is not effective unless

22 executed by the transferee.

23 (b) Upon transfer of any special declarant right, the liability of a transferor declarant is

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1 as follows:

2 (1) A transferor is not relieved of any obligation or liability arising before the

3 transfer and remains liable for warranty obligations imposed upon him by this [act]. Lack of

4 privity does not deprive any unit owner of standing to maintain an action to enforce any

5 obligation of the transferor.

6 (2) If a successor to any special declarant right is an affiliate of a declarant

7 (Section 1-103(1)), the transferor is jointly and severally liable with the successor for any

8 obligations or liabilities of the successor relating to the common interest community.

9 (3) If a transferor retains any special declarant rights, but transfers other special

10 declarant rights to a successor who is not an affiliate of the declarant, the transferor is liable for

11 any obligations or liabilities imposed on a declarant by this [act] or by the declaration relating to

12 the retained special declarant rights and arising after the transfer.

13 (4) A transferor has no liability for any act or omission or any breach of a

14 contractual or warranty obligation arising from the exercise of a special declarant right by a

15 successor declarant who is not an affiliate of the transferor.

16 (c) Unless otherwise provided in a mortgage instrument, deed of trust, or other

17 agreement creating a security interest, in case of foreclosure of a security interest, sale by a

18 trustee under an agreement creating a security interest, tax sale, judicial sale, or sale under

19 Bankruptcy Code or receivership proceedings, of any units owned by a declarant or real estate in

20 a common interest community subject to development rights, a person acquiring title to all the

21 property being foreclosed or sold, but only upon his request, succeeds to all special declarant

22 rights related to that property held by that declarant, or only to any rights reserved in the

23 declaration pursuant to Section 2-115 and held by that declarant to maintain models, sales

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1 offices, and signs. The judgment or instrument conveying title must provide for transfer of only

2 the special declarant rights requested.

3 (d) Upon foreclosure of a security interest, sale by a trustee under an agreement creating

4 a security interest, tax sale, judicial sale, or sale under Bankruptcy Code or receivership

5 proceedings, of all interests in a common interest community owned by a declarant:

6 (1) the declarant ceases to have any special declarant rights, and

7 (2) the period of declarant control (Section 3-103(d)) terminates unless the

8 judgment or instrument conveying title provides for transfer of all special declarant rights held

9 by that declarant to a successor declarant.

10 (e) The liabilities and obligations of a person who succeeds to special declarant rights

11 are as follows:

12 (1) A successor to any special declarant right who is an affiliate of a declarant is

13 subject to all obligations and liabilities imposed on the transferor by this [act] or by the

14 declaration.

15 (2) A successor to any special declarant right, other than a successor described in

16 paragraph (3) or (4) or a successor who is an affiliate of a declarant, is subject to the obligations

17 and liabilities imposed by this [act] or the declaration:

18 (i) on a declarant which relate to the successor's exercise or nonexercise

19 of special declarant rights; or

20 (ii) on his the successor’s transferor, other than:

21 (A) misrepresentations by any previous declarant;

22 (B) warranty obligations on improvements made by any previous

23 declarant, or made before the common interest community was created;

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1 (C) breach of any fiduciary obligation by any previous declarant

2 or his appointees to the executive board; or

3 (D) any liability or obligation imposed on the transferor as a result

4 of the transferor's acts or omissions after the transfer.

5 (3) A successor to only a right reserved in the declaration to maintain models,

6 sales offices, and signs (Section 2-115), may not exercise any other special declarant right, and is

7 not subject to any liability or obligation as a declarant, except the obligation to provide a public

8 offering statement [,] and any liability arising as a result thereof [, an and obligations under

9 [Article] 5].

10 (4) A successor to all special declarant rights held by a transferor who succeeded

11 to those rights pursuant to a deed or other instrument of conveyance in lieu of foreclosure or a

12 judgment or instrument conveying title under subsection (c), may declare in a recorded

13 instrument the intention to hold those rights solely for transfer to another person. Thereafter,

14 until transferring all special declarant rights to any person acquiring title to any unit or real estate

15 subject to development rights owned by the successor, or until recording an instrument

16 permitting exercise of all those rights, that successor may not exercise any of those rights other

17 than any right held by his the declarant’s transferor to control the executive board in accordance

18 with Section 3-103(d) for the duration of any period of declarant control, and any attempted

19 exercise of those rights is void. So long as a successor declarant may not exercise special

20 declarant rights under this subsection, the successor declarant is not subject to any liability or

21 obligation as a declarant other than liability for his the declarant’s acts and omissions under

22 Section 3-103(d).

23 (f) Nothing in this section subjects any successor to a special declarant right to any

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1 claims against or other obligations of a transferor declarant, other than claims and obligations

2 arising under this [act] or the declaration.

SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES OF3

4 DECLARANT.

5 (a) Except as provided in Section 1-207, if entered into before the executive board

6 elected by the unit owners pursuant to Section 3-103(f) takes office, the association may be

7 terminated terminate without penalty, by the association at any time [within 2 years] after the

8 executive board elected by the unit owners pursuant to Section 3-103(f) takes office upon not

9 less than [90] days' notice to the other party any of the following:

10 (1) (i) any management contract, employment contract, or lease of recreational or

11 parking areas or facilities,

12 (2) (ii) any other contract or lease between the association and a declarant or an

13 affiliate of a declarant, or

14 (3) (iii) any contract or lease that is not bona fide or was unconscionable to the

15 unit owners at the time entered into under the circumstances then prevailing., may be terminated

16 without penalty by the association at any time within 2 years after the executive board elected by

17 the unit owners pursuant to Section 3-103(f) takes office upon not less than [90] days' notice to

18 the other party.

19 (b) This section does not apply to:

20 (1) (i) any lease the termination of which would terminate the common interest

21 community or reduce its size, unless the real estate subject to that lease was included in the

22 common interest community for the purpose of avoiding the right of the association to terminate

23 a lease under this section, or

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1 (2) (ii) a proprietary lease.

2 (c) “The association may terminate any reservation by a declarant or a grant to an

3 affiliate of a declarant that (i) provides a continuing financial benefit to declarant or an affiliate

4 of a declarant and (ii) is unconscionable to the association or to the unit owners, provided the

5 association first gives notice to the beneficiary of the grant or reservation and a reasonable

6 opportunity to the beneficiary to seek judicial relief from that termination.

SECTION 3-106. BYLAWS.7

8 (a) The bylaws of the association must provide:

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

10 the association;

11 (2) election by the executive board or, if the declaration so requires, by the unit

12 owners, of a president, treasurer, secretary, and any other officers of the association the bylaws

13 specify;

14 (3) the qualifications, powers and duties, terms of office, and manner of electing

15 and removing executive board members and offices and filling vacancies;

16 (4) which, if any, of its powers the executive board or officers may delegate to

17 other persons or to a managing agent;

18 (5) which of its officers may prepare, execute, certify, and record amendments to

19 the declaration on behalf of the association; and

20 (6) a method for amending the bylaws, but only a designated number or

21 percentage of by the unit owners may amend the bylaws;

22 (7) any provisions that may be necessary to satisfy requirements in this [act] or

23 the declaration concerning meetings, voting, quorums, and other matters concerning the

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1 activities of the association; and

2 (8) any matter required by law of this state other than this [act] to appear in the

3 bylaws of legal entities organized organizations of the same type in the same manner as the

4 association.

5 (b) Subject to the provisions of the declaration, the bylaws may provide for any other

6 matters the association deems unit owners consider necessary and or appropriate, including

7 matters that could be adopted as rules, unless the declaration or this [act] requires that those

8 provisions appear in the declaration.

SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY.9

10 (a) Except to the extent provided by the declaration, subsection (b), or Section 3-113(h),

11 the association is responsible for maintenance, repair, and replacement of the common elements,

12 and each unit owner is responsible for maintenance, repair, and replacement of his the owner’s

13 unit. Each unit owner shall afford to the association and the other unit owners, and to their

14 agents or employees, access through his the owner’s unit reasonably necessary for those

15 purposes. If damage is inflicted on the common elements or on any unit through which access is

16 taken, the unit owner responsible for the damage, or the association if it is responsible, is liable

17 for the prompt repair thereof.

18 (b) In addition to the liability that a declarant as a unit owner has under this [act], the

19 declarant alone is liable for all expenses in connection with real estate subject to development

20 rights. No other unit owner and no other portion of the common interest community is subject to

21 a claim for payment of those expenses. Unless the declaration provides otherwise, any income

22 or proceeds from real estate subject to development rights inures to the declarant.

23 (c) In a planned community, if all development rights have expired with respect to any

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1 real estate, the declarant remains liable for all expenses of that real estate unless, upon

2 expiration, the declaration provides that the real estate becomes common elements or units.

SECTION 3-108. MEETINGS. A meeting of the association must be held at least3

4 once each year. Special meetings of the association may be called by the president,

5 (a) The following rules apply to unit owner meetings:

6 (1)(a) An association shall hold a meeting of unit owners annually at a time and

7 place stated in or fixed in accordance with the bylaws.

8 (2)(b) An association shall hold a special meeting of unit owners to address any

9 matter affecting the common interest community or the association on the call of its president, a

10 majority of the executive board, or by unit owners having at least 20 percent, or any lower

11 percentage specified in the bylaws, of the votes in the association. Not less than [10] nor more

12 than [60] days in advance of any meeting, the secretary or other officer specified in the bylaws

13 shall cause notice to be hand-delivered or sent prepaid If the association does not notify unit

14 owners of a special meeting within fifteen thirty days after receipt of such a request from the

15 requisite number or percentage of unit owners, the requesting members may directly notify all

16 the unit owners of that meeting. Only business matters described in the meeting notice required

17 by subsection (c) may be conducted considered at a special meeting.

18 (3)(c) An association shall notify unit owners of the date, time, and place of each

19 annual and special unit owners’ meeting no fewer not less than 10 nor or more than 60 days

20 before the meeting date. Notice may be by hand delivery to the unit owners, by any means

21 described in Section 3-122 or sent pre-paid by United States mail to the any mailing address of

22 each unit or to any other mailing address designated in writing by the unit owner designates in

23 writing. The notice of any meeting must state the time and place of the meeting and the items on

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1 the agenda, including:

2 (i)(1) a statement of the general nature of any proposed amendment to the

3 declaration or bylaws,;

4 (ii)(2) any budget changes, and

5 (iii)(3) any proposal to remove an officer or member of the executive

6 board.

7 (4)(d) The minimum time to give notice required by subsection (c) may be

8 reduced or waived in the case of a meeting called to deal with an emergency.

9 (5)(e) Regardless of the agenda, unit Unit owners must be given a reasonable

10 opportunity at any meeting to offer comments to the executive board regarding any matter

11 affecting the common interest community or the association.

12 New Comments (11/07)

13 1. Subsection (a)(2): While petitioning unit owners may call a meeting in circumstances14 described in (b), the meeting itself would be conducted by the persons who regularly conduct the15 association’s meetings.1617 2. The right of unit owners to speak during unit owner meetings is a statutory right and18 exists whether or not the meeting agenda provides for that opportunity.19

[NEW] SECTION 3-108A.EXECUTIVE BOARD MEETINGS.20

21 (b) The following rules apply to the executive board:

22 (1) All meetings of the executive board and of committees comprised only of

23 board members must be open to the unit owners except during executive sessions. The executive

24 board may hold an executive session only held during those a regular or special meetings. of the

25 executive board and no vote or action may be taken during an executive session. An executive

26 session may be held only to:

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1 (i)(1) consult with the association’s attorney to obtain legal advice;

2 (ii)(2) discuss existing or potential litigation, mediation, arbitration, or

3 administrative proceedings;

4 (iii)(3) discuss labor or personnel matters;

5 (iv)(4) discuss matters relating to contract negotiations, including the

6 review of bids or proposals, if premature general knowledge of those matters would place the

7 association at a disadvantage; or

8 (v)(5) prevent public knowledge of the matter to be discussed if the

9 executive board determines that public knowledge would violate the privacy of any person.

