Uniform Common Interst Ownership Act (2021)

UNIFORM COMMON INTEREST

OWNERSHIP ACT (2021)*

drafted by the

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

and by it

APPROVED AND RECOMMENDED FOR ENACTMENT

IN ALL THE STATES

at its

ANNUAL CONFERENCE

MEETING IN ITS ONE-HUNDRED-AND-THIRTIETH YEAR

MADISON, WISCONSIN

JULY 10–15, 2021

WITH PREFATORY NOTE AND COMMENTS

NATIONAL CONFERENCE OF COMMISSIONERS

ON UNIFORM STATE LAWS

December 15, 2021

*Originally promulgated in 1982 and amended in 1994, 2008, and 2014. Prior versions are available here

ABOUT ULC

The Uniform Law Commission (ULC), also known as National Conference of Commissioners

on Uniform State Laws (NCCUSL), now in its 130th year, provides states with non-partisan,

well-conceived and well-drafted legislation that brings clarity and stability to critical areas of state

statutory law.

ULC members must be lawyers, qualified to practice law. They are practicing lawyers, judges,

legislators and legislative staff and law professors, who have been appointed by state governments

as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands to research, draft and

promote enactment of uniform state laws in areas of state law where uniformity is desirable and

practical.

• ULC strengthens the federal system by providing rules and procedures that are consistent

from state to state but that also reflect the diverse experience of the states.

• ULC statutes are representative of state experience, because the organization is made up of

representatives from each state, appointed by state government.

• ULC keeps state law up-to-date by addressing important and timely legal issues.

• ULC’s efforts reduce the need for individuals and businesses to deal with different laws as

they move and do business in different states.

• ULC’s work facilitates economic development and provides a legal platform for foreign

entities to deal with U.S. citizens and businesses.

• Uniform Law Commissioners donate thousands of hours of their time and legal and

drafting expertise every year as a public service, and receive no salary or compensation for

their work.

• ULC’s deliberative and uniquely open drafting process draws on the expertise of

commissioners, but also utilizes input from legal experts, and advisors and observers

representing the views of other legal organizations or interests that will be subject to the

proposed laws.

• ULC is a state-supported organization that represents true value for the states, providing

services that most states could not otherwise afford or duplicate.

UNIFORM COMMON INTEREST OWNERSHIP ACT (2021)

The Committee appointed by and representing the National Conference of Commissioners on

Uniform State Laws in preparing this act consists of the following individuals:

William R. Breetz Connecticut, Chair

Angela Alexander Texas

Stephen C. Cawood Kentucky

James W. Dodge Illinois

Marc Feinstein South Dakota

Thomas E. Geu South Dakota

Peter Hamasaki Hawaii

Becky Harris Nevada

Marisa G.Z. Lehr Pennsylvania

Donald E Mielke Colorado

Howard J. Swibel Illinois

David S. Jensen Idaho

Cam Ward Alabama, Division Chair

Carl H. Lisman Vermont, President

Other Participants

James C. Smith Georgia, Reporter

Barry B. Nekritz Illinois, American Bar Association Advisor

Louise M. Nadeau Connecticut, Style Liaison

Tim Schnabel Illinois, Executive Director

Copies of this act may be obtained from:

Uniform Law Commission

111 N. Wabash Ave., Suite 1010

Chicago, IL 60602

(312) 450-6600

www.uniformlaws.org

UNIFORM COMMON INTEREST OWNERSHIP ACT (2021)

TABLE OF CONTENTS

PREFATORY NOTE TO THE 2008 AMENDMENTS TO THE UNIFORM COMMON

INTEREST OWNERSHIP ACT ........................................................................................ 1

UNIFORM COMMON INTEREST OWNERSHIP ACT (1994) PREFATORY NOTE.............. 3

[ARTICLE] 1

GENERAL PROVISIONS

[PART] 1

DEFINITIONS AND OTHER GENERAL PROVISIONS

SECTION 1-101. SHORT TITLE. ................................................................................................. 7

SECTION 1-102. APPLICABILITY.............................................................................................. 7

SECTION 1-103. DEFINITIONS. ................................................................................................. 7

SECTION 1-104. NO VARIATION BY AGREEMENT. ........................................................... 27

SECTION 1-105. SEPARATE TITLES AND TAXATION. ...................................................... 28

SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, REGULATIONS, AND

BUILDING CODES. ........................................................................................................ 31

SECTION 1-107. EMINENT DOMAIN...................................................................................... 33

SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW APPLICABLE...... 36

SECTION 1-109. CONSTRUCTION AGAINST IMPLICIT REPEAL. .................................... 37

SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION. .................... 37

SECTION 1-111. SEVERABILITY............................................................................................. 37

SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF CONTRACT............ 37

SECTION 1-113. OBLIGATION OF GOOD FAITH. ................................................................ 38

SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED................................... 39

SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS. .................................................. 39

SECTION 1-116. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND

NATIONAL COMMERCE ACT. .................................................................................... 41

SECTION 1-117. MANDATORY AND DEFAULT RULES..................................................... 42

[PART] 2

APPLICABILITY

SECTION 1-201. GENERAL APPLICABILITY TO COMMON INTEREST

COMMUNITIES. ............................................................................................................. 44

SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES............................................. 45

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

PLANNED COMMUNITIES........................................................................................... 46

SECTION 1-204. [RESERVED]. ................................................................................................. 47

SECTION 1-205. [RESERVED]. ................................................................................................. 47

SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS. ................................ 47

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

INTEREST COMMUNITIES. ......................................................................................... 49

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

COMMUNITIES. ............................................................................................................. 52

SECTION 1-209. OTHER EXEMPT REAL ESTATE ARRANGEMENTS.............................. 52

SECTION 1-210. OTHER EXEMPT COVENANTS.................................................................. 55

[ARTICLE] 2

CREATION, ALTERATION, AND

TERMINATION OF COMMON INTEREST COMMUNITIES

SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES. ......................... 55

SECTION 2-102. UNIT BOUNDARIES..................................................................................... 59

SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND

BYLAWS.......................................................................................................................... 61

SECTION 2-104. DESCRIPTION OF UNITS. ........................................................................... 62

SECTION 2-105. CONTENTS OF DECLARATION................................................................. 63

SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES. ............................ 69

SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS. ......................................... 72

SECTION 2-108. LIMITED COMMON ELEMENTS................................................................ 76

SECTION 2-109. PLATS AND PLANS...................................................................................... 78

SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS. ................................................. 83

SECTION 2-111. ALTERATIONS OF UNITS........................................................................... 86

SECTION 2-112. RELOCATION OF UNIT BOUNDARIES. ................................................... 87

SECTION 2-113. SUBDIVISION OF UNITS............................................................................. 89

SECTION 2-114. BUILDING ENCROACHMENT.................................................................... 90

SECTION 2-115. USE FOR SALES PURPOSES....................................................................... 92

SECTION 2-116. EASEMENT AND USE RIGHTS. ................................................................. 93

SECTION 2-117. AMENDMENT OF DECLARATION............................................................ 94

SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY. ..................... 99

SECTION 2-119. RIGHTS OF SECURED LENDERS. ........................................................... 117

SECTION 2-120. MASTER ASSOCIATIONS. ........................................................................ 119

SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST

COMMUNITIES. ........................................................................................................... 123

SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE........................................ 126

SECTION 2-123. MASTER PLANNED COMMUNITIES. ..................................................... 127

SECTION 2-124. TERMINATION FOLLOWING CATASTROPHE. .................................... 129

SECTION 2-125. ADVERSE POSSESSION; PRESCRIPTIVE EASEMENT. ....................... 130

[ARTICLE] 3

MANAGEMENT OF THE COMMON INTEREST COMMUNITY

SECTION 3-101. ORGANIZATION OF UNIT OWNERS ASSOCIATION........................... 132

SECTION 3-102. POWERS AND DUTIES OF UNIT OWNERS ASSOCIATION................ 134

SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS................................ 143

SECTION 3-104. SPECIAL DECLARANT RIGHTS. ............................................................. 148

SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES. .................................. 154

SECTION 3-106. BYLAWS. ..................................................................................................... 156

SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY................................. 158

SECTION 3-108. MEETINGS. .................................................................................................. 159

SECTION 3-109. QUORUM...................................................................................................... 165

SECTION 3-110. VOTING; PROXIES; BALLOTS. ................................................................ 166

SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF LIMITATION

PERIOD. ......................................................................................................................... 170

SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON ELEMENTS. ..... 172

SECTION 3-113. INSURANCE. ............................................................................................... 176

SECTION 3-114. SURPLUS FUNDS........................................................................................ 184

SECTION 3-115. ASSESSMENTS............................................................................................ 184

SECTION 3-116. LIEN FOR SUMS DUE ASSOCIATION; ENFORCEMENT. .................... 188

SECTION 3-117. OTHER LIENS.............................................................................................. 202

SECTION 3-118. ASSOCIATION RECORDS. ........................................................................ 208

SECTION 3-119. ASSOCIATION AS TRUSTEE. ................................................................... 211

SECTION 3-120. RULES. .......................................................................................................... 212

SECTION 3-121. NOTICE TO UNIT OWNERS...................................................................... 215

SECTION 3-122. REMOVAL OF OFFICERS AND DIRECTORS......................................... 217

SECTION 3-123. ADOPTION OF BUDGETS; SPECIAL ASSESSMENTS. ......................... 218

SECTION 3-124. LITIGATION INVOLVING DECLARANT................................................ 222

SECTION 3-125. EMERGENCY POWERS. ............................................................................ 225

[ARTICLE] 4

PROTECTION OF PURCHASERS

SECTION 4-101. APPLICABILITY; WAIVER. ...................................................................... 227

SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT

REQUIREMENTS.......................................................................................................... 228

SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS. ............. 229

SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO

DEVELOPMENT RIGHTS............................................................................................ 236

SECTION 4-105. SAME; TIME SHARES. ............................................................................... 238

SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES CONTAINING

CONVERSION BUILDINGS. ....................................................................................... 239

SECTION 4-107. SAME; REGISTRATION WITH GOVERNMENT AGENCY................... 240

SECTION 4-108. PURCHASER’S RIGHT TO CANCEL........................................................ 241

SECTION 4-109. RESALES OF UNITS. .................................................................................. 243

SECTION 4-110. ESCROW OF DEPOSITS............................................................................. 246

SECTION 4-111. RELEASE OF LIENS. .................................................................................. 247

SECTION 4-112. CONVERSION BUILDINGS. ...................................................................... 249

SECTION 4-113. EXPRESS WARRANTIES OF QUALITY. ................................................. 251

SECTION 4-114. IMPLIED WARRANTIES OF QUALITY................................................... 253

SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED WARRANTIES OF

QUALITY....................................................................................................................... 256

SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES................................. 257

SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION; ATTORNEY’S

FEES. .............................................................................................................................. 259

SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL. ........................................ 261

SECTION 4-119. DECLARANT’S OBLIGATION TO COMPLETE AND RESTORE. ........ 261

SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS .............................................. 262

[ARTICLE] 5

APPLICABILITY AND TRANSITION

SECTION 5-101. EFFECTIVE DATE....................................................................................... 262

SECTION 5-102. PRIOR STATUTES. ...................................................................................... 264

SECTION 5-103. RETROACTIVE APPLICATION. ................................................................ 265

SECTION 5-104. APPLICABILITY TO PRE-EXISTING COMMON INTEREST

COMMUNITY. .............................................................................................................. 266

PREFATORY NOTE TO THE 2008 AMENDMENTS TO THE UNIFORM COMMON

INTEREST OWNERSHIP ACT

Introduction The 2008 proposed amendments to the Uniform Common Interest

Ownership Act (“UCIOA”) are the product of a four year drafting committee effort. In its work,

the committee sought primarily to address a range of significant controversies between common

interest associations and individual unit owners that have arisen in the years since the Uniform

Laws Commission last considered amendments to UCIOA in 1994. To a lesser degree, these

amendments also address a range of other matters affecting common interest communities – that

is, condominiums, cooperatives, and planned communities – that practitioners have identified

throughout the country over the last decade.

Despite the many years of drafting efforts beginning in 1976 with The Uniform

Condominium Act, and culminating in the 1994 amendments to UCIOA, it had become

increasingly clear by the time the drafting committee was created in 2005 that major tensions

remained in the common interest community field that neither UCIOA or any of its constituent

Acts – nor most State statutes in this field – adequately addressed. Those tensions principally

involved the perception that individual unit owners were often unduly disadvantaged in their

dealings with the elected directors and employee/managers of unit owner associations. Even in

those few states that had adopted UCIOA more or less intact, and therefore were able to apply the

detailed provisions of that Act to association activities, there has been a growing focus, both in the

media and in professional conferences, on the intensity of owner/association disputes. State

legislators were besieged with lobbying efforts to adopt narrowly focused special interest statutes

intended to fix one or another association ‘problem’. Even the federal government became

involved, enacting a federal statute to insure that associations of every form of common interest

community must permit the display of the American flag on units, and another one that enabled

individual unit owners to purchase individual cable television systems, notwithstanding

widespread prohibitions on such purchases by unit owner associations.

Accordingly, the revised act – so-called “Version 3.0” – has systematically identified those

areas where there have been allegations that those who control the decision-making apparatus of

associations have either abused the rights of individual unit owners, or suffer from such inadequate

legislation that they are unable to adequately assist their owners. The list is considerable and

includes at least these matters:

• the statutory powers, duties and limitations of association boards of directors;

• the fiduciary duties of directors;

• the rights of unit owners to participate in association affairs, including meaningful voting

protocols;

• limits on proxy collecting, on amendment of bylaws, and speaking at unit owner meetings;

• open meeting requirements on directors’ meetings, and limits on the rights of directors to

act behind closed doors;

• unit owner access to association records, and to the same materials that directors receive

before their meetings;

• a straight forward means of removing directors of the association;

• meaningful, open procedures for adoption and enforcement of rules governing the

association’s daily activities;

• mandated notice to unit owners of a variety of additional events;

• more open and clear rules of adoption of budgets, subject to unit owner approval.

Further, there has been considerable publicity across the country regarding alleged abuse in

the foreclosure process when unit owners fail to pay sums due the association. To address this

specific issue, the Act proposes new and considerable restrictions on the foreclosure process as it

applies to common interest communities.

• In all these respects, the 2008 amendments enhance the considerable protections for unit

owners’ rights that exist under the existing provisions of UCIOA.

• Beyond the unit owner/association issues, the revised Act addresses several other

significant issues in the field. Among several subjects detailed below, they include:

• the importance of confirming that the costs of services provided to unit owners by the

association will enjoy the benefit of the association’s statutory lien;

• considerable discretion for an association to decide whether or not to strictly enforce its

rules and governing documents;

• new provisions dealing with termination or restructuring of a project in the face of a natural

disaster;

• creation of a ‘cooling off’ period before an association commences construction litigation

against a developer;

• increased mandatory insurance, and other topics.

A summary of all amendments made in 2008 can be found on the website for the Uniform

Laws Commission; go to www.uniformlaws.org and follow the links to the Uniform Common

Interest Ownership Act.

UNIFORM COMMON INTEREST OWNERSHIP ACT (1994) PREFATORY NOTE

The Uniform Common Interest Ownership Act (“UCIOA”) was adopted at the 1982

Annual Meeting of the National Conference of Commissioners on Uniform State Laws (the

“ULC”). It combined, in a single comprehensive law, prior uniform laws in this area (the Uniform

Condominium Act (1980), the Uniform Planned Community Act (1980), and the Model Real

Estate Cooperative Act (1981)). By 1994, UCIOA had become the law in at least five States, while

the Uniform Condominium Act, or substantially similar laws, exist in 21 States. The Uniform

Planned Community Act is the law in one State.

In 1994, the ULC adopted significant amendments to UCIOA. Following an intensive

study of UCIOA by the Joint Editorial Board for Real Property Acts,

the ULC appointed a

Drafting Committee to write the necessary amendments and additions. Changes to UCIOA should

result in corresponding changes in these prior laws; consequently, practitioners in approximately

half the American jurisdictions need to have a basic understanding of the changes.

The following is a brief summary of the proposed changes:

1. The definition of “common elements” (Section 1-103(4)), which is a very basic concept,

has been amended to clarify that (a) the common elements may include easements, including

easements for the benefit of unit owners and (b) real estate may be owned or leased by the

association and not be subject to the declaration.

2. A fundamental precept of UCIOA is that full and adequate disclosure to purchasers is a

viable alternative to governmental registration and supervision. Declarants are bound by

representations made in the declaration, by the models or samples they use, and by the public

offering statements, and are held to statutory limitations and standards to protect consumers.

Among the basic representations made by declarants are those which describe the scope of

development rights and their duration. See, Section 2-105(a)(7), (8), (9), and (10).

However, in very large projects, a declarant’s ability to predict the future of a project to be

built out over a longer period of time is very limited. Changes in market conditions, the economy,

and demographics can occur without warning, forcing changes in even the most preliminary of

plans. For that reason, a new Section 2-123 has been added. By its terms, if the declaration

identifies the community as a “master planned community,” reserving the right to create at least

500 units for residential purposes and the declarant owns or controls more than 500 acres on which

those units may be built, then much of the information which otherwise must appear in the

declaration from the outset is not required until the declaration is amended as units are created.

Further, the public offering statement requirements apply only to units being offered or which have

The Joint Editorial Board was created in 1977 by joint agreement of the ULC and the

American Bar Association’s Section on Real Property, Trusts and Probate Law to assist in the

promulgation of Uniform Acts subject to its jurisdiction. Thereafter, the American College of Real

Estate Lawyers became a co-sponsor of the JEB.

been declared. Finally, the provisions of Section 3-103 regarding transition of control of the unit

owners association are amended to permit longer declarant control. As a result, additional

flexibility is given for “master planned communities,” but the declarant continues to be subject to

the obligations of good faith and the standards of unconscionability.

3. Section 2-105(a)(12), as originally crafted, required that a declaration must contain “any

restrictions (i) on use, occupancy, and alienation of units ... .” Taken literally, if a declaration does

not contain any restrictions, none could be imposed by rule or regulation of the association. But

compare Section 3-102(a)(1) (an association may adopt “rules and regulations”) and Section

3-102(a)(6) (an association may “regulate the use, maintenance, repair, replacement, and

modification of common elements”).

In considering the implications of this result, the ULC agreed that uses or occupancy of a

unit which affect other units or the common elements are appropriate for regulation, and that unit

uses or occupancies with no measurable impact on other units or the common elements should be

subject to a different approach to regime regulation as detailed in new Section 3-102(c).

For these reasons, Section 2-105 has been amended to (a) permit (rather than mandate) the

declaration to contain restrictions on use and occupancy of units and (b) permit the association to

adopt rules and regulations of units to prevent uses which violate the declaration, and to adopt

reasonable rules and regulations regarding occupancy of or behavior in units insofar as the

occupancy or behavior might affect other unit owners. Section 3-102 has been amended to add

subsection (c).

4. As originally drafted, only the most basic provisions of UCIOA Section 1-203 applied if

a planned community contained no more than 12 units and was not subject to development rights

or if the declaration limited the common expense liability to a relatively small amount. Further, if a

planned community contained more than 12 units or was subject to development rights, but the

declaration limited the common expense liability to a slightly higher amount, no public offering

statement was required to be delivered to an original buyer and no resale certificate was required

on resale. See UCIOA (1982) Section 4-101(b)(7).

The 1994 Act has deleted Section 4-101(b)(7). An amendment to Section 1-203 expands

that provision so that only the very basic provisions of the Act will apply if a planned community is

not subject to development rights and either (1) contains no more than 12 units or (2) is of any size

so long as the annual average common expense liability, exclusive of optional user fees and

insurance premiums paid the association, does not exceed $300 (subject to the adjustment

provisions of Section 1-115).

5. UCIOA’s thrust in the area of consumer protection is to protect residential purchasers.

Revised Section 1-207(a) provides that a common interest community is not subject to UCIOA at

all if it contains only units restricted to nonresidential use, unless the developer elects otherwise.

Nonetheless, developers of some commercial and industrial regimes might want the UCIOA’s

benefits, subject to its burdens. Section 1-207 also provides that the declaration may explicitly opt

into UCIOA or only the basic three provisions of Sections 1-105, 1-106, and 1-107, and gives

commercial developers greater flexibility.

6. Unlike most laws which, when enacted, contain repealer provisions for laws on the same

subject, UCIOA contemplates that pre-existing laws governing common interest communities will

remain in effect. Section 1-206 contains provisions allowing “old Act” regimes to come under the

provisions of UCIOA and describes the procedures that must be followed. Amendments to the

section clarify the original intent of UCIOA in this regard.

7. The role of surveyors and architects may be lessened by amendments to Section 2-109.

In some instances, approximations will suffice and, if the declaration contains a narrative

description, unit boundaries and common elements need not be shown on plats and plans.

8. Amendments to Section 2-112 permit relocation of boundaries between units and

common elements in order to accommodate additions to units.

9. As originally crafted, UCIOA mandated that the declaration set forth a time limit within

which reserved development rights and other special declarant rights must be exercised. See

UCIOA (1982) Section 2-105(a)(8). UCIOA (1994) has added a provision which will permit the

time limit to be extended.

10. Unruly and disruptive tenants have been a significant problem in association

administration. Revised Section 3-102 gives rights to associations to enforce the declaration,

bylaws, and rules and regulations not only against the unit owner but also the tenant. Associations

may now levy fines against tenants and enforce the rights of the unit owner as landlord.

11. UCIOA and its predecessors distinguished between the standards of conduct applicable

to executive board members appointed by the declarant and elected by the unit owners. Section

3-103(a). Experience under this Act demonstrates that the stated standards require further clarity.

As amended, UCIOA sets out clearer (and more easily understood) standards: members of the

executive board appointed by the declarant will be subject to the standard of care applicable to

trustees, and members elected by the unit owners will be subject to the degree of care required of a

director of a nonprofit corporation, subject to the business judgment rule.

12. Revised Section 3-111 clarifies that no period of limitation regarding an association’s

claims against the declarant will run against the association, including warranty claims, until the

period of declarant control terminates.

However, because a declarant ought not to warrant the common elements for an inordinate

period of time (which may be the result if the period of declarant control is substantial), Section

4-116(d) authorizes the declarant to cause an independent committee of the executive board,

during the period of declarant control, to evaluate and enforce warrant claims involving the

common elements.

This section has also been amended to require that a tort claim based on ownership of

common elements be brought against the association, and not against individual unit owners.

13. UCIOA permitted a condominium association or a planned community association to

convey or encumber common elements under the restrictions of Section 3-112(a). Subsection (g)

stated the general rule that a conveyance or encumbrance would not affect the priority or validity

of pre-existing encumbrances. UCIOA (1994) better protects the rights of the holders of those

interests.

14. In order to ensure that association rights in bankruptcy are protected, Section 3-116

provides that the association’s lien is a statutory lien and makes clear that the lien for unpaid

assessments arises, as a matter of law, upon adoption of the statutory amendment for all existing

associations and from the creation of the regime for all regimes created after adoption of the

amendments.

15. The contents of the resale certificate have been revised. All too often, preparers of these

certificates have been unsure about the degree and extent of information required to be provided.

The changes make more objective the information to be provided.

The Underlying Concept of UCIOA

Nearly without exception, UCIOA achieves the goal of uniformity among all three forms

of ownership simply by consolidating the three prior Acts of the Conference and adding a very few

generic definitions. The principal new definition is “common interest community.”

Because of the use of consistent definitions and policies in the three Acts preceding

UCIOA, consolidation of the three in the merged Act was a relatively simple task. The section

numbering system of UCIOA is entirely parallel with the other three Acts, and the language of

UCIOA tracks, as applicable, with the cognate sections of those three Acts. Differences in result

between the three Acts are preserved where appropriate. At the same time, during the drafting of

UCIOA, in a few instances, it became clear that some differences in result were of form rather than

legitimate substance. In those cases, the substantive result of one or more of the three Acts was

changed to reflect a policy generally applicable in all forms.

The result is that a State wishing to consider legislation in the common interest ownership

field has a range of choices from which to select. Many States will wish to adopt comprehensive

legislation, providing maximum flexibility and certainty to all developers, lenders, and title

insurers, while at the same time providing all unit purchasers and their associations a uniform level

of disclosure, warranty protection, and other rights. In those States, the consolidated Act is a

workable and desirable long-term solution. Other States may wish simply to adopt a modern

condominium statute to replace an existing but plainly outdated, statutory structure. In those

States, UCA alone is the obvious choice. Finally, in States where existing “second” or “third”

generation condominium statutes are seen as satisfactory, but a need for additional certainty and

structure is desirable for planned communities or cooperatives, the two Acts governing those

forms of ownership are available. Following adoption of one of the three constituent Acts, it would

be very feasible, by a few carefully considered amendments, to adopt UCIOA and thereby extend

coverage to include all forms of ownership in the field.

UNIFORM COMMON INTEREST OWNERSHIP ACT (2021)

[ARTICLE] 1

GENERAL PROVISIONS

[PART] 1

DEFINITIONS AND OTHER GENERAL PROVISIONS

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

Interest Ownership Act (2021).

SECTION 1-102. APPLICABILITY. Applicability of this [act] is governed by [Part] 2

of this [article].

SECTION 1-103. DEFINITIONS. In this [act]:

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

common control with a declarant. For purposes of this definition:

(A) a person controls a declarant if the person:

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

(ii) directly or indirectly or acting in concert with one or more other

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

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

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

declarant; or

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

(B) a person is controlled by a declarant if the declarant:

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

(ii) directly or indirectly or acting in concert with one or more other

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

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

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

person; or

(iv) has contributed more than 20 percent of the capital of the person; and

as security for an obligation and are not exercised.

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

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

common expense liability, and votes in the association;

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

votes in the association; and

association.

(3) “Assessment” means the sum attributable to each unit and due to the association

pursuant to Section 3-115.

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

organized under Section 3-101.

(5) “Bylaws” means the instruments, however denominated, that contain the procedures

for conduct of the affairs of the association regardless of the form in which the association is

organized, including any amendments to the instruments.

(6) “Common elements” means:

(A) in the case of:

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

community other than the units; and

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

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

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

benefit of unit owners which are subject to the declaration.

(7) “Common expense liability” means the liability for common expenses allocated to each

unit pursuant to Section 2-107.

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

association, together with any allocations to reserves.

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

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

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

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

declaration. The term does not include an arrangement described in Section 1-209 or 1–210. For

purposes of this paragraph, ownership of a unit does not include holding a leasehold interest of less

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

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

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

common ownership solely by the owners of those portions. A common interest community is not a

condominium unless the undivided interests in the common elements are vested in the unit owners.

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

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

and persons that occupy with the consent of purchasers.

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

by an association, each of whose members is entitled by virtue of the member’s ownership interest

in the association to exclusive possession of a unit.

(13) “Dealer” means a person in the business of selling units for the person’s own account.

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

(A) as part of a common promotional plan, offers to dispose of the interest of the

person or group of persons in a unit not previously disposed of; or

(B) reserves or succeeds to any special declarant right.

(15) “Declaration” means the instrument, however denominated, that creates a common

interest community, including any amendments to the instrument.

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

declarant in the declaration to:

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

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

interest community;

(D) withdraw real estate from a common interest community

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

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

interest.

(17A) “Electronic” means relating to technology having electrical, digital, magnetic,

wireless, optical, electromagnetic, or similar capabilities.

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

or bylaws to act on behalf of the association.

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

common interest community.

(20) “Leasehold common interest community” means a common interest community in

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

will terminate the common interest community or reduce its size.

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

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

fewer than all of the units.

(22) “Master association” means:

(A) a unit owners association that serves more than one common interest

community; or

(B) an organization that holds a power delegated under Section 2-120(a)(1).

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

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

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

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

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

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

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

limited liability company, association, joint venture, public corporation, government or

governmental subdivision, agency, or instrumentality, or any other legal or commercial entity. [In

the case of a land trust, the term means the beneficiary of the trust rather than the trust or the

trustee.]

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

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

community.

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

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

(27) “Purchaser” means a person, other than a declarant or a dealer, that by means of a

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

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

(B) as security for an obligation.

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

including structures, fixtures, and other improvements and interests that by custom, usage, or law

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

conveyance. The term includes parcels with or without upper or lower boundaries and spaces that

may be filled with air or water.

(29) “Record”, used as a noun, means information that is inscribed on a tangible medium or

that is stored in an electronic or other medium and is retrievable in perceivable form.

(30) “Residential purposes” means use for dwelling or recreational purposes, or both.

(31) “Rule” means a policy, guideline, restriction, procedure, or regulation of an

association, however denominated, which is not set forth in the declaration or bylaws.

(32) “Security interest” means an interest in real estate or personal property, created by

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

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

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

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

contract intended as security for an obligation.

(33) “Special declarant rights” means rights reserved for the benefit of a declarant to:

(A) complete improvements the declarant is not obligated to make that are

indicated on plats and plans filed with the declaration or described in the public offering statement;

(B) under Section 2-110, exercise any development right;

advertising the common interest community, and models;

(D) under Section 2-116, use easements through the common elements for the

purpose of making improvements within the common interest community or within real estate

which may be added to the common interest community;

(E) under Section 2-120, make the common interest community subject to a master

association;

(F) under Section 2-121, merge or consolidate a common interest community with

another common interest community of the same form of ownership

(G) under Section 3-103(d), appoint or remove any officer of the association or any

master association or any executive board member during any period of declarant control;

(H) under Section 3-120(c), control any construction, design review, or aesthetic

standards committee or process;

(I) under Section 3-108, attend meetings of the unit owners and, except during an

executive session, the executive board; and

(J) under Section 3-118, have access to the records of the association to the same

extent as a unit owner.

(34) “Time share” [has the meaning in [cite to definition of “time share” in appropriate

state statute]][means an ownership right in, or right to use, a unit for less than a full year during any

year on a recurring basis for more than one year, even if the years are not consecutive].

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

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

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

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

is owned, sold, conveyed, encumbered, or otherwise transferred is the right to possession of that

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

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

(36) “Unit owner” means a declarant or other person that owns a unit, or a lessee of a unit in

a leasehold common interest community whose lease expires simultaneously with any lease the

expiration or termination of which will remove the unit from the common interest community, but

does not include a person having an interest in a unit solely as security for an obligation. In a

condominium or planned community, the declarant is the owner of any unit created by the

declaration. In a cooperative, the declarant is treated as the owner of any unit to which allocated

interests have been allocated until that unit has been conveyed to another person.

Legislative Note: A state that defines “time share” or a similar term such as “timeshare plan” or

“time-share interest” in another statute should cross-reference the definition in the first bracketed

option of paragraph (34). A state that does not define the term should use the second bracketed

option of paragraph (34).

Comment

1. The first clause of this section permits the defined terms used in the Act to be defined

differently in the declaration and bylaws. Regardless of how terms are used in those documents,

however, terms have an unvarying meaning in the Act, and any restricted practice which depend

on the definition of a term is not affected by a changed term in the documents.

Example: A declarant might vary the definition of “unit owner” in the declaration

to exclude himself in an attempt to avoid assessments for units which he owns. The attempt

would be futile, since the Act defines a declarant who owns a unit as a unit owner and

defines the liabilities of a unit owner.

To emphasize this outcome, the introductory language to Section 1-103 was amended in

2008 to delete the phrase “In the declaration and bylaws, unless specifically provided otherwise or

the context otherwise requires, and...,” leaving only the introductory words “In this Act”. These

words are deleted simply as surplus statutory text, without an intent to change the effect of the

statute. The drafter of a declaration or bylaws is always entitled to use whatever words in lieu of

defined terms as the drafter chooses, but this Act will override such a usage when substantive

requirement in this Act is avoided in a declaration or in bylaws.

2. The definition of “Affiliate of a declarant” (Section 1-103(1)) is similar to the definition

of 12 U.S.C. Section 1730a, which prescribes the authority of the Federal Savings and Loan

Insurance Corporation to regulate the activities of savings and loan holding companies, and in 15

U.S.C. Section 78c(a)(18), which defines persons deemed to be associated with a broker or dealer

for purposes of the federal securities laws.

The objective standards of the definition permit a ready determination of the existence of

affiliate status to be made. Unlike 12 U.S.C. Section 1730a(a)(2)(B), no power is vested in an

agency to subjectively determine the existence of “control” necessary to establish affiliate status.

Thus, affiliate status does not exist under the Act unless these objective criteria are met.

As a result of this definition, the association may, in some instances, be a declarant. Under

the definition of “Affiliate of a declarant,” it is possible that 20% of the unit owners may “act in

concert” to control the activities of the association. While the mere casting of these votes at an

association meeting would not normally constitute “concerted action” by those unit owners, other

acts by individual unit owners might constitute such concerted action. The consequences of that

result are determined under Section 3-104.

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

the declaration to allocate to the common interest communities. “Allocated interests” is defined

differently with respect to the three forms of Ownership.

First, the important interests, common to all projects, are the proportionate shares of

common expense liabilities, and votes in the association, allocated to each unit. In either a

cooperative, condominium, or planned community, every unit in the project must have a share of

the votes and common expense liabilities.

Second, because the common elements are “owned” by the association in a planned

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

allocated to unit owners in a planned community or cooperative.

Third, in a cooperative, because unit owners have traditionally had an ownership interest in

the cooperative corporation, either in the form of stock or a membership certificate, the Act

continues to require allocation of an “ownership interest in the association” to each unit.

The common element or ownership interest has limited significance. One situation in

which the common element interest allocation would be important, however, is the distribution of

insurance proceeds following a loss where an entire condominium project is not repaired or

replaced and insurance proceeds are distributed to unit owners. See Section 3-113(h). See also

Section 2-118(j)(2).

4. Definition (6), “Common elements” is bifurcated. The Act adopts the UCA and MRECA

definition with respect to condominiums or cooperatives. However, the Act adopts UPCA’s

definition with respect to planned communities.

5. Definitions (6) and (35), treating “Common elements” and “Units,” should be examined

in light of Section 2-102, which specifies in detail how the differentiation between units and

common elements is to be determined in any given common interest community to the extent that

the declaration does not provide a different scheme. No exhaustive list of items comprising the

common elements is necessary in this Act or in the declaration, as long as the boundaries between

units and common elements can be ascertained with reasonable certainty. The common elements

include by definition all of the real estate in the condominium or cooperative not designated as part

of the units.

6. The 1994 amendment to the definition of common elements in Section 1-103(6)

addresses and clarifies a real estate arrangement found in some common interest planned

communities – that is, easements or other forms of servitudes which benefit the community and

which run either to the unit owners association or to all the unit owners in the association.

Examples of such interests include access easements to a land locked parcel on which the

community is located, easements for shared parking, etc. This easement, as any commonly held

interest in real estate, is and should be a common element. In reciprocal easement communities,

the easements may be the only common elements.

7. The drafters also seek to distinguish between real estate owned or leased by the unit

owners association which is subject to the declaration, and similar real estate which is not subject

to the declaration.

In a planned community, if that real estate is subject to the declaration – that is, it is “within

the planned community” – it meets the definition of a common element. If that real estate is not

within the planned community, title may be held by the association, but it is not a common element

unless the declaration is amended in accordance with this Act to incorporate that real estate as part

of the real estate subject to the declaration.

Most common interest communities are not likely to experience a need to acquire real

estate in addition to the land originally submitted to the declaration. However, it is not difficult to

envision cases where that result would be desirable to the unit owners – for example, to acquire

additional parking areas or open space. There is no reason to either prohibit the association from

securing this result, or to require the formalities of an amendment of the declaration to redefine the

boundaries of the common interest community; this would typically require a two-thirds vote of

the unit owners under Section 2-117(a).

This distinction will have practical consequences. For example, real estate which is not a

common element may be taxed by the local assessor, unless exempt under other state law,

notwithstanding the rule in Section 1-104 of the Act that the common elements may not be

separately taxed. Further, non-common element real estate may be bought and sold by the

association without the need to observe the requirements for conveying or encumbering common

elements stated in Section 3-112.

In a condominium, fee title to the common elements is vested in the unit owners, not the

unit owners association. Thus, in the condominium, all the real estate subject to the declaration,

except the units, is a “portion of the common interest community” and therefore is a common

element. Real estate which is not subject to the declaration is neither a unit nor a common element.

However, the desired substantive result discussed above is the same for all forms of

common interest communities. Accordingly, the drafters contemplate that the condominium or

cooperative association could also acquire title to real estate which is physically located outside

the condominium or cooperative boundaries, in its own name, which would not automatically

become a common element.

8. Definition (9), “Common interest community,” is new to this Act. The term creates one

comprehensive definition of those interests governed by the Act. This generic definition, derived

from the definition of planned community in UPCA, is used through the Act to refer collectively to

the three particular forms of common interest community: condominiums, cooperatives, and

planned communities.

Each of those forms in turn, has a separate definition. “Condominium” and “cooperative”

are defined precisely as they are in the Acts which apply to those forms. The definition of “planned

community,” however, is new, and, under UCIOA, becomes a residual concept. Any ownership

arrangement which is a common interest community but which does not meet the definition of

either a condominium or cooperative, would be a planned community. Thus, there are but three

forms of common interest community: (1) condominiums; (2) cooperatives; and (3) everything

else.

The 2008 amendments to the definition of “common interest community” accomplish two

main goals.

First, they make clear that the mutual obligations of unit owners - obligations which arise

“by virtue of” that ownership - to pay a share of the project’s expenses may include a share of

services provided to unit owners or other expenses provided either to the common elements or the

units. Second, the amended definition makes clear that several common real estate arrangements

described in new sections 1-209 and 1-210 are excluded from the definition. Section 1-209 thus

resolves the question of whether cost-sharing arrangements between an association and either

another association or a 3d party require creation of a new association [they do not]. New section

1-210 also confirms that a variety of simple, traditional arrangements, such as a shared driveway,

party wall, or shared well, which some have argued would technically satisfy the definition of

“common interest community” in the Act as originally drafted, are not subject to the Act unless the

drafter chooses that result.

9. Definition (10), “Condominium” makes clear that, unless the real estate title to the

common elements is vested in the owners of the units, the project is not a condominium. Thus, for

example, if title to the common elements is in an association in which each unit owner is a

member, the project is not a condominium, but a planned community.

10. Definition (11), “Conversion building,” is important because of the protection which

the Act provides in Section 4-112 for tenants of buildings which are being converted into a

common interest community. The definition distinguishes between buildings which have never

been occupied by any person before the time that the building is submitted to the cooperative form

of ownership, and buildings, whether new or old, which have been previously occupied by tenants.

In the former case, because there have been no tenants in the building, the building would not be a

conversion building, and no protection of tenants is necessary.

11. Definition (12), “Cooperative,” makes clear that the Act applies only to cooperatives

which constitute common interest communities. The common interest community real estate,

moreover, must be owned by the association, which, under Section 3-101, may be organized as a

profit or non-profit corporation, trust, trustee, partnership, or depending on the option adopted in a

particular State, as an unincorporated association. In requiring, as does Section 3-101, that the

association consist exclusively of “unit owners” – defined in MRECA as “proprietary lessees” –

the definition tracks the usual requirements of cooperative instruments, which exclude from

association membership persons who are not owners or proprietary lessees of the units.

The definition also recognizes the fundamental link between association membership and

occupancy rights in providing that unit owners who are the members of the association are entitled

to exclusive possession of their units under a proprietary lease – see Definition (26) – by virtue of

their ownership interests in the assets of the association.

The ownership interest of a cooperative unit owner is a composite interest, which consists

of the owner’s ownership interests in the association and his right to occupy a unit pursuant to a

proprietary lease. This interest, since it includes the proprietary interest under a lease, may not, as

a theoretical matter, exist until a proprietary lease has in fact been executed by the declarant for the

units in the cooperative. The definition “unit” resolves this theoretical gap by providing that the

declarant is treated as the owner of cooperative interests which have not yet been created.

12. Definition (13), “Dealer,” is a newly defined term in UCIOA. It was not used in any of

the three separate Acts. It replaces, in many sections, the words “person in the business of selling

(either) real estate (or) cooperative interests for his own account.” Use of the term in UCIOA does

not change the substantive results in any of the three Acts.

13. Definition (14), “Declarant,” is designed to exclude persons who may be called upon to

execute the declaration in order to ratify the creation of the common interest community, but who

are not intended to be charged with the responsibilities imposed on all declarants by this Act if that

is all they do. Examples of such persons include holders of pre-existing liens and, in the case of

leasehold common interest communities, ground lessors. (Of course, such a person may become a

declarant by subsequently succeeding to a Special declarant right.) Other persons similarly

protected by the narrow wording of this definition include real estate brokers, because they do not

offer to dispose of their own interest in a unit. Similarly, unit owners reselling their units are not

declarants because these units were “previously disposed of” when originally conveyed.

If the association, itself, or in conjunction with another declarant, is offering units for sale

to others, and if those units have not previously been sold or otherwise disposed of, then the

association itself is a declarant.

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

control, is still a declarant.

The last bracketed clause in this definition must be deleted in any State which chooses not

to enact Article 5 of the Act.

14. Definition (15), “Declaration,” is defined as “the instrument, however denominated,

that create a common interest community, including any amendments to the instrument.” Thus, the

term would not only include the traditional condominium declaration with which most

practitioners are familiar, or the declaration of covenants, conditions, and restrictions (CC & R’s)

so common in planned unit developments. It would also include, for example, a series of deeds to

units with common mutually beneficial restrictions, or to any other instruments which create the

relationship which constitutes a common interest community. If those recorded instruments create

that relationship, then those documents constitute a declaration and must contain, for new projects,

the information required by Section 2-105.

The declaration of a cooperative does not include the proprietary leases of the individual

units, although a sample of such a lease might be attached as an exhibit to the declaration.

Similarly, the definition of “declaration” of any common interest community does not refer

to the bylaws of the association or the documents creating the association. Such documents do not

“create” the common interest community, but merely regulate its use after creation. The bylaws

may, but need not be, an exhibit to the declaration.

15. Definition (16), “Development rights,” includes a panoply of sophisticated

development techniques that have evolved over time throughout the United States and which have

been expressly recognized and regulated in the case of condominiums, in an increasing number of

jurisdictions, beginning with Virginia in 1974.

The concept of “development rights” lies at the heart of one of the principal goals of the

Act, which is to maximize the flexibility available to a developer seeking to adjust the size and mix

of a project to the demands of the marketplace, both before and after creation. The principal

constraint on that flexibility is the obligation of disclosure, and its impact on marketing. Thus

“development rights” include the rights to:

(a) Increase the size or density of a project, either by adding real property to it, or by

creating new units, common elements or limited common elements on either the original land or

within the original buildings, or on any other land or buildings subsequently added;

(b) Change the mix of units, common elements, and limited common elements, either by

subdividing units, or by converting units into common elements or limited common elements; and

buildings, or particular units – from it.

As a matter of simple logic, there are few other things that could be done to a real property

regime which are not include within the concept of development rights. This great flexibility,

particularly when coupled with the broad definitions of “unit” and “real estate,” the power to

create leasehold projects, and the right to subordinate unit mortgages to blanket mortgage on either

the units or common elements, is an important element in the Act.

For example, a declarant may be building (or converting) a 50-unit building on Parcel A

with the intention, if all goes well, to “expand” the common interest community by adding an

additional building on Parcel B, containing additional units, as part of the same common interest

community. If he reserves the right to do so, i.e., to “add real estate to a common interest

community,” he has reserved a “development right.”

In certain cases, however, the declarant may desire, for a variety of reasons, to include both

parcels in the common interest community from the outset, even though he may subsequently be

obliged to withdraw all or part of one parcel. Assume, for example, that in the example just given

the declarant intends to build an underground parking garage that will expand into both parcels. If

the project is a success, his documentation will be simpler if both parcels were included in the

common interest community from the beginning. If his hopes are not realized, however, and it

becomes necessary to withdraw all or part of Parcel B from the common interest community and

devote it to some other use, he may do so if he has reserved such a development right “to withdraw

real estate from the common interest community.” The portion of the garage which extends into

Parcel B may be left in the common interest community (separated from the remainder of Parcel B

by a horizontal boundary), or the garage may be divided between Parcels A and B with appropriate

cross-easement agreements.

The right “to create units, common elements, or limited common elements” has frequently

been useful in the case of commercial or mixed use common interest communities, where the

declarant needs to retain a high degree of flexibility to meet the space requirements of prospective

purchasers who may not approach him until the common interest community has already been

created. For example, an entire floor of a high-rise building may be intended for commercial

buyers, but the declarant may not know in advance whether one purchaser will want to buy the

whole floor as a single unit or whether several purchasers will want the floor divided into service

units, separated by common element walls and served by a limited common element corridor. This

development right is sometimes useful even in purely residential common interest communities,

especially those designed to appeal to affluent buyers. Similarly, the development rights “to

subdivide units or convert units into common elements” is most often of value in commercial

common interest communities, but may be useful in certain kinds of residential common interest

communities as well.

16. Definition (17), “Dispose” or “Disposition,” includes voluntary transfers to purchasers

of any interest in a unit, other than as security for an obligation. Consequently, the grant of a

mortgage or other security interest is not a “disposition,” nor is any transfer of any interest to a

person who is excluded from the definition of “Purchaser,” infra. However, the term includes more

than conveyances and would, for example, cover contracts of sale.

17. Definition (20), “Leasehold common interest community,” should be distinguished

from land which is leased to a common interest community but not subjected to the common

interest community regime. A leasehold common interest community means, by definition, real

estate which has been subjected to the common interest community form of ownership. In such a

case, units located on the leasehold real estate are typically leased for long terms. At the expiration

of such a lease, the common interest community unit or the real estate underlying the unit would be

removed from the common interest community if the lease were not exercised or renewed. On the

other hand, real estate may not be subjected to common interest community ownership, but may be

leased directly to the association or to one or more unit owners for a term of years.

17A. Definition (22), “Master association,” recognizes two types of master associations:

(1) an organization holding a power delegated from a unit owners association; and (2) an

organization that is the unit owners association for more than one common interest community.

The 2021 amendments allow a master association to be organized as any type of legal entity

authorized by state law.

18. In this Act, in contrast to UPCA, Definition (25), “Planned Community,” is a residual

concept. That is, any common interest community which fails to fall into the category of a

condominium or a cooperative is, by definition, a planned community. The definition also

indicates that a planned community may have a condominium or cooperative as a constituent

element.

19. Definition (26), “proprietary lease,” describes that instrument initially executed by a

cooperative association with the purchaser of a unit, granting the right of exclusive occupancy of a

unit. The term and its significance is more fully treated in the Comments to the definition of

“Unit.”

20. Definition (27), “Purchaser,” includes a person who acquires any interest in a unit, even

as a tenant, if the lease including renewal options, entitles him to occupy the premises for more

than 20 years. Excluded from the definition, however, are mortgagees, declarants, and dealers.

Persons excluded from the definition of “purchaser” do not receive certain benefits under Article

4, such as the right to a public offering statement (Section 4-102(c)) and the right to rescind

(Section 4-108).

21. Definition (28), “Real estate,” is very broad, and is very similar to the definition of

“real estate” in Section 1-201(16) of the Uniform Land Transactions Act.

Although often thought of in two-dimensional terms, real estate is a three-dimensional

concept, and the third dimension is usually important in the condominium and planned community

context. Where real estate is described in only two dimensions (length and width), it is correctly

assumed that the property extends indefinitely above the earth’s surface and downwards to a point

in the center of the planet. In most condominium and planned communities, however, as in

so-called “air rights” projects, ownership does not extend “from the center of the earth to the

heavens” because units are stacked on top of units or units and common elements are

interstratified. In such cases, the upper and lower boundaries must be identified with the same

precision as the other boundaries.

22. The definition of “residential purposes” includes “recreational purposes.” This

common sense definition is used in order to avoid repeated use of a lengthier defined term, such as

“residential or consumer owned recreational purposes.”

The Act contemplates that “recreational purposes” would be “consumer owned”

recreational purposes commonly marketed for sale to individual owners – uses such as dock spaces

for boats, campgrounds, airplane tie downs, etc. By including these kinds of uses within the

definition, the Act intends to provide the same consumer protections which it offers to individual

residential purchasers – persons who typically buy for their own use – as distinguished from

commercial users. Thus, the definition would exclude commercial recreational facilities which are

operated as a business or available to the public on a fee for use basis, such as movie theaters,

athletic or country clubs, golf courses, and the like.

Further, the definition is not intended to override, and thus perhaps expand on, existing

local zoning ordinances which permit only “residential” use.

However, by including these recreational purposes within the defined term “residential

purposes,” no change in the plain and traditional meaning of the word “residential” is intended.

Thus, the drafters recognize that owners of residential units – i.e., a unit which is designed for use

as a residential dwelling – may hold those units for investment purposes, or that individual owners

may occasionally or regularly rent their units on an individual or rental pool basis. This is a

common practice, for example, with residential communities built near ski or ocean resort areas.

Rental occupancy does not change the residential character of the common interest community, or

the consumer protections that must be offered to purchasers.

23. Definition (32), “Security interest,” encompasses any interest in real or personal

property which secures payment or performance of an obligation. Thus, for example, regardless of

whether or not the units in a cooperative are treated as real or personal property pursuant to Section

1-105(a), a lender’s interest in a unit securing the debt is a “security interest.” This definition is

adapted from Sections 3-102 and 3-103 of the Uniform Land Transactions Act.

24. Definition (33), “Special declarant rights,” seeks to isolate those rights reserved for the

benefit of a declarant which are unique to the declarant and not shared in common with other unit

owners. The list, while short, encompasses virtually every significant right which a declarant

might seek in the course of creating or expanding a common interest community.

Any person who possesses a special declarant right would be a “declarant,” including any

who succeed under Section 3-104 to any of those rights. Thus, the concept of special declarant

rights triggers the imposition of obligations on those who possess the rights. Under Section 3-104,

those obligations vary significantly, depending upon the particular special declarant rights

possessed by a particular declarant. These circumstances are described more fully in the

Comments to Section 3-104.

The 2008 amendment created three new “special declarant rights” and, like all special

declarant rights, they are rights which exist only to the extent they are “reserved for the benefit of a

declarant” in the declaration. See § 2-105(a)(8). The most unusual of the 3 is the right to control

what is commonly called a design review committee. Under the amended Act, no such committee

may exist unless properly authorized in the declaration. See § 2-105(a)(14).

In contrast, the new special declarant rights to attend unit owner meetings and to access

records of the association resolve questions that have arisen in practice and that track the

reasonable expectations of the parties.

The 2021 amendments limit the special declarant right described in Section 1-103(33)(A)

to the completion of improvements that the declarant is not obligated to make. Improvements that

the declarant is obligated to make (see Section 4-119) are no longer addressed by this special

declarant right. The declarant has a statutory easement under Section 2-116, which is sufficient to

enable the declarant to complete obligatory improvements; the easement exists whether or not the

declarant has reserved any special declarant rights.

In addition, the 2021 amendments add cross references to most of the descriptions of

special declarant rights to make it clear that the substance of the right is defined by the relevant

section, and is not a freestanding right that may have other characteristics.

25. Definition (34), “Time share,” defines arrangements for multiple persons to occupy

units at different periods of time.

When this Act was first promulgated in 1982, such concepts as “time share” and “interval

ownership” were relatively new; they were neither fully developed nor generally accepted in the

marketplace. Moreover, the nature of the relationship between the various forms of common

interest ownership and time fractionalization of real estate was not at all clearly understood.

In these circumstances, the Conference adopted a “minimalist” approach in dealing with

the concept of time sharing. To that end, the Act simply defined the term “time share” and required

that the public offering statement under Section 4-105 disclose any time shares provided for by the

declaration. Otherwise, this Act did not attempt to regulate time sharing. That task was left to other

state law. Experience over the intervening years suggests that this minimalist approach remains

appropriate.

A time-share development is subject to this Act whenever the ownership arrangement

meets the definition of a “common interest community.” If it does, then the Act applies the same

way as it does for other common interest communities unless the state has a separate time-share

statute that exempts the development from provisions of this Act. For example, a common interest

community containing time shares must have a declaration conforming to Section 2-105 and must

adopt budgets under Section 3-123.

The 2021 amendments revise the definition of “time share” to conform to modern practice.

Most states have enacted statutes that regulate time shares, sometimes as a freestanding act and

sometimes as part of their brokerage act, deceptive trade practices act, or other act. Many states

have designated a state agency that is responsible for time-share regulation. It is preferable that this

Act and the state’s time-share statute define “time share” the same way. For states that do not have

a suitable statutory definition, the definition of “time share” offers language that closely tracks the

key elements of current definitions of “time share” in states that regulate large numbers of

time-share developments. The definition also is compatible with the Bankruptcy Code’s definition

of “timeshare plan.” 11 U.S.C. § 101(53D).

26. Definition (35), “Unit,” describes a tangible, physical part of the project rather than a

right in, or claim to, a tangible physical part of the property. Therefore, for example, the sale of a

unit to 5 persons as tenants in common does not create 5 new units – there are, rather, 5 owners of

the unit. (Under the section on voting (Section 3-110), a majority of the tenants in common are

entitled to cast the vote assigned to that unit.)

Similarly, in a cooperative, the unit remains a physical part of the real estate; its legal title

is vested in the association while the right to possession is held by the unit owner under a

proprietary lease. The definition, however, makes it clear that the association’s interest in the unit

is unaffected by transfers of interests in that unit to or by unit owners. The unit owner’s interest is

a composite interest, which consists of an ownership interest in the association, coupled with the

right to occupy a unit pursuant to a lease.

The definition makes clear that in the case of a cooperative, if a unit owned by a unit owner

is sold, conveyed, or encumbered or otherwise transferred by the unit owner, the interest in such

unit which is affected is the right to possession of that unit under a proprietary lease, coupled with

the allocated interests of that unit. In recognizing the relationship between the physical “unit” and

the nature of a unit owner’s interest in that unit, and by describing that relationship concisely in the

definition, the merged Act was able to delete the definition of “cooperative interest” as it was used

in MRECA.

27. Definition (36), “Unit owner,” contemplates that a seller under a land installment

contract would remain the unit owner until the contract is fulfilled. As between the seller and the

buyer, various rights and responsibilities must be assigned to the buyer by the contract itself, but

the association would continue to look to the seller (for payment of any arrears in common expense

assessments, for example,) as long as the seller holds title.

The definition makes it clear that a declarant, so long as he owns units in a common interest

community, is the unit owner of any unit created by the declaration, and is therefore subject to all

of the obligations imposed on other unit owners, including the obligation to pay common expense

assessments. This provision is designed to resolve ambiguities on this point which have arisen

under several existing state statutes.

In the special case of a cooperative, the declarant is treated as the owner of a unit or

“potential unit” to which allocated interests have been allocated, until that unit is conveyed to

another.

The definition includes the buyers of time shares only if they directly hold an estate or

long-term leasehold in the unit. Then they own the unit as real property and are treated the same as

other multiple owners of a single unit under the act. Time-share unit owners may exist in a

condominium, a planned community, or in a cooperative.

Example 1: A fee simple owner of a condominium unit records a time-share

declaration for her unit and conveys fee simple time-share estates to 12 different persons,

each receiving the right to occupy the unit for one month each year. The deeds of

conveyance are recorded. The 12 owners have time shares as defined in Section 1-103(34)

and they are “unit owners” under Section 1-103(36). Collectively the 12 owners hold the

single allocation of votes allocated to their unit. Section 2-107(a). A majority in interest of

the 12 owners determines how to cast their unit’s vote unless the declaration for the

condominium community or the time-share declaration expressly otherwise provides.

Section 3-110(b)(2).

Example 2: A cooperative has 10 members, each holding the right to possess one

unit under a proprietary lease. The member of the association who owns Unit 6 records a

time-share declaration for her unit. The member agrees to sell time-share leaseholds to 6

different persons, each of whom will receive the right to occupy the unit for two months

each year. The sales close, with the member turning in her proprietary lease to the

association. The association then cancels this proprietary lease and issues 6 new

proprietary leases to the time-share buyers. The 6 buyers have time shares as defined in

Section 1-103(34) and they are “unit owners” under Section 1-103(36).

When a unit is devoted to time shares that are classified as personal property (e.g., a

license, a membership, or contract rights), then the time-share owners are not unit owners.

In this situation, someone else necessarily holds title to the unit. It may be the developer, a

trustee, a corporation, an association, or another entity. That person is the unit owner,

holding title for the benefit of the time-share owners, and its obligations and rights,

including voting rights, are the same as an entity who owns a regular unit for the benefit of

shareholders, members, or other individuals.

28. The 2008 amendments create five new definitions: “Assessment” [Section 1-103(3)];

“Bylaws”, [Section 1-103(5)], “Common expense liability” [Section 1-103 (7)], “Record”

[Section 1-103(29)] and “Rule” [Section 1-103(31)].

By defining the term “assessment” as the “sum attributable to each unit and due to the

association pursuant to Section 3-115”, the Act ties the term directly to the common expense

liability of each unit, and to those sections of the Act where each unit’s common expense liability

is calculated. It also distinguishes each unit’s assessment from the other sums that may be due

from a unit owner – such as the sums described in Section 3-116(a) – which are not a part of the

association’s budget and therefore are not included in that unit’s assessment but which “are

enforceable in the same manner as unpaid assessments.”

The definition of “bylaws” reflects the common functional meaning of that term,

regardless of what different phrase might be used in the declaration to describe this instrument.

The definition makes clear that: (i) the bylaws is the instrument that “contains the procedures for

conduct of the affairs of the association” - as distinguished from the substantive role played by the

declaration; (ii) the functional role of the bylaws remains consistent under the Act even if the

association is organized as, for example, a limited liability company where the term “bylaws” is

not used in the statute authorizing such entities and the instrument serving that function is

identified as an “operating agreement”; and (iii) amendments to the bylaws are incorporated into

the amended document for purposes of this Act.

However, regardless of the name of the instrument used in the declaration, this Act

mandates the minimum contents of the bylaws; see Section 3-106. Further, any provision of the

State’s statutes governing the content of the bylaws or, as appropriate, the operating agreement, to

the extent inconsistent with the requirements of Section 3-106, would be overridden by this Act;

see Section 1-108.

Third, “common expense liability” is defined primarily by reference to the substantive

section of the Act where the term is used. The term appears in earlier versions of the Act without

being defined.

The new definition of “Record” in Section 1-103 (29) makes clear that the definition

applies only when the term is used as a noun. The definition derives directly from federal and

statute statutes governing electronic signatures; the term is commonly substituted for the word

“writing” or “written” in other law.

The new definition of “Rule” in Section 1-103 (31), amended in 2021, is broad. A rule is

any policy, guideline, restriction, procedure, or regulation of the association that is not contained

in the declaration or bylaws. Section 3-102(a)(1) permits the association to adopt, amend, and

repeal rules subject to the restrictions of Section 3-120. Note that Section 3-120(g) states that the

“association’s internal business operating procedures need not be adopted as rules”. This

distinction permits the association’s executive board or its management company to adopt or

amend at will the wide variety of internal management procedures that govern the association’s

daily business activities - as opposed to the conduct of persons or the use and appearance of

property. It may be helpful to provide a few examples of what the drafters contemplate might be

typical internal business procedures that need not be adopted as rules:

• The association wishes to solicit bids from potential contractors for a particular project or

service and adopts a procedure for soliciting, reviewing and accepting those bids.

• The board approves a management contract with an outside management company. The

management contract contains various procedures governing how the manager is going to

carry out its duties with regard to the management of the association.

• The recreation committee adopts a sign-up procedure for using the pool table in the

clubhouse.

SECTION 1-104. NO VARIATION BY AGREEMENT. Except as expressly provided

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

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

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

the declaration.

Comment

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

interest communities and, to that end, the Act permits the parties to vary many of its provisions. In

many instances, however, provisions of the Act may not be varied, because of the need to protect

purchasers, lenders, and declarants. Accordingly, this section adopts the approach of prohibiting

variation by agreement except in those cases where it is expressly permitted by the terms of the Act

itself. This section should be read in conjunction with new Section 1-117 (Mandatory and Default

Rules), added by the 2021 amendments, which provides a list of provisions of the Act that the

declaration or bylaws may vary. The list replaces, with some modifications, a list of sections that

may be varied by agreement contained in Comment 4 to the original Act. It was the judgment of

the drafters that practitioners are better served by making the list part of the statute.

2. A significant consumer protection in this Act is the requirement for consent by specified

percentages of unit owners to particular actions or changes in the declaration. In order to prevent

declarants from evading these requirements by obtaining powers of attorney from all unit owners,

or in some other fashion controlling the votes of unit owners, this section forbids the use by a

declarant of any device to evade the limitation or prohibition of the Act or of the declaration.

3. The second sentence of the section is an important limitation upon the rights of a

declarant. Today it is the practice in many jurisdictions, particularly those proscribing expansion

of a condominium or planned community by statute, for a declarant to secure powers of attorney

from all unit purchasers permitting the declarant unilaterally to expand the condominium or

planned community by “unanimous consent” to include new units and to reallocate common

element interests, common expense liability, and votes. With such powers of attorney, many

declarants have purported to comply with the typical provision of “first generation” condominium

statutes requiring unanimous consent for amendments of the declaration concerning such matters.

The Act bars this practice.

4. The second sentence of this section invalidates any device used by a declarant that has

the intent or effect of evading the limitations or prohibitions of this Act.

Example: A declarant establishes a common interest community, retaining title to

the road system providing access to the community from a nearby highway and to all of the

units. The road system is not part of the common elements described in the declaration, and

persons other than unit owners are allowed to use the road system. Instead, the declarant

grants right-of-way easements to use the roads to the association and the unit owners. The

easement instrument obligates the declarant or its assignee to repair and maintain the roads

and obligates the unit owners to pay substantial fees to use the roads that far exceed the

declarant’s reasonable and projected repair and maintenance costs. This device is invalid

because the road easements are in fact common elements, even though not described as

such in the declaration. See Section 1-103(6) (Definition of Common elements) and

Comment 6 (access easement that benefits common interest community “is and should be a

common element”). In addition, the obligation to pay for use of the roads is in substance a

maintenance contract that the association may terminate unilaterally after the period of

declarant control ends.

