Community Associations Update - July 2011

Date: July 11, 2011

"Just the Facts" - Virginia Common Interest Communities 2011 Legislative Changes
by Kevin A. Kernan

The 2011 General Assembly session was an active one in Virginia. A number of new provisions will directly or indirectly impact common interest communities in Virginia. The new laws amend the Virginia Property Owners' Association Act, the Virginia Condominium Act, the Common Interest Community Management statutes, and the Virginia Nonstock Corporation Act. The sections of the law that are affected by the changes are listed; unless otherwise noted, the references are to the Virginia Code. These new laws took effect on July 1, 2011, unless otherwise noted in the summaries below.

Virginia General District Courts May Now Hear Covenant Enforcement Matters
Virginia Property Owners' Association Act
Virginia Condominium Act
Sections 16.1-77, 55-79.80:2, and 55-513. This statute has a significant impact on community associations because the Virginia General District Courts have jurisdiction to order an owner to abate or remedy covenant violations. The General District Court can also enter default judgment against an owner based on the association's sworn affidavit. Prior to the enactment of this statute, only the Circuit Courts had the authority to award equitable relief. This required an association to bring actions in the higher court, which were more costly and time consuming. General District Courts are the preferred venue because matters are decided quickly. It is important to keep in mind that General District Courts are not courts of record, which means that any matter litigated in the General District Court may be appealed to the Circuit Court where the matter will be litigated from the beginning without review of the lower court rulings. Prior to filing a covenant enforcement action, we recommend that you talk to the association's lawyer.

Charges for Access to Association Books and Records
Virginia Property Owners' Association Act
Virginia Condominium Act
Effective July 1, 2012
Sections 55-79.74:1 and 55-510: Beginning next year, community associations will not be able to charge owners for copies of books and records of the association unless the Board of Directors formally adopts a schedule of charges. Such a schedule must be provided to owners when they seek access to the books and records. The schedule of charges must: (i) specify the charges for materials and labor, (ii) apply equally to all members in good standing, and (iii) be provided to such requesting member at the time the request is made.

Time Period for Assessing Resale Disclosure Fees Reduced to 45 Days
Virginia Property Owners' Association Act
Virginia Condominium Act
Sections 55-79.97:1 and 55.509.6: This change reduces the time period when an owner can pay for their resale disclosure package. Prior to this legislation, an owner had to pay for the resale disclosure package at settlement, or within 90 days of settlement. Now, the owner must pay for the resale disclosure package at settlement, or within 45 days from the issuance of the resale disclosure package. The statute also requires that the resale disclosure packet state that all fees and costs for the production of the disclosure packet are the personal responsibility of the owner and will be assessed against the unit or lot and be collected like any other assessment.

The statute also provides that the costs must be assessed within one year of delivery of the disclosure packet.

Deadline Extended for Employee Certification by CICB
Virginia Property Owners' Association Act
Common Interest Communities Statutes
Virginia Common Interest Community Statute Sections 54.1-2346, 54.1-2347, 54.1-2349, 54.1-2353, 55-79.74:1, 55-79.97:1, 55-509, 55-509.3, 55-509.6, and 55-509.7. This statute extends the deadline for common interest community managers (with principal responsibility for management services or those managers who supervise employees who participate directly in the provision of management services) to obtain a certificate from the Common Interest Community Board. The new law extends the deadline for obtaining the certificate to July 1, 2012.

Professional Managed Communities
Virginia Property Owners' Association Act
Section 55-509 of the Virginia Property Owners' Association Act has been changed. This statute, as amended, defines a "professionally managed" association to include one that has engaged: (i) a common interest community manager to provide management services to the community or (ii) a person, as an employee, for compensation to provide management services to the community, other than a resident of the community who provides bookkeeping, billing, or recordkeeping services for that community. The new definition impacts Section 55-509.6 of the Virginia Property Owners' Association Act, which provides that a professionally managed association may assess certain fees for the inspection of the property, and the preparation and issuance of a disclosure packet.