10 (2)(b) The president or a majority of the board members may call a meeting of

11 the executive board. For purposes of this section, “meeting of the executive board” does not

12 include a gathering of board members at which the board members do not conduct association

13 business is not a meeting of the executive board. The executive board and its members may not

14 use incidental or social gatherings of board members or any other devices to evade the open

15 meeting requirements of this section.

16 (3)(c) The executive board shall meet at least four times per year, and during the

17 period of declarant control, at least one of those meetings must be held at or convenient to the

18 common interest community. However, after After termination of the period of declarant

19 control, all executive board meetings shall be at or convenient to the common interest

20 community unless the unit owners may amend the bylaws to vary the minimum number or

21 location of executive board those meetings.

22 (4)(d) At each executive board meeting, the executive board shall provide a

23 reasonable opportunity for unit owners to offer comments regarding any matter affecting the

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1 common interest community and the association.

2 (5)(e) Unless the meeting has been included in a schedule given to the unit

3 owners or the meeting has been called to deal with an emergency, the secretary or other officer

4 specified in the bylaws shall cause notice of each executive board meeting to be given to each

5 board member and to the unit owners. The notice to unit owners may be by any means

6 reasonably calculated to actually inform owners of the meeting, including those means described

7 in Section 3-122 3-121 or in the declaration or bylaws of the association. The notice must be

8 given not fewer than 10 days in advance of the meeting and must state the time, and place, and

9 agenda of the meeting

10 (6)(f) If any materials are distributed to the executive board before the meeting, the

11 association executive board shall at the same time shall make copies of those materials

12 reasonably available to unit owners, except that the association board need not distribute copies

13 of unapproved minutes or materials that are to be considered in executive session.

14 (7)(g) Unless the declaration or bylaws otherwise provide, the executive board may meet

15 in by a telephonic, or video, or other conferencing process call [or interactive electronic

16 communication process] provided that:

17 (i)(1) the meeting notice must indicates that the meeting is to be a

18 telephonic[,][or] video [,or other] conference and provides information as to how unit owners

19 may participate in the conference directly or by meeting at a central location or conference

20 connection; and

21 (ii)(2) the process must provides all unit owners the opportunity to hear or

22 perceive the discussion and offer comments as provided in subsection (4)(d).

23 (8) After termination of the period of declarant control, unit owners may amend

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1 the bylaws to vary the procedures for conference calls described in this subsection 7(ii).

2 NEW DRAFT COMMENT [11-08-07]

3 Subsection (7) recognizes that individuals increasingly conduct their business through a4 variety of mediums besides in person, face to face meetings. Today, the most common5 alternatives to in person meetings are telephone conference calls and video conference calls, but6 it is likely that the future will find other forms of interactive electronic conferencing processes,7 such as variants on group internet conferencing. The subsection does not wish to discourage use8 of those alternatives; at the same time, it seeks to insure that the rights of unit owners to9 participate in those meetings is not curtailed.

1011 (9)(h) In lieu of a meeting, the executive board may act by unanimous consent as

12 documented in a record signed by all its members. The secretary shall promptly give notice to

13 all unit owners of any action taken by unanimous consent. After termination of the period of

14 declarant control, the executive board may act by unanimous consent only to (i) undertake

15 ministerial actions; or (ii) implement actions previously agreed to by the executive board.

16 (i) The association is bound by a contract entered into with a third party who

17 relies has detrimentally relied on an action of the executive board and who had no knowledge

18 that the action was contrary to this section. Otherwise,

19 (10) notwithstanding Notwithstanding noncompliance with this section, an action

20 by the executive board is binding and valid unless subject to subsection (11) and is set aside by a

21 court in an action brought pursuant to Section 4-117. A challenge to the validity of an action of

22 the executive board for failure to comply with this section may not be brought more than [60]

23 days after (i) the minutes of the executive board where the action was taken are approved; or (ii)

24 after the record of that action is distributed to unit owners, whichever first occurs.

25 (11) The association is bound by a contract entered into with a third party who

26 that relies has detrimentally relied on an action of the executive board and whothat had no

27 knowledge that the action was contrary to this section.

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SECTION 3-109. QUORUMS.1

2 (a) Unless the bylaws provide otherwise, a quorum is present throughout any meeting of

3 the association unit owners if:

4 (1) persons entitled to cast [20] percent of the votes that may be cast for election

5 of the executive board are in the association are present in person, by proxy, or by ballot at the

6 beginning of the meeting; or

7 (2) ballots solicited in accordance with Section 3-110 (g)(2) are delivered to the

8 secretary in a timely manner by persons that who, together with those present in person or by

9 proxy at the beginning of the meeting, would comprise a quorum for that meeting.

10 (b) Unless the bylaws specify a larger percentage otherwise provide otherwise, a quorum

11 of the executive board is deemed present at the time a vote is taken throughout any meeting of

12 the executive board only if individuals persons entitled to cast [50] percent a majority of the

13 votes on that board are present at the beginning ofthroughout the meeting at that time. If a

14 quorum is present when a vote is taken, the affirmative vote of a majority of directors present is

15 the act of the executive board unless a greater vote is required by the declaration or bylaws.

16 (c) Votes allocated to a unit owned by the association shall not be calculated in a quorum

17 [but may be cast. not be cast and may not be calculated either in a quorum or in any percentage

18 of unit votes needed for any action by the unit owners. shall be cast in any vote of the unit

19 owners in the same proportion as the votes cast on the matter by unit owners other than the

20 association.]

SECTION 3-110. VOTING; PROXIES.21

22 (a) Unless prohibited or limited by the declaration or bylaws, unit owners may

23 vote in any election or regarding any action that the association may take [either at a meeting] in

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1 person, by absentee ballot, by a proxy pursuant to subsection (d) of this section, or [without a

2 meeting] by electronic or paper ballot.

3 [(b) Votes allocated to a unit owned by the association shall be cast in any vote of the

4 unit owners in the same proportion as the votes cast on the matter by unit owners other than the

5 association.]

6 (c) At a meeting of unit owners,

7 (1) A vote in person may be by voice vote, show of hands, by standing or by

8 ballot.

9 (a2) If only one of several owners of a unit is present at a meeting of the

10 association, that the owner is entitled to cast all the votes allocated to that the unit. If more than

11 one of the owners are present, the votes allocated to that the unit may be cast only in accordance

12 with the agreement of a majority in interest of the owners, unless the declaration expressly

13 provides otherwise. There is majority agreement if any one of the owners casts the votes

14 allocated to that the unit without protest being made promptly to the person presiding over the

15 meeting by any of the other owners of the unit.

16 (f 3) Unless a greater percentage or fraction of the votes in the association is

17 required by this [act] or the declaration, a majority of the votes cast in person, by proxy, or by

18 ballot at a meeting of unit owners where a quorum is present determines the outcome of any

19 action of the association where a vote is taken so long as the number of votes cast in favor

20 comprise at least a majority of the number of votes required for a quorum for the meeting.

21 (4) A unit owner may vote by absentee ballot without being present at the

22 meeting. The association must promptly deliver an absentee ballot to an owner who requests it if

23 the request is made at least [3] days before the scheduled meeting. [Votes cast by absentee

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1 ballot shall be included in the tally of a vote taken at that meeting]

2 (5) When unit owners vote by absentee ballot in an election [of the executive

3 board],

4 (A) The association must be able to verify that the ballot is cast by a unit

5 owner having the right to do so, and

6 (B) The ballot must either be cast anonymously or, when that is not

7 reasonably practicable, the identity of the unit owner and the selections indicated on the ballot

8 shall be known only to the persons appointed to count ballots who shall be obliged not to

9 disclose the identities of the voters.

10 (bd) Except as otherwise provided in the declaration or bylaws:

11 (1) votes allocated to a unit may be cast pursuant to a [directed or undirected]

12 proxy duly executed by a unit owner [only if the proxy instructs the holder how the proxy is to

13 be voted regarding each matter to be voted on at the meeting].

14 (2) If a unit is owned by more than one person, each owner of the unit may vote

15 or register protest to the casting of votes by the other owners of the unit through a duly executed

16 proxy.

17 (3) A unit owner may revoke a proxy given pursuant to this section only by

18 actual notice of revocation to the person presiding over a meeting of the association.

19 (4) A proxy is void if it is not dated or purports to be revocable without notice.

20 (5) A proxy is valid only for the meeting at which it is used and any recessed

21 session of that meeting terminates one year after its date, unless it specifies a shorter term.

22 [(6) No person may hold or cast general proxies representing units owned by

23 more than [ ] unit owners.]

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1 (e) Unless prohibited or limited by the declaration or bylaws, an association may

2 conduct a vote without a meeting in accordance with the following rules:

3 (1) The association must notify the unit owners that the vote will be taken by

4 ballot.

5 (2) The association must deliver a paper or electronic ballot to every unit owner

6 entitled to vote on the matter.

7 (3) The ballot must set forth each proposed action and provide an opportunity to

8 vote for or against the action.

9 (4) When the association delivers the ballots, it must also

10 (A) indicate the number of responses needed to meet the quorum

11 requirements;

12 (B) state the percentage of approvals necessary to approve each matter

13 other than election of directors;

14 (C) specify the time by which a ballot must be delivered to the association

15 in order to be counted, which time shall not be fewer than [three] days after the date that the

16 association delivers the ballot; and

17 (D) describe procedures (including time, size and manner) by which unit

18 owners wishing to deliver information to all unit owners regarding the subject of the vote may

19 do so.

20 (5) Except as otherwise provided in the declaration or bylaws, a ballot is not

21 revoked after delivery to the association by death, disability, or revocation by the person who

22 cast that vote.

23 (6) Approval by ballot pursuant to this subsection is valid only if the number of

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1 votes cast by ballot equals or exceeds both the quorum required to be present at a meeting

2 authorizing the action; and the number of ballots approving the action equals or exceeds the

3 number that would be required to approve the matter at that meeting.

4 (cf) If the declaration requires that votes on specified matters affecting the common

5 interest community be cast by lessees rather than unit owners of leased units:

6 (1) the provisions of subsections (a) and (b) this section apply to lessees as if

7 they were unit owners;

8 (2) unit owners who have leased their units to other persons may not cast votes

9 on those specified matters; and

10 (3) lessees are entitled to notice of meetings, access to records, and other rights

11 respecting those matters as if they were unit owners.

12 (g) Unit owners must also be given notice, in the manner provided in Section 3-108, of

13 all meetings at which lessees are entitled to vote.

SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF14

15 LIMITATION PERIOD.

16 (a) A unit owner is not liable, solely by reason of being a unit owner, for an injury or

17 damage arising out of the condition or use of the common elements. Neither the association nor

18 any unit owner except the declarant is liable for that declarant's torts in connection with any part

19 of the common interest community which that declarant has the responsibility to maintain.

20 (b) An action alleging a wrong done by the association, including an action arising out of

21 the condition or use of the common elements, may be maintained only against the association

22 and not against any unit owner. If the wrong occurred during any period of declarant control and

23 the association gives the declarant reasonable notice of and an opportunity to defend against the

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1 action, the declarant who then controlled the association is liable to the association or to any unit

2 owner for (i) all tort losses not covered by insurance suffered by the association or that unit

3 owner, and (ii) all costs that the association would not have incurred but for a breach of contract

4 or other wrongful act or omission. Whenever the declarant is liable to the association under this

5 section, the declarant is also liable for all expenses of litigation, including reasonable attorney's

6 fees, incurred by the association.

7 (c) Except as provided in Section 4-116(d) with respect to warranty claims, any statute

8 of limitation affecting the association's right of action against a declarant under this [act] is tolled

9 until the period of declarant control terminates. A unit owner is not precluded from maintaining

10 an action contemplated by this section because he is a unit owner or a member or officer of the

11 association. Liens resulting from judgments against the association are governed by Section

12 3-117 (Other Liens).

SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON13

14 ELEMENTS.

15 (a) In a condominium or planned community, portions of the common elements may be

16 conveyed or subjected to a security interest by the association if persons entitled to cast at least

17 [80] percent of the votes in the association, including [80] percent of the votes allocated to units

18 not owned by a declarant, or any larger percentage the declaration specifies, agree to that action;

19 but all owners of units to which any limited common element is allocated must agree in order to

20 convey that limited common element or subject it to a security interest. The declaration may

21 specify a smaller percentage only if all of the units are restricted exclusively to non-residential

22 uses. Proceeds of the sale are an asset of the association, but the proceeds of the sale of limited

23 common elements must be distributed equitably among the owners of units to which the limited

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1 common elements were allocated.

