PROPOSED UCIOA AMENDMENTS TO NRS CHAPTER 116

Transcription

1 PROPOSED UCIOA AMENDMENTS TO NRS CHAPTER 116 Prepared by Michael Buckley, Jones Vargas September 5,

2 Preliminary notes: UCIOA adopts a number of purely stylistic changes. These include: (a) elimination of gender based pronouns; (b) replacing "the provisions of x" with a direct reference to "x"; (c) replacing the common legal phrase "in the event" with "if"; (d) eliminating all parenthetical references to other sections of the chapter most of these have previously been eliminated from NRS 116, however, a few such references remain; (e) replacing indirect sentence structures with a more simple subject-verb-object structure. 2. The following amendments incorporate the 1994 and 2008 drafts of UCIOA. Because Nevada has non-uniform provisions, some of the uniform act changes may not be appropriate in based on the policies evidenced by Nevada's non-uniform provisions. I have tried, however, to incorporate 1994 and 2008 UCIOA changes where possible and indicate where there appears to be a conflict. 3. The following amendments use language found in the uniform act and may need to be changed to reflect Chapter 116's non-uniform language, such as "unit's owner," "developmental rights" and "liability for common expenses" in place of the uniform act's "unit owner," "development rights" and "common expense liability" and Nevada's usage of the hyphenated term, "common-interest community." 4. Changes based on 2008 UCIOA are based on the "2008 Annual Meeting Approved Text (not styled)." 5. For various reasons, several sections which were changed in 2008 UCIOA are not changed in this document. For example, the definition of "person" in 1-103(25) is found elsewhere in NRS. Also, while many of the grammatical preferences in 2008 UCIOA are included, certain minor changes are not. 6. UCIOA subsection numbering in new sections has been changed from the uniform style (a), (b), (c), etc. to the Nevada style 1, 2, 3, etc. with corresponding changes for subsections. 7. Bracketed UCIOA options have been replaced with Nevada references (e.g., "[insert appropriate court]" in has been changed to "district court." Similarly, bracketed references to "this act" have been replaced with the words, "this chapter," and references to UCIOA sections have been replaced, where possible, with the appropriate Nevada statutes. 8. I have included formal UCIOA explanations and Comments where available, but the "Explanations" are my own. Comments from 2008 UCIOA are limited to 2008 changes, though not all, and appear to be in draft form. 9. I have noted non-uniform provisions, though not in every case (NRS ) has been left alone, despite a recognized need for changes, in view of other efforts to amend this provision. 10. THIS IS A WORK IN PROGRESS! 2

3 1. NRS [UCIOA ] NRS Definitions. As used in this chapter and in the declaration and bylaws of an association, unless the context otherwise requires, the words and terms defined in NRS to , inclusive, have the meanings ascribed to them in those sections. (Added to NRS by 1991, 535; A 2003, 1302, 2221; 2005, 2586) Explanation: 2008 UCIOA adopts the following change: SECTION DEFINITIONS. In the declaration and bylaws (Section 3-106), unless specifically provided otherwise or the context otherwise requires, and in In this [act]: This change is consistent with the holding of the Nevada Supreme Court in the 2007 case, Boulder Oaks Comm. Assn v. B&J Andrews Ent. The court held that "declarant" can mean whatever meaning the declaration provides, since the statutory lead in to the definitions section states, "unless the context otherwise requires." This change makes it clear that the meanings of the defined terms are set in Chapter 116, and may not be varied, but permits governing documents to use different terminology. 1 Unless otherwise indicated, all UCIOA references are to 2008 UCIOA. 3

4 2. NRS [UCIOA 1-103(2)] NRS Allocated interests defined. Allocated interests means the following interests allocated to each unit: 1. In a condominium, the undivided interest in the common elements, the liability for common expenses, and votes in the association; 2. In a cooperative, the liability for common expenses, and the ownership interest and votes in the association; and 3. In a planned community, the liability for common expenses and votes in the association. (Added to NRS by 1991, 536) (Substituted in revision for NRS ) Explanation: This 2008 UCIOA grammatical correction makes it clear that the liability for common expenses and ownership interest are separate interests. 4

5 3. NRS: N/A. New section [UCIOA 1-103(3)] Add the following new section from 2008 UCIOA: means the sum attributable to each unit and due to the association pursuant to Section Explanation: The term "assessment" is used throughout Chapter