Limitation on Association for Resale Packets
Virginia Property Owners' Association Act
This new legislation (Section 55-509.3 of the Virginia Property Owners' Association Act) states that neither associations nor the management companies can impose fees for the production and delivery of resale disclosure packets that are not specifically authorized in the Virginia Property Owners' Association Act, an association's Declaration, or as otherwise provided by law.

Notice Requirements for Pesticide Applications
Virginia Property Owners' Association Act
Section 55-510.3. This statute requires that property owners associations provide posted notice to lot owners of all pesticide applications on common areas at least 48 hours prior to the application. The statute mirrors the requirements in the Condominium Act. In order to better insure compliance with this new Code section, we recommend that associations include the notice requirement in contracts with their landscaping contractor and/or other companies that may apply pesticides.

Buyer's Right to Terminate Sales Contract
Virginia Condominium Act
Section 55-79.97: The statute as amended now states that a purchaser of a condominium unit may cancel a sales contract within 3 days of being notified that the resale certificate will not be available, and the amendments define when a resale certificate shall be deemed not to be available. Specifically, a resale certificate is not available when: (a) a current annual report has not been filed by the unit owners' association with either the State Corporation Commission pursuant to § 13.1-936 or the Common Interest Community Board pursuant to § 55-79.93:1, (b) the seller has made a written request to the unit owners' association that the resale certificate be provided and no resale certificate has been received within 14 days in accordance with subsection C of the statute, or (c) written notice has been provided by the unit owners' association that a resale certificate is not available.

Section 55-79.97(F) was also amended to make it clear that a resale certificate need not be provided if there is a disposition of the unit by a sale at an auction when a resale certificate was made available as part of the auction package for prospective purchasers prior to the auction.

Common Interest Community Manager Licenses
Common Interest Communities Statutes
Sections 54.1-2346, 54.1-2347, 54.1-2353, 55-79.74.1; 55-79.89, 55-79.90, 55-79.98, 55-79.99, 55-391.1, 55-396, and 55-399. The most important aspect of this bill is the extension of the expiration date for provisional common interest community manager licenses. The expiration date has been extended from June 30, 2011, to June 30, 2012. The amendments to the statutes also clarify, among other things, the CIC Board's authority to promulgate regulations necessary and proper to accomplish its purpose.

Increased Jurisdiction of the Virginia General District Courts
Sections 8.01-195.4, 16.1-77, 43-34, and 46.2-644.03: This statute increases the jurisdictional monetary limit of the Virginia General District Courts from $15,000 to $25,000. Any actions for damages in excess of $25,000 must be filed in the Circuit Court. The increase in the jurisdictional amount is unlikely to have a direct impact on community associations because assessment collections cases are usually filed before the delinquency exceeds $15,000. However, associations may be indirectly impacted from this legislative change because the number of cases brought in the General District Courts is expected to increase. This could result in a backlog of cases on the court's docket. In turn, there may be a delay in the time for assessment collection cases to be concluded.

No Banquet License Required For Alcohol to Be Served At Association Gatherings
Section 4.1-200. This statute exempts common interest communities from the requirement of obtaining a banquet license in order to serve alcoholic beverages at its private parties or meetings that are limited in attendance to members and their guests. The bill requires that (i) the alcoholic beverages shall not be sold or charged for in any way, (ii) the premises where the alcoholic beverages are consumed are limited to the common areas regularly occupied and utilized for such private meetings or private parties, and (iii) no more than four such meetings or parties may be held in any calendar year.

Immunity of Officers of Community Associations
Virginia Nonstock Corporation Act
Section 13.1-870.2. This statute exempts officers and directors of tax exempt organizations (including community associations) for acts taken in their official capacities even after the termination, cancellation or discontinuance of the association.