2 (b) Part of a cooperative may be conveyed and all or part of a cooperative may be

3 subjected to a security interest by the association if persons entitled to cast at least [80] percent

4 of the votes in the association, including [80] percent of the votes allocated to units not owned

5 by a declarant, or any larger percentage the declaration specifies, agree to that action; but, if

6 fewer than all of the units or limited common elements are to be conveyed or subjected to a

7 security interest, then all unit owners of those units, or the units to which those limited common

8 elements are allocated, must agree in order to convey those units or limited common elements or

9 subject them to a security interest. The declaration may specify a smaller percentage only if all

10 of the units are restricted exclusively to nonresidential uses. Proceeds of the sale are an asset of

11 the association. Any purported conveyance or other voluntary transfer of an entire cooperative,

12 unless made pursuant to Section 2-118, is void.

13 (c) An agreement to convey common elements in a condominium or planned

14 community, or to subject them to a security interest, or in a cooperative, an agreement to convey

15 any part of a cooperative or subject it to a security interest, must be evidenced by the execution

16 of an agreement, or ratifications thereof, in the same manner as a deed, by the requisite number

17 of unit owners. The agreement must specify a date after which the agreement will be void unless

18 recorded before that date. The agreement and all ratifications thereof must be recorded in every

19 [county] in which a portion of the common interest community is situated, and is effective only

20 upon recordation.

21 (d) The association, on behalf of the unit owners, may contract to convey an interest in a

22 common interest community pursuant to subsection (a), but the contract is not enforceable

23 against the association until approved pursuant to subsections (a), (b), and (c). Thereafter, the

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1 association has all powers necessary and appropriate to effect the conveyance or encumbrance,

2 including the power to execute deeds or other instruments.

3 (e) Unless made pursuant to this section, any purported conveyance, encumbrance,

4 judicial sale, or other voluntary transfer of common elements or of any other part of a

5 cooperative is void.

6 (f) A conveyance or encumbrance of common elements or of a cooperative pursuant to

7 this section does not deprive any unit of its rights of access and support.

8 (g) Unless the declaration otherwise provides, if the holders of first security interests on

9 80 percent of the units that are subject to security interests on the day the unit owners' agreement

10 under subsection (c) is recorded consent in writing:

11 (1) a conveyance of common elements pursuant to this section terminates both

12 the undivided interests in those common elements allocated to the units and the security interests

13 in those undivided interests held by all persons holding security interests in the units; and

14 (2) an encumbrance of common elements pursuant to this section has priority

15 over all preexisting encumbrances on the undivided interests in those common elements held by

16 all persons holding security interests in the units.

17 (h) The consents by holders of first security interests on units described in subsection

18 (g), or a certificate of the secretary affirming that those consents have been received by the

19 association, may be recorded at any time before the date on which the agreement under

20 subsection (c) becomes void. Consents or certificates so recorded are valid from the date they

21 are recorded for purposes of calculating the percentage of consenting first security interest

22 holders, regardless of later sales or encumbrances on those units. Even if the required

23 percentage of first security interest holders so consent, a conveyance or encumbrance of

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1 common elements does not affect interests having priority over the declaration, or created by the

2 association after the declaration was recorded.

3 (i) In a cooperative, the association may acquire, hold, encumber, or convey a

4 proprietary lease without complying with this section.

SECTION 3-113. INSURANCE.5

6 (a) Commencing not later than the time of the first conveyance of a unit to a person

7 other than a declarant, the association shall maintain, to the extent reasonably available:

8 (1) property insurance on the common elements and, in a planned community,

9 also on property that must become common elements, insuring against all risks of direct physical

10 loss commonly insured against or, in the case of a conversion building, against fire and extended

11 coverage perils. The total amount of insurance after application of any deductibles must be not

12 less than 80 percent of the actual cash value of the insured property at the time the insurance is

13 purchased and at each renewal date, exclusive of land, excavations, foundations, and other items

14 normally excluded from property policies; and

15 (2) liability insurance, including medical payments insurance, in an amount

16 determined by the executive board but not less than any amount specified in the declaration,

17 covering all occurrences commonly insured against for death, bodily injury, and property

18 damage arising out of or in connection with the use, ownership, or maintenance of the common

19 elements and, in cooperatives, also of all units.

20 (b) In the case of a building that is part of a cooperative or that contains units having

21 divided by horizontal boundaries described in the declaration, [or vertical boundaries that

22 comprise common walls between units,] the insurance maintained under subsection (a)(1), to the

23 extent reasonably available, must include the units, but need not include improvements and

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1 betterments installed by unit owners.

2 (c) If the insurance described in subsections (a) and (b) is not reasonably available, the

3 association promptly shall cause notice of that fact to be hand-delivered or sent prepaid by

4 United States mail to all unit owners. The declaration may require the association to carry any

5 other insurance, and the association in any event may carry any other insurance it considers

6 appropriate to protect the association or the unit owners.

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

8 (1) each unit owner is an insured person under the policy with respect to liability

9 arising out of his the owner’s interest in the common elements or membership in the association;

10 (2) the insurer waives its right to subrogation under the policy against any unit

11 owner or member of histhe owner’s household;

12 (3) no act or omission by anya unit owner, unless acting within the owner’s scope

13 of his authority on behalf of the association, will voids the policy or beis a condition to recovery

14 under the policy; and

15 (4) if, at the time of a loss under the policy, there is other insurance in the name

16 of a unit owner covering the same risk covered by the policy, the association's policy provides

17 primary insurance.

18 (e) Any loss covered by the property policy under subsections (a)(1) and (b) must be

19 adjusted with the association, but the insurance proceeds for that loss are payable to any

20 insurance trustee designated for that purpose, or otherwise to the association, and not to any

21 holder of a security interest. The insurance trustee or the association shall hold any insurance

22 proceeds in trust for the association, unit owners, and lien holders as their interests may appear.

23 Subject to the provisions of subsection (h), the proceeds must be disbursed first for the repair or

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1 restoration of the damaged property, and the association, unit owners, and lien holders are not

2 entitled to receive payment of any portion of the proceeds unless there is a surplus of proceeds

3 after the property has been completely repaired or restored, or the common interest community is

4 terminated.

5 (f) An insurance policy issued to the association does not prevent a unit owner from

6 obtaining insurance for his own benefit.

7 (g) An insurer that has issued an insurance policy under this section shall issue

8 certificates or memoranda of insurance to the association and, upon written request, to any unit

9 owner or holder of a security interest. The insurer issuing the policy may not cancel or refuse to

10 renew it until [30] days after notice of the proposed cancellation or non-renewal has been mailed

11 to the association, each unit owner and each holder of a security interest to whom a certificate or

12 memorandum of insurance has been issued at their respective last known addresses.

13 (h) Any portion of the common interest community for which insurance is required

14 under this section which is damaged or destroyed must be repaired or replaced promptly by the

15 association unless:

16 (i)(1) the common interest community is terminated, in which case Section 2-118

17 applies;

18 (ii)(2) repair or replacement would be illegal under any state or local statute or

19 ordinance governing health or safety,; or

20 (iii)(3) [80] percent of the unit owners, including every owner of a unit or

21 assigned limited common element that will not be rebuilt, vote not to rebuild.

22 (i) The cost of repair or replacement in excess of insurance proceeds and reserves is a

23 common expense. If the entire common interest community is not repaired or replaced, :

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1 (i)(1) the insurance proceeds attributable to the damaged common elements must

2 be used to restore the damaged area to a condition compatible with the remainder of the common

3 interest community,; and

4 (ii)(2) except to the extent that other persons will be distributees (Section

5 2-105(a)(12)(ii)), :

6 (A) the insurance proceeds attributable to units and limited common

7 elements that are not rebuilt must be distributed to the owners of those units and the owners of

8 the units to which those limited common elements were allocated, or to lien holders, as their

9 interests may appear,; and

10 (B) the remainder of the proceeds must be distributed to all the unit

11 owners or lien holders, as their interests may appear, as follows:

12 (1)(i) in a condominium, in proportion to the common element

13 interests of all the units; and

14 (2)(ii) in a cooperative or planned community, in proportion to the

15 common expense liabilities of all the units.

16 (j) If the unit owners vote not to rebuild any unit, that unit's allocated interests are

17 automatically reallocated upon the vote as if the unit had been condemned under Section

18 1-107(a), and the association promptly shall prepare, execute, and record an amendment to the

19 declaration reflecting the reallocations.

20 (i)(k) The provisions of this section may be varied or waived in the case of a common

21 interest community all of whose units are restricted to non-residential use.

22 REPORTER’S NOTES FOR THE HARTFORD MEETING RE INSURANCE

23 And the related issues of 3-115 (e)

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1 We spent considerable time on Section 3-113 in Denver, although my notes on our2 Denver discussion are admittedly vague. I have had further considerable discussion on the3 subject with Connecticut practitioners and association officers on the topic. It remains important4 and both the current statute and commentary fail to address at least these subjects:56 1. The insurance market place no longer offers so-called ‘all risk’ insurance – we do7 delete the existing reference to ‘all’.89 2. In Denver, we decided not to mandate insurance in townhouse-type projects, [and I

10 am not seeking to re-argue that decision] I am not certain what the policy differences are in those11 cases where we mandate insurance in ‘stacked unit’ situations and not in the townhouse context12 – our comments should address this issue.1314 3. Here in Connecticut, practitioners have identified a ‘glitch’ between our mandate that15 buildings containing units having horizontal boundaries must have insurance, and the comments16 that speak of ‘stacked units.’ Turns out that a number of unstacked projects use the statutory17 ‘walls floors and ceilings’ definition of boundaries – which create horizontal boundaries between18 units and common elements in single story projects – and thus an interpretation as to whether19 unit insurance is mandated. I have drafted text in the Hartford draft of 3-113 that addresses this20 issue.2122 4. The biggest issue that CT practitioners debate is what the association should do in23 these cases:2425 a. The association wants to carry a bigger deductible to avoid insurance premium26 increases. But then there is an insurance claim, sometimes with unit owner misconduct,27 sometimes not. Can the association pass on the deductible to the unit owner who had the loss? 28 Should they be able to?2930 b. How should we rewrite 3-115(e) dealing with misconduct? I did a re-write31 based on what my Denver notes show – it is in the revised statute - but it seems to me this is32 even more limiting of the association’s right to charge losses back against the unit owner.3334 c. How do we deal with the Association’s concern that they need to have35 discretion as to whether or not to file an insurance claim for a ‘small’ loss, because they are36 afraid of policy cancellation. As separate homeowners, we would each of us naturally exercise37 that discretion. Especially in the case of mandated insurance, the unit owner expects the38 insurance to pay – or at lease that not making a claim won’t result in a demand that the39 individual owner should pay. What do we wish to say about that?4041 d. CT practitioners are now trying to force individual unit owners to make claims42 against their homeowner’s insurance policies, rather than the association policy, either for the43 deductibles or for the whole thing. What should we allow or require?4445 e. We allow associations to not insure ‘improvements and betterments’ installed

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1 by unit owners, but in practice this becomes very difficult to monitor, even from the beginning2 and certainly as years have passed. And there are enormous issues of interpretation – replacing3 obsolete counters, original installation wall to wall carpet, new paint and wallpaper, etc. Do we4 have guidance?56 5. My notes have these obscure comments:78 A. “from RAMSEY – On INSURANCE WE [should?] PICK UP9 CONNECTICUT [whatever that means] BUT ALLOW THE DECLARATION TO VARY

10 THE RESULT.1112 B. ALSO REQUIRE DISCLOSURE OF THE CONSEQUENCES OF13 DEDUCTIBLE. COMMENT SAYS THAT ASSN CANNOT PASS ON THE COST1415 C. My notes read as follows: “If the association insures unit but does fails to file16 a claim, the rule is that the assn has to pay for whatever 3-107a – and that cost is a common17 expense.” I am uncertain what this language means. 1819 It is certainly the case that the association is always going to be on the hook for common20 element repairs, whether or not insured; and the association is also going to be required to repair21 those common elements, even if there is no insurance. The only issue then is the extent to which22 the association can then file a claim against a unit owner whose negligence may have caused the23 loss. 2425 It does seem to me that if the association insures a unit but fails to file a claim, the unit26 owner ought to be entitled to the same benefit as if the claim had been filed – but I have no idea27 why I have the reference to 3-107(a). 28

SECTION 3-114. SURPLUS FUNDS. Unless otherwise provided in the declaration, any29

30 surplus funds of the association remaining after payment of or provision for common expenses and

31 any prepayment of reserves must be paid annually to the unit owners in proportion to their common

32 expense liabilities or credited to them to reduce their future common expense assessments.