5. While freedom of contract is a principle of this Act, and variation by agreement is

accordingly widely available, freedom of contract does not extend so far as to permit parties to

disclaim obligations of good faith, see Section 1-113, or to enter into contracts which are

unconscionable when viewed as a whole, or which contain unconscionable terms. See Section

1-112. This section derives from Section 1-102(3) of the Uniform Commercial Code.

SECTION 1-105. SEPARATE TITLES AND TAXATION.

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

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

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

personal property.]

(b) In a condominium or planned community:

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

together with its interest in the common elements, constitutes for all purposes a separate parcel of

real estate.

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

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

elements for which a declarant has reserved no development rights.

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

alone is liable for payment of those taxes.

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

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

Comment

1. Subsection (a) of this section follows the MRECA provisions. The classification of the

unit and its allocated interests as real property or as personal property is significant for purposes of

such matters as tenure, sales, recordation, transfer taxes, property taxes, estate and inheritance

taxes, testate and intestate succession, mortgage lending, the perfection, priority and enforcement

of liens, and rights of redemption.

Subsection (a) resolves an important theoretical and practical issue which pervades the

cooperative field: whether a unit owner in a cooperative holds an interest in real or in personal

property. Subsection (a) permits the declarant to decide that issue for each cooperative on a

project-by-project basis.

The issue arises from the fact that the unit owner’s interest in the cooperative typically has

elements of both real and personal property. His interest includes both a beneficial interest in the

association – either through stock ownership or membership – which is clearly a personal property

interest, and a long term “proprietary” or ownership interest under a proprietary lease in an

apartment – clearly an interest in real estate.

While this is in many ways a highly theoretical issue, it has many practical consequences.

For example, if the unit owner’s interest is a real estate interest, then that interest – aside from the

association’s interest – may be subject to real property taxes and conveyance taxes; the recording

laws would apply to conveyance of those interests; and real estate foreclosure laws would apply to

foreclosure of a lien against those interests. Moreover, a security interest in the unit owner’s stock

or membership certificate would not be effective against the stock without a security instrument

being recorded on the land records. In general, none of Article 9 of the Uniform Commercial Code

would be applicable to that interest, and all of the conveyancing rules would apply.

On the other hand, if the interest is a personal property interest – the result required by this

section in the absence of a provision in the declaration that the interest is real property – then all of

Article 9 of the Uniform Commercial Code would apply to security interests in the unit, the real

estate conveyancing rules would not apply, and the interest would be treated for all purposes as

personal property.

2. This Act, of course, would apply in all respects regardless of the characterization of the

unit owner’s interests. Thus, for example, recording to the declaration is required, whether or not

the owner’s interest in a cooperative interest is real or personal property, because the cooperative

itself is the real estate.

3. Whether an institutional lender may lawfully make loans on the unit owner’s interest

may or may not depend on whether that interest is characterized as real or personal property. That

issue is not affected by this Act, however, but by other state law which may permit loans to be

made by certain institutional lenders only if secured by an interest in real estate.

4. If a unit owner’s interest is a real property interest, recordation of the proprietary lease in

the land records is constructive notice of the unit owner’s rights. If the unit owner’s interest is a

personal property interest, recordation of the lease in the land records would be ineffective as

constructive notice of that interest, and Article 9 of the Uniform Commercial Code does not

provide a mechanism for filing evidence of that ownership interest. It is likely, however, that

holders of security interests in units which are personal property would adopt a procedure similar

to that followed in Illinois with respect to land trusts, which have been held to be personal property

in that State. Under Article 9 of the Uniform Commercial Code and Illinois common law, the

secured party files notice of the lien and the lien is thereby perfected for five years, when it must be

renewed.

5. Subsection (b) integrates the language of UCA and UPCA regarding condominiums and

planned communities. A condominium or planned community may be created, by the recordation

of a declaration, long before the first unit is conveyed. This happens frequently, for example, with

existing rental apartment projects which are converted into either condominiums or planned

communities. Subsection (d) spares the local taxing authorities from having to assess each unit

separately until such time as the declarant begins conveying units, although separate assessment

from the date the common interest community is created may be permitted under general state law,

which permits or requires separate taxation of individual parcels of real estate. When separate tax

assessments become mandatory under this section, the assessment for each unit must be based on

the value of that individual unit, under whatever uniform assessment mechanism prevails in the

State or locality. Importantly, no separate tax bill on the common elements is to be rendered to the

association or the unit owners collectively, even though, in the context of planned communities,

the common elements owned by the association might be subject to taxation as a separately owned

parcel of real estate, in the absence of this provision. Any common element subject to development

rights, however, must be separately assessed and taxed to the declarant, see subsection (c), in

recognition of the independent economic value that those development rights have. This would be

true even if the real estate subject to development rights is a part of the common interest

community and lawfully “owned” by the unit owners in common, since the rights are in fact an

asset of the declarant.

6. If there is any doubt in a particular State whether a unit occupied as a residential

dwelling is entitled to treatment as any other residential single-family detached dwelling under the

homestead status, this section should be modified to ensure that units are similarly treated.

7. Unlike the law of some States, this section imposes no limitations on the power of a

jurisdiction to tax units based on the fair market value of the individual units, rather than on the

project as a whole. In most jurisdictions, experience has shown that upon conversion of an

apartment building to a common interest form of ownership, the fair market value of the units

exceeds the fair market value of that building prior to conversion. Accordingly, a jurisdiction

under this Act may impose real estate taxes on common interest community units which reflect the

fair market value of those units in the same way that the jurisdiction taxes other forms of real

estate.

8. Questions have arisen regarding the consequences of foreclosure of a tax lien on units or

development rights in a common interest community.

Under one theory, because real estate taxes are liens on real estate which have priority over

all subordinate interests, foreclosure of the real estate tax lien on a unit could result in partial

termination of the common interest community, and thus remove the unit from the common

interest community. This result would follow if the tax lien were treated under Section 2-118(l) as

a “lien . . . against a portion of the real estate comprising the common interest community [which]

has priority over the declaration . . . .”

Such a result, however, is inconsistent with the expectations of other unit owners in the

complex. The appropriate result is that because, under this section, each parcel of real estate is a

separate parcel for tax purposes, foreclosure of a tax lien on that parcel simply results in a sale or

transfer of an interest in that parcel, as part of the common interest community, unless the parcel

being foreclosed is withdrawable real estate.

9. It is also possible that a taxing authority may seek to foreclose on a declarant’s

development rights. Foreclosure of real estate taxes levied against withdrawable real estate, just as

in the case of a foreclosure by a voluntary lienholder, may result in removal of that real estate from

the common interest community; see Section 2-118(k). However, foreclosure of real estate owned

by the declarant which has not yet been added to the common interest community will have no

effect on the common interest community unless the taxing authority also acquires the

development right to add that real estate to the common interest community.

10. Under Section 3-104(c), of course, foreclosure of a tax lien for unpaid taxes levied

against development rights would permit the taxing authority to take title to those development

rights and exercise or transfer them as they could any other interest in real estate. However,

development rights lapse pursuant to Section 2-110 if they are not exercised within the time limit

established by the declaration. This result, implicit under the Act, is expressly the law in some

States. See, e.g., Conn. Gen. Stat. Section 47-229(e). If development rights lapse when a tax lien

against those rights exists under Section 1-105(c), then whether or not those development rights

apply to common elements which have previously been added to the common interest community

makes no difference; the municipal lien holder is in no different position than a lender who holds a

security interest in those development rights. Accordingly, while the tax lien itself would not be

enforceable against the land it would continue to be the obligation of the declarant, as provided in

the last clause of this subsection.

SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, REGULATIONS,

AND BUILDING CODES.

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

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

different form of ownership.

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

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

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

physically identical development under a different form of ownership.

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

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

Comment

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

communities in regulating the creation of common interest communities. The underlying concept

is to make clear that the municipality has a legitimate interest in regulating the use of real estate, in

accordance with long established zoning, building code, and similar practices, and that such

practices continue to have equal applicability to common interest communities as they do to purely

rental projects. With respect to forms of ownership, however, this Act, as a state enactment,

preempts the field and accordingly, except as provided in the Act, the municipality may not

regulate the form of ownership, as opposed to the use of that real estate.

2. Consistent with the concept described in Comment 1, subsection (a) prohibits

discriminatory application of building codes against common interest communities by local law

making authorities. Thus, if a building code imposes a requirement which cannot be met if

property is owned as a common interest community but which would not be violated if all of the

property constituting the common interest community were owned by a single owner, this section

makes it unlawful to apply that requirement or restriction to the common interest community. For

example, in the case of a high-rise apartment building, if a building code requirement imposing a

minimum fire wall rating between apartments would not prevent a rental apartment building from

being built, this Act would override any requirement that might impose a higher fire wall rating

between apartments merely because the same building might be owned as a common interest

community.

3. While subsection (a) prevents discrimination against all forms of common interest

communities under building codes, subsection (b) does not prevent local law making authorities

from using zoning, subdivision, and other real estate regulations to specifically regulate the

planned community form of ownership, in ways different from rental project, or condominiums.

This distinction simply recognizes the existing practice in some communities that permits a local

zoning board, as a condition of granting a cluster housing zoning permit, to require the right of

prior plan approval. However, such regulations may not be used to proscribe the condominium or

cooperative form of ownership, or to discriminate against these two types of common interest

communities. Accordingly, a community could not prevent a condominium conversion by

applying setback requirements between apartments which would not apply if all the apartments

were owned by a single owner, or by requiring more parking for condominiums than for rental

apartments.

4. Subsection (c) makes clear that, except for the prohibition on discrimination against

common interest communities under building codes, and except for the prohibition on the use of

zoning, subdivision, and other real estate laws, ordinances, or regulations to ban or discriminate

against cooperatives and condominiums, the Act has no effect on real estate or personal property

laws. For example, a particular parcel of real estate submitted to the common interest community

form of ownership might be of such size that all of the real estate is required to support a proposed

density of units or to satisfy minimum setback requirements. Under this Act, part of the submitted

real estate might be subject to a development right entitling the declarant to withdraw it from the

common interest community, but the mere reservation of this right would not constitute a

subdivision of the parcel into separate ownership. If a declarant or foreclosing lender at a later time

sought to exercise the option to withdraw the real estate, however, withdrawal would constitute a

subdivision and would be illegal if the effect of withdrawal would be to violate setback

requirements, or to exceed the density of units permitted on the remaining parcel.

SECTION 1-107. EMINENT DOMAIN.

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

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

permitted by the declaration, the award must include compensation to the unit owner for that unit

and its allocated interests, whether or not any common elements are acquired. Upon acquisition,

unless the decree otherwise provides, that unit’s allocated interests are automatically reallocated to

the remaining units in proportion to the respective allocated interests of those units before the

taking, and the association shall promptly prepare, execute, and record an amendment to the

declaration reflecting the reallocations. Any remnant of a unit remaining after part of a unit is taken

under this subsection is thereafter a common element.

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

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

common elements, whether or not any common elements are acquired. Upon acquisition, unless

the decree otherwise provides, (i) that unit’s allocated interests are reduced in proportion to the

reduction in the size of the unit, or on any other basis specified in the declaration and (ii) the

portion of the allocated interests divested from the partially acquired unit are automatically

reallocated to that unit and to the remaining units in proportion to the respective allocated interests

of those units before the taking, with the partially-acquired unit participating in the reallocation on

the basis of its reduced allocated interests.

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

provides otherwise, any portion of the award attributable to the acquisition of a limited common

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

element was allocated at the time of acquisition.

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

common interest community is located.

Comment

1. The provisions of this statute are not intended to supplant the usual rules of eminent

domain but merely to supplement those rules in addressing the unique problems which eminent

domain raises in the context of a common interest community. Nevertheless, because the law of

eminent domain differs widely among the various States, the law of each State should be reviewed

to ensure that the eminent domain code and this section are properly integrated. For example,

subsection (a) uses the words “the award must include compensation to the unit owner.” This

language, a change first made in MRECA, suggests that, under other state law, compensation for

other interests may be required in an appropriate case and the section does not limit that result.

2. When a unit is taken or partially taken by eminent domain, this section provides for a

recalculation of the allocated interests of all units.

Example 1: Suppose that all allocated interests in a nine-unit common interest

community were originally allocated to the units on the basis of size. If eight of the units

are all equal in size and one is twice as large as the others, the allocated interests would be

20% for the largest unit and 10% for each of the other eight units.

Suppose that one of the smaller units is removed from the common interest

community by a condemning authority. Subsection (a) provides that the allocated interests

would automatically shift, at the time of the taking, so that the larger unit would have 22

2/ 9

% while each of the small units would have 11

1/ 9

Example 2: Suppose, in Example 1, that the condemnation only reduced the size of

one of the smaller units by 50%, leaving the remaining half of the unit usable. Subsection

(b) provides that the allocated interests would automatically shift to 5

5/ 19

% for the partially

taken unit, 21

10/ 19

% for the largest unit, and 1010/ 19 % for each of the other units. Note

that the fact that the partially taken unit was reduced to half its former size does not mean

that its allocated interests are only half as large as before the taking. Rather, that unit

participates in the reallocation in proportion to its reduced size. That is why the partially

taken units’ reallocated interests are 5

5/ 19

% rather than 5%.

3. An important issue raised by this section is whether or not a governmental body

acquiring a unit by eminent domain has a right to also take that unit’s allocated interests and

thereby assume membership in the association by virtue of its power of eminent domain. While

there is no question that a governmental body may acquire any real property by eminent domain,

there is no case law on the question of whether or not the governmental body may take a unit as

part of a common interest community or must take the unit and have the unit excluded from the

common interest community.

Subsection (a) merely requires that the taking body compensate the unit owner for all of his

unit and its allocated interests, whether or not any common elements are acquired. The Act also

requires that the allocated interests are automatically reallocated upon taking to the remaining

units unless the decree provides otherwise. Whether or not the decree may constitutionally provide

otherwise in the case of a particular taking (for example, by allocating the allocated interests to the

government) is an unanswered question.

4. In the circumstances of a taking of part of a unit, it is important to have some objective

test by which to measure the portion of allocated interests to be reallocated. Subsection (b) sets

forth a formula based on relative size, but permits the declaration to vary that formula to some

other more appropriate formula in a particular circumstance. The right to vary the formula in the

declaration is important, since it is clear that the formula set forth in the statute may in some

instances result in gross inequities.

Example 1: Suppose in a commercial common interest community consisting of

four units, each unit consists of a factory and parking lot, and the declaration provides that

each unit’s common expense liability, including utilities, is equal. Suppose further that the

area of the factory building and parking lot in unit number one are equal, and that ½ the

parking lot is taken by eminent domain, leaving the factory and ½ the lot intact. Under the

formula set out in the statute, unit number one’s common expense liability would be

reduced even though its utilities might not be reduced at all, thus resulting in a windfall for

the unit owner.

Example 2: Suppose that a common interest community contains ten units, each of

which is allocated a 1/10 undivided interest in the association. Suppose further that a taking

by eminent domain reduces the size of one of the units by 50%. In such case, the ownership

interest of all the units will be reallocated so that the partially-taken unit has a 1/19

undivided interest in the common elements and the remaining nine units each has a 2/19

undivided interest in the common elements. Thus, the partially-taken unit has a common

element interest equal to ½ of the common element interest allocated to each of the other

units. Note that this is not equivalent to the partially-taken unit having a 5% undivided

interest and the remaining nine units each having a 10% undivided interest.

5. Even before the amendment formally acknowledging the reallocation of percentages

required by this section is recorded, the reallocation is deemed to have occurred simultaneously

with the taking. This rule is necessary to avoid the hiatus that otherwise could occur between the

taking and the reallocation of interests, votes, and liabilities.

Legislative Note: The practice of the states may vary with respect to the documentation of eminent

domain awards, and the word “decree” should therefore be considered for amendment as

appropriate.

SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW

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

other form of organization authorized by the law of this state [,and unincorporated associations],

the law of real estate, and the law relative to capacity to contract, principal and agent, eminent

domain, estoppel, fraud, misrepresentation, duress, coercion, mistake, receivership, substantial

performance, or other validating or invalidating cause supplement the provisions of this [act],

except to the extent inconsistent with this [act].

Comment

1. This Act displaces existing law relating to common interest communities and other law

only as stated by specific sections and by reasonable implication therefrom. Moreover, unless

specifically displaced by this statute, common law rights are retained. The listing given in this

section is merely an illustration, no listing could be exhaustive.

2. The bracketed language concerning unincorporated associations should be deleted if the

enacting State requires incorporation of a unit owners’ association. See the parallel language

contained in Section 3-101.

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

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

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

avoided.

Comment

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

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

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

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

Comment

This Act should be construed in accordance with its underlying purpose of making the law

uniform with respect to all forms of common interest communities, as well as the purposes stated

in the Prefatory Note of simplifying, clarifying, and modernizing the law of common interest

communities, promoting the interstate flow of funds to common interest communities, and

protecting consumers, purchasers, and borrowers against common interest community practices

which may cause unreasonable risk of loss to them. Accordingly, the test of each section should be

read in light of the purpose and policy of the rule or principle in question, and also of the Act as a

whole.

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

thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions

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

and to this end the provisions of this [act] are severable.

Legislative Note: Include this section only if this state lacks a general severability statute or a

decision by the highest court of this state stating a general rule of severability.

SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF

CONTRACT.

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

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

remainder of the contract without the unconscionable clause, or limit the application of any

unconscionable clause in order to avoid an unconscionable result.

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

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

be afforded a reasonable opportunity to present evidence as to:

(1) the commercial setting of the negotiations;

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

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

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

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

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

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

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

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

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

Comment

This section is similar to Section 2-302 of the Uniform Commercial Code and Section

1-311 of the Uniform Land Transactions Act. The rationale and Comments provided in those

sections are equally applicable to this section.

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

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

Comment

This section sets forth a basic principle running throughout this Act: in transactions

involving common interest communities, good faith is required in the performance and

enforcement of all agreements and duties. Good faith, as sued in this Act, means observance of two

standards: “honesty in fact,” and observance of reasonable standards of fair dealing. While the

term is not defined, the term is derived from and used in the same manner as in Section 1-201 of

the Uniform Simplification of Land Transfers Act, and Sections 2-103(i)(b) and 7-404 of the

Uniform Commercial Code.

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

remedies provided by this [act] shall be liberally administered to the end that the aggrieved party is

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

special, or punitive damages may not be awarded except as specifically provided in this [act] or by

other rule of law.

Comment

The 2008 deletion of subsection (b) in Section 1-114 does not substantively amend the Act,

since the same concept is embedded in amended Section 4-117 of the Act.

SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS.

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

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

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

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

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

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

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

to the nearest whole percentage point, between the Index at the end of the preceding year and the

Reference Base Index is 10 percent or more, but (i) the portion of the percentage change in the

Index in excess of a multiple of 10 percent must be disregarded and the dollar amount shall change

only in multiples of 10 percent of the amount appearing in this [act] on the date of enactment; (ii)

the dollar amount must not change if the amount required by this section is that currently in effect

pursuant to this [act] as a result of earlier application of this section; and (iii) in no event may the

dollar amount be reduced below the amount appearing in this [act] on the date of enactment.

section must be calculated on the basis of the revised Index. If the revision of the Index changes the

Reference Base Index, a revised Reference Base Index must be determined by multiplying the

Reference Base Index then applicable by the rebasing factor furnished by the Bureau of Labor

Statistics. If the Index is superseded, the Index referred to in this section is the one represented by

the Bureau of Labor Statistics as reflecting most accurately changes in the purchasing power of the

dollar for consumers.

Comment

1. The 1994 revision deleted the reference to Section 4-101(b)(7) to reflect the fact that

another amendment deletes that section from the Act.

2. Subsection (c) requires recalculation of the Consumer Price Index if the Reference Base

Index should be changed by the Department of Labor.

In 1987, the Bureau of Labor Statistics did in fact change the CPI for Urban and Clerical

Workers, which used a 1967 base year, by adopting a rebasing factor. The new Index uses a base

year of “1982-84 = 100.”

While the index referenced in this Uniform Act is now obsolete, the drafters declined to

modify the Uniform Act to delete reference to the old index. As of mid-1993, all the States which

had adopted a version of UCIOA incorporated this indexing section. There is no reason to suggest

that those adoptions were in error or that they even require amendment, since the statute as drafted

has a functioning and mandatory self-correction mechanism.

However, States which choose to adopt this Act after 1994 should revise subsection (a) – as

Nevada did, for example – to refer to “1982-84 = 100,” rather than “1967 = 100.”

Subsection (c) of the Act requires an adopting State to revise the Reference Base Index

when, as is now the case, the “revision of the index changes the Reference Base Index.” The

rebasing factor for the 1967 Index furnished by the Bureau of Labor Statistics is 0.3357175.

Applying that rebasing factor to the original December, 1979 Reference Base Index of 230 yields a

Revised Reference Base Index of 77.215, or 77.

The December 1994 Index (using the 1982-84 = 100 Base) was 147.2. Accordingly, a

recalculation of the $300 figure in Section 1-203 as of July 1, 1995 would be done as follows:

December 1979 Index = 77 (1967 Reference Base Index of 230,

multiplied by the rebasing factor and

rounded to the nearest whole percent).

December 1994 Index = 147.0 (Using 1982-84 = 100 Index for the

end of 1994, the year preceding 1995,

rounded to the nearest whole percent).

Difference = 70.0

70 is 90.9% of the Reference Base Index, or more than a 10% increase. Thus, on July 1,

1995, the $300 amount specified in Section 1-203 would increase. Because the amount of increase

“in excess of a multiple of 10% must be disregarded,” the dollar amount of $300 increases by 90%,

or $270. Therefore, as of July 1, 1995 the triggering dollar amount would be $570, or $47.50 per

month.

SECTION 1-116. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL

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

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

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

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

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

Comment

In 2000, Congress enacted the “Electronic Signatures in Global and National Commerce

Act”, 106 PUB.L.NO. 229, 114 Stat. 464, 15 U.S.C. § 7001, et seq. (popularly known as “E42

Sign”). E-Sign largely tracks the Uniform Electronic Transactions Act (UETA). Section 102 of

E-Sign, entitled “Exemption to preemption”, provides in pertinent part that:

(a) A State statute, regulation, or other rule of law may modify, limit, or supersede

the provisions of section 101 with respect to State law only if such statute, regulation, or

rule of law–

(1) constitutes an enactment or adoption of the Uniform Electronic

Transactions Act as approved and recommended for enactment in all the States by

the National Conference of Commissioners on Uniform State Laws in 1999” [with

certain exceptions] or

(2)(A) specifies the alternative procedures or requirements for the

use or acceptance (or both) of electronic records or electronic signatures to establish the

legal effect, validity, or enforceability of contracts or other records, if [they meet certain

criteria] and

(B) if enacted or adopted after the date of the enactment of this Act,

makes specific reference to this Act.

15 U.S.C. § 7002(a). The inclusion of this section is necessary to comply with the requirement that

the act “make[] specific reference to this Act” pursuant to 15 U.S.C. § 7002(a)(2)(B) if the act

contains a provision authorizing electronic records or signatures in place of writings or written

signatures.

SECTION 1-117. MANDATORY AND DEFAULT RULES.

(a) Except as provided in subsection (b), the declaration or bylaws may not vary a

provision of this [act] that gives a right to or imposes an obligation or liability on a unit owner,

declarant, association, or executive board.

(b) The declaration or bylaws may vary the following provisions as provided in the

provision:

(1) Section 1-105(a), concerning classification of a cooperative unit as real estate or

personal property;

(2) Section 1-107(b) and (c), concerning reallocation of allocated interests and

allocation of proceeds after a taking by eminent domain;

(3) Sections 1-202, 1-203, 1-206, 1-207, and 5-101, concerning elections regarding

applicability of this [act];

(4) Section 2-102, concerning boundaries between units and common elements;

(5) Section 2-108(b), concerning reallocation of limited common elements;

(6) Section 2-109(e), concerning horizontal boundaries of units;

(7) Section 2-111, concerning alterations of units and common elements made by

unit owners;

(8) Section 2-112(a), concerning relocation of boundaries between units;

(9) Section 2-113(a), concerning subdivision of units;

(10) Section 2-115, concerning signs maintained by a declarant;

(11) Section 2-116(a) and (c), concerning easements through, and rights to use,

common elements;

(12) Section 2-117(a), concerning the percentage of votes required to amend the

declaration;

(13) Section 2-118(a) and (i), concerning the percentage of votes required to

terminate a common interest community and priority of creditors of a cooperative;

(14) Section 3-102(a)(14), concerning an association’s assignment of rights to

future income;

(15) Section 3-103(a), concerning the executive board acting on behalf of the

association;

(16) Section 3-107(a), concerning responsibility for maintenance, repair, and

replacement of units and common elements;

(17) Section 3-108, concerning meetings;

(18) Section 3-109, concerning quorum requirements for meetings;

(19) Section 3-110, concerning voting, proxies, and ballots;

(20) Section 3-112(a), (b), and (g), concerning the percentage of votes required to

convey or encumber common elements and the effect of conveyance or encumbrance of common

elements;

(21) Section 3-113, concerning insurance for a nonresidential common interest

community;

(22) Section 3-114, concerning payment of surplus funds of the association;

(23) Section 3-116(a), concerning treatment of fees, costs, charges, and other sums

as assessments for lien purposes; and

(24) Section 3-123(a), concerning the percentage of votes required to reject a

budget.

Comment

This section, added by the 2021 amendments, draws a line between provisions of the

declaration and bylaws that are mandatory and those that are “default” rules, i.e., a rule that

becomes operative in the absence of a different provision on the subject in the declaration or

bylaws. Subsection (a) states the general rule that provisions of this Act are not subject to override

in the governing instruments (the declaration and bylaws) when they confer rights or impose

obligations and liabilities on unit owners, declarants, associations, and executive boards.

Subsection (b) provides a list of default provisions of the act that are changeable by the governing

instruments.

[PART] 2

APPLICABILITY

SECTION 1-201. GENERAL APPLICABILITY TO COMMON INTEREST

COMMUNITIES. Except as otherwise provided in this [part] and [Article] 5, this [act] applies to

all common interest communities. An amendment to this [act] applies to all common interest

communities subject to the [act], regardless of when the amendment becomes effective.

Comment

1. The original Act approved in 1982 applied to all common interest communities created

within the State after the “effective date” of the legislation adopting the Act. Common interest

communities created earlier were generally grandfathered, regulated by preexisting state law,

whether statutory (for condominiums) or largely common law (for planned communities and

cooperatives). The original Act applied a list of nineteen sections of the Act to “preexisting

common interest communities” in former Section 1-204).

The 2021 amendments represent a major change in policy. The Act now applies to all

common interest communities, regardless of time of creation. This change responds to concerns

that grandfathering old communities, thus creating two sets of law based on the age of

communities, has created complex issues for both the legal community and residents. The

administration of law and practice within a state is considerably improved by uniformity, i.e., by

having the same law apply to all common interest communities to the maximum feasible extent.

Transition provisions are contained in a new Article 5.

2. The amended Act retains the exemptions that existed under earlier versions of the Act

for “small” cooperatives, “small” planned communities, and planned communities with “small”

assessments. See Sections 1-202 and 1-204. These exemptions apply regardless of whether the

common interest community was created before or after the effective date of the Act; they

represent a policy judgment that the relative costs of creating and operating these smaller and

simpler forms of ownership are such that the declarants and subsequent owners should be

permitted the choice of which portions of the Act apply to the common interest community.

3. “Creation” of a common interest community pursuant to this Act occurs upon

recordation of a declaration pursuant to Section 2-101; however, the definition of “Common

Interest Community” in Section 1-103(9) contemplates that de facto common interest

communities may exist, if the nature of the ownership interest fits the definition, and the Act would

apply to such a project. Any real estate project that includes individually owned units meeting the

definition is therefore subject to the Act. No intent to subject the project to the Act is required, and

an express intention to the contrary would be invalid and ineffective.

4. The 1994 amendment makes clear that if an amendment to the Act is adopted after the

Act is initially adopted in any State, the same body of law will thereafter apply to all common

interest communities created under the Act or subjected to it. This is the corporate model, and

avoids an interpretation that immunizes common interest communities from the effect of future

amendments to the Act.

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

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

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

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

Comment

1. Section 1-201 provides generally that the Act applies to all cooperatives “created”

within the State after the Act’s effective date. Under Section 1-202, however, only two sections of

this Act automatically apply to a cooperative created after the effective date of this Act if that

cooperative contains only 12 units or less and is not subject to development rights. Importantly,

Section 1-105, which permits the declarant to determine whether the cooperative interests are real

or personal property, does not apply unless the declarant elects to have the entire Act apply. Thus,

the determination of whether the cooperative interests in a small cooperative created after the

effective date of the Act are real or personal property may depend on other state laws. The Act,

however, also permits such a cooperative to elect to be subject to the entire Act.

2. The default rule of the Act is that only two sections of the Act automatically apply to a

“small” cooperative. However, the fact that the declarant may choose not to have the entire Act

apply to a cooperative which meets the criteria of this section does not mean that the same

declarant may not also choose to incorporate discrete provisions of the Act directly into the

documents creating that cooperative. This might be done by simply repeating the text of the statute

as a provision of the declaration. If this were to occur, those provisions would then apply as a

matter of contract rather than by statute, and a reviewing court would presumably review them

under the common law or other statutory law of the State, rather than under this Act.

3. The 1994 amendment to Section 1-207 adopts the policy that a non-residential

common interest community of any type is not subject to the Act unless the declarant elects that

result. The 1994 amendment to this section reflects that policy, since the original text was more

restrictive for nonresidential cooperatives.

SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE

LIABILITY PLANNED COMMUNITIES.

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

that is not subject to any development right is subject only to Sections 1-105, 1-106, and 1-107, if

the community:

(1) contains no more than 12 units; or

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

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

premiums paid by the association, may not exceed $300, as adjusted pursuant to Section 1-115.

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

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

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

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

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

owners.

Comment

1. Section 1-201 provides generally that the Act applies to all planned communities

“created” within the State after the Act’s effective date. Section 1-203, however, makes only a few

of the Act’s sections applicable to either planned communities containing 12 or fewer units with no

development rights or to de minimis planned communities – as measured by the size of its common

expense assessments – unless the planned community’s declaration makes the entire Act

applicable.

2. The 1994 amendment incorporates into Section 1-203 two limitations that previously

existed in Section 4-101(b)(7).

(a) Subsection (a), which was formerly all of Section 1-203, was amended to increase the

number of planned communities which are not automatically subject to the full provisions of the

Act. This has been accomplished by increasing the dollar amount in subsection (a)(2) from $100

per year to $300 per year.

(b) Subsection (b) was added to incorporate an important limitation on the flexibility

granted to declarants to create planned communities which are subject to only a few sections of the

Act. Again, the limitation derives from former Section 4-101(b)(7). Specifically, the exemption in

(a)(2) applies to “de minimis” planned communities, that is, communities, regardless of size, with

very few common elements and “commonness” measured by the fact that the maximum annual

common charges, exclusive of optional fees and insurance premiums, were once only $100 a year

and are now $300 a year. Under subsection (b), this cap must be reasonable and not amendable

during the period of declarant control.

SECTION 1-204. [RESERVED].

SECTION 1-205. [RESERVED].

SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS.

(a) The declaration or bylaws of a cooperative under Section 1-202 or a planned

community under Section 1-203 may be amended to:

(1) provide that all the sections listed in Section 5-104(a) apply to the cooperative

or planned community; or

(2) achieve any other result permitted by this [act], regardless of what applicable

law provided before this [act] was adopted.

(b) Except as otherwise provided in Section 2-117(i) and (j), an amendment under this

section to the declaration or bylaws of a common interest community created before [the effective

date of this [act]] must be adopted in conformity with any procedures and requirements for

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

the amendment procedures of this [act]. If an amendment grants to a person a right, power, or

privilege permitted by this [act], any correlative obligation, liability, or restriction in this [act] also

applies to the person.

Comment

1. This section provides a straightforward mechanism by which the documents of small

cooperatives, small planned communities, and planned communities with small assessments may

be amended to take advantage of desirable provisions of the Act. These communities also may

elect to adopt the entire Act under Sections 1-202 and 1-203.

2. In considering the permissible amendments under Section 1-206 for pre-Act common

interest communities, it is important to distinguish between the law, governing the procedure for

amending declarations, and the substance of the amendments themselves. An amendment to the

declaration of a community created under “old” law, even if permissible under this Act, must

nevertheless be adopted “in conformity with the procedures and requirements specified” by the

original instruments, and in compliance with the old law.

Example: Suppose an “old” cooperative declaration and “old” state law both

provide that approval by 100% of the unit owners is required to amend the declaration, but

the unit owners wish to amend the declaration to provide for only 67% of the unit owners’

approval of future amendments, as permitted by Section 2-117 of this Act. The amendment

would not be valid unless 100% of the unit owners approved it, because of the procedural

requirement of the declaration and “old” law. Once approved, however, only 67% would

be required for subsequent amendments.

3. The last sentence of Section 1-206 addresses the potential problem of a declarant seeking

to take undue advantage of the amendment provisions to assume a power granted by the Act

without being subject to the Act’s limitations on the power. The last sentence insures that, if

declarants or other persons assume any of the powers and rights which the Act grants, the

correlative obligations, liabilities, and restrictions of the Act also apply to that person, even if the

amendment itself does not require that result.

Example: Assume that, pursuant to the provisions of “old” cooperative law, a

declarant may exercise control over the association for only three years from the date the

cooperative is created, but the control may be maintained during that period for so long as

declarant owns any units. In the absence of any amendment, a provision in the declaration

taking full advantage of the “old” law would be valid and enforceable. Assume further that,

in the second year following creation of the cooperative in question, this Act is adopted.

The declarant then properly amends the declaration pursuant to Section 1-206 to extend the

period of declarant control for five years from the date of creation. The amendment would

effectively extend control for two additional years, because Section 3-103(d) does not limit

the number of the years the declarant may specify as a control period. Nevertheless, if the

declarant, before that extended time limit has expired, conveys 75 percent of the units that

may ever be a part of the cooperative, or fails for two years to exercise development rights

or offer units for sale in the ordinary course of business, the period of declarant control

would terminate by virtue of the limitations in Section 3-103(d). That limitation is imposed

on the declarant even if the amendment called for retaining control for so long as any units

were owned by declarant, and despite the provision in the “old” law permitting such a

restriction.

4. In subsection (b), the “declaration or bylaws” of an “old” community include governing

instruments with different names, e.g., “master deed, rules and regulations.” See the broad

definitions of “declaration” and bylaws” in Section 1-103.

5. The 2008 changes to subsection (b) are important exceptions to the general rule that

amendments to existing declarations and bylaws must be adopted in conformity with the

procedures for amendments contained in those documents. Lawyers in the field have long

recognized that the amendment process can be fatally impeded by provisions commonly found in

the declarations of existing communities. Two of the most significant are requirements that

amendments cannot be effective unless approved by a specified number of unit lenders, or unless

approved by very large and often unrealistic majorities of unit owners. Recognizing this issue,

Connecticut approved amendments to Connecticut’s version of Section 2-117(i) and (j) in 1995

which are very similar to those appearing here; see Connecticut Public Act 95-187. Practice under

those amendments demonstrates the significant value these relaxed procedures add in

accomplishing desired amendments in pre-act declarations.

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

COMMON INTEREST COMMUNITIES.

(a) Except as otherwise provided in subsection (d), this section applies only to a common

interest community in which all units are restricted exclusively to nonresidential purposes.

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

extent the declaration provides that:

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

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

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

1-106, and 1-107apply to the community.

declaration may also require, subject to Section 1-112, that:

(1) notwithstanding Section 3-105, any management, maintenance, operations, or

employment contract, lease of recreational or parking areas or facilities, and any other contract or

lease between the association and a declarant or an affiliate of a declarant continues in force after

the declarant turns over control of the association; and

(2) notwithstanding Section 1-104, purchasers of units must execute proxies,

powers of attorney, or similar devices in favor of the declarant regarding particular matters

enumerated in those instruments.

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

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

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

interest community that would be subject to this [act] in the absence of the nonresidential units or

the declaration provides that this [act] applies as provided in subsection (b) or (c).

Comment

1. The 1994 amendments to this section permit all nonresidential common interest

communities to “opt out” of the Act; the original section was limited to planned communities.

However, the 2008 amendment to subsection (b)(3) now precludes the possibility that the

declaration for a non-residential project organized as a condominium may provide that only

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

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

judgment of the drafters was that, by definition, a condominium was a creature of statute and it was

therefore statutorily improper to suggest that a statutorily created form of ownership could exist

without the other provisions of the statute also applying to it.

However, except for mixed use projects, the revised section continues to be restricted to

common interest communities which contain only nonresidential units. The term “residential

purposes” is defined and discussed in detail in Section 1-103(27) and its Comments.

In addition, the revised section offers the declarant of a nonresidential common interest

community significantly more flexibility than was allowed in the original section. This change

responds to those concerns which commentators have identified as important to developers of

commercial common interest communities.

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

community.

However, the declarant may want the Act to apply in at least some circumstances.

Therefore, subsection (c) (b) provides a mechanism by which the declarant may elect simply to

have the Act’s rules on eminent domain, separate taxation, and applicability of local ordinances

apply to the project. These three sections all establish default rules which are likely to be desirable

from both the declarant’s and future owners’ perspectives.

The 2008 amendment to subsection (b) of this section increases the flexibility of document

drafters in non-residential projects. Previously, the drafter was limited to 3 choices: (i) applying

the default rule, that is, none of the Act applies, which would require a very substantial drafting

effort to address all the issues covered by the statute; (ii) the entire Act applies, which brings the

consumer protection complexities of Articles 3 and 4 of the Act, even with the drafting exceptions

permitted by subsection (c), or (iii) only 3 sections of the Act apply, which resolve important

issues of other state statutes but are otherwise insignificant in the drafting process.

With the new option contained in (b)(2), the drafter has an additional choice, and that is to

apply only Articles 1 and 2 of the Act to the non-residential project. By electing this option, the

document drafter can take advantage of the provisions validating legal structures of the common

interest community, and thus allow shorter, clearer and more certain documents for non-residential

projects than practice has permitted under the existing Act.

2. Finally, a declarant may find the full range of the Act to be a desirable outcome,

particularly in light of those many sections which permit waiver or variation by agreement. Those

sections already permitting waiver are detailed in the Official Comments to Section 1-104.

However, even in that case, the revised section provides two additional major

enhancements to flexibility.

First, the section contemplates that the declaration may provide that the entire Act applies

but that the declarant may require that the association must continue certain contracts and leases in

place after turnover, even though such contracts would otherwise be subject to cancellation by the

Association under Section 3-105.

Second, the section allows the declarant to use proxies, powers of attorney, or other devices

to accomplish other results which would be prohibited in the case of residential common interest

communities. The sole limitation in both instances is the rule of unconscionability in Section

1-112.

3. Subsection (d) addresses the Act’s applicability to mixed use projects. The default rule is

nonapplicability unless the definition of a common interest community would be met “in the

absence of the nonresidential units.” Thus, if the “residential” units and their obligations under the

declaration did not satisfy the definitional threshold in Section 1-103(7) – basically, a payment

obligation on the unit extending by covenant to “non-unit” expenses – the Act would not apply.

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

COMMUNITIES. This [act] does not apply to a common interest community located outside this

state, but Sections 4-102 and 4-103 and, to the extent applicable, Sections 4-104 through 4-106,

apply to a contract for the disposition of a unit in that common interest community signed in this

state by any party unless exempt under Section 4-101(b).

Comment

This section reflects the fact that there are practical as well as constitutional limits

regarding the extent to which a State should or may extend its jurisdiction to out of state

transactions. A State may, of course, properly exercise its authority to protect its citizens from

false or misleading information regarding common interest communities located in other States

but sold in that State. However, where sales contracts are executed wholly outside the enacting

State and relate to common interest communities located outside the State, it seems more

appropriate for the courts of the jurisdiction(s) in which the common interest community is located

and where the transaction occurs to have jurisdiction over the transaction.

SECTION 1-209. OTHER EXEMPT REAL ESTATE ARRANGEMENTS.

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

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

improvements of real estate, or other activities specified in their arrangement or declarations does

not create a separate common interest community.

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

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

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

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

common interest community required by the arrangement must be included in the periodic budget

for the common interest community, and the arrangement must be disclosed in all public offering

statements and resale certificates required by this [act].

Comment

This section, adopted in 2008, addresses once again the scope of the Act. It should be

considered in connection with the revised definition of “Common Interest Community”. The

sub-sections address two separate aspects of this issue:

• Whether contractual arrangements for cost sharing between two or more common interest

communities require creation of a third separate common interest community; and

• Whether contractual arrangements for cost sharing between an association and an owner of

real estate located outside the common interest community’s boundaries require creation of

a separate common interest community.

The following analysis may help frame the issues.

First, there appear to be numerous situations in which a declaration of easements or a covenant to

share costs would suffice to establish the relationship between two parcels without the need to

establish another unit owners association to “manage” that relationship. Also, the sharing is not

always a matter of shared use ‒ it might be a shared concern for maintenance of public

rights-of-way through a community, or shared benefit of a roving security patrol, or sharing of

costs of street lights on thoroughfares.

Here are examples of common situations:

1) A homeowners association maintains the entry features, median and right-of-way

landscaping, and sidewalks along a public street that also serves a commercial parcel (e.g., hotel or

country club). The developer wants the hotel or country club to be obligated to pay a share of the

costs that the association incurs in performing this maintenance, so it records a declaration on the

club or hotel parcel with a covenant obligating the club/hotel to share costs incurred by the

association in performing this responsibility and setting out a formula for computing its share. If

both parties are agreeable, no purpose is served by another association.

2) Same situation except that the hotel is performing the maintenance instead of the

association. The association is obligated under the covenant to share the costs to pay its share and

a formula is set out in the covenant for computing the association’s share, which it then includes in

its common expense budget and collects as part of its regular assessment, and pays to the hotel.

There is no need here for another association in which the property owners and hotel are members,

with organizational documents, contracts, meetings, etc. The hotel doesn’t want to be subject to

membership in an association controlled by other property owners and the existing association can

adequately represent the interest of its members in dealing with the hotel.

3) Assume a vertical subdivision with a commercial parcel on the ground floor and a

15-story residential condominium above it. There is a recorded instrument creating reciprocal

easements, obligating the condominium association to insure the entire building, among other

things, and obligating the commercial owner to share certain costs incurred by the condominium

association in accordance with a formula set out in the recorded instrument. Again, if the parties

accept this arrangement, no purpose is served by mandating creation of another association.

4) Four residential condominium projects share a common road. The first association to be

created is responsible for maintaining the road. Each of the other three, at the time it is created, is

made subject to a recorded covenant to share cost requiring it to pay 1/4 of the cost that the first

association incurs in maintaining the road. Again, there is little benefit conferred in mandating

creation of a master association to own and maintain the road.

Subsection (a) makes clear that in the case of arrangements between associations, a

separate association would not be required in any of the foregoing instances.

However, the drafters did not intend that the section result in an arrangement where the unit

owners are left without a remedy in those instances where, for example, the sharing arrangement

appears to unreasonably allocate the costs or other important aspects of the arrangement between

the parties.

Cost, of course, would be only one concern of unit owners and their associations arising out

of an agreement to share in the use of and expenses for other land. The drafters are aware of

situations in which developers have included amenities, such as clubhouses, swimming pools,

tennis courts, as well as access roads, in one community and then grant to a second community the

right to use the facilities together with the obligation to pay a pro rata share of the cost of operation.

The decisions concerning the operation and maintenance of the facilities, however, remain with

the first community. Such arrangements have the potential to breed frustration, acrimony, and

abuse.

One of the examples above suggests that a residential association and a commercial

venture such as a hotel share certain common facilities and expenses and that the hotel might defer

to the residential association for the operation of these amenities. This may not always be realistic.

Since the hotel developer, if it is not the declarant itself, usually has a seat at the table while the

overall structure of the community is being negotiated, while the individual unit owners do not, the

developer of the hotel may seek to negotiate a deal best suited to its needs, perhaps to the detriment

of the unit owners. Whether or not the deal as it is finally structured contains some semblance of a

“reasonable” formula for cost sharing, the other, non-financial terms of the arrangement may vest

control, decision making, etc., including the level of maintenance desired, solely with the hotel.

In several provisions, the Act does offer remedies for such circumstances, and those

provisions would apply here with equal force. By way of example, if the arrangement were created

for purposes of avoiding the limitations of the Act, if the organizers of the arrangement had not

acted in good faith, or if the allocated interests between the associations were unconscionable, the

mandates of sections 1-104, 1-108 and 1-112 would apply.

In the case of arrangements between associations and third parties other than associations,

sub-section (b) avoids the need for a separate unit owner association so long as the costs to be

borne by the unit owners in the existing association are reflected in the periodic budget for the

association and are subject to approval by the unit owners.

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

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

a party wall, driveway, well, or other similar use does not create a common interest community

unless the owners otherwise agree.

Comment

While these various forms of simple shared arrangements might arguably satisfy the

definition of “common interest community,” there is no policy reason to vary common practice,

which is to treat these arrangements as governed exclusively by the agreement of the parties,

supplemented by common law. Accordingly, the 2008 amendments expressly exclude these

arrangements from the Act.

[ARTICLE] 2

CREATION, ALTERATION, AND

TERMINATION OF COMMON INTEREST COMMUNITIES

SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES.

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

declaration executed in the same manner as a deed and, in a cooperative, by conveying the real

estate subject to that declaration to the association. The declaration must be recorded in every

[county] in which any portion of the common interest community is located and must be indexed

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

the grantor’s index] in the name of each person executing the declaration.

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

not be recorded unless all structural components and mechanical systems of all buildings

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

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

[registered] engineer, surveyor, or architect.

Comment

1. Under subsection (a), a common interest community is created pursuant to this Act only

by recording a declaration. As with any instrument affecting real estate, the declaration must be

recorded in every recording district in which any portion of the common interest community is

located and must be indexed in the manner described in subsection (a). Specific indexing rules are

suggested in brackets and should be used in those States where this result would not otherwise

occur. For example, the declaration commonly has not been indexed in the grantee’s index in the

name of the common interest community. Moreover, when multiple persons execute the

declaration, the declaration has often been indexed solely in the name of the declarant and not in

the name, for example, of lenders and other persons who might have executed the declaration.

Because it is important that the names of the association and all persons executing the declaration

appear in the index in order to locate all instruments in the land records, that language is not

included in brackets.

In the case of a cooperative, there is a second requirement for creation in addition to the

recording requirements applicable to all common interest communities discussed above. The

declarant must convey the real estate subject to that declaration to the association, since the

association (in the form of a corporation, trust, or other entity described in Section 3-101) must

hold title to that real estate. This requirement may contrast with the current practice in some

jurisdictions under which the declarant may retain title to the real estate until proprietary leases for

all or most units have been executed. This requirement tracks the language of the Model Real

Estate Cooperative Act.

2. In Section 1-103, the Act defines the term “Declaration” as any instruments the

instrument, however denominated, which create a common interest community, including any

amendments to those instruments the instrument; “common interest community” in turn is defined

as “real estate with respect to which a person, by virtue of his ownership of a unit, is obligated to

pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate

described in a declaration. “Ownership of a unit” does not include “holding a leasehold interest of

less than 20 years in a unit, including renewal options.” It is important to realize that other

covenants, conditions, or restrictions applicable to the real estate in the common interest

community might be recorded before or after the instruments are recorded which divide the real

estate into units and common elements. Until the actual recordation of the document which

accomplished that result, however, the common interest community has not been created.

3. A common interest community has not been lawfully created unless the requirements of

this section have been complied with. Nevertheless, a project which meets the definition of a

“common interest community” in Section 1-103(7) is subject to this Act even if this or other

sections of the Act have not been complied with.

4. Mortgagees and other lienholders need not execute the declaration, and foreclosure of a

mortgage or other lien will not, of itself, terminate a condominium or planned community.

However, if that lien is prior to the declaration itself, the lienholder may exclude that real estate

from the condominium or planned community. See Section 2-118(k) and (l). Moreover, the

declarant may wish to obtain agreements from mortgagees or other lienholders that they will give

partial releases permitting lien-free conveyance of condominium or planned community units. See

Section 4-111(a).

5. Except when development proceeds pursuant to Section 5-103, this Act contemplates

that substantial completion must be reached before a unit may be conveyed. See Section 4-120. In

the case of a condominium, substantial structural completion is also required before the

condominium is created. The purpose of imposing these requirements is to insure that a purchaser

will in fact take title to a unit which may be used for its intended purpose.

If a condominium were said to consist from the beginning of a certain number of units,

even though some of those units had not yet been completed or even begun, serious problems

would arise if the remaining units were never constructed and if no obligation to complete the

construction could be enforced against any solvent person. If the insolvent owner of the unbuilt

units failed to pay his common expense assessments, for example, the unit owners’ association

might be left with no remedy except a lien of doubtful value against mere cubicles of airspace.

Moreover, votes in the unit owners’ association could be assigned to units, and those votes could

be cast, even though the units were never built. The Act, therefore, requires that significant

construction take place before units are assigned an interest in the common elements, a vote in the

association, and a share of the common expense liabilities, and before units are conveyed. This

requirement of substantial structural and mechanical completion (or the alternative bonding

procedure and other assurances required by Section 5-103) reduces the possibility that a failure to

complete will upset the expectations of purchasers or otherwise harm their interests in case the

declarant becomes insolvent and no solvent person has the obligation to complete the unit.

6. In the case of a condominium, Section 2-101(b) requires that “all structural components

and mechanical systems of all buildings containing or comprising any units” which will be created

by recording a declaration, must be substantially completed in accordance with the plans. The

intent of subsection (b) is that if any buildings are depicted on the plats and plans which are

required by Section 2-109, and these buildings contain or comprise spaces which become units by

virtue of recording the declaration, the structural components and mechanical systems of these

buildings must be substantially complete before the declaration is recorded. This is required even

though the plats and plans recorded pursuant to Section 2-109 depict only the boundaries of the

buildings and the units created in those buildings, and not the structural components or mechanical

systems (which need not be shown). If the boundaries of units are not depicted, of course, then no

units are created. If the declarant fails to comply with this section, title is not affected. See

Comment 8, below.

The concept of “structural components and mechanical systems” is one commonly

understood in the construction field and this Comment is not intended as a comprehensive list of

those components. For example, however, the term “structural components” is generally

understood to include those portions of a building necessary to keep any part of the building from

collapsing, and to maintain the building in a weather tight condition. This would include the

foundations, bearing walls and columns, exterior walls, roof, floors, and similar components. It

would clearly not include such components as interior non-bearing partitions, surface finishes,

interior doors, carpeting, and the like. Similarly, typical examples of “mechanical systems”

include the plumbing, heating, air conditioning, and other like systems. Whether or not “electrical

systems” are included within the meaning of the term depends on local practice.

7. Section 4-120 requires that, before an individual unit is conveyed, the unit must be

“substantially completed.” “Substantial completion” is a well understood term in the construction

industry. For example, the American Institute of Architects Document A 201, General Conditions

of the Contract for Construction (1976 Ed.) at para. 8.1.3, states:

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

Architect when construction is sufficiently complete, in accordance with the Contract

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

specifications and all addenda and modifications), so the Owner can occupy or utilize the

Work . . . for the use for which it is intended.

This standard is also one often used by building officials in issuing certificates of

occupancy. It does not suggest that the unit is “entirely completed” as that term is understood in the

construction industry; lesser details, such as sticking doors, leaking windows, or some decorative

items, might still remain, and the Act contemplates that they need not be completed prior to lawful

conveyance.

8. Sections 2-101(b) and 4-120 require that completion certificates be recorded, or local

certificates of occupancy be issued, as evidence of the fact that the required levels of

construction have been met. In the case of “substantial completion,” issuance of “a certificate of

occupancy authorized by law,” as is commonly required by local ordinance or state building codes,

will suffice. Once the certificates have been recorded or issued, as the case may be, good title to the

units may be conveyed in reliance on the record. It is possible, of course, that the declarant may

have failed to complete the required levels of construction; no certificate of completion may have

been filed or the architect, surveyor, or engineer (whichever is appropriate in a particular

jurisdiction) may have filed a false certificate. Such acts would create a cause of action in the

purchaser under Section 4-117, but would not affect the validity of the purchaser’s title to the unit.

9. The requirement of “substantial completion” does not mean that the declarant must

complete all buildings in which all possible units would be located before creating the

condominium. If only some of the buildings in which units may ultimately be located have been

“structurally” completed, the declarant may create a condominium in which he reserves particular

development rights (Section 2-105(a)(8)). In such a project, only the completed units might be

treated as units from the outset, and the development rights would be reserved to create additional

units, either by adding additional real estate and units to the condominium, by creating new units

on common elements, or by subdividing units previously created. The optional units may never be

completed or added to the condominium; however, this will not affect the integrity of the

condominium as originally created.

10. Requiring “substantial completion” of the structural components and mechanical

systems in the buildings containing or comprising the units in a condominium may encourage

creation of more phased condominiums under Section 2-105 in projects which were once in fact

built in phases, but under a single non-expandable declaration. Experience in the several States

where significantly more rigorous requirements are imposed by statute, however, has shown that

this does not create a difficult situation either for the developer or lender. Moreover, it appears

likely that the size of the initial phase of a multi-building project will be dictated largely by

economics, as occurs in most jurisdictions today, rather than this Act. Finally, many lenders and

developers are increasingly sensitive to the secondary mortgage market requirements, particularly

those of the Federal National Mortgage Association (FNMA) and the Federal Home Loan

Mortgage Corporation (FHLMC). Experience indicates that the pre-sale requirements imposed by

FNMA and FHLMC frequently dictate that multi-building projects be structured on a phased or

expandable basis.

11. The requirement of completion would be irrelevant in some types of common interest

communities, such as campsite condominiums or some subdivision planned unit developments

where the units might consist of unimproved lots and the airspace above them, within which each

purchaser would be free to construct or not construct a residence. Any residence actually

constructed would ordinarily become a part of the “unit” by the doctrine of fixtures, but nothing in

this Act would require any residence to be built before the lots could be treated as units.

12. The term “independent” architect, surveyor, or engineer in subsection (b) and

elsewhere in the Act distinguishes any such professional person who acts as an independent

contractor in his relationship to the declarant or lender.

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

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

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

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

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

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

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

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

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

elements.

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

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

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

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

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

Comment

1. It is important for title purposes, for purposes of defining maintenance responsibilities,

and for other reasons to have a clear guide as to which parts of a common interest community

constitute the units and which parts constitute common elements. This section fills the gap left

when the declaration merely defines unit boundaries in terms of floors, ceilings, and perimetric

walls, and is particularly useful in the case of cooperatives, in which the recording of plats and

plans is not required. See Section 2-105(a)(5).

The provisions of this section may be varied, of course, to the extent that the declarant

wishes to modify the details for a particular common interest community.

For example, in a townhouse project structured as a condominium or planned community,

it may be desirable that the unit boundaries constitute the exterior surfaces of the roof and exterior

walls, with the center line of the party walls constituting the perimetric boundaries of the units in

that plane, and the undersurface of the bottom slab dividing the unit itself from the underlying

land. Alternately, the boundaries of the units at the party walls might be extended to include actual

division of underlying land itself. In those cases it would be inappropriate for walls, floors, and

ceilings to be designated as boundaries, and the declaration would describe the boundaries in the

above manner.

2. The differentiations made clear here, in conjunction with the provisions of Section

3-107, will assist in minimizing disputes which have historically arisen in association

administration with respect to liability for repair of such things as pipes, porches, and other

components of a building which unit owners may expect the association to pay for and which the

association may wish to have repaired by unit owners. Problems which may arise as a result of

negligence in the use of components – such as stoops and pipes – are resolved by Section 3-107,

which imposes liability on a unit owner who causes damage to common elements, or under the

broader provisions of Section 3-115(c), which permits the association to assess common expenses

“caused by the misconduct of any unit owner” exclusively against that person. This would include,

of course, not only damages to common elements, but fines or unusual service fees, such as

clean-up costs, incurred as a result of the unit owner’s misuse of the common elements.

3. The differentiation between components constituting common elements and

components which are part of the unit is particularly important in light of Section 3-107(a), which

(subject to the exceptions therein mentioned) makes the association responsible for upkeep of

common elements and each unit owner individually responsible for upkeep of his unit.

4. The differentiation between unit components and common element components may or

may not be important for insurance purposes under the Act. While the common elements in a

project must always be insured, the units themselves need not be insured by the Association unless

the project contains units divided by horizontal boundaries. See Section 3-113(a) and (b). In a

“high-rise” configuration, however, Section 3-113(a) contemplates that both will normally be

insured by the association (exclusive of improvements and betterments in individual units) and

that the cost of such insurance will be a common expense. That common expense may be

allocated, however, on the basis of risk if the declaration so requires. See Section 3-115(c)(3).

SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND

BYLAWS.

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

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

bylaws or rules.

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

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

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

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

Comment

1. Subsection (b) does not totally invalidate the rule against perpetuities as applied to

common interest communities. The language does provide that the rule against perpetuities is

ineffective as to documents which govern the common interest community during the entire life of

the project, regardless how long that should be. With respect to deeds or devises of units, however,

the policies underlying the rule against perpetuities continue to have validity and remain

applicable under this Act.

2. In considering the effect of failures to comply with this Act on title matters, subsection

(a) refers only to defects in the declaration – which includes the plats and plans in the case of

condominiums and planned communities – because the declaration is the instrument which creates

and defines the units and common elements. No reference is made to other instruments, such as

bylaws, because these instruments have no impact on title, whether or not recorded. However, in

all cases of violations of the Act, a failure of the bylaws – or any other instrument – to comply with

the Act, would entitle any affected person to appropriate relief under Section 4-117.

3. No special prohibition against racial or other forms of discrimination is included in this

Act because the provisions of generally applicable state and federal law apply as much to common

interest communities as to other forms of real estate.

4. Some examples may help to clarify what sort of defects in the declaration are to be

regarded as “insubstantial” within the meaning of the first sentence of subsection (d).

Suppose the declaration allocates common element interests to all the units, but fails to

indicate the formula for the allocation as required by Section 2-107. This would be a substantial

defect if the assigned interests were unequal, but if all units were assigned identical interests it

would be possible to infer that the basis of the allocation was equality – and the failure of the

declaration to say so would be an insubstantial defect. Were this to happen in a common interest

community where the right to add new units is reserved, however, it should be noted that a

subsequent amendment to the declaration adding new units could not use any formula other than

equality for reallocating the common elements interests unless a different formula were specified

pursuant to Section 2-107(c).

Other examples of insubstantial defects that might occur include failure of the declaration

to include the word “condominium,” “cooperative,” or “planned community,” as required by

Section 2-105(a)(1), or failure of the plats or plans in the case of condominium and planned

communities, to comply satisfactorily with the requirements of Section 2-109(a) that they be

“clear and legible,” so long as they can at least be deciphered by persons with proper expertise.

Failure to organize the unit owners’ association at the time specified in Section 3-101 would not be

a defect in the declaration at all, and would not affect the validity or marketability of titles in the

common interest community. It would, however be a violation of this Act, and create a claim for

relief under Section 4-117.

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

of whether substantial failure of the declaration to comply with the Act affects marketability of

title should be determined by that law and not by this Act.

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

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

in which the common interest community is located, and the identifying number of the unit, is a

legally sufficient description of that unit and all rights, obligations, and interests appurtenant to

that unit which were created by the declaration or bylaws.

Comment

1. The intent of this section is that no description of a unit in a deed, lease, deed of trust,

mortgage, or any other instrument or document shall be subject to challenge for failure to meet any

common law or other requirements, so long as the requirements of this section are satisfied, and so

long as the declaration itself, together with the plats and plans which are a part of the declaration,

provides a legally sufficient description.

2. The last sentence makes clear that an instrument which does meet those requirements

includes all interests appurtenant to the unit. As a result, it will not be necessary under this Act to

continue the practice, common in some jurisdictions, of describing in the instrument conveying

title to a unit the common element interests, or limited common elements, that are appurtenant to

that unit or make reference to surveys or subsequent amendments to declarations.

SECTION 2-105. CONTENTS OF DECLARATION.

(a) The declaration must contain:

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

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

community;

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

community is situated;

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

community;

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

to create;

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

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

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

unit’s identifying number, its size or number of rooms, and its location within a building if it is

within a building containing more than one unit;

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

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

real estate that is or must become common elements;

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

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

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

allocated;

(8) a description of any development right and any other special declarant rights

reserved by the declarant, a time limit within which each of those rights must be exercised, and a

legally sufficient description of the real estate to which each development right applies;

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

real estate at different times, a statement to that effect together with:

(A) either a statement fixing the boundaries of those portions and regulating

the order in which those portions may be subjected to the exercise of each development right or a

statement that no assurances are made in those regards; and

(B) a statement as to whether, if any development right is exercised in any

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

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

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

paragraph (8) may be exercised or will lapse;

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

Section 2-107;

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

which exceed the restrictions on leasing units which executive boards may impose pursuant to

Section 3-120(d) and on the amount for which a unit may be sold or on the amount that may be

received by a unit owner on sale, condemnation, or casualty loss to the unit or to the common

interest community, or on termination of the common interest community;

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

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

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

(14) any authorization pursuant to which the association may establish and enforce

construction and design criteria and aesthetic standards as provided in Sections 3-106 and 3-120;

and

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

3-103.

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

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

may occupy units.