Maryland Passes Priority Lien Bill and Other Legislative Updates for 2011
by Julianne E. Dymowski

Priority Lien - PASSES!!!
After 17 years of pursuing this legislation, Maryland has passed a priority lien bill. Pursuant to this new law, Association liens have a limited priority over the claim of a mortgage holder whose loan is entered into on or after October 1, 2011. The Association's priority is limited to four months of assessments with a cap of $1,200. This priority amount will be paid from the funds of any foreclosure sale prior to the claim of any other creditor, including a mortgage holder. While this law applies only to future mortgages, it will quickly become an important collection tool for Associations, who today often see their liens extinguished by foreclosure with no payment made towards the delinquency.

Two other notable bills affecting community associations were also passed by the General Assembly and will take effect October 1, 2011. They are:

HO6 Policies
Condominiums may now amend their Bylaws to require individual owners to obtain HO6 policies covering their units. Pursuant to the new law, such an amendment can be adopted by a majority vote of all owners. In recognition of the importance of this issue, the legislature has reduced the required approval vote for this type of amendment from the usual 66 2/3% vote. Ensuring that owners have necessary insurance is important for Condominiums, particularly given an owner's obligation to pay $5,000 of a deductible under Section 11-114 of the Maryland Condominium Act.

Division of Consumer Protection
The enforcement powers of the Division of Consumer Protection in the Office of the Attorney General have been expanded to include review of election procedures for Homeowners Associations in Maryland. Anyone in an HOA will be able to file a complaint concerning an election with the Division of Consumer Protection and request that they investigate.

Finally, there has been recent legislation affecting community associations in Prince George's County. On June 14, 2011, the County Council adopted legislation creating a Common Ownership Communities Program to provide educational and dispute resolution services in a manner similar to the CCOC existing in Montgomery County. Regulations for the operation of this program are currently being drafted, and it is anticipated that it will be operational in Prince George's County starting on or about August 1, 2011.

D.C. Condominium Act Amendments Are On the Move
by Kiran K. Brar

The D.C. Legislative Action Committee is attempting to introduce a bill to amend the D.C. Condominium Act to make certain changes that Boards should be aware of. Although these amendments have not been passed yet, Boards should understand the amendments and prepare for them accordingly. Below is a brief summary of some of the key amendments that have been proposed.

Open Meetings
Section 42-1903.03 has a proposed section that will require all meetings of the executive board to be open for observation to all unit owners in good standing. Notice of these meetings must be provided to unit owners who request the information and the notice must be published in a location reasonably calculated to be seen by unit owners. Minutes of these executive board meetings must be recorded and available for examination and copying by unit owners who are in good standing.

The executive board may still convene an executive session to consider personnel matters, to consult with legal counsel and deal with other personal issues in a closed session but this must be done upon a motion and an affirmative vote in an open meeting before moving into the executive session.

Members of the Board should note that these changes are very similar to and based on the current law in the State of Maryland and the Commonwealth of Virginia.

Insurance Obtained by the Association
A proposed revision to Section 42-1903.10 of the D.C. Condominium Act affects insurance. Unit owners must now purchase liability and property insurance coverage in the amount of $250,000 or any other amount that is determined by the Board. If a unit owner suffers a loss that is also covered under the association's policy, then the primary coverage is the unit owner's policy.

If the association's policy is invoked because a unit owner has suffered a loss and the association's policy pays for any of those losses, then the unit owner will be liable for such losses and must pay the association's deductible. This is not to exceed $5,000, which may be adjusted annually.

Association's Lien for Assessments
Revisions to Section 42-1903.13 would allow interest, late fees, expenses, legal fees actually incurred, collection costs and any other amounts payable by a unit owner under the condominium instruments to be included as part of the statutory lien on the unit in favor of the association. This section has also been amended to include a sentence that a unit owner irrevocably appoints the board president of the association as a trustee for the purpose of conducting a foreclosure upon their acceptance of a deed to the condominium unit.