SECTION 3-115. ASSESSMENTS FOR COMMON EXPENSES.33

34 (a) Until the association makes a common expense assessment, the declarant shall pay all

35 common expenses. After an assessment has been made by the association, assessments must be

36 made at least annually, based on a budget adopted at least annually by the association.

37 (b) Except for assessments under subsections (c), (d), and (e), all common expenses must

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1 be assessed against all the units in accordance with the allocations set forth in the declaration

2 pursuant to Section 2-107(a) and (b). Any past due common expense assessment or installment

3 thereof bears interest at the rate established by the association not exceeding [18] percent per year.

4 (c) To the extent required by the declaration:

5 (1) any common expense associated with the maintenance, repair, or replacement

6 of a limited common element must be assessed against the units to which that limited common

7 element is assigned, equally, or in any other proportion the declaration provides;

8 (2) any common expense or portion thereof included as part of the common expense

9 budget, but benefitting fewer than all of the units, [(or their owners)] including any fees for services

10 provided by the association to occupants of individual units, must be assessed exclusively against

11 the units benefitted based on the benefit to those units [(or unit owners)] their use and consumption

12 of services; and

13 (3) the costs of insurance must be assessed in proportion to risk and the costs of

14 utilities must be assessed in proportion to usage.

15 (4) Any charge which is not a common expense and which is voluntarily contracted

16 for by unit owners, including any fees for services provided by the association to occupants of

17 individual units, shall be charged exclusively to the persons benefitted based on their use and

18 consumption of services or on any other basis to which the parties agree. WRB NOTE - Not needed;

19 see §3-102(a)(10)(b).

20 (d) Assessments to pay a judgment against the association (Section 3-117(a)) may be made

21 only against the units in the common interest community at the time the judgment was entered, in

22 proportion to their common expense liabilities.

23 (e) If any common expense is caused by the willful misconduct or gross negligence of any

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1 unit owner or the guests or invitees of a unit owner, the association may assess that expense

2 exclusively against his unit. that owner's unit but only to the extent that the association does not have

3 insurance covering that expense..

4 (f) If common expense liabilities are reallocated, common expense assessments and any

5 instalment thereof not yet due must be recalculated in accordance with the reallocated common

6 expense liabilities.

SECTION 3-116. LIEN FOR SUMS DUE THE ASSOCIATION ASSESSMENTS;7

8 ENFORCEMENT .

9 (a) The association has a statutory lien on a unit for any assessment levied against that

10 unit or fines imposed against its unit owner. Unless the declaration otherwise provides,

11 reasonable attorneys fees and court costs, other fees, charges, late charges, fines, and interest

12 charged pursuant to Section 3-102(a)(10), (11), and (12), and any other sums due to the

13 association under the declaration, this [act], or as a result of an administrative, arbitration, or

14 judicial decision are enforceable in the same manner as unpaid assessments under this section. If

15 an assessment is payable in installments, the lien is for the full amount of the assessment from

16 the time the first installment thereof becomes due. Unless the declaration provides for a different

17 rate of interest, interest on unpaid assessments shall accrue at the rate provided in [insert state

18 statute governing interest on judgments liens].

19 WRB TO DRAFT– Comment - this includes voluntary charges

20 (b) A lien under this section is prior to all other liens and encumbrances on a unit except:

21 (i)(1) liens and encumbrances recorded before the recordation of the declaration

22 and, in a cooperative, liens and encumbrances which the association creates, assumes, or takes

23 subject to, ;

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1 (ii)(2) a first security interest on the unit recorded before the date on which the

2 assessment sought to be enforced became delinquent, or, in a cooperative, the first security

3 interest encumbering only the unit owner's interest and perfected before the date on which the

4 assessment sought to be enforced became delinquent,; and

5 (iii)(3) liens for real estate taxes and other governmental assessments or charges

6 against the unit or cooperative.

7 (c) The lien under this section is also prior to all security interests described in

8 subsection (b)(2) clause (ii)(2) above to the extent of both the common expense assessments

9 based on the periodic budget adopted by the association pursuant to Section 3-115(a) which

10 would have become due in the absence of acceleration during the six months immediately

11 preceding institution of an action to enforce the lien; and reasonable attorneys fees and court

12 costs incurred by the association in foreclosing the association’s lien. This subsection

13 Subsection (b) and this subsection does not affect the priority of mechanics' or materialmen's

14 liens, or the priority of liens for other assessments made by the association. [The lien under this

15 section is not subject to the provisions of [insert appropriate reference to state homestead, dower

16 and curtesy, or other exemptions].]

17 (d)(c) Unless the declaration otherwise provides, if two or more associations have liens

18 for assessments created at any time on the same property, those liens have equal priority.

19 (e)(d) Recording of the declaration constitutes record notice and perfection of the lien.

20 No further recordation of any claim of lien for assessment under this section is required.

21 (f)(e) A lien for unpaid assessments is extinguished unless proceedings to enforce the

22 lien are instituted within [3] years after the full amount of the assessments becomes due.

23 (g)(f) This section does not prohibit actions against unit owners to recover sums for

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1 which subsection (a) creates a lien or prohibit an association from taking a deed in lieu of

2 foreclosure.

3 (h)(g) A judgment or decree in any action brought under this section must include costs

4 and reasonable attorney's fees for the prevailing party.

5 (i)(h) The association upon written request shall furnish to a unit owner a statement

6 setting forth the amount of unpaid assessments against the unit. If the unit owner's interest is

7 real estate, the statement must be in recordable form. The statement must be furnished within

8 [10] business days after receipt of the request and is binding on the association, the executive

9 board, and every unit owner.

10 (j)(i) In a cooperative, upon nonpayment of an assessment on a unit, the unit owner may

11 be evicted in the same manner as provided by law in the case of an unlawful holdover by a

12 commercial tenant, and the lien may be foreclosed as provided by this section.

13 (k)(j) The association's lien may be foreclosed as provided in this subsection and

14 subsection (o)(p):

15 (1) In in a condominium or planned community, the association's lien must be

16 foreclosed in like manner as a mortgage on real estate [or by power of sale under [insert

17 appropriate state statute]];

18 (2) In in a cooperative whose unit owners' interests in the units are real estate

19 (Section 1-105), the association's lien must be foreclosed in like manner as a mortgage on real

20 estate [or by power of sale under [insert appropriate state statute]] [or by power of sale under

21 subsection (k)(l)]; [or]

22 (3) In in a cooperative whose unit owners' interests in the units are personal

23 property (Section 1-105), the association's lien must be foreclosed in like manner as a security

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1 interest under [insert reference to Article 9, Uniform Commercial Code.] [orand]

2 [(4) In in the case of a foreclosure under [insert reference to state power of sale

3 statute], the association shall give the notice required by statute or, if there is no such

4 requirement, reasonable notice of its action to all lien holders of the unit whose interest would be

5 affected].]

6 (l)[(k) [In a cooperative, if the unit owner's interest in a unit is real estate (Section 1-105)

7 the following rules apply:

8 (1) The association, upon non-payment of assessments and compliance with this

9 subsection, may sell that unit at a public sale or by private negotiation, and at any time and place.

10 Every aspect of the sale, including the method, advertising, time, place, and terms must be

11 reasonable. The association shall give to the unit owner and any lessees of the unit owner

12 reasonable written notice of the time and place of any public sale or, if a private sale is intended,

13 or the intention of entering into a contract to sell and of the time after which a private disposition

14 may be made. The same notice must also be sent to any other person who has a recorded interest

15 in the unit which would be cut off by the sale, but only if the recorded interest was on record

16 seven weeks before the date specified in the notice as the date of any public sale or seven weeks

17 before the date specified in the notice as the date after which a private sale may be made. The

18 notices required by this subsection may be sent to any address reasonable in the circumstances.

19 Sale may not be held until five weeks after the sending of the notice. The association may buy at

20 any public sale and, if the sale is conducted by a fiduciary or other person not related to the

21 association, at a private sale.

22 (2) Unless otherwise agreed, the debtor unit owner is liable for any deficiency in

23 a foreclosure sale.

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1 (3) The proceeds of a foreclosure sale must be applied in the following order:

2 (i)(A) the reasonable expenses of sale;

3 (ii)(B) the reasonable expenses of securing possession before sale; the

4 reasonable expenses of holding, maintaining, and preparing the unit for sale, including payment

5 of taxes and other governmental charges, premiums on hazard and liability insurance,; and, to

6 the extent provided for by agreement between the association and the unit owner, reasonable

7 attorney's fees and other legal expenses incurred by the association;

8 (iii)(C) satisfaction of the association's lien;

9 (iv)(D) satisfaction in the order of priority of any subordinate claim of

10 record; and

11 (v)(E) remittance of any excess to the unit owner.

12 (4) A good faith purchaser for value acquires the unit free of the association's

13 debt that gave rise to the lien under which the foreclosure sale occurred and any subordinate

14 interest, even though the association or other person conducting the sale failed to comply with

15 the requirements of this section. The person conducting the sale shall execute a conveyance to

16 the purchaser sufficient to convey the unit and stating that it is executed by him the person after

17 a foreclosure of the association's lien by power of sale and that he the person was empowered to

18 make the sale. Signature and title or authority of the person signing the conveyance as grantor

19 and a recital of the facts of non-payment of the assessment and of the giving of the notices

20 required by this subsection are sufficient proof of the facts recited and of his the authority to

21 sign. Further proof of authority is not required even though the association is named as grantee

22 in the conveyance.

23 (5) At any time before the association has disposed of a unit in a cooperative or

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1 entered into a contract for its disposition under the power of sale, the unit owners or the holder of

2 any subordinate security interest may cure the unit owner's default and prevent sale or other

3 disposition by tendering the performance due under the security agreement, including any

4 amounts due because of exercise of a right to accelerate, plus the reasonable expenses of

5 proceeding to foreclosure incurred to the time of tender, including reasonable attorney's fees of

6 the creditor.]

7 ](m)(l) In an action by an association to collect assessments or to foreclose a lien for

8 unpaid assessments on a unit under this section, the court may appoint a receiver to collect all

9 sums alleged to be due and owing to a unit owner before commencement or during pendency of

10 the action. The receivership is governed by [insert state law generally applicable to

11 receiverships]. The court may order the receiver to pay any sums held by the receiver to the

12 association during pendency of the action to the extent of the association's common expense

13 assessments based on a periodic budget adopted by the association pursuant to Section 3-115.]

14 (n)[(m) An association may not commence an action to foreclose a lien on a unit under

15 this section unless:

16 (1) the unit owner, at the time the action is commenced, owes a sum equal to at

17 least (3) months of common expense assessments based on the periodic budget last adopted by

18 the association pursuant to Section 3-115(a) and the unit owner has failed to accept or comply

19 with a payment plan offered by the association; and

20 (2) the executive board expressly votes to commence a foreclosure action

21 against a specific unit.]

22 (o)[(n) Unless the parties otherwise agree, the association shall apply any sums paid by

23 unit owners who are delinquent in paying assessments as follows in the following order:

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1 (1)(i) first, to unpaid assessments;

2 (2)(ii) then to late charges;

3 (3)(iii) then to attorneys fees and other reasonable collection charges and costs;

4 and

5 (4)(iv) finally, to all other unpaid fees, charges, penalties, interest and late

6 charges.]

7 (p)[(o) If the only sums due with respect to a unit consist of fines and related sums

8 levied against the unit, a foreclosure action may not be commenced against the unit unless the

9 association has a judgment against the unit owner with respect to the fines and has perfected a

10 judgment lien against the unit under [insert reference to state statute on perfection of judgments

11 liens.]