Comment

1. Many statutes and other regulatory schemes in the multi-owner project field do not

separate the functions of a recorded declaration and an unrecorded public offering statement or

disclosure documents. As a result, many of the developer’s representations and assurances

concerning his future plans must appear in the declaration as well as the public offering statement,

even though they have nothing to do with the legal structure or title of the project. This results in

duplicative requirements and unnecessarily complex declarations.

This Act makes a functional distinction between the declaration and the public offering

statement. It only requires the declaration to contain those matters which affect the legal structure

or title of the common interest community. This includes the reserved powers of the declarant to

exercise development rights within the common interest community. A narrative description of

those rights, however, and the possible consequences flowing from their exercise, are required to

be disclosed only in the public offering statement and not in the declaration.

In the case of condominiums and planned communities, plats and plans are made part of

the declaration by Section 2-109, and their content may in part provide some of the information

required by this section.

2. This section requires a statement of the name of the association for the common interest

community itself, in order that the declaration may be indexed in the name of the association. See

Section 2-101.

3. The Act requires that the declaration for a common interest community situated in two or

more recording districts be recorded in each of those districts. While the bracketed language refers

to the “county” as the recording district in which the declaration is to be recorded, in States where

recording is done at the city, town, or parish level the bracketed language should be amended

accordingly.

4. Paragraph (a)(4) requires the declarant to state the largest number of units he reserves the

right to build. This Act imposes no time limit, measured by an absolute number of years, at the

expiration of which the declarant must relinquish control of the association. Instead, declarant

control ends when 75% of the maximum number of units which may be created by the declarant

have been sold, or at the end of a two-year period during which development is not proceeding. See

Section 3-103(d). The flexibility afforded by this section may be important to a declarant as he

responds to unanticipated future changes in his market.

In theory, a declarant might overstate the maximum number of units in an attempt to

artificially extend the period of declarant control, since the time might never come when a

declarant had sold 75% of that number of units. As a practical matter, however, as the following

example points out, such a practice would not likely achieve long-term control.

Example: A declarant reserves the right to build 100 units, even though zoning

would permit only 75 units on the site, and the declarant actually plans on building only 50

units. As a result of the reservation, the declarant would not loss control of the association

under the 75% rule stated in Section 3-103(d)(i) even when all 50 units had been built and

sold, because that percentage applies to all potential units, not units actually built. See

Section 3-103(d)(i)(1).

However, there are practical constraints on the declarant’s decision in this matter.

Substantial exaggeration of the future density of the development might tend to impede sales of

units in that project. Moreover, such a statement might also produce negative governmental

reaction to proposals which might require local approval.

Even if the declarant did overstate the number of units to retain control, however, other

limitations imposed by Section 3-103(d) will require turnover at an appropriate time. In the

example, once the declarant had exercised the right to add the last of the 50 units which he

intended to build, the two-year period imposed by Section 3-103(d)(ii) and (iii) would begin to run

and the declarant would lose the right to control the association two years from the time the last

units were added, even though he had reserved the right to add more units.

5. Paragraph (a)(5) requires that the boundaries of each unit created by the declaration be

identified. The words “created by the declaration” emphasize that, in an expandable project, new

units may be created in the future by amendments to the declaration. Until those new units are

actually added to the project by amending the declaration, however, they are not units within the

meaning of that defined term, and they need not be described.

6. Section 2-102 makes it possible in many condominiums or planned communities to

satisfy paragraph (a)(5) of this section by merely providing the identifying number of units and

stating that each unit is bounded by its ceiling, floor, and walls. The plats and plans will show

where those ceilings, floors, and walls are located, and Section 2-102 provides all other details,

except to the extent the declaration may make additional or contradictory specifications because of

the unique nature of the project.

In the case of many cooperatives, it is possible to satisfy paragraph (a)(5) of this section by

merely providing the identifying number of the unit, the size of the unit in square feet or its number

of rooms, and its location within a building if it is in a building containing more than one unit.

Thus, for example, it would be possible to describe a cooperative unit as follows: “Unit Number

243, consisting of 800 square feet, located on the fourth floor of Building A.”

7. Paragraph (a)(6) makes clear that the limited common elements described in Section

2-102(2) and (4) need not be described in the declaration. These limited common elements are

typically porches, balconies, patios, or other amenities which may be included in a project. Such

improvements are treated by the Act as limited common elements, rather than either common

elements or parts of units, in order to minimize the attention which the documents need to give

them, and to secure the result that would be desired in the usual case. Thus, if these improvements

remain limited common elements, and no special provisions concerning them are included in the

declaration, they may be used only by the units to which they are physically attached; maintenance

of those improvements must be paid for by the association; and such improvements need not be

specifically referred to in the declaration. In the case of all common interest communities, except

cooperatives, porches, balconies, and patios must be shown on the plats and plans (see Section

2-109(b)(10)), but other limited common elements described in Section 2-102(2) and (4) need not

be shown.

8. Paragraph (a)(7) contemplates that the common elements in the project may be allocated

as limited common elements at some future time, either by the declarant or the association. For

example, a swimming pool might serve an entire project during early phases of development. At

the outset that pool might be a common element which all the unit owners may use. At a later time,

with more units and additional pools built in subsequent phases, either the declarant or the

association might determine that the first pool should become a limited common element reserved

for the use only of units in the first phase, while the other pools should be reserved exclusively for

units in the subsequent phases. Such a potential allocation should be described in the declaration

pursuant to this section. The method of subsequent allocation is discussed in Section 2-108.

9. Paragraph (a)(8) requires that the declaration describe all development rights and other

special declarant rights which the declarant reserves. The declaration must state the time limit

within which each of those rights must be exercised. The Act imposes no maximum time limit for

the exercise of those rights, and contemplates that those rights may be exercised after the period of

declarant control terminates. The declaration must describe the real estate to which each

development right applies.

10. Paragraph (a)(12)(ii) includes certain requirements which were not originally

applicable to condominiums and planned communities under UCA and UPCA, respectively.

Tracking MRECA, paragraph (a)(12)(ii) requires the declaration to include any information which

restricts the amount for which a unit may be sold, or the amount to be received by a unit owner

upon sale, condemnation, or casualty loss. Such restrictions are increasingly common in the

development of “limited equity” common interest communities or common interest communities

which are designed to minimize the increased value of the common interest community upon

resale in order to preserve housing for a particular income group. The Act in no way restricts the

use of such provisions, but does require that explicit provisions concerning such restrictions

appear in both the declaration and the Public Offering Statement.

11. Paragraph (a)(14) is a cross-reference to other sections of the Act which require the

declaration to contain particular matters. Some of these sections, such as Section 2-107 on the

allocation of allocated interests, will affect all projects. Others, such as Section 2-106 on leasehold

common interest communities, will apply only to particular lands of projects.

12. Subsection (b) contemplates that, in addition to the content required by subsection (a),

other matters may also be included in the declaration if the declarant or lender feel they are

appropriate to the particular project. In particular, the draftsman should carefully consider any

desired provisions which would vary any of the many sections of the Act where variation is

permitted, including such matters as expanding or restricting the association’s powers.

13. The 1994 amendments to subsections (a)(12) and (b) of this section are part of the

drafters’ efforts to clarify the law of “use and occupancy” restrictions in common interest

communities, and make that law more rational.

Specifically, these amendments describe the pattern of what use and occupancy restrictions

must appear in the declaration, what amendment procedures must be used to change those use and

occupancy restrictions, what discretion the executive board has in enforcing such restrictions, and

what protection the Act provides to unit owners, either to be free of regulation inside their units, or

to be protected from new restrictions on a once permitted activity.

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

The amendments begin in Section 2-105. Previously, the Act required all use, occupancy,

and alienation restrictions to appear in the declaration; see old Section 2-105(a)(12). No

amendment to a “use” restriction was allowed, except with unanimous consent; see old Section

2-117(d). The Act was unclear as to whether or not such things as leasing restrictions or pet rules

were “use” restrictions requiring unanimous consent.

The 1994 amendment to this section makes made two important changes. First, leasing

restrictions which exceed the restrictions allowed by the secondary mortgage market, see Section

3-102(c)(2), still must appear in the declaration. No other use or occupancy restrictions must

appear in the declaration, but any such restrictions may so appear. See Section 2-105(b).

Presumably, a provision in the declaration pursuant to this subsection (b) could permit the

executive board to develop evolving use restrictions, in its discretion.

New subsection (b) also seeks generally to distinguish between “uses of a unit” and “the

number or qualifications of persons who occupy units;” this distinction emphasizes that

“occupancy” focuses on characteristics of individual persons while “use” focuses on the purposes

to which the space is devoted.

Amendments to other sections bear on these issues in important ways. See, e.g., Section

2-117(d) and (f) and Section 3-102.

14. Subsection (a)(14) was adopted in 2008; it requires that if the unit owners association is

to be authorized to establish and enforce construction and design criteria or aesthetic standards,

that authority must appear in the declaration. This mandate tracks the requirement that if the

declarant is to have that power during the time it is developing the project, the declarant must treat

that power as a special declarant right; see Section 1-103 (33)(H).

If the association is so empowered, then, pursuant to Section 3-106(a)(4) and (7), the

bylaws would have to provide for administration of that program if administration is to be done by

any committee or officer other than the executive board. Further, under Section 3-120(c), the

association would adopt criteria for consideration of design criteria, and procedures for enforcing

them.

Taken together, these requirements are intended to instill a reasonable and transparent

process regarding a subject which has been controversial in the common interest community field.

SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES.

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

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

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

state:

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

may be inspected];

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

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

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

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

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

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

rights; and

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

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

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

recorded, neither the lessor nor the lessor’s successor in interest may terminate the leasehold

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

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

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

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

remainder does not merge the leasehold and fee simple interests unless the leasehold interests of all

unit owners subject to that reversion or remainder are acquired.

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

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

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

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

Comment

1. Subsection (a) requires that the lessor of any lease in a condominium or planned

community which, upon termination, will terminate the condominium or planned community or

reduce its size, must sign the declaration. This requirement insures that the lessor has consented to

use of his land as a condominium or planned community. Note that such a signature is not required

in the case of a lease in a cooperative. This distinction between the types of common interest

communities tracks that made by UCA, UPCA, and MRECA.

2. Subsection (a)(1) provides alternative bracketed language which should be considered

by each State based on its practice. In any State where the recording acts do not specify the

essential terms which must be included in a memorandum of lease, either this section should be

supplemented to specify the essential terms, or the bracketed language relating to such memoranda

should be deleted.

3. This section sets out requirements concerning leasehold common interest communities

which are not typically contained in the laws of most States. In particular, it requires that the

declaration describe the rights of the unit owners, or state that they have no rights concerning a

variety of significant matters. This section also contains a number of other consumer protection

provisions. However, in contrast to the result under some States’ condominium laws, neither the

unit owners nor the association have a statutory right to renewal of a lease upon termination.

4. In the case of leasehold condominiums and planned communities, the most significant

matter of consumer protection in this section is subsection (b), which provides that unit owners

who pay their share of the rent of the underlying lease may not be deprived of their enjoyment of

the leasehold premises.

Subsection (b) is intended to protect the leasehold condominium or planned community

“unit owner” regardless of whether he is a lessee, sublessee, or even further down in a chain of

transfer of leasehold interests. See Section 1-103(32). Thus, for example, if the “unit owner” is a

sublessee, the term “lessor (or) his successor in interest” includes not only the lessor, but also the

lessee.

Subsection (b) further protects the unit owner by assuring that he will not share with his

fellow unit owners any collective obligations toward their common lessor. All obligations are

instead fractionalized so that no unit owner can be made liable or otherwise penalized for a default

by any of his fellows. Thus, a default by the association in payment of the rent due to a lessor, in a

case where the lease of common elements ran to the association, would not permit the lessor to

terminate continued use of those common elements by those unit owners who then pay their share

of the rent.

Subsection (b) does not address the issue of whether a unit owner’s tenant may cure a

default by the unit owner under the unit owner’s lease so as to prevent termination of the unit

owner’s lease.

Example: Assume that A leases 100 acres of land to B for 50 years. B, in turn,

leases the same 100 acres to C, for the duration of the 50 year term. C creates a

condominium on the leasehold land, and thereby becomes the declarant; thereafter, he

leases a unit in the condominium to D, together with a lease of this allocated undivided

interest in the leasehold underlying the unit, for the duration of the 50 year term. D then

leases his unit to E for a term of five years.

Both A and B must execute the declaration; see Section 2-106(a). So long as D meets his

obligations to C – or any other persons – under the declaration and his sublease, D’s interest in the

leasehold may not be terminated by either A, B, or C; see Section 2-106. For that reason, A and B

will likely take appropriate steps to protect their interests in the event that D makes timely payment

to C, if called for in the declaration or lease, but C fails to meet his obligations to either A or B. If

D fails to make timely payment to C – or to B or A if those persons have so required – then D’s

interest may be terminated by the person entitled to payment, unless E is entitled to cure. E may

cure and thereby prevent default, however, only if other law of the State permits transferees of

partial interests to cure defaults of his transferor. Since E is not a unit owner, he is not entitled to

rights under this Act.

However, this section does not permit a unit owner in a cooperative to preserve his interest

in the cooperative by paying his pro-rata share of the rent in the event the association fails to pay

rent due under a ground lease. This distinction flows from the differences in the nature of a

cooperative and a condominium or a planned community, and it tracks the distinction made by

UCA and UPCA, and MRECA.

5. Subsection (d) considers the problems created when termination of a lease reduces the

size of a common interest community. In the event that some units are thereby withdrawn from the

common interest community, reallocation of the allocated interests would be required; the section

describes how that reallocation would occur.

SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS.

(a) The declaration must allocate to each unit:

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

common elements and in the common expenses of the association, and a portion of the votes in the

association;

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

percentage of the common expenses of the association, and a portion of the votes in the

association; and

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

the association, and a portion of the votes in the association.

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

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

the declarant.

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

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

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

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

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

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

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

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

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

and, in a condominium, the sum of the undivided interests in the common elements allocated at

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

percentage. In the event of discrepancy between an allocated interest and the result derived from

application of the pertinent formula, the allocated interest prevails.

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

conveyance, encumbrance, judicial sale, or other voluntary or involuntary transfer of an undivided

interest in the common elements made without the unit to which that interest is allocated is void.

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

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

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

Comment

1. Subsection (a) treats allocated interests differently in each type of common interest

community. The distinctions made in parts (i) - (iii) track those made in the corresponding

subsection of UCA, UPCA, and MRECA, for condominiums, planned communities, and

cooperatives, respectively.

2. Most existing condominium statutes and cooperative documents require a single

common basis, usually related to the “value” of the units, to be used in the allocation of common

element interests, or ownership interests in cooperatives, votes in the association and common

expense liabilities. Following UCA, UPCA, and MRECA, this Act departs radically from such

requirements by permitting each of these allocations to be made on different bases, and by

permitting allocations which are unrelated to value.

Thus, a common interest community’s applicable allocations might be made equally

among all units, or in proportion to the relative size of each unit, or on the basis of any other

formula the declarant may select, regardless of the value of those units. Moreover, “size” might be

used, for example, in allocating common expenses and common element interests (or ownership

interest), while equality is used in allocating votes in the association. This section does not require

that the formulas used by the declarant be justified, but it does require that the formulas be

explained. The sole restriction on the formulas to be used in these allocations is that they not

discriminate in favor of the units owned by the declarant. Otherwise, each of the separate

allocations may be on any basis which the declarant chooses, and none of the allocations need be

tied to any other allocation.

3. While the flexibility permitted in allocations is broader than that commonly used today,

it is likely that the traditional bases for allocation will continue to be used, and that the allocation

for all allocated interests will often be based on the same formulas. Most commonly, those bases

include size, equality, or value of units. Each of these is discussed below.

4. If size is chosen as a basis of allocation, the declarant must choose between reliance on

area or volume, and the choice must be indicated in the declaration. The declarant might further

refine the formula by, for example, excluding unheated areas from the calculation or by partially

discounting such areas by means of a ratio. Again, the declarant must indicate the choices he has

made and explain the formula he has chosen.

5. Most existing condominium statutes require that “value” be used as the basis of all

allocations. Under this Act a declarant is free to select such a basis if he wishes to do so. For

example, he might designate the “par value” of each unit as a stated number of dollars or points.

However, the formula used to develop the par values of the various units would have to be

explained in the declaration. For example, the declaration for a high rise project might disclose that

the par value of each unit is based on the relative area of each unit on the lower floors, but increases

by specified percentages at designated higher levels. The formula for determining area in this

example could be further refined in the manner suggested in Comment 4, above, and any other

factors (such as the direction in which a unit faces) could also be given weight so long as the

weight given to each factor is explained in the declaration.

6. The purpose of subsection (c) is to require a comprehensive scheme for reallocation of

allocated interests in a common interest community subject to development rights, and afford

some advance disclosure to purchasers of units in the first phase of an expandable common interest

community of how allocated interests will be reallocated if additional units are added.

7. Subsection (d) represents a significant departure from the practice in most States

concerning the allocation of votes. The usual rule is that a single allocation of votes is made to each

unit, and that allocation applies to all matters on which those votes may be cast. This section

recognizes that the increasingly complex nature of some projects requires different allocations on

particular questions. Different allocations may be appropriate, for example, in a project where

common expense liabilities, or questions concerning rules and regulations, affect different units

differently.

Example: In a mixed commercial and residential project, the declaration might

provide that each unit owner would have an equal vote for the election of the Board of

Directors. However, on matters concerning ratification of the common expense budget,

where the commercial unit owners pay a much larger share than their proportion of the total

units, the vote of commercial unit owners might be increased so that they exceed the

number of votes the residential owners hold. Alternatively, of course, it might be possible

to treat this question as a class voting matter, but the draftsman is provided flexibility in

this section to choose the most appropriate solution.

8. This section recognizes that there may be certain instances in which class voting in the

association would be desirable. For example, in a mixed-use planned community or condominium

consisting of both residential and commercial units, there may be certain kinds of issues upon

which the residential or commercial unit owners should have a special voice, and the device

described in Comment 7 is not desired. To prevent abuse of class voting by the declarant,

subsection (d) permits class voting only with respect to specified issues directly affecting the

designated class and only insofar as necessary to protect valid interests of the designated class.

Example: Owners of town house units, in a single project consisting of both town

house and high-rise buildings, might properly constitute a separate class for purposes of

voting on expenditures affecting only the town house units, but they might not be permitted

to vote by class on rules for the use of facilities used by all the units. The subsection further

provides that the declarant may not use the class voting device for the purpose of evading

any limitation imposed on declarants by this Act (e.g., to maintain declarant control

beyond the period permitted by Section 3-103).

9. The last clause of subsection (d) prohibits a practice common in planned communities,

where units owned by declarant constitute a separate class of units for voting and other purposes.

Upon transfer of title, those units lose these more favorable voting rights. This section makes clear

that the votes and other attributes of ownership of a unit may not change by virtue of the identity of

the owner. The Act provides other, more balanced, devices for those circumstances which such

classes were legitimately intended to address, principally declarant control of the association. See

Section 3-103(d).

10. Questions have arisen concerning the drafters’ intent regarding the language in

subsection (b), which prohibits the declaration in allocating votes and common expense liabilities

among the units, from “discriminating in favor of units owned by the declarant.” Specifically, the

question is whether this section imposes a special level of scrutiny on the allocation of votes and

common expense liability to units that the declarant may own, compared to similar units that are

owned by persons who are not declarants.

The answer is that the language means what it says: that is, if the allocated interests would

change at the time the declarant sold the unit, then the allocated interests are improper because they

discriminate in favor of the declarant’s ownership of that unit. However, if the allocation of

common expenses and votes is permanent rather than dependent on the owner’s identity and one

whose formula is identified in the declaration, then the allocation is proper. Subject to the

obligations of good faith in Section 1-113 and the prohibition on unconscionable terms in Section

1-112, this would be true even if the effect of the allocation were to create a relative benefit in

favor of units that the declarant or its affiliate intended to own for an indefinite period.

Example: A common interest community consists of a high-rise building

containing 10 floors of equal size. There are 4 units on each floor except the top floor,

where there is only 1 ‘penthouse’ unit. Even though the penthouse unit is four times the

size of the units on the 9 other floors, and is clearly more valuable than the other 36 units,

the declaration allocates an equal share of the common expenses to all the units, including

the penthouse unit. The effect of this allocation is that the penthouse unit bears a 1/37th

share of the common expenses – this is only 25% of the cost on a per square foot basis – of

the share borne by each unit owner on a lower floor.

Assume that the declaration properly contains the formula used for the allocation of

common expenses among the units and properly discloses the material and unusual circumstance

that the penthouse benefits substantially from the formula used to allocate expenses.

The fact that the declarant intends to retain ownership of the penthouse unit and live in that

unit for an indefinite period does not mean that the standard contained in section 2-107 (b) has

been violated. However, the Act would be violated if the declaration provided that, upon the

declarant’s sale of the penthouse, the formula for allocating common expenses would be changed

to an allocation among all the units based on their relative sizes.

In the example, this appears to yield an unjust result and a court might be invited to

consider the extent to which the declarant had acted in bad faith or unconscionably in making such

an allocation. Nevertheless, any other rule would simply encourage challenges to any allocation of

common expenses, since an argument can always be made that any allocation – whether done on

relative size, number of rooms, “value’, location within a building, equality or any other basis -

inevitably works to the relative disadvantage of some owners compared to others in the same

community.

SECTION 2-108. LIMITED COMMON ELEMENTS.

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

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

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

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

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

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

thereof to the association.

allocated only by an amendment to the declaration. A unit owner may request the executive board

to amend the declaration to allocate all or part of a common element as a limited common element

for the exclusive use of the owner’s unit. The board may prescribe in the amendment a condition or

obligation, including an obligation to maintain the new limited common element or pay a fee or

charge to the association. If the board approves the amendment, the board shall give notice to all

unit owners of its action and include a statement that unit owners may object in a record to the

amendment not later than 30 days after delivery of the notice. The amendment becomes effective if

the board does not receive a timely objection. If the board receives a timely objection, the

amendment becomes effective only if the unit owners vote under Section 3-110, whether or not a

quorum is present, to approve the amendment by a vote of at least 67 percent of the votes cast,

including at least 67 percent of the votes cast that are allocated to units not owned by the declarant.

If the amendment becomes effective, the association and the owner of the benefitted unit shall

execute the amendment.

(d) The association shall record the amendment as provided in Section 2-117. If an

amendment changes information shown in a plat or plan concerning a common element or limited

common element other than a common wall between units, the association shall prepare and record

a revised plat or plan.

Comment

1. Like all other common elements, limited common elements in a condominium are

“owned” by all the unit owners on an undivided interest basis but managed by the Association,

unless the declaration otherwise provides. In a planned community or cooperative, the common

elements are owned by the association. The use of a limited common element in all cases,

however, is reserved to less than all of the unit owners. Unless the declaration provides otherwise,

the association is responsible for the upkeep of a limited common element and the cost of such

upkeep is assessed against all the units. See Sections 3-107(a) and 3-115(c)(1). This might include

the costs of repainting all shutters or balconies, for example, which are limited common elements

pursuant to Section 2-102(4). Accordingly, there may be occasions where, to meet the

expectations of owners and to have costs borne directly by those who benefit from those amenities,

the declaration might provide that the costs will be borne, not by all unit owners as part of their

common expense assessments, but only by the owners to which the limited common elements are

assigned.

2. The use of common elements which are not “limited” within the meaning of this Act

may nevertheless be restricted by the unit owners’ association pursuant to the powers set forth in

Section 3-102(a)(6) and (10), unless that power is limited in the declaration. For example, the

association might assign reserved parking spaces to designated unit owners, or even to persons

who are not unit owners. Such a parking space would differ from a limited common element in that

its use would be merely a personal right of the person to whom it is assigned and this section would

not have to be complied with to allocate it or to reallocate it.

3. Because a mortgage, deed of trust, or security interest may restrict the borrower’s right

to transfer the use of a limited common element without the lender’s consent, the terms of the

encumbrance should be examined to determine whether the lender’s consent or release is needed

to transfer that right of use to another person.

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

5. The 2021 amendments revise subsection (c) to make it easier to reallocate a common

element as a limited common element. Often a unit owner’s request for reallocation results in a

minor change and is not important to other unit owners. Subsection (c) allows action by the

executive board, with a procedure for notice to the unit owners, who may object and require a vote

on the matter.

SECTION 2-109. PLATS AND PLANS.

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

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

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

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

by this section.

(b) Each plat must show or project:

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

community;

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

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

existing improvements within that real estate;

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

labeled to identify the rights applicable to each parcel, but plats and plans need not designate or

label which development rights are applicable to each parcel if that information is clearly

delineated in the declaration;

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

community;

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

burdening any portion of the common interest community;

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

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

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

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

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

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

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

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

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

common interest community;

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

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

description of any other limited common elements; and

(11) for real estate not subject to development rights, all other matters customarily

shown on land surveys.

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

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

BUILT.

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

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

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

and that unit’s identifying number;

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

established datum, and that unit’s identifying number; and

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

right to create additional units or common elements, identified appropriately.

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

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

and need not be depicted on the plats and plans.

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

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

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

the requirements of those subsections.

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

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

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

their limited common elements if:

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

comprising the units; and

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

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

allocated to those units.

Comment

1. This section makes clear that plats and plans are a part of the declaration and are required

for condominiums and planned communities, but not for cooperatives. That distinction tracks that

made by UCA, UPCA, and MRECA.

2. The terms “plat” or “plan” have been given a variety of meanings by custom and usage

in the various jurisdictions. Under this Act, it is important to recognize that a “plat” need not mean

“survey” of the entire real estate constituting a project at the time the initial plat is recorded,

although through amendments to the plat as development proceeds, it ultimately becomes a survey

of the entire project.

As to “plan,” the Act does not use that term to mean the actual building plans used for

construction of the project. Instead, the required content of the plans in this Act is described in

subsection (d). Essentially, the plans constitute a boundary survey of each unit. Typically, the

walls will be the vertical (“up and down” or “perimetric”) boundaries, and the floors and ceilings

will be the horizontal boundaries. Importantly, these boundaries need not be physically measured,

but may instead be projected from the plat or from actual building construction plans. Thus, the

plans under this Act are not conceived to be “as built” plans.

3. Subsection (c) permits, but does not require, the plats to show the location of

contemplated improvements. Since construction of contemplated improvements by a declarant

involves the exercise of development rights, a declarant may not create any improvement within

real estate where no development rights have been reserved, unless the plats actually show that

proposed improvement or unless the association (which the declarant may control) makes the

improvement pursuant to Section 3-102(a)(7). Of course, as to existing unit owners, the

improvements which may be made by the declarant and the areas within which they may be made,

are limited by his contract with those unit owners. Since this is true, the Declarant may not violate

that contract directly – by undertaking improvements for which he reserved no rights – or

indirectly by making improvements through the association which he controls or by seeking to

amend the declaration in violation of the contract. Moreover, under Section 2-117(d), no

amendment to the declaration may create or increase special declarant rights without the

unanimous consent of the unit owners.

Within land subject to development rights construction may take place in accordance with

the reserved rights, even if no contemplated improvements are shown on the plats. As to the

declarant’s obligation to complete an improvement that is shown, see Section 4-119(a).

4. As noted in the Comments to Section 2-101, a condominium or planned community unit

may consist of unenclosed ground and/or airspace, with no “building” involved. If this were true of

all units in a particular condominium, the provisions of Section 2-109 relating to plans (but not

plats) would be inapplicable.

5. In detailing the required contents of the plats, two different types of legal description are

contemplated. First, in subsection (b)(1), the plat must show at least a general schematic map of

the entire project. While this may be by survey, the Act recognizes that a survey may be unduly

expensive or impractical in a large project, and accordingly permits a general schematic map of the

entire project at the commencement of development. With respect to those portions of the project,

however, where no future development may take place, the flexibility of a general schematic map

is not permitted by the statute. As development ceases in particular phases, subsection (b)(2)

contemplates that the locations and dimensions of that real estate will be identified. As this process

continues, all of the real estate originally shown in a general schematic map will have been

surveyed, and the location and dimensions of that real estate identified, at the expiration of

development rights. In addition, subsection (2) contemplates that existing improvements must be

shown within real estate where no further development will take place. This does not include the

units which may be within each building, but it does include the external physical dimensions of

the buildings themselves. The nature of “existing improvements” required to be surveyed under

subsection (2) should be determined by local practices in the particular State.

6. Subsection (f) describes the amendments to the plats and plans which must be made as

development rights are exercised. This section requires that the plats and plans be amended at each

stage of development to reflect actual progress to date. If an original schematic map was recorded

as permitted by subsection (b)(1), the survey required by subsection (b)(2) would also constitute

the amendments required by subsection (f).

7. The terms “horizontal” and “vertical” are now commonly understood to refer,

respectively, to “upper and lower” and “lateral or perimetric.” Thus, Section 2-102 contemplates

that the perimetric walls may be designated as the “vertical” boundaries of a unit and the floor and

ceiling as its “horizontal” boundaries. That is the sense in which the words “horizontal” and

“vertical” are to be understood in this section and throughout this Act.

8. Sections 4-118 and 4-119 state the effect of labeling an improvement “MUST BE

BUILT” or “NEED NOT BE BUILT,” as required by subsection (b)(3).

9. The 1994 amendments to subsections (6), (7), and (10) seek to balance the need for

disclosure and certainty in understanding what a unit owner “owns,” with the practical limitations

of the surveying profession. The balance struck in the 1994 amendments to this section requires

that the plat or survey – as a minimum – actually show only the kinds of limited common elements

that most people would understand to be an important appurtenance to their units. All other kinds

of limited common elements – parking spaces, window boxes, etc., – may be either shown on the

survey or simply described in words.

10. New subsection (h) eliminates the need for any unit boundary survey so long as the

building location is shown on the project survey and a practical means exists by which the

potential purchaser can understand the unit layout and its assigned common elements. This is a

common practice in the sale of cooperative units.

11. The 2008 amendment in subsection (c)(3) relieves the declarant from the obligation of

identifying each applicable development right in the labeling of those portions of the plats and

plans that show land subject to development rights if the actual development rights for each such

parcel are “clearly delineated” in the declaration itself. While constituting a marginal reduction in

the information shown on the plats and plans, the fact is that in some complexes, the reduced

information may make the documents more legible. In any event, the statute continues to require

disclosure of this information in the declaration.

SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS.

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

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

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

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

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

subsection (b), reallocate the allocated interests among all units. The amendment must describe

any common elements and any limited common elements thereby created and, in the case of

limited common elements, designate the unit to which each is allocated to the extent required by

Section 2-108 (Limited Common Elements).

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

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

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

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

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

2-105(a)(8).

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

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

to the declaration must reallocate all the allocated interests of that unit among the other units as if

that unit had been taken by eminent domain (Section 1-107); and

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

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

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

reasonable manner prescribed by the declarant.

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

real estate is subject to a right of withdrawal:

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

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

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

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

that portion has been conveyed to a purchaser.

Comment

1. This section generally describes the method by which any development right may be

exercised. Importantly, while new development rights may be reserved within new real estate

which is added to the common interest community, the original time limits on the exercise of these

rights which the declarant must include in the original declaration may not be extended. Thus, the

development process may continue only within the self-determined constraints originally

described by the declarant.

2. The reservation and exercise of development rights is typically closely coordinated with

financing for the project. As a result, lender review and control of that process is common, and the

financing documents reflect the proposed development process.

A typical construction loan mortgage on a portion of a phased condominium or planned

community might provide that as soon as that portion of land is added (or, if the portion is also

designated withdrawable land, as soon thereafter as anyone other than the declarant becomes the

unit owner of a unit in the withdrawable land) the mortgage on that land and on any buildings

containing units built on that land before it was added converts into a mortgage on all of the units

located within that portion, together in the case of a condominium, with their respective common

element interests. In the case of a condominium, the common element interest of those units will,

of course, extend to the common elements in other sections of the condominium. Therefore,

conveyance of the units in that phase to the lender or to a purchaser at a foreclosure sale would

automatically transfer all of those units’ common element interest, as a result of the requirements

of Sections 2-107(f) and 2-110(a).

3. A lender who holds a mortgage lien on one portion of a condominium or planned

community may not cause that portion to be withdrawn from the condominium or planned

community unless the portion constitutes withdrawable real estate in which there is no unit owner

other than the declarant. Even then, except in the case of foreclosure, the amendment effectuating

the withdrawal must be executed by the declarant.

Therefore, a lender may wish to require that an amendment withdrawing the portion on

which he has a mortgage be executed by the declarant and placed in escrow at the time the loan is

made in order to protect against a recalcitrant borrower. Alternatively, a lender after foreclosure

under Section 2-118(k) may require an amendment from the association. Also a lender could itself

execute the amendment if the lender buys in at a foreclosure sale or takes a deed in lieu of

foreclosure and elects to become a declarant under Section 3-104(c) or (a).

4. As indicated in the Comments to Section 1-106, the withdrawal of real estate from a

common interest community may constitute a subdivision of land under the applicable subdivision

ordinance. Under most subdivision ordinances, the owner of the real estate is regarded as the

“subdivider.” In the event of a withdrawal under this section, however, the declarant is in fact the

subdivider because of his unique interest in and control over the real estate, even though the real

estate, for title purposes, is a common element until withdrawn. Accordingly, he would bear the

cost of compliance with any subdivision ordinance required to withdraw a part of the real estate

from the common interest community.

5. Subsection (c) deals with special problems surrounding allocated interests when the

declarant subdivides or converts units which were originally created in the declaration into

additional units, common elements, or both. This development right permits the declarant to defer

a final decision as to the size of certain units by permitting the subdivision of larger interior spaces

into smaller units. The declarant may thus “build to suit” for purchasers’ needs or to meet changing

market demand.

For example, a declarant of a five-story office building common interest community may

have purchasers committed at the time of the filing of the common interest community declaration

but a lack of purchasers for the upper two floors. In such a circumstance, the declarant could

designate the upper two floors as a unit, reserving to himself the right to subdivide or convert that

unit into additional units, common elements or a combination of units and common elements as

needed to suit the requirements of ultimate purchasers.

If, at a later time, a purchaser wishes to purchase half of one floor as a unit, the declarant

could exercise the development right to subdivide his two-floor unit into two or more units. He

may also wish to reserve a portion of the divided floor as a corridor which will constitute common

elements. In that case, he would proceed pursuant to this subsection to reallocate the allocated

interests among the units in the manner described in this section.

Alternatively, the declarant may ultimately decide that the entire two floors should be

turned over to the unit owners’ association not as a unit but as common elements to be used

perhaps as a cafeteria serving the balance of the building, or for retail space to be rented by the

association. In that case, should he choose to make the entire two floors common elements, the

provisions of paragraph (c)(1) would apply.

The declarant may state in his declaration any conditions or limitations on the time limits

reserved for the exercise of development rights which would cause that development right to lapse

before the time established in the declaration. It would, of course, be possible for a declarant to

voluntarily relinquish those rights prior to the time that they automatically lapsed, and an

instrument recorded by the declarant would be effective to cause that lapse, subject, of course, to

any constraints imposed on voluntary relinquishment by the declarant’s lender.

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

declaration and other provisions of law, a unit owner:

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

integrity or mechanical systems or lessen the support of any portion of the common interest

community;

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

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

association;

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

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

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

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

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

Comment

1. This section deals with permissible alterations of the interior of a unit, and impermissible

alterations of the exterior of a unit and the common elements, in ways which reflect common

practice. The stated rules, of course, may be varied by the declaration where desired.

2. Subsection (3) deals in a unique manner with the problem of creating access between

adjoining units owned by the same person. The subsection provides a specific rule which would

permit a door, stairwell, or removal of a partition wall between those units, so long as structural

integrity is not impaired. That alteration would not be an alteration of boundaries, but would be an

exception to the basic rule stated in subsection (2).

3. In considering permissible alteration of the interior of a unit, an example may be useful.

A nail driven by a unit owner to hang a picture might enter a portion of the wall designated as part

of the common elements, but this section would not be violated because structural integrity would

not be impaired. Moreover, no trespass would be committed because each unit owner, as a part or

beneficial owner of the common elements, has a right to utilize them subject only to such

restrictions as may be created by the Act, the declaration, bylaws, and the unit owners’ association

pursuant to Section 3-102.

4. Removal of a partition or the creation of an opening between adjoining units would

permit the units to be used as one, but they would not become one unit. They would continue to be

separate units within the meaning of Section 1-105 and would continue to be treated separately for

the purposes of this Act.

5. In addition to the restrictions placed on unit owners by this section, the declaration or

bylaws may restrict a unit owner from altering the interior appearance of his unit. Although this

might be an undue restriction if imposed upon the primary residence of a unit owner, it may be

appropriate in the case of time-share or other common interest communities.

SECTION 2-112. RELOCATION OF UNIT BOUNDARIES.

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

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

the association by the owners of those units. If the owners of the adjoining units have specified a

reallocation between their units of their allocated interests, the application must state the proposed

reallocations. Unless the executive board determines, within 30 days, that the reallocations are

unreasonable, the association shall prepare an amendment that identifies the units involved and

states the reallocations.

(b) The boundary of a unit may be relocated only by an amendment to the declaration. A

unit owner may request the executive board to amend the declaration to include all or part of a

common element within the owner’s unit. The board may prescribe in the amendment a fee or

charge payable by the unit owner to the association in connection with the relocation. The board

may approve the amendment only if the unit owners vote under Section 3-110, whether or not a

quorum is present, to approve the amendment by a vote of at least 67 percent of the votes cast,

including at least 67 percent of the votes cast that are allocated to units not owned by the declarant.

execute an amendment under this section. The amendment must contain words of conveyance

between the parties. The association shall record the amendment as provided in Section 2-117. The

association (i) in a condominium or planned community shall prepare and record plats or plans

necessary to show the altered boundaries of affected units, and their dimensions and identifying

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

including any plans necessary to show or describe the altered boundaries of affected units, and

their dimensions and identifying numbers.

Comment

1. Subsection (a) changes the effect of most current declarations, under which the

boundaries between units may not be altered without unanimous or nearly unanimous consent of

the unit owners.

2. Subsection (a) contemplates that upon relocation of the unit boundaries, no reallocation

of allocated interests will occur if none is specified in the application. If a reallocation is specified

but the executive board deems it unreasonable, then the applicants have the choice of resubmitting

the application with a reallocation more acceptable to the board, or going to court to challenge the

board’s findings as unreasonable.

3. The rule in subsection (a) governing the relocation of boundaries between units is a

default rule, which provisions of the declaration may vary. For both subsections (a) and (b), zoning

regulations and other state law may limit the relocation of unit boundaries. For example,

neighboring lot owners may not relocate their boundary if the result is that one lot would violate

the minimum lot size specified by zoning. Similarly, a unit owner cannot add a common element to

the owner’s unit for the purpose of constructing an improvement that would violate a setback line.

4. Experience under the original Act indicates that it does not adequately address the

frequently occurring issue of new additions to existing units, which commonly encroach on the

common elements. While the use of limited common elements is a possible device to address this

question – and while this new subsection does not prohibit use of that device – the drafters believe

that new subsection (b), added in the 1994 amendments and revised in the 2021 amendments,

offers a more direct means to address this situation.

This revision provides a mechanism to alter the boundary between a unit and the common

elements and sets out a rule with respect to association action to accomplish that result. In the

absence of this rule, Section 2-117(d) mandates that a change in a unit boundary requires

unanimous consent of all owners. With this amendment, unanimity is no longer required.

The 2021 amendments to subsection (b) continue to allow a unit owner to request that part

of a common element be added to the owner’s unit, with changes to conform the language and

procedure in many respects to the new procedure under Section 2-108(c) for changing a common

element to a limited common element. The amendments delete the requirement of a quorum for the

unit owners’ vote on the basis that often the requested boundary relocation will be minor and not of

significant interest to other unit owners. Subsection (b) expressly allows the association to require

that the unit owner pay a fee or charge, which might be one-time or periodic. Depending on the

nature of the relocation, the association may also decide that it is necessary or advisable to require

an increase in the allocated interest of the unit under Section 2-107, which would necessarily entail

decreasing the allocated interests of other unit owners.

Example: The declaration might be amended to state that the owner of a unit with a

100 square foot addition shall, in addition to regularly calculated monthly common

charges, pay a monthly fee of $10, increased each year by a percentage equal to the

percentage increase in the association budget.

5. If the only common element being incorporated into a unit is a wall separating two

adjoining units owned by different owners, the amendment should be made under Section

2-112(a), not (b). However, if one owner owns two adjoining units, the wall may be removed

pursuant to Section 2-111 without altering the boundaries, and without the need for any

amendment to the declaration.

6. The distinctions made by subsection (c) as to information required in the amendment,

track the distinctions found in the corresponding UCA, UPCA, and MRECA provisions, for

condominiums, planned communities, and cooperatives, respectively.

SECTION 2-113. SUBDIVISION OF UNITS.

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

Subject to the declaration and law other than this [act], upon application of a unit owner to

subdivide a unit, the association shall prepare, execute, and record an amendment to the

declaration including, in a condominium or planned community, the plats and plans subdividing

that unit.

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

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

formerly allocated to the subdivided unit to the new units in any reasonable manner prescribed by

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

Comment

1. This section provides for subdivision of units by unit owners, thereby creating more and

smaller units than were originally created. The underlying policy of this section is that the original

development plan of the project must be followed, and the expectations of unit owners realized.

Accordingly, unless subdivision of the units is expressly permitted by the original declaration, a

unit may not be subdivided into two or more units unless the declaration is amended to permit it. A

subdivision itself is accomplished by an amendment to the declaration.

2. At the same time, situations will often occur where future subdivision is appropriate, and

this section permits the declaration to provide for it.

3. An analogous concept in the context of development rights is subdivision of units by a

declarant.

4. If a unit owned only by the declarant – as opposed to the same unit if owned by

another person – may be subdivided into two or more units but cannot be converted in whole or in

part into common elements, it is still a unit that may be subdivided or converted into two or more

units or common elements, within the meaning of the definition of development rights. It is

therefore governed by Section 2-110 and not by this section.

SECTION 2-114. BUILDING ENCROACHMENT.

Alternative A

(a) Except as provided in subsection (b), if the construction, reconstruction, or alteration of

a building or the vertical or lateral movement of a building results in an encroachment due to a

divergence between the existing physical boundaries of a unit and the boundaries described in the

declaration under Section 2-105(a)(5), an easement for the encroachment exists between adjacent

units and between units and adjacent common areas.

Alternative B

(a) Except as provided in subsection (b), if the construction, reconstruction, or alteration of

a building or the vertical or lateral movement of a building results in an encroachment due to a

divergence between the existing physical boundaries of a unit and the boundaries described in the

declaration under Section 2-105(a)(5), the existing physical boundaries of the unit are its legal

boundaries, rather than the boundaries described in the declaration.

End of Alternatives

(b) Subsection (a) does not apply if the encroachment:

(1) extends beyond five feet, as measured from any point on the common boundary

along a line perpendicular to the boundary; or

(2) results from willful misconduct of the unit owner that claims a benefit under

subsection (a).

to plats or plans or a representation in the public offering statement.

Legislative Note: Two approaches are presented as alternatives because a number of states have

previously adopted the “easement solution” of Alternative A or the “adjustment of boundary”

solution of Alternative B. A state may choose to continue its existing law on the topic.

Comment

1. Two approaches are presented here as alternatives, since uniformity on this issue is not

essential, and various States have adopted one approach or the other. Both theories recognize the

fact that the actual physical boundaries involving buildings may differ somewhat from what is

shown on the plats and plans or other governing instruments. The easement approach of

Alternative A creates easements for whatever discrepancies may arise, while the “change in legal

boundaries” approach of Alternative B would make the title lines move to follow movement of the

physical boundaries caused by such discrepancies or subsequent settling or shifting.

2. The 2021 amendments retain the core rules of the original section, but with some

changes. The original scope covered all encroachments involving units and common areas. The

amendments limit the scope of this section to building encroachments; i.e. encroachments between

adjoining units in a building and between the building part of a unit and an adjoining common

element. These encroachments stem from the construction of and subsequent changes to buildings

and their component parts. The section as revised does not address other encroachments and

boundary problems, such as misplaced fences and misplaced monuments. Another change

introduces a five-foot limit to the width of an encroachment that may be remedied by an implied

easement or a change in the legal boundary. Other state law determines the rights and obligations

of the parties for greater encroachments.

3. When this section applies, an easement is created, or the boundary is relocated, by

operation of law. There is no need to amend the declaration or prepare an easement instrument,

deed, or another instrument.

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

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

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

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

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

If a declarant ceases to be a unit owner, he ceases to have any rights with regard thereto unless it is

removed promptly from the common interest community in accordance with a right to remove

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

signs on the common elements advertising the common interest community. This section is subject

to the provisions of other state law and to local ordinances.

Comment

1. This section prescribes the circumstances under which portions of the common interest

community – either units or common elements – may be used for sales offices, management

offices, or models. The basic requirement is that the declarant must describe his rights to maintain

such offices in the declaration. There are no limitations on that right, so that either units owned by

the declarant or other persons, or the common elements themselves, may be used for that purpose.

Typical common element uses might include a sales booth in the lobby of a building, or a trailer or

temporary building located outside the buildings on the grounds of the property.

2. In addition, this section contains a permissive provision permitting advertising on the

common elements. The declarant may choose to limit his rights in terms of the size, location, or

other matters affecting the advertising. The Act, however, imposes no limitations. At the same

time, the last sentence of the section recognizes that state or local zoning or other laws may limit

advertising, both in terms of size and content of the advertising, or the use of the units or common

elements for such purposes. This section makes it clear that local law would apply in those cases.

SECTION 2-116. EASEMENT AND USE RIGHTS.

(a) Subject to the declaration, a declarant has an easement through the common elements as

may be reasonably necessary for the purpose of discharging the declarant’s obligations or

exercising special declarant rights, whether arising under this [act] or reserved in the declaration.

(b) Subject to Sections 3-102(a)(6) and 3-112, the unit owners have an easement in the

common elements for access to their units.

elements that are not limited common elements and all real estate that must become common

elements for the purposes for which they were intended.

Comment

1. This section grants to declarant an easement across the common elements, subject to any

self-imposed restrictions on that easement contained in the declaration. At the same time, the

easement is not an easement for all purposes and under all circumstances, but only a grant of such

rights as may be reasonably necessary for the purpose of exercising the declarant’s rights. Thus,

for example, if other access were equally available to the land where new units are being created,

which did not require the declarant’s construction equipment to pass and repass over the common

elements in a manner which significantly inconvenienced the unit owners, a court might apply the

“reasonably necessary” test contained in this section to consider limitations on the declarant’s

easement. The rights granted by this section may be enlarged by a specific reservation in the

declaration.

2. The declarant is also required to repair and restore any portion of the common interest

community used for the easement granted under this section. See Section 4-119(b).

3. This section also grants unit owners in a planned community an easement for access,

support, and enjoyment in the common elements because unit owners hold a beneficial, but no fee,

interest in the common elements. These rights may be limited by the declaration.

4. Subsection (c), amended in 2008, clarifies the extent to which unit owners may use the

common elements in several ways which the drafters believe were previously implicit, but are now

explicit.

First, the section previously applied only to planned communities, when the same policies

clearly should apply to all forms of common interest communities. The amendment accomplishes

that result.

Second, in the prior draft, the owners’ right to use was statutorily subject to the

association’s right to regulate that use under Section 3-102(a)(6), and to the association’s right to

encumber or sell the common elements under Section 3-112. In contrast, the 2008 amendments

make that right to use subject to all provisions of the declaration and rules and, while the statutory

references have been deleted, the Act still applies with full force to the common interest

community.

Third, the original text made no distinction between the common elements and limited

common elements. However, since the very definition of limited common elements precludes the

unbridled use of limited common elements, the 2008 amendment makes that outcome explicit.

Finally, the original text suggested that unit owners could use the common elements for

“all other purposes”, in addition to the purpose of “access” to their units. It is plain, of course, that

various common elements - parking lots, roofs, elevators, for example - may not literally be used

for “all...purposes” but simply for their intended purposes.

SECTION 2-117. AMENDMENT OF DECLARATION.

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

2-109(f) or 2-110, the association under Section 1-107, 2-106(d), 2-108(c), 2-112, or 2-113, or

certain unit owners under Section 2-108(b), 2-113(b), or 2-118(b), and except as limited by

subsections (d), (f), (g), and (h), the declaration, including any plats and plans, may be amended

only by vote or agreement of unit owners of units to which at least [67] percent of the votes in the

association are allocated, unless the declaration specifies a different percentage for all

amendments or for specific subjects of amendment. If the declaration requires the approval of

another person as a condition of its effectiveness, the amendment is not valid without that

approval.

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

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

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

amendment must be indexed [in the grantee’s index] in the name of the common interest

community and the association and [in the grantor’s index] in the name of the parties executing the

amendment.

(d) Except to the extent expressly permitted or required by other provisions of this [act], no

amendment may create or increase special declarant rights, increase the number of units, change

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

consent of the unit owners.

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

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

the association designated for that purpose or, in the absence of designation, by the president of the

association.

(f) An amendment to the declaration may prohibit or materially restrict the permitted uses

of or behavior in a unit or the number or other qualifications of persons who may occupy units only

by vote or agreement of unit owners of units to which at least 80 percent of the votes in the

association are allocated, unless the declaration specifies that a larger percentage of unit owners

must vote or agree to that amendment or that such an amendment may be approved by unit owners

of units having at least 80 percent of the votes of a specified group of units that would be affected

by the amendment. An amendment approved under this subsection must provide reasonable

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

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

which reserved development rights must be exercised may be extended, and additional

development rights may be created, if persons entitled to cast at least 80 percent of the votes in the

association, including 80 percent of the votes allocated to units not owned by the declarant, agree

to that action. The agreement is effective 30 days after an amendment to the declaration reflecting

the terms of the agreement is recorded unless all the persons holding the affected special declarant

rights, or security interests in those rights, record a written objection within the 30-day period, in

which case the amendment is void, or consent in writing at the time the amendment is recorded, in

which case the amendment is effective when recorded.

(h) A provision in the declaration creating special declarant rights that have not expired

may not be amended without the consent of the declarant.

(i) If any provision of this [act] or of the declaration requires the consent of a holder of a

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

that consent is deemed granted if a refusal to consent in a record is not received by the association

within 60 days after the association delivers notice of the proposed amendment to the holder at an

address for notice provided by the holder or mails the notice to the holder by certified mail, return

receipt requested, at that address. If the holder has not provided to the association an address for

notice, the association shall provide notice to the address in the security interest of record.

Notwithstanding this section, an amendment to the declaration that affects the priority of a holder’s

security interest or the ability of that holder to foreclose its security interest may not be adopted

without that holder’s consent in a record if the declaration requires that consent as a condition to

the effectiveness of the amendment.

(j) If the declaration contains a provision requiring that amendments to the declaration may

be adopted only by the vote or agreement of unit owners of units to which more than 80 percent of

the votes in the association are allocated, the amendment is approved:

(1) if:

(A) unit owners of units to which at least 80 percent of the votes in the

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

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

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

and no written objection to the proposed amendment is received by the association within 60 days

after the association delivers notice; or

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

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

proposed amendment and, pursuant to an action brought by the association in [insert appropriate

court] against all objecting unit owners, the court finds that the objecting unit owners do not have

an interest, different in kind from the interests of the other unit owners, that the voting requirement

of the declaration was intended to protect.

Comment

1. This section recognizes that the declaration, as the perpetual governing instrument for

the common interest community, may be amended by various parties at various times in the life of

the project. The basic rule, stated in subsection (a), is that the declaration, including the plats and

plans, may only be amended by vote of 67% of the unit owners. The section permits a larger

percentage to be required by the declaration, and also recognizes that, in an entirely nonresidential

common interest community, a smaller percentage might be appropriate.

In addition to that basic rule, subsection (a) lists the other instances where the declaration

may be amended by the declarant alone without association approval, or by the association acting

through its board.

The 2008 amendments to subsection (a) significantly ease the ability of the document

drafter to vary the process for adoption of amendments to the declaration. Under prior law, all

amendments to the declaration – other than the variety of “special” amendments exempted in the

introductory clause – required a 67% unit owner vote unless a larger vote was required. This

amendment permits the declaration to provide for any percentage unit owner vote – whether

smaller or larger – and also allows the declaration to mandate different percentages of votes of

different subjects.

Note that subsection (a) permits the amendment to be accomplished “by vote or

agreement” of unit owners. The distinction between those two processes is clear, and the

“agreement” permitted under Section 2-117(a) could be quite different than, for example, a ballot

without a meeting, as permitted in Section 3-110(d). It is the practice in some jurisdictions,

particularly in larger common interest communities, to circulate what amount to petitions asking

unit owners to “sign off” on proposed amendments, or agreement forms with many counterparts,

all of which are deemed to be part of a single agreement. These are useful procedures and would

comprise valid forms of “agreement”, so long as appropriate safeguards were in place to confirm

the validity of the signatures on the “petition” or counterparts.

The 2008 amendment in (a) also allows the declaration to require “another person” to

consent to the effectiveness of an amendment, and states that the amendment is not effective

without such consent. This amendment reflects an expansion of the concept contained in

subsection (i) that various interested parties - lenders, project sponsors, municipalities that might

have underwritten a subsidized project - might seek to insure the continued vitality of a project by

requiring continued involvement in the project through a compulsory document oversight.

In contrast, the provision is not intended to grant the declarant an indirect means of

reserving a veto right over amendments that the declarant found objectionable following the

mandated turnover of declarant control of the association in Section 3-103 (d), (e) and (f). Such an

attempt to extend control of the project would plainly violate that statute, as well as a range of

other provisions of the Act, including Sections 1-104, 1-112, 1-113 and 1-114.

At the same time, the declarant plainly has a legitimate interest in the continued validity of

its reserve special declarant rights, and subsection (h) expressly prohibits amendment of any

reserved special declarant right before its expiration without the declarant’s consent.

2. Section 1-104 does not permit the declarant to use any device, such as powers of attorney

executed by purchasers at closings, to circumvent subsection (d)’s requirement of unanimous

consent. This section does not supplant any requirements of common law or of other statutes with

respect to conveyancing if title to real property is to be affected.

3. Subsection (c) describes the mechanics by which amendments recorded by the

association are filed, and resolves a number of matters often neglected by bylaws.

4. The 1994 revision to subsection (d) deletes the prohibition on amendments which

restrict the uses of units. Before 1994, Section 2-105(a)(12) required that the declaration specify

all restrictions on use, occupancy, and alienation of units. The deleted provision in subsection (d)

created the anomaly that unanimous consent was required to amend a use restriction but a lesser

number could amend restrictions on occupancy or alienation of a unit.

5. New subsection (f), also adopted in 1994, responds to the growing belief that restrictions

on use and occupancy which unit owners would like to impose after the declaration is recorded

ought to be adopted only by a super majority and only after providing protection for those whose

use or occupancy will be affected by the amendment. For example, a community may seek to

prohibit pets after a number of owners have purchased and occupied their units in reliance on the

absence of such a restriction. Under this amendment, if the community votes to impose the

limitation, it can do so only with the vote of a high percentage of owners and only on such

conditions as reasonably protect the interests of existing pet owners. Whether the amendment

“grandfathers” the right of the existing pet to remain or the right of the current owner to have a pet

is not determined by the language of the subsection but will depend on the circumstances of each

community and its owners.

The 2008 amendment to subsection (f) reflects the practical reality that, in large projects,

requiring an 80% vote of all unit owners to change a use restriction in the community may be

impossible to secure. For that reason, the amendment allows the declaration to designate the units

that might be affected by a change in use amendment, and allows an 80% vote of only that group of

units.

6. New subsection (g), adopted in 1994, addresses the possibility that development rights

may be about to expire – and thus potentially halt completion of the project – at a time which

neither the association nor the unit owners find desirable. This section allows extension of

development rights, or creation of new rights, by a vote of the same percentage of unit owners as

would be required to sell the common elements in the common interest community.

7. Subsections (i) and (j), adopted in 2008, are adapted from the Connecticut version of this

Act, codified as C.G.S. § 47-237. A version of subsections (i) and (j) has proved extremely useful

in that state. This draft expands the Connecticut statute by applying those provisions not only to

communities created under UCIOA, but to pre-existing communities that now fall partially under

the Act, since some of the most difficult mortgagee consent provisions can be found in the

documents of older communities. These may arguably have made some sense in the earlier days of

development when most unit mortgages were held by local financial institutions concerned that

unit owners might routinely adopt irresponsible amendments, and when the lenders whose consent

was required were often readily available. Now that most mortgages are held by distant entities

unable to respond to requests for needed amendments in a timely way, however, provisions

requiring lender approval frequently hinder communities in their efforts to adopt necessary

changes to their documents.

SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY.

(a) Except for a taking of all the units by eminent domain, foreclosure against an entire

cooperative of a security interest that has priority over the declaration, or in the circumstances

described in Section 2-124, a common interest community may be terminated only by agreement

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

including at least 80 percent of the votes allocated to units not owned by the declarant, and with

any other approvals required by the declaration. The declaration may require a larger percentage of

total votes in the association for approval, but termination requires approval by at least 80 percent

of the votes allocated to units not owned by the declarant. The declaration may specify smaller

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

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

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

owners. The termination agreement must specify a date after which the agreement is void unless it

is recorded before that date. A termination agreement and all ratifications thereof must be recorded

in every [county] in which a portion of the common interest community is situated and is effective

only upon recordation.

elements and units of the common interest community following termination. If, pursuant to the

agreement, any real estate in the common interest community is to be sold following termination,

the termination agreement must set forth the minimum terms of the sale.

[(d) Reserved.]

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

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

pursuant to subsections (a) and (b). If any real estate is to be sold following termination, title to that

real estate not already owned by the association vests on termination in the association as trustee

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

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

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

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

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

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

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

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

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

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

(f) Termination does not change title to a unit or common element not to be sold following

termination unless the termination agreement otherwise provides.

(g) Following termination of the common interest community, the proceeds of sale of real

estate, together with the assets of the association, are held by the association as trustee for unit

owners and holders of liens on the units as their interests may appear.

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

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

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

may enforce those liens in the same manner as any lien holder. All other creditors of the

association are to be treated as if they had perfected liens on the units immediately before

termination.

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

priority over any interests of unit owners and creditors of unit owners. In that event, following

termination, creditors of the association holding liens on the cooperative which were [recorded]

[docketed] [insert other procedures required under state law to perfect a lien on real estate as a

result of a judgment] before termination may enforce their liens in the same manner as any lien

holder, and any other creditor of the association is to be treated as if the creditor had perfected a

lien against the cooperative immediately before termination. Unless the declaration provides that

all creditors of the association have that priority:

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(1) the lien of each creditor of the association which was perfected against the

association before termination becomes, upon termination, a lien against each unit owner’s interest

in the unit as of the date the lien was perfected;

(2) any other creditor of the association is to be treated upon termination as if the

creditor had perfected a lien against each unit owner’s interest immediately before termination;

(3) the amount of the lien of an association’s creditor described in paragraphs (1)

and (2) against each of the unit owners’ interest must be proportionate to the ratio which each

unit’s common expense liability bears to the common expense liability of all of the units;

(4) the lien of each creditor of each unit owner which was perfected before

termination continues as a lien against that unit owner’s unit as of the date the lien was perfected;

(5) the assets of the association must be distributed to all unit owners and all lien

holders as their interests may appear in the order described above; and

(6) creditors of the association are not entitled to payment from any unit owner in

excess of the amount of the creditor’s lien against that unit owner’s interest.

(j) The respective interests of unit owners referred to in subsections (e), (f), (g), (h), (i),

and (m) are as follows:

(1) Except as otherwise provided in paragraph (4), the respective interests of unit

owners are the fair market values of their units, allocated interests, and any limited common

elements immediately before the termination, as determined by appraisal made by one or more

independent appraisers selected by the association. The appraisal must be distributed to the unit

owners and becomes final unless:

(A) disapproved not later than 30 days after distribution by unit owners of

units to which at least 25 percent of the votes in the association are allocated; or

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(B) a unit owner objects in a record not later than 30 days after distribution

to the determination of value of the owner’s unit.

(2) A unit owner that objects under paragraph (1)(B) may select an appraiser to

represent the owner and make an appraisal of the owner’s unit. If the association’s appraisal and

the unit owner’s appraisal of the fair market value of the owner’s interest differ, a panel consisting

of an appraiser selected by the association, the unit owner’s appraiser, and a third appraiser

mutually selected by the first two appraisers shall determine, by majority vote, the value of the unit

owner’s interest. The determination of value by the panel is final.

(3) The proportion of any unit owner’s interest to that of all unit owners is

determined by dividing the fair market value of that unit owner’s unit and its allocated interests by

the total fair market values of all the units and their allocated interests.

(4) If any unit or any limited common element is destroyed to the extent that an

appraisal of the fair market value thereof before destruction cannot be made, the interests of all unit

owners are:

(A) in a condominium, their respective common element interests

immediately before the termination;

(B) in a cooperative, their respective ownership interests immediately

before the termination; and

immediately before the termination.

(k) In a condominium or planned community, except as otherwise provided in subsection

(l), foreclosure or enforcement of a lien or encumbrance against the entire common interest

community does not terminate, of itself, the common interest community, and foreclosure or

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enforcement of a lien or encumbrance against a portion of the common interest community, other

than withdrawable real estate, does not withdraw that portion from the common interest

community. Foreclosure or enforcement of a lien or encumbrance against withdrawable real

estate, or against common elements that have been subjected to a security interest by the

association under Section 3-112, does not withdraw, of itself, that real estate from the common

interest community, but the person taking title thereto may require from the association, upon

request, an amendment excluding the real estate from the common interest community.