6 4. NRS [UCIOA 1-103(4)] NRS Association and unit-owners association defined. Association or unit-owners owners association means the unit-owners owners association organized under NRS (Added to NRS by 1991, 536) (Substituted in revision for NRS ) Explanation: The 2008 UCIOA makes the following change: (4) or Aunit owners' owners means the unit owners' owners association organized under Section This change reflects the philosophy that the term unit owners should be used in the plural rather than the possessive, i.e., the association is a separate entity composed of all unit owners, not a separate entity necessarily owned by the owners, even though they are members. Note that this change would result in a significant number of changes throughout NRS chapter

7 5. NRS: N/A. New section [UCIOA 1-103(5)] Add the following new section from 2008 UCIOA: 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. Explanation: The term "bylaws" is used throughout the chapter. The advantage of this definition is to make clear that, as used in the chapter, the term refers to the documents governing the internal affairs of the association, regardless of the actual title of the document. 7

8 6. NRS [UCIOA 1-103(6)] NRS Common elements defined. Common elements means: 1. (a) In a condominium or cooperative, all portions of the common-interest community other than the units, including easements in favor of units or the common elements over other units; and 2. (b) In a planned community, any real estate within the planned community owned or leased by the association, other than a unit; and 2. In all common-interest communities, any other interests in real estate for the benefit of unit owners which are subject to the declaration. (Added to NRS by 1991, 536; A 1993, 2356) (Substituted in revision for NRS ) Explanation: This change comes from 1994 amendments to the UCIOA. The following comments describe the intent of the change: 6. The 1994 amendment to the definition of common elements in Section 1-103(4) 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 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

9 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. 9

10 7. NRS [UCIOA 1-103(9)] NRS Common-interest community defined. Common-interest community means real estate described in a declaration with respect to which a person, by virtue of his 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 that declaration than that unit. The term does not include an arrangement described in Section [1-209] or [1-210]. For purposes of this paragraph, "ownership Ownership of a unit does not include holding a leasehold interest of less than 20 years in a unit, including options to renew. (Added to NRS by 1991, 536) (Substituted in revision for NRS ) Explanation: The 2008 UCIOA changes clarify the type of arrangement that creates a common interest community. Limiting the affected real estate to real estate described in the declaration eliminates confusion. This amendment also takes into account two new 2008 sections (See Nos. 26 and 27 below.) which make it clear that every cost sharing arrangement is not necessarily a common-interest community. 10

11 8. NRS [UCIOA 1-103(12)] NRS Cooperative defined. 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 his the member's ownership in the association to exclusive possession of a unit. (Added to NRS by 1991, 536) (Substituted in revision for NRS ) Explanation: This 2008 UCIOA change eliminates gender based pronouns. 11

12 9. NRS [UCIOA 1-103(13)] NRS Dealer defined. Dealer means a person in the business of selling units for his the person's own account. (Added to NRS by 1991, 537) (Substituted in revision for NRS ) Explanation: This 2008 UCIOA change eliminates use of the masculine pronoun. 12

13 10. NRS [UCIOA 1-103(14)] NRS Declarant defined. Declarant means any person or group of persons acting in concert who: 1. As part of a common promotional plan, offers to dispose of his or it s the interest of the person or group of persons in a unit not previously disposed of; or 2. Reserves or succeeds to any special declarant s right. (Added to NRS by 1991, 537) (Substituted in revision for NRS ) Explanation: This 2008 UCIOA change eliminates gender specific pronouns. 13

14 11. NRS [UCIOA 1-103(15)] NRS Declaration defined. Declaration means any instruments the instrument, however denominated, that create creates a common-interest community, including any amendments to those instruments that instrument. (Added to NRS by 1991, 537) (Substituted in revision for NRS ) Explanation: This 2008 UCIOA amendment conforms to the practice of identifying one document as the declaration. 14

15 12. NRS [UCIOA 1-103(18)] NRS Executive board defined. Executive board means the body, regardless of name, designated in the declaration or bylaws to act on behalf of the association. (Added to NRS by 1991, 537) (Substituted in revision for NRS ) Explanation: This amendment from 2008 UCIOA recognizes that very often the bylaws will be the main document governing the board. 15

