New statute affects condo, homeowners associations
Law for common-interest communities applies to all developers, sellers, othersJuly 19th, 2018
On July 1, major changes to Washington state law governing homeowners and condominium owners associations took effect.
Representing approximately 12 years of effort by lawyers, developers, builders, and real estate professionals, those changes affect all aspects of owners associations, also known as common-interest communities.
The new changes were driven by a desire to adopt a uniform set of laws governing these types of associations and communities and to better organize all of the different laws that apply to associations and common-interest communities.
The changes are contained in a new statute called the Washington Uniform Common Interest Ownership Act, which governs how common-interest communities are created, governed, amended, operated, and terminated.
The new act affects developers, owners, buyers, sellers, lenders, title insurance companies, and existing homeowners and condominium owners associations.
Common-interest communities are a central term in the act. They include any real estate community or development where an owner of real estate must pay a share of expenses related to other real estate, simply by owning real estate in that community. The central element of such an organization is the sharing of the costs of operating a community with other owners. Common-interest communities come in three types: a planned community, such as a planned unit development; a condominium; and a cooperative. Planned communities are further divided between “plat communities” and “miscellaneous communities.”
The act applies to all such communities created on or after July 1. On this day, a number of other statutes that govern condos and subdivisions no longer apply to them, including the Land Development Act, the Horizontal Property Regimes Act, the Washington Condominium Act, and the Homeowners Association Act. Those statutes still apply, however, to condominiums and subdivisions created before July 1, unless those projects opt into the act.
For certain small planned communities, only three sections of the new act apply unless the small planned community opts into the statute. Those provisions address separate titles and taxation, the application of local laws, and eminent domain. A small planned community is one that has no more than 12 units and provides that the annual average assessment of any residential unit, excluding insurance premiums and optional user fees, is no more than $300 a year.
For pre-existing common-interest communities, only two sections of the act apply—Section 120, which allows those communities to opt in to act, and Section 326, which requires associations to prepare annual budgets and to establish standards for budget ratification.
Common-interest communities can be created only by recording a declaration and a map. Declarations are recorded like deeds. Maps are either a plat map for a plat community or a map that complies with the act for condominium and miscellaneous communities.
The act spells out in detail the requirements for declarations. For most attorneys, developers, and real estate professionals who work with condominiums, the requirements will look familiar. For those professionals who work with homeowners associations and subdivisions, however, the declaration requirements will look substantially different.
Most changes to a declaration require at least a 67 percent affirmative vote. However, certain major changes, such as changing the boundaries of the common-interest community or increasing the number of units, require a 90 percent affirmative vote. These are minimum requirements that can’t be changed.
Some changes to a declaration require that lenders that have a security interest in owners’ units give permission to the change. The act also describes specific requirements for mergers and termination of the communities, as well as changes to units and to common areas.
As those who deal with existing homeowners associations know, the laws which apply to HOAs was fairly sparse and scattered through Washington statutes. The act creates a uniform and organized set of rules and guidelines for those who manage the communities and the owners who live in them.
Common-interest communities are now required to have an entity—either a corporation or a limited liability company—formed for the association before the first unit is sold to a purchaser. All unit owners must be members. There must be a board of directors, and the act now prescribes the duties of care and loyalty that the association’s directors and officers must meet. Basically, the association’s directors and officers have the same duty of care and loyalty as in a regular corporation.
There are now limits on certain association powers, including the power to impose fines, deny access to unit owners, suspend the right to vote or services to owners, and assign the right to collect assessments.
The act also establishes rules for the holding and conducting of association meetings, quorums and voting; retention and management of association records; standards and limits for rulemaking; giving of notices and the providing of electronic notices; and the regulation of reserve accounts, among others.
Article 4 of the act deals with consumer protection provisions. Among the more significant changes to the present law governing HOAs is that Article 4 now requires that “declarants and dealers” must deliver a disclosure document called a “public offering statement” to prospective unit purchasers. In the case of resales of units, unit owners must give to a prospective purchaser a disclosure document called a “resale certificate.” While these requirements have been in place for condominiums, they are new to homeowner associations.
Public offering statements must provide certain information to the prospective purchasers, including information regarding the declarant and the community, and must contain copies of certain documents which were created in regard to the development of the community. These statements must be modified if any material changes occur prior to delivery to the prospective purchasers. Under the act, a prospective purchaser has seven days after receiving the statement to cancel the purchase contract without penalty.
Resale certificates are required for all sales unless there is a specific exemption or if the seller is already required to provide a public offering statement. Resale certificates must include copies of the governing documents and require certain disclosures about assessments and fees concerning the unit under contract and the association’s finances, liabilities, and insurance. While the seller is required to provide the resale certificate, the association itself is required to prepare the certificate upon request.
The Washington Uniform Common Interest Ownership Act is a major change to the laws governing condominiums and homeowners associations in Washington state. Real estate professionals, developers, builders, and attorneys who work with residential real estate should become familiar with the provisions and how it affects existing and future residential projects.