(l) In a condominium or planned community, if a lien or encumbrance against a portion of

the real estate comprising the common interest community has priority over the declaration and the

lien or encumbrance has not been partially released, the parties foreclosing the lien or

encumbrance, upon foreclosure, may record an instrument excluding the real estate subject to that

lien or encumbrance from the common interest community.

(m) A termination agreement complying with this section may provide for termination of

fewer than all of the units in a common interest community, subject to the following rules:

(1) In addition to the approval required by subsection (a), the termination

agreement must be approved by at least 80 percent of the votes allocated to the units being

terminated.

(2) The termination agreement must reallocate under Section 2-107 the allocated

interests for the units that remain in the common interest community after termination.

(3) The aggregate values of the units and common elements being terminated must

be determined under subsection (j). The termination agreement must specify the allocation of the

proceeds of sale for the units and common elements being terminated and sold.

(4) Security interests and liens on remaining units and remaining common elements

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continue, and security interests and liens on units being terminated no longer extend to any

remaining common elements.

(5) The unit owners association continues as the association for the remaining units.

(6) The association shall record with the termination agreement under subsection

(b) an amendment to the declaration or an amended and restated declaration.

Comment

1. Historically, there were instances, particularly during the 1930’s where cooperatives

were terminated, often as a result of foreclosure following the association’s failure to pay debt

service. Those terminations created enormously complex problems for the cooperatives

concerned. Subsequently, terminations of planned communities and condominiums have

presented equally complex problems, which this section addresses.

2. For all common interest communities, this Act seeks to deal comprehensively with the

problems created by both voluntary and involuntary termination. These include such matters as the

percentage of unit owners which should be required for termination; the time frame within which

written consents from all unit owners must be secured; the manner in which common elements and

units should be disposed of following termination, both in the case of sale and nonsale of all of the

real estate; the circumstance under which sale of units may be imposed on dissenting owners; the

powers held by the board of directors on behalf of the association to negotiate a sales agreement;

the practical consequences to the project from the time the unit owners approve the termination

until the transfer of title and occupancy actually occurs; the impact of termination on liens on the

units and common elements; distribution of sales proceeds; the effect of foreclosure or

enforcement of liens against the entire common interest community with respect to the validity of

the project; and other matters.

3. Recognizing that unanimous consent from all unit owners would be impossible to secure

as a practical matter in a project of any size, and recognizing as well that a vote of the stockholders

of a corporation under state corporate law may not adequately protect the interests of the minority,

subsection (a) states a general rule that 80% of the votes in the association are required for

termination of a project. The declaration may require a larger percentage of the votes and in a

non-residential project, it may also permit a smaller percentage. Pursuant to Section 2-119 (Rights

of Secured Lenders), lenders may require that the declaration specify a larger percentage of unit

owner consent or, more typically, require the consent of a percentage of the lenders before the

project may be terminated.

4. As a result of subsection (a) unless the declaration requires unanimous consent for

termination, the declarant may be able to terminate the common interest community despite the

unanimous opposition of other unit owners if the declarant owns units to which the requisite

number of votes are allocated. Such a result might occur, for example, should a declarant be unable

to continue sales in a project where some sales have been made. The 2021 amendments to

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subsection (a) retain the requirement that 80% of the unit owners agree to termination of the

common interest community, but add the requirement of agreement by 80% of the unit owners

other than the declarant. This prevents a declarant who has sold relatively few units from

accomplishing a termination over the objection of most or all of the unit purchasers.

5. Subsection (b) describes the procedure for execution of the termination agreement. It

recognizes that not all unit owners will be able to execute the same instrument, and permits

execution or ratification of the master termination agreement. Since the transfer of an interest in

real estate is being accomplished by the agreements, each of the ratifications must be executed in

the same manner as a deed. Importantly, the agreement must specify the time within which it will

be effective; otherwise, the project might be indefinitely in “limbo” if ratifications had been signed

by some, but not all, required unit owners, and the signing unit owners fail to revoke their

agreements. The agreement becomes effective only when it is recorded.

6. The 2021 amendments revise and simplify subsections (c) and (d) of the original Act,

replacing them with a single new subsection (c). Subsection (c) deals with a sale of units and

common elements following termination.

There are three substantive changes from the prior version:

First, the scope is expanded to include cooperatives.

Second, the original Act authorized a sale of “all of the common elements and units”; the

revision allows for the sale of some but not all common elements and units.

Third, a major change in policy is the expansion of the scope of subsection (c) by removing

the limitation of the rule to communities with “only units having horizontal boundaries,” a typical

high-rise building. In a community with some or all “non-stacked units,” subsection (d) of the

original Act required unanimous consent of unit owners for sale after termination. Revised

subsection (c) simplifies by allowing the sale of units after termination, regardless of whether units

have horizontal boundaries, with an 80% vote.

7. Subsection (e) describes the powers of the association during the pendency of the

termination proceedings. It empowers the association to negotiate for the sale, but makes the

validity of any contract dependent on the unit owner approval. This subsection also makes clear

that, upon termination, title to the real estate shall be held by the association, so that the association

may convey title without the necessity of each unit owner signing the deed. Finally, this subsection

makes clear that, until the association delivers title to the property, the project will continue to

operate as it had prior to the termination, thus insuring that the practical necessities of operation of

the real estate regime will not be impaired.

8. Subsection (f) addresses the circumstance when title to real estate in the common interest

community will not be sold pursuant to the termination agreement.

In this circumstance, the original Act shifted title to all common elements to the unit

owners in tenancy in common, shifted title to the units to a tenancy in common in communities

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having only horizontal-boundary units, with no shifting of title for communities having other units.

The 2021 amendments to subsection (f) simplify this process by ending statutorily mandated

shifting. Instead, new subsection (f) defers to the termination agreement. Title to real estate that is

not to be sold remains in place, but the unit owners may provide for a different outcome, including

a conversion of some or all of their real estate to tenancy in common, in their termination

agreement.

9. Subsections (g), (h), and (i) deal with the very complex calculations and priorities

which might result upon termination of a common interest community. Those questions involve

competing claims of first mortgage holders on individual units, other secured and unsecured

creditors of individual unit owners, judgment creditors of the association, creditors of the

association to whom a security interest in the common elements has been granted and unsecured

creditors of the association.

Those subsections accord different treatment to these issues, depending upon the type of

common interest community involved. The separate approaches continue the distinctive treatment

which condominiums, planned communities and cooperatives have received under UCA, UPCA,

and MRECA, respectively. Each approach will be discussed and demonstrated in the Comments

below.

Termination of Condominiums and Planned Communities

10. Subsection (h) establishes general rules with respect to competing claims, but leaves to

state law the resolution of the priorities of those competing claims.

The examples which follow illustrate the relative effects of several provisions set out in the

Act, based on application of an assumed state lien priority rule of “first in time, first in right.” In

those instances, particularly involving mechanics’ liens, where state law often establishes

priorities at variance with that rule, that result is also indicated.

Example 1:

Hypothetical for Examples 1A-1H: A planned community consists of five detached

single family homes on five individually owned lots, together with a sixth lot which is

undeveloped but intended for future construction of a swimming pool serving all units. The

development is served by a private road. Lot 6 and the private road are common elements owned

by the association.

The declaration provides that the Act applies to this development (which would otherwise

be exempt as a “small” planned community under Section 1-203). The documents also provide

that: (1) upon termination, all units and the common elements must be sold; (2) the association is

permitted to encumber Lot 6, and to grant a security interest in that lot for any purpose; and (3)

votes and common expense liabilities are allocated equally among the units. For purposes of the

example, we have assumed that the documents do not require the consent of first mortgage holders

before the unit owners may vote to terminate.

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The five units were originally sold at equal prices of $50,000. Common expenses in the

project are $100 per unit, per month, and are used for a variety of purposes, including insurance

and upkeep of the units and common elements. At the time the units were conveyed, each of them

was released from all liens affecting the planned community which were senior to the declaration,

and the common elements were deeded to the association free of all liens.

A shopping center developer has offered $380,000 for the purchase of the entire planned

community. The association’s members unanimously vote in favor of termination, and otherwise

comply with Section 2-118. The appraisal required by Section 2-118(j) shows that the units are

still of equal value.

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

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

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

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

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

In addition, all common expenses had been paid when due. The other assets of the

association, including reserves, bank account, and all other personal property, total $20,000.

Under the Act (Section 2-118(g)), the association, following sale, holds the proceeds of

sale together with the assets of the association, “as trustee for unit owners and holders of liens on

the units as their interests may appear.” In these circumstances, the interests of each party in the

total value of $400,000 would be as follows:

UNIT # 1 2 3 4 5

Share of Proceeds 80,000 80,000 80,000 80,000 80,000

Due 1

Mortgage Holders 50,000 40,000 25,000 -0- -0-

Due Owners 30,000 40,000 55,000 80,000 80,000

Example 1B: The facts stated in Example 1A remain true. However, at termination, Unit 1

has failed to pay its common expenses for 12 months. In these circumstances, the interests of each

party would be as follows:

UNIT # 1 2 3 4 5

Share of Proceeds 80,000 80,000 80,000 80,000 80,000

Due Association

(Priming 1st

Mortgage) 600 -0- -0- -0- -0-

Due 1

Mortgage Holders 50,000 40,000 25,000 -0- -0-

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Due Association

(Not Priming

Mortgage) 600 -0- -0- -0- -0-

Due Owners 28,000 40,000 55,000 80,000 80,000

In this example, both the lenders and the association are fully paid because the sales

proceeds exceed the liens on the units. Note, however, that six months of the unpaid assessments

prime the first mortgage pursuant to Section 3-116(b). Thus, if the sales proceeds had been only

$50,000 per unit, rather than $80,000, the results with respect to Unit 1 would have been as

follows:

Sales Proceeds $50,000

6-Month Assessment Due Association $600

Balance $49,400

Paid to 1st Mortgage Holder $49,400

Loss to 1st Mortgage Lender ($600)

Loss to Association ($600)

Of course, the association has, and the lender may have, a claim against the unit owner,

personally, for the unpaid sums due them. Importantly, however, neither the other unit owners nor

their units are subject to any liability for those claims.

Because the lien of the first mortgage holder, at termination or foreclosure, is junior to the

first six months of unpaid assessments due the association, lenders may protect themselves under

the Act by requiring the escrow of six months’ common expense assessments, as they often do for

real property taxes.

Example 1C: The facts stated in Example 1B remain true. However, after all the units

were initially sold, but before termination, 80% of the unit owners agree to build a swimming pool

on Lot 6. The association contracts with XYZ Pool Company to build the pool for $100,000. XYZ

does not take a security interest in the common elements, as it might have done under Section

3-112; and does not act to perfect any available mechanics’ lien under state law. The pool is

properly completed. When the association fails to pay, XYZ sues the association, secures a

judgment, and properly perfects its judgment pursuant to Section 3-111 (Tort and Contract

Liability). As provided in Section 3-111, liens resulting from judgments against the association are

governed by Section 3-117. At the time of termination, XYZ has not been paid, and its claim

amounts to $100,000.

Section 3-117(a) provides that a “judgment for money against the association,” if perfected

as a lien on real property under state law, “is a lien in favor of the judgment lienholder against all of

the units.” However, the last sentence also provides that the judgment is not a lien on the common

elements. Accordingly, XYZ holds a $20,000 lien on each of the units as of the date the lien is

perfected. In these circumstances, the interests of the parties are as follows:

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______________________________________________ _________________________

____________________________________________________________________________

UNIT # 1 2 3 4 5

Share of Proceeds 80,000 80,000 80,000 80,000 80,000

Due Association

(Priming 1

Mortgage) 600 -0- -0- -0- -0-

Due 1

Mortgage Holders 50,000 40,000 25,000 -0- -0-

Due Association

(Not Priming

Mortgage) 600 -0- -0- -0- -0-

Due XYZ 20,000 20,000 20,000 20,000 20,000

Due Owners 8,800 20,000 35,000 60,000 60,000

Example 1D: All facts stated in Example 1C remain true, except that XYZ Pool Company,

at the time it contracts to build the pool, takes a security interest in Lot 6, pursuant to Section

3-112, and that security interest includes a release of that real estate, upon default, from all

restrictions imposed on the real estate by the declaration. At termination, XYZ has not instituted

any action against the association to enforce its claim.

In these circumstances, XYZ, as a secured creditor with respect to Lot 6, holds an interest

superior to the declaration, and would have the right to exclude that real estate from the project.

Any sale of the entire planned community would be subject to the superior interest of XYZ. For

that reason, in the normal circumstances, the association would not be able to secure a release of

that lien unless XYZ were paid in full from the proceeds of the sale, which would have the effect of

reducing the value of the sale to $280,000. Note that this has the economic effect of placing the

XYZ claim, at termination, ahead of prior first mortgages. For this reason, first mortgage holders

will typically require their consent before common elements may be subjected to a lien.

Example 1E: The facts stated in Example 1C remain true so that XYZ holds only a

perfected judgment lien, not a security interest in the common elements.

After the XYZ lien was perfected, a $50,000 uninsured judgment is entered against the

owner of Unit 4, resulting from his personal business. The lien is perfected, and rests only against

Unit 4. In these circumstances, the interests of the parties are as follows:

UNIT # 1 2 3 4 5

Share of Proceeds 80,000 80,000 80,000 80,000 80,000

Due Association

(Priming 1

Mortgage) 600 -0- -0- -0- -0-

Due 1

Mortgage Holders 50,000 40,000 25,000 -0- -0-

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Due Association

(Not Priming

Mortgage) 600 -0- -0- -0- -0-

Due XYZ 20,000 20,000 20,000 20,000 20,000

Personal Lien,

Unit 4 -0- -0- -0- 50,000 -0-

Due Owners 8,800 20,000 35,000 10,000 60,000

Example 1F: The facts stated in Example 1E remain true. After the swimming pool is

built, a neighbor’s child falls into the untended and unfenced pool, and is injured. The child sues

the association. One month after the personal judgment against Unit 4 is perfected, the child

secures a judgment against the association for $100,000 more than the association’s insurance.

Under state law, the tort judgment, when perfected, constitutes a lien only from the date judgment

is entered, and does not enjoy a higher priority. In these circumstances, the interests of the parties

are as follows:

UNIT # 1 2 3 4 5

Share of Proceeds 80,000 80,000 80,000 80,000 80,000

Due Association

(Priming 1

Mortgage) 600 -0- -0- -0- -0-

Due 1

Mortgage Holders 50,000 40,000 25,000 -0- -0-

Due Association

(Not Priming

Mortgage) 600 -0- -0- -0- -0-

Due XYZ 20,000 20,000 20,000 20,000 20,000

Personal Lien,

Unit 4 -0- -0- -0- 50,000 -0-

Tort Lien 8,800 20,000 20,000 10,000 20,000

Due Owners -0- -0- 15,000 -0- 40,000

Note that the child’s lien realizes only $78,800; the estate is not entitled to participate in the

proceeds available to Units 3 and 5 to satisfy the unmet claims against Units 1 and 4, because those

units are liable only for their pro rata share of the claim, which is the same amount any of those

units would have had to pay prior to termination in order to secure a partial release. Thus, if Unit 5,

prior to termination, had secured a partial release for $20,000 from the estate, the result would be

the same.

Note also that the value of the common elements is not segregated from the values of the

units, since the sales’ values of the units reflect all of the value of the real estate. Similarly, note

that, after termination, the tort claimant is not entitled to reach or segregate the personal property

of the corporation, valued before termination at $20,000, even though he could have reached the

bank account or other assets prior to termination. Any other rule would create enormous

complexity, would impose arbitrary losses on creditors out of priority, and would tend to shift

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economic losses to unit owners who had paid their share of claims.

Example 1G: The facts stated in Example 1F remain true. After the Unit 4 personal lien is

perfected, but, one week before the tort judgment against the association is perfected, P Paving

Company begins repaving the private road. Work is completed one week after the tort judgment is

perfected. The association fails to pay P $50,000 upon completion as agreed, and P immediately

records its mechanics’ lien. Under state law, a mechanics’ lien, if recorded within 60 days of the

time work is completed, holds priority as of the day work began. State law does not, however,

grant the mechanics’ lien priority over any liens perfected before work began. P Paving sues on its

lien, and secures a judgment. In these circumstances, the interests of the parties are as follows:

UNIT # 1 2 3 4 5

Share of Proceeds 80,000 80,000 80,000 80,000 80,000

Due Association

(Priming 1

Mortgage) 600 -0- -0- -0- -0-

Due 1

Mortgage Holders 50,000 40,000 25,000 -0- -0-

Due Association

(Not Priming

Mortgage) 600 -0- -0- -0- -0-

XYZ Pool Lien 20,000 20,000 20,000 20,000 20,000

Personal Lien,

Unit 4 -0- -0- -0- 50,000 -0-

P Paving Lien 8,800 10,000 10,000 10,000 10,000

Tort Lien -0- 10,000 20,000 -0- 20,000

Due Owners -0- -0- 5,000 -0- 30,000

Note that, just as in the case of the tort lien, when Unit 1 could not contribute its share of the

mechanics’ lien, the remaining units are not liable for the balance.

In the example, the common expense lien arises before the P Paving lien had arisen. If the

common expense lien arose after the P Paving lien, we would be faced with circular liens, where:

(a) the P Paving lien would prime the common expense lien; (b) six months of the common

expense lien would prime the mortgage; and (c) the mortgage would prime the P Paving lien. Such

circular lien problems, however, are not unique in the law.

Example 1H: The facts stated in example 1G remain true. Assume Unit 5, before

termination, paid its pro rata share of both the P Paving lien and the tort lien. This reduces the P

Paving lien to $40,000, and the tort lien to $80,000. Under Section 3-117, this entitles Unit 5 to a

partial release of both claims, and neither P Paving nor the child has a further claim against Unit 5.

The interests of the parties are as follows:

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UNIT # 1 2 3 4 5

Share of Proceeds 80,000 80,000 80,000 80,000 80,000

Common Expense

Lien 600 -0- -0- -0- -0-

First Mortgage

Lien 50,000 40,000 25,000 -0- -0-

Common Expense

Lien 600 -0- -0- -0- -0-

XYZ Pool Lien 20,000 20,000 20,000 20,000 -0-

Personal Lien,

Unit 4 -0- -0- -0- 50,000 -0-

P Paving Lien 8,800 10,000 10,000 10,000 -0-

Tort Lien -0- 10,000 20,000 -0- -0-

Due Owners -0- -0- 5,000 -0- 80,000

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

Example 2: The facts stated in example 1G remain true. Assume, however, that, at the

outset, Unit 5 was twice as large as the others, sold for $100,000, or twice as much as the others,

and twice the common expense liability was allocated to it. At termination, it remains twice as

valuable. In those circumstances, the results on sale are as follows:

UNIT # 1 2 3 4 5

Sale Proceeds 66,666 66,666 66,666 66,666 133,332

Common Expense

Lien 600 -0- -0- -0- -0-

First Mortgage

Lien 50,000 40,000 25,000 -0- -0-

Common Expense

Lien 600 -0- -0- -0- -0-

XYZ Pool Lien 15,466 16,666 16,666 16,666 33,333

Personal Lien,

Unit 4 -0- -0- -0- 50,000 -0-

P Paving Lien -0- 10,000 13,333 -0- 26,666

Tort Lien -0- 1,667 16,666 -0- 33,333

Due Owners -0- -0- -0- -0- 50,000

Note that all the liens are allocated in accordance with each unit’s common expense

liability, since no special provision was made for allocating the costs of the pool, the paving, or the

tort claim. Unit 5 probably did not contemplate the size of its exposure; nevertheless, fewer dollars

were available to creditors upon termination than in Example 1G.

Example 3: The facts stated in Example 1G remain true, including the fact that Unit 5 was

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originally sold at the same price ($50,000) as the remaining units. Upon appraisal, however,

assume that, because of improvements, Unit 5 is now worth $75,000. Three other units have

remained at $50,000, while Unit 1 was neglected, and is now worth only $40,000. Common

expense liabilities never changed. In this example, the total value of the units is now $265,000.

Since sales proceeds are distributed in accordance with fair market values, the following

distribution of proceeds would apply:

Unit 1: (15.09433%) $ 60,377

Unit 2: (18.86793%) $ 75,472

Unit 3: (18.86793%) $ 75,472

Unit 4: (18.86793%) $ 75,472

Unit 5: (28.30188%) $113,207

100.00000% $400,000

UNIT # 1 2 3 4 5

Sales Proceeds 60,377 75,472 75,472 75,472 113,207

Common Expense

Lien 600 -0- -0- -0- -0-

First Mortgage

Lien 50,000 40,000 25,000 -0- -0-

Common Expense

Lien 600 -0- -0- -0- -0-

XYZ Pool Lien 9,177 20,000 20,000 20,000 20,000

Personal Lien,

Unit 4 -0- -0- -0- 50,000 -0-

P Paving Lien -0- 10,000 10,000 5,472 10,000

Tort Lien -0- 5,472 20,000 -0- 20,000

Due Owners -0- -0- 472 -0- 63,207

In this example, the equal distribution of common expense liability coupled with the “fair

value” distribution of sales proceeds create the greatest losses for the creditors of the association.

11. Subsection (j)(4) is an exception to the “fair market value” rule. It provides that, if

appraisal of any condominium unit cannot be made, either through pictures or comparison with

other units, so that any unit’s appropriate share in the overall proceeds cannot be calculated, then

the distribution will fall back on the only objective, albeit artificial, standard available, which is the

common element interest allocated to each unit.

12. Foreclosure of a mortgage or other lien or encumbrance does not automatically

terminate the condominium or planned community, but, if a mortgagee or other lienholder (or any

other party) acquires units with a sufficient number of votes, that party can cause the condominium

or planned community to be terminated pursuant to subsection (a) of this section.

Termination of Cooperatives

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13. Subsection (i) deals with the very complex calculations and priorities which might

result upon termination of a cooperative, in light of the possibility that the association itself might

have its own secured creditors, while unit owners and their creditors would seek to enforce their

own claims against the proceeds of sale. The Act recognizes, in considering this issue, that there

are two competing interests to be resolved. On the one hand, cooperative developers and lenders

have traditionally financed cooperatives through loans to the cooperative association secured by

one or more blanket mortgages on the cooperative’s real estate. Any uniform proposal to reduce

the priorities of some or all such mortgages in favor of creditors secured only by interests in some

of the units would have a negative effect on that traditional form of financing.

At the same time, it has become increasingly evident that the frequent inability of unit

owners to readily resell their units may be traced in part to the reluctance of spot lenders to place

mortgages on individual units which may always be subordinate to the claims of the association’s

secured creditors, even when those associations creditors obtain their security interest at a date

later than the date of the spot loan. As a result, the Conference was urged to draft the Act in a

manner which would enhance the financing of individual units.

This section became the focal point for much of that debate. In resolving it, the Act takes a

middle approach, by providing the declarant an election among priority systems.

Subsection (i) permits the declarant to include in the declaration a provision that all the

association’s creditors, upon termination, will have priority over all the interests of unit owners

and their creditors. If the declaration does so provide, the association’s creditors would enforce

their liens in their normal priority, while unsecured creditors of the association would be treated as

if they had perfected their liens immediately prior to termination. Only when all of the

association’s creditors had been satisfied would the unit owners and their creditors be entitled to

participate in the proceeds of sale. Such a result, while significantly different from the result

flowing under UCA or UPCA, is a recognition of the fundamental differences between the

financing of condominiums and cooperatives. Such a provision would likely maximize the ability

of the cooperative to secure initial and subsequent blanket financing, while tending to discourage

spot loans for units. Alternatively, subsection (i) contemplates that the declarant may wish to

enhance the financeability of units while insuring that the initial blanket financing of a cooperative

will not be jeopardized. Accordingly, it provides that, in the absence of a provision in the

declaration which grants senior priority to the association’s creditors, the liens of all creditors with

an interest in the cooperative’s property would be fractionalized upon termination, and would

constitute a lien against each unit proportionate to that unit’s common expense liability. No lien

would lie against the cooperative’s real estate as a whole, but a senior blanket mortgage, for

example, would constitute a first lien against every unit in proportion to the common expense

liabilities of the various units.

14. In the case of fractionalized liens, a particularly complex series of creditors’ rights

questions arise upon termination. Those questions involve competing claims of holders of first

security interests on individual units, the secured and unsecured creditors of individual unit

owners, as well as blanket mortgagees and judgment creditors of the association. The second part

of subsection (i) attempts to establish general rules with respect to these competing claims, but

leaves to state law the resolution of the priorities of those claims. In considering his problem, in the

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analogous context of condominiums and planned communities, which mandate fractionalized

liens upon termination, Comment 10 above includes examples of how these competing claims

might be resolved. If all creditors of the association have priority over all creditors of unit owners,

of course, the examples set out in Comment 10 have to be adjusted appropriately.

Other Provisions

15. Subsection (j) describes the method by which the interests of proprietary lessees are to

be calculated, and adopts an appraisal procedure for allocation of the sales proceeds in all three

forms of ownership.

It departs significantly from the usual result under most condominium acts. Under those

acts the proceeds of the sale of the entire project are distributed upon termination to each unit

owner in accordance with the common element interest which was allocated at the outset of the

project. Of course, in an older development, those original allocations will bear little resemblance

to the actual value of the units. For that reason, the Act adopts an appraisal procedure for

distribution of the sales proceeds. As suggested in the examples on the distribution of proceeds,

this appraisal may dramatically affect the amount of dollars actually received by unit owners.

16. The 2021 amendments to subsection (j)(1) require the association to distribute its

appraisal to the unit owners so that they may understand the likely financial consequences of the

proposed termination for their units. Any appropriate method of distribution is allowed, including

electronic delivery. The amendments add protection for unit owners who believe that the

association’s appraisal understates the fair market value of their unit. A unit owner who objects to

the association’s appraisal may obtain a separate appraisal, and in the absence of agreement on

value a panel of three appraisers (the association’s appraiser, the unit owner’s appraiser, and a third

appraiser selected by the first two) determine the value of the owner’s unit. This new procedure is

based on a provision in the Illinois Condominium Act, 765 ILCS 605/15.

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

18. “Foreclosure” in subsection (k) includes deeds in lieu of foreclosure, and “liens”

includes tax and other liens on real estate which may be converted or withdrawn from the project.

19. The termination agreement should adopt or contain any restrictions, covenants, and

other provisions for the governance and operation of the property formerly constituting the

common interest community which the owners deem appropriate. These might closely parallel the

provisions of the declaration and bylaws. This is particularly important in the case of a common

interest community which is not to be sold pursuant to the terms of the termination agreement.

20. Subsection (l) recognizes the possibility that a pre-existing lien might not have been

released prior to the time the condominium or planned community declaration was recorded.

Recordation of the declaration should not constitute a changing of the priority of those liens; and it

is contrary to all expectations that a prior lienholder may be involuntarily subjected to the

condominium or planned community documents. For that reason, this section permits the

nonconsenting prior lienholder upon foreclosure to exclude the real estate subject to his lien from

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the condominium or planned community.

21. The 1994 amendment to subsection (k) clarifies the effect of foreclosure of a security

interest in common elements which the association may have granted under Section 3-112.

22. The 2021 amendments add new subsection (m) to authorize a partial termination of the

common interest community. Currently, most states do not have a statutory mechanism for partial

terminations of common interest communities. Florida added a partial-termination provision to its

condominium act in 2011. Fla. Stat. § 718.117.

A partial termination may serve the best interests of a community in a number of different

circumstances. A natural disaster or other casualty may destroy one building while leaving other

buildings intact. A partial termination of the destroyed building and its adjacent real estate may be

preferable to reconstruction. A developer may declare multiple phases, construct buildings for

only the first one, and when a subsequent unbuilt phase becomes infeasible, a partial termination

may remove the unbuilt developer-owned units. Changes in the neighborhood may make one part

of a community unsuitable for continued residential use; for example, the government may replace

a two-lane road adjoining the community with a high-speed six-lane highway.

New subsection (m) sets forth procedures and furnishes guidance for partial termination. It

authorizes partial termination with a vote of 80 percent of the unit owners, including 80 percent of

the owners of units being terminated. Partial termination is the same concept as the withdrawal of

real estate from the common interest community when the withdrawn real estate includes declared

units. Partial termination under this act may be accomplished only pursuant to this section or

pursuant to the development right of a declarant to withdraw real estate. See Section 2-110(d). A

mere amendment to the declaration to reduce the size of the community by withdrawing units is

not effective. See Section 2-117(d).

SECTION 2-119. RIGHTS OF SECURED LENDERS.

(a) The declaration may require that all or a specified number or percentage of the lenders

who hold security interests encumbering the units or who have extended credit to the association

approve specified actions of the unit owners or the association as a condition to the effectiveness of

those actions, but no requirement for approval may operate to (i) deny or delegate control over the

general administrative affairs of the association by the unit owners or the executive board, or (ii)

prevent the association or the executive board from commencing, intervening in, or settling any

litigation or proceeding, or (iii) prevent any insurance trustee or the association from receiving and

distributing any insurance proceeds except pursuant to Section 3-113.

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(b) A lender who has extended credit to an association secured by an assignment of income

(Section 3-102(14)) or an encumbrance on the common elements (Section 3-112) may enforce its

security agreement in accordance with its terms, subject to the requirements of this [act] and other

law. Requirements that the association must deposit its periodic common charges before default

with the lender to which the association’s income has been assigned, or increase its common

charges at the lender’s direction by amounts reasonably necessary to amortize the loan in

accordance with its terms, do not violate the prohibitions on lender approval contained in

subsection (a).

Comment

1. In a number of instances, particularly sale or encumbrances of common elements, or

termination of a planned community, a lender’s security may be dramatically affected by acts of

the association. For that reason this section permits the declaration to provide that lender

ratification of specified actions of the association is a condition of their effectiveness.

2. There are three important limitations on the rights of lender consent. They are: (1) a

prohibition on control over the general administrative affairs of the association; (2) restrictions on

control over the association’s powers during litigation or other proceedings; and (3) prohibition of

receipt or distribution of insurance proceeds prior to application of those proceeds for rebuilding.

3. It is important that lenders not be able to step in and unilaterally act as receiver or trustee

of the association. There may, of course, be occasions when a court of competent jurisdiction

would order appointment of a receiver for an association. While this would be possible in a court

proceeding, the Act prohibits private contractual granting of such a power.

4. Since it may well be that the association might find itself involved in litigation which

would be adverse to the interests of the lender or the declarant, it is inappropriate for a secured

party to be able to control the course of litigation in the absence of the consent of the other parties.

In an appropriate case, of course, where the lenders’ interests are affected, a lender might seek to

intervene as a party.

5. Section 3-113 specifies the distribution of insurance proceeds. In particular, it prevents

distribution of those proceeds to lenders until the intended purpose of the insurance has been met.

For that reason, under this section the declaration may not provide the lender a right to receive

insurance proceeds in any manner except the manner provided in Section 3-113.

6. In addition to the provisions of the declaration, the provisions of individual deeds to

units may require that unit owner to secure his lender’s consent before taking particular actions.

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7. The delegation of consent powers to the lenders may, of course, be limited to particular

kinds or classes of lenders – such as holders of first security interests – and may also establish

eligibility criteria. Such criteria may include, for example, notice requirements. It is possible, for

example, to require that only those lenders who notify the association may have consent powers, or

be for a specified period of time – say, during the period of declarant control.

8. The 1994 changes in subsections (a) and (b) are designed to resolve issues which lenders

to associations have raised regarding their authority to require approval of association activities as

conditions of the effectiveness of those actions, and to include otherwise standard lending

requirements in their loan documents.

SECTION 2-120. MASTER ASSOCIATIONS.

(a) A declaration may:

(1) delegate a power under Section 3-102(a) from the unit owners association to a

master association;

(2) provide for exercise of the powers under Section 3-102(a) by a master

association that also serves as the unit owners association for the common interest community; and

(3) reserve a special declarant right to make the common interest community

subject to a master association.

(b) All provisions of this [act] applicable to unit owners associations apply to the master

association, except as modified by this section.

association without amending the declaration. The executive board of the unit owners association

shall give notice to the unit owners of a proposed delegation and include a statement that unit

owners may object in a record to the delegation not later than 30 days after delivery of the notice.

The delegation becomes effective if the board does not receive a timely objection from unit owners

of units to which at least 10 percent of the votes in the association are allocated. If the board

receives a timely objection by at least 10 percent of the votes, the delegation becomes effective

only if the unit owners vote under Section 3-110 to approve the delegation by a majority vote. The

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delegation is not effective until the master association accepts the delegation.

(d) A delegation under subsection (a)(1) may be revoked only by an amendment to the

declaration.

(e) At a meeting of the unit owners which lists in the notice of the meeting the subject of

delegation of powers from the executive board to a master association, the unit owners may revoke

the delegation by a majority of the votes cast at the meeting. The effect of revocation on the rights

and obligations of parties under a contract between a unit owners association and a master

association is determined by law of this state other than this [act].

(f) Unless it is acting in the capacity of a unit owners association, a master association may

exercise the powers set forth in Section 3-102(a)(2) only to the extent expressly permitted in the

declarations of common interest communities which are part of the master association or expressly

described in the delegations of power from those common interest communities to the master

association.

(g) After a unit owners association delegates a power to a master association, the unit

owners association, its executive board members, and its officers are not liable for an act or

omission of the master association with respect to the delegated power.

(h) The rights and responsibilities of unit owners with respect to the unit owners

association set forth in Sections 3-103, 3-108, 3-109, 3-110, and 3-112 apply in the conduct of the

affairs of a master association only to persons who elect the executive board of a master

association, whether or not those persons are otherwise unit owners within the meaning of this

[act].

(i) Not later than 90 days after termination of a period of declarant control of the master

association, the executive board of the master association must be elected in one of the following

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ways:

(1) The unit owners of all common interest communities subject to the master

association elect all members of the master association’s executive board.

(2) The unit owners in, or the executive board of, each common interest community

subject to the master association elect one or more members of the master association’s executive

board if the instruments governing the master association apportion the seats on the board to each

common interest community in a manner roughly proportional to the number of units in each

common interest community.

(j) A period of declarant control of the master association under subsection (i) terminates

not later than the earlier of:

(1) the termination under Section 3-103 of all periods of declarant control of all

common interest communities subject to the master association under Section 3-103; or

(2) [60] days after conveyance to unit owners other than a declarant of

[three-fourths] of the units that may be created in all common interest communities subject to the

master association.

Comment

1. It is common in large or multi-phased condominiums or planned communities,

particularly those developed under existing laws, for the declarant to create a master or umbrella

association which provides management services or decision-making functions for a series of

smaller projects.

2. Subsection (a) states the general rule that the powers of a unit owners’ association may

be exercised by, or delegated to, a master association if the declaration for the common interest

community so provides. The declaration may have originally provided for a master association;

alternatively, the unit owners of several common interest communities may amend their

declarations in similar fashion to provide for this power.

3. Subsection (b) makes it clear that, if any of the powers of the unit owners’ association

may be exercised by, or delegated to, a master association, all other provisions of this Act that

apply to a unit owners’ association also apply to that master association, except as modified by this

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section. Accordingly, provisions on notice, voting, quorums, records, meetings, and other matters

which apply to the unit owners’ association would apply with equal validity to such a master

association.

4. The original section required that all delegations to a master association be set forth in

the declaration. The 2021 amendments add subsection (c) to allow the executive board of the

common interest community to delegate powers to a master association, subject to review by the

unit owners. A decision to delegate powers to a master association often has a substantial impact

on unit owners. If, after notice, at least 10% of the unit owners object to a board delegation, the

delegation is effective only if approved by the unit owners at a meeting or by ballot without a

meeting under Section 3-110.

5. Subsections (d) and (e), added by the 2021 amendments, address revocation of a

delegation of a power to a master association. For a delegation set forth in the declaration, the

normal procedures for amending the declaration apply. See Section 2-117 (Amendment of

Declaration). New subsection (e) has a special rule for revocation by the unit owners of a

board-approved delegation of powers to a master association. By a majority vote at any meeting in

which the subject of revocation is listed in the meeting notice, the unit owners may revoke a

delegation by majority vote. As the last sentence of subsection (e) indicates, the statutory right to

revoke does not override any contract rights a master association may have under an existing

contract. For example, other law determines whether the association is obligated to pay damages if

revocation terminates a contract before its scheduled expiration date.

6. Subsection (f) limits the ability of a master association to exercise the powers of the unit

owners’ association, except in those cases where the master association is actually acting as the

only association for one or more common interest communities. In those cases where it is not so

acting, however, the only powers of the unit owners’ association which the master association may

exercise are the ones expressly permitted in the declaration or in the delegation of power. This is in

significant contrast with the rule of Section 3-102 that all of the powers described in that section

may be exercised unless limited by the declaration.

7. Subsection (g) clarifies the liability of the unit owners association and its executive

board members and its officers when the common interest community for which the unit owners

association acts has delegated a power to a master association. In that instance, subsection (g)

makes it clear that the association and its board members and officers have no liability for acts and

omissions of the master association board; under subsection (b), that liability lies with the

members of the master association.

8. Subsection (h) addresses the question of the rights and responsibilities of the unit owners

in their dealings with the master board. A variety of sections enumerated in subsection (h) provide

certain rights and powers to unit owners in their dealings with their association. In the affairs of the

master association, however, it is incongruous for the unit owners to maintain those same rights if

those unit owners do not in fact elect the master board. Thus, for example, the rules for the election

of directors, meetings, notice of meetings, and quorums apply “only to persons who elect the

executive board of a master association.” Under subsection (i), after the period of declarant control

ends, the persons who elect the executive board of the master association will be unit owners or

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executive board members of each common interest community subject to the master association.

9. Subsection (i), added by the 2021 amendments, replaces a subsection of the original Act

dealing with the election of the executive board of the master association. Subsection (i) is a

mandatory rule, which requires an election of the master association board by an “at-large”

election of the master board (paragraph 1) or the designation of particular seats on the board to

each common interest community (paragraph 2). The objective is to ensure that all unit owners

through their individual sub-associations have the ability to elect a fair number of the members of

the master association’s executive board. For “at-large” voting under paragraph (1), only unit

owners – not the executive boards of the sub-associations – vote for members of the master

association board. If “seats” are allocated to the communities under paragraph (2), the governing

documents for each individual common interest community will determine whether the owners or

their board cast the master-association votes allocated to their community.

Between alternatives (1) and (2), “at large” voting by all unit owners under (1) is the

default rule; seats or districts under (2) are allowed only if the governing instruments for the master

association apportion the board seats and do so fairly, i.e, “in a manner roughly proportional to the

number of units in each common interest community.” Subsection (j) defines “period of declarant

control of the master association” for purposes of subsection (i), drawing on Section 3-103.

Example: A master association serves two condominium communities, which each

has their own sub-association. Community A has 20 units and a 5-member board.

Community B has 40 units and a 3-member board. Under paragraph (1), the master

association may have a 6-member board with at-large seats, allocating 20

master-association votes to Community A and 40 master-association votes to Community

B. Alternatively, under paragraph (2) each community may have its own seats on the

master association board, with Community A having 2 seats and Community B having 4

seats. Under existing subsection (e), the size of the sub-association boards determines how

many votes each sub-association holds under existing paragraphs (“ways”) (2) and (4).

New subsection (i)(2) makes size of the sub-association boards irrelevant – in this

example, it does not matter that smaller Community A has a bigger board than Community

B. Under paragraph (2), either association may provide for the election of its members by

unit owners or by executive boards.

SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST

COMMUNITIES.

(a) Any two or more common interest communities may be merged or consolidated under

subsection (b) into a single common interest community by agreement of the unit owners or

exercise of a special declarant right. In the event of a merger or consolidation, unless the

agreement otherwise provides, the resultant common interest community is the legal successor, for

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all purposes, of all of the pre-existing common interest communities, and the operations and

activities of all associations of the pre-existing common interest communities are merged or

consolidated into a single association that holds all powers, rights, obligations, assets, and

liabilities of all pre-existing associations.

(b) An agreement of two or more common interest communities to merge or consolidate

pursuant to subsection (a) must be evidenced by an agreement prepared, executed, recorded, and

certified by the president of the association of each of the pre-existing common interest

communities following approval by owners of units to which are allocated the percentage of votes

in each common interest community required to terminate that common interest community. If a

special declarant right is exercised in a common interest community, approval by the unit owners

is not required and the declarant may execute the agreement on behalf of the common interest

community. The agreement must be recorded in every [county] in which a portion of the common

interest community is located and is not effective until recorded.

allocated interests in the new association among the units of the resultant common interest

community either (i) by stating the reallocations or the formulas upon which they are based or (ii)

by stating the percentage of overall allocated interests of the new common interest community

which are allocated to all of the units comprising each of the pre-existing common interest

communities, and providing that the portion of the percentages allocated to each unit formerly

comprising a part of the pre-existing common interest community must be equal to the percentages

of allocated interests allocated to that unit by the declaration of the pre-existing common interest

community.

Comment

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1. There may be circumstances where common interest communities may wish to merge or

consolidate their activities by the creation of a single common interest community; this section

provides for that possibility.

Subsection (a) makes it clear that a merger or consolidation may occur by the same vote of

the unit owners necessary to terminate the common interest community. If two or more common

interest communities are merged or consolidated, the resulting common interest community is for

all purposes the legal successor of the pre-existing common interest community, with a single

association for all purposes. In the event common interest communities did not wish to completely

merge or consolidate their affairs, it would also be possible for them to create a master association

pursuant to Section 2-120.

2. Under subsection (b), the merger or consolidation agreement is treated for recording

purposes as an amendment to the declaration, and the same requirements for approval are

mandated as for termination.

3. Subsection (c) does not state a minimum requirement for the contents of a merger or

consolidation agreement, and any additional clauses not inconsistent with subsection (c) may be

included. The important point that subsection (c) makes is that the reallocation of the allocated

interests must be carefully stated.

Subsection (c) states two alternative rules in this respect. First, the reallocations may be

accomplished by stating specifically the allocation of allocated interests to each unit, or by stating

the formulas by which those interests may be allocated to each unit in all of the preexisting

common interest communities. Alternatively, the merger or consolidation agreement may state the

percentage of overall allocated interests allocated to “all of the units comprising each of the

pre-existing common interest communities.” The agreement might then also provide that the

position of the percentage allocated to each unit from along the shares allocated to each common

interest community will be equal to the percentage of allocated interests allocated to that unit by

the declaration of the pre-existing common interest community. An example of how this

alternative formulation would operate may be useful.

Example: Assume that two adjoining planned communities wish to merge their activities

into one planned community. Assume that the first planned community consists of 10

one-bedroom units, with an annual budget of $10,000. Assume further that each of the units, being

identical, has an equal common expense liability of 10% and one vote per unit.

The second planned community consists of 40 units, with 20 two-bedroom units and 20

three-bedroom units. The budget of the second planned community consists of $70,000 per year.

Each of the two-bedroom units has been allocated a 2% common expense liability, while each of

the three-bedroom units has been allocated a 3% common expense liability. Finally, each of the

units in the second planned community also has an equal vote.

There is no provision in the Act which mandates a particular allocation among planned

communities one and two as to either common expense liabilities or votes. Should the unit owners

wish to retain as much similarity to their previous common expense liabilities, however, and

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should they wish to retain equal voting in a merged project, it would be possible for them, pursuant

to subsection (c)(ii), to state “the percentage of overall common expense liabilities and votes in the

new association” as follows: as to common expense liabilities, they might allocate 12.5% of the

common expense liabilities in the merged project to planned community 1, and 87.5% thereof to

planned community 2. If the agreement further provided that “the portion of the percentages

allocated to each unit formerly comprising a part on the pre-existing planned community must be

equal to the percentages of allocated interests allocated to that unit by the declaration of the

pre-existing planned community” as required by subsection (c), each unit in planned community

one would then have allocated to it 1.25% of the common expense liabilities in the new planned

community. It happens that 1.25% of the common expenses of a merged planned community

which has a budget of $80,000 equals $1,000.

Under the same rationale, if each of the two-bedroom units in the second planned

community, to which were formerly allocated 2% of the common expense liabilities, now has

allocated 2% of the 87.5% allocated to the second planned community, each of those units would

then have allocated to it 1.75% of the common expense liabilities of the new planned community.

1.75% of $80,000 is $1,400. Similarly, each of the three-bedroom units would then have allocated

to it 2.625% of the common expense liabilities in the merged planned community. That percentage

of the common expense liabilities of $80,000 would yield an annual cost of $2,100, the same cost

as previously obtained in planned community 2.

Further, the unit owners are free to allocate votes among the units in any way which they

see fit. Of course, if they choose to allocate equal votes to all the units, which was the method

previously used in both planned communities, this would have the effect of giving 20% of the

votes to planned community 1, even though planned community one had only 12.5% of the

common expense liabilities. It may be, however, that this tracks with the expectations of the unit

owners in both planned communities. Alternatively, planned community one might be allocated

12.5% of the votes, which, when divided up among the 10 units, would give each one-bedroom

unit a .125 vote. If 87.5% of the votes were allocated equally among the unit owners in the second

planned community, then each of the unit owners in planned community two would have .21875

votes.

If some other configuration was to be desired, then the allocations would of necessity be

made pursuant to paragraph (c)(i) rather than (c)(ii). The same result would be reached in a merger

of planned communities or cooperatives.

4. The 2021 amendments provide a procedure for the exercise of a special declarant right to

merge or consolidate common interest communities. An agreement of unit owners is not required

when the declarant has a special declarant right. When two communities are merged, the same

declarant may have a special declarant right in both communities, but this is not necessary.

SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE. In a planned

community, if the right is originally reserved in the declaration, the declarant in addition to any

other development right, may amend the declaration at any time during as many years as are

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specified in the declaration for adding additional real estate to the planned community without

describing the location of that real estate in the original declaration; but, the amount of real estate

added to the planned community pursuant to this section may not exceed 10 percent of the real

estate described in Section 2-105(a)(3) and the declarant may not in any event increase the number

of units in the planned community beyond the number stated in the original declaration pursuant to

Section 2-105(a)(5).

Comment

In assembling land for large “new town” planned communities, developers have from time

to time been unable to secure small parcels of real estate within the outer boundaries of the

development at the time the original covenants for the development were recorded. Subsequently,

however, for a variety of reasons, those parcels may become available and would logically form a

part of the overall development. As a matter of policy, there is no reason to prohibit the

amendment of the declaration to permit the addition of that land to the development, so long as that

addition does not substantially increase the potential common expenses of the unit owners, nor the

density of the project as originally project by the declarant in his public offering statement.

This section was designed to address this relatively unusual problem. It permits the

declarant to add those after-acquired parcels of real estate to the development. This power is

available only if the declarant makes clear in his original declaration that this development right

has been reserved. The section also requires the declarant to impose his own time limit on the

period during which this development right may be exercised. To foreclose the possibility of an

increase in the density of the project beyond that which was originally contemplated, the section

also prohibits the declarant from increasing the number of units in the planned community beyond

the number originally stated in the declaration. Finally, to impose a reasonable limitation on the

amount of new land that may be added, the amount of real estate added to the planned community

pursuant to this section may not exceed 10% of the real estate originally subjected to the

declaration.

SECTION 2-123. MASTER PLANNED COMMUNITIES.

(a) The declaration for a common interest community may state that it is a master planned

community if the declarant has reserved the development right to create at least [500] units that

may be used for residential purposes, and at the time of the reservation that declarant owns or

controls more than [500] acres on which the units may be built.

(b) If the requirements of subsection (a) are satisfied, the declaration for the master planned

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community need not state a maximum number of units and need not contain any of the information

required by Section 2-105(a)(3) through (14) until the declaration is amended under subsection (c).

declaration must contain:

(1) a sufficient legal description of the unit and all portions of the master planned

community in which any other units have been conveyed to a purchaser; and

(2) all the information required by Section 2-105(a)(3) through (14) with respect to

that real estate.

(d) The only real estate in a master planned community subject to this [act] are units that

have been declared or which are being offered for sale and any other real estate described pursuant

to subsection (c). Other real estate that is or may become part of the master planned community is

only subject to other law and to any other restrictions and limitations that appear of record.

(e) If the public offering statement conspicuously identifies the fact that the community is a

master planned community, the disclosure requirements contained in [Article] 4 apply only with

respect to units that have been declared or are being offered for sale in connection with the public

offering statement and to the real estate described pursuant to subsection (c).

(f) Limitations in this [act] on the addition of unspecified real estate do not apply to a

master planned community.

(g) The period of declarant control of the association for a master planned community

terminates in accordance with any conditions specified in the declaration or otherwise at the time

the declarant, in a recorded instrument and after giving notice in a record to all the unit owners,

voluntarily surrenders all rights to control the activities of the association.

Comment

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Section 2-123 was adopted in 1994 in response to concerns expressed from the

development community. Developers’ counsel asserted that the Act’s constraints on the

development process were not realistic in very large communities. First, they argued, the size and

time parameters suggested in Section 2-105 were illusory in large projects. Those self imposed

limits presumably have value in smaller projects, where buyers might reasonably expect an end to

the development process in the vicinity of their homes and where the limits could therefore form

part of the basis for the bargain between buyer and seller. However, those limits could not serve

that purpose in very large projects. There, development might reasonably be expected to continue

for decades, and the ultimate number of units could simply not be projected with any degree of

certainty at the outset of the project. Furthermore, while a developer could impose purely artificial

limits to satisfy the legal requirements of the Act – say, a 1000 year development period and a one

million unit density cap – such statements could not possibly give comfort or certainty to any

buyer, and would create a certain tone of cynicism if they became routinely used.

Other constraints on the development process – such as the period of declarant control of

the association – seemed equally difficult to justify in the abstract, once the drafters assumed a

sufficiently large project of the sort currently being developed throughout the United States. The

drafters adopted the “500 units/500 acres” standard as an objective cut off point after ample

evidence suggested that developers of smaller projects could readily satisfy the Act’s existing

requirements for documentation.

The drafters accordingly determined that the appropriate concept was to view the

development process from the perspective of potential buyers of the units being offered for sale at

any time in a large project. At that point, the developer should be required to describe what units

and common elements were subject to the Act, and how the various relationships which the Act

imposes exist at that time with respect to the submitted real estate.

The drafters also expect that the common law doctrines of good faith and unconscionability

will continue to be applied by the courts in appropriate circumstances to impose subjective

limitations on developer practices. See, e.g., Barclay v. Deveau, 384 Mass. 676 (1981) holding that

a declarant must surrender control of the association to the unit owners after a reasonable time.

SECTION 2-124. TERMINATION FOLLOWING CATASTROPHE. If substantially

all the units in a common interest community have been destroyed or are uninhabitable and the

available methods for giving notice under Section 3-121 of a meeting of unit owners to consider

termination under Section 2-118 will not likely result in receipt of the notice, the executive board

or any other interested person may commence an action in [insert appropriate court] seeking to

terminate the common interest community. During the pendency of the action, the court may issue

whatever orders it considers appropriate, including appointment of a receiver. After a hearing, the

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court may terminate the common interest community or reduce its size and may issue any other

order the court considers to be in the best interest of the unit owners and persons holding an interest

in the common interest community.

Comment

This section, adopted in 2008, is broadly based on a Florida statute that was adopted as the

result of several condominium projects that could not be rebuilt following storm damage. See Fla.

Stat. Ann. Section 718.117(4), (5). In those cases, termination was appropriate, but it proved

impossible to secure the needed unit owner vote to terminate the project.

In such circumstances, the section permits “any interested” person to petition the court for

an order terminating the common interest community or reducing its size. Recognizing that the

statute cannot contemplate every possible eventuality, the section grants the court powers to issue

whatever temporary orders the court deems “appropriate,” including the power to appoint a

receiver. Further, after a hearing, the court is empowered to “issue any other order the court

considers to be in the best interest of the unit owners and persons holding an interest in the

common interest community.”

SECTION 2-125. ADVERSE POSSESSION; PRESCRIPTIVE EASEMENT. A unit

owner or person claiming through a unit owner may not acquire title by adverse possession to, or

an easement by prescription in, a common element in derogation of the title of another unit owner

or the association.

Comment

1. This section, added by the 2021 amendments, is broadly based on a Minnesota statute

that protects registered land from loss by prescription or adverse possession. Minn. Stat. § 508.02.

This section responds to what appears to be an increase in the frequency of litigation involving

claims of adverse possession within common interest communities. For a representative case, see

Pisano v. Thunberg, 2021 WL 2656937 (Mass. Land Ct. 2021) (interpreting condominium statute

as not allowing unit owner to gain title by adverse possession to common area covered by owner’s

deck extension).

2. This section protects all the common elements from loss of title by claims of adverse

possession or prescriptive easement by a limited immunity. This immunity is limited to real estate

defined as “common elements” in the Act. The section precludes only a claim made by a unit

owner “or a person claiming through a unit owner” (this phrase protects common elements from

claims made by tenants of unit owners or similar persons). When the unit owners own the common

elements in tenancy in common, this provision modifies existing law by not allowing a unit owner

to acquire adverse possession by proving an “ouster” of the other cotenants. When the association

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owns the common elements, this provision modifies existing law, which in most states lacks

reported law clearly delineating the requirements for a person to acquire adverse possession title to

property owned by an association of which the person is a member.

3. The section leaves intact the enacting State’s substantive law of adverse possession to

govern claims made by the association or the unit owners collectively as tenants in common.

Claims of this type may be asserted when the common elements are subject to a title defect: a

person other than association or the unit owners owns or has a potential claim to a common

element. An adverse possession claim of this type protects the unit owners’ interest in the common

elements, rather than jeopardizing the unit owners’ expectations of ownership and use of the

common elements.

4. The last phrase in this section, “in derogation of the title of the other unit owners or the

association,” limits the scope of immunity to claims that impair the community’s title to and use of

the common elements. The state’s normal rules of adverse possession determine when the unit

owners may use the doctrine of adverse possession to obtain or perfect title to a common element.

Example 1: A condominium community has a recreational field (a common

element) situated between a building with units and the northern boundary of the

community’s real estate. A unit owner on the ground floor extends her patio by eight feet

into the recreational field. The state has a ten-year statute of limitations for the recovery of

possession of real property. Even if the unit owner maintains her extended patio in place

for more than 10 years and satisfies all the other elements of adverse possession (actual

possession that is open, notorious, continuous, and exclusive), this section prevents her

from acquiring title by adverse possession to the area occupied by the patio encroachment.

Her acquisition would be “in derogation of the title of the other unit owners,” who (along

with her) own the area as tenants in common.

Example 2: A condominium community has a recreational field (a common

element) situated between a building with units and the northern boundary of the

community’s real estate. Due to a surveying error, the description of the northern boundary

contained in the original declaration pursuant to section 2-105(a)(3) lies 10 feet too far to

the north. The entire recreational field, including the 10-foot strip, is a common element.

The neighbor who owns the adjacent parcel to the north has paramount title to the 10-foot

strip. The state has a ten-year statute of limitations for the recovery of possession of real

property. More than ten years after installation of the recreational field, the neighbor brings

a cause of action against the association to recover possession of the 10-foot strip. The

answer to the litigation filed by the association raises the affirmative defense that the unit

owners (and the association as their agent) have acquired title to the strip by adverse

possession. This section does not apply because their claim is not “in derogation of the title

of the other unit owners or the association.” It is in derogation of the neighbor’s title. Thus,

the state’s normal rules of adverse possession will determine whether the neighbor or the

unit owners prevail.

[ARTICLE] 3

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MANAGEMENT OF THE COMMON INTEREST COMMUNITY

SECTION 3-101. ORGANIZATION OF UNIT OWNERS ASSOCIATION. A unit

owners association must be organized no later than the date the first unit in the common interest

community is conveyed. The membership of the association at all times consists exclusively of all

unit owners or, following termination of the common interest community, of all former unit

owners entitled to distributions of proceeds under Section 2-118 or their heirs, successors, or

assigns. The association must have an executive board. The association must be organized as a

profit or nonprofit corporation, trust, limited liability company, partnership, [unincorporated

association,] or any other form of organization authorized by the law of this state.

Comment

1. The first purchaser of a unit is entitled to have in place the legal structure of the unit

owners’ association. The existence of the structure clarifies the relationship between the developer

and other unit owners and makes it easy for the developer to involve unit owners in the governance

of the common interest community even during a period of declarant control reserved pursuant to

Section 3-103(d).

2. The bracketed language preserves the flexibility existing in practically all States today to

organize the association of a condominium, cooperative or planned community as a profit or

nonprofit corporation, trust or partnership. Most associations are either corporations or

unincorporated associations, but occasionally developers or their lawyers have found trust or

partnership forms valuable. Although at least one State (Georgia) requires the organization of a

condominium association in corporate form, it is not desirable to mandate this result in a uniform

act. If a State wishes to mandate incorporation, it should delete the bracketed language.

3. Regardless of the form in which the Association is organized, the Act restricts

membership in the association to those persons who are ‘unit owners’ as that term is defined in

Section 1-103 (32). This rule should be considered together with three other provisions of the Act:

(i) the requirement in Section 2-101 (b) that at least in a condominium, a unit may not be ‘created’

until the structural components and mechanical systems of that unit - to the extent the unit is

intended to contain such components and systems - will be such are completed; (ii) the

requirement in Section 2-107 (b) that the declaration must allocate votes and a share of the

common expense liabilities to each unit pursuant to formulas that do not discriminate in favor of

units owned by the declarant; and (iii) the restriction in Section 2-117 (d) that the allocations of

votes and common expense liabilities to the units may not be amended except by unanimous

consent of all the unit owners.

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Taken together, these sections seek to avoid the potential for either intentional declarant

overreaching – by, for example, allocating more votes to units the declarant owns in order to

extend control of the association beyond the timeframes allowed under the Act in Section 3-103(d)

– or inadvertent uncertainty in failed projects as a result of allocating votes and common expense

liabilities to ‘ghost’ or ‘paper’ units that are never built. Rather, the philosophy of the Act is to

make certain that only persons with an actual economic interest in a ‘real’ unit will have a vote in

the affairs of the association and that the patterns for voting and allocating the relative costs of

maintaining the community’s property will not be subject to developer abuse.

4. This does not mean that the declarant should not or cannot participate in the activities of

the association. First, it is clear under Section 2-110 (a) that the declarant is the initial owner of

every unit when it is created. Accordingly, until every unit is sold, the declarant is a ‘unit owner’

and has the same rights to participate in its capacity as a unit owner as would any other person who

owned that same unit. Further, even if the declarant temporarily ceased being a unit owner, its

representative could still attend unit owner meetings and have access to the association’s records

so long as the declarant held any development right, if it reserved those special declarant rights.

See §1-103(33).

5. In addition, the Act recognizes the unique role of the declarant during the development

phase, and the expectations of the declarant’s lenders that the development can be constructed in

accordance with the plans, free from the risks of interference by other unit owners and the

association. Accordingly, the Act includes the important concepts of “Development Rights”

[Section 1-103 (14)] and ‘Special Declarant Rights” [ Section 1-103 (29)]. Among the significant

special declarant rights is the right to control the owners association during the time reasonably

necessary to control the project and sell the units. See, e.g., Investors Ltd. Of Sun Valley v. Sun

Mountain Condos., Phase I, Inc. Homeowners Ass’n, 106 Idaho 855, 683 P.2d 891 (1984), Barclay

v. Deveau, 415 N.E.2d 239 (Mass. Ct. App. 1981), vacated, 384 Mass. 676, 429 N.E. 2d. 323

(1981). Taken together with the substantive provisions of the Act governing those concepts, the

Act makes clear both that the developer will be meaningfully engaged in every aspect of the

Association’s and the projects activities during the time when development is underway, and that

the unit owners themselves will be free of the developer’s control at an appropriate time.

This section allows the document drafter to select any form of legal organization permitted

under state law for the Unit Owners Association; this Act then supplements the requirements of

those ‘entity’ statutes by a number of requirements unique to unit owner associations.

Notwithstanding this permitted flexibility, experience under both this Act, most non-UCIOA

condominium statutes and most planned communities created at common law indicates that nearly

all unit owner associations are organized as non-stock corporations under the States’ non-stock

corporation acts.

In the rare case where the association may be organized as another form of legal entity,

such as a limited liability company, the drafter will be required to address the differences between

this Act and the requirements of the State’s LLC statute. In the limited liability company context, it

may well be that the ‘bylaws’ mandated by this Act will in fact be part either of the declaration or

the management agreement required by the LLC statute. So long as the mandated content in

Section 3-106 appears in whatever document the drafter chooses, the requirements of this Act will

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have been satisfied.

SECTION 3-102. POWERS AND DUTIES OF UNIT OWNERS ASSOCIATION.