16 13. NRS: N/A. New section [UCIOA 1-103(23)] Add the following new section from 2008 UCIOA: ANonresidential means use for a purpose other than a residential purpose. Explanation: This addition, from 2008 UCIOA, makes clear the meaning of "nonresidential." 16

17 14. NRS: N/A. NRS [UCIOA 1-103(29)] NRS Real estate defined. 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. Real estate The term includes parcels with or without upper or lower boundaries, and spaces that may be filled with air or water. (Added to NRS by 1991, 538) (Substituted in revision for NRS ) Add the following new section from 2008 UCIOA: Explanation: 2008 UCIOA grammatical change. 17

18 15. NRS: N/A. New section. [UCIOA 1-103(30)] Add the following new section from 2008 UCIOA: when 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. Explanation: This change comes from 2008 UCIOA. The term is consistent with other statutes which use the term "record" in place of instrument, document, writing, etc. See, e.g., NRS (1)(qqq). An Appendix to 2008 UCIOA contains the following additional commentary: APPENDIX CONFORMING AMENDMENTS TO UNIFORM ELECTRONIC TRANSACTIONS ACT In addition to the foregoing amendments, the Committee acknowledges that at least these existing sections in the current draft of UCIOA may require amendment to delete reference to the word written and replacement with words such as in a record or other suitable substitute text: (g) and (i); (g); (d)(4); 3-113(g); (i) and (l); (a)(10) and (11). Given the importance of bringing the final UCIOA amendments to the Floor in a timely way, and with the concurrence of the Chair of UETA, these amendments will be accomplished during the final styling effort. 18

19 16. NRS: N/A. New Section. [UCIOA 1-103(32)] Add the following new section from 2008 UCIOA: means any policy, guideline, restriction, procedure, or regulation of an association, however denominated, which is not set forth in the declaration or bylaws and which governs the conduct of persons or the use or appearance of property. Explanation: This new definition from 2008 UCIOA introduces a term used throughout NRS Chapter 116. The comments to the draft 2008 UCIOA add the following: The term Arule@ has appeared in this Act since its original promulgation in 1982; see, e.g., ' (a):ay[t]he association may (1) adopt and amendyrules and regulations'. However, the definition of ARule@ is new in the 2008 amendments to UCIOA. It has been added for several reasons. 1. First, uncertainty existed regarding those subject matters that must be adopted as rules after notice to unit owners and an opportunity to comment, as provided in Section In those appropriate cases, the Act makes clear that the association must follow formal adoption procedures, rather than simply approving informal policies or written guidelines. The definition thus highlights two fundamental subject matters where the rule adoption process must be followed: one is personal conduct and the other is the use and appearance of property. In addition, the committee recognizes that developing law in some jurisdictions permits the association to regulate to some degree the behavior of unit owners and their guests and tenants even when those persons are acting outside the boundaries of the common interest community. [insert citations to cases]. Most commonly, these issues arise when associations seek to regulate parking on public streets that serve the community. This Act takes no position on whether such an extension of the association's authority is or is not appropriate in any instance and the Act cannot be read either to authorize or prohibit such authority. However, to the extent other law of an adopting State confirms that the association possesses such authority, the definition makes clear that the association's policies in those regards B unless they appear in the declaration or bylaws for that common interest community - must be adopted only after notice and comment. 2. The Act recognizes that the same subject matters that may be regulated by >rules' may instead be controlled by language in the declaration or bylaws. See, e.g., '3-106(d). Indeed, in some instances, certain conduct and use restrictions must appear in the declaration as a condition to their effectiveness. See, e.g., '2-105(a)(12). In other instances, the association may only adopt rules governing a particular subject matter if the declaration affirmatively empowers the association to do so. See, e.g., '2-105(a)(14). Thus, in any given common interest community, the pattern of various provisions of the declaration, 19