Books, minutes and records; inspection
Section 42-1903.14 which was previously titled "Financial records" has been amended to be titled, "Books, minutes and records; inspection." This section now outlines the association's duty to keep detailed records of the receipt and expenditures of the condominium. It is also expanded to include a provision that allows the association to withhold certain information from examination or copying by unit owners to the extent such information is in drafts that are not yet incorporated into the association's books and records, or if the books and records concern things such as personal matters, pending or probable litigation, contracts, leases and other commercial transactions currently under negotiation, matters discussed in a closed executive session, and individual unit owner files. The section also allows the association to impose and collect a fee for providing copies of any books and records to unit owners.

Delaware Update -- Getting Used to DUCIOA
by Chad J. Toms

Statewide Legislation
The Delaware Uniform Common Interest Ownership Act ("DUCIOA"), 25 Del. C. § 81-101, et seq., originally effective July 1, 2009, substantially changed the landscape for Delaware communities. The DUCIOA and sections of Delaware's prior statute, the Unit Property Act, were substantially amended prior to the DUCIOA effective date to address input from builder, realtor and association constituencies. Delaware communities have been subject to the strictures of the as-amended DUCIOA since September 30, 2009, with additional revisions effective August 11, 2010 to clarify certain small-community exceptions and make changes to the resale certificate requirements.

In adopting DUCIOA, the legislative body sought to address certain common community association complaints, including those pertaining to the relationship between the developer and the community as well as to establish a framework for the ongoing management aspects of the community. As a result, the DUCIOA imposes obligations on certain communities and their developers, not previously required in Delaware. Several of the new obligations imposed upon these developers and/or communities include, but are not limited to: (1) repair and replacement reserves; (2) reserve studies; (3) budget adoption procedures; (4) audits; (5) public offering statements; and (6) resale certification.

DUCIOA applies only with respect to events and circumstances occurring after the effective date. Likewise, it does not invalidate existing governing documents, and if there is a conflict between DUCIOA and a pre-existing document that is not otherwise in conflict with the Unit Property Act, the pre-existing document controls. If the pre-existing documents or the Unit Property Act do not address an issue, DUCIOA controls. For these reasons, it is wise for pre-existing communities to review their governing documents to identify if amendments and revisions are appropriate to address DUCIOA and any ongoing obligations under the Delaware Unit Property Act.

Probably as a result of the economic slow-down in new development, there have been few applications of DUCIOA in the Delaware courts. In fact, the only case actually addressing DUCIOA, Friends of Vill. of Cinderberry v. Vill. Of Cinderberry Prop. Owners Ass'n, 2010 Del. Ch. LEXIS 83 (Del. Ch. May 5, 2010), found the statute non-controlling as to a pre-existing community because DUCIOA specifically provided that any conflict between the existing governance documents and the statute should be resolved in favor of the community's governance documents. Therefore, on the two year anniversary of the DUCIOA legislation, very little by way of case law has developed. However, the economic impact of compliance has been rather substantial for some communities.

County Specific Code
New Castle County, Delaware, has its own county code, the Unified Development Code that includes provisions applicable to community associations. In its code, which was amended as recently as January 18, 2011, the County imposes an obligation upon land developers to create a maintenance organization to be "responsible for owning, maintaining and/or managing the open space and common facilities." The New Castle County code imposes certain performance guarantees upon the developer for open space and common facilities. It also requires the creation and funding of a maintenance escrow. The New Castle County code also has rather specific assessments and penalties for instances where a maintenance corporation fails to maintain its open space or common facilities.

Depending on the obligations of an organization to maintain private property, such as in an age-restricted community, it is not uncommon to have a maintenance corporation for the public open space and a service corporation to address maintenance obligations of privately owned property. Additionally, New Castle County has a voluntary program in which the County invoices and collects assessments for certain maintenance corporations on a per parcel charge.

Kent and Sussex County, the two other Delaware counties, include in their code only requirements that open space, if not dedicated to the counties, be owned by responsible entities including property owners' associations. Other than general obligations related to maintenance, Kent and Sussex County do not impose the same stringent requirements found in New Castle County.