(a) Except as otherwise provided in subsection (b) and other provisions of this [act], the

association

(1) shall adopt and may amend bylaws and may adopt and amend rules;

(2) shall adopt and may amend budgets under Section 3-123, may collect

assessments for common expenses from unit owners, and may invest funds of the association;

(3) may hire and discharge managing agents and other employees, agents, and

independent contractors;

(4) may institute, defend, or intervene in litigation or in arbitration, mediation, or

administrative proceedings in its own name on behalf of itself or two or more unit owners on

matters affecting the common interest community, subject to Section 3-124;

(5) may make contracts and incur liabilities;

(6) may regulate the use, maintenance, repair, replacement, and modification of

common elements;

(7) may cause additional improvements to be made as a part of the common

elements;

(8) may acquire, hold, encumber, and convey in its own name any right, title, or

interest to real estate or personal property, but:

(A) common elements in a condominium or planned community may be

conveyed or subjected to a security interest only pursuant to Section 3-112; and

(B) part of a cooperative may be conveyed, or all or part of a cooperative

may be subjected to a security interest, only pursuant to Section 3-112;

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(9) may grant easements, leases, and licenses through or over the common

elements, but a grant to a unit owner that benefits the owner’s unit is allowed only by reallocation

under Section 2-108(c) of the common element to a limited common element;

(10) may impose and receive any payments, fees, or charges for:

(A) the use, rental, or operation of the common elements, other than limited

common elements described in Section 2-102(2) and (4); and

(B) services provided to unit owners;

(11) may impose charges for late payment of assessments and, after notice and an

opportunity to be heard, may impose reasonable fines for violations of the declaration, bylaws, and

rules of the association;

(12) may impose reasonable charges for the preparation and recordation of

amendments to the declaration, resale certificates required by Section 4-109, or statements of

unpaid assessments;

(13) may provide for the indemnification of its officers and executive board and

maintain directors and officers liability insurance;

(14) except to the extent limited by the declaration, may assign its right to future

income, including the right to receive assessments;

(15) may exercise any other powers conferred by the declaration or bylaws;

(16) may exercise all other powers that may be exercised in this state by

organizations of the same type as the association;

(17) may exercise any other powers necessary and proper for the governance and

operation of the association;

(18) may require that disputes between the association and unit owners or between

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two or more unit owners regarding the common interest community be submitted to nonbinding

alternative dispute resolution as a prerequisite to commencement of a judicial proceeding; and

(19) may suspend any right or privilege of a unit owner that fails to pay an

assessment, but may not:

(A) deny a unit owner or other occupant access to the owner’s unit;

(B) suspend a unit owner’s right to vote;

association; or

(D) withhold services provided to a unit or a unit owner by the association if

the effect of withholding the service would be to endanger the health, safety, or property of any

person.

(b) The declaration may not limit the power of the association beyond the limit authorized

in subsection (a)(18) to:

(1) deal with the declarant if the limit is more restrictive than the limit imposed on

the power of the association to deal with other persons; or

(2) institute litigation or an arbitration, mediation, or administrative proceeding

against any person, subject to the following:

(A) the association shall comply with Section 3-124, if applicable, before

instituting any proceeding described in Section 3-124 (a) in connection with construction defects;

and

(B) the executive board promptly shall provide notice to the unit owners of

any legal proceeding in which the association is a party other than proceedings involving

enforcement of rules or to recover unpaid assessments or other sums due the association.

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addition to exercising any of its powers against the unit owner, the association may:

(1) exercise directly against the tenant the powers described in subsection (a)(11);

(2) after giving notice to the tenant and the unit owner and an opportunity to be

heard, levy reasonable fines against the tenant for the violation; and

(3) enforce any other rights against the tenant for the violation which the unit owner

as landlord could lawfully have exercised under the lease or which the association could lawfully

have exercised directly against the unit owner, or both.

(d) The rights referred to in subsection (c)(3) may be exercised only if the tenant or unit

owner fails to cure the violation within 10 days after the association notifies the tenant and unit

owner of that violation.

(e) Unless a lease otherwise provides, this section does not:

(1) affect rights that the unit owner has to enforce the lease or that the association

has under other law; or

(2) permit the association to enforce a lease to which it is not a party in the absence

of a violation of the declaration, bylaws, or rules.

(f) The executive board may determine whether to take enforcement action by exercising

the association’s power to impose sanctions or commencing an action for a violation of the

declaration, bylaws, and rules, including whether to compromise any claim for unpaid assessments

or other claim made by or against it. The executive board does not have a duty to take enforcement

action if it determines that, under the facts and circumstances presented:

(1) the association’s legal position does not justify taking any or further

enforcement action;

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(2) the covenant, restriction, or rule being enforced is, or is likely to be construed

as, inconsistent with law;

(3) although a violation may exist or may have occurred, it is not so material as to

be objectionable to a reasonable person or to justify expending the association’s resources; or

(4) it is not in the association’s best interests to pursue an enforcement action.

(g) The executive board’s decision under subsection (f) not to pursue enforcement under

one set of circumstances does not prevent the executive board from taking enforcement action

under another set of circumstances, but the executive board may not be arbitrary or capricious in

taking enforcement action.

(h) The executive board shall establish a reasonable method for unit owners to

communicate among themselves and with the executive board on matters concerning the

association.

Comment

1. This section permits the declaration, subject to the limitations of subsection (b), to

include limitations on the exercise of any of the enumerated powers. The bracketed language

making a specific reference to unincorporated associations is not intended to exclude other forms

of association; the unincorporated association would have such powers, subject to the declaration,

regardless of the legal status of an unincorporated association in the State. If a State wishes to

permit the association to be unincorporated and the law of the State is unclear whether an

unincorporated association would have such powers in the absence of the language, the bracketed

language should be retained and the brackets removed.

2. Required provisions of the bylaws of the association, referenced in paragraph (1), are set

forth in Section 3-106.

3. This Act makes clear that the association can sue or defend suits even though the suit

may involve only units as to which the association itself has no ownership interest. In the absence

of a statutory grant of standing such as that set forth in paragraph (4), some courts have held that a

condominium association, because it has no ownership interest in the condominium, has no

standing to bring, defend, or to intervene in litigation or administrative proceedings in its own

name.

4. Paragraph (8) refers to the power granted by Section 3-112, upon a vote of the requisite

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number of unit owners, to sell or encumber common elements in a condominium or planned

community or to sell part or encumber all or part of a cooperative without a termination of the

common interest community.

Paragraph (9) permits the association to grant easements, leases, and licenses with respect

to the common elements without a vote of the unit owners. In practice, most of these grants are for

temporary and limited purposes and do not significantly interfere with unit owners’ rights to use

and enjoy the common elements. The 2021 amendments remove the association’s power to make a

grant to a unit owner that benefits the owner’s unit. Such a grant may have the practical effect of

increasing the size or value of the owner’s unit; for example, allowing an owner to extend a patio

or deck into a common-element lawn. Under the amendment, this objective may be accomplished

only by reallocation under Section 2-108(c) of the common element to a limited common element,

which requires that the executive board notify all unit owners of the proposed reallocation and, if

any unit owner objects, mandates a vote of the unit owners.

The prohibition in paragraph (9) applies only when the grant to a unit owner “benefits the

owner’s unit.” If the grant benefits the owner for a different reason, the prohibition does not apply.

For example, a unit owner who operates a restaurant or provides landscaping services may

properly obtain a grant that allows the owner to sell food or perform landscaping work on the

common elements.

5. The powers granted the association in paragraph (11) to impose charges for late payment

of assessments and to levy fines for violations of the association’s rules reflect the need to provide

the association with sufficient powers to exercise its “governmental” functions as the ruling body

of the common interest community. These powers are intended to be in addition to any rights

which the association may have under other law.

Under the Act, fines levied by the Association must be “reasonable” and may be imposed

only after notice and an opportunity for a hearing. Moreover, in an effort to minimize potential

abuse of the association’s powers, the 2008 amendments to the Act bar any foreclosure of a unit if

the only sums due are fines and related charges; see § 3-115(p). However, the Act does not codify

the precise dollar amount of late charges or fines, or detail the standards for conduct of a hearing.

Thus, the Act does not follow the enactments of States such as North Carolina which impose a

default cap on the amount of late fees; see North Carolina 2005 Session Law 2005-422, §

47F-3-102, and detailed default provisions regarding the conduct of the hearing; Id., at §

47F-3-107.1.

6. Under paragraph (14), the declaration may provide for the assignment of income of the

association, including common expense assessment income, as security for, or payment of, debts

of the association. The power may be limited in any manner specified in the declaration – for

example, the power might be limited to specified purposes such as repair of existing structures, or

to income from particular sources such as income from tenants, or to a specified percentage of

common expense assessments. The power, in many instances, should help materially in securing

credit for the association at favorable interest rates. The inability of associations to borrow because

of a lack of assets, in spite of its income stream, has been a significant problem.

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The 2008 amendments to Section 3-102 (a) (14) reverse the presumption in the 1994 Act as

to whether the association may pledge its common expense assessments as security for a loan.

Previously, the Act provided that the Association could only do so “to the extent the declaration

expressly so provides.” Because many declarations do not so provide, the Act as drafted forced the

Association to amend its declaration in order to borrow funds, since lenders will commonly require

a pledge of the income stream as a condition to extending credit to the Association.

The increasing use of this important financing technique and the extraordinarily low

default rate on such loans across the country caused the drafters to empower the Association to

borrow funds with a pledge of its income stream, subject only to the restrictions appearing in the

declaration. Moreover, under Section 1-204, this section automatically applies to common interest

communities created under prior law.

It may be appropriate for the declaration to include some restrictions on such borrowing,

such as a requirement that the proposal to borrow funds be put to a vote of the unit owners before

the loan is closed. However, while some commentators urged that the Act require a majority vote

of unit owners before the Association borrows any funds, the drafters sought again to avoid a fixed

rule that may be inappropriate in some communities, and instead chose to defer such

decision-making to the drafters of each community’s declaration or to the discretion of the

executive board, or the unit owners, in a particular case.

7. If the association is incorporated, it may, pursuant to paragraph (16), exercise all other

powers of a corporation. Similarly, if the association is unincorporated, the association may, by

virtue of paragraph (16), exercise all other powers of an unincorporated association. Inconsistent

provisions of state corporation or unincorporated association law are subject to the provisions of

this Act, as provided in Section 1-108.

8. The 1994 amendment to this section provides important new statutory authority to an

association, but also states limits on the association’s power.

9. New subsections (c), (d), and (e), and (f) enable the association to enforce directly

against a tenant or other occupant of a leased unit all the powers which either the statutes or the

project documents provide against that person. The section also provides the association all the

powers the owner itself would have under the lease against the tenant, so long as the violation of

the lease also violates the project documents. Finally, subsection (d) permits the association,

landlord, and tenant to contract in the lease itself for powers beyond those granted by the statute.

10. New Thus, subsection (a)(18) permits the association to impose mandatory nonbinding

arbitration or other non-judicial procedures to resolve disputes in the development before litigation

commences. The drafters believe that non-judicial dispute resolution should be available to parties

as an economical and efficient form of alternative dispute resolution.

11. The 2008 amendments, in Section 3-120, significantly expand the association’s

rulemaking authority. In order to consolidate all of the Act’s provisions on rules in one section,

former sub-section (c) of section 3-102 has been relocated to new Section 3-120(f).

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12. While Section 3-102(a) (2) was amended in 2008 to expressly enable the association to

“invest funds of the association,” the drafters concluded that the investment standards contained in

Uniform Prudent Investor Act and similar statutes should not apply to the association’s investment

of reserves or other funds of the association.

Anecdotal evidence suggests that the reserves of most common interest community

associations, as a matter of practice, are invested in cash or near-cash (i.e., short term bond fund)

equivalents.

The UPIA by its terms applies to trust investing. It is the nearly universal practice for

associations to be organized as non-stock corporations or – occasionally – other forms of business

entities but rarely as trusts. In these cases, the business judgment rule rather than the prudence

norm of trust law applies.

Beyond that, however, and regardless of the form of organization, the drafters concluded

that it ought not make special provision for association investments in this Act because actual or

contingent liquidity needs will predominate in most circumstances affecting the association.

Unlike a family trust, an association board is not meant to be making long-term investment

decisions for capital growth; accordingly, most such investing is appropriately done in

interest-bearing cash equivalents.

Finally, because the subject has not been problematic in practice, the drafters saw no need

to make special provision for it. Of course, subject to the business judgment rule, in those unusual

cases where long term capital growth might be appropriate, UCIOA would not bar a board’s

decision to invest the reserves in suitable vehicles designed to achieve that goal.

13. The 2008 amendments to Section 3-102 (a)(19) of the Act allow the executive board to

“suspend and right or privilege of a unit owner that fails to pay an assessment”; this is similar to

statutes in other States; compare, e.g., North Carolina § 47F-3-102 (11). However, unlike other

States, Section 3-102 (a)(19) specifically precludes suspending the right to vote or the right to run

for an association office if a unit owner has not paid her assessments.

14. Subsection (b) was amended in 2008 to focus on the extent to which a declarant may

insert provisions into a declaration designed to impede the association’s future flexibility and

discretion in managing its affairs. The amended text preserves the basic rule in the earlier Act that

prevents the declarant from imposing unique limits on the association’s power to deal with the

declarant.

The amended section cross references new Section 3-124, which imposes a “cooling off”

period before an association may commence coercive proceedings against a declarant arising out

of the project’s construction. Consistent with the overarching goal in the 2008 amendments to

re-balance the association’s relationship with individual unit owners, the amended section requires

that unit owners be notified of all significant legal proceedings to which the association is a party.

15. New subsection (f) addresses the important question of whether the Association may

“selectively enforce” its rules or whether it is obliged to enforce the rules to the letter in every

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instance, at the risk of being found by a court to have failed to meet its fiduciary duties, or to have

waived its right to enforce the rules in some future instance as a consequence of its failure to

enforce the rules in this instance.

In evaluating the alternative outcomes here, the extreme positions are clear. On the one

hand, one could assert that the Board’s obligation is to strictly enforce or attempt to enforce every

alleged breach of the rules, so that the board can never be accused of selective enforcement,

favoritism, breach of duty, or waiver.

Alternatively, the board could be held free of any obligation to enforce at any time, without

in any way constraining its ability to enforce the same rules at a later time against the same or

different persons in those cases where the board decided it would do so.

In the middle is a rule of law that would guide the Board’s exercise of discretion. There are

a number of theoretical standards that might guide the Board’s discretion; they include: (i) the

‘business judgment rule’; (ii) arbitrary and capricious; (iii) reasonableness; (iv) bad faith; (v)

discriminatory or other improper purposes; (vi) “best interests of the association”; (vii) “good

cause”; or (viii) perhaps the Latin maxim “De minimus non curat lex”- the notion that “the law

does not care about insignificant matters.”

There have also been legislative proposals in various states in response to the issue of

discretionary rules enforcement, although there does not appear to be a consensus position. Several

of those proposals were considered by the drafters.

The text in subsection (f) represents a middle position to guide an Executive Board as it

considers whether or how to enforce a particular rule. The text identifies those circumstances

where the Board might conclude, in any given case, not to enforce the rules as they have been

drafted. These criteria are premised, of course, in all instances on the recognition that the

decision-making process of the Executive Board is subject to the “Business Judgment Rule”; see

Comments to Section 3-103.

In those circumstances where the Board declines to enforce a rule, nothing in this Act

precludes an individual unit owner from seeking independently to enforce the rules in a particular

instance pursuant to Section 4-117. Alternatively, the unit owner could seek to require

enforcement of the rule by the Executive Board for a breach of its duty; such a suit would be

measured by the extent the board had abused its discretion under subsection (f).

16. While subsection (f) deals with the executive board’s discretion in enforcing its rules in

any single instance, sub-section (g) states the basic principle that the board’s decision in one

instance is not binding in another future instance, under another set of circumstances. At the same

time, the subsection emphasizes that the Board may not act in an arbitrary or capricious fashion.

As with every provision of this Act, Section 1-108 makes clear that “principles of law and

equity...supplement the provisions of this Act, except to the extent inconsistent with this Act”. In

the case of 3-102(g), it is clear that other principles of law and equity, including the law of waiver

and course of performance, would supplement this section. Such principles have been often been

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applied by courts in appropriate circumstances as they consider the extent to which an absence of

enforcement over time has modified recorded covenants affecting real estate, and this Act does not

modify those principles, except as stated in (g).

SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS.

(a) Except as otherwise provided in the declaration, the bylaws, subsection (b), or other

provisions of this [act], the executive board acts on behalf of the association. In the performance of

their duties, officers and members of the executive board appointed by the declarant shall exercise

the degree of care and loyalty to the association required of a trustee. Officers and members of the

executive board not appointed by the declarant shall exercise the degree of care and loyalty to the

association required of an officer or director of a corporation organized, and are subject to the

conflict of interest rules governing directors and officers, under [insert reference to state nonprofit

corporation law]. The standards of care and loyalty described in this section apply regardless of the

form in which the association is organized.

(b) The executive board may not:

(1) amend the declaration except as provided in Section 2-117;

(2) amend the bylaws;

(3) terminate the common interest community;

(4) elect members of the executive board but may fill vacancies in its membership

for the unexpired portion of any term or, if earlier, until the next regularly scheduled election of

executive board members; or

(5) determine the qualifications, powers, duties, or terms of office of executive

board members.

(d) Subject to subsection (e), the declaration may provide for a period of declarant control

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of the association, during which a declarant, or persons designated by the declarant, may appoint

and remove the officers and members of the executive board. A declarant may voluntarily

surrender the right to appoint and remove officers and members of the executive board before the

period ends. In that event, the declarant may require during the remainder of the period that

specified actions of the association or executive board, as described in a recorded instrument

executed by the declarant, be approved by the declarant before they become effective. Regardless

of the period provided in the declaration, and except as provided in Section 2-123(g), a period of

declarant control terminates no later than the earliest of:

(1) [60] days after conveyance of [three-fourths] of the units that may be created to

unit owners other than a declarant;

(2) two years after all declarants have ceased to offer units for sale in the ordinary

course of business;

(3) two years after any right to add new units was last exercised; or

(4) the day the declarant, after giving notice in a record to unit owners, records an

instrument voluntarily surrendering all rights to control activities of the association.

(e) Not later than 60 days after conveyance of [one-fourth] of the units that may be created

to unit owners other than a declarant, at least one member and not less than 25 percent of the

members of the executive board must be elected by unit owners other than the declarant. Not later

than 60 days after conveyance of [one-half] of the units that may be created to unit owners other

than a declarant, not less than [one-third] of the members of the executive board must be elected by

unit owners other than the declarant.

(f) Except as otherwise provided in Section 2-120(i), not later than the termination of any

period of declarant control, the unit owners shall elect an executive board of at least three

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members, at least a majority of whom must be unit owners. Unless the declaration provides for the

election of officers by the unit owners, the executive board shall elect the officers. The executive

board members and officers shall take office upon election or appointment.

(g) A declaration may provide for the appointment of specified positions on the executive

board by persons other than the declarant during or after the period of declarant control. It also may

provide a method for filling vacancies in those positions, other than by election by the unit owners.

However, after the period of declarant control, appointed members:

(1) may not comprise more than [one third] of the board; and

(2) have no greater authority than any other member of the board.

Comment

1. Subsection (a) makes officers and members of the executive board appointed by the

declarant liable as trustees of the unit owners with respect to their actions or omissions as members

of the board. This provision imposes a very high standard of duty because the board is vested with

great power over the property interests of unit owners, and because there is a great potential for

conflicts of interest between the unit owners and the declarant. The 1994 amendments add

precision by changing the standard of care for declarant-appointed officers and members from

“fiduciary” to “trustee.” The law contemplates many forms of fiduciary relationships; among

them, the trustee’s duty is the highest.

Originally, subsection (a) specified that officers and members elected by the unit owners

have a duty of “ordinary and reasonable care.” The 1994 amendments conform the Act to

expectations of owners, officers, members of executive boards, and courts. The duties owed by an

elected officer or board member ought to parallel the standards imposed on persons holding

equivalent positions in non-profit corporations in the state where the common interest community

is located.

For both declarant-appointed and elected officers and members, subsection (a) looks to

other state law to measure the standard of care and the basis of liability. For declarant-appointed

persons, the law of trusts determines the precise content of the fiduciary duties, as well as other

duties including conflict-of-interest rules, owed to the unit owners. For elected officers and

members, the standards of conduct and the standards of liability are determined by the state’s

nonprofit corporation statute. This applies regardless of the organizational type of the association.

Thus, for example, if an association were organized as a limited liability company (LLC), the

standards for its officers and board members would not be affected by the state’s LLC statute.

A majority of states have adopted a version of the ABA’s Model Nonprofit Corporation

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Act (MNCA) (3d ed. 1987; as of 2021, the ABA was preparing a 4th edition). MNCA Section 8.30

sets forth standards of conduct, and section 8.31 sets forth standards of liability for directors.

Executive board members are treated as “directors” whether or not they have the formal title of

“director” as a member of the association’s governing board. MNCA Section 8.42 prescribes

standards of conduct for officers; they include a duty to act with the care of “an ordinarily prudent

person.” State statutes that do not track the MNCA may impose different rules for director

conduct, such as a trust rule or the rules applicable to directors of standard, for-profit corporations,

as well as different rules for officers.

2. Executive board members frequently will obtain the benefits of the business judgment

rule under subsection (a). The business judgment rule is a standard of liability, not a standard of

conduct. The rule curtails judicial review of board decisions by creating a presumption of sound

business judgment. As long as the board decision might serve a rational business purpose, courts

do not interfere by substituting their own ideas of what is or is not a correct or reasonable decision.

The rule also presumes that the directors act in good faith, on an informed basis, and with the

honest belief that their action furthers the best interests of the corporation. The business judgment

rule began as common-law rule for evaluating the conduct of directors of for-profit corporations.

Now many courts apply the rule in the non-profit context generally and as the basis for evaluating

the activities of boards of unit owners associations. See, e.g., Reiner v. Ehrlich, 66 A.3d 1132 (Md.

Ct. Spec. App. 2013); Committee for a Better Twin Rivers v. Twin Rivers Homeowners

Association, 929 A.2d 1060 (N.J. 2007); 40 West 67th Street v. Pullman, 790 N.WE.2d 1174

(N.Y. 2003).

Subsection (a) does not codify the business judgment rule. Its application to executive

boards depends on judicial adoption and on other state statutes. Nor does MNCA Section 8.31

codify the business judgment rule, but it has several components, one of which reflects some of the

principal elements of the common-law business judgment rule.

3. Subsections (d) and (e) recognize the practical necessity for the declarant to control the

association during the developmental phases of a project. However, any executive board member

appointed by the declarant pursuant to subsection (d) is liable as a fiduciary to any unit owner for

his acts or omissions in such capacity.

4. Subsection (d) permits a declarant to surrender his right to appoint and remove officers

and executive board members prior to the termination of the period of declarant control in

exchange for a veto right over certain actions of the association or its executive board. This

provision is designed to encourage transfer of control by declarants to unit owners as early as

possible, without impinging upon the declarant’s rights (for the duration of the period of declarant

control) to maintain ultimate control of those matters which he may deem particularly important to

him. It might be noted that the declarant at all times (even after the expiration of the period of

declarant control) is entitled to cast the votes allocated to his units in the same manner as any other

unit owner.

5. Subsection (e), in combination with subsection (d), provides for a gradual transfer of

control of the association to the unit owners from the declarant. Such a gradual transfer is

preferable to a one-time turnover of control since it assures that the unit owners will be involved, to

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some extent, in the affairs of the association from a relatively early date and that some unit owners

will acquire experience in dealing with association matters.

6. Subsection (d) has been amended in the 1994 amendment to add a new fourth category

regarding voluntary relinquishment of retained rights to control any aspect of the affairs of the

association. This category frequently has been written into declarations under the Act. The

amendment incorporates this practice and is important in order to track the time when statutes of

limitation involving the declarant begin to run. See Section 3-111.

7. Subsection (g), adopted in 2008, is designed to accommodate the possibility, especially

in senior living projects and in subsidized “first time home buyer” complexes, that it may assist the

long term viability of the project if a non-controlling percentage of the directors – appointed by

persons other than unit owners – could provide independent outside expertise to the Board, even if

those directors are not directly responsive to the owners themselves. As drafted, the new provision

contains safeguards intended to adequately guard against the potential for abuse by the original

declarant or outside lenders. Such directors could sit only if the declaration provided for such an

outcome.

New subsection (g) must be read in conjunction with subsection (a), which emphasizes that

the duty of care and loyalty of all directors is to the association and not to the appointing authority.

This clear statement of duty should ameliorate the concerns of undue influence that may flow from

potential conflicting interests from “outside” directors.

As with any provision of the declaration, this provision for ‘outside directors’ could be

removed from the declaration by the vote or agreement of unit owners holding 67% of the voting

power in the association, or any other number or percentage required for amendment contained in

the declaration. The potential for amendment provides an alternative form of protection against the

possibility that if the unit owners conclude that the “outside” directorships are detrimental to unit

owners, the owners can rid themselves of the system. However, as provided in Section 2-117(a),

the unit owners’ ability to enact such an amendment may be subject to approval of the amendment

by another person.

8. The transition process in which control of the unit owners association passes from

declarant control to unit owner control is one that frequently leads to disagreements between the

declarant and the unit owners who may be disgruntled about a range of matters: construction

quality, management of the association and its funds, allegations of unfulfilled representations, or

other matters. The subject has been addressed in a number of treatises; see, e.g., Hyatt,

Condominium and Homeowner Association Practice: Community Association Law , Chap. 13,

Declarant Control of Association: Transition, at 251 (3d ed. 2000).

The original Act and some of the 2008 amendments seek to address various aspects of the

transition process. For example, new Section 3-124 imposes a “cooling off” period before the

association may commence litigation against the declarant and those in its employ concerning

construction defects, while existing Section 3-105 allows the unit owners association, after

transition occurs, to terminate contracts entered into by the declarant on the association’s behalf

while the declarant controls the association.

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Some States, in adopting this Act, have included amendments that expand the obligations

of declarants during the time they control the association and at the time of transition. See, e.g.,

Conn. Gen. Stat. 47-245 (h) and (i) [the cognate provision to UCIOA § 3-103] which requires that,

first, during the period of declarant control, the declarant must regularly provide the unit owners

with a current financial statement of the association; and, second, within 30 days after turnover of

control, the declarant must also deliver to the association all property of the unit owners and of the

association held or controlled by the declarant.

SECTION 3-104. SPECIAL DECLARANT RIGHTS.

(a) In this section:

(1) “Involuntary transfer” means a transfer by foreclosure of a mortgage, deed in

lieu of foreclosure, tax sale, judicial sale, or sale in a bankruptcy or receivership proceeding of real

estate owned by a declarant.

(2) “Non-affiliate successor” means a person that succeeds to a special declarant

right and is not an affiliate of the declarant that transferred the special declarant right to the person.

(b) A special declarant right is an interest in real estate. The interest is appurtenant to:

(1) all units owned by the declarant, and

(2) real estate that is subject to a development right.

declarant rights.

(d) A declarant may voluntarily transfer part or all of a special declarant right only by an

instrument that describes the special declarant right being transferred. The transfer becomes

effective when recorded in every [county] in which any portion of the common interest community

is located.

(e) Except as otherwise provided subsection (h), (i), (k), or (l), a successor to a special

declarant right is subject to all obligations and liabilities imposed on the transferor by this [act] or

the declaration.

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(f) If a declarant transfers a special declarant right to an affiliate of the declarant, the

transferor and the successor are jointly and severally liable for all obligations and liabilities

imposed on either person by this [act] or the declaration. Lack of privity does not deprive a unit

owner of standing to maintain an action to enforce any obligation or liability of the transferor or

successor.

(g) A declarant that transfers a special declarant right to a non-affiliate successor:

(1) remains liable for an obligation or liability imposed by this [act] or the

declaration, including a warranty obligation, that arose before the transfer; and

(2) is not liable for an obligation or liability imposed on the successor by this [act]

or the declaration that arose after the transfer.

(h) A non-affiliate successor that succeeds to fewer than all special declarant rights held by

the transferor is not subject to an obligation or liability that relates to a special declarant right not

transferred to the successor.

(i) A non-affiliate successor is not liable for an obligation or liability imposed by this [act]

or the declaration that relates to:

(1) a misrepresentation by a previous declarant;

(2) a warranty obligation on an improvement made by a previous declarant or

before the common interest community was created;

(3) breach of a fiduciary obligation by a previous declarant or the previous

declarant’s appointees to the executive board; or

(4) an obligation or liability imposed on the transferor as a result of the transferor’s

act or omission after the transfer.

(j) If an involuntary transfer includes a special declarant right, the transferee may elect to

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acquire or reject the special declarant right. A transferee that elects to acquire the special declarant

right is a successor declarant. The election is effective only if the judgment or instrument

conveying title describes the special declarant right.

(k) A successor to a special declarant right by an involuntary transfer may declare in a

recorded instrument the successor’s intent to hold the right solely for transfer to another person.

After recording the instrument, the successor may not exercise a special declarant right, other than

a right under Section 3-103(d) to control the executive board, and an attempt to exercise a special

declarant right in violation of this subsection is void. A successor that complies with this

subsection is not liable for an obligation or liability imposed by this [act] or the declaration other

than liability for the successor’s act or omission under Section 3-103(d).

(l) This section does not subject a successor to a special declarant right to a claim against or

obligation of a transferor, other than a claim or obligation imposed by this [act] or the declaration.

Comment

1. This complex section was substantially revised in the 2021 amendments to articulate

more clearly each of the policy choices addressed. The section deals with the issue of the extent to

which obligations and liabilities imposed upon a declarant by this Act are transferred to a third

party by a transfer of the declarant’s interest in a common interest community. There are two parts

to the problem. First, what obligations and liabilities to unit owners (both existing and future)

should a declarant retain, notwithstanding his transfer of interests. Second, what obligations and

liabilities may fairly be imposed upon the declarant’s successor in interest.

2. This section strikes a balance between the obvious need to protect the interests of unit

owners and the equally important need to protect innocent successors to a declarant’s rights,

especially persons such as mortgagees whose only interest in the project is to protect their debt

security. The general scheme of the section is to impose upon a declarant continuing obligations

and liabilities for promises, acts, or omissions undertaken during the period that he was in control

of the community, while relieving a declarant who transfers all or part of his special declarant

rights in a project of such responsibilities with respect to the promises, acts, or omissions of a

successor over whom he has no control. Similarly, the section absolves a nonaffiliated transferee

of responsibility for the promises, acts, or omissions of a transferor declarant over which he had no

control. Finally, the section makes special provision for the interests of certain successor

declarants (e.g., a mortgagee who succeeds to the rights of the declarant pursuant to a “deed in lieu

of foreclosure” and who holds the project solely for transfer to another person) by relieving such

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persons of virtually all of the obligations and liabilities imposed upon declarants by this Act.

3. Subsection (b), added by the 2021 amendments, makes all special declarant rights

interests in real property. Each special declarant right is automatically appurtenant to all units

owned by the declarant in the common interest community and to all real estate that is subject to

development rights. In effect, a special declarant right is a “floating” servitude; it is appurtenant to

the declarant’s real estate in the common interest community as it changes over time – reduced

when the declarant sells units and makes other transfers and increased when the declarant adds

units or other real estate to the common interest community. A related revision to Section

2-105(a)(8) drops the requirement that the declaration sufficiently describe “the real estate to

which each [special declarant right] applies” except for a development right.

4. Subsection (c), added by the 2021 amendments, is a mandatory rule that automatically

terminates all special declarant rights when a declarant no longer owns units or development rights

in the common interest community.

5. Subsection (d) provides that a declarant’s voluntary transfer of special declarant rights

requires recording an instrument which reflects a transfer of those rights. This recordation

requirement is important to determine the duration of the period of declarant control pursuant to

Section 3-103(d) and (e), as well as to place unit owners on notice of all persons entitled to

exercise the special rights of a declarant under this Act. For this reason, recording in the land

records is required even when a declarant transfers a special declarant right in connection with a

transfer of units in a cooperative when those units might be classified as personal property.

6. Subsection (d) allows all types of voluntary transfers of special declarant rights. Because

a transfer of “part or all of a special declarant right” is allowed, a special declarant right is

divisible. A declarant may transfer a special declarant right on an exclusive or non-exclusive basis.

This section states no rules for involuntary transfers of special declarant rights (e.g., sales to satisfy

judgment liens, tax sales) but they are allowed; the law generally recognizes that rights that may be

voluntarily transferred are transferable involuntarily.

7. In a common interest community, a mortgage recorded prior to the recordation of the

declaration would have priority over any rights of declarants or unit owners arising under the

declaration. However, under Section 2-118(k) and (l), foreclosure of such a mortgage does not

automatically terminate the effectiveness of a condominium or planned community declaration;

the declaration becomes ineffective as to the land covered by the prior mortgage only if the

purchaser at the foreclosure sale records an instrument excluding the real estate from the

condominium or planned community. If the purchaser on the foreclosure of the prior mortgage

elects to have the real estate remain in the condominium or planned community, it becomes a

successor declarant subject to the general rules of this section, including those applicable to

persons who acquire special declarant rights by virtue of involuntary transfers (subsections (j) and

(k)).

However, under the Act, foreclosure of a mortgage which is prior to a cooperative

declaration automatically removes the real estate from the cooperative since there is nothing in the

Act which would change the ordinary rule that the foreclosure of a mortgage which is prior to any

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restrictive covenants or easements results in a transfer free of those “junior interests.” See Section

2-118(k) and (l).

Therefore, in the absence of some contractual arrangement between the mortgagee and the

association under which the buyer at the foreclosure sale has a right to reconvey the property to the

association, the purchaser at the foreclosure sale could not succeed to any development rights of

the declarant since the property would be removed from the cooperative by the foreclosure sale

itself. However, there is nothing in the act which would preclude the developer from having the

association contractually obligate itself to retake title to foreclosed property on specified terms. If

the underlying mortgage is of the entire cooperative property, there would probably be no

advantage in such an arrangement since the foreclosing mortgagee with the entire project could set

up his own cooperative association and undertake new marketing efforts without regard to the

obligations and liabilities of the prior cooperative association. If, on the other hand, the mortgage

is on only a portion of the cooperative project there may be distinct advantage in giving the

purchaser at the foreclosure sale the power to reconvey the property to the association and having

the purchaser become owner of the units which would exist or could be created in the property. In

such a case, the position of the mortgagee would be essentially the same as that of a declarant who

acquires the special declarant right to add additional land to the cooperative.

If the developer, while in control of the cooperative association, has had the cooperative

association grant a mortgage in its real estate and has subordinated the declaration to the mortgage,

the situation is the same as that just described: on foreclosure, that real estate would no longer be a

part of the cooperative. Again, in the ordinary case no special declarant rights could pass to the

purchaser at the foreclosure sale since he would not have any real estate in the cooperative. If,

however, the association is obligated to accept a reconveyance of the real estate which has been

foreclosed the purchaser at the foreclosure sale would have special declarant rights as just

described.

If the declarant in a cooperative has given a mortgage or security interest in his own special

declarant rights or in his unsold units, purchasers at the foreclosure sale would acquire rights as to

property still in the cooperative and would therefore be able to succeed to the declarant’s special

declarant rights.

8. Under subsection (f), a declarant that transfers a special declarant right to an affiliate (as

defined in Section 1-103(1)) remains subject to all obligations and liabilities imposed by the Act or

by the declaration and becomes jointly and severally liable with the affiliate successor declarant

for all obligations and liabilities of the successor. This precludes declarants from evading their

obligations and liabilities under this Act by transferring their interests to affiliated companies.

9. Under subsection (g), a declarant that transfers a special declarant right to a non-affiliate

successor remains liable to unit owners (both existing and future) for all obligations and liabilities,

including warranty obligations on all improvements made by the declarant, arising prior to the

transfer.

10. Non-affiliate successors do not undertake all of the obligations and liabilities of the

original declarant. In general, a non-affiliate successor becomes subject to all obligations and

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liabilities imposed upon a declarant by the Act or by the declaration with respect to any promises,

acts, or omissions undertaken subsequent to the transfer which relate to the transferred rights A

non-affiliate successor is not liable for the warranty obligations of the original declarant with

respect to improvements to the project made by the original declarant or for any misrepresentation

or breach of fiduciary duty by the original declarant prior to the transfer.

11. Subsection (i) protects successor declarants from certain obligations and liabilities of

the transferor declarant who granted a special declarant right to the successor. This subsection

relieves the successor only from obligations and liabilities “imposed by this [act] or the

declaration.” This limitation means that a successor who uses improvements made by a previous

declarant in the successor’s project is not necessarily relieved of an obligation to repair defects or

make upgrades to the improvements. Other law, including contract and tort principles, will

determine whether the successor who uses the transferor’s old improvements undertakes an

obligation or liability.

12. Subsections (j) and (k) provide two special rules for transfers of special declarant rights

by foreclosure sales and other “involuntary transfers” defined in Section 3-104(a)(1). First, the

original Section adopted a policy that adds important flexibility, especially for foreclosing lenders,

by allowing a transferee to elect to take all of the declarant’s special declarant rights, none of them,

or only the right to maintain models, sales offices, and signs. The 2021 amendments confirm and

expand flexibility by allowing a foreclosure purchaser or other grantee in an involuntary transfer to

elect any or all of the special declarant rights that subject to the involuntary transfer. If an election

is made, the rights are transferred in the instrument conveying title and the transferee becomes a

successor declarant subject to the other provisions of this section. In the event of an involuntary

transfer of all units and development rights to create additional units owned by a declarant, if the

transferee does not elect the transfer of special declarant rights, under subsection (c) those special

declarant rights cease to exist and any period of declarant control terminates.

Second, any person who succeeds to special declarant rights by an involuntary transfer

may declare its intention (in a recorded instrument) to hold those rights solely for transfer to

another person. Thereafter, the successor may transfer all special declarant rights to a third party

acquiring title to any units owned by the successor but may not, prior to transfer, exercise any

special declarant rights other than the right to control the executive board of the association under

Section 3-103(c). A successor declarant who holds special declarant rights solely for transfer is

relieved of any liability under the Act except liability for any acts or omissions related to its control

of the executive board of the association. This “deep-freeze” provision protects a foreclosing

lender who bids at foreclosure to buy the project solely for the purpose of subsequent resale. It

permits a foreclosing lender to undertake such a transaction without incurring the full burden of

declarant obligations and liabilities. At the same time, the provision recognizes the need for

continuing operation of the association and, to that end, permits a foreclosing lender to assume

control of the association for the purpose of ensuring a smooth transition.

13. A non-affiliate successor that acquires the special declarant right to maintain sales

offices, management offices, signs, and models does not thereby become subject to any

obligations or liabilities as a declarant, except for the obligation to provide a public offering

statement and any liability resulting therefrom. See subsection (h). This provision also is designed

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to protect mortgage lenders and contemplates the situation where a lender takes over a project and

desires to sell out existing units without making any additional improvements to the project. This

provision facilitates such a transaction by relieving the mortgage lender, in that instance, from the

full burden of obligations and liabilities ordinarily imposed upon a declarant under the Act.

14. A declarant’s development right to create additional units is a special declarant right

that often has substantial value as collateral. A mortgage lender or other transferee at an

involuntary transfer may elect to acquire the development right and then choose either to exercise

the right or to limit liability by holding the right solely for the purpose of transfer under subsection

(k).

SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES.

(a) Within two years after the executive board elected by the unit owners pursuant to

Section 3-103(f) takes office, the association may terminate without penalty, upon not less than

[90] days’ notice to the other party, any of the following if it was entered into before the executive

board was elected:

(1) any management, maintenance, operations, or employment contract, or lease of

recreational or parking areas or facilities; or

(2) any other contract or lease between the association and a declarant or an affiliate

of a declarant;

(b) The association may terminate without penalty, at any time after the executive board

elected by the unit owners pursuant to Section 3-103(f) takes office upon not less than [90] days’

notice to the other party, any contract or lease that is not bona fide or was unconscionable to the

unit owners at the time entered into.

(1) any lease the termination of which would terminate the common interest

community or reduce its size, unless the real estate subject to that lease was included in the

common interest community for the purpose of avoiding the right of the association to terminate a

lease under this section; or

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(2) a proprietary lease.

Comment

1. This section deals with a common problem in the development of condominium,

planned community, and cooperative projects: the temptation on the part of the developer, while in

control of the association, to enter into, on behalf of the association, long-term contracts and leases

with himself or with an affiliated entity.

The Act deals with this problem in two ways. First, Section 3-103(a) imposes upon all

executive board members appointed by the declarant liability as fiduciaries of the unit owners for

all of their acts or omissions as members of the board. Second, Section 3-105 provides for the

termination of certain contracts and leases made during a period of declarant control.

2. In addition to contracts or leases made by a declarant with himself or with an affiliated

entity, there are also certain contracts and leases so critical to the operation of the common interest

community and to the unit owners’ full enjoyment of their rights of ownership that they too should

be voidable by the unit owners upon the expiration of any period of declarant control. At the same

time, a statutorily-sanctioned right of cancellation should not be applicable to all contracts or

leases which a declarant may enter into in the course of developing a project. For example, a

commercial tenant would not be willing to invest substantial amounts in equipment and other

improvements for the operation of his business if the lease could unilaterally be canceled by the

association. Accordingly, this section provides that (subject to the exception set forth in the last

sentence thereof), upon the expiration of any period of declarant control, the association may

terminate without penalty, any “critical” contract (i.e., any management contract, employment

contract, or lease of recreational or parking areas or facilities) entered into during a period of

declarant control, any contract or lease to which the declarant or an affiliate of the declarant is a

party, or any contract or lease previously entered into by the declarant which is not bona fide or

which was unconscionable to the unit owners at the time entered into under the circumstances then

prevailing.

3. The last sentence of the section addresses the usual leasehold common interest

community situation where the underlying real estate is subject to a long-term ground lease.

Because termination of the ground lease would terminate the community, this sentence prevents

cancellation. However, in order to avoid the possibility that recreation and other leases otherwise

cancelable under subsection (a) will be restructured to come within the exception, a subjective test

of “intent” is imposed. Under the test, if a declarant’s principal purpose in subjecting the leased

real estate to the common interest community was to prevent termination of the lease, the leave

may nevertheless be terminated.

4. The 1994 amendment to this section tracks the greater flexibility given declarants of

nonresidential common interest communities in Section 1-207.

5. The 2008 amendments contain two significant amendments in this section, one that

limits the rights of unit owners to cancel declarant-imposed contracts to a two-year period, and a

second that significantly expands the variety of contracts subject to cancellation during that two

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year period.

The first amendment limits the association’s cancellation right to the 2 year period that

begins when the unit owners assume control of the association. As drafted, contracts not cancelled

during that 2 year period would become non-cancelable and presumably enforceable in accordance

with their terms, subject to the rules of unconscionability in section 1-112 and in subsection (c) of

this section. The drafters concluded that, on balance, associations are better served by the ability of

third parties to rely on the enforceability of contracts between themselves and the associations if

the association’s right to unilaterally cancel those contracts was subject to a reasonable outer limit

of two years after the time the independent directors assumed office.

The two year limit seems especially appropriate since the 2008 amendments considerably

increase the types of enumerated contracts that are subject to cancellation, to include maintenance

and operations contracts, regardless of whether those contracts were entered into with the

declarant or an independent third party.

Finally, the two year limitation on the power to cancel contracts does not apply to contracts

that were not “bona fide” at the time entered into, or were unconscionable. This preserves the rule

as it existed in earlier versions of the Act, and is consistent with Section 1-112.

SECTION 3-106. BYLAWS.

(a) The bylaws of the association must:

(1) provide the number of members of the executive board and the titles of the

officers of the association;

(2) provide for election by the executive board or, if the declaration requires, by the

unit owners, of a president, treasurer, secretary, and any other officers of the association the

bylaws specify;

(3) specify the qualifications, powers and duties, terms of office, and manner of

electing and removing executive board members and officers and filling vacancies;

(4) specify the powers the executive board or officers may delegate to other persons

or to a managing agent;

(5) specify the officers who may prepare, execute, certify, and record amendments

to the declaration on behalf of the association;

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(6) specify a method for the unit owners to amend the bylaws;

(7) contain any provision necessary to satisfy requirements in this [act] or the

declaration concerning meetings, voting, quorums, and other activities of the association; and

(8) provide for any matter required by law of this state other than this [act] to appear

in the bylaws of organizations of the same type as the association.

(b) Subject to the declaration and this [act], the bylaws may provide for any other necessary

or appropriate matters, including matters that could be adopted as rules.

Comment

1. Because the Act does not require the recordation of bylaws, it is contemplated that

unrecorded bylaws will set forth only matters relating to the internal operations of the association

and various “housekeeping” matters with respect to the common interest community. The Act

requires specific matters to be set forth in the recorded declaration and not in the bylaws, unless the

bylaws are to be recorded as an exhibit to the declaration.

2. The requirement, set forth in subsection (a)(5), that the bylaws designate which of the

officers of the association has the responsibility to prepare, execute, certify, and record

amendments to the declaration reflects the obligation imposed upon the association by several

provisions of this Act to record such amendments in certain circumstances. These provisions

include Section 1-107 (Eminent Domain), Section 2-106 (expiration of certain leases), Section

2-112 (Relocation of Boundaries Between Adjoining Units), and Section 2-113 (subdivision or

conversion of units). Section 2-117(e) provides that, if no officer is designated for this purpose, it

shall be the duty of the president.

3. By deleting the words “if any,” in sub-section (4) in 2008, the drafters did not intend a

substantive change. As re-drafted, the Act does not require the Board to delegate any of its powers.

4. The Act does not prevent the bylaws from permitting the executive board to delegate all

its powers to a manager or to another entity. Whether or not such a delegation were to take place,

the law of principal and agent would apply to that relationship, and the executive board would

remain responsible for fulfillment of its duties imposed under this Act.

5. As the definition of the term “bylaws” makes clear, the bylaws are intended to address

procedural matters affecting the governance of the association. They are not intended to contain

matters that might affect title to real property nor any of the covenants restricting the use of the

units or the common property. That is one of the primary reasons why the Act requires that the

declaration be recorded on the land records, while the bylaws need not be recorded.

6. The bylaws might include a broad range of qualifications for directors and officers. This

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Act neither imposes constraints on what these qualifications might be or mandates any such

qualifications, other than the requirement that, after the period of declarant control ends, a majority

of directors must be unit owners. Other law, of course, such as laws prohibiting various forms of

discrimination, may independently impose limits on permissible qualifications.

7. The 2008 amendment to Section 3-106(a)(6) requires the bylaws to state a method by

which the unit owners may amend the bylaws. This provision complements the new text in Section

3-102 (b) that precludes the executive board from amending the bylaws.

SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY.

(a) Except to the extent provided by the declaration, subsection (b), or Section 3-113(h),

the association is responsible for maintenance, repair, and replacement of the common elements,

and each unit owner is responsible for maintenance, repair, and replacement of his unit. Each unit

owner shall afford to the association and the other unit owners, and to their agents or employees,

access through his unit reasonably necessary for those purposes. If damage is inflicted on the

common elements or on any unit through which access is taken, the unit owner responsible for the

damage, or the association if it is responsible, is liable for the prompt repair thereof.

(b) In addition to the liability that a declarant as a unit owner has under this [act], the

declarant alone is liable for all expenses in connection with real estate subject to development

rights. No other unit owner and no other portion of the common interest community is subject to a

claim for payment of those expenses. Unless the declaration provides otherwise, any income or

proceeds from real estate subject to development rights inures to the declarant.

estate, the declarant remains liable for all expenses of that real estate unless, upon expiration, the

declaration provides that the real estate becomes common elements or units.

Comment

1. The Act permits the declaration to separate maintenance responsibility from ownership.

This is commonly done in practice. In the absence of any provision in the declaration, maintenance

responsibility follows ownership of the unit or rests with the association in the case of common

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elements. Under this Act, limited common elements (which might include, for example, patios,

balconies, and parking spaces) are common elements. See Section 1-103(19). As a result, under

subsection (a), unless the declaration provides that unit owners are responsible for the upkeep of

such limited common elements, the association will be responsible for their maintenance. Under

Section 3-115(c), the cost of maintenance, repair, and replacement for such limited common

elements is assessed against all the units in the common interest community, unless the declaration

provides for such expenses to be paid only by the units benefitted. See Comment 1 to Section

2-108.

2. Under Section 2-110, a declarant may reserve the right to create units in portions of the

common interest community originally designated as common elements. However, under Section

3-107(b), the developer is obligated to pay all of the expenses of (including real estate taxes

properly apportionable to) that real estate even though, in the case of a planned community or

cooperative, it has been conveyed to the association. As to real estate taxes, see Section 1-105(c).

SECTION 3-108. MEETINGS.

(a) The following requirements apply to unit owner meetings:

(1) An association shall hold a meeting of unit owners annually at a time, date, and

place stated in or fixed in accordance with the bylaws.

(2) An association shall hold a special meeting of unit owners to address any matter

affecting the common interest community or the association if its president, a majority of the

executive board, or unit owners having at least 20 percent, or any lower percentage specified in the

bylaws, of the votes in the association request that the secretary call the meeting. If the

association does not notify unit owners of a special meeting within 30 days after the requisite

number or percentage of unit owners request the secretary to do so, the requesting members may

directly notify all the unit owners of the meeting. The unit owners may discuss at a special meeting

a matter not described in the notice under paragraph (3) but may not take action on the matter

without the consent of all unit owners.

(3) An association shall notify unit owners of the time, date, and place of each

annual and special unit owners meeting not less than 10 days or more than 60 days before the

meeting date. Notice may be by any means described in Section 3-121 The notice of any meeting

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must state the time, date and place of the meeting and the items on the agenda, including:

(A) a statement of the general nature of any proposed amendment to the

declaration or bylaws;

(B) any budget changes; and

(4) Unit owners must be given a reasonable opportunity at any meeting to comment

regarding any matter affecting the common interest community or the association.

(5) A meeting of unit owners is not required to be held at a physical location if:

(A) the meeting is conducted by a means of communication that enables

owners in different locations to communicate in real time to the same extent as if they were

physically present in the same location; and

(B) the declaration or bylaws do not require that the owners meet at a

physical location.

(6) In the notice for a meeting held at a physical location, the executive board may

notify all unit owners that they may participate remotely in the meeting by a means of

communication described in paragraph (5).

(b) The following requirements apply to meetings of the executive board and committees

of the association authorized to act for the association:

(1) Meetings must be open to the unit owners except during executive sessions. The

executive board and those committees may hold an executive session only during a regular or

special meeting of the board or a committee. No final vote or action may be taken during an

executive session. An executive session may be held only to:

(A) consult with the association’s attorney concerning legal matters;

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(B) discuss existing or potential litigation or mediation, arbitration, or

administrative proceedings;

(D) discuss contracts, leases, and other commercial transactions to purchase

or provide goods or services currently being negotiated, including the review of bids or proposals,

if premature general knowledge of those matters would place the association at a disadvantage; or

(E) prevent public knowledge of the matter to be discussed if the executive

board or committee determines that public knowledge would violate the privacy of any person.

(2) For purposes of this section, a gathering of board members at which the board

members do not conduct association business is not a meeting of the executive board. The

executive board and its members may not use incidental or social gatherings of board members or

any other method to evade the open meeting requirements of this section.

(3) During the period of declarant control, the executive board shall meet at least

four times a year. At least one of those meetings must be held at the common interest community

or at a place convenient to the community. After termination of the period of declarant control, all

executive board meetings must be at the common interest community or at a place convenient to

the community unless the unit owners amend the bylaws to vary the location of those meetings.

(4) At each executive board meeting, the executive board shall provide a reasonable

opportunity for unit owners to comment regarding any matter affecting the common interest

community and the association.

(5) Unless the meeting is included in a schedule given to the unit owners, the

secretary or other officer specified in the bylaws shall give notice of each executive board meeting

to each board member and to the unit owners. The notice must be given at least 10 days before the

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meeting and must state the time, date, place, and agenda of the meeting.

(6) If any materials are distributed to the executive board before the meeting, the

executive board at the same time shall make copies of those materials reasonably available to unit

owners, except that the board need not make available copies of unapproved minutes or materials

that are to be considered in executive session.

(7) Unless the declaration or bylaws otherwise provide, the executive board may

meet by telephonic, video, or other conferencing process if:

(A) the meeting notice states the conferencing process to be used and

provides information explaining how unit owners may participate in the conference directly or by

meeting at a central location or conference connection; and

(B) the process provides all unit owners the opportunity to hear or perceive

the discussion and to comment as provided in paragraph (4).

(8) After termination of the period of declarant control, unit owners may amend the

bylaws to vary the procedures for meetings described in paragraph (7).

(9) During the period of declarant control, without meeting, the executive board

may act by unanimous consent as documented in a record authenticated by all its members. The

secretary promptly shall give notice to all unit owners of any action taken by unanimous consent.

After termination of the period of declarant control, the executive board may act by unanimous

consent only to undertake ministerial actions or to implement actions previously taken at a meeting

of the executive board.

(10) Even if an action by the executive board is not in compliance with this section,

it is valid unless set aside by a court. An action seeking relief for failure of the executive board to

comply with this section may not be brought more than [60] days after the minutes of the executive

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board of the meeting at which the action was taken are approved or the record of that action is

distributed to unit owners, whichever is later.

Comment

1. Original Section 3-108 was significantly amended and reorganized in 2008. New

subsection (a) imposes a variety of requirements dealing exclusively with unit owner meetings,

while subsection (b) contains new “open meeting” requirements for executive board meetings and

meetings of committees which are authorized to act for the Board.

In addition to style changes in the previous 3-108, subsection (a) creates several new

provisions designed to enhance unit owner participation in unit owner meetings. For example,

paragraph (a)(4) requires that unit owners be provided the opportunity to address the executive

board during each meeting of the unit owners. While this provision is an important part of the

democratization process in community associations, it is implicit that the officers and executive

board members have the inherent right to establish reasonable controls over the behavior of unit

owners during the meetings. Thus, for example, the board could prevent unit owners from

interrupting the regular conduct of business and the time of other speakers, and could, as well, set

reasonable limits on the number of speakers at any one meeting, the repetitiveness of unit owner

comments, and the aggregate time that unit owners may consume during the meeting.

2. Subsection (a)(2) provides that at a special meeting the unit owners “may not take action

on a matter not described in the notice without the consent of all unit owners.” The purpose is to

allow a member, who has no concern about the items listed in the agenda included in the notice, to

decide not to attend the meeting, secure in the knowledge that other topics cannot be raised and

voted on without his or her knowledge. A generic heading such as “New Business” would not be

sufficient to permit action to be taken on items if they were not otherwise described in the notice.

Subject to the normal rules governing meetings, at a special meeting, unit owners may raise and

discuss any issues of their choosing, including the taking of nonbinding (straw) votes, which do

not take or implement action. Unit owners by unanimous consent may avoid the rule against taking

action on a matter not described in the meeting notice; typically, this would happen when all the

unit owners are present at the special meeting.

In contrast, at an annual meeting, unit owners are entitled to vote on any matter, whether or

not on an agenda.

3. Subsection (a)(3) continues to detail the procedures and minimum content of the notice

sent to unit owners. Importantly, the notice must contain “a statement of the general nature of any

proposed amendment to the declaration or bylaws,” rather than containing the precise text of any

proposed amendment. Thus, the unit owners are entitled to make germane amendments to

whatever text is proposed at the meeting; they are not bound to a “yes” or “no” vote on text fixed in

that notice.

4. The 2008 and 2021 amendments acknowledge in several places that the “town meeting”

model for unit owner meetings ‒ where only those persons physically present at a meeting of unit

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owners may vote ‒ is no longer suited to a considerable number of communities, particularly larger

communities and communities made up largely of second homes.

Section 3-108(a)(5) and (6) authorizes electronic unit owner meetings, in which everyone

attends remotely, and hybrid meetings in which some attend at a physical location and some attend

remotely. This section does not limit the types of technology that may be used for electronic

attendance. They include telephonic and video conferencing technologies. Subparagraph (a)(5)(A)

follows the language of the Uniform Electronic Wills Act (E-Wills Act) § 2(2) (2019), which

refers to “two or more individuals in different locations communicating in real time to the same

extent as if the individuals were physically present in the same location.” This language

accommodates access for persons with disabilities.

Paragraph (a)(5) provides a default rule allowing electronic meetings unless prohibited by

the declaration or bylaws. This allows the executive board to decide whether live or electronic

meetings are preferable, given the characteristics of the common interest community and the

circumstances.

Paragraph (a)(6) allows a hybrid unit owners meeting, with some unit owners attending

remotely, a topic not addressed before the 2021 amendments. The paragraph permits the executive

board to allow remote participation, without the need for authority in the declaration or the bylaws,

and regardless of the content of those documents. It is not, however, mandatory; owners have no

right to remote participation.

5. The 2021 amendments delete a default rule previously contained in Section 3-108(a)(7),

which provided that meetings of the association must be conducted in accordance with Robert’s

Rules of Order unless the bylaws otherwise provide. The reason was purely pragmatic: experience

suggests that while association bylaws commonly fail to require a different procedure, those same

associations frequently fail to follow the sometimes-complex rules contained in Roberts Rules,

thus potentially invalidating decisions made at association meetings. Under the 2021 amendments,

the association should specify the procedures that will govern the conduct of its meetings. The

bylaws may select Robert’s Rules of Order or a more simplified set of meeting procedures; many

models are available from online and other sources.

6. Subsection (b) sets out an entirely new set of “open meeting” requirements for meetings

of the executive board and committees to which the board has delegated authority. The provisions

are generally consistent with several existing state statutes; see, e.g., Virginia Code Ann. §

55.1-1816. The highlights of the section are these:

First, the section provides generally that all meetings of the executive committee (except

executive sessions) must be open to unit owners. To make this right meaningful, the section

requires that unit owners be given notice of those meetings, access to the same materials provided

to members of the executive board, and the right to speak at executive board meetings.

Second, while the executive board may meet in executive session, the purposes for which

such meetings may be held, and the permissible outcomes of those meetings are considerably

limited. Such sessions may only be held in conjunction with a regular or special meeting of the

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executive board (and therefore noticed to unit owners); no final vote or action may be taken during

an executive session; and the purposes for which an executive session may be held are

considerably circumscribed.

Third, the Act provides that the board and its members “may not use incidental or social

gatherings of board members or any other method to evade” the open meeting requirements of this

section.

Fourth, the Act mandates that the executive board meet at least four times a year, and that

those meetings “must be at” or “at a place convenient to” the common interest community.

Fifth, while the executive board may meet telephonically, by video or other conferencing

method, it may only do so if unit owners have a means to participate in that conference and hear or

perceive the proceedings.

Sixth, while the executive board may act without a meeting by unanimous written consent

– a procedure uniformly allowed by all corporate statutes – they may do so after the period of

declarant control “only to undertake ministerial actions or to implement actions previously taken at

a meeting of the executive board.”

7. Subsection (b)(6) provides for unit owners to have access to materials distributed to the

executive board before its meeting; an exception is made for unapproved minutes. After a meeting,

it is clearly the better practice for the board to approve minutes and make them available to unit

owners as soon as reasonably practicable. However, because the customs of common interest

communities and the expectations of unit owners in those communities vary widely across the

country, the drafters thought it inappropriate to impose a single standard regarding how or when to

mandate approval of minutes and the manner of their circulation to unit owners. The association,

however, may adopt a rule or bylaw governing the process and timing of approval of minutes for

board meetings that is consistent with the community’s expectations.

8. Subsection (b)(10) seeks to strike a balance between the open meeting requirements of

subsection (b) and the legitimate expectations of third parties who may rely on the action of an

executive board that, in hindsight, was taken without complying with the notice or other

constraints imposed on executive board actions by this section. Under this section, a decision of

the executive board will be insulated from judicial challenge because of defective notice to unit

owners or other failure if an action is not brought within 60 days after the minutes of the executive

board at which the action is taken are distributed, or those minutes are approved, whichever is

later.

SECTION 3-109. QUORUM.

(a) Unless the bylaws otherwise provide, a quorum is present throughout any meeting of

the unit owners if at the beginning of the meeting persons entitled to cast [20] percent of the votes

in the association attend in person, by proxy, or by means of communication under Section

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3-108(a)(5) or (6).

(b) Unless the bylaws specify a larger number, a quorum of the executive board is present

for purposes of determining the validity of any action taken at a meeting of the executive board

only if individuals entitled to cast a majority of the votes on that board are present at the time a vote

regarding that action is taken. If a quorum is present when a vote is taken, the affirmative vote of a

majority of the board members present is the act of the executive board unless a greater vote is

required by the declaration or bylaws.

Comment

Mandatory quorum requirements lower than 50 percent for meetings of the association are

often justified because of the common difficulty of inducing unit owners to attend meetings. The

problem is particularly acute in the case of resort common interest communities where many

owners may reside elsewhere, often at considerable distances, for most of the year.

SECTION 3-110. VOTING; PROXIES; BALLOTS.

(a) Unit owners may vote at a meeting under subsection (b) or (c) or, when a vote is

conducted without a meeting, by ballot in the manner provided in subsection (d).

(b) At a meeting of unit owners the following requirements apply:

(1) Unless the declaration or bylaws otherwise provide, unit owners may vote by

voice vote, show of hands, standing, or any other method authorized at the meeting.

(2) If unit owners attend the meeting by a means of communication under Section

3-108(a)(5) or (6), the association shall implement reasonable measures to verify the identity of

each unit owner attending remotely.

subject to the following requirements:

(1) Votes allocated to a unit may be cast pursuant to a directed or undirected proxy

executed by a unit owner.

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(2) When a unit owner votes by proxy, the association shall implement reasonable

measures to verify the identity of the unit owner and the proxy holder.

(3) A unit owner may revoke a proxy given pursuant to this section only by actual

notice of revocation to the person presiding at a meeting.

(4) A proxy is void if it is not dated or purports to be revocable without notice.

(5) A proxy is valid only for the meeting at which it is cast and any recessed session

of that meeting.

(6) A person may not cast undirected proxies representing more than [15] percent

of the votes in the association.

(d) Unless the declaration or bylaws otherwise provide, an association may conduct a vote

without a meeting. The following requirements apply:

(1) The association shall notify the unit owners that the vote will be taken by ballot

without a meeting.

(2) The association shall deliver with the notice:

(A) instructions for casting a ballot;

(B) a paper ballot to every unit owner except a unit owner that has

consented in a record to electronic voting; and

voting.

(3) The ballot must set forth each proposed action and provide an opportunity to

vote for or against the action.

(4) In the notice under paragraph (1) the association shall:

(A) state the percent of votes necessary to approve each matter other than

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election of directors;

(B) specify the time and date by which a ballot must be delivered to the

association to be counted, which time and date may not be fewer than [three] days after the date the

association delivers the ballot; and

deliver information to all unit owners regarding the subject of the vote may do so.