12 [(q)(p) Any sale or other disposition conducted in connection with a foreclosure action

13 under this section shall be commercially reasonable.]

SECTION 3-117. OTHER LIENS.14

15 (a) In a condominium or planned community the following rules apply:

16 (1) Except as provided in paragraph (2), a judgment for money against the

17 association [if recorded] [if docketed] [if [insert other procedures required under state law to

18 perfect a lien on real estate as a result of a judgment] ], is not a lien on the common elements, but

19 is a lien in favor of the judgment lien holder against: (i) all of the other real property of the

20 association; and (ii) all of the units in the common interest community at the time the judgment

21 was entered. No other property of a unit owner is subject to the claims of creditors of the

22 association.

23 (2) If the association has granted a security interest in the common elements to a

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1 creditor of the association pursuant to Section 3-112, the holder of that security interest shall

2 exercise its right against the common elements before its judgment lien on any unit may be

3 enforced.

4 (3) Whether perfected before or after the creation of the common interest

5 community, if a lien, other than a deed of trust or mortgage (, including a judgment lien or lien

6 attributable to work performed or materials supplied before creation of the common interest

7 community), becomes effective against two or more units, the unit owner of an affected unit may

8 pay to the lien holder the amount of the lien attributable to his the unit, and the lien holder, upon

9 receipt of payment, promptly shall deliver a release of the lien covering that unit. The amount of

10 the payment must be proportionate to the ratio which that unit owner's common expense liability

11 bears to the common expense liabilities of all unit owners whose units are subject to the lien.

12 After payment, the association may not assess or have a lien against that unit owner's unit for

13 any portion of the common expenses incurred in connection with that lien.

14 (4) A judgment against the association must be indexed in the name of the

15 common interest community and the association and, when so indexed, is notice of the lien

16 against the units.

17 (b) In a cooperative the following rules apply:

18 (1) If the association receives notice of an impending foreclosure on all or any

19 portion of the association's real estate, the association shall promptly transmit a copy of that

20 notice to each unit owner of a unit located within the real estate to be foreclosed. Failure of the

21 association to transmit the notice does not affect the validity of the foreclosure.

22 (2) Whether or not a unit owner's unit is subject to the claims of the association's

23 creditors, no other property of a unit owner is subject to those claims.

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SECTION 3-118. ASSOCIATION RECORDS. The association shall keep financial1

2 records sufficiently detailed to enable the association to comply with Section 4-109. All

3 financial and other records must be made reasonably available for examination by any unit

4 owner and his authorized agents.

5 (a) The association must [(create and maintain) (keep)] the following records:

6 (1) detailed records of receipts and expenditures affecting the operation and

7 administration of the association and other appropriate accounting records;

8 (2) minutes of all meetings of its unit owners and executive board, a record of all

9 actions taken by the unit owners or executive board without a meeting, and a record of all

10 actions taken by a committee in place of the executive board on behalf of the association;

11 (3) the names of unit owners in a form that permits preparation of a list of the

12 names and addresses and the addresses at which the association communicates with them of all

13 owners, in alphabetical order showing the number of votes each owner is entitled to cast;

14 (4) its original or restated organizational documents, if any, and bylaws and all

15 amendments to them, and all rules currently in effect;

16 (5) any financial statements and tax returns of the association for the past three

17 years;

18 (6) a list of the names and business addresses of its current executive board

19 members and officers;

20 (7) its most recent annual report delivered to the [Secretary of the State], if any;

21 (8) financial and other records sufficiently detailed to enable the association to

22 comply with Section 4-109;

23 (9) all current [written] [record?] contracts to which it is a party and which are in

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1 record form; [and]

2 (10) records of executive board or committee actions to approve or deny any

3 requests for design or architectural approval from unit owners[; and

4 (11) ballots, proxies, and other records related to voting by unit owners for one

5 year after the election, action, or vote to which they relate].

6 (b) Subject to subsections (c) and (d), all records kept maintained by the association,

7 including the association’s membership list and addresses, and aggregate salary information of

8 employees of the association, shall be available for examination and copying by a unit owner or

9 the owner's authorized agent. This right of examination may be exercised:

10 (1) only during reasonable business hours or at a mutually convenient time and

11 location; and

12 (2) upon [5] days’ written notice reasonably identifying the specific records of

13 the association requested.

14 (c) Records kept maintained by an association may be withheld from inspection and

15 copying to the extent that they concern:

16 (1) personnel and salary matters relating to specific persons or a person’s medical

17 records;

18 (2) contracts, leases, and other commercial transactions to purchase or provide

19 goods or services, currently in or under negotiation;

20 (3) pending or potential litigation;

21 (4) matters involving state or local administrative or other formal proceedings

22 before a government tribunal for enforcement of the declaration, bylaws, or rules;

23 (5) communications with legal counsel which are otherwise protected by the

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1 attorney-client privilege or the attorney work product doctrine;

2 (6) disclosure of information in violation of law;

3 (7) records of an executive session of the executive board; or

4 (8) individual unit files other than those of the requesting owner.

5 (d) The association may charge a fee for providing copies of any records under this

6 section and for supervising the unit owner<s inspection but those fees may not exceed the actual

7 cost of any materials and labor incurred by the association.

8 (e) The right to copy records under this section includes the right to receive copies by

9 photocopying or other means, including copies through an electronic transmission if available

10 and so requested by the unit owner.

11 (f) The association is not obligated to compile or synthesize information. Information

12 provided pursuant to this section may not be used for commercial purposes.

SECTION 3-119. ASSOCIATION AS TRUSTEE. With respect to a third person13

14 dealing with the association in the association’s capacity as a trustee, the existence of trust

15 powers and their proper exercise by the association may be assumed without inquiry. A third

16 person is not bound to inquire whether the association has power to act as trustee or is properly

17 exercising trust powers. A third person, without actual knowledge that the association is

18 exceeding or improperly exercising its powers, is fully protected in dealing with the association

19 as if it possessed and properly exercised the powers it purports to exercise. A third person is not

20 bound to assure the proper application of trust assets paid or delivered to the association in its

21 capacity as trustee.

SECTION 3-120. RULES. 22

23 (a) Before adopting, amending, or repealing any rule, the executive board must give to

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1 notify all unit owners notice of:

2 (1) its intention to adopt, amend, or repeal a rule and provide the text of the

3 proposed change; and

4 (2) a date on which the executive board will act on the proposed rule or

5 amendment after considering comments on those changes from unit owners.

6 (b) Following adoption, amendment, or repeal of a rule, the association shall notify the

7 unit owners of its action and provide a copy of any new or revised rule.

8 (c) If the declaration so provices, the The association may adopt rules to establish and

9 enforce construction and design criteria and aesthetic standards if the declaration so provides,. If

10 it the declaration does so provide, the association must adopt procedures for enforcement of

11 those standards and for approval of applications, including a reasonable time within which the

12 association must act after an application is submitted and the consequences of its failure to act.

13 (d) A rule regulating display of the flag of the United States must be consistent with

14 federal law. Unless the declaration otherwise provides, In addition, the association no rule may

15 not prohibit display on a unit or on a limited common element adjoining a unit of a the flag of

16 this state, or signs regarding candidates for public or association office or ballot questions, but

17 the association may adopt rules governing the time, place, size, number or and manner of those

18 displays.

19 (e) Unit owners may peacefully assemble on the common elements to consider matters

20 related to the common interest community but the association may adopt rules governing the

21 time, place and manner of those assemblies.

22 (f)(e) An association may adopt rules that affect the use of or behavior in units that may

23 be used for residential purposes, only to:

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1 (1) implement a provision of the declaration;

2 (2) regulate any behavior in or occupancy of a unit which violates the declaration

3 or adversely affects the use and enjoyment of other units or the common elements by other unit

4 owners; or

5 (3) restrict the leasing of residential units to the extent those rules are reasonably

6 designed to meet underwriting requirements of institutional lenders who regularly lend money

7 secured by first mortgages on units in common interest communities or regularly purchase those

8 mortgages.

9 (g)(f) All Every rule rules adopted by the association must be reasonable.

SECTION 3-121. LITIGATION INVOLVING THE DECLARANT.10

11 (a) An association’s authority under Section 3-102 (a)(3) to commence and pursue

12 litigation involving the common interest community is subject to the following rules:

13 (1) Before the association commences litigation, arbitration, or any

14 administrative proceedings against a declarant or any person employed by a declarant involving

15 any alleged construction defect with respect to the common interest community, the association

16 must provide written notice of its claims to the declarant and those persons whom the association

17 seeks to hold responsible for the claimed defects. The text of the notice may be in any form

18 reasonably calculated to put the persons on notice of the general nature of the association’s

19 claims including, without limitation, a list of the claimed defects. The notice may be delivered

20 by any method of service and may be addressed to any person provided that the method of

21 service and the person who is actually served either:

22 (A) provides actual notice to the persons named in the claim; or

23 (B) the method of service used would be sufficient under local law to

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1 confer personal jurisdiction over the person in connection with commencement of a lawsuit by

2 the association against that person.

3 (2) The association may not commence litigation, arbitration, or any

4 administrative proceedings against a person for a period of [ ] days after the association sends

5 notice of its claim to that person.

6 (3) During the [ ] day period required by paragraph (2), the declarant and any

7 other person to whom [it] [the association] directed notice may present to the association a plan

8 to repair or otherwise remedy the construction defects described in the notice. If the association

9 does not receive a timely remediation plan from each person to whom it directed notice, the

10 association shall be entitled to commence any proceedings against that person as the board

11 determines to be appropriate.

12 (4) If the association receives one or more timely plans to repair or otherwise

13 remedy the construction defects described in the notice, the association board shall promptly

14 consider those plans and notify the persons to whom it directed notice whether or not each such

15 plan is acceptable as presented, acceptable with stated conditions, or not accepted.

16 (5) If the association accepts a repair plan from a responsible person, or if a

17 responsible person agrees to stated conditions to an otherwise acceptable plan, then the parties

18 shall agree on a timeframe for implementation of the plan, and the association shall not

19 commence litigation, arbitration, or any administrative proceedings against that responsible

20 person during the time that the plan is being diligently implemented.

21 (6) If a person to whom the association [directed] [sent] notice submits a timely

22 repair plan but the association and the person do not agree in writing to the terms of the plan or

23 its implementation, then [ Alt. 1 - the association may commence litigation etc. ] or [Alt. 2 –

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1 either party is entitled to binding arbitration.]

2 (7) Except as otherwise provided in Section 4-116(d) with respect to warranty

3 claims, any statute of limitation affecting the association’s right of action against a declarant or

4 other person is tolled during the [ ] day period described in subsection (b) and during any

5 extension of that time because a person to whom notice was directed has commenced and is

6 diligently pursuing the remediation plan.

7 (b) After the time described in subsection (a)(3) expires, whether or not the association

8 agrees to any repair plan, nothing in this section or otherwise bars commencement of litigation

9 by:

10 (1) the association against a person to whom notice was directed that fails to

11 submit a timely repair plan, the plan of which is not acceptable, or that fails to diligently pursue

12 implementation of that plan; or

13 (2) A unit owner with respect to the owner's unit and any limited common

14 elements assigned to that unit, regardless of any actions of the association.

15 (c) Nothing in this section precludes the association from making emergency repairs to

16 correct any defect that poses a significant and immediate health or safety risk.

17 (d) Subject to the other provisions of this section and the declaration, the determination

18 of whether and when the association may commence any proceedings may be made by the

19 executive board, and nothing in this section requires a vote by any number or percentage of unit

20 owners as a pre-condition to litigation.

SECTION 3-122 3-121. NOTICE.21

22 (a) Any notice required to be given by the association under this [act] may be: Unless

23 otherwise required [or permitted (compare to §1-121)] by the declaration or bylaws, the

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1 following methods or [of] giving notice suffice when notice is required by this [act]:

2 (1) personally hand-delivered to each owner, person; unless that owner has

3 designated a different mailing address in writing;

4 (2) hand-delivered or sent prepaid postage paid by United States mail or by

5 express or delivery service to the mailing address of each unit, unless the owner has designated

6 in writing a different mailing address in which case, it shall be sent to the designated address; or

7 (3) sent by electronic means if the unit owner has given the association prior

8 written authorization to provide notice by that means, together with an electronic address.; or

9 (4) unless directed otherwise by a unit owner, delivered by any other method

10 reasonably calculated to provide notice to that person.