20 the bylaws and the rules must be considered together in order for those who live in that community to gain a full understanding of what they may and may not do. It is common, for that reason, for associations to compile the regulatory matters from those different sources into a single document for distribution to unit owners. 3. Finally, in defining what subject matters may be subject to the rules adoption process, Section 3-120(g) clearly exempts the Association's internal business operating procedures from that process. In those instances, there is no obligation that the procedures be adopted as rules. Instead, the executive board or management company might adopt or amend such procedures at will. It may be useful to provide some examples. $ The association chooses to solicit bids from potential contractors for a particular project, or for services that it requires. To the extent the executive board wishes to adopt a procedure for soliciting, reviewing and accepting bids, such a policy would not require notice to unit owners or the right to comment. Indeed, since it is not subject to the rules adoption process, the executive board is free to act in the absence of any formal policy whatsoever. $ The Board approves a management contract with an outside management company. That contract may contain a variety of procedures governing how the manager must carry out its duties in the management of the association. $ The Board may adopt filing procedures, check writing procedures, document retention policies or an employee handbook, all without the need to adopt rules in those respects. $ There will be cases, of course, where the line between >conduct' or >use' on the one hand and >internal operating procedures' may be less clear. The principle set out in the definition, however, should guide the decision-maker to the appropriate result. 20

21 17. NRS [UCIOA 1-103(34)] NRS Special declarant s rights defined. Special declarant s rights means rights reserved for the benefit of a declarant to: 1. Complete improvements indicated on plats and plans or in the declaration (NRS ) or, in a cooperative, to complete improvements described in the public offering statement pursuant to subsection 2 of NRS ; 2. Exercise any developmental right (NRS ); 3. Maintain sales offices, management offices, signs advertising the common-interest community and models (NRS ); 4. 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 commoninterest community (NRS ); 5. Make the common-interest community subject to a master association (NRS ); 6. Merge or consolidate a common-interest community with another common-interest community of the same form of ownership (NRS ); or 7. Appoint or remove any officer of the association or any master association or any member of an executive board during any period of declarant s control (NRS ).; 8. Control any construction, design review, or other aesthetic standards committee or process; 9. Attend meetings of the unit owners and, except during an executive session, the executive board; and 10. Have access to the records of the association to the same extent as a unit owner. (Added to NRS by 1991, 538) (Substituted in revision for NRS ) Explanation: This 2008 adds to the statute developer rights, which are commonly reserved by developers during the development of the community. 21

22 18. NRS [UCIOA 1-104] Suggested Change: NRS Provisions of chapter may not be varied by agreement, waived or evaded; exceptions. Except as expressly provided in this chapter, the effect of its provisions may not be varied by agreement, and rights conferred by it may not be waived. A declarant may not act under a power of attorney, or use any other device, to evade the limitations or prohibitions of this chapter or the declaration. (Added to NRS by 1991, 539) Explanation: 2008 UCIOA change. 22

23 19. NRS [UCIOA 1-108] NRS 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 law in this state, the law of unincorporated associations, the law of real property, 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 chapter, except to the extent inconsistent with this chapter. (Added to NRS by 1991, 541) Explanation: This change from 2008 UCIOA recognizes that, depending on the type of entity an association is, the association may be governed by laws other than corporate laws. 23

24 20. NRS [UCIOA 1-114] NRS Remedies to be liberally administered. 1. The remedies provided by this chapter must 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. Consequential, special or punitive damages may not be awarded except as specifically provided in this chapter or by other rule of law. 2. Any right or obligation declared by this chapter is enforceable by judicial proceeding. (Added to NRS by 1991, 541) Explanation: There is no explanation for this 2008 UCIOA change. See, however, No. 70 below, which includes changes to NRS based on UCIOA Section spells out with greater specificity the language omitted from 1-114, and it may be that this change is simply the elimination of redundancy. 24

25 21. NRS: N/A. New Section. [UCIOA 1-116] Add the following new section from 2008 UCIOA: This chapter modifies, limits, and supercedes the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. Section 7001, et seq) but does not modify, limit, or supercede 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)). Explanation: 2008 UCIOA. 25