(5) A unit owner may revoke a ballot before the time and date under paragraph (4)

by which the ballot must be delivered to the association. Unless the declaration or bylaws

otherwise provide, a ballot is not revoked by death or disability after delivery to the association.

(6) Approval by ballot pursuant to this subsection is valid only if the number of

votes cast by ballot equals or exceeds the quorum required to be present at a meeting authorizing

the action.

(7) The association shall verify that each paper and electronic ballot is cast by the

unit owner having a right to do so.

(8) A unit owner consents in a record to electronic voting by casting an electronic

ballot.

(9) An association that allows electronic ballots shall create a record of electronic

votes capable of retention, retrieval, and review.

(e) If the declaration requires that votes on specified matters affecting the common interest

community be cast by lessees rather than unit owners of leased units:

(1) this section applies to lessees as if they were unit owners;

(2) unit owners that have leased their units to other persons may not cast votes on

those specified matters;

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(3) lessees are entitled to notice of meetings, access to records, and other rights

respecting those matters as if they were unit owners.

(f) Unit owners are entitled to notice of all meetings at which lessees are entitled to vote.

(g) Votes allocated to a unit owned by the association must be cast in any vote of the unit

owners in the same proportion as the votes cast on the matter by unit owners other than the

association.

(h) Unless a different number or fraction of the votes in an association is required by this

[act] or the declaration, a majority of the votes cast determines the outcome of a vote taken at a

meeting or without a meeting.

(i) If a unit is owned by more than one person and:

(1) only one owner casts a vote, that vote must be counted as casting all votes

allocated to the unit by the declaration; and

(2) more than one owner casts a vote for the unit, no vote from any owner of the

unit may be counted unless the declaration provides a manner for allocating votes cast by multiple

owners of a unit.

Comment

1. Subsection (e) addresses an increasingly important matter in the governance of common

interest communities: the role of tenants occupying units owned by investors or other persons.

Most present statutes require voting by owners in the association. However, it may be desirable to

give lessees, rather than lessors, of units the right to vote on issues involving day-to-day operation

both because the lessees may have a greater interest than the lessors and because it is desirable to

have lessees feel they are an integral part of the common interest community.

2. The original Act allowed unit owners to vote only when physically present at the

meeting or by proxy. The 2008 and 2021 amendments significantly alter that outcome and offer a

very broad range of voting options.

3. The 2008 amendments add subsection (d) to permit voting by ballot without the need for

a meeting, borrowing significantly from Florida statutes governing the election of directors of the

unit owners association; see Fla. Stat. 718.112 (Bylaws) (2)(d)3. The 2021 amendments to

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subsection (d) include rules for electronic ballots; the right of unit owners to revoke ballots; and

requirements that the association verify the identity of unit owners casting ballots and create a

record of electronic votes that is capable of retention, retrieval, and review.

4. Proxy voting has been the subject of some controversy in the states, primarily as a

consequence of some unit owners seeking to collect very large numbers of undirected proxies to be

cast at meetings where contested matters are to be voted on. Subsection (c) includes a number of

default rules, including two restrictions added by the 2008 amendments: subsection (c)(5) limits

the validity of proxy only to the meeting at which it is cast; and (c)(6) limits the proxies that any

one person may cast to a percent set by statute. The 2021 amendments, in subsection (c)(2), add a

requirement that the association must be able to verify the identity of the unit owner and the proxy

holder. The declaration or bylaws may change the proxy rules, may prohibit proxy voting, or may

relax or add further restrictions.

5. The 2008 amendments add subsection (g) to require the casting of votes allocated to

units owned by the association in the proportion of the votes cast by other unit owners. The

practical effect is that the association’s votes are counted towards the quorum for any meeting, but

will not affect the outcome of the voting by other unit owners.

SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF

LIMITATION PERIOD.

(a) A unit owner is not liable, solely by reason of being a unit owner, for an injury or

damage arising out of the condition or use of the common elements. Neither the association nor

any unit owner except the declarant is liable for that declarant’s torts in connection with any part of

the common interest community which that declarant has the responsibility to maintain.

(b) An action alleging a wrong done by the association, including an action arising out of

the condition or use of the common elements, may be maintained only against the association and

not against any unit owner. If the wrong occurred during any period of declarant control and the

association gives the declarant reasonable notice of and an opportunity to defend against the

action, the declarant who then controlled the association is liable to the association or to any unit

owner for all tort losses not covered by insurance suffered by the association or that unit owner,

and all costs that the association would not have incurred but for a breach of contract or other

wrongful act or omission. Whenever the declarant is liable to the association under this section, the

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declarant is also liable for all expenses of litigation, including reasonable attorney’s fees, incurred

by the association.

limitation affecting the association’s right of action against a declarant under this [act] is tolled

until the period of declarant control terminates. A unit owner is not precluded from maintaining an

action contemplated by this section because he is a unit owner or a member or officer of the

association. Liens resulting from judgments against the association are governed by Section 3-117.

Comment

1. This section provides that any action in tort or contract arising out of acts or omissions of

the association shall be brought against the association and not against the individual unit owners.

This changes the law in States where plaintiffs are forced to name individual unit owners as the

real parties in interest to any action brought against the association. The subsection also provides

that a unit owner is not precluded from bringing an action in tort or contract against the association

solely because he is a unit owner or a member or officer of the association.

2. In recognition of the practical control that can (and in most cases will) be exercised by a

declarant over the affairs of the association during any period of declarant control permitted

pursuant to Section 3-103, subsection (a) provides that the association or any unit owner has a right

of action against the declarant for any losses (including both payment of damages and attorneys’

fees) suffered by the association or any unit owner as a result of an action based upon a tort or

breach of contract arising during any period of declarant control. To assure that the decision to

bring such an action can be made by an executive board free from the influence of the declarant,

the subsection also provides that any statute of limitations affecting such a right of action by the

association shall be tolled until the expiration of any period of declarant control.

3. If a suit based on a claim which accrued during the period of developer control is brought

against the association after control of the association has passed from the developer, reasonable

notice to, and grant of an opportunity to the developer to defend, are conditions to developer

liability. If, however, suit is brought against the association while the developer is still in control,

obviously the developer cannot later resist a suit by the association for reimbursement on the

grounds of failure to notify.

4. This draft makes clear what the drafters of the Uniform Condominium Act and the first

version of this Act intended: that the form in which common elements are owned – whether in a

condominium, planned community or cooperative – should not impose joint and several personal

liability on condominium owners, when no such liability exists for owners in planned

communities. Thus, the 1994 amendment to Section 3-111(a) rejects the decision in Ruoff v.

Harbor Creek Community Association, 10 Cal.App.4th 1624, 13 Cal. Rptr 2d 755 (Cal.App.

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1992). Rather, the result under both this section and Section 3-117 – which imposes liability on

unit owners for unsatisfied judgments against the association in proportion to their common

expense liabilities – is consistent with the decision in Dutcher v. Owens, 647 S.W.2d 948 (Texas

1983).

5. The 1994 amendment to new subsection (b) of this section makes clear that no period of

limitation regarding an association’s claim against the declarant, including a limit appearing in this

or any other section of this Act, begins to run against the association until the period of declarant

control terminates. This would include warranty claims for common elements arising under

Section 4-116, unless a declarant elects to permit an independent unit owner review as described in

that section. See Section 4-116(d) and Comments.

Thus, for example, the six-year – or two-year – limitation period within which a claim for

breach of warranty must be brought under Section 4-116(a) would not commence until the earlier

of either: (a) the date on which the period of declarant control terminates by operation of law (see

Sections 3-103(d) and 3-111(b)), or the date the declarant empowers an independent executive

board committee to evaluate and enforce warranty claims. (See Section 4-116(d).)

SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON

ELEMENTS.

(a) In a condominium or planned community, portions of the common elements may be

conveyed or subjected to a security interest by the association if persons entitled to cast at least

[80] percent of the votes in the association, including [80] percent of the votes allocated to units

not owned by a declarant, or any larger percentage the declaration specifies, agree to that action;

but all owners of units to which any limited common element is allocated must agree in order to

convey that limited common element or subject it to a security interest. The declaration may

specify a smaller percentage only if all of the units are restricted exclusively to non-residential

uses. Proceeds of the sale are an asset of the association, but the proceeds of the sale of limited

common elements must be distributed equitably among the owners of units to which the limited

common elements were allocated.

(b) Part of a cooperative may be conveyed and all or part of a cooperative may be subjected

to a security interest by the association if persons entitled to cast at least [80] percent of the votes in

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the association, including [80] percent of the votes allocated to units not owned by a declarant, or

any larger percentage the declaration specifies, agree to that action; but, if fewer than all of the

units or limited common elements are to be conveyed or subjected to a security interest, then all

unit owners of those units, or the units to which those limited common elements are allocated,

must agree in order to convey those units or limited common elements or subject them to a security

interest. The declaration may specify a smaller percentage only if all of the units are restricted

exclusively to nonresidential uses. Proceeds of the sale are an asset of the association. Any

purported conveyance or other voluntary transfer of an entire cooperative, unless made pursuant to

Section 2-118, is void.

or to subject them to a security interest, or in a cooperative, an agreement to convey any part of a

cooperative or subject it to a security interest, must be evidenced by the execution of an agreement,

or ratifications thereof, in the same manner as a deed, by the requisite number of unit owners. The

agreement must specify a date after which the agreement will be void unless recorded before that

date. The agreement and all ratifications thereof must be recorded in every [county] in which a

portion of the common interest community is situated, and is effective only upon recordation.

(d) The association, on behalf of the unit owners, may contract to convey an interest in a

common interest community pursuant to subsection (a), but the contract is not enforceable against

the association until approved pursuant to subsections (a), (b), and (c). Thereafter, the association

has all powers necessary and appropriate to effect the conveyance or encumbrance, including the

power to execute deeds or other instruments.

(e) Unless made pursuant to this section, any purported conveyance, encumbrance, judicial

sale, or other voluntary transfer of common elements or of any other part of a cooperative is void.

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(f) A conveyance or encumbrance of common elements or of a cooperative pursuant to this

section does not deprive any unit of its rights of access and support.

(g) Unless the declaration otherwise provides, if the holders of first security interests on 80

percent of the units that are subject to security interests on the day the unit owners’ agreement

under subsection (c) is recorded consent in writing:

(1) a conveyance of common elements pursuant to this section terminates both the

undivided interests in those common elements allocated to the units and the security interests in

those undivided interests held by all persons holding security interests in the units; and

(2) an encumbrance of common elements pursuant to this section has priority over

all preexisting encumbrances on the undivided interests in those common elements held by all

persons holding security interests in the units.

(h) The consents by holders of first security interests on units described in subsection (g),

or a certificate of the secretary affirming that those consents have been received by the association,

may be recorded at any time before the date on which the agreement under subsection (c) becomes

void. Consents or certificates so recorded are valid from the date they are recorded for purposes of

calculating the percentage of consenting first security interest holders, regardless of later sales or

encumbrances on those units. Even if the required percentage of first security interest holders so

consent, a conveyance or encumbrance of common elements does not affect interests having

priority over the declaration, or created by the association after the declaration was recorded.

(i) In a cooperative, the association may acquire, hold, encumber, or convey a proprietary

lease without complying with this section.

Comment

1. Subsection (a) provides that a condominium or planned community association may sell

or encumber portions of the common elements and subsection (b) provides that a cooperative

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association may sell part, or encumber all, of the cooperative. The difference in treatment of

condominiums and planned communities, on the one hand, and cooperatives, on the other, arises

out of the fact that in a cooperative title to the entire cooperative is in the association. Also,

historically, cooperative associations have had greater control over the regime real estate,

including the units, than has been the case in condominiums or planned communities.

The power given by subsections (a) and (b) can be exercised only on agreement of unit

owners holding 80% of the votes in the association (80% is the percentage required for termination

of a common interest community under Section 2-118). This power may be exercised during the

period of declarant control, but, in order to be effective, 80% of nondeclarant unit owners must

approve the action. The ability, without termination, to sell common elements in a condominium

or planned community or to sell part of a cooperative gives common interest communities

desirable flexibility. For example, the unit owners, some years after the initial creation of the

common interest community may decide to convey away a portion of the open space which has

been reserved as a part of the common elements because they no longer find the area useful or

because they wish to use sale proceeds to make other improvements.

Similarly, the ability to encumber real estate in the common interest community gives the

association power to raise money for improvements through the device of mortgaging the

improvements themselves. Of course, recreational improvements will frequently not be sufficient

security for a loan for their construction. Nevertheless, the ability to take a security interest in such

improvements may lead lenders to be more favorably disposed toward making a loan in larger

amounts and at lower interest rates.

2. Subsection (c) requires that the agreement for sale or encumbrance be evidenced by the

execution of an agreement in the same manner as a deed by the requisite majority of the unit

owners. The agreement then must be recorded in the land records. The recorded agreement signed

by the unit owners is not the conveyance itself, but is rather a supporting document which shows

that the association has full power to execute a deed or mortgage. Under subsection (d) it is

contemplated that the association will execute the actual instrument of conveyance. Under

subsection (f), a conveyance or encumbrance under this section may not deprive a unit owner of

rights of access and support.

3. As originally written, subsection (g) was intended to cut off the interests of unit lenders

whose lien extended to the owner’s undivided interest, in the case of a condominium, or beneficial

interest, in the case of a cooperative or planned community, in the common elements. The 1994

revision simply clarifies this intent, and states precisely the procedure needed to accomplish the

desired result.

To the extent that a lien on a unit (whether in the nature of a security interest, tax lien,

attachment, or construction lien) also reaches the owner’s interest in the common elements, this

amendment makes clear that a proper vote of unit owners and first mortgage holders cuts off that

lien.

This section does not affect the interests of persons who hold a direct lien on the common

elements nor does it affect the priority or validity of any interest with respect to the unit itself.

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4. The introductory clause, “unless the declaration otherwise provides,” contemplates the

possibility that the declarant or his construction lender may desire to completely prohibit the

conveyance or encumbrance of common elements, may require unanimous consent of first

mortgagees, or may require another outcome which varies the result of the default rule of this

section. Nonetheless, the drafters believe that the default rule strikes an appropriate balance

between the interests of security holders and the interests of the association. A rule which requires

the consent of every holder of every interest in every unit in a common interest community

imposes unreasonable transaction costs for an otherwise rational economic transaction.

On the other hand, the association ought not be able to dispose of its assets automatically

and in all cases to the detriment of persons who have made loans to unit owners in reliance on the

value of the common elements, without the consent of those persons. Thus, a default rule requiring

the consent of a super-majority of first mortgagees should ensure that in the usual case, the

interests of all lenders will be adequately protected without unduly restricting the needs of the

association.

5. The effect of foreclosure of security interests granted pursuant to this section is governed

by Section 2-118 (Termination).

SECTION 3-113. INSURANCE.

(a) Commencing not later than the time of the first conveyance of a unit to a person other

than a declarant, the association shall maintain, to the extent reasonably available and subject to

reasonable deductibles:

(1) property insurance on the common elements and, in a planned community, also

on property that must become common elements, insuring against risks of direct physical loss

commonly insured against, which insurance, after application of any deductibles, must be not less

than 80 percent of the actual cash value of the insured property at the time the insurance is

purchased and at each renewal date, exclusive of land, excavations, foundations, and other items

normally excluded from property policies;

(2) commercial general liability insurance, including medical payments insurance,

in an amount determined by the executive board but not less than any amount specified in the

declaration, covering all occurrences commonly insured against for bodily injury and property

damage arising out of or in connection with the use, ownership, or maintenance of the common

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elements and, in cooperatives, also of all units; and

(3) fidelity insurance.

(b) In the case of a building that contains units divided by horizontal boundaries described

in the declaration, or vertical boundaries that comprise common walls between units, the insurance

maintained under subsection (a)(1), to the extent reasonably available, must include the units, but

need not include improvements and betterments installed by unit owners.

association promptly shall cause notice of that fact to be given to all unit owners. The declaration

may require the association to carry any other insurance, and the association may carry any other

insurance it considers appropriate to protect the association or the unit owners.

(d) Insurance policies carried pursuant to subsections (a) and (b) must provide that:

(1) each unit owner is an insured person under the policy with respect to liability

arising out of the owner’s interest in the common elements or membership in the association;

(2) the insurer waives its right to subrogation under the policy against any unit

owner or member of the owner’s household;

(3) no act or omission by a unit owner, unless acting within the owner’s scope of

authority on behalf of the association, voids the policy or is a condition to recovery under the

policy; and

(4) if, at the time of a loss under the policy, there is other insurance in the name of a

unit owner covering the same risk covered by the policy, the association’s policy provides primary

insurance.

(e) Any loss covered by the property policy under subsections (a)(1) and (b) must be

adjusted with the association, but the insurance proceeds for that loss are payable to any insurance

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trustee designated for that purpose, or otherwise to the association, and not to any holder of a

security interest. The insurance trustee or the association shall hold any insurance proceeds in trust

for the association, unit owners, and lien holders as their interests may appear. Subject to

subsection (h), the proceeds must be disbursed first for the repair or replacement of the damaged

property, and the association, unit owners, and lien holders are not entitled to receive payment of

any portion of the proceeds unless there is a surplus of proceeds after the property has been

completely repaired or replaced, or the common interest community is terminated.

(f) An insurance policy issued to the association does not prevent a unit owner from

obtaining insurance for the owner’s own benefit.

(g) An insurer that has issued an insurance policy under this section shall issue certificates

or memoranda of insurance to the association and, upon request made in a record, to any unit

owner or holder of a security interest. The insurer issuing the policy may not cancel or refuse to

renew it until [30] days after notice of the proposed cancellation or non-renewal has been mailed to

the association, each unit owner, and each holder of a security interest to whom a certificate or

memorandum of insurance has been issued at their respective last known addresses.

(h) Any portion of the common interest community for which insurance is required under

this section which is damaged or destroyed must be repaired or replaced promptly by the

association unless:

(1) the common interest community is terminated, in which case Section 2-118

applies;

(2) repair or replacement would be illegal; or

(3) [80] percent of the unit owners, including every owner of a unit or assigned

limited common element that will not be rebuilt, vote not to rebuild.

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(i) The cost of repair or replacement in excess of insurance proceeds, deductibles, and

reserves is a common expense. If the entire common interest community is not repaired or

replaced:

(1) the insurance proceeds attributable to the damaged common elements must be

used to restore the damaged area to a condition compatible with the remainder of the common

interest community; and

(2) except to the extent that other persons will be distributees:

(A) the insurance proceeds attributable to units and limited common

elements that are not repaired or replaced must be distributed to the owners of those units and the

owners of the units to which those limited common elements were allocated, or to lien holders, as

their interests may appear; and

(B) the remainder of the proceeds must be distributed to all the unit owners

or lien holders, as their interests may appear, as follows:

(i) in a condominium, in proportion to the common element interests

of all the units; and

(ii) in a cooperative or planned community, in proportion to the

common expense liabilities of all the units.

(j) If the unit owners vote not to rebuild any unit, that unit’s allocated interests are

automatically reallocated upon the vote as if the unit had been condemned under Section 1-107(a),

and the association promptly shall prepare, execute, and record an amendment to the declaration

reflecting the reallocations.

(k) This section may be varied or waived in the case of a common interest community all of

whose units are restricted to nonresidential use.

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Comment

1. Subsections (a) and (b) provide that the required insurance must be maintained only to

the extent reasonably available. This permits the association to comply with the insurance

requirements even if certain coverages are unavailable or unreasonably expensive.

2. Subsection (a) has been amended in 2008 to permit only “reasonable deductibles” in the

context of mandatory insurance that the association must carry. The subject is one of some

controversy in the field, since large premium increases in parts of the country, coupled with

dropping property values, have caused some associations to explore all means of reducing

common expense assessments; self-insurance in the form of large deductibles is one possible and

superficially attractive means.

The issue becomes more complex because of the theoretical alternatives that present

themselves for dealing with the consequences of substantial deductibles when the association

suffers an actual loss.

Indeed, a recurring issue under Section 3-113 has been whether and under what

circumstances the association may charge the cost of repair for damage to a unit or common

elements to an individual unit owner, whether or not the association has insurance covering that

loss.

The theoretical possibilities are several, including: (i) charging only the deductible to the

damaged unit(s) regardless of fault; (ii) charging the entire cost of repair of units and common

elements against the damaged units, regardless of fault, rather than filing a claim against the

association’s policy; or (iii) doing either (i) or (ii) but only in circumstances evidencing “fault”.

During the drafting process, the drafters learned of legislative proposals requiring, for

example, that “the amount of any deductible on any property and liability insurance maintained by

the association is a common expense.” On the other hand, the drafters became aware of situations

where association lawyers include in their declarations a provision that the amount of any

deductible must be allocated among the units damaged, regardless of fault, or solely to the unit

damaged if the owner was negligent.

The reasons most often advanced in support of this latter position is that the individual unit

owner will most commonly carry a form of homeowners insurance for which the premiums are

generally low and which, in any event, have already been paid. The argument is that by passing

along the costs to the unit owner and thence to the individual carrier, the association will enjoy the

benefits flowing from being able to carry larger deductibles, and from filing fewer claims with its

primary insurance carrier.

Certain philosophical and practical consequences flow from the efforts to pass along risk to

individual owners. One of the fundamental provisions of the Act from its inception was the

concept, which remains in subsection (d)(2) , that property and commercial general liability

insurance policies must waive the carriers’ right of subrogation against any unit owner or member

of the owner’s household. Thus, to the extent the association files a claim under its policy, the

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individual unit owner would not be responsible to repay the insurance company.

This appears consistent with traditional insurance practice, since a homeowner that carries

fire insurance on her own home and pays the premium for that policy, is not held liable for her own

negligence when the house burns and the carrier is required to pay the cost of rebuilding. In the

common interest ownership context, the insurance premiums are paid by the association, and the

assessments to pay those premium dollars are typically raised by assessments against all the unit

owners based on their relative shares of the common expenses.

Moreover, to the extent the association chooses to self-insure against so-called “first

dollar” losses by purchasing a policy with a deductible, the benefit of the reduced premium paid by

the association is typically shared by those same owners in the form of reduced common charges.

Thus, to the extent that any portion of the costs resulting from a casualty loss are passed

through to the unit owners whose units are damaged, rather than paid by the association as a whole,

the result is contrary to the policy underlying mandatory waiver of subrogation.

Nevertheless, the practical aspects of who pays, and under what circumstances, are

difficult to ignore. Anecdotal evidence suggests that too-frequent claims against a carrier may

result in dramatic premium increases, or in policy cancellation; careful directors of unit owner

associations will surely seek to avoid those results. Moreover, unlike the individual home owner

carrying an individual policy, the association suffers from the risk of the careless unit owner whose

risky behavior incurs no consequences to himself, since the unit owner in a common interest

community is not at risk of having his individual policy cancelled. In the absence of the same

incentives, it is difficult to assume that individuals in the common interest community will behave

with the same care that a single home owner will behave.

A closely related circumstance that may arise is when the association would prefer not to

file a claim against its policy for a small loss, but the owner of the damaged unit wishes to do so,

especially if the consequence of the association’s decision would be to force the damaged unit

owner to pay.

The Act takes a middle position in all these regards; see the discussion of the 2008

amendments to § 3-115(e), which permit the association to pass along the cost of damage to the

unit owner, in the circumstances described in that section.

3. Subsection (b) represents a significant departure from the present law as to

condominiums and planned communities in virtually all States by requiring that the association

obtain and maintain property insurance on both the common elements and the units within

buildings with “stacked” units. See Comment 3. While it has been common practice in many parts

of the country (either by custom or as mandated by statute) for associations to maintain property

insurance on the common elements, it has generally not been the practice for the property

insurance policy to cover individual units as well. However, given the great interdependence of the

unit owners in the stacked unit situation, mandating property insurance for the entire building is

the preferable approach. Moreover, such an approach will greatly simplify claims procedures,

particularly where both common elements and portions of a unit have been destroyed. If common

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elements and units are insured separately, the insurers could be involved in disputes as to the

coverage provided by each policy.

4. The 2008 amendments require the association to carry more insurance than under earlier

versions of the Act.

First, subsection (a)(3) requires the association to carry “fidelity” insurance. Typically,

fidelity insurance protects against loss of money or physical property as a result of criminal

behavior. Common claims under fidelity policies involve employee dishonesty, embezzlement,

forgery, robbery, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts.

Second, subsection (b) significantly expands the mandatory property and casualty

coverage that associations must carry on units. The original Act mandated that units be covered by

the association’s policy only if they were separated by “horizontal boundaries” – that is, where

units in a building were “stacked” above or below one another, as in a high rise building. The 2008

amendment extends this mandatory coverage to townhouse projects or other units that share a

common wall between units.

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

units is in the association.

5. The distinction between what is a common element and what is a unit with respect to the

insurance coverage required by this section is complex. The definitions of common elements and a

unit in Section 1-103(4) (6) and (31) (35) are not sufficient for this purpose. To determine the

distinction between the common elements and units, one must refer first to the declaration’s

section on unit boundaries. That section will define the unit boundaries. If the declaration fails to

do so, and if ceilings, walls, or floors are boundaries, the provisions of Section 2-102 apply.

Section 2-102 provides that, if the declaration is silent, all non-loadbearing and non-

structural portions of the walls, floors, and ceilings are part of the unit, while all loadbearing and

structural portions of the walls, floors, and ceilings are common elements. Further, with respect to

any structure partially within and partially outside of the boundaries of a unit, any portion thereof

serving only that unit is a limited common element (see definition in Section 1-103(21)), and any

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

common elements.

Under Section 2-102, all spaces, interior partitions, electrical, plumbing, and mechanical

systems, and all other items within the boundaries of the unit which are attached to the unit

boundaries, whether or not deemed fixtures under state law, are part of the unit.

Put simply, if any item is installed, constructed, repaired, or replaced by the declarant or his

successor in connection with the original sale of a stacked unit, the item is insured by the

association. Clearly, this does not include items of personal property easily movable within the

unit or easily removable from the unit (whether or not deemed a fixture under state law), such as a

vase, table, or other furnishings. If improvements or betterments are made to a unit by a unit

owner, they will typically be covered under the owner’s insurance policy, even if the unit itself is

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generally covered by the association’s policy, since most policies exclude “improvements or

betterments made by the owner,” and the Act does not mandate improvements and betterments

coverage. The subject is a complex one, and careful attention should be paid to it by the

association’s insurance advisor.

6. Although “all risk” coverage is not required as to conversion buildings, but merely fire

and extended coverage, this is not intended to imply that such coverage is unnecessary. “All risk”

coverage is not required because it may not be appropriate in the case of an unrenovated

conversion where cost is a critical factor.

7. The minimum requirement as to the amount of insurance, which is 80% of the actual

cash value, should not be viewed as a recommendation; rather, the 80% is a floor. Typically, many

common interest community documents require insurance in an amount equal to 100% of the

replacement cost of the insured property. The Act permits greater flexibility, however, inasmuch

as different types of construction and varieties of projects may not require such total coverage with

its attendant higher premium cost.

8. Subsection (a)(2) covers only the liability of the association, and unit owners as

members, but does not cover the unit owner’s individual liability for his acts or omissions or

liability for occurrences within his unit.

9. Clause (1) of subsection (h) would operate as follows: (1) if the common interest

community consists of campsites, restoration after fire damage might consist of merely resodding

the area damaged; (2) if the common interest community consists of separate garden-type

buildings, restoration after fire damage might consist of demolishing the remaining structure and

paving or landscaping the area; and (3) if the common interest community consists of a single

high-rise building, restoration may not be required (if the building is substantially destroyed)

inasmuch as “a condition compatible with the remainder of the common interest community”

would be damaged and unrestored.

10. The scheme of this section, as set forth in subsection (h), is that any damage or

destruction to any portion of the common interest community must be repaired (if repairs can be

made consistent with applicable safety and health laws) absent a decision to terminate the common

interest community or a decision by 80% of the unit owners (including the owners of any damaged

units) not to rebuild. Unless a decision is made not to rebuild, any available insurance proceeds

must be used to effectuate such repairs. For this reason, subsection (e) provides that any loss

covered by the association’s property insurance policy shall be adjusted with the association and

that the proceeds for any loss shall be payable to the association or to any insurance trustee that

may be designated for such purpose. Significantly, such insurance proceeds may not be paid to any

mortgagee or other outside party. This provision is necessary to insure that insurance proceeds are

available to effectuate any repairs or restoration to the common interest community that may be

required.

If units or limited common elements are not rebuilt, insurance proceeds are to be

distributed to lienholders or owners of units unless the declaration provides that such payments are

to go to some other person.

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11. The words “damaged or destroyed” appear in subsection (h), as part of a general

requirement that “[a]ny portion of the common interest community for which insurance is required

under this section which is damaged or destroyed must be repaired or replaced promptly by the

association unless, the project is terminated, repair would be illegal, or 80% of the owners vote not

to rebuild.”

These words may cause confusion among unit owners since the line between the rules for

dealing with “damage and destruction” on one hand and “maintenance, repair and replacement” on

the other are not clear.

Generally, in common insurance usage, “damage or destruction” deals with items

commonly covered by insurance, while everything else is maintenance, repair or replacement.

That is, a working distinction is that a portion of a common interest community is “damaged or

destroyed” (or suffers damage or destruction) if it suffers physical damage that is of a type and is

caused by an occurrence of a type commonly covered by the casualty insurance required by

Section 3-113 of this Act or by the Declaration or for which insurance carried by the Association is

in effect. Otherwise, to “maintain, repair and replace” (or to perform maintenance, repair and

replacement) is the act of addressing and correcting deterioration, wear and tear, and obsolescence

to the Property which is not covered by the casualty insurance required by Section 3-113.

SECTION 3-114. SURPLUS FUNDS. Unless otherwise provided in the declaration, any

surplus funds of the association remaining after payment of or provision for common expenses and

any prepayment of reserves must be paid annually to the unit owners in proportion to their

common expense liabilities or credited to them to reduce their future common expense

assessments.

Comment

1. Surplus funds of the association are generally used first for the pre-payment of reserves,

and remaining funds are thereafter credited to the account of unit owners or paid to them. In some

cases, however, unit owners might prefer that surplus funds be used for other purposes (e.g., the

purchase of recreational equipment). Accordingly, this section permits the declaration to specify

any other use of surplus funds.

2. The requirements of this section track the requirements of the current Internal Revenue

Code; see Rev. Rul. 70-607. The unit owners, of course, may vote to reverse this outcome. As a

practical matter, in the everyday activities of the unit owners association, the matters addressed in

this section will rarely arise.

SECTION 3-115. ASSESSMENTS.

(a) Until the association makes a common expense assessment, the declarant shall pay all

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common expenses. After an assessment has been made by the association, assessments must be

made at least annually, based on a budget adopted at least annually by the association.

(b) Except for assessments under subsections (c) through (f), or as otherwise provided in

this [act], all common expenses must be assessed against all the units in accordance with the

allocations set forth in the declaration pursuant to Section 2-107(a) and (b). The association may

charge interest on any past due assessment or portion thereof at the rate established by the

association, not exceeding [18] percent per year.

(1) a common expense associated with the maintenance, repair, or replacement of a

limited common element must be assessed against the units to which that limited common element

is assigned, equally, or in any other proportion the declaration provides;

(2) a common expense identified in the declaration benefitting fewer than all of the

units or their owners must be assessed exclusively against the units or unit owners benefitted, but if

the common expense is for the maintenance, repair, or replacement of a common element other

than a limited common element, the expense may be assessed exclusively against them only if the

declaration reasonably identifies the common expense by specific listing or category;

(3) the costs of insurance must be assessed in proportion to risk; and

(4) the costs of utilities must be assessed in proportion to usage, whether metered or

reasonably estimated.

(d) Assessments to pay a judgment against the association may be made only against the

units in the common interest community at the time the judgment was entered, in proportion to

their common expense liabilities.

(e) The association may assess exclusively against an owner’s unit a common expense,

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including expense relating to damage to or loss of property, caused by:

(1) willful misconduct of the unit owner or a guest or invitee of the unit owner; or

(2) failure of the unit owner to comply with a maintenance standard prescribed by

the declaration or a rule, if the standard contains a statement that an owner may be liable for

damage or loss caused by failure to comply with the standard.

(f) Before an association makes an assessment under subsection (e), the association must

give notice to the unit owner and provide an opportunity for a hearing. The assessment is limited to

the expense the association incurred under subsection (e) less any insurance proceeds received by

the association, whether the difference results from the application of a deductible or otherwise.

(g) If common expense liabilities are reallocated, common expense assessments and any

instalment thereof not yet due must be recalculated in accordance with the reallocated common

expense liabilities.

(h) The association may adopt a rule that allows unit owners to prepay assessments at a

reasonable discount.

Comment

1. This section contemplates that a declarant might find it advantageous, particularly in the

early stages of project development, to pay all of the expenses of the common interest community

himself rather than assessing each unit individually. Such a situation might arise, for example,

where a declarant owns most of the units in the project and wishes to avoid building the costs of

each unit separately and crediting payment to each unit. It might also arise in the case of a

declarant who, although willing to assume all expenses of the common interest community, is

unwilling to make payments for replacement reserves or for other expenses which he expects will

ultimately be part of the association’s budget. Subsection (a) grants the declarant such flexibility

while at the same time providing that once an assessment is made against any unit, all units,

including those owned by the declarant, must be assessed for their full portion of the common

expense liability.

2. Common expenses are by their nature recurring, and the association must collect what

the act calls the “periodic common expense assessment.” Subsection (a) requires assessment “at

least annually” and allows any shorter period. Monthly assessments are most commonly used. The

association may choose to change its periodic common expense assessment if it determines a

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shorter or longer period is appropriate.

3. Under subsection (c), the declaration may provide for assessment on a basis other than

the allocation made in Section 2-107 as to limited common elements, other expenses benefitting

fewer than all units, insurance costs, and utility costs.

4. The 2008 amendments expand the scope of subsection (c)(2) to allow the exclusive

assessment of common expenses benefitting “owners” in addition to common expenses benefitting

“units.” This fits with the 2008 amendment to the definition of “Common interest community” in

Section 1-103(9), which is expanded to include obligations of unit owners “to pay for a share of ...

services ..related to common elements, other units, or other real estate described in the

declaration.” This reflects the increasing practice where, for example, assisted living communities

organized as common interest communities are in the business of providing food, janitorial,

nursing and other services to residents of individual units as part of the common expense budget of

the association. This may occur whether or not the occupants are the owners of those units.

Clearly, there are other means by which those charges might be paid. For example, rather

than including meals in the annual budget of the association and then having those costs reflected

in the periodic common charge assessment, a more direct means would be to charge the

beneficiaries of those services directly on a “fee for service” basis.

If some forms of unusual or unique services are to be included in the common expense

budget for the entire association, rather than being charged to individual service recipients, then

the drafter might use the mechanism permitted under (c)(2) to insure that the non-benefitted

owners should not be assessed, and possibly have a lien against their units, for services provided to

other persons. As drafted, however, the default rule does not yield that result; instead, services

included in the regular budget would be charged to all unit owners, whether or not benefitted.

5. Subsection (c) was amended in 2021 with three significant changes. First, the subsection

is revised to make it clear that for all three paragraphs (1)-(3), the declaration may change the

default rule of Section 3-115(b) that unit owners pay common expenses according to their

allocated interests only if the declaration has a provision that common expenses “must be

assessed” differently. The provision in the declaration may not confer discretion on the executive

board with respect to making an assessment.

Second, the revision to paragraph (c)(2) allows the association to assess a common expense

for the maintenance, repair, or replacement of a common element exclusively against a benefitted

unit only if the declaration “reasonably identifies the common expense by specific listing or

category.” The purpose of this condition is to provide notice to unit owners of when they may

expect to bear more than a proportionate share of common expenses based on the “benefit rule.”

The source for this condition is UCC Article 9. UCC § 9-108(b), Sufficiency of Description, which

provides: “. . . a description of collateral reasonably identifies the collateral if it identifies the

collateral by: (1) specific listing; (2) category; . . . .” The UCC rules for describing collateral in

security agreements and financing statements have proven to be generally successful in striking a

balance between flexibility and notice to debtors and third parties. The term “categories” in

paragraph (2) include heating and air conditioning equipment, elevators, and recreational facilities.

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Third, paragraph (c)(3) is revised to make clear that assessing utilities “in proportion to

usage” does not require separate metering if the assessment is based on a reasonable estimate of

usage.

6. If additional units are added to a common interest community after a judgment has been

entered against the association, the new units are not assessed any part of the judgment debt. Since

unit owners will know the assessment, and since such unpaid judgment assessments would affect

the price paid by purchasers of units, it would be complicated and unnecessary to fairness to

reallocate judgment assessments when new units are added.

7. Subsection (g) refers to those instances in which various provisions of this Act require

that common expense liabilities be reallocated among the units of a common interest community

by amendment to the declaration. These provisions include Section 1-107 (Eminent Domain),

Section 2-106(d) (expiration of certain leases), Section 2-110 (Exercise of Development Rights),

and Section 2-113(b) (subdivision of units).

8. Subsection (e) originally provided that “[i]f any common expense is caused by the

misconduct of any unit owner, the association may assess that expense exclusively against his

unit.” The 2008 and 2021 amendments make substantial changes to indicate the circumstances

under which the association may assess expenses exclusively against a unit owner whose “bad

behavior” causes loss, damage, or expense.

The 2021 amendments authorize a charge-back only for “willful misconduct of the unit

owner or a guest or invitee of the unit owner.” Negligence, whether “ordinary negligence” or

“gross negligence” is not sufficient.

The 2021 amendments also authorize allocating liability for a unit owner’s failure to meet

maintenance standards that causes damage outside the owner’s unit. For example, an association

rule may require replacement of hot water heaters every 10 years, and an owner’s failure to replace

may result in water damage to property outside of the owner’s unit.

Subsection (f), added in 2021, affords procedural protections for unit owners charged with

“bad behavior” and provides that the owner is liable only for loss not covered by the association’s

master insurance policy. The association is not allowed to expense. The unit owner, however, may

be required to pay the deductible under the association’s policy. The source for revised subsection

(e) and new subsection (f) is Conn. Gen. Stat. Ann. § 47-257(e).

SECTION 3-116. LIEN FOR SUMS DUE ASSOCIATION; ENFORCEMENT.

(a) The association has a statutory lien on a unit for any assessment attributable to that unit

or fines imposed against its unit owner. Any priority accorded to the association’s lien under this

section is a priority in right and not merely a priority in payment from the proceeds of the sale of

the unit by a competing lienholder or encumbrancer. Unless the declaration provides otherwise ,

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reasonable attorney’s fees and costs, other fees, charges, late charges, fines, and interest charged

pursuant to Section 3-102(a)(10), (11), and (12), and any other sums due to the association under

the declaration, this [act], or as a result of an administrative, arbitration, mediation, or judicial

decision are enforceable in the same manner as unpaid assessments under this section. If an

assessment is payable in installments, the lien is for the full amount of the assessment from the

time the first installment thereof becomes due. [A lien under this section is not subject to [insert

appropriate reference to state homestead, dower and curtesy, or other exemptions].]

(b) A lien under this section has priority over all other liens and encumbrances on a unit

except:

(1) liens and encumbrances recorded before the recordation of the declaration and,

in a cooperative, liens and encumbrances that the association creates, assumes, or takes subject to;

(2) except as otherwise provided in subsection (c), a first security interest on the

unit recorded before the date on which the assessment sought to be enforced became delinquent or,

in a cooperative, the first security interest encumbering only the unit owner’s interest and perfected

before the date on which the assessment sought to be enforced became delinquent;

(3) liens for real estate taxes and other governmental assessments or charges

against the unit or cooperative; and

(4) mechanics’ or materialmen’s liens to the extent that law of this state other than

this [act] gives priority to mechanics’ or materialmen’s liens.

subsection (b)(2), but only to the extent of:

(1) the unpaid amount of assessments for common expenses, not to exceed six

months for each budget year of the association, as based on the periodic budget adopted by the

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association under Section 3-115(a) for the applicable year; and

(2) reasonable attorney’s fees and costs incurred by the association in enforcing the

association’s lien.

(d) Unless the declaration otherwise provides, if two or more associations have liens for

assessments created at any time on the same property, those liens have equal priority.

(e) Recording of the declaration constitutes record notice and perfection of the lien. No

further recordation of any claim of lien for assessment under this section is required.

(f) A lien for unpaid assessments is extinguished unless proceedings to enforce the lien are

instituted within [three] years after the full amount of the assessments becomes due.

(g) This section does not prohibit an action by an association against a unit owner to

recover past due sums for which subsection (a) creates a lien or prohibit an association from taking

a deed in lieu of foreclosure.

(h) A judgment or decree in any action brought under this section must include costs and

reasonable attorney’s fees for the prevailing party.

(i) The association upon request made in a record shall furnish to a unit owner a statement

setting forth the amount of unpaid assessments against the unit. If the unit owner’s interest is real

estate, the statement must be in recordable form. The statement must be furnished within [10]

business days after receipt of the request and is binding on the association, the executive board,

and every unit owner.

(j) On nonpayment of an assessment on a unit, the association is entitled to obtain

possession of the unit under [insert reference to forcible entry and detainer act of this State].

(k) The association’s lien may be foreclosed as provided in this subsection and subsection

(p):

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(1) in a condominium or planned community, the association’s lien must be

foreclosed in like manner as a mortgage on real estate [or by power of sale under [insert

appropriate state statute]];

(2) in a cooperative whose unit owners’ interests in the units are real estate, the

association’s lien must be foreclosed in like manner as a mortgage on real estate [or by power of

sale under [insert appropriate state statute]] [or by power of sale under subsection (l)]; [ and]

(3) in a cooperative whose unit owners’ interests in the units are personal property,

the association’s lien must be foreclosed in like manner as a security interest under [insert

reference to Article 9, Uniform Commercial Code][;and]

[(4) in a foreclosure under [insert reference to state power of sale statute], the

association shall give the notice required by statute or, if there is no such requirement, reasonable

notice of its action to all lien holders of the unit whose interest would be affected].

[(l) If the unit owner’s interest in a unit in a cooperative is real estate, the following

requirements apply:

(1) The association, upon nonpayment of assessments and compliance with this

subsection, may sell that unit at a public sale or by private negotiation and at any time, date, and

place. The association shall give to the unit owner and any lessee of the unit owner reasonable

notice in a record of the time, date, and place of any public sale or, if a private sale is intended, of

the intention of entering into a contract to sell and of the time and date after which a private

disposition may be made. The same notice must also be sent to any other person that has a recorded

interest in the unit which would be cut off by the sale, but only if the recorded interest was on

record seven weeks before the date specified in the notice as the date of any public sale or seven

weeks before the date specified in the notice as the date after which a private sale may be made.

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The notices required by this subsection may be sent to any address reasonable in the

circumstances. A sale may not be held until five weeks after the sending of the notice. The

association may buy at any public sale and, if the sale is conducted by a fiduciary or other person

not related to the association, at a private sale.

(2) Unless otherwise agreed, the unit owner is liable for any deficiency in a

foreclosure sale.

(3) The proceeds of a foreclosure sale must be applied in the following order:

(A) the reasonable expenses of sale;

(B) the reasonable expenses of securing possession before sale; the

reasonable expenses of holding, maintaining, and preparing the unit for sale, including payment of

taxes and other governmental charges and premiums on insurance; and, to the extent provided for

by agreement between the association and the unit owner, reasonable attorney’s fees, costs, and

other legal expenses incurred by the association;

(D) satisfaction in the order of priority of any subordinate claim of record;

and

(E) remittance of any excess to the unit owner.

(4) A good faith purchaser for value acquires the unit free of the association’s debt

that gave rise to the lien under which the foreclosure sale occurred and any subordinate interest,

even though the association or other person conducting the sale failed to comply with this section.

The person conducting the sale shall execute a conveyance to the purchaser sufficient to convey

the unit and stating that it is executed by the person after a foreclosure of the association’s lien by

power of sale and that the person was empowered to make the sale. Signature and title or authority

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of the person signing the conveyance as grantor and a recital of the facts of nonpayment of the

assessment and of the giving of the notices required by this subsection are sufficient proof of the

facts recited and of the authority to sign. Further proof of authority is not required even though the

association is named as grantee in the conveyance.

(5) At any time before the association has disposed of a unit in a cooperative or

entered into a contract for its disposition under the power of sale, the unit owners or the holder of

any subordinate security interest may cure the unit owner’s default and prevent sale or other

disposition by tendering the performance due under the security agreement, including any amounts

due because of exercise of a right to accelerate, plus the reasonable expenses of proceeding to

foreclosure incurred to the time of tender, including reasonable attorney’s fees and costs of the

creditor.]

(m) In an action by an association to collect assessments or to foreclose a lien on a unit

under this section, the court may appoint a receiver to collect all sums alleged to be due and owing

to a unit owner before commencement or during pendency of the action. The receivership is

governed by [insert state law generally applicable to receiverships]. The court may order the

receiver to pay any sums held by the receiver to the association during pendency of the action to

the extent of the association’s common expense assessments based on a periodic budget adopted

by the association pursuant to Section 3-115.

(n) An association may not commence an action to foreclose a lien on a unit under this

section or to evict a unit owner under subsection (j) unless:

(1) the unit owner, at the time the action is commenced, owes a sum equal to at least

[three] months of common expense assessments based on the periodic budget last adopted by the

association pursuant to Section 3-115(a) and the unit owner has failed to accept or comply with a

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payment plan offered by the association; and

(2) the executive board votes to commence a foreclosure action specifically against

that unit or to evict the unit owner.

(o) Unless the parties otherwise agree, the association shall apply any sums paid by unit

owners that are delinquent in paying assessments in the following order:

(1) unpaid assessments;

(2) late charges;

(3) reasonable attorney’s fees and costs and other reasonable collection charges;

and

(4) all other unpaid fees, charges, fines, penalties, interest, and late charges.

(p) If the only sums due with respect to a unit are fines and related sums imposed against

the unit, a foreclosure action may not be commenced against the unit unless the association has a

judgment against the unit owner for the fines and related sums and has perfected a judgment lien

against the unit under [insert reference to state statute on perfection of judgments].

(q) Every aspect of a foreclosure, sale, or other disposition under this section, including the

method, advertising, time, date, place, and terms, must be commercially reasonable.

[(r) Foreclosure of a lien under this section does not terminate an interest that is subordinate

to the lien to any extent unless the association provides notice of the foreclosure to the record

holder of the subordinate interest.]

Legislative Note: In a state that permits only judicial foreclosure of an association’s lien,

subsection (r) should be omitted. In a state that permits nonjudicial foreclosure, but by statute

provides that a foreclosure sale does not extinguish a subordinate lien unless the subordinate

lienholder was provided notice of the sale, subsection (r) should be omitted.

Comment

1. Section 3-116(a) was amended in 1994 to delete the language “from the time the

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assessment or fine becomes due.” The deleted clause was intended to make clear that the lien was

enforceable at the time the assessment became due. Commentators have observed, however, that

the language caused confusion with respect to priority issues. The intention of the statute, as

demonstrated by the Comments, was that the inchoate statutory lien was the functional equivalent

of real estate taxes except with respect to the special priorities identified in subsection (b) of the

section. The deletion of the language as suggested makes clear that the lien arises immediately

upon the effective date of the statute for old common interest communities and upon recording of

the declaration for new common interest communities.

As a result of this deletion, it is clear that in the absence of an exception in a title insurance

policy for common charges, a title insurer would be liable for post-insurance obligations which

have a priority established prior to the time the policy was issued. This, however, is no different

than in other inchoate liens such as real estate taxes and mechanics liens, all of which have become

standard exceptions in the title industry.

2. To ensure prompt and efficient enforcement of the association’s lien for unpaid

assessments, such liens should enjoy statutory priority over most other liens. Accordingly,

subsection (b) provides that the association’s lien takes priority over all other liens and

encumbrances except those recorded prior to the recordation of the declaration, those imposed for

real estate taxes or other governmental assessments or charges against the unit, and first security

interests recorded before the date the assessment became delinquent (except as provided in

subsection (c), as described below).

As originally promulgated in 1982, subsection (c) provided that the association’s lien did

have priority to the extent of six months of unpaid common expense assessments, based on the

association’s periodic budget. In 2008, subsection (c) was amended to extend this limited priority

to include the cost of the association’s reasonable attorneys’ fees and court costs.

The six-month limited priority for association liens constituted a significant departure from

pre-existing practice, and was viewed as striking an equitable balance between the need to enforce

collection of unpaid assessments and the need to protect the priority of the security interests of

lenders in order to facilitate the availability of first mortgage credit to unit owners in common

interest communities. This equitable balance was premised on the assumption that, if an

association took action to enforce its lien and the unit owner failed to cure its assessment default,

the first mortgage lender would promptly institute foreclosure proceedings and pay the unpaid

assessments (up to six months’ worth) to the association to satisfy the association’s limited priority

lien. This was expected to permit the mortgage lender to preserve its first lien and deliver clear title

in its foreclosure sale ‒ a sale that was expected to be completed within six months (in jurisdictions

with nonjudicial foreclosure) or a reasonable period of time thereafter, thus minimizing the period

during which unpaid assessments would accrue for which the association would not have first

priority. Likewise, it was expected that in the typical situation, a unit would have a value sufficient

to produce a sale price high enough for the foreclosing lender to recover both the unpaid mortgage

balance and six months of assessments.

The real estate market facing common interest communities post-2007 is substantially

different from the one contemplated by the drafters of the original UCIOA. Many units are

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“underwater,” with values below the outstanding first mortgage balance. More significantly, long

delays have developed in the completion of foreclosures. In states permitting only judicial

foreclosures, these delays were often beyond lender control. In many situations, however,

mortgage lenders strategically delayed the institution or completion of foreclosure proceedings on

units affected by common interest assessments. When a lender acquires a unit at a foreclosure sale

by way of a credit bid, it becomes legally obligated to pay assessments arising during the lender’s

period of ownership. Some lenders have chosen to delay scheduling or completing a foreclosure

sale, fearful that they may be unable to resell the unit quickly for an appropriate return in a

depressed market. During this period of delay, neither the unit owner nor the mortgage lender is

paying the common expense assessments ‒ the unit owner is often unable or unwilling to do so,

and the mortgagee is not legally obligated to do so prior to acquiring title. In the meantime, the

association (and the remaining unit owners) bear the full financial consequences of this situation,

because the association must either force the remaining owners to bear increased assessments to

meet budgeted expenses or reduce expenditures for (or the level of) community maintenance,

insurance and services.

If other unit owners have to pay the burden of increased assessments to preserve

community services or amenities, the delaying lender receives a benefit in that the value of its

collateral is preserved while the lender waits to foreclose. Yet this preservation comes through the

community’s imposition of assessments that the lender does not have to pay or reimburse. This

benefit constitutes unjust enrichment of the mortgage lender, particularly to the extent that the

lender enjoys this benefit by virtue of a conscious decision to delay completing a foreclosure sale.

In addition to its inadequacy to protect the legitimate financial interests of community

residents, the language used to create the limited priority lien in subsection (c) has also prompted a

number of interpretive disputes. For example:

First, there has been a developing split of judicial authority as to whether subsection (c)

creates in the association a true lien priority or merely a payment priority. For example,

suppose that a condominium association forecloses its lien and conducts a sale following a

unit owner’s default in assessment payments, and the first mortgage lender does not

participate in the sale. As originally drafted, subsection (c) was intended to create a true

lien priority, and thus the association’s foreclosure properly should be viewed as

extinguishing the lien of the first lienholder (to the same extent that foreclosure of a real

estate tax lien would extinguish an otherwise-first mortgage lien). See, e.g., SFR

Investments Pool 1, LLC v. U.S. Bank, N.A., ___ Nev. ___ (Nev. 2014); Chase Plaza

Condominium Ass’n, Inc. v. JPMorgan Chase Bank, N.A., ___ A.3d ___, 2014 WL

4250949 (D.C. Ct. App. 2014); 7912 Limbwood Court Trust v. Wells Fargo Bank, N.A.,

___ F.Supp.2d ___, 2013 WL 5780793 (D.Nev.2013); Summerhill Village Homeowners

Ass’n v. Roughley, 270 P.3d 639 (Wash.Ct.App. 2012). Nevertheless, several trial court

decisions have held that an association’s nonjudicial foreclosure of its assessment lien does

not extinguish the lien of the first mortgage lender. See, e.g., Weeping Hollow Ave. Trust

v. Spencer, 2013 WL 2296313 (D.Nev. May 24, 2013); Diakonos Holdings, LLC v.

Countrywide Home Loans, Inc., 2013 WL 531092 (D. Nev. Feb. 11, 2013).

Second, a split of authority has developed as to whether the association may extend its

six-month lien priority by filing successive lien foreclosure actions at six month intervals.

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Compare Drummer Boy Homes Ass’n v. Britton, 2011 Mass. App. Div. 186 (2011)

(UCIOA lien priority cannot be extended beyond six months through repetitive foreclosure

actions by association) with Bank of America, N.A. v. Morganbesser, No. 675-10-10 (Vt.

Super. Ct. Jan. 18, 2013) (recognizing continuation of association’s priority for

assessments accruing during pendency of association foreclosure, even beyond six months,

because subsection (c) would allow repetitive actions every six months).

For the reasons discussed above, subsections (a), (b) and (c) are amended to clarify the

scope of the association’s limited lien priority, as follows:

First, subsection (a) affirms the result in Summerhill Village Homeowners Ass’n v.

Roughley, 270 P.3d 639 (Wash.Ct.App. 2012), and makes clear that the association’s lien

has true priority over the lien of an otherwise first mortgage lender to the extent of the

amount specified in subsection (c). Thus, if the association conducts a foreclosure sale of

its association lien and the otherwise first mortgagee does not act to redeem its interest by

satisfying the association’s limited priority lien, the mortgagee’s lien would be

extinguished.

Second, subsection (c) makes clear that the association’s lien is not capped at only six

months of unpaid common expense assessments. Instead, the association’s lien is entitled

to priority under subsection (c) to the extent of six months of unpaid common expense

assessments each year, based on each year’s periodic budget as adopted by the association

for the applicable year.

By allowing the association to extend its priority for six months per year throughout any period of

delay by a foreclosing lender, subsection (c)(1) strikes a more appropriate and equitable sharing of

the costs of preserving the value of the mortgagee’s security. The following illustrations

demonstrate the application of subsection (c):

Illustration 1. Owner owns a unit subject to a first mortgage held by Bank (but no other

liens). Owner fails to pay any assessments during either 2012 or 2013. In December 2013,

the association conducts a foreclosure sale (having given proper notice of the sale to both

Owner and Bank). Based on the association’s annual budgets, assessments were

$100/month for 2012 and $125/month for 2013. The unpaid balance of Owner’s

assessments was thus $2,700, and the association incurred an additional $1,000 in

reasonable attorney fees and costs in enforcing its lien. Under subsection (c), the

association’s lien would be entitled to priority over Bank’s mortgage to the extent of

$2,350, which represents (1) six months of unpaid 2012 assessments (a total of $600), (2)

six months of unpaid 2013 assessments (a total of $750), and (3) $1,000 in attorney fees

and costs. The association’s foreclosure sale extinguishes Bank’s mortgage lien. The

association receives the first $2,350 in sale proceeds for application to Owner’s unpaid

assessments. The sale proceeds would next be applied to the balance secured by Bank’s

mortgage. If there remained any surplus sale proceeds following the satisfaction of Bank’s

mortgage, those proceeds would be applied to the remaining balance of the Owner’s

unpaid assessments.

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Illustration 2. Owner owns a unit subject to a first mortgage held by Bank (but no other

liens). In December 2013, the association conducts a foreclosure sale (having given proper

notice of the sale to both Owner and Bank). Based on the association’s annual budgets,

assessments were $100/month for 2012 and $125/month for 2013. At the time of the sale,

Owner had neither paid assessments for March and April of 2012 (a total of $200) nor for

the period March-December 2013 (a total of $1,250). The unpaid balance of Owner’s

assessments was thus $1,450, and the association incurred an additional $1,000 in

reasonable attorney fees and costs in enforcing its lien. Under subsection (c), the

association’s lien would be entitled to priority over Bank’s mortgage only to the extent of

$1,950, which represents (1) two months of unpaid 2012 assessments (a total of $200), (2)

six months of unpaid 2013 assessments (a total of $750), and (3) $1,000 in attorney fees

and costs. The association’s foreclosure sale extinguishes Bank’s mortgage lien. The

association receives the first $1,950 in sale proceeds for application to Owner’s unpaid

assessments. The sale proceeds would next be applied to the balance secured by Bank’s

mortgage. If there remained any surplus sale proceeds following the satisfaction of Bank’s

mortgage, those proceeds would be applied to the remaining balance of the Owner’s

unpaid assessments.

Illustration 3. Owner owns a unit subject to a first mortgage held by Bank (but no other

liens). In December 2013, the association schedules a foreclosure sale (having given

proper notice of the sale to both Owner and Bank). Based on the association’s annual

budgets, assessments were $100/month for 2013, and Owner had not paid any assessments

for 2013. The unpaid balance of Owner’s assessments was thus $1,200, and the association

incurred an additional $1,000 in reasonable attorney fees and costs in enforcing its lien.

Just prior to the scheduled foreclosure sale, however, Bank paid the association a total of

$1,600, which represents (1) six months of unpaid 2013 assessments (a total of $600) and

(2) $1,000 in the association’s attorney fees and costs. Bank’s payment extinguishes the

priority that the association’s lien would otherwise have had pursuant to subsection (c);

therefore, if the association proceeds with its foreclosure sale, the sale will not extinguish

Bank’s mortgage lien, and the buyer at the sale will take the unit subject to Bank’s

mortgage lien.

In cooperatives, the association has legal title to the units and depending on the election

made in the declaration pursuant to Section 2-118(i) may have power to create, assume, or take

subject to security interests in the units which have priority over the interest of unit owners.

Obviously, the cooperative association’s lien should not have priority over an interest which the

association itself has given, assumed, or taken subject to and subsection (b) expressly so provides.

The special reference to cooperatives in subsection (b)(2) merely recognizes that in a

cooperative both the association and the unit owner have an interest in a unit.

3. Units may be part of two common interest communities. For example, a large real estate

development may consist of one or more condominiums which are also part of a larger planned

community. In that case, the planned community association might assess the condominium units

for the general maintenance expenses of the planned community and the condominium association

would assess for the direct maintenance expenses of the building itself. In such a situation,

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subsection (d) provides that unpaid liens of the two associations have equal priority regardless of

the relative time of creation of the two regimes and regardless of the time the assessments were

made or became delinquent.

4. Subsection (g) makes clear that the association may have remedies short of foreclosure

of its lien that can be used to collect unpaid assessments. The association, for example, might bring

an action in debt or breach of contract against a recalcitrant unit owner rather than resorting to

foreclosure.

5. Subsection (j) originally provided an additional remedy for cooperative associations

dealing with defaulting or recalcitrant unit owners. In the typical cooperative the association will

have a substantial underlying mortgage on all or a substantial portion of the real estate in the

cooperative and a large part of each unit owner’s periodic assessment will go toward payment of

that particular unit’s proportionate share of the mortgage. If the unit owner fails to pay his

assessment on time, the association may be forced into default on its own mortgage payments with

consequent possible foreclosure of the underlying mortgage and loss by all unit owners of their

interests in the cooperative. Therefore, in the cooperative context it is essential that the cooperative

association have a fast and effective remedy for failure of a unit owner to pay his assessment. For

this reason, subsection (j) provided that upon nonpayment the cooperative unit owner could be

evicted in the same manner as an unlawfully holding over commercial tenant.

If the unit owner’s interest is real estate, subsection (k)(2) then offers the State two

alternatives as to nonjudicial foreclosure of a cooperative association’s lien. The first alternative is

power of sale under any existing state statute authorizing power of sale under mortgages. If there is

no power of sale statute or if the legislature chooses to adopt a special power of sale provision for

of the lien on cooperative units, the State can choose the 2d alternative: power of sale under

subsection (l) of this section.

Subsection (l), which is patterned after the power of sale foreclosure provisions of the

Uniform Land Transactions Act, is a modern power of sale provision which frees private power of

sale foreclosure from many of the costly, time consuming, and inefficiency producing strictures of

most existing private power of sale statutes. At the same time, it provides reasonable protection to

the unit owner and junior interests.

If the unit owners’ interest in a cooperative is personal property, the association’s lien is

foreclosed as if it were a security interest under Article 9 of the Uniform Commercial Code. Article

9 foreclosure is generally less expensive and faster than either judicial or power of sale real estate

foreclosure. This difference in cost and speed of foreclosure, both for association liens and security

interests, is one of the major factors to be considered in choosing whether, under Section 1-105,

the unit owner’s interest in a cooperative will be real property or personal property. Article 9

foreclosure is currently used in foreclosing security interests in mobile homes, and has been

accepted in the various States as a permissible method of foreclosure in that housing area without

serious challenge.

As originally promulgated, subsection (j) only authorized a possessory remedy prior to

foreclosure for cooperatives. Subsection (j) did not extend such a possessory remedy to an

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association in a condominium or planned community, on the theory that a unit owner’s failure to

pay assessments on a timely basis would have less significant consequences and that the

association’s foreclosure remedy was sufficient.

By contrast, Illinois has adopted procedures that allow a condominium association to use

forcible entry and detainer to obtain possession of a unit from a defaulting owner, and to lease the

unit to a tenant and apply the rents toward the satisfaction of unpaid assessments. 735 ILCS

5/9-111. Upon recovering possession of the unit, the association has the power (though not the

obligation) to lease the unit to a tenant for a period not to exceed 13 months; if the association so

leases the property, the association must apply rents collected to unpaid assessments, fines, and

ongoing assessments as they come due, with any surplus returned to the unit owner. 735 ILCS

5/9-111.1. Once the unit owner has paid off the unpaid assessments and becomes current on its

obligations to the association, the unit owner may obtain an order vacating the judgment; if the

premises are being leased by the association as described above, the judgment would be vacated

effective at the end of the lease term. 735 ILCS 5/9-111.