11 (b) The ineffectiveness of a good faith effort to deliver notice by any authorized means

12 does not invalidate action taken at a meeting or in lieu of a meeting.

SECTION 3-122 3-123. REMOVAL OF OFFICERS AND DIRECTORS13

14 (a) Notwithstanding any provision of the declaration or bylaws to the contrary, unit

15 owners, by a majority vote of all persons present, in person, by proxy, or by ballot, at any

16 meeting of the unit owners at which a quorum is present, may remove any member of the

17 executive board and any officer elected by the unit owners with or without cause, except that:

18 (1) a member appointed by the declarant may not be removed by a unit owner

19 vote during the period of declarant control;

20 (2) a member person appointed under subsection (f) of Section 3-103(f) may only

21 be removed only by the person that appointed that member; and

22 (3) the unit owners may not consider whether to remove a member of the

23 executive board at any meeting of the unit owners unless that subject was listed in the notice of

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1 the meeting.

2 (b) At any meeting at which a vote to remove a member of the executive board is to be

3 taken, the executive board shall provide all persons, favoring and opposing removal of that

4 member, including the member being considered for removal shall have a reasonable

5 opportunity to speak before the vote [,subject to reasonable limits on debate].

6 (c) At any meeting called for the purpose of removing a member of the executive board,

7 the following rules apply:

8 (1) After all persons present at the meeting have been given a reasonable

9 opportunity to speak, the meeting may be recessed for the purpose of conducting the vote as

10 described in paragraph (2).

11 (2) Promptly following any recess, the association shall notify all unit owners of

12 the recessed meeting and inform the unit owners of their opportunity to cast votes either in favor

13 or against removal during the [ ] day period following the day that the notice is sent. The notice

14 must specifically inform the unit owners whether they may cast votes in a secret written ballot,

15 on a form provided to the unit owners, or by electronic means.

16 (c) (d) Whether a vote under subsection (c) is taken before or after a recess, and whether

17 or not taken by electronic means, a A member of the executive board may be removed only if the

18 number of votes cast in favor of removal exceeds the number of votes cast in opposition to

19 removal.

20 REPORTER NOTE – These deletions appear to bar an electronic or paper ballot on21 removal.22

SECTION 3-123 3-124. ADOPTION OF BUDGETS. [Previously Section 3-103 (c),23

24 amended as shown]

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1 (a) The executive board, at least annually, shall prepare a proposed budget for the

2 common interest community for consideration by the unit owners. Not later than Within [30]

3 days after adoption of any a proposed budget, the executive board shall provide to all the unit

4 owners a summary of the budget, including any reserves, and a statement of the basis on which

5 any reserves are calculated and funded. Simultaneously, the board shall set a date for a meeting

6 of the unit owners to consider ratification of the budget not fewer less than 10 nor or more than

7 60 days after mailing of the summary. Unless at that meeting a majority of all unit owners or any

8 larger vote specified in the declaration reject the budget, the budget is ratified, whether or not a

9 quorum is present. If a proposed budget is rejected, the budget last ratified by the unit owners

10 continues until such time as the unit owners ratify a subsequent budget

11 (b) The executive board may at any time propose a special assessment. Except as

12 otherwise provided in subsection (c), the assessment is effective only if the executive board

13 follows the procedures for ratification of a budget described in subsection (a) and the unit

14 owners do not reject that proposed assessment.

15 (c) If the executive board determines by a two-thirds vote that a special assessment is

16 necessary in order to respond to an emergency, then:

17 (1) the special assessment shall become effective immediately in accordance with

18 the terms of the vote;

19 (2) notice of the emergency assessment shall be promptly provided to all unit

20 owners; and

21 (3) the executive board shall spend the funds paid on account of the emergency

22 assessment solely for the purposes described in the vote.

SECTION 3-124 3-121. LITIGATION INVOLVING THE DECLARANT.23

108

1 (a) An association’s authority under Section 3-102 (a)(3) to commence and pursue

2 litigation involving the common interest community is subject to the following rules:

3 (1) Subject to subsection (e), before Before the association commences litigation,

4 arbitration, or any administrative proceedings against a declarant or any person employed by a

5 declarant involving any alleged construction defect with respect to the common interest

6 community, the association must provide written notice in record form of its claims to the

7 declarant and those persons whom the association seeks to hold responsible for the claimed

8 defects. The text of the notice may be in any form reasonably calculated to put the persons on

9 notice of the general nature of the association’s claims including, without limitation, a list of the

10 claimed defects. The notice may be delivered by any method of service and may be addressed to

11 any person provided that the method of service and the person who is actually served either:

12 (A) provides actual notice to the persons named in the claim; or

13 (B) the method of service used would be sufficient under local law to

14 confer personal jurisdiction over the person in connection with commencement of a lawsuit by

15 the association against that person.

16 (2) Subject to subsection (e), the The association may not commence litigation,

17 arbitration, or any an administrative proceedings against a person for a period of [45] days after

18 the association sends notice of its claim to that person.

19 (3) During the [45] day period required by paragraph (2), the declarant and any

20 other person to which whom it the association directed notice may present to the association a

21 plan to repair or otherwise remedy the construction defects described in the notice. If the

22 association does not receive a timely remediation plan from each person to whom which it

23 directed notice, the association shall be entitled to commence any proceedings against that

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1 person as the board determines to be appropriate.

2 (4) If the association receives one or more timely plans to repair or otherwise

3 remedy the construction defects described in the notice, the association board shall promptly

4 consider those plans and notify the persons to whom which it directed notice whether or not each

5 such plan is acceptable as presented, acceptable with stated conditions, or not accepted.

6 (5) If the association accepts a repair plan from a responsible person, or if a

7 responsible person agrees to stated conditions to an otherwise acceptable plan, then the parties

8 shall agree on a timeframe period for implementation of the plan, and the association shall not

9 commence litigation, arbitration, or any administrative proceedings against that responsible

10 person during the time that the plan is being diligently implemented.

11 (6) If a person to whom which the association directed provided notice submits a

12 timely repair plan but the association and the person do not agree in writing to the terms of the

13 plan or its implementation, then [ Alt. 1 - the association may commence any appropriate

14 proceeding. litigation etc. ] or [Alt. 2 – either party is entitled to binding arbitration.]

15 (7) Except as otherwise provided in Section 4-116(d) with respect to warranty

16 claims, any statute of limitation affecting the association’s right of action against a declarant or

17 other person is tolled during the [ ] day period described in subsection (b) and during any

18 extension of that time because a person to whom which notice was directed has commenced and

19 is diligently pursuing the remediation plan.

20 (b) After the time described in subsection (a)(3) expires, whether or not the association

21 agrees to any repair plan, nothing in this section or otherwise bars commencement of litigation

22 by:

23 (1) the association against a person to whom which notice was directed that

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1 which fails to submit a timely repair plan, the plan of which is not acceptable, or that which fails

2 to diligently pursue diligent implementation of that plan; or

3 (2) A unit owner with respect to the owner's unit and any limited common

4 elements assigned to that unit, regardless of any actions of the association.

5 (c) Nothing in this section precludes the association from making emergency repairs

6 necessary to mitigate damages or to correct any defect that poses a significant and immediate

7 health or safety risk.

8 (d) Subject to the other provisions of this section and the declaration, the determination

9 of whether and when the association may commence any proceedings may be made by the

10 executive board, and nothing in this section requires a vote by any number or percentage of unit

11 owners as a pre-condition to litigation.]

12 (e) Nothing in this section prevents an association from seeking injunctive relief at any

13 time without complying with the requirements of subsection (a)(1) or (2).

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[ARTICLE] 41

2 PROTECTION OF PURCHASERS

SECTION 4-101. APPLICABILITY; WAIVER.3

4 (a) This [article] applies to all units subject to this [act], except as provided in subsection

5 (b) or as modified or waived by agreement of purchasers of units in a common interest

6 community in which all units are restricted to non-residential use.

7 (b) Neither a public offering statement nor a resale certificate need be prepared or

8 delivered in the case of:

9 (1) a gratuitous disposition of a unit;

10 (2) a disposition pursuant to court order;

11 (3) a disposition by a government or governmental agency;

12 (4) a disposition by foreclosure or deed in lieu of foreclosure;

13 (5) a disposition to a dealer;

14 (6) a disposition that may be canceled at any time and for any reason by the

15 purchase without penalty; or

16 (7) a disposition of a unit restricted to nonresidential purposes.

SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT17

18 REQUIREMENTS.

19 (a) Except as provided in subsection (b), a declarant, before offering any interest in a

20 unit to the public, shall prepare a public offering statement conforming to the requirements of

21 Sections 4-103, 4-104, 4-105, and 4-106.

22 (b) A declarant may transfer responsibility for preparation of all or a part of the public

23 offering statement to a successor declarant (Section 3-104) or to a dealer who intends to offer

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1 units in the common interest community. In the event of any such transfer, the transferor shall

2 provide the transferee with any information necessary to enable the transferee to fulfill the

3 requirements of subsection (a).

4 (c) Any declarant or dealer who offers a unit to a purchaser shall deliver a public

5 offering statement in the manner prescribed in subsection Section 4-108(a). The person who

6 prepared all or a part of the public offering statement is liable under Sections 4-108 [and] [,]

7 4-117 [, 5-105, and 5-106] for any false or misleading statement set forth therein or for any

8 omission of a material fact therefrom with respect to that portion of the public offering statement

9 which he the person prepared. If a declarant did not prepare any part of a public offering

10 statement that he the declarant delivers, he the declarant is not liable for any false or misleading

11 statement set forth therein or for any omission of a material fact therefrom unless he the

12 declarant had actual knowledge of the statement or omission or, in the exercise of reasonable

13 care, should have known of the statement or omission.

14 (d) If a unit is part of a common interest community and is part of any other real estate

15 regime in connection with the sale of which the delivery of a public offering statement is

16 required under the laws of this state, a single public offering statement conforming to the

17 requirements of Sections 4-103, 4-104, 4-105, and 4-106 as those requirements relate to each

18 regime in which the unit is located, and to any other requirements imposed under the laws of this

19 state, may be prepared and delivered in lieu of providing two or more public offering statements.

SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS.20

21 (a) Except as provided in subsection (b), a public offering statement must contain or

22 fully and accurately disclose:

23 (1) the name and principal address of the declarant and of the common interest

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1 community, and a statement that the common interest community is either a condominium,

2 cooperative, or planned community;

3 (2) a general description of the common interest community, including to the

4 extent possible, the types, number, and declarant's schedule of commencement and completion

5 of construction of buildings, and amenities that the declarant anticipates including in the

6 common interest community;

7 (3) the number of units in the common interest community;

8 (4) copies and a brief narrative description of the significant features of the

9 declaration, other than any plats and plans, and any other recorded covenants, conditions,

10 restrictions, and reservations affecting the common interest community; the bylaws, and any - of

11 the association; copies of any contracts and leases to be signed by purchasers at closing,; and a

12 brief narrative description of any contracts or leases that will or may be subject to cancellation

13 by the association under Section 3-105;

14 (5) any current balance sheet and a projected budget for the association, either

15 within or as an exhibit to the public offering statement, for [one] year after the date of the first

16 conveyance to a purchaser, and thereafter the current budget of the association, a statement of

17 who prepared the budget, and a statement of the budget's assumptions concerning occupancy and

18 inflation factors. The budget must include, without limitation:

19 (i)(A) a statement of the amount, or a statement that there is no amount,

20 included in the budget as a reserve for repairs and replacement;

21 (ii)(B) a statement of any other reserves;

22 (iii)(C) the projected common expense assessment by category of

23 expenditures for the association; and

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1 (iv)(D) the projected monthly common expense assessment for each type

2 of unit;

3 (6) any services not reflected in the budget that the declarant provides, or

4 expenses that he the declarant pays and which he the declarant expects may become at any

5 subsequent time a common expense of the association and the projected common expense

6 assessment attributable to each of those services or expenses for the association and for each

7 type of unit;

8 (7) any initial or special fee due from the purchaser [or seller] at closing the time

9 of sale, together with a description of the purpose and method of calculating the fee;

10 (8) a description of any liens, defects, or encumbrances on or affecting the title to

11 the common interest community;

12 (9) a description of any financing offered or arranged by the declarant;

13 (10) the terms and significant limitations of any warranties provided by the

14 declarant, including statutory warranties and limitations on the enforcement thereof or on

15 damages;

16 (11) a statement that:

17 (i)(A) within 15 days after receipt of a public offering statement a

18 purchaser, before conveyance, may cancel any contract for purchase of a unit from a declarant,;

19 (ii)(B) if a declarant fails to provide a public offering statement to a

20 purchaser before conveying a unit, that purchaser may recover from the declarant [10] percent of

21 the sales price of the unit plus [10] percent of the share, proportionate to histhe purchaser’s

22 common expense liability, of any indebtedness of the association secured by security interests

23 encumbering the common interest community,; and

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1 (iii)(C) if a purchaser receives the public offering statement more than 15

2 days before signing a contract, he cannot the purchaser may not cancel the contract;

3 (12) a statement of any unsatisfied judgments or pending suits against the

4 association, and the status of any pending suits material to the common interest community of

5 which a declarant has actual knowledge;

6 (13) a statement that any deposit made in connection with the purchase of a unit

7 will be held in an escrow account until closing and will be returned to the purchaser if the

8 purchaser cancels the contract pursuant to Section 4-108, together with the name and address of

9 the escrow agent;

10 (14) any restraints on alienation of any portion of the common interest

11 community and any restrictions:

12 (i)(A) on use, occupancy, and alienation of the units,; and

13 (ii)(B) on the amount for which a unit may be sold or on the amount that

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

15 common interest community, or on termination of the common interest community;

16 (15) a description of the insurance coverage provided for the benefit of unit

17 owners;

18 (16) any current or expected fees or charges to be paid by unit owners for the use

19 of the common elements and other facilities related to the common interest community;

20 (17) the extent to which financial arrangements have been provided for

21 completion of all improvements that the declarant is obligated to build pursuant to Section 4-119

22 (Declarant's Obligation to Complete and Restore);

23 (18) a brief narrative description of any zoning and other land use requirements

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1 affecting the common interest community;

2 (19) all unusual and material circumstances, features, and characteristics of the

3 common interest community and the units; and

4 (20) in a cooperative, (i) a statement whether the unit owners will be entitled, for

5 federal, state, and local income tax purposes, to a pass-through of deductions for payments made

6 by the association for real estate taxes and interest paid the holder of a security interest

7 encumbering the cooperative, and (ii) a statement as to the effect on every unit owner if the

8 association fails to pay real estate taxes or payments due the holder of a security interest

9 encumbering the cooperative.; and

10 (21) a description of any agreements binding an association described in Section

11 1-209.

12 (b) If a common interest community composed of not more than 12 units is not subject

13 to any development rights and no power is reserved to a declarant to make the common interest

14 community part of a larger common interest community, group of common interest

15 communities, or other real estate, a public offering statement may but need not include the

16 information otherwise required by paragraphs (9), (10), (15), (16), (17), (18), and (19) of

17 subsection (a) and the narrative descriptions of documents required by subsection (a)(4).

18 (c) A declarant promptly shall amend the public offering statement to report any material

19 change in the information required by this section.

SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO20

21 DEVELOPMENT RIGHTS. If the declaration provides that a common interest community is

22 subject to any development rights, the public offering statement must disclose, in addition to the

23 information required by Section 4-103:

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1 (1) the maximum number of units, and the maximum number of units per acre, that may

2 be created;

3 (2) a statement of how many or what percentage of the units that may be created will be

4 restricted exclusively to residential use, or a statement that no representations are made

5 regarding use restrictions;

6 (3) if any of the units that may be built within real estate subject to development rights

7 are not to be restricted exclusively to residential use, a statement, with respect to each portion of

8 that real estate, of the maximum percentage of the real estate areas, and the maximum percentage

9 of the floor areas of all units that may be created therein, that are not restricted exclusively to

10 residential use;

11 (4) a brief narrative description of any development rights reserved by a declarant and of

12 any conditions relating to or limitations upon the exercise of development rights;

13 (5) a statement of the maximum extent to which each unit's allocated interests may be

14 changed by the exercise of any development right described in paragraph (3);

15 (6) a statement of the extent to which any buildings or other improvements that may be

16 erected pursuant to any development right in any part of the common interest community will be

17 compatible with existing buildings and improvements in the common interest community in

18 terms of architectural style, quality of construction, and size, or a statement that no assurances

19 are made in those regards;

20 (7) general descriptions of all other improvements that may be made and limited

21 common elements that may be created within any part of the common interest community

22 pursuant to any development right reserved by the declarant, or a statement that no assurances

23 are made in that regard;

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1 (8) a statement of any limitations as to the locations of any building or other

2 improvement that may be made within any part of the common interest community pursuant to

3 any development right reserved by the declarant, or a statement that no assurances are made in

4 that regard;

5 (9) a statement that any limited common elements created pursuant to any development

6 right reserved by the declarant will be of the same general types and sizes as the limited common

7 elements within other parts of the common interest community, or a statement of the types and

8 sizes planned, or a statement that no assurances are made in that regard;

9 (10) a statement that the proportion of limited common elements to units created

10 pursuant to any development right reserved by the declarant will be approximately equal to the

11 proportion existing within other parts of the common interest community, or a statement of any

12 other assurances in that regard, or a statement that no assurances are made in that regard;

13 (11) a statement that all restrictions in the declaration affecting use, occupancy, and

14 alienation of units will apply to any units created pursuant to any development right reserved by

15 the declarant, or a statement of any differentiations that may be made as to those units, or a

16 statement that no assurances are made in that regard; and

17 (12) a statement of the extent to which any assurances made pursuant to this section

18 apply or do not apply in the event that any development right is not exercised by the declarant.

SECTION 4-105. SAME; TIME SHARES. If the declaration provides that ownership19

20 or occupancy of any units, is or may be in time shares, the public offering statement shall

21 disclose, in addition to the information required by Section 4-103:

22 (1) the number and identity of units in which time shares may be created;

23 (2) the total number of time shares that may be created;

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1 (3) the minimum duration of any time shares that may be created; and

2 (4) the extent to which the creation of time shares will or may affect the enforceability of

3 the association's lien for assessments provided in Section 3-116.

SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES4

5 CONTAINING CONVERSION BUILDINGS.

6 (a) The public offering statement of a common interest community containing any

7 conversion building must contain, in addition to the information required by Section 4-103:

8 (1) a statement by the declarant, based on a report prepared by an independent

9 [registered] architect or engineer, describing the present condition of all structural components

10 and mechanical and electrical installations material to the use and enjoyment of the building;

11 (2) a statement by the declarant of the expected useful life of each item reported

12 on in paragraph (1) or a statement that no representations are made in that regard; and

13 (3) a list of any outstanding notices of uncured violations of building code or

14 other municipal regulations, together with the estimated cost of curing those violations.

15 (b) This section applies only to buildings containing units that may be occupied for

16 residential use.

SECTION 4-107. SAME; COMMON INTEREST COMMUNITY SECURITIES. 17

18 If an interest in a common interest community is currently registered with the Securities and

19 Exchange Commission of the United States, a declarant satisfies all requirements relating to the

20 preparation of a public offering statement of this [act] if he the declarant delivers to the

21 purchaser [and files with the agency] a copy of the public offering statement filed with the

22 Securities and Exchange Commission. [An interest in a common interest community is not a

23 security under the provisions of [insert appropriate state securities regulation statutes].]

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SECTION 4-108. PURCHASER'S RIGHT TO CANCEL.1

2 (a) A person required to deliver a public offering statement pursuant to Section 4-102(c)

3 shall provide a purchaser with a copy of the public offering statement and all amendments

4 thereto before conveyance of the unit, and not later than the date of any contract of sale. Unless

5 a purchaser is given the public offering statement more than 15 days before execution of a

6 contract for the purchase of a unit, the purchaser, before conveyance, may cancel the contract

7 within 15 days after first receiving the public offering statement.

8 (b) If a purchaser elects to cancel a contract pursuant to subsection (a), he may do so by

9 hand delivering notice thereof to the offeror or by mailing notice thereof by prepaid United

10 States mail to the offeror or to his the offeror’s agent for service of process. Cancellation is

11 without penalty, and all payments made by the purchaser before cancellation must be refunded

12 promptly.

13 (c) If a person required to deliver a public offering statement pursuant to Section

14 4-102(c) fails to provide a purchaser to whom a unit is conveyed with that public offering

15 statement and all amendments thereto as required by subsection (a), the purchaser, in addition to

16 any rights to damages or other relief, is entitled to receive from that person an amount equal to

17 [10] percent of the sale price of the unit, plus [10] percent of the share, proportionate to his the

18 purchaser’s common expense liability, of any indebtedness of the association secured by security

19 interests encumbering the common interest community.

SECTION 4-109. RESALES OF UNITS.20

21 (a) Except in the case of a sale in which delivery of a public offering statement is

22 required, or unless exempt under Section 4-101(b), a unit owner shall furnish to a purchaser

23 before the earlier of conveyance or transfer of the right to possession of a unit, a copy of the

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1 declaration (, other than any plats and plans), the bylaws, the rules or regulations of the

2 association, and a certificate containing:

3 (1) a statement disclosing the effect on the proposed disposition of any right of

4 first refusal or other restraint on the free alienability of the unit held by the association;

5 (2) a statement setting forth the amount of the periodic common expense

6 assessment and any unpaid common expense or special assessment currently due and payable

7 from the selling unit owner;

8 (3) a statement of any other fees payable by the owner of the unit being sold;

9 (4) a statement of any capital expenditures approved by the association for the

10 current and succeeding fiscal years;

11 (5) a statement of the amount of any reserves for capital expenditures and of any

12 portions of those reserves designated by the association for any specified projects;

13 (6) the most recent regularly prepared balance sheet and income and expense

14 statement, if any, of the association;

15 (7) the current operating budget of the association;

16 (8) a statement of any unsatisfied judgments against the association and the status

17 of any pending suits in which the association is a defendant;

18 (9) a statement describing any insurance coverage provided for the benefit of unit

19 owners;

20 (10) a statement as to whether the executive board has given or received written

21 notice that any existing uses, occupancies, alterations, or improvements in or to the unit or to the

22 limited common elements assigned thereto violate any provision of the declaration;

23 (11) a statement as to whether the executive board has received written notice

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1 from a governmental agency of any violation of environmental, health, or building codes with

2 respect to the unit, the limited common elements assigned thereto, or any other portion of the

3 common interest community which has not been cured;

4 (12) a statement of the remaining term of any leasehold estate affecting the

5 common interest community and the provisions governing any extension or renewal thereof;

6 (13) a statement of any restrictions in the declaration affecting the amount that

7 may be received by a unit owner upon sale, condemnation, casualty loss to the unit or the

8 common interest community, or termination of the common interest community;

9 (14) in a cooperative, an accountant's statement, if any was prepared, as to the

10 deductibility for federal income tax purposes by the unit owner of real estate taxes and interest

11 paid by the association;

12 (15) a statement describing any pending sale or encumbrance of common

13 elements; and

14 (16) a statement disclosing the effect on the unit to be conveyed of any

15 restrictions on the owner's right to use or occupy the unit or to lease the unit to another person.

16 (b) The association, within 10 days after a request by a unit owner, shall furnish a

17 certificate containing the information necessary to enable the unit owner to comply with this

18 section. A unit owner providing a certificate pursuant to subsection (a) is not liable to the

19 purchaser for any erroneous information provided by the association and included in the

20 certificate.

21 (c) A purchaser is not liable for any unpaid assessment or fee greater than the amount set

22 forth in the certificate prepared by the association. A unit owner is not liable to a purchaser for

23 the failure or delay of the association to provide the certificate in a timely manner, but the

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1 purchase contract is voidable by the purchaser until the certificate has been provided and for

2 [five] days thereafter or until conveyance, whichever first occurs.