26 22. NRS [UCIOA 1-201, 1-207, 1-208] NRS Applicability; regulations. 1. Except as otherwise provided in this section and NRS , this chapter applies to all common-interest communities created within this State. 2. This chapter does not apply to: (a) A limited-purpose association, except that a limited-purpose association: (1) Shall pay the fees required pursuant to NRS ; (2) Shall register with the Ombudsman pursuant to NRS ; (3) Shall comply with the provisions of: (I) NRS , and ; and (II) NRS , if the limited-purpose association is created for a rural agricultural residential common-interest community; (4) Shall comply with the provisions of NRS to , inclusive, as required by the regulations adopted by the Commission pursuant to paragraph (b) of subsection 5; and (5) Shall not enforce any restrictions concerning the use of units by the units owners, unless the limited-purpose association is created for a rural agricultural residential commoninterest community. (b) A planned community in which all units are restricted exclusively to nonresidential use unless the declaration provides that this chapter does apply to that planned community. This chapter applies to a planned community containing both units that are restricted exclusively to nonresidential use and other units that are not so restricted only if the declaration so provides or if the real estate comprising the units that may be used for residential purposes would be a planned community in the absence of the units that may not be used for residential purposes. (c) Common-interest communities or units located outside of this State, but the provisions of NRS and NRS , and, to the extent applicable, NRS through to , inclusive, apply to all contracts a contract for the disposition thereof of a unit in that common-interest community signed in this State by any party unless exempt under subsection 2 of NRS (d) (c) A common-interest community that was created before January 1, 1992, is located in a county whose population is less than 50,000, and has less than 50 percent of the units within the community put to residential use, unless a majority of the units owners otherwise elect in writing. (e) (d) Except as otherwise provided in this chapter, time shares governed by the provisions of chapter 119A of NRS. 3. The provisions of this chapter do not: (a) Prohibit a common-interest community created before January 1, 1992, from providing for separate classes of voting for the units owners; (b) Require a common-interest community created before January 1, 1992, to comply with the provisions of NRS to , inclusive; (c) Invalidate any assessments that were imposed on or before October 1, 1999, by a common-interest community created before January 1, 1992; or (d) Prohibit a common-interest community created before January 1, 1992, or a commoninterest community described in NRS from providing for a representative form of government. 4. The provisions of chapters 117 and 278A of NRS do not apply to common-interest communities. 5. The Commission shall establish, by regulation: 26

27 (a) The criteria for determining whether an association, a limited-purpose association or a common-interest community satisfies the requirements for an exemption or limited exemption from any provision of this chapter; and (b) The extent to which a limited-purpose association must comply with the provisions of NRS to , inclusive. 6. As used in this section, limited-purpose association means an association that: (a) Is created for the limited purpose of maintaining: (1) The landscape of the common elements of a common-interest community; (2) Facilities for flood control; or (3) A rural agricultural residential common-interest community; and (b) Is not authorized by its governing documents to enforce any restrictions concerning the use of units by units owners, unless the limited-purpose association is created for a rural agricultural residential common-interest community. (Added to NRS by 1991, 542; A 1999, 2998; 2001, 2488; 2003, 2223; 2005, 2587) Explanation: NRS contains a compilation of exemptions from NRS 116. In contrast, UCIOA is entitled "Applicability to New Common Interest Communities." These changes reflect 2008 UCIOA changes to a number of UCIOA sections, all of which in Nevada are contained in one statute, NRS NRS (b). This subsection [UCIOA 1-207] is deleted and replaced by a new section, because of the length and complexity of the section. See No. 23 below. NRS (c). This is a 2008 UCIOA change to 1-208, which is mainly a grammatical change as well as a technical change, recognizing that some sections of article 4 may not be applicable in every case. 27

28 23. NRS: N/A. New Section. [UCIOA 1-207] Proposed change: Add the following new Section, based on 2008 UCIOA: SECTION APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE COMMON INTEREST COMMUNITIES. (a) Except as otherwise provided in subsection (d), this section applies only to nonresidential common interest communities. (b) A nonresidential common interest community is not subject to this chapter, except to the extent the declaration provides that: (1) this entire chapter applies to the community; (2) [Articles] 1 and 2 [i.e., NRS et seq. and NRS et seq.] apply to the community; or (3) in the case of a planned community or a cooperative, NRS , , and apply to the community. (c) If the entire chapter applies to a nonresidential common interest community, the declaration may also require, subject to NRS , that: (1) notwithstanding NRS , 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 NRS , 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 chapter unless the units that may be used for residential purposes would comprise a common interest community that would be subject to this chapter in the absence of the nonresidential units or the declaration provides that this chapter applies as provided in subsection (b) or (c). Explanation: This section was the subject of changes in 1994 and While the 2008 UCIOA draft is not identical with the 1994 draft, the following comments to the 1994 draft provide some explanation: 1994 UCIOA Prefatory Note: 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 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. 28