The Illinois statute discourages strategic default by underwater unit owners in possession

of their units (defaults which can place a serious financial burden on the association and other unit

owners). The potential benefit of such a remedy is additionally magnified in jurisdictions (such as

Illinois) that permit only judicial foreclosure. In those states in which a year or longer might elapse

before an association could complete a judicial foreclosure of its assessment lien, and there is a

viable market for rental of such units, this possessory remedy would enhance the ability of the

association to reduce the assessment delinquency (and thereby help meet its budgeted expenses)

pending completion of the foreclosure of the association lien.

As a result, subsection (j) is amended to extend a comparable remedy to all associations. A

state that adopts amended subsection (j) may need to consider conforming amendments in its

forcible entry and detainer statute that are similar in character to the provisions in the Illinois

statute, 735 ILCS 5/9-111 and 9-111.1.

6. Subsection (m) makes clear that the courts have authority to appoint receivers upon

request by associations to aid in collection of common charges.

7. Few issues are more contentious in common interest communities than the prospect of

unit owners losing their homes as a consequence of non-payment of common charges – and the

loss of all or most of their equity – when the association forecloses. The reaction in state

legislatures in recent years has been widespread.

At the same time, it is crucial that the association be able to secure timely payment of

common charges in order to provide services to all the residents of the common interest

community.

In an effort to balance these competing interests, the 2008 amendments provided additional

safeguards governing foreclosure of liens for unpaid common charges. These procedures may be

summarized as follows:

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First, Section 3-116(n) bars foreclosure for sums that are less than 3 months of common

charges. Likewise, subsection (n) also bars the association from pursuing a possessory

remedy against a defaulting unit owner unless more than 3 months of common charges are

unpaid.

Second, Section 3-116(n) also requires the association board, to first, offer the delinquent

owner a payment plan which the owner rejects, and second, expressly approve each

foreclosure action.

Third, Section 3-116(o) requires that payments of delinquent assessments be applied first

to principal rather than to interest and fees, in order to avoid the usual practice of accruing

additional interest and late charges as the monthly fees remain unsatisfied while the

attorneys’ fees and interest are paid first.

Fourth, Section 3-116(p) bars any foreclosure for fines alone unless the association first

secures a personal judgment against the unit owner.

Finally, Section 3-116(q) requires that if a foreclosure does go forward, any sale of a unit

must be commercially reasonable. In the first reported case of foreclosure arising in a state

that has adopted this Act, the court required that the sale be reasonable. See Will v. Mill

Condominium Owners Association et al, 176 VT 380, 848 A2d 336 [2004].

These special procedures would comprise an overlay on existing state foreclosure procedures,

whether judicial or non-judicial. Taken together, they respond in a concise but responsible way to

the widespread reports of abuses in this field. Hopefully, they will also be viewed by the various

States as a responsible and balanced response to the issues confronting elected officials, defaulting

unit owners and homeowners association directors with a fiduciary responsibility to maintain the

property.

8. In states that permit an association to foreclose its association lien by nonjudicial

foreclosure, questions may arise regarding the finality of a sale in which a person holding a

subordinate lien did not receive notice of the nonjudicial sale. In some states, nonjudicial

foreclosure procedures require notice to subordinate lienholders only when those lienholders have

recorded a timely request for notice of sale on the real property records. There also is authority in

some nonjudicial foreclosure states to the effect that a subordinate lien can be extinguished in

favor of a bona fide purchaser at the sale even if the subordinate lienholder who had requested

notice did not receive it. In other states, a subordinate lienholder that does not receive notice of a

nonjudicial foreclosure sale does not have its lien extinguished by that sale. See, e.g., Wash. Rev.

Code Ann. § 61.24.040(7).

The issue of notice to subordinate lienholders becomes more critical under this Act, given

that subsection (c) gives the association a limited priority over the otherwise-first mortgage lender,

thus rendering that lender a subordinate lienholder. It would be manifestly unfair for an

association’s foreclosure sale to extinguish the lien of the otherwise-first mortgage lender if the

association did not in fact provide the lender with notice of that sale. For this reason, subsection

(r) is added to make clear that the association’s foreclosure does not terminate a subordinate lien

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unless the association provides notice of the foreclosure to the person that is the record holder of

the subordinate interest.

Subsection (r) is not necessary in judicial foreclosure-only states, nor in states (such as

Washington) that provide that a nonjudicial foreclosure can extinguish subordinate liens only if

such lienholders were provided notice prior to the sale.

9. Section 3-116 rejects more extreme provisions favoring defaulting unit owners espoused

in various forums. For example, extensive provisions were adopted by North Carolina regarding

fines enforcement and collection which may pose significant impediments to the financial

well-being of unit owner associations. See, e.g., 2205 North Carolina Session Act No. 422.

Similarly, the section does not adopt the extensive borrower protections contained in the Uniform

Non-Judicial Foreclosure Act. That act contains provisions dealing with repetitive and detailed

default notices, mandated meetings before foreclosure, a period of limitation on foreclosures,

mandated judicial supervision of foreclosures, extensive redemption rights after foreclosure, and

the like. In those cases where foreclosure is supervised by a judge, those procedures are not likely

to be of significant benefit to defaulting to unit owners, but will impose significant transaction

costs on associations in non-judicial foreclosure states; there is no reason to distinguish common

interest community foreclosures from every other procedure.

10. The issue of how the association protects itself from non-payment of assessments may

be of concern in a state with a homestead exemption. Either direct foreclosure of the association’s

statutory lien for unpaid assessments, or foreclosure of a perfected judgment lien which the

association might have secured in lieu of foreclosure, may conflict with existing homestead

statutes. Further consideration of this issue in those states, in order to reconcile conflicting statutes,

would then be appropriate.

11. In requiring a delay for 3 months in commencement of a foreclosure proceeding,

subsection 3-116(n)(1) imposes some risk on the association. Since the association’s lien has only

a limited priority over that of a first mortgage, anything which delays the commencement and

completion of a foreclosure by the association, but does not result in the unit owner bringing his or

her account current, may be seen as simply raising the cost to the association, and, therefore, to all

of the other unit owners who are paying their common charges on time.

12. It may be that the reaction of some legislators to this Section will depend on the extent

to which foreclosure actions in the respective states are subject to judicial supervision. In states

where non-judicial foreclosure is either not available or not used in association lien foreclosures,

the active role played by the court may minimize the need for certain of the borrower protections in

this section.

SECTION 3-117. OTHER LIENS.

(a) In a condominium or planned community:

(1) Except as otherwise provided in paragraph (2), a judgment for money against

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the association [if recorded] [if docketed] [if [insert other procedures required under state law to

perfect a lien on real estate as a result of a judgment] ], is not a lien on the common elements, but is

a lien in favor of the judgment lien holder against all of the other real estate of the association and

all of the units in the common interest community at the time the judgment was entered. No other

property of a unit owner is subject to the claims of creditors of the association.

(2) If the association has granted a security interest in the common elements to a

creditor of the association pursuant to Section 3-112, the holder of that security interest shall

exercise its right against the common elements before its judgment lien on any unit may be

enforced.

(3) Whether perfected before or after the creation of the common interest

community, if a lien, other than a deed of trust or mortgage, including a judgment lien or lien

attributable to work performed or materials supplied before creation of the common interest

community, becomes effective against two or more units, the unit owner of an affected unit may

pay to the lien holder the amount of the lien attributable to the unit, and the lien holder, upon

receipt of payment, promptly shall deliver a release of the lien covering that unit. The amount of

the payment must be proportionate to the ratio that the unit owner’s common expense liability

bears to the common expense liabilities of all unit owners the units of which are subject to the lien.

After payment, the association may not assess or have a lien against that unit owner’s unit for any

portion of the common expenses incurred in connection with that lien.

(4) A judgment against the association must be indexed in the name of the common

interest community and the association and, when so indexed, is notice of the lien against the units.

(b) In a cooperative:

(1) If the association receives notice of an impending foreclosure on all or any

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portion of the association’s real estate, the association shall promptly transmit a copy of that notice

to each unit owner of a unit located within the real estate to be foreclosed. Failure of the

association to transmit the notice does not affect the validity of the foreclosure.

(2) Whether a unit owner’s unit is subject to the claims of the association’s

creditors, no other property of a unit owner is subject to those claims.

Comment

1. This section deals with the effect on unit owners of judgments against the association.

The issue is not free from difficulty. Presently, in most States, if the association is organized as a

corporation, the unit owners are likely to receive the insulation from liability given shareholders of

a corporation, so that the judgment lienholder can satisfy his judgment only against the property of

the association. On the other hand, if the association is organized as an unincorporated association,

under the law of most States each unit owner would have joint and several liability on the

judgment. This Act strikes a balance between the two extremes.

2. In condominiums and planned communities, the Act makes the judgment lien a direct

lien against each individual unit, but allows the individual unit owner to discharge the lien by

payment of his pro-rata share of the judgment based on that unit’s relative common expense

liability. The judgment would also create a lien against any property owned by the association. In

cooperatives, title to the units is in the cooperative so that it is not necessary for the Act to provide

that a judgment against the association creates a lien against units. The Act does provide, however,

that no property of a cooperative unit owner other than the unit is subject to the claims of

association creditors. The result is that the relationship between creditors of the association and

unit owners is similar in all three forms of ownership.

There are, however, significant differences between cooperatives and condominiums or

planned communities as to the position of unit owners as against association creditors. In one

respect cooperative unit owners have greater liability than condominium or planned community

unit owners and in another respect they have lesser liability.

They have greater liability in that, in a cooperative, if a judgment lien has priority over a

unit owner’s interest in a unit, the lien against the unit is not limited to the unit’s common expense

liability percentage. In contrast, in a condominium or planned community, the lien against a unit is

only for the unit owner’s pro rata share of the judgment.

Example: Suppose a four unit project in which there is a judgment against the association

for $50,000. Further suppose that each of the units has a value of $100,000 and that there are

outstanding mortgages as follows:

Unit A Unit B Unit C Unit D

Value $100,000 $100,000 $100,000 $100,000

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Mortgage 50,000 90,000 90,000 75,000

Equity 50,000 10,000 10,000 25,000

In a condominium or planned community, the judgment lien attaches to each unit in

proportion to that unit’s liability for common expense liability. If, in the above example, the

common expense liability is equal, the lien would attach to each unit for $12,500. Therefore, the

association judgment creditor could reach the full equity of Unit owners B and C in their units, but

could reach only $12,500 of the interest of Unit owners A and D. Since the association cannot

assess A and D for any additional amounts of the judgment, if B and C allow their interest to be

foreclosed and foreclosure produces only $20,000, the association judgment creditor will collect

only $45,000 of its $50,000 judgment. That is less than it would collect if all unit owners’ interests

in units were fully liable, but more than it would collect if only association assets were subject to

attachment. (The judgment creditor may, however, satisfy his judgment in full by reaching the

income stream of the association by appropriate creditor process.)

In a cooperative, on the other hand, the association creditor can reach the entire interest of

any of the unit owners in their units and will have its judgment satisfied in full.

The liability of cooperative unit owners to association judgment creditors is less than that

of unit owners in condominiums and planned communities in that there is no statutory provision

giving the judgment creditor a direct lien against units. Since, in a cooperative, title to the units is

in the cooperative, a judgment creditor of the association will have a lien on the units, but under

ordinary recording and priority rules, that lien will be subordinate to unit owner interests in units if

those interests were recorded prior to the attachment of the judgment lien. Therefore, in a

cooperative, there is a possibility that the judgment lienor will have no rights as against the

interests of the unit owners. However, the declaration may provide that association creditors have

priority over the interests of cooperative unit owners, and, if it does so, such a provision is effective

(see Section 2-118), and even in the absence of Section 2-118 would be effective, as a general

subordination of unit owner interests to creditors of the association. (The Act in Section 2-118

requires that all creditors of the association be treated in the same way as to priority against unit

owners so that the declaration cannot provide, for example, that only contract creditors have

priority over unit owners or, for another example, that only regulated financial institution debt has

priority. However, the unit owners might subordinate their interest to the rights of individual

creditors of the association by giving that individual creditor a subordination agreement.)

However, upon termination of the cooperative, liens against the cooperative which did not

have priority over the cooperative interests do become proportional fractional liens against each

individual cooperative interest (see Section 2-118(i) and the Comments thereto).

3. The provisions of Section 3-117 applicable to condominiums and planned communities

were adopted after substantial consideration by the Committee and the National Conference and

achieve what the drafters believe is appropriate unit owner liability for association debts. The

somewhat different treatment given cooperatives arises out of the different history of cooperatives

and out of the different tradition as to financing of cooperatives. The rules just stated in effect

continue the existing law as to the relationship between cooperative unit owners (today commonly

called proprietary lessees) and association creditors. The provisions also take account of a

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common way of financing cooperatives: in the typical cooperative, the cooperative association

will take title to the real estate and will assume or take subject to existing mortgages on the real

estate, or if there are no existing mortgages, will borrow a significant portion of the purchase price

of the cooperative real estate and secure that price by a mortgage on the real estate. Thereafter,

when individual units are conveyed (leased) to individual unit owners, the unit owner’s interest

will be subject to the prior recorded underlying mortgage. The unit owner also will commonly

borrow money on the security of his lease interest to pay the purchase price of the unit owner’s

interest. Unless a subordination agreement has been taken from the unit owner or subordination of

unit owner interest to subsequent association creditors is provided for in the declaration, the unit

purchase financing lender who lends on the security of the unit owner’s interest can assess his risk

on the assumption that he will never be subject to a greater proportion of the underlying debt than

he is at the time the loan is originally made. If there is a subordination agreement, the unit

financing lender knows that his security interest is subject to being entirely defeated by subsequent

transactions between the association and its creditors. In the cooperative context, that system has

worked reasonably well, and many people with substantial experience with housing cooperatives

wished to continue that system in the Model Real Estate Cooperative Act and in the Uniform

Common Interest Ownership Act.

In the case of condominiums and planned communities, while the condominium or planned

community judgment creditor has a direct lien against the units, the lien against a particular unit is

limited to that unit’s common interest percentage liability, and based on ordinary priority rules, the

association judgment creditor’s lien will be junior to any prior perfected liens or security interests

in the unit owner’s unit. Since the priority between association judgment creditors and holders of

security interests or liens against individual units in condominiums or planned communities will

be determined according to ordinary priority rules, as is the case of cooperatives in the absence of

subordination agreements, the result as between association judgment creditors and holders of

security interest or liens on individual units is essentially the same under all three acts. However,

as pointed out above, as against the unit owner himself, the cooperative association lien creditor

who has priority over a unit owner’s interest will have greater rights than does the association

judgment creditor in the case of condominiums and planned communities.

4. It should be noted that, while the judgment lien runs directly against unit owners in

condominiums and planned communities, the actual liability of the unit owner is almost identical

with what it would be if the ordinary corporation rule insulating the unit owner from direct liability

were applied. If the incorporated condominium or planned community association only is liable

for a judgment, it will, of course, have no assets to satisfy the judgment except whatever personal

property and real estate not a part of the common elements it owns. If a checking account or other

cash funds of the association are attached or garnisheed by the creditor, the association, in order to

maintain its operations and fulfill its other obligations, will be obliged to make an additional

assessment against the unit owners to cover the judgment. The same result follows if the

association is to prevent the sale of other assets at an execution sale. That additional assessment

would be in precisely the amount for which this Act gives a direct lien against the individual unit

owners. Further, if an association which is without sufficient assets to satisfy a judgment refuses to

make assessments from which the creditor can have his claim satisfied, it is very likely that a court,

in a supplemental proceeding on the judgment, would direct the association to make the necessary

assessments against the unit owners. Unpaid assessments made by the association constitute liens

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against units just as do judgments.

Therefore, whether the lien of the judgment creditor runs against the units directly, or

whether the lien is only against the association which finds it necessary to make additional

assessments to satisfy the judgment, the unit owner who does not pay his proportionate share will

end up with a lien against his unit.

The differences, therefore, between the lien system established by Section 3-117 for

condominiums and planned communities and the system which would be applicable if ordinary

corporation rules were applied are these:

(1) The unit owner can discharge his unit from the lien and free it from the possibility of

being subsequently assessed by the association for the judgment by making a payment directly to

the lien holder. This ability may be valuable to a unit owner who is in the process of selling or

securing a mortgage on his unit during the period between the time the judgment is entered and the

time the association makes a formal assessment against individual unit owners for the amount of

the judgment lien.

(2) The judgment creditor through his ability to threaten to foreclose the lien on an

individual unit if the judgment is not paid is given some leverage over individual unit owners to

encourage them to see that the association pays the judgment. Procuring an assessment through

pressure on individual unit owners may be quicker and cheaper for the judgment creditor than

using supplemental proceedings and having a judge order that the board of directors make the

necessary assessment.

5. In the rare case where, under corporation law an association could avoid payment of a

judgment by dissolution of the association and vesting of title to the units or common elements the

unit owners as tenants-in-common or otherwise, the National Conference of Commissioners on

Uniform State Laws believes that that result is inappropriate, and that the unit in the condominium

or planned community itself should be viewed as equity property of the association capable of

being reached by judgment creditors in satisfaction of the judgment. As a matter of social policy

the condominium or planned community association is in quite a different position than the

ordinary corporation. The corporation statutes provide shareholders immunity from liability for

debts of the corporation to encourage investment in corporations whose entrepreneurial activities

in the marketplace contribute to the general wealth and well-being of society. The condominium or

planned community association, in managing the affairs of the homeowners, does not serve the

same entrepreneurial function. It seems reasonable, as a matter of social policy, that an individual

homeowner who would be fully liable for debts incurred in the renovation and maintenance of his

home or for torts caused by his failure to adequately maintain the premises should not be able to

entirely avoid that liability through the device of organizing with other homeowners into a

condominium or planned community association. On the other hand, it is perhaps not fair to a unit

owner in a condominium or planned community regime to have all of his assets at risk based on the

contracts of the association over which he has little control and as to which he has only a fractional

interest or benefit.

It should be noted that, except for situations in which the association has given a mortgage

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or deed of trust on common elements, the judgment creditor cannot assert a lien against common

elements, but is rather left to a lien against the units. That is, the judgment creditor has no power to

levy on the golf course or on the swimming pool or other open spaces and sell them independently

of the units to satisfy the judgment.

SECTION 3-118. ASSOCIATION RECORDS.

(a) An association must retain the following:

(1) detailed records of receipts and expenditures affecting the operation and

administration of the association and other appropriate accounting records;

(2) minutes of all meetings of its unit owners and executive board other than

executive sessions, a record of all actions taken by the unit owners or executive board without a

meeting, and a record of all actions taken by a committee in place of the executive board on behalf

of the association;

(3) the names of unit owners in a form that permits preparation of a list of the names

of all owners and the addresses at which the association communicates with them, in alphabetical

order showing the number of votes each owner is entitled to cast;

(4) its original or restated organizational documents, if required by law other than

this [act], bylaws and all amendments to them, and all rules currently in effect;

(5) all financial statements and tax returns of the association for the past three

years;

(6) a list of the names and addresses of its current executive board members and

officers;

(7) its most recent annual report delivered to the [Secretary of State], if any;

(8) financial and other records sufficiently detailed to enable the association to

comply with Section 4-109;

(9) copies of current contracts to which it is a party;

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(10) records of executive board or committee actions to approve or deny any

requests for design or architectural approval from unit owners; and

(11) ballots, proxies, and other records related to voting by unit owners for one year

after the election, action, or vote to which they relate.

(b) Subject to subsections (c) and (d), all records retained by an association must be

available for examination and copying by a unit owner or the owner’s authorized agent:

(1) during reasonable business hours or at a mutually convenient time and location;

and

(2) upon [five] days’ notice in a record reasonably identifying the specific records

of the association requested.

extent that they concern:

(1) personnel, salary, and medical records relating to specific individuals;

(2) contracts, leases, and other commercial transactions to purchase or provide

goods or services, currently being negotiated;

(3) existing or potential litigation or mediation, arbitration, or administrative

proceedings;

(4) existing or potential matters involving federal, state, or local administrative or

other formal proceedings before a governmental tribunal for enforcement of the declaration,

bylaws, or rules;

(5) communications with the association’s attorney which are otherwise protected

by the attorney-client privilege or the attorney work-product doctrine;

(6) information the disclosure of which would violate law other than this [act];

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(7) records of an executive session of the executive board; or

(8) individual unit files other than those of the requesting owner.

(d) An association may charge a reasonable fee for providing copies of any records under

this section and for supervising the unit owner’s inspection.

(e) A right to copy records under this section includes the right to receive copies by

photocopying or other means, including copies through an electronic transmission if available

upon request by the unit owner.

(f) An association is not obligated to compile or synthesize information.

(g) Information provided pursuant to this section may not be used for commercial

purposes.

Comment

1. There are two significant policy issues connected with the association’s records: first,

what records the association must retain, and second, who has access to those records. The 2008

amendments address both.

The original version of Section 3-118 dealt with these matters in a minimalist way.

Regarding records maintenance, the first sentence of 3-118 required only that the association

maintain those records needed to comply with Section 4-109 – that is , the obligation to provide a

resale certificate. This minimum requirement was far less expansive than the provisions of, for

example, the Revised Model Non-Profit Corporation Act; it plainly did not address the significant

issues of records maintenance that have arisen since UCIOA was first promulgated 25 years ago.

Section 3-118 was similarly superficial regarding issues of records access; it mandated

simply that ‘all’ records of the association be ‘reasonably available for examination by any unit

owner or his authorized agent’ – leaving questions as to whether the word reasonable” modified

‘all …records’ as well as “available”, and leaving unanswered the large range of issues that courts

and legislatures have struggled with in this field over the last quarter century.

2. The 2008 amendments replace the “minimalist” provisions of UCIOA Section 3-118

with provisions generally consistent with the cognate provisions of the Revised Model Nonprofit

Corporation Act, supplemented by specific provisions from other more modern State enactments

and proposals in the homes association field. In this latter regard, the amendments, for example,

authorize a unit owner to have access to a mailing list of unit owners, although the association may

retain the right to mail materials to unit owners at their last known addresses, in order to maintain

the unit owners’ privacy; and (ii) insure that minutes of all meetings must be kept.

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3. Section 3-118(a) outlines the records that the Association must retain. The subsection

generally avoids any substantive requirements as to how the Association’s financial records are to

be maintained, relying simply on the obligation to retain “detailed records of receipts” and

“appropriate accounting records”, “all financial statements and tax returns for the past 3 years”

and, as in the original Act, “financial and other records sufficiently detailed to enable the

association” to provide a resale certificate under Section 4-109.” The Act rejects any proposal that

it require records to be maintained in accordance with “generally accepted accounting principles”;

there are simply too many associations for which that would be an unnecessary and burdensome

requirement.

4. The rules of various Bar associations make it imprudent for this Act to characterize the

files of an attorney representing the association as property of the association and thereafter to

assert that those files are nevertheless exempt from disclosure. For that reason, the Act does not

address the status of an attorney’s records, but section 3-118(c)(5) does make clear that

communications with the association’s attorney will generally be exempt from disclosure.

5. Many associations, especially smaller ones, may not have a complete set of records

going back to the first organization of the association. This may be attributable to many reasons,

and often are not the fault of the association or its current leadership. For example, the original

declarant may not keep adequate records or may have failed to turn them over at transition.

Managers may fail to turn records over when their contracts expire or are terminated.

In either of these cases, the cost of suing to obtain the missing records is prohibitive, or

certainly out of proportion to the loss or inconvenience caused by the missing documents. In many

smaller communities, the minutes and other non-financial records are kept by a volunteer officer of

the association. If someone dies, is taken ill or moves away, the records are often lost. While this

reality may impede the practical realization of the requirements in this Act, a goal of the section

would be that over time, those “ancient” records may become of less practical importance in older

associations, while newer associations will be guided by the requirements of this Section to adopt

sound record keeping practices from the outset.

6. Subsection 3-118(b)(i) permits the parties to agree on a mutually acceptable time and

place for the inspection of the records. If they do not agree, the subsection provides that the

inspection shall take place “during reasonable business hours or at a mutually convenient time and

location.” Another concern has to do with smaller self-managed associations where the records

may be kept by a unit owner who works during the day. If the volunteer treasurer cannot easily

leave his or her job during the day to meet with a unit owner, it may be unreasonable to insist that

the unit owner, or the unit owner’s attorney or accountant, have the power to make the treasurer

take a day off from work.

SECTION 3-119. ASSOCIATION AS TRUSTEE. With respect to a third person

dealing with the association in the association’s capacity as a trustee, the existence of trust powers

and their proper exercise by the association may be assumed without inquiry. A third person is not

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bound to inquire whether the association has power to act as trustee or is properly exercising trust

powers. A third person, without actual knowledge that the association is exceeding or improperly

exercising its powers, is fully protected in dealing with the association as if it possessed and

properly exercised the powers it purports to exercise. A third person is not bound to assure the

proper application of trust assets paid or delivered to the association in its capacity as trustee.

SECTION 3-120. RULES.

(a) Before adopting, amending, or repealing any rule, the executive board shall give all unit

owners notice of:

(1) its intention to adopt, amend, or repeal a rule and provide the text of the rule or

the proposed change; and

(2) a date on which the executive board will act on the proposed rule or amendment

after considering comments from unit owners.

(b) Following adoption, amendment, or repeal of a rule, the association shall notify the unit

owners of its action and provide a copy of any new or revised rule.

and aesthetic standards if the declaration so provides. If the declaration so provides, the association

shall adopt procedures for enforcement of those standards and for approval of construction

applications, including a reasonable time within which the association must act after an application

is submitted and the consequences of its failure to act.

(d) A rule regulating display of the flag of the United States must be consistent with federal

law. In addition, the association may not prohibit display on a unit or on a limited common element

adjoining a unit of the flag of this state, or signs regarding candidates for public or association

office or ballot questions, but the association may adopt rules governing the time, place, size,

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number, and manner of those displays.

(e) Unit owners may peacefully assemble on the common elements to consider matters

related to the common interest community, but the association may adopt rules governing the time,

place, and manner of those assemblies.

(f) An association may adopt rules that affect the use of or behavior in units that may be

used for residential purposes, only to:

(1) implement a provision of the declaration;

(2) regulate any behavior in or occupancy of a unit which violates the declaration or

adversely affects the use and enjoyment of other units or the common elements by other unit

owners; or

(3) restrict the leasing of residential units to the extent those rules are reasonably

designed to meet underwriting requirements of institutional lenders that regularly make loans

secured by first mortgages on units in common interest communities or regularly purchase those

mortgages.

(g) An association’s internal business operating procedures need not be adopted as rules.

(h) Every rule must be reasonable.

Comment

1. This section, new in 2008, addresses in a single location many of the Act’s provisions

concerning rules, including procedures governing how rules are to be adopted, and several

constraints on what rules may address. Thus, the section now includes ‒ in new subsection (f) ‒

text that previously appeared in Section 3-102 (c) addressing the ability of the association to adopt

rules that affect use and behavior in units. The section also addresses several new constraints on

the association’s ability to regulate unit owner behavior, consistent with increasing sentiment to

this effect in a number of states.

2. Subsections (a) and (b) enable unit owners to be aware of and involved in the rules

adoption process. Under these procedures, the association must notify unit owners of its intention

to engage in changing the rules, and provide owners the text of any proposed change. Unit owners

are also entitled to submit comments on the proposed rules, and to know of the date before which

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those comments may be submitted for consideration. Finally, under subsection (b), after a rule has

been changed, the association must notify unit owners of the change, and provide them a copy of

any new or revised rule.

3. The 2008 amendments address in several ways the subject of how and when the unit

owners may be subjected to constraints on the owner’s ability to make changes on the exterior

appearance of a unit, or engage in construction activity on a unit ‒ including a lot ‒ that would be

visible from outside the unit.

It is increasingly common throughout the United States for associations to assume the

power to establish and enforce design criteria and control the exterior appearance of units, whether

those units are in high rise condominiums, townhouses or single family homes on

individually-owned lots. It is often asserted that the power of the association to maintain a

uniformly attractive and consistent appearance throughout a community adds considerably to the

value and desirability of many of these communities.

At the same time, anecdotal evidence suggests that many of the decisions made during the

design approval process have been controversial and, in some instances, are subject to abuse by

those charged with enforcing the design criteria.

The original UCIOA was silent on this subject, relegating it simply to the general reserved

powers of the association. However, because of the importance of the subject, the Act adopts

significant amendments to the design approval process. Taken as a whole, these changes confirm

the ability of the association to adopt such a process, but subject to significant constraints intended

to protect the interests of individual unit owners.

This section first provides in subsection (c) that the ability of the association to regulate the

design process must be affirmatively reserved in the declaration. This tracks Section 2-105(a)(14)

requiring that “[t]he declaration must contain ...(14) any authorization pursuant to which the

association may establish and enforce construction and design criteria and aesthetic standards....”

Note that the ability of the declarant to do so must similarly be reserved as a special

declarant right pursuant to Section 2-105 (a)(8). However, if that special declarant right is

reserved, the association’s power under this section would be subject to that reserved special

declarant right to control the construction or design review process during the development

process.

Second, assuming the authority exists in the declaration, the section requires that the rules

of the design committee must be formally promulgated by the executive board, including a

procedure for prompt consideration of an application. The rules must also describe the

consequences flowing from the failure of the design committee or other group charged with

enforcement of the criteria to act on an application within the time frame stated. This does not

mean that the necessary effect of that failure is that the application will be deemed approved; the

rules may state a different consequence, as they are permitted to do. As a practical matter,

however, one might expect that in the usual case, the parties to an application pending before a

design committee may choose to formally agree to extend the time within which the committee is

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otherwise required to act, in order to avoid the consequences of a failure to act, and nothing in this

Act is intended to affect the parties’ ability to do so.

4. The Act creates a significant interplay between the declaration and the association’s

rules when the subject is the possibility of a change in a permitted “use occupancy, or behavior”, as

that term is used in 3-120(d)(2).

First, Section 2-105(a)(12) makes clear that the declaration may contain any leasing

restrictions in addition to those restrictions permitted under 3-120(d), and any other restrictions on

alienation of the units. Section 2-105(b) permits the declaration to contain any other “restrictions

on the uses of a unit or the number or other qualifications of persons who may occupy units.”

Section 2-117(f) then provides significant protection for those permitted uses; it imposes an 80%

vote requirement in order to “prohibit or materially restrict” any permitted uses of or behavior in a

unit, or in the number or other qualifications of persons who may occupy units,” although the

declaration may also state that the 80% vote may be limited to a specific group of affected units. In

addition, under the last sentence of (f), any restrictions on uses “must provide reasonable

protection for a use or occupancy permitted at the time of the amendment.

Then, under Section 3-120, the association’s ability to adopt rules affecting use of or

behavior in units is restricted to implementing provisions of the declaration, or regulating “any

behavior in or occupancy of a unit which ...adversely affects the use and enjoyment of the units or

the common elements by other unit owners.” An obvious example of the latter would be noise

regulations.

5. Subsections (d) and (e) expand existing federal law mandating that unit owners be

allowed to display the flag of the United States, see the Freedom To Display the American Flag

Act of 2005, Public Law 109-243 to provide greater freedom of action to unit owners. These

sections increase the rights of unit owners to display flags of the enacting State, and political signs

on their units. Like the federal law, the association is entitled to adopt regulations governing the

time, place, size, number and manner of those displays.” Similarly, the unit owners are entitled

under subsection (e) to peacefully assemble on the common elements to consider matters related to

the common interest community.

6. Subsection (f), formerly §3-102(c), imposes clear limits on the association’s power to

control the use, occupancy, and leasing of units in residential projects. Basically, these

amendments adopt the policy that unless the declaration otherwise provides, “use” restrictions

must appear in the declaration in order to be enforceable by the association, and the association’s

regulatory power over “occupancy” activities is limited to those situations in which a unit owner’s

activities inside a unit affect other owners.

7. In perhaps the most significant change affecting rules, subsection (h) requires all rules to

be “reasonable.” The reasonableness standard, unlike the business judgment rule, is likely to lead

to considerable controversy over the impact of particular rules; it may also lead to more constraint

in the adoption of a variety of rules, which some unit owners may find onerous.

SECTION 3-121. NOTICE TO UNIT OWNERS.

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(a) An association shall deliver any notice required to be given by the association under this

[act] to any mailing or electronic mail address a unit owner designates. Otherwise, the association

may deliver notices by:

(1) hand delivery to each unit owner;

(2) hand delivery, United States mail postage paid, or commercially reasonable

delivery service to the mailing address of each unit;

(3) electronic means, if the unit owner has given the association an electronic

address; or

(4) any other method reasonably calculated to provide notice to the unit owner.

(b) The ineffectiveness of a good faith effort to deliver notice by an authorized means does

not invalidate action taken at or without a meeting.

Comment

1. This section was added in 2008. The alternatives listed in sub-section (a) include all the

forms of notice previously authorized in UCIOA section 3-108, which required that unit owners be

given notice of meetings. The new additional forms of notice are electronic transmissions and “(4)

any other method reasonably calculated to provide notice to the unit owner.” Depending on the

circumstances, this might include posting notice on bulletin boards, placing large and legible

“sandwich boards” at the entrances to the common interest community, or other methods. As a

consequence, the Act no longer designates the method of giving notice in particular instances,

which is a departure from the former Act. The basic concept reflected in the language permitting

electronic notice is taken from a 2004 Maryland statute; see Maryland Stat. Ann. § 11B-113.1.

2. The Act no longer requires that notice be given in a particular manner, and it does not

require that the bylaws must specify the method by which notice is to be given. However, there is

no reason why either the declaration or the bylaws could not specify a particular form or method of

giving notice to the unit owners, and such a requirement would be binding on the association.

Whether or not the documents designate a specific form of notice, the declaration cannot override

the statement in subsection (b) that protects actions taken at a meeting despite the failure of the

notice to actually be delivered, so long as the notice was given in good faith.

3. Note that whatever form of notice may be used or required in a particular common

interest community, subsection 3-108(b)(5) requires that the unit owners in that community

receive the same notice of a meeting of the executive board that is given to the members of the

board.

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SECTION 3-122. REMOVAL OF OFFICERS AND DIRECTORS.

(a) Notwithstanding any provision of the declaration or bylaws to the contrary, unit

owners, at any meeting of the unit owners at which a quorum is present, may remove any member

of the executive board and any officer elected by the unit owners, with or without cause, if the

number of votes cast in favor of removal exceeds the number of votes cast in opposition to

removal, but:

(1) a member appointed by the declarant may not be removed by a unit owner vote

during the period of declarant control;

(2) a member appointed under Section 3-103(g) may be removed only by the

person that appointed that member; and

(3) the unit owners may not consider whether to remove a member of the executive

board or an officer elected by the unit owners at a meeting of the unit owners unless that subject

was listed in the notice of the meeting.

(b) At any meeting at which a vote to remove a member of the executive board or an officer

is to be taken, the member or officer being considered for removal must have a reasonable

opportunity to speak before the vote.

Comment

1. The 2008 amendments simplify the procedures available for removal of officers or

directors, compared to the spare provisions contained in section 3-103(g) of the Act before these

amendments. Thus, for example, while the section speaks in terms of a “meeting” of unit owners

held for the purpose of removal, the section should be read in conjunction with Section 3-110 on

voting. There, unless the declaration or bylaws prohibits or limits the various means by which

voting may be conducted, the full panoply of decision making by vote would be available in the

context of a “meeting” to consider removal. Accordingly, subject to any limitations contained in

the community’s documents, a removal vote could be taken by electronic or paper ballot.

2. For the same reasons discussed in comment 1, proxies will commonly be permitted in

recall votes. The drafters recognize that generally, if both sides are soliciting proxies, the unit

owners are likely to be given a realistic opportunity to choose between positions. In any event,

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there is no reason to distinguish those votes where proxies are permitted from others where they

are prohibited.

3. While the amended Act simplifies the procedures for a removal vote, other provisions of

the new section are designed to protect the reasonable expectations of other stakeholders in the

process, and to reflect a basic sense of fairness. Thus, for example, the Act requires that any person

who is subject to a removal vote must be given an opportunity to speak before the vote. Further, if

the vote were to be taken by ballot without a meeting, then the procedures in the Act that allow

informational materials to be distributed before the ballots are due would satisfy the policy

underlying this provision.

Similarly, the Act provides that no one but the person who appoints or elects a director may

remove that director, thus protecting the legitimate interests of parties who may be entitled under

the provisions of a particular community to appoint “outside” directors.

SECTION 3-123. ADOPTION OF BUDGETS; SPECIAL ASSESSMENTS.

(a) The executive board, at least annually, shall adopt a proposed budget for the common

interest community for consideration by the unit owners. Not later than [30] days after adoption of

a proposed budget, the executive board shall provide to all the unit owners a summary of the

budget, including any reserves, and a statement of the basis on which any reserves are calculated

and funded. Simultaneously, the board shall set a date not less than 10 days or more than 60 days

after providing the summary for a meeting of the unit owners to consider ratification of the budget.

Unless at that meeting a majority of all unit owners or any larger number specified in the

declaration reject the budget, the budget is ratified, whether or not a quorum is present. If a

proposed budget is rejected, the budget last ratified by the unit owners continues until unit owners

ratify a subsequent budget.

(b) The executive board, at any time, may propose a special assessment. The assessment is

effective only if the executive board follows the procedures for ratification of a budget described in

subsection (a) and the unit owners do not reject the proposed assessment.

Comment

1. Subsection (a) of section 3-123, a new section introduced in 2008, closely follows the

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text of section 3-103(c) in the 1994 version of the Act, except that it requires each annual budget to

expressly address the subject of reserves.

2. The provisions of paragraph (a) permit the unit owners to disapprove any proposed

budget, but a rejection of the budget does not result in cessation of assessments until a budget is

approved. Rather, assessments continue on the basis of the last approved periodic budget until the

new budget is in effect.

3. In 2008, the drafters extensively considered the issue of whether state law should

mandate that the declarations of all common interest community associations create a reserve fund

for the replacement of common elements as replacement becomes necessary and, if so, the extent

to which they should be mandated. This is a subject of considerable scholarly debate and widely

varying statutory treatment in the States.

As drafted, Section 3-102 (a)(2) requires the unit owners association to adopt budgets and

Section 3-123 (a) requires the association to provide a summary of the budget ‒ including any

provisions for reserves and a statement of the basis on which the reserves are calculated. However,

the Act does not require that the association maintain any reserves.

This is not the policy of all States. Some states either mandate that reserves be maintained

or establish a default rule that such reserves be created in the absence of an affirmative vote by the

association membership not to create reserves. Other states require that the association board

undertake periodic studies of the association’s need for reserves.

It is also true that the underwriting guidelines used by Fannie Mae when deciding whether

to purchase mortgages in common interest communities, requires in condominiums – but not in

planned communities – not only that the association maintain reserves but that those reserves be

“adequate,” without defining the meaning of that word.

Evidence suggests that the needs, practices and expectations of unit owners in common

interest communities differ widely, depending on, for example, the size, age, location and design

of the physical structures as well as the age, economic circumstances and other demographic

characteristics of the unit owners.

For example, small, self-managed associations commonly will maintain minimal reserves

and will typically self-assess for repairs as needed. Other larger common interest communities,

particularly in high maintenance buildings, may choose to establish substantially higher reserves.

On the other hand, it appears that very few associations maintain reserves at a level which

would be actuarially required by evaluating the useful life of each component of the building and

then accumulating reserves through increases in the monthly common charges paid by each owner,

based on a schedule reflecting each component’s useful life.

Associations confront the same choices that a single family homeowner confronts in

thinking about, for example, the future need to replace the roof on her house. That owner has at

least three choices: (i) she can set aside a sum of money each month in a segregated fund – perhaps

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even calling it a ‘reserve’ fund – so that when the roof or other parts of her home need to be

replaced, she will have the needed funds; (2) she can maintain savings which are not segregated

and pay cash from those savings at the time the roof replacement occurs; or (3) she can borrow the

needed funds, and pay that money back during the years when she is enjoying a dry home. She can

also use a combination of these techniques. Today, encouraged by state laws such as UCIOA §

3-102(a)(8), which enables associations to pledge their future common charges as security for a

loan, UCIOA § 3-112, which enables associations to mortgage the common elements as security

for a loan, and UCIOA § 2-119, which confirms the rights of lenders to enforce conventional loan

terms against associations, associations are increasingly borrowing as an alternative to

self-funding of reserves by unit owners who may, in fact, be unable to realize the economic value

of those reserve payments if the sell their units early in the life of the project.

The drafters were also mindful of the impact of a possible law mandating reserves on the

needs of the elderly and those of limited economic means. In practice, older unit owners often

resist reserves, while younger families may perceive a greater long term value in their creation.

There are also special concerns for lower income owners in common interest communities, where

poorer owners may default on their mortgages and abandon their units because of their inability to

maintain mortgage payments and monthly common charges. If a statute were to mandate fully

funded reserve payments, policy maker should then be concerned with two possible unintended

consequences: first, such a mandate might so raise the monthly common charges that many

potential buyers might be disqualified from homeownership; and second, the increases in charges

might accelerate the collapse of common interest communities housing marginal income existing

owners, who might abandon their units in increased numbers. Neither of these outcomes would be

desirable.

At the same time, the drafters understood the natural interest of elected officials, who may

often be faced with constituent demands that government ‘do something’ about a common interest

community that has not prudently managed its affairs, with the result that needed repairs have not

been made and the needed funding is not readily identifiable.

For these reasons, this act is drafted on the assumption that the most appropriate statutory

means of addressing this concern was to first, require the declarant to address the issue of reserves

in the Public Offer Statement prepared pursuant to Section 4-103. The text in subsection 4-103(b)

– relocated from former 4-103(a)(5) – requires in pertinent part that

(b) The public offering statement must contain any current balance sheet and a projected

budget for the association, **** The budget must include:

(A) a statement of the amount, or a statement that there is no amount, included in

the budget as a reserve for repairs and replacement;

(B) a statement of any other reserves;

association; and

(D) the projected periodic common expense assessment for each type of unit.

Besides mandatory disclosure of the status of reserves in the initial public offering statement,

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Section 4-109(5) of the Act confirms that the issue of reserves be fully disclosed in later resale

documents.

Clearly, these sections simply require that the declarant affirmatively address the issue one

way or the other, and that the association continue the practice for later purchasers. Presumably,

once required to address the issue, the declarant and its professional advisors will draft a reasoned

provision consistent with their best sense of the nature of the particular community and the likely

financial circumstances of their purchasers.

Second, the Act addresses this concern by requiring the issue of reserves to be considered

during the budget adoption process pursuant to Section 3-123(a). This provision does not require a

particular outcome. But it does require that the budget must affirmatively address the issue one

way or the other. Again, like the declarant, once the association is required to address the issue, the

association will likely adopt a reasoned budget consistent with the financial needs and

circumstances of its members.

These provisions do not in any way interfere with the flexibility of a declarant in

addressing this and many other subjects of the budget process of associations. The provisions do

not mandate fully funded reserves or “adequate” reserves and do not prevent future unit owners,

after the end of the period of declarant control, from changing the initial result created by the

declarant.

Thus, what this Act accomplishes is to make certain that the subject of reserves be

consciously addressed by the party best suited at the time to understand the likely expectations and

requirements of the unit owners. Over the long term, however, better education of declarants and

unit owners alike, and the growth of ‘best practices’ in the common interest community field under

the leadership of national and state interest groups, must provide the optimal outcome in each

particular circumstance.

4. New subsection (b) addresses the issue of special assessments, a subject not addressed in

the Act before 2008. The policy of the subsection assumes that the executive board should follow

the same procedures as apply in adoption of the regular periodic budget of the association. Section

3-125 allows a different procedure for a special assessment in the case of an emergency.

Note that the term “special assessment” is not defined. However, as used in subsection (b),

it refers to any assessment that is not part of the regular budget. Given the safeguards contained in

(b), it is not likely that the procedure will be commonly abused.

5. The Act as drafted does not limit or prohibit the imposition of so-called “transfer fees.” It

does require their disclosure.

A transfer fee is, by definition, not assessed against all units in accordance with their

percentages as required by Subsection 3-115(b) and it does not meet the description of a “common

expense” in Section 3-115.

Some courts, in reviewing similar statutory provisions, have held that transfer fees are not

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permitted; see, e.g., Micheve, LLC vs. Wyndham Place at Freehold Condominium Association,

885 A.2d 35 (N.J. Super. Ct. App. Div. 2005.).

In any event, the Act takes no position on the validity or suitability of “transfer fees”,

whether imposed by the declarant, the association, or some third party. Plainly, there are abusive

circumstances where some persons assert the right to be paid a fee on transfer of title; some states

have sought to regulate such efforts. In other cases, advocates assert that transfer fees can

measurably assist in the betterment of common interest communities, despite the fact that the fees

are generally levied against persons who are departing from those communities and are therefore

not likely to enjoy whatever theoretical benefits are to be realized as a consequence of these fees.

The subject becomes more significant, of course, depending on the magnitude of the fees, and the

extent to which the fees are paid at a time of rapidly increasing – rather than decreasing – property

values.

Because of these variables, the drafters were unable to identify any obvious rule applicable

to all such fees, other than to be clear that any such fees must be disclosed in the Public Offering

Statement and in any resale certificate issued under Section 4-109. An amendment to Section

4-103(a)(7) requires disclosure of any fee due from either purchaser or seller at the time of sale.

SECTION 3-124. LITIGATION INVOLVING DECLARANT.

(a) The following requirements apply to an association’s authority under Section 3-102

(a)(4) to institute and maintain a proceeding alleging a construction defect with respect to the

common interest community, whether by litigation, mediation, arbitration, or administratively,

against a declarant or an employee, independent contractor, or other person directly or indirectly

providing labor or materials to a declarant:

(1) Subject to subsection (e), before the association institutes a proceeding

described in this section, it shall provide notice in a record of its claims to the declarant and those

persons that the association seeks to hold liable for the claimed defects. The text of the notice may

be in any form reasonably calculated to give notice of the general nature of the association’s

claims, including a list of the claimed defects. The notice may be delivered by any method of

service and may be addressed to any person if the method of service used:

(A) provides actual notice to the person named in the claim; or

(B) would be sufficient to give notice to the person in connection with

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commencement of an action by the association against the person.

(2) Subject to subsection (e), the association may not institute a proceeding against

a person until [45] days after the association sends notice of its claim to that person.

(3) During the period described in paragraph (2), the declarant and any other person

to which the association gave notice may present to the association a plan to repair or otherwise

remedy the construction defects described in the notice. If the association does not receive a timely

remediation plan from a person to which it gave notice, or if the association does not accept the

terms of any plan submitted, the association may institute a proceeding against the person.

(4) If the association receives one or more timely remediation plans, the executive

board shall consider promptly those plans and notify the persons to which it directed notice

whether the plan is acceptable as presented, acceptable with stated conditions, or not accepted.

(5) If the association accepts a remediation plan from a person the association seeks

to hold liable for the claimed defect, or if a person agrees to stated conditions to an otherwise

acceptable plan, the parties shall agree on a period for implementation of the plan. The association

may not institute a proceeding against the person during the time the plan is being diligently

implemented.

(6) Except as otherwise provided in Section 4-116(d) for warranty claims, any

statute of limitation affecting the association’s right of action against a declarant or other person is

tolled during the period described in paragraph (2) and during any extension of that time because a

person to which notice was directed has commenced and is diligently pursuing the remediation

plan.

(b) After the time described in subsection (a)(2) expires, whether or not the association

agrees to any remediation plan, a proceeding may be instituted by:

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(1) the association against a person to which notice was directed which fails to

submit a timely remediation plan, the plan of which is not acceptable, or which fails to pursue

diligent implementation of that plan; or

(2) a unit owner with respect to the owner’s unit and any limited common elements

assigned to that unit, regardless of any action of the association.

mitigate damages or to correct any defect that poses a significant and immediate health or safety

risk.

(d) Subject to the other provisions of this section, the determination of whether and when

the association may institute a proceeding described in this section may be made by the executive

board. The declaration may not require a vote by any number or percent of unit owners as a

condition to institution of a proceeding.

(e) This section does not prevent an association from seeking equitable relief at any time

without complying with subsection (a)(1) or (2).

Comment

1. This section, also new in 2008, responds to the concerns of the home building industry,

and to many common interest community advocates, who believe that policies designed to resolve

construction disputes without resort to litigation are preferable to the existing common pattern of

litigation following turnover of control of the association. This new section recognizes the broad

support that various groups have expressed for this approach to dispute resolution, as well as the

extent to which similar statutes have been adopted in the States. At the same time, this section

adopts controls and limitations on the use of the technique designed to avoid harm to associations

in appropriate circumstances.

2. This section does not address issues that might arise under the warranty provisions of the

Act, see Sec. 4-113 through 4-116, or the possibility of litigation against the declarant under other

theories or in other circumstances. Consider, for example, the broad array of litigation that is

commonly undertaken today involving land use hearings and appeals. If a declarant were to file an

application for a zone change or site plan approval relating to a community, the community might

choose to object to the application in part because it believes the declarant failed to construct the

existing facilities properly. In such a circumstance, the declarant might argue that the intervention

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by the association “involved” a construction defect. The term “administrative proceedings”,

however, was not intended to apply to these kinds of proceedings, in that they do not involve

“construction defects” arising in the instant proceeding.

Further, subsection (e) allows the association to seek injunctive or other equitable relief,

without the delays imposed by this section.

The 2008 amendments to section 3-102(b) also make clear that the declaration may not

impose any other limitations on the right of the association to commence litigation, except as

provided in this section.

3. The possibility exists under this new section that there will be situations in which the

association will send a notice to the declarant which the declarant will not consider to be

sufficiently specific or where the declarant will respond to the association’s notice with a plan that

the association considers to be completely inadequate and rejects out of hand.

If the association then sues the declarant, arguments will perhaps arise over whether or not

the association had satisfied the preconditions for suit. Even if the court were to dismiss the suit

and if the statute of limitations on the claim has run in the meantime, the association will not be

without remedy, because of the tolling provisions contained in subsection (a)(6).

SECTION 3-125. EMERGENCY POWERS.

(a) In this section, “emergency” means:

(1) a state of emergency declared by a government for an area that includes the

common interest community; or

(2) an event or condition that constitutes an imminent:

(A) threat to the health or safety of the public or residents of the common

interest community;

(B) threat to the habitability of units; or

(b) In an emergency, this section governs the authority of an executive board to respond to

the emergency. If another provision of this [act] is inconsistent with this section, this section

prevails.

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giving notice to the unit owners in a manner that is practicable and appropriate under the

circumstances.

(d) The executive board may call a board meeting to respond to an emergency by giving

notice to the unit owners and board members in a manner that is practicable and appropriate under

the circumstances. A quorum is not required for a meeting under this subsection. After giving

notice under this subsection, the board may take action by vote without a meeting.

(e) In an emergency, the executive board may, without regard to limitations in the

declaration, bylaws, or rules, take action it considers necessary to protect the interests of the unit

owners and other persons holding interests in the common interest community, acting in a manner

reasonable under the circumstances.

(f) If, under subsection (e), the board determines by a two-thirds vote that a special

assessment is necessary:

(1) the assessment becomes effective immediately or in accordance with the terms

of the vote; and

(2) the board may spend funds paid on the assessment only in accordance with the

action taken by the board.

(g) The executive board may use funds of the association, including reserves, to pay the

reasonable costs of an action under subsection (e).

(h) After taking an action under this section, the executive board promptly shall notify the

unit owners of the action in a manner that is practicable and appropriate under the circumstances.

Comment

1. This section, added by the 2021 amendments, provides guidance and flexibility for

associations and their executive boards to respond to emergencies, including natural disasters and

public health emergencies. This section replaces and expands upon provisions in the prior version

of the Act dealing with notice of unit owners meeting, notice of an executive board meeting, and a

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special assessment to respond to an emergency.

2. Subsection (a) defines “emergency” broadly, yet it should serve to discourage an

executive board from bypassing normal procedures by “declaring an emergency” without a solid

justification.

3. The section provides special rules for notices. Before and after acting to respond to an

emergency, the executive board must notify unit owners whom it is practicable to reach with

notices given in a practicable and appropriate manner.

4. For an executive board meeting, subsection (d) dispenses with the quorum requirement

of a majority of the executive board. Section 3-109(b). Note that subsection (c) does not eliminate

the quorum requirement for a meeting of unit owners called to respond to an emergency, which is

set by default at 20 percent of the unit owners. Section 3-109(a). It is anticipated that normally the

executive board will take action to respond to an emergency, with unit owners able to consider the

issues at a unit owners’ meeting that takes place later. The drafters considered it inappropriate to

allow unit owners to take emergency action when very few unit owners participate or vote.

5. Subsection (e) authorizes the board to take actions it considers reasonably necessary to

protect the unit owners and other persons during an emergency. The section does not attempt to

indicate what those actions may be; when appropriate, they may include turning off electrical and

other utility services, limiting access to the common interest community for residents and other

persons, and passing emergency rules. In taking action under this section, board members must

comply with the normal standards of care and loyalty under Section 3-103.

6. Under subsection (f) the board may make a special assessment to respond to an

emergency by a two-thirds vote, dispensing with the normal requirement of a vote by unit owners.

Prompt notice to the unit owners is required by subsection (h).

[ARTICLE] 4

PROTECTION OF PURCHASERS

SECTION 4-101. APPLICABILITY; WAIVER.

(a) This [article] applies to all units subject to this [act], except as provided in subsection

(b) or as modified or waived by agreement of purchasers of units in a common interest community

in which all units are restricted to non-residential use.

(b) Neither a public offering statement nor a resale certificate need be prepared or delivered

in the case of:

(1) a gratuitous disposition of a unit;

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(2) a disposition pursuant to court order;

(3) a disposition by a government or governmental agency;

(4) a disposition by foreclosure or deed in lieu of foreclosure;

(5) a disposition to a dealer;

(6) a disposition that may be canceled at any time and for any reason by the

purchase without penalty; or

(7) a disposition of a unit restricted to nonresidential purposes.

Comment

1. In the case of commercial and industrial common interest communities, the purchaser is

often more sophisticated than the purchaser of residential units and thus better able to bargain for

the protections he believes necessary. While this may not always be true, no objective test can be

developed which easily distinguishes those commercial purchasers who are able to protect

themselves from those who, in the ordinary course of business, have not developed such

sophistication. At the same time, the cost of protection imposed by Article 4 may be substantial.

Accordingly, subsection (a) permits waiver or modification of Article 4 protections in common

interest communities where all units are restricted to non-residential use. However, except for

certain waivers of implied warranties of quality (see Section 4-115) and certain exemptions from

public offering statement and resale certificate requirements (see subsection (b)), no express

waiver of the protections of this article with respect to the purchasers of residential units is

permitted by this subsection. Accordingly, by operation of Section 1-104, the rights provided by

this article may not be waived in the case of residential purchasers. Moreover, because of the

interrelated rights of residential and commercial owners in mixed-use common interest

communities, waiver or modification of rights conferred by this article is restricted to purchasers in

wholly non-residential common interest communities.

2. The 1994 amendment changed subsection (b)(7). The rationale for the change is

contained in the revised Comment to Section 1-203.

SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT

REQUIREMENTS.

(a) Except as otherwise provided in subsection (b), a declarant, before offering any interest

in a unit to the public, shall prepare a public offering statement conforming to the requirements of

Sections 4-103, 4-104, 4-105, and 4-106.

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(b) A declarant may transfer responsibility for preparation of all or a part of the public

offering statement to a successor declarant (Section 3-104) or to a dealer that intends to offer units

in the common interest community. In the event of any such transfer, the transferor shall provide

the transferee with any information necessary to enable the transferee to fulfill the requirements of

subsection (a).

statement in the manner prescribed in Section 4-108(a). The declarant or dealer that prepared all

or a part of the public offering statement is liable under Sections 4-108 and 4-117 for any false or

misleading statement set forth therein or for any omission of a material fact therefrom.

(d) If a unit is part of a common interest community and is part of any other real estate

regime in connection with the sale of which the delivery of a public offering statement is required

under the laws of this state, a single public offering statement conforming to the requirements of

Sections 4-103, 4-104, 4-105, and 4-106 as those requirements relate to each regime in which the

unit is located, and to any other requirements imposed under the laws of this state, may be prepared

and delivered in lieu of providing two or more public offering statements.

Comment

This section permits declarants to transfer responsibility for preparation of a public

offering statement to successor declarants or dealers, provided the declarant furnishes the

information needed by the successor or dealer to complete the statement. The person who prepares

the public offering statement is liable for his own misrepresentations and material omissions. A

person who delivers a public offering statement prepared by others is responsible for any such

deficiencies only to the extent he knows or reasonably should have known of them.

SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS.

(a) Except as otherwise provided in subsection (b), a public offering statement must

contain or fully and accurately disclose:

(1) the name and principal address of the declarant and of the common interest

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community, and a statement that the common interest community is a condominium, cooperative,

or planned community;

(2) a general description of the common interest community, including to the extent

possible, the types, number, and declarant’s schedule of commencement and completion of

construction of buildings, and amenities that the declarant anticipates including in the common

interest community;

(3) the number of units in the common interest community;

(4) copies and a brief narrative description of the significant features of the

declaration, other than any plats and plans, and any other recorded covenants, conditions,

restrictions, and reservations affecting the common interest community; the bylaws and any rules

of the association; copies of any contracts and leases to be signed by purchasers at closing; and a

brief narrative description of any contracts or leases that will or may be subject to cancellation by

the association under Section 3-105;

(5) the financial information required by subsection (b);

(6) any services not reflected in the budget that the declarant provides, or expenses

that the declarant pays and which the declarant expects may become at any subsequent time a

common expense of the association and the projected common expense assessment attributable to

each of those services or expenses for the association and for each type of unit;

(7) any initial or special fee due from the purchaser or seller at the time of sale,

together with a description of the purpose and method of calculating the fee;

(8) a description of any liens, defects, or encumbrances on or affecting the title to

the common interest community;

(9) a description of any financing offered or arranged by the declarant;

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(10) the terms and significant limitations of any warranties provided by the

declarant, including statutory warranties and limitations on the enforcement thereof or on

damages;

(11) a statement that:

(A) within 15 days after receipt of a public offering statement a purchaser,

before conveyance, may cancel any contract for purchase of a unit from a declarant;

(B) if a declarant fails to provide a public offering statement to a purchaser

before conveying a unit, that purchaser may recover from the declarant [10] percent of the sales

price of the unit plus [10] percent of the share, proportionate to the purchaser’s common expense

liability, of any indebtedness of the association secured by security interests encumbering the

common interest community; and

before signing a contract, the purchaser may not cancel the contract;

(12) a statement of any unsatisfied judgment or pending action against the

association, and the status of any pending action material to the common interest community of

which a declarant has actual knowledge;

(13) a statement that any deposit made in connection with the purchase of a unit

will be held in an escrow account until closing and will be returned to the purchaser if the

purchaser cancels the contract pursuant to Section 4-108, together with the name and address of

the escrow agent;

(14) any restraints on alienation of any portion of the common interest community

and any restrictions:

(A) on use, occupancy, and alienation of the units; and

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(B) on the amount for which a unit may be sold or on the amount that may

be received by a unit owner on sale, condemnation, or casualty loss to the unit or to the common

interest community, or on termination of the common interest community;

(15) a description of the insurance coverage provided for the benefit of unit owners;

(16) any current or expected fees or charges to be paid by unit owners for the use of

the common elements and other facilities related to the common interest community;

(17) the extent to which financial arrangements have been provided for completion

of all improvements that the declarant is obligated to build pursuant to Section 4-119;

(18) a brief narrative description of any zoning and other land use requirements

affecting the common interest community;

(19) any other unusual and material circumstances, features, and characteristics of

the common interest community and the units;

(20) in a cooperative, a statement whether the unit owners will be entitled, for

federal, state, and local income tax purposes, to a pass-through of deductions for payments made

by the association for real estate taxes and interest paid the holder of a security interest

encumbering the cooperative and a statement as to the effect on every unit owner if the association

fails to pay real estate taxes or payments due the holder of a security interest encumbering the

cooperative;

(21) a description of any arrangement described in Section 1-209 binding the

association; and

(22) in a condominium or planned community containing a unit not having

horizontal boundaries described in the declaration, a statement whether the unit may be sold after

termination under Section 2-118 of the common interest community without consent of all the unit

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owners.

(b) The public offering statement must contain any current balance sheet and a projected

budget for the association, either within or as an exhibit to the public offering statement, for [one]

year after the date of the first conveyance to a purchaser, and thereafter the current budget of the

association, a statement of who prepared the budget, and a statement of the budget’s assumptions

concerning occupancy and inflation factors. The budget must include:

(A) a statement of the amount, or a statement that there is no amount, included in

the budget as a reserve for repairs and replacement;

(B) a statement of any other reserves;

association; and

(D) the projected monthly common expense assessment for each type of unit.

any development right and no power is reserved to a declarant to make the common interest

community part of a larger common interest community, group of common interest communities,

or other real estate, a public offering statement may include the information otherwise required by

subsection (a) (9), (10), (15), (16), (17), (18), and (19) and the narrative descriptions of documents

required by subsection (a)(4).

(d) A declarant promptly shall amend the public offering statement to report any material

change in the information required by this section.

Comment

1. The best “consumer protection” that the law can provide to any purchaser is to insure

that he has an opportunity to acquire an understanding of the nature of the products which he is

purchasing. Such a result is difficult to achieve, however, in the case of the common interest

community purchaser because of the complex nature of the bundle of rights and obligations which

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each unit owner obtains. For this reason, the Act, adopting the approach of many so-called “second

generation” condominium statutes, sets forth a lengthy list of information which must be provided

to each purchaser before he contracts for a unit. This list includes a number of important matters

not typically required in public offering statements under existing law. The requirement for

providing the public offering statement appears in Section 4-102(c), and Section 4-108 provides

purchasers with cancellation rights and imposes civil penalties upon declarants not complying

with the public offering statement requirements of the Act.

