Delaware Update -- Getting Used to DUCIOA

Date: July 11, 2011

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.