SECTION 4-110. ESCROW OF DEPOSITS. Any deposit made in connection with3

4 the purchase or reservation of a unit from a person required to deliver a public offering statement

5 pursuant to Section 4-102(c) must be placed in escrow and held either in this state or in the state

6 where the unit is located in an account designated solely for that purpose by [a licensed title

7 insurance company] [an attorney] [a licensed real estate broker] [an independent bonded escrow

8 company or] an institution whose accounts are insured by a governmental agency or

9 instrumentality until:

10 (i)(1) delivered to the declarant at closing;

11 (ii)(2) delivered to the declarant because of the purchaser's default under a contract to

12 purchase the unit; or

13 (iii)(3) refunded to the purchaser.

SECTION 4-111. RELEASE OF LIENS.14

15 (a) In the case of a sale of a unit where delivery of a public offering statement is required

16 pursuant to Section 4-102(c), a seller:

17 (1) before conveying a unit, shall record or furnish to the purchaser releases of all

18 liens, except liens on real estate that a declarant has the right to withdraw from the common

19 interest community, that the purchaser does not expressly agree to take subject to or assume and

20 that encumber:

21 (i)(A) in a condominium, that unit and its common element interest,; and

22 (ii)(B) in a cooperative or planned community, that unit and any limited

23 common elements assigned thereto,; or

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1 (2) shall provide a surety bond or substitute collateral for or insurance against the

2 lien as provided for liens on real estate in [insert appropriate references to general state law or

3 Sections 5-211 and 5-212 of the State Uniform Simplification of Land Transfers Act].

4 (b) Before conveying real estate to the association, the declarant shall have that real

5 estate released from:

6 (1) all liens the foreclosure of which would deprive unit owners of any right of

7 access to or easement of support of their units,; and

8 (2) all other liens on that real estate unless the public offering statement describes

9 certain real estate that may be conveyed subject to liens in specified amounts.

SECTION 4-112. CONVERSION BUILDINGS.10

11 (a) A declarant of a common interest community containing conversion buildings, and

12 any dealer who intends to offer units in such a common interest community, shall give each of

13 the residential tenants and any residential subtenant in possession of a portion of a conversion

14 building notice of the conversion and provide those persons with the public offering statement

15 no later than 120 days before the tenants and any subtenant in possession are required to vacate.

16 The notice must set forth generally the rights of tenants and subtenants under this section and

17 must be hand delivered to the unit or mailed by prepaid United States mail to the tenant and

18 subtenant at the address of the unit or any other mailing address provided by a tenant. No tenant

19 or subtenant may be required to vacate upon less than 120 days' notice, except by reason of

20 nonpayment of rent, waste, or conduct that disturbs other tenants' peaceful enjoyment of the

21 premises, and the terms of the tenancy may not be altered during that period. Failure to give

22 notice as required by this section is a defense to an action for possession.

23 (b) For [60] days after delivery or mailing of the notice described in subsection (a), the

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1 person required to give the notice shall offer to convey each unit or proposed unit occupied for

2 residential use to the tenant who leases that unit. If a tenant fails to purchase the unit during that

3 [60]-day period, the offeror may not offer to dispose of an interest in that unit during the

4 following [180] days at a price or on terms more favorable to the offeree than the price or terms

5 offered to the tenant. This subsection does not apply to any unit in a conversion building if that

6 unit will be restricted exclusively to non-residential use or the boundaries of the converted unit

7 do not substantially conform to the dimensions of the residential unit before conversion.

8 (c) If a seller, in violation of subsection (b), conveys a unit to a purchaser for value who

9 has no knowledge of the violation, the recordation of the deed conveying the unit or, in a

10 cooperative, the conveyance of the unit, extinguishes any right a tenant may have under

11 subsection (b) to purchase that unit if the deed states that the seller has complied with subsection

12 (b), but the conveyance does not affect the right of a tenant to recover damages from the seller

13 for a violation of subsection (b).

14 (d) If a notice of conversion specifies a date by which a unit or proposed unit must be

15 vacated and otherwise complies with the provisions of [insert appropriate state summary process

16 statute], the notice also constitutes a notice to vacate specified by that statute.

17 (e) Nothing in this section permits termination of a lease by a declarant in violation of its

18 terms.

SECTION 4-113. EXPRESS WARRANTIES OF QUALITY.19

20 (a) Express warranties made by any seller a declarant to a purchaser of a unit, if relied

21 upon by the purchaser, are created as follows:

22 (1) any affirmation of fact or promise which relates to the unit, its use, or rights

23 appurtenant thereto, area improvements to the common interest community that would directly

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1 benefit the unit, or the right to use or have the benefit of facilities not located in the common

2 interest community, creates an express warranty that the unit and related rights and uses will

3 conform to the affirmation or promise;

4 (2) any model or description of the physical characteristics of the common

5 interest community, including plans and specifications of or for improvements, creates an

6 express warranty that the common interest community will conform to the model or description

7 unless the model or description clearly discloses that it is only proposed or is subject to change;

8 (3) any description of the quantity or extent of the real estate comprising the

9 common interest community, including plats or surveys, creates an express warranty that the

10 common interest community will conform to the description, subject to customary tolerances;

11 and

12 (4) a provision that a purchaser may put a unit only to a specified use is an

13 express warranty that the specified use is lawful.

14 (b) Neither formal words, such as “warranty” or “guarantee,” nor a specific intention to

15 make a warranty, are necessary to create an express warranty of quality, but a statement

16 purporting to be merely an opinion or commendation of the real estate or its value does not

17 create a warranty.

18 (c) Any conveyance of a unit transfers to the purchaser all express warranties of quality

19 made by previous sellers. the declarant.

SECTION 4-114. IMPLIED WARRANTIES OF QUALITY.20

21 (a) A declarant and any dealer warrants that a unit will be in at least as good condition at

22 the earlier of the time of the conveyance or delivery of possession as it was at the time of

23 contracting, reasonable wear and tear excepted.

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1 (b) A declarant and any dealer impliedly warrants that a unit and the common elements

2 in the common interest community are suitable for the ordinary uses of real estate of its type and

3 that any improvements made or contracted for by him, the declarant or dealer or made by any

4 person before the creation of the common interest community, will be:

5 (1) free from defective materials; and

6 (2) constructed in accordance with applicable law, according to sound

7 engineering and construction standards, and in a workmanlike manner.

8 (c) In addition, a A declarant and any dealer warrants to a purchaser of a unit that may be

9 used for residential use that an existing use, continuation of which is contemplated by the parties,

10 does not violate applicable law at the earlier of the time of conveyance or delivery of possession.

11 (d) Warranties imposed by this section may be excluded or modified as specified in

12 Section 4-115.

13 (e) For purposes of this section, improvements made or contracted for by an affiliate of a

14 declarant (Section 1-103(1)) are made or contracted for by the declarant.

15 (f) Any conveyance of a unit transfers to the purchaser all of the declarant's implied

16 warranties of quality.

SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED17

18 WARRANTIES OF QUALITY.

19 (a) Except as limited by subsection (b) with respect to a purchaser of a unit that may be

20 used for residential use, implied warranties of quality:

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

22 (2) are excluded by expression of disclaimer, such as “as is,” “with all faults,” or

23 other language that in common understanding calls the purchaser's attention to the exclusion of

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1 warranties.

2 (b) With respect to a purchaser of a unit that may be occupied for residential use, no

3 general disclaimer of implied warranties of quality is effective, but a declarant and any dealer

4 may disclaim liability in an instrument signed by the purchaser for a specified defect or specified

5 failure to comply with applicable law, if the defect or failure entered into and became a part of

6 the basis of the bargain.

SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES.7

8 (a) Unless a period of limitation is tolled under Section 3-111 or affected by subsection

9 (d), a judicial proceeding for breach of any obligation arising under Section 4-113 or 4-114 must

10 be commenced within six years after the [claim for relief][cause of action] accrues, but the

11 parties may agree to reduce the period of limitation to not less than two years. With respect to a

12 unit that may be occupied for residential use, an agreement to reduce the period of limitation

13 must be evidenced by a separate instrument executed by the purchaser.

14 (b) Subject to subsection (c), a [claim for relief] [cause of action] for breach of warranty

15 of quality, regardless of the purchaser's lack of knowledge of the breach, accrues:

16 (1) as to a unit, at the time the purchaser to whom the warranty is first made

17 enters into possession if a possessory interest was conveyed or at the time of acceptance of the

18 instrument of conveyance if a nonpossessory interest was conveyed; and

19 (2) as to each common element, at the time the common element is completed or,

20 if later, as to:

21 (i)(A) a common element that is added to the common interest

22 community by exercise of development rights, at the time the first unit which was added to the

23 condominium by the same exercise of development rights is conveyed to a bona fide purchaser,;

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1 or

2 (ii)(B) a common element within any other portion of the common

3 interest community, at the time the first unit is conveyed to a bona fide purchaser.

4 (c) If a warranty of quality explicitly extends to future performance or duration of any

5 improvement or component of the common interest community, the [claim for relief] [cause of

6 action] accrues at the time the breach is discovered or at the end of the period for which the

7 warranty explicitly extends, whichever is earlier.

8 (d) During the period of declarant control, the association may authorize an independent

9 committee of the executive board to evaluate and enforce by any lawful means warranty claims

10 involving the common elements, and to compromise those claims. Only members of the

11 executive board elected by unit owners other than the declarant and other persons appointed by

12 those independent members may serve on the committee, and the committee's decision must be

13 free of any control by the declarant or any member of the executive board or officer appointed

14 by the declarant. All costs reasonably incurred by the committee, including attorney's fees, are

15 common expenses, and must be added to the budget annually adopted by the association under

16 Section 3-115. If the committee is so created, the period of limitation for claims for these

17 warranties begins to run from the date of the first meeting of the committee, regardless of when

18 the period of declarant control terminates.

SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION;19

20 ATTORNEY'S FEES.

21 (a) Any right granted or obligation imposed by this [act] is enforceable by judicial

22 proceeding. If a declarant, the association, or any other person subject to this [act] fails to

23 comply with any of its provisions or any provision of the declaration or bylaws [or rules], any

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1 person or class of persons adversely affected by the failure to comply has a claim for appropriate

2 relief. Punitive damages may be awarded for a willful failure to comply with this [act]. The

3 court, in an appropriate case, may award court costs and reasonable attorney's fees.

4 (b) Parties to a dispute arising under this [act], the declaration, or the bylaws may agree

5 to resolve the dispute by any form of binding or nonbinding alternative dispute resolution, but:

6 (1) a declarant may agree with the association to do so only after the period of

7 declarant control passes has expired unless the agreement is made with an independent

8 committee of the executive board elected pursuant to Section 4-116(d); and

9 (2) an agreement to submit to any form of binding alternative dispute resolution

10 must be in a writing signed by the parties.

SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL. No promotional11

12 material may be displayed or delivered to prospective purchasers which describes or portrays an

13 improvement that is not in existence unless the description or portrayal of the improvement in

14 the promotional material is conspicuously labeled or identified either as “MUST BE BUILT” or

15 as “NEED NOT BE BUILT.”

SECTION 4-119. DECLARANT'S OBLIGATION TO COMPLETE AND16

17 RESTORE.

18 (a) Except for improvements labeled “NEED NOT BE BUILT,” the declarant shall

19 complete all improvements depicted on any site plan or other graphic representation, including

20 any plats or plans prepared pursuant to Section 2-109, whether or not that site plan or other

21 graphic representation is contained in the public offering statement or in any promotional

22 material distributed by or for the declarant.

23 (b) The declarant is subject to liability for the prompt repair and restoration, to a

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1 condition compatible with the remainder of the common interest community, of any portion of

2 the common interest community affected by the exercise of rights reserved pursuant to or created

3 by Section 2-110, 2-111, 2-112, 2-113, 2-115, or 2-116.

SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS. In the case of a sale4

5 of a unit in which delivery of a public offering statement is required, a contract of sale may be

6 executed, but no interest in that unit may be conveyed, until the declaration is recorded and the

7 unit is substantially completed, as evidenced by a recorded certificate of substantial completion

8 executed by an independent [registered] architect, surveyor, or engineer, or by issuance of a

9 certificate of occupancy authorized by law.