2. Paragraph (a)(2) requires a general description of the common interest community and,

to the extent possible, the declarant’s schedule for commencement and completion of construction

for all building amenities that will comprise portions of the common interest community.

Under Section 4-119 the declarant is obligated to complete all improvements shown on a

site plan or other graphic representation in the public offering statement or other promotional

materials unless they are labeled “NEED NOT BE BUILT.” The estimated schedule of

commencement and completion of construction dates provides a standard for judging whether a

declarant has complied with those requirements.

3. Paragraph (4) requires the public offering statement to include copies of the declaration,

bylaws, and any rules and regulations of the common interest community, as well as copies of any

contracts or leases to be executed by the purchaser. In addition, the paragraph requires the public

offering statement to include a brief narrative description of the significant features of those

documents, as well as of any management contract, leases of recreational facilities, and other sorts

of contracts which may be subject to cancellation by the association after the period of declarant

control expires, as provided in Section 3-105. This latter requirement is intended to encourage the

preparation of brief summaries of all common interest community documents in laymen’s terms,

i.e., the “brief narrative description” should be more than a simple explanation of what a

declaration (or other document) is, but less than an extended legal analysis duplicating the contents

of the documents themselves. The summary requirement is intended to alleviate the common

problem of public offering statements being drafted in lawyers’ terms and being no more

comprehensible to laymen than the documents themselves.

4. The disclosure requirement of paragraph (6) is intended to eliminate the common

deceptive sales practice known as “lowballing,” a practice by which a declarant intentionally

underestimates the budget for the association by providing many of the services himself during the

initial sales period. In such a circumstance, the declarant commonly intends that, after a certain

time, these services (which might include lawn maintenance, painting, security, bookkeeping, or

other services) will become expenses of the association, thereby substantially increasing the

periodic common expense assessments which association members must ultimately bear. By

requiring the disclosure of these services (including the projected common expense assessment

attributable to each) in paragraph (6), the Act seeks to minimize “lowballing.”

5. Paragraph (9) requires disclosure of any financing “offered” by the declarant. The

paragraph contemplates that a declarant disclose any arrangements for financing that may have

been made, including arrangements with any unaffiliated lender to provide mortgages to qualified

purchasers.

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6. Under paragraph (10), the declarant is required to disclose the terms of all warranties

provided by the declarant (including the statutory warranties set forth in Section 4-114) and to

describe any significant limitations on such warranties, the enforcement thereof, or damages

which may be collectible as a result of a breach thereof. This latter requirement would necessitate

a description by the declarant of any exclusions or modifications of statutory warranties

undertaken pursuant to Section 4-115. The statute of limitations for warranties set forth at Section

4-116, together with any separate written agreement (as required by Section 4-116) providing for

reduction of the period of such statute of limitations, must also be disclosed.

7. Paragraph (14) requires that the declarant disclose the existence of any restrictions on the

use and occupancy of units, including restrictions on rentals or the creation of time-share

arrangements. The declarant must disclose any rights of first refusal or other restrictions on the

classes of persons to whom units may be sold. It also requires disclosure of any provisions limiting

the amount for which units may be sold or on the part of the sales price which may be retained by

the selling unit owner. In some existing housing cooperatives for low income families the unit

owner is required to sell at no more than a fixed sum; sometimes the amount which the unit owner

paid; sometimes that plus a fixed appreciation. In addition to that practice, the section

contemplates other possible limitations on the owner’s right to receive sales proceeds such as a

provision under which the developer shares in any appreciation in value.

8. Under paragraph (16), the declarant is obligated to disclose any current or expected fees

or charges which unit owners may be required to pay for the use of the common elements and other

facilities related to the common interest community. Such fees or charges might include

swimming pool fees, golf course fees, or required membership fees for recreation associations.

Such fees can represent a substantial addition to monthly assessments.

9. The “financial arrangements” required to be disclosed pursuant to paragraph (17) may

vary substantially from one development to another. It is the intent of the paragraph to give

purchasers as much information as possible with which to assess the declarant’s ability to carry out

his obligations to complete the improvements. For example, if a declarant has a commitment from

a bank to provide construction financing for a swimming pool when 50% of the units in the

common interest community are completed, that fact should be disclosed to potential purchasers.

10. In addition to the information required to be disclosed by paragraphs (1) through

(18), paragraph (19) requires that the declarant disclose all other “unusual and material

circumstances, features, and characteristics” of the common interest community and all units

therein. This requires only information which is both “unusual and material.” Thus, the provision

does not require the disclosure of “material” factors which are commonly understood to be part of

the common interest community, e.g., the fact that buildings have a roof, walls, doors, and

windows. Similarly, the provision does not require the disclosure of “unusual” information about

the common interest community which is not also “material,” e.g., the fact that a common interest

community is the first development of its type in a particular locality. Information which would

normally be required to be disclosed pursuant to paragraph (19) might include, to the extent that

they are unusual and material, environmental conditions affecting the use or enjoyment of the

common interest community, features of the location of the common interest community (e.g.,

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near the end of an airport runway or a planned rendering plant), a plan to convert any units to

time-share ownership, and the like.

11. Paragraph (22), added by the 2021 amendments, requires the public offering statement

to disclose whether units may be sold without the consent of all the unit owners after termination

under Section 2-118 if the common interest community contains a unit without horizontal

boundaries (i.e., if there are units not in multi-story buildings). This added disclosure is a

companion to the 2021 amendments to Section 2-118(c) and (d), which allow termination of a

common interest community and the sale of all real estate, including all units, with a supermajority

vote of 80%, regardless of whether the units have horizontal boundaries. This is a significant

change in rights of unit owners, who should be informed of the possibility.

12. The cost of preparing a public offering statement can be substantial and may,

particularly in the case of small common interest communities, represent a significant portion of

the cost of a unit. For that reason, subsection (b) permits a declarant to exclude from a public

offering statement certain information in the case of a small common interest community (i.e., less

than 12 units) which is not subject to development rights and which is not potentially part of a

larger common interest community or group of common interest communities. Essentially,

subsection (c) permits a declarant to exclude from a public offering statement those materials

which, as a practical matter, require extended preparation effort by an attorney or engineer in

addition of the normal effort which must be exerted to provide the declaration, bylaws, plats and

plans, or other documents required by the Act.

13. For style purposes, subsection (b), new in 2008, now contains the mandated

information previously required by 4-103(a)(5). In order to comply fully with the provision of

subsection (b), the declarant must calculate the budget on the basis of his best estimate of the

number of units which will be part of the common interest community during that budget year.

This requirement as well operates to negate the effects of any attempted “lowballing.”

SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO

DEVELOPMENT RIGHTS. If the declaration provides that a common interest community is

subject to any development rights, the public offering statement must disclose, in addition to the

information required by Section 4-103:

(1) the maximum number of units, and the maximum number of units per acre, that may be

created;

(2) a statement of how many or what percentage of the units that may be created will be

restricted exclusively to residential use, or a statement that no representations are made regarding

use restrictions;

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(3) if any of the units that may be built within real estate subject to development rights are

not to be restricted exclusively to residential use, a statement, with respect to each portion of that

real estate, of the maximum percentage of the real estate areas, and the maximum percentage of the

floor areas of all units that may be created therein, that are not restricted exclusively to residential

use;

(4) a brief narrative description of any development rights reserved by a declarant and of

any conditions relating to or limitations upon the exercise of development rights;

(5) a statement of the maximum extent to which each unit’s allocated interests may be

changed by the exercise of any development right described in paragraph (3);

(6) a statement of the extent to which any buildings or other improvements that may be

erected pursuant to any development right in any part of the common interest community will be

compatible with existing buildings and improvements in the common interest community in terms

of architectural style, quality of construction, and size, or a statement that no assurances are made

in those regards;

(7) general descriptions of all other improvements that may be made and limited common

elements that may be created within any part of the common interest community pursuant to any

development right reserved by the declarant, or a statement that no assurances are made in that

regard;

(8) a statement of any limitations as to the locations of any building or other improvement

that may be made within any part of the common interest community pursuant to any development

right reserved by the declarant, or a statement that no assurances are made in that regard;

(9) a statement that any limited common elements created pursuant to any development

right reserved by the declarant will be of the same general types and sizes as the limited common

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elements within other parts of the common interest community, or a statement of the types and

sizes planned, or a statement that no assurances are made in that regard;

(10) a statement that the proportion of limited common elements to units created pursuant

to any development right reserved by the declarant will be approximately equal to the proportion

existing within other parts of the common interest community, or a statement of any other

assurances in that regard, or a statement that no assurances are made in that regard;

(11) a statement that all restrictions in the declaration affecting use, occupancy, and

alienation of units will apply to any units created pursuant to any development right reserved by

the declarant, or a statement of any differentiations that may be made as to those units, or a

statement that no assurances are made in that regard; and

(12) a statement of the extent to which any assurances made pursuant to this section apply

or do not apply in the event that any development right is not exercised by the declarant.

Comment

This section requires disclosure in the public offering statement of the manner in which the

declarant’s exercise of development rights may affect purchasers who acquire units before those

rights have been fully exercised. The purpose is to put the purchaser on notice of the extent to

which the exercise of those rights may alter, sometimes quite dramatically, both the physical and

the legal aspects of the project. For example, the prospective purchaser may be contemplating the

acquisition of a particular unit because it enjoys a view of open, undeveloped land over which the

declarant has, however, reserved development rights. It may be that the boundary of the parcel as

to which development rights have been reserved actually coincides with, or runs quite close to, the

outer wall of the unit in question. The disclosures or statements made pursuant to paragraphs (8)

and (12) of this section will indicate to the prospective purchaser the extent (if any) to which he can

rely on the declarant not to do anything which would radically alter the view from the unit.

SECTION 4-105. SAME; TIME SHARES. If the declaration provides that ownership or

occupancy of any units, is or may be in time shares, the public offering statement shall disclose, in

addition to the information required by Section 4-103:

(1) the number and identity of units in which time shares may be created;

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(2) the total number of time shares that may be created;

(3) the minimum duration of any time shares that may be created; and

(4) the extent to which the creation of time shares will or may affect the enforceability of

the association’s lien for assessments provided in Section 3-116.

Comment

1. Time sharing has become increasingly frequent since the 1960s, particularly to in resort

common interest communities. In recognition of this fact, this section requires the disclosure of

certain information with respect to time sharing. This section does not apply to the sale of

time-share units that are subject to another state statute requiring the declarant to file a public

offering statement with a state agency. See Section 4-107.

2. Some existing state statutes dealing with condominiums, planned communities, or

cooperatives are silent with respect to time-share ownership. The inclusion of disclosure

provisions for certain forms of time sharing in this Act, however, does not imply that other law

regulating time sharing is affected in any way in a State merely because that State enacts this Act.

The Uniform Law Commissioners’ Model Real Estate Time-Share Act specifies more

extensive disclosures for time-share properties. A “time-share property” may include part or all of

the common interest community, and Section 1-109 of the Model Act governs conflicts between

this Act and time-share legislation.

SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES CONTAINING

CONVERSION BUILDINGS.

(a) The public offering statement of a common interest community containing any

conversion building must contain, in addition to the information required by Section 4-103:

(1) a statement by the declarant, based on a report prepared by an independent

[registered] architect or engineer, describing the present condition of all structural components and

mechanical and electrical installations material to the use and enjoyment of the building;

(2) a statement by the declarant of the expected useful life of each item reported on

in paragraph (1) or a statement that no representations are made in that regard; and

(3) a list of any outstanding notices of uncured violations of building code or other

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municipal regulations, together with the estimated cost of curing those violations.

(b) This section applies only to buildings containing units that may be occupied for

residential use.

Comment

1. In the case of a common interest community containing one or more conversion

buildings, the disclosure of additional information relating to the condition of those buildings is

required in the public offering statement because of the difficulty inherent in a single purchaser

attempting to determine the condition of what is likely to be an older building being renovated for

the purpose of common interest community sales.

2. Paragraph (a)(1) requires the person who gives the public offering statement to retain an

independent architect or engineer to report on the present condition of all structural components

and fixed mechanical and electrical installations in the conversion building. Such information is as

useful to declarant as to the purchaser since, under the implied warranty provisions of Section

4-114, a declarant impliedly warrants all improvements made by any person to the building

“before creation of the common interest community” unless such improvements are specifically

excluded from the implied warranty of quality pursuant to Section 4-115(b).

3. See Comment 6 to Section 2-101 concerning the meaning of “structural components” as

used in paragraph (a)(1). Any material changes in the “present condition” of these systems must be

reported by an amendment to the public offering statement.

4. Under paragraph (a)(3), the person required to give the public offering statement is

required to provide purchasers with a list of all outstanding notices of uncured violations of

building codes or other municipal regulations. The literal wording of this provision does not

require disclosure of known violations of such building codes or municipal regulations (at least

violations having no effect upon the structural components or fixed mechanical and electrical

installations of the planned community) unless actual “notices” of such violations have been

received. To the extent that outstanding notices of uncured violations do exist, the cost of curing

such violations would become a liability of the unit owners or the association following transfer of

the unit to a purchaser. For that reason, the estimated cost of curing any outstanding violations

must also be disclosed.

5. For the reasons set forth in the Comment to Section 4-101(a), this section does not apply

to units which are restricted exclusively to non-residential use.

SECTION 4-107. SAME; REGISTRATION WITH GOVERNMENT AGENCY. If

an interest in a common interest community is currently registered with the Securities and

Exchange Commission of the United States [or with the state under [cite to appropriate state

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time-share statute or other state statute]], a declarant satisfies all requirements of this [act] relating

to the preparation of a public offering statement if the declarant delivers to the purchaser a copy of

the public offering statement filed with the Securities and Exchange Commission [or [the

appropriate state agency]]. [An interest in a common interest community is not a security under

[cite to appropriate state securities regulation statutes].]

Legislative Note: A state that has an agency that regulates time-share developments or other types

of common interest communities and requires the preparation of a public offering statement

should refer in the brackets in the first sentence to the statute and provide the name of the state

agency. If a state’s securities regulation statute classifies an interest in a common interest

community as a security, the second sentence should be inserted if the state considers that

classification inappropriate.

Comment

1. Some common interest communities will be regarded as “investment contracts” or other

“securities” under federal law because they exhibit certain investment features such as mandatory

rental pools. See SEC Securities Act Release No. 5347 (January 1973). The purpose of this section

is to permit the declarant to file or deliver, in lieu of a public offering statement specifically

prepared to comply with the provisions of this Act, the prospectus filed with and distributed

pursuant to the regulations of the United States Securities and Exchange Commission. Absent this

provision, prospective purchasers of common interest communities classified by the SEC as

“securities” would have to be given two public offering statements, one prepared pursuant to this

Act and the other prepared pursuant to the Securities Act of 1933. Not only would this result

increase the declarant’s costs (and thus the price) of units, it might also reduce the likelihood of

either public offering statement actually being read by prospective purchasers.

2. The 2021 amendments provide optional language for an exemption from the public

offering statement provisions of this article when the state has enacted a time-share statute that

requires the developer or seller of time shares to prepare a public offering statement to be filed

with a state agency and given to purchasers. The amendment follows the language of Nev. Rev.

Stat. § 116.4107, which provides an exemption for a common interest community registered to sell

time-shares with the Real Estate Division of the Department of Business and Industry.

SECTION 4-108. PURCHASER’S RIGHT TO CANCEL.

(a) A person required to deliver a public offering statement pursuant to Section 4-102(c)

shall provide a purchaser with a copy of the public offering statement and all amendments thereto

before conveyance of the unit, and not later than the date of any contract of sale. Unless a

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purchaser is given the public offering statement more than 15 days before execution of a contract

for the purchase of a unit, the purchaser, before conveyance, may cancel the contract within 15

days after first receiving the public offering statement.

(b) If a purchaser elects to cancel a contract pursuant to subsection (a), he may do so by

hand delivering notice thereof to the offeror or by mailing notice thereof by prepaid United States

mail to the offeror or to his agent for service of process. Cancellation is without penalty, and all

payments made by the purchaser before cancellation must be refunded promptly.

fails to provide a purchaser to whom a unit is conveyed with that public offering statement and all

amendments thereto as required by subsection (a), the purchaser, in addition to any rights to

damages or other relief, is entitled to receive from that person an amount equal to [10] percent of

the sale price of the unit, plus [10] percent of the share, proportionate to his common expense

liability, of any indebtedness of the association secured by security interests encumbering the

common interest community.

Comment

1. The “cooling off” period provided to a purchaser in this section is similar to provisions

in many current state condominium statutes.

2. Subsection (a) requires that each purchaser be provided with both the public offering

statement and all amendments thereto prior to the time that the unit is conveyed. If there is a

contract for the sale of the unit, these documents must be provided not later than the date of the

contract. The section makes clear that any amendments to the public offering statement prepared

between the date of any contract and the date of conveyance must also be provided to the

purchaser.

3. This section does not require the delivery of a public offering statement prior to the

execution by the purchaser of an agreement pursuant to which the purchaser reserves the right to

buy a unit but is not contractually bound to do so. Because such agreements (frequently referred to

as “non-binding reservation agreements”) may be unilaterally canceled at any time by a

prospective purchaser without penalty, they do not constitute “contract[s] of sale” within the

meaning of the section.

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4. The requirement set forth in subsection (a) that a purchaser be provided with subsequent

amendments to the public offering statement during the period between execution of the contract

for purchase and conveyance of the unit does not, in itself, extend the “cooling off” period. Indeed,

the delivery of such amendments is required even if the “cooling off” period has expired. The

purpose of this requirement is to assure that purchasers of units are advised of any material change

in the common interest community which may affect their sales contracts under general law. While

many such amendments will be merely technical and will not affect the bargain that the purchaser

and declarant entered into, each purchaser should be permitted to judge for himself the materiality

of any change in the nature of the common interest community.

5. Under the scheme set forth in this section, it is at least theoretically possible that there

will be a contract for sale of the unit, and that a public offering statement will be given to the

purchaser at closing just prior to conveyance. However, the available evidence suggests that such

practice would be rare, and that the provision of a public offering statement moments prior to

conveyance would, in itself, tend to dampen the enthusiasm of the purchaser for immediate

closing. In such circumstances, under subsection (a), the purchaser would, as a matter of right, be

able to extend the date of closing for 15 days from the time the public offering statement is

provided. This fact, together with the generally unsatisfactory experience with mandatory “cooling

off” periods such as that imposed under the federal Real Estate Settlement Procedures Act,

supports the conclusion that it is inappropriate to require a minimum period of delay between

delivery of a public offering statement and conveyance.

6. Under subsection (a), the failure to deliver a public offering statement before

conveyance does not result in a statutory right by the purchaser to cancel the conveyance or to

reconvey the unit once conveyance has occurred. Any such cancellation or reconveyance

following an actual conveyance could create serious mechanical and title problems that could not

be easily resolved. The failure of the Act to provide for such cancellation or reconveyance is not,

however, intended to diminish any right which a purchaser may otherwise have under general state

law. For example, where it appears that a seller, by deliberately failing to disclose certain material

information with respect to a transaction, substantially changed the bargain which he and the

purchaser entered into, it is possible that under the common law in some States reconveyance

would be an available remedy.

Even absent such resort to general law, however, the penalty provisions of subsection (c)

are designed to provide a sufficient incentive to the seller to insure that the public offering

statement is provided in the timely fashion required by the Act. The penalty so specified in the

subsection is in addition to any right a prevailing purchaser may have under Section 4-117 to

collect punitive damages and attorney’s fees in connection with his action against the declarant.

SECTION 4-109. RESALES OF UNITS.

(a) Except in the case of a sale in which delivery of a public offering statement is required,

or unless exempt under Section 4-101(b), a unit owner shall furnish to a purchaser before the

earlier of conveyance or transfer of the right to possession of a unit, a copy of the bylaws, the rules

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of the association, and the declaration other than plats and plans. The unit owner also shall furnish

a certificate containing:

(1) a statement disclosing the effect on the proposed disposition of any right of first

refusal or other restraint on the free alienability of the unit held by the association;

(2) a statement setting forth the amount of the periodic common expense

assessment and any unpaid common expense or special assessment currently due and payable from

the selling unit owner;

(3) a statement of any other fees payable by the owner of the unit being sold;

(4) a statement of any capital expenditures approved by the association for the

current and succeeding fiscal years;

(5) a statement of the amount of any reserves for capital expenditures and of any

portions of those reserves designated by the association for any specified projects;

(6) the most recent regularly prepared balance sheet and income and expense

statement, if any, of the association;

(7) the current operating budget of the association;

(8) a statement of any unsatisfied judgments against the association and the status

of any pending suits in which the association is a defendant;

(9) a statement describing any insurance coverage provided for the benefit of unit

owners;

(10) a statement as to whether the executive board has given or received notice in a

record that any existing uses, occupancies, alterations, or improvements in or to the unit or to the

limited common elements assigned thereto violate any provision of the declaration;

(11) a statement as to whether the executive board has received notice in a record

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from a governmental agency of any violation of environmental, health, or building codes with

respect to the unit, the limited common elements assigned thereto, or any other portion of the

common interest community which has not been cured;

(12) a statement of the remaining term of any leasehold estate affecting the

common interest community and the provisions governing any extension or renewal thereof;

(13) a statement of any restrictions in the declaration affecting the amount that may

be received by a unit owner upon sale, condemnation, casualty loss to the unit or the common

interest community, or termination of the common interest community;

(14) in a cooperative, an accountant’s statement, if any was prepared, as to the

deductibility for federal income tax purposes by the unit owner of real estate taxes and interest paid

by the association;

(15) a statement describing any pending sale or encumbrance of common elements;

and

(16) a statement disclosing the effect on the unit to be conveyed of any restriction

on the right to use or occupy the unit, including a restriction on a lease or other rental of the unit.

(b) The association, within 10 days after a request by a unit owner, shall furnish a

certificate containing the information necessary to enable the unit owner to comply with this

section. A unit owner providing a certificate pursuant to subsection (a) is not liable to the

purchaser for any erroneous information provided by the association and included in the

certificate.

forth in the certificate prepared by the association. A unit owner is not liable to a purchaser for the

failure or delay of the association to provide the certificate in a timely manner, but the purchase

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contract is voidable by the purchaser until the certificate has been provided and for [five] days

thereafter or until conveyance, whichever first occurs.

Comment

1. In the case of the resale of a unit by a private unit owner who is not a declarant or a

person in the business of selling real estate for his own account, a public offering statement need

not be provided. See Section 4-102(c). Nevertheless, there are important facts which a purchaser

should have in order to make a rational judgment about the advisability of purchasing the

particular unit. Accordingly, each unit owner not required to furnish a public offering statement

under Section 4-102(c) and not exempt under Section 4-101(b) is required to furnish to a resale

purchaser, before the execution of any contract of sale, a copy of the declaration, bylaws, and rules

and regulations of the association and a variety of fiscal, insurance, and other information

concerning the common interest community and the unit.

2. While the obligation to provide the information required by this section rests upon each

unit owner (since the purchaser is in privity only with that unit owner), the association has an

obligation to provide the information to the unit owner within 10 days after a request for such

information. Under Section 3-102(a)(12), the association is entitled to charge the unit owner a

reasonable fee for the preparation of the certificate. Should the association fail to provide the

certificate as required, the unit owner would have a right to action against the association pursuant

to Section 4-117.

3. Under subsection (c), if a purchaser receives a resale certificate which fails to state the

proper amount of the unpaid assessments due from the purchased unit, the purchaser is not liable

for any amount greater than that disclosed in the resale certificate. Because a resale purchaser is

dependent upon the association for information with respect to the outstanding assessments

against the unit which he contemplates buying, it is altogether appropriate that the association

should be prohibited from later collecting greater assessments than those disclosed prior to the

time of the resale purchase.

4. The 1994 revisions to this section track amendments in adopting States which simplified

the contents of the resale certificate.

SECTION 4-110. ESCROW OF DEPOSITS. Any deposit made in connection with the

purchase or reservation of a unit from a person required to deliver a public offering statement

pursuant to Section 4-102(c) must be placed in escrow and held either in this state or in the state

where the unit is located in an account designated solely for that purpose by [a licensed title

insurance company] [an attorney] [a licensed real estate broker] [an independent bonded escrow

company or] an institution whose accounts are insured by a governmental agency or

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instrumentality until (i) delivered to the declarant at closing; (ii) delivered to the declarant because

of the purchaser’s default under a contract to purchase the unit; or (iii) refunded to the purchaser.

Comment

1. This section applies to the sale by persons required to furnish public offering statements

of residential units and of non-residential units unless waived pursuant to the provisions of Section

4-101. It does not apply, however, to resales of units between private parties.

2. This section provides declarant a number of choices as to the appropriate escrow agent.

Whether the escrow agent must deposit the funds in an insured institutional depository, or in a

particular type of account, depends on state law or the agreement of the parties. To minimize

record keeping, of course, the institutional depository could itself be the escrow agent. The section

does not require a separate account for each unit, so that mingling of funds in a single escrow

account would be permitted. The account may be held either in the State where the unit is located,

or in the enacting State, in recognition that buyers are often from outside the State where the unit is

located.

3. The escrow requirements of this section apply in connection with any deposit made by a

purchaser, whether such deposit is made pursuant to a binding contract or pursuant to a nonbinding

reservation agreement (with respect to which no public offering statement is required under

Section 4-101(b)(6)).

4. In some States current practice permits escrows to be held by certain title insurance or

escrow companies, attorneys, or real estate brokers. Accordingly, the bracketed language should

be included or deleted in accordance with local practice.

5. Under this section, any interest earned on an escrow deposit may, but need not, be

credited to the purchaser at closing, added to any deposit forfeited to the seller, or added to any

deposit refunded to the purchaser. In short, disposition of any interest is left to agreement of the

parties.

6. In some States, such as New York, the substitution of a bond in place of a deposit escrow

is permitted. The evidence indicates, however, that in many instances the use of the bonding

device has forced purchasers to incur substantial costs and delay prior to obtaining refunds to

which they are entitled. For this reason, this Act does not include bonding as an alternative to the

required escrow of deposits.

SECTION 4-111. RELEASE OF LIENS.

(a) In the case of a sale of a unit where delivery of a public offering statement is required

pursuant to Section 4-102(c), a seller:

(1) before conveying a unit, shall record or furnish to the purchaser releases of all

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liens, except liens on real estate that a declarant has the right to withdraw from the common

interest community, that the purchaser does not expressly agree to take subject to or assume and

that encumber:

(A) in a condominium, that unit and its common element interest; and

(B) in a cooperative or planned community, that unit and any limited

common elements assigned thereto; or

(2) shall provide a surety bond or substitute collateral for or insurance against the

lien as provided for liens on real estate in [cite to appropriate references to general state law].

(b) Before conveying real estate to the association, the declarant shall have that real estate

released from:

(1) all liens the foreclosure of which would deprive unit owners of any right of

access to or easement of support of their units; and

(2) all other liens on that real estate unless the public offering statement describes

certain real estate that may be conveyed subject to liens in specified amounts.

Comment

1. The exemption for withdrawable real estate set forth in subsection (a) is designed to

preserve flexibility for the declarant in terms of financing arrangements. It deals with the unusual

case in which a unit has been assigned a limited common element (for example, a parking space)

on real estate which the developer has the right to withdraw from the common interest community.

In that case, the limited common element can be assigned to the unit without release of liens or

assumption of them by the unit owner. Theoretically, a developer might partially avoid the lien

release requirement of subsection (a) by placing part of the limited common element

improvements such as a parking garage on withdrawable real estate. By doing so, it could

separately mortgage that part of the limited common elements without being obligated to

discharge the mortgage or secure partial releases when individual units to which the limited

common elements are assigned are sold.

If a mortgage or other lien created by or arising against the developer attaches to

withdrawable real estate after the declaration has been recorded, a lapse of the developer’s right to

withdraw the real estate would also terminate the rights of the lienors, since the lien would attach

only to the developer’s interest (the right to withdraw). However, an alert lienor would not permit

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the right to withdraw to lapse without taking steps to see that the right to withdraw is exercised. If

the mortgage or other lien attached to the real estate and was perfected before the planned

community declaration was recorded, lapse of the right to withdraw would not affect the lienor’s

rights and it could foreclose on the real estate whether or not the developer had lost the right to

withdraw. As a practical matter, whether the mortgage or other lien against withdrawable real

estate arises before or after the declaration is recorded, unit owners may find that, if the association

does not release liens on withdrawable real estate containing limited common elements, the lienor

will be able to withdraw the land and deprive the unit owners of its use. Therefore, unit purchasers

and their counsel should be alert to that possibility.

2. Subsection (b) will most commonly apply in the case of a planned community, where all

of the common elements, whatever they may be in a particular project, must be owned by the

association, see Section 1-103(4), or in a cooperative, where Section 2-101 requires that all the real

estate comprising the cooperative must be conveyed to the association at the time the cooperative

is created. The section would also apply, however, in the event other real estate, such as units or

other real property not subject to the declaration, is conveyed to the association.

SECTION 4-112. CONVERSION BUILDINGS.

(a) A declarant of a common interest community containing conversion buildings, and any

dealer who intends to offer units in such a common interest community, shall give each of the

residential tenants and any residential subtenant in possession of a portion of a conversion building

notice of the conversion and provide those persons with the public offering statement no later than

120 days before the tenants and any subtenant in possession are required to vacate. The notice

must set forth generally the rights of tenants and subtenants under this section and must be hand

delivered to the unit or mailed by prepaid United States mail to the tenant and subtenant at the

address of the unit or any other mailing address provided by a tenant. No tenant or subtenant may

be required to vacate upon less than 120 days’ notice, except by reason of nonpayment of rent,

waste, or conduct that disturbs other tenants’ peaceful enjoyment of the premises, and the terms of

the tenancy may not be altered during that period. Failure to give notice as required by this section

is a defense to an action for possession.

(b) For [60] days after delivery or mailing of the notice described in subsection (a), the

person required to give the notice shall offer to convey each unit or proposed unit occupied for

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residential use to the tenant who leases that unit. If a tenant fails to purchase the unit during that

[60]-day period, the offeror may not offer to dispose of an interest in that unit during the following

[180] days at a price or on terms more favorable to the offeree than the price or terms offered to the

tenant. This subsection does not apply to any unit in a conversion building if that unit will be

restricted exclusively to non-residential use or the boundaries of the converted unit do not

substantially conform to the dimensions of the residential unit before conversion.

no knowledge of the violation, the recordation of the deed conveying the unit or, in a cooperative,

the conveyance of the unit, extinguishes any right a tenant may have under subsection (b) to

purchase that unit if the deed states that the seller has complied with subsection (b), but the

conveyance does not affect the right of a tenant to recover damages from the seller for a violation

of subsection (b).

(d) If a notice of conversion specifies a date by which a unit or proposed unit must be

vacated and otherwise complies with the provisions of [insert appropriate state summary process

statute], the notice also constitutes a notice to vacate specified by that statute.

(e) Nothing in this section permits termination of a lease by a declarant in violation of its

terms.

Comment

1. One of the most controversial issues in the field of common interest community

development relates to conversion of rental buildings to a common interest community. Opponents

of conversions point out that the frequent result of conversions, which occur principally in large

urban areas, is to displace low- and moderate-income tenants and provide homes for more affluent

persons able to afford the higher prices which the converted apartments command. Indeed, studies

indicate that the burden of conversion displacement falls most frequently on low- and moderate-

income and elderly persons. At the same time, the conversion of a building to common interest

community ownership can lead to a substantial increase in property value, a result which

proponents believe can be an important factor in curtailing the problem of declining urban tax

bases. Proponents also point out that the conversion of rental units in inner-city areas to individual

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ownership frequently results in the stabilization of the buildings concerned, thus providing an

important technique for use in neighborhood preservation and revitalization. This section, which

seeks to balance these competing interests, is based principally on similar provisions set forth in

the condominium statutes of Virginia and the District of Columbia.

2. In an attempt to strike a fair balance between the competing interests of rental tenants

and prospective owners, subsection (b) provides the tenant a right for 60 days to purchase the unit

which he leases at a price and on terms offered by the declarant. The subsection discourages

unreasonable offers by declarants by providing that, if the tenant fails to accept the terms offered,

the declarant may not thereafter sell the unit at a lower price or upon more favorable terms to a

third person for at least 180 days. However, the declarant is not required to offer residential tenants

the right to purchase commercial units or to offer to sell to tenants if the dimensions of their

previous apartments have been substantially altered. The reason for this exception is that, if an

apartment is subdivided or if two apartments are merged into a single planned community unit,

compliance with the requirements of subsection (b) would be impossible.

3. Jurisdictions with rent control statutes should consider whether amendments to this

section are necessary to conform to the procedures or substantive requirements set out in the rent

control laws or whether modifications to the rent control laws may be required as a result of the

enactment of this section.

4. Except for the restrictions on permissible evictions stated in subsection (a), this Act does

not change the law of summary process in a State. As a result, if a tenant refuses to vacate the

premises following the 120-day notice, the usual provisions of the State’s summary process

statutes would apply, while any defenses available to a tenant would also be available.

SECTION 4-113. EXPRESS WARRANTIES OF QUALITY.

(a) Express warranties made by a declarant to a purchaser of a unit, if relied upon by the

purchaser, are created as follows:

(1) any affirmation of fact or promise which relates to the unit, its use, or rights

appurtenant thereto, area improvements to the common interest community that would directly

benefit the unit, or the right to use or have the benefit of facilities not located in the common

interest community, creates an express warranty that the unit and related rights and uses will

conform to the affirmation or promise;

(2) any model or description of the physical characteristics of the common interest

community, including plans and specifications of or for improvements, creates an express

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warranty that the common interest community will conform to the model or description unless the

model or description clearly discloses that it is only proposed or is subject to change;

(3) any description of the quantity or extent of the real estate comprising the

common interest community, including plats or surveys, creates an express warranty that the

common interest community will conform to the description, subject to customary tolerances; and

(4) a provision that a purchaser may put a unit only to a specified use is an express

warranty that the specified use is lawful.

(b) Neither formal words, such as “warranty” or “guarantee”, nor a specific intention to

make a warranty, are necessary to create an express warranty of quality, but a statement purporting

to be merely an opinion or commendation of the real estate or its value does not create a warranty.

made by the declarant.

Comment

1. This section, together with Sections 4-114, 4-115, and 4-116, are adapted from the real

estate warranty provisions contained in the Uniform Land Transactions Act (ULTA).

2. This section, which parallels Section 2-308 of ULTA, deals with express warranties, that

is, with the expectations of the purchaser created by particular conduct of the declarant in

connection with inducement of the sale. It is based on the principle that, once it is established that

the declarant has acted so as to create particular expectations in the purchaser, warranty should be

found unless it is clear that, prior to the time of final agreement, the declarant has negated the

conduct which created the expectation.

3. Subsection (b) makes it clear that no specific intention to make a warranty is necessary if

any of the factors mentioned in subsection (a) are made part of the basis of the bargain between the

parties. In actual practice, representations made by a declarant concerning common interest

community property during the bargaining process are typically regarded as a part of the

description. Therefore, no particular reliance on the representations need be shown in order to

weave them into the fabric of the agreement. Rather, the burden is on the declarant to show that

representations made in the bargaining process were not relied upon by the purchaser at the time of

contracting.

4. Subsection (a)(1) provides that representations as to improvements and facilities not

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located in the common interest community may create express warranties. Declarants often assert

that recreational facilities, such as swimming pools, golf courses, tennis courts, etc., will be

constructed in the future and that unit owners will have the right to utilize such facilities once

constructed. Such assertions are intended to be included within the language “have the benefit of

facilities not located in the planned community.” If, under the circumstances, such improvements

would benefit the unit being sold, then the declarant may be liable for breach of express warranty if

they are not completed. Such liability is distinct from the declarant’s obligations, under Section

4-119, to complete all improvements labeled “MUST BE BUILT” on plats and plans.

5. Under subsection (a)(4), a contract provision permitting the purchaser to use a common

interest community unit only for a specified use or uses creates an express warranty that the unit

may lawfully be used for that purpose. Therefore, if there is a limitation on use, the resulting

express warranty could not be disclaimed by a disclaimer of implied warranties under Section

4-115.

6. The precise time when representations set forth in subsection (a) are made is not

material. The sole question is whether the language or other representations of the declarant are

fairly to be regarded as part of the contract between the parties.

7. Subsection (b) makes clear that it is not necessary to the existence of a warranty that the

declarant have intended to assume a warranty obligation. On the other hand, mere statements of

opinion or commendations by the declarant do not necessarily create warranties. Whether a

particular statement purports to be merely opinion or commendation is basically a question of

whether the purchaser could reasonably rely upon the statement as a meaningful representation or

promise with respect to the planned community. That determination depends, in turn, not merely

upon the words used but also upon the relative characteristics and skills of the parties. Thus, a

representation by a declarant to a novice purchaser that a particular planned community unit is in

“good condition” may be more than mere opinion or commendation, while the same statement by

a novice seller to a professional buyer would likely be only opinion or commendation, and thus not

a warranty.

8. The provision of subsection (c) that the conveyance of a unit transfers to the purchaser

all express warranties made by prior declarants is intended, in part, to avoid the possibility that a

declarant could negate his warranty obligations through the device of transferring a unit through a

shell entity to the ultimate purchaser.

SECTION 4-114. IMPLIED WARRANTIES OF QUALITY.

(a) A declarant and any dealer warrants that a unit will be in at least as good condition at the

earlier of the time of the conveyance or delivery of possession as it was at the time of contracting,

reasonable wear and tear excepted.

(b) A declarant and any dealer impliedly warrants that a unit and the common elements in

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the common interest community are suitable for the ordinary uses of real estate of its type and that

any improvements made or contracted for by the declarant or dealer or made by any person before

the creation of the common interest community, will be:

(1) free from defective materials; and

(2) constructed in accordance with applicable law, according to sound engineering

and construction standards, and in a workmanlike manner.

residential use that an existing use, continuation of which is contemplated by the parties, does not

violate applicable law at the earlier of the time of conveyance or delivery of possession.

(d) Warranties imposed by this section may be excluded or modified as specified in Section

4-115.

(e) For purposes of this section, improvements made or contracted for by an affiliate of a

declarant are made or contracted for by the declarant.

(f) Any conveyance of a unit transfers to the purchaser all of the declarant’s implied

warranties of quality.

Comment

1. This section, which is based upon Section 2-309 of ULTA, overturns the rule still

applied in many States that a professional seller of real estate makes no implied warranties of

quality (the rule of “caveat emptor”). In recent years, that rule has been increasingly recognized as

a relic of an earlier age whose continued existence defeats reasonable expectations of purchasers.

Since the 1930’s, more and more courts have completely or partially abolished the caveat emptor

rule, and it is clear that the judicial tide is now running in favor of seller liability.

2. The principal warranty imposed under this section is that of suitability of both the unit

and common elements for ordinary uses of real estate of similar type, and of quality of

construction. Both of these warranties, which arise under subsection (b), are imposed only against

declarants and dealers and not against unit owners selling their units to others.

3. Many recent cases have held that a seller of new housing impliedly warrants that the

houses sold are habitable. The warranty of suitability under this Act is similar to the warranty of

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habitability. However, under the Act, the warranty of suitability applies to both units and common

elements in both commercial and residential common interest communities. If, for example, a

commercial unit is sold for commercial use and is not suitable for the ordinary uses of common

interest community units of that type, the warranty of suitability has been breached. Moreover, this

warranty of suitability arises in the case of used, as well as new, buildings or other improvements

in the common interest community.

4. The warranty of suitability and of quality of construction arises only against a declarant

and dealers. As in the case of sales of goods, a non-professional seller is liable, if at all, only the

any express warranties made by him. However, if a non-professional seller fails to disclose defects

of which he is aware, he may be liable to the purchaser for fraud or misrepresentation under the

common law of the State where the transaction occurred. Also, the warranties imposed by this

section may be used to give content to a general “guarantee” by a non-professional seller.

5. The warranty as to quality of construction for improvements made or contracted for by

the declarant or made by any person before the creation of the common interest community is

broader than the warranty of suitability. Particularly, it imposes liability for defects which may not

be so serious as to render the units or common elements unsuitable for ordinary purposes of real

estate of similar type. Moreover, subsection (e) prevents a declarant from avoiding liability with

respect to the quality of construction warranty by having an affiliated entity make the desired

improvements.

6. Under subsection (c), a declarant also warrants to a residential purchaser that an existing

use contemplated by the parties does not violate applicable law. The declarant, therefore, is liable

for any violation of housing codes or other laws which renders any existing use of the unit or

common elements unlawful.

7. The issue of declarant liability for warranties is an important one in cases where a

transfer of the declarant’s rights occurs, either as an arm’s length transaction, as a transfer to an

affiliate, or as a transfer by foreclosure or a deed in lieu of foreclosure. Subsection (f) makes clear

that a conveyance of a unit transfers to the purchaser all warranties of quality made by any

declarant, and Section 3-104(b)(1) makes clear that the original declarant remains liable for all

warranties of quality with respect to improvements made by him, even after he transfers all

declarant rights, regardless of whether the unit is purchased from the declarant who made the

improvements. If the successor declarant is an affiliate of the original declarant, it is clear, under

both Sections 3-104(b)(2) and 4-114(f), that the original declarant remains liable for warranties of

quality or improvements made by his successor even after the declarant himself ceases to have any

special declarant rights.

8. As to the liabilities of successor declarants for warranties of quality, a successor who is

an affiliate of a declarant is liable, pursuant to Section 3-104(e)(1), for warranties or improvements

made by his predecessor. However, any non-affiliated successor of the original declarant is liable

only for warranties of quality for improvements made or contracted for by him, and is not liable for

warranties which may lie against the original declarant even if the successor sells units completed

by the original declarant to a purchaser. See Section 3-104(e)(2). In the case of a foreclosing

lender, this is the same result as that reached under Section 2-309(f) of ULTA. The same result is

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also reached under ULTA in the case of a successor who, under ULTA Section 3-309(b), would be

a dealer since under that subsection the seller is liable only for warranties for improvements made

or contracted for by him.

SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED

WARRANTIES OF QUALITY.

(a) Except as limited by subsection (b) with respect to a purchaser of a unit that may be

used for residential use, implied warranties of quality:

(1) may be excluded or modified by agreement of the parties; and

(2) are excluded by expression of disclaimer, such as “as is,” “with all faults,” or

other language that in common understanding calls the purchaser’s attention to the exclusion of

warranties.

(b) With respect to a purchaser of a unit that may be occupied for residential use, no general

disclaimer of implied warranties of quality is effective, but a declarant and any dealer may

disclaim liability in an instrument signed by the purchaser for a specified defect or specified failure

to comply with applicable law, if the defect or failure entered into and became a part of the basis of

the bargain.

Comment

1. This section parallels Section 2-311(b) and (c) of ULTA.

2. Under this section, implied warranties of quality may be disclaimed. However, a

warranty disclaimer clause, like any other contract clause, is subject to a possible court holding of

unconscionability. Although the section imposes no requirement that a disclaimer be in writing,

except in the case of residential units, an oral disclaimer might be ineffective under the law of

parole and extrinsic evidence.

3. Except as against purchasers of residential units, there are no formal standards for the

effectiveness of a disclaimer clause. All that is necessary under this section is that the disclaimer be

calculated to effectively notify the purchaser of the nature of the disclaimer.

4. Under subsection (b), general disclaimers of implied warranties are not permitted with

respect to purchasers of residential units. However, a declarant may disclaim liability for a

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specified defect or a specified failure to comply with applicable law in an instrument signed by

such a purchaser. The requirement that the disclaimer as to each defect or failure be in a signed

instrument is designed to insure that the declarant sufficiently calls each defect or failure to the

purchaser’s attention and that the purchaser has the opportunity to consider the effect of the

particular defect or failure upon the bargain of the parties. Consequently, this section imposes a

special burden upon the declarant who desires to make a “laundry list” of defects or failures by

requiring him to emphasize each item on such a list and make its import clear to prospective

purchasers. For example, the declarant of a conversion common interest community might,

consistent with this subsection, disclaim certain warranties for “all electrical wiring and fixtures in

the building, the furnace, all materials comprising or supporting the roof, and all components of

the air conditioning system.”

5. This section is not intended to be inconsistent with, or to prevent, the use of insured

warranty programs offered by some home builders. However, under the Act, the implied warranty

that a new unit will be suitable for ordinary uses (i.e., habitable) and will be constructed in a sound,

workmanlike manner, and free of defective materials, cannot be disclaimed by general language.

SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES.

(a) Unless a period of limitation is tolled under Section 3-111 or affected by subsection (d),

a judicial proceeding for breach of any obligation arising under Section 4-113 or 4-114 must be

commenced within six years after the [claim for relief][cause of action] accrues, but the parties

may agree to reduce the period of limitation to not less than two years. With respect to a unit that

may be occupied for residential use, an agreement to reduce the period of limitation must be

evidenced by a separate instrument executed by the purchaser.

(b) Subject to subsection (c), a [claim for relief] [cause of action] for breach of warranty of

quality, regardless of the purchaser’s lack of knowledge of the breach, accrues:

(1) as to a unit, at the time the purchaser to whom the warranty is first made enters

into possession if a possessory interest was conveyed or at the time of acceptance of the instrument

of conveyance if a nonpossessory interest was conveyed; and

(2) as to each common element, at the time the common element is completed or, if

later, as to:

(A) a common element that is added to the common interest community by

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exercise of development rights, at the time the first unit which was added to the condominium by

the same exercise of development rights is conveyed to a bona fide purchaser; or

(B) a common element within any other portion of the common interest

community, at the time the first unit is conveyed to a bona fide purchaser.

improvement or component of the common interest community, the [claim for relief] [cause of

action] accrues at the time the breach is discovered or at the end of the period for which the

warranty explicitly extends, whichever is earlier.

(d) During the period of declarant control, the association may authorize an independent

committee of the executive board to evaluate and enforce any warranty claims involving the

common elements, and to compromise those claims. Only members of the executive board elected

by unit owners other than the declarant and other persons appointed by those independent

members may serve on the committee, and the committee’s decision must be free of any control by

the declarant or any member of the executive board or officer appointed by the declarant. All costs

reasonably incurred by the committee, including attorney’s fees, are common expenses, and must

be added to the budget annually adopted by the association under Section 3-115. If the committee

is so created, the period of limitation for a warranty claim considered by the committee begins to

run from the date of the first meeting of the committee.

Comment

1. Under subsection (a), the parties may agree that the statute of limitations be reduced to as

little as two years. However, such a contract provision (which, in the case of residential units, must

be reflected in a separate written instrument executed by the purchaser) could, like other contract

provisions, be subject to attack on grounds of unconscionability in particular cases.

2. Except for warranties of quality which explicitly refer to future performance or duration,

a cause of action for breach of a warranty of quality would normally arise when the purchaser to

whom it is first made enters into possession. Suit on such a warranty would thus have to be brought

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within six years thereafter. Even an inability to discover the breach would not delay the running of

the statute of limitations in this regard.

3. Real estate sales frequently include warranties that certain components (e.g., furnaces,

hot water heaters, air conditioning systems, and roofs) will last for a particular period of time. In

the case of such warranties, the statute of limitations would not start running until the breach is

discovered, or, if not discovered before the end of the warranty term, until the end of the term.

4. The common elements typically have many components. While always dependent on

the particular unit boundaries of the particular project, typical common elements include retaining

walls, a swimming pool, water lines, sidewalks, party walls, etc. A phase for this purpose consists

of the units, common elements and limited common elements created upon each occasion of the

exercise by the declarant of development rights reserved by such declarant.

5. Under subsection (b)(2)(ii), if the declarant has not reserved development rights to

expand the community by adding units and common elements or limited common elements, the

claim for relief or cause of action for a common element accrues at the later of the time of the first

unit sale or the time that common element is completed. However, under amended Section 3-111,

that period does not begin to run until declarant control terminates.

On the other hand, if the declarant has retained development rights to expand the

community, the cause of action accrues upon the first conveyance of a unit within the phase which

includes that particular common element.

6. New subsection (d) creates an alternative mechanism by which a declarant may create an

independent board committee to evaluate and enforce warranty claims. The committee is

analogous to an independent audit committee composed of outside directors in a publicly held

corporation. This section strikes a balance between the legitimate interest of a declarant in not

having to provide warranties on the common elements for an unreasonable time, and the equally

legitimate interest of unit owners in having an independent analysis of warranty claims before

those claims expire.

SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION;

ATTORNEY’S FEES.

(a) A declarant, association, unit owner, or any other person subject to this [act] may bring

an action to enforce a right granted or obligation imposed by this [act], the declaration, or the

bylaws. [Punitive damages may be awarded for a willful failure to comply with this [act].] The

court may award reasonable attorney’s fees and costs.

(b) Parties to a dispute arising under this [act], the declaration, or the bylaws may agree to

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resolve the dispute by any form of binding or nonbinding alternative dispute resolution, but:

(1) a declarant may agree with the association to do so only after the period of

declarant control has expired unless the agreement is made with an independent committee of the

executive board elected pursuant to Section 4-116(d); and

(2) an agreement to submit to any form of binding alternative dispute resolution

must be in a record authenticated by the parties.

Comment

1. This section provides a general cause of action or claim for relief for failure to comply

with the Act by either a declarant or any other person subject to the Act’s provisions. Such persons

might include unit owners, persons exercising a declarant’s rights of appointment pursuant to

Section 3-103(d), or the association itself. A claim for appropriate relief might include damages,

injunctive relief, specific performance, rescission, or reconveyance if appropriate under the law of

the State, or any other remedy normally available under state law. The section specifically refers to

“any person or class of persons” to indicate that any relief available under the state class action

statute would be available in circumstances where a failure to comply with this Act has occurred.

This section specifically permits punitive damages to be awarded in the case of willful failure to

comply with the Act and also permits court costs and attorney’s fees to be awarded in the

discretion of the court to any party that prevails in an action.

2. The 1994 amendments reflect the Conference’s judgment that resolving disputes by

non-judicial means is a desirable outcome, subject to the limitations contained in this section.

3. The language of subsection (a) is intentionally broad, and emphasizes the traditional

authority of a court in equity to fashion a remedy suited to the circumstances of the case.

Importantly, the provisions of this section would apply with equal force to a violation of either this

Act or the declaration or by-laws by “any person” besides the declarant – including, for example,

the association in its dealings with unit owners, a property manager or unit owners whose own

behavior violates those same laws or instruments.

In appropriate cases involving association or executive board activities, the court might

grant relief in the form of requiring new elections, removal of officers from office, and orders

requiring offending parties to make the association whole for improperly expended funds. A civil

action may lie, in an appropriate case, for failure of the executive board to comply with the “open

meeting” requirement of §3-108. These examples are not intended to exhaust the traditional

authority of a judge to grant “appropriate relief”, and that authority is emphasized by the specific

grant of discretion to authorize punitive damages or attorneys fees, as the circumstances warrant.

The brackets around the punitive damages provisions in subsection (a), added in 2008, reflect the

drafters’ awareness of differing policies on that subject among the states.

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4. Nothing in this section prohibits a unit owner from seeking independently to enforce any

provision of the declaration, bylaws or rules. However, limitations in those instruments may

require that the unit owner participate in some form of alternative dispute resolution before

commencing suit; see Section 3-102(a)(18).

SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL. No promotional

material may be displayed or delivered to prospective purchasers which describes or portrays an

improvement that is not in existence unless the description or portrayal of the improvement in the

promotional material is conspicuously labeled or identified either as “MUST BE BUILT” or as

“NEED NOT BE BUILT.”

Comment

This section requiring the labeling of improvements depicted on promotional material is

necessary to assure that purchasers are not deceived with respect to improvements the declarant

indicates he intends to make in a common interest community.

SECTION 4-119. DECLARANT’S OBLIGATION TO COMPLETE AND

RESTORE.

(a) Except for improvements labeled “NEED NOT BE BUILT,” the declarant shall

complete all improvements depicted on any site plan or other graphic representation, including any

plats or plans prepared pursuant to Section 2-109, whether or not that site plan or other graphic

representation is contained in the public offering statement or in any promotional material

distributed by or for the declarant.

(b) The declarant is subject to liability for the prompt repair and restoration, to a condition

compatible with the remainder of the common interest community, of any portion of the common

interest community affected by the exercise of rights reserved pursuant to or created by Section

2-110, 2-111, 2-112, 2-113, 2-115, or 2-116.

Comment

1. The duty imposed by subsection (a) is a fundamental obligation of the declarant and is

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one with which a successor declarant is obligated to comply under Section 3-104.

2. Section 4-119(b) requires the declarant to repair and restore the common interest

community following the exercise of any rights reserved or created to exercise a development right

(Section 2-110), to alter units (Section 2-112), relocate the boundaries between adjoining units

(Section 2-112), subdivide units (Section 2-113), use units or common elements for sales purposes

(Section 2-115), or exercise of easement rights (Section 2-116). Plainly, this obligation on the

declarant exists only if the declarant, in his capacity as a unit owner, exercises these rights. If any

right to, for example, alter units, is exercised by another unit owner, that unit owner and not the

declarant, would be responsible for the consequences of those acts.

SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS. In the case of a sale of

a unit in which delivery of a public offering statement is required, a contract of sale may be

executed, but no interest in that unit may be conveyed, until the declaration is recorded and is

substantially completed, as evidenced by a recorded certificate of substantial completion executed

by an independent [registered] architect, surveyor, or engineer, or by issuance of a certificate of

occupancy authorized by law.

Comment

The purpose of this section, complemented by Section 4-110, is to assure that the declarant

is not able to obtain use of the purchaser’s money until the purchaser is able to get a completed

unit.

[ARTICLE] 5

APPLICABILITY AND TRANSITION

SECTION 5-101. EFFECTIVE DATE.

Alternative A

(a) This amendment to this [act] takes effect on [the effective date of this [amendment]].

(b) Before [all-inclusive date], this amendment to this [act] applies only to:

(1) a common interest community created on or after [the effective date of this

[act]]; and

(2) a common interest community created before [the effective date of this [act]]

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that amends its declaration to elect to be subject to this [act] as amended.

amendment to this [act] applies to all common interest communities.

[(d) This amendment to this [act] does not apply to a common interest community created

before [the effective date of this [act]] that elects not to be subject to this [act] by amending its

declaration by vote or agreement of unit owners of units to which more than 50 percent of the votes

in the association are allocated and recording the amendment before [all-inclusive date]. This

subsection supersedes Section 2-117(a), any inconsistent provision of other law of this state, and

any inconsistent provision in the declaration or bylaws of the common interest community.]

Alternative B

(a) This [act] takes effect on [the effective date of this [act]].

(b) Before [all-inclusive date], this [act] applies only to:

(1) a common interest community created on or after [the effective date of this

[act]]; and

(2) a common interest community created before [the effective date of this [act]]

that amends its declaration to elect to be subject to this [act].

applies to all common interest communities.

[(d) This [act] does not apply to a common interest community created before [the effective

date of this [act]] that elects not to be subject to this [act] by amending its declaration by vote or

agreement of unit owners of units to which more than 50 percent of the votes in the association are

allocated and recording the amendment before [all-inclusive date]. This subsection supersedes

Section 2-117(a), any inconsistent provision of other law of this state, and any inconsistent

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provision in the declaration or bylaws of the common interest community.]

Legislative Note: A state that has previously adopted the Uniform Common Interest Ownership

Act should use Alternative A. A state that has no previous version of the Uniform Common Interest

Ownership Act (2021)should use Alternative B.

The “all-inclusive” date should be three years after the effective date of the act.

If a state decides that full application of the act to all pre-existing common interest communities is

not appropriate, subsection (d) provides a procedure for pre-existing communities to elect to opt

out of the act.

Comment

Subsections (b) and (c) provide effective-date rules using the technique of an “all-inclusive

date” found in many Uniform Law Commission acts dealing with corporations and other business

organizations. The Legislative Note recommends an all-inclusive date of three years after the

effective date of the act. The length should depend on how long it should take for people who are

responsible for running the affairs of associations (e.g., executive boards and in many cases

management companies) to become aware of and familiar with the new Act.

SECTION 5-102. PRIOR STATUTES. [Section] [Sections] [cite to all statutes expressly

applicable to a planned community, condominium, cooperative, or horizontal property regime]:

(1) do not apply to a common interest community that is subject to this [act]; and

(2) apply to a common interest community created before [the effective date of this [act]]

only until the community becomes subject to this [act].

Legislative Note: For a state that previously adopted the Uniform Common Interest Ownership

Act, the effective date in this section should be the effective date stated in the earlier adoption.

After the all-inclusive date, unless the state adopts the optional bracketed provision in Section

5-101(d), the state should repeal any previous condominium statute identified in this section

because this act will then apply to all condominiums in the state.

Comment

1. The reference in this section to all present statutes expressly applicable to planned

communities, condominiums, cooperatives, or horizontal property regimes” is intended to

distinguish between a State’s condominium and other enabling statutes and those statutes that

apply not only to common interest communities, but to other forms of real estate, such as taxation

statutes or subdivision statutes. Thus, reference to the State’s condominium or horizontal property

regime enabling statutes should be included here, while references to taxation, subdivision, or

other statutes that are not restricted solely to condominiums should not be included.

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2. A preexisting common interest community remains subject to the old statutes until the

“all-inclusive date” or until it makes an election to adopt the act under Section 1-202, 1-203, or

5-101(b)(2).

SECTION 5-103. RETROACTIVE APPLICATION.

(a) Except as provided in subsection (b), if a common interest community created before

[the effective date of this [act]] becomes subject to this [act] on [all-inclusive date] or earlier, a

provision of its declaration or bylaws inconsistent with this [act] is invalid unless:

(1) the provision is expressly permitted under Section 1-117; or

(2) the common interest community is a cooperative described in Section 1-202, a

planned community described in Section 1-203, or a nonresidential or mixed-use common interest

community described in Section 1-207.

(b) This [act] does not require a common interest community validly created before [the

effective date of this [act]] to:

(1) comply with the requirements of this [act] for creation of a common interest

community; or

(2) prepare or amend surveys, plats, or plans.

before a common interest community becomes subject to this [act].

Legislative Note: For a state that previously adopted the Uniform Common Interest Ownership

Act, the effective date in this section should be the effective date stated in the earlier adoption.

Comment

1. Subsection (a) invalidates the provisions in the declaration or bylaws of a preexisting

common interest community that do not comply with the act’s mandatory rules when the

community becomes subject to the act. Common interest communities created before the

effective date of this act become fully subject to this act under Section 5-101(c) at the all-inclusive

date or by an earlier election under Section 5-101(b)(2).

2. A common interest community that becomes subject to the Act should study their

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governing documents and amend or restate them to comply with this Act, but this section does not

require amendment; invalidation of provisions that are not permitted takes place automatically.

3. The reference in subsection (a) to new Section 1-117, Mandatory and Default Rules,

means that existing provisions of the declaration and bylaws that are inconsistent with the rules

and procedures of this Act remain effective if the Act allows their variation by content in the

declaration or bylaws. For example, if the preexisting declaration provides that termination of the

common interest community requires the unanimous approval of unit owners, this provision

supersedes the rule in Section 2-118 that authorizes termination by a vote of 80 percent of unit

owners. The preexisting community does not have to amend its declaration to restate its unanimity

provision.

4. Plats and plans are part of the declaration. Under subsection (b), a preexisting common

interest community does not have to prepare plats and plans if the community was validly created

without them; or amend any existing surveys, plats, and plans that do not comply with Section

2-109.

SECTION 5-104. APPLICABILITY TO PRE-EXISTING COMMON INTEREST

COMMUNITY.

(a) Except for a cooperative described in Section 1-202, a planned community described in

Section 1-203, and a nonresidential or mixed-use common interest community described in

Section 1-207, the following sections apply to a common interest community created before [the

effective date of this [act]]:

(1) Section 1-105;

(2) Section 1-106;

(3) Section 1-107;

(4) Section 1-206;

(5) Section 2-102;

(6) Section 2-103;

(7) Section 2-104;

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

(9) Section 2-121;

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(10) Section 2-124;

(11) Section 3-102(a)(1) through (6) and (11) through (16);

(12) Section 3-103;

(13) Section 3-111;

(14) Section 3-116;

(15) Section 3-118;

(16) Section 3-124;

(17) Section 4-109;

(18) Section 4-117; and

(19) Section 1-103 to the extent necessary to construe the sections listed in

paragraphs (1) through (18).

(b) The sections listed in subsection (a) apply only to an event or circumstance that occurs

after [the effective date of this [act]] and do not invalidate provisions of the declaration or bylaws of

the common interest community existing on [the effective date of this [act]].

[act] under Section 5-101 or by election under Section 1-202, 1-203, or 1-207.

Legislative Note: For a state that previously adopted the Uniform Common Interest Ownership

Act, the effective date in this section should be the effective date stated in the earlier adoption.

Comment

1. Section 5-104(a) and (b) continue the content, with minor modifications, of prior Section

1-204, which the 2021 amendments deleted in connection with making the Act fully applicable to

common interest communities created before the effective date of this Act. This is a transitional

provision because preexisting common interest communities will become fully subject to this Act

at the all-inclusive date or by earlier election under Section 5-101. See Section 5-104(c). When a

preexisting community becomes fully subject to the Act, the validity of the existing provisions of

its declaration and bylaws are determined by Section 5-103(a), not by Section 5-104(b).

2. Note that if a State chooses to include the bracketed provision in Section 5-101(d) to

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allow preexisting communities to elect to opt out of the Act, such a preexisting community will

remain subject to the provisions of the Act listed in Section 5-104(a).

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