29 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, 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) 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. 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 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 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 Subsection (e) 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." 29

30 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. 30

31 24. NRS [UCIOA 1-203] NRS Exception for small planned communities. 1. Except as otherwise provided in subsection 2, if a planned community contains no more than 12 units and is not subject to any developmental rights, it is subject only to NRS , and unless the declaration provides that this entire chapter is applicable. 2. Except for NRS , , and , the provisions of NRS to , inclusive, and the definitions set forth in NRS to , inclusive, to the extent that such definitions are necessary in construing any of those provisions, apply to a residential planned community containing more than six units. (Added to NRS by 1991, 542; A 1993, 2357; 1999, 2999; 2001, 528; 2003, 2224, 2266; 2005, 1232, 2589) Explanation: This is a minor change based on 2008 UCIOA. UCIOA contains an additional exception for small expense communities. This exemption was eliminated in the 1999 changes to NRS Chapter 116. The following is the text of the 2008 UCIOA section: SECTION EXCEPTION FOR SMALL AND LIMITED EXPENSE LIABILITY PLANNED COMMUNITIES. (a) If a planned community that is not subject to any development right: (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 (Adjustment of Dollar Amounts), it is subject only to Sections (Separate Titles and Taxation), (Applicability of Local Ordinances, Regulations, and Building Codes), and (Eminent Domain) unless the declaration provides that this entire [act] is applicable. (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 $768, as adjusted pursuant to Section (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 stated in subsection (a)(2) during the period of declarant control without the consent of all unit owners. 31

32 25. NRS [UCIOA 1-206] NRS Provisions of governing documents in violation of chapter deemed to conform with chapter by operation of law; procedure for certain amendments to governing documents. 1. Any provision contained in a declaration, bylaw or other governing document of a common-interest community that violates the provisions of this chapter shall be deemed to conform with those provisions by operation of law, and any such declaration, bylaw or other governing document is not required to be amended to conform to those provisions. 2. In the case of amendments to the declaration, bylaws or plats and plans of any common-interest community created before January 1, 1992: (a) If the result accomplished by the amendment was permitted by law before January 1, 1992, the amendment may be made either in accordance with that law, in which case that law applies to that amendment, or it may be made under this chapter; and (b) If the result accomplished by the amendment is permitted by this chapter, and was not permitted by law before January 1, 1992, the amendment may be made under this chapter The declaration, bylaws, or plats and plans of any common interest community created before [the effective date of this chapter may be amended to achieve any result permitted by this chapter, regardless of what applicable law provided before this chapter was adopted. 3. Except as otherwise provided in [UCIOA (j) and (j) [sic 2 ], an An amendment to the declaration, bylaws or plats and plans authorized by this section to be made under this chapter must be adopted in conformity with the applicable provisions of chapter 117 or 278A of NRS and with the procedures and requirements specified by those instruments. If an amendment grants to any a person any rights, powers a right, power or privileges privilege permitted by this chapter, all any correlative obligations, liabilities and restrictions obligation, liability or restriction in this chapter also apply applies to that the person. (Added to NRS by 1991, 543; A 1999, 2999; 2003, 2224) Explanation: NRS (1) is a non-uniform provision. NRS (2) contains changes to the 1994 UCIOA. Comment No. 7 states as follows: "The 1994 changes are not intended to alter the substantive rules contained in the original section. However, in light of experience in several state legislatures, these changes should make clearer the intent of the original section. NRS (3) are 2008 UCIOA technical changes. 2 See No. 34 below. There is an obvious error in the model Act's reference to the same two subsections. 32

33 26. NRS: N/A. New section. [UCIOA 1-209] Add the following new section from 2008 UCIOA: SECTION 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. If the declarants of the common interest communities are affiliates, the arrangement may not unreasonably allocate the costs among the common interest communities. (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 chapter. Explanation: This new section, like the one that follows, helps clarify the often difficult analysis of whether a particular arrangement constitutes a common interest community. 33

34 27. NRS: N/A. New section. [UCIOA 1-210] Add the following new section from 2008 UCIOA: SECTION 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. Explanation: This section helps clarify what is and what is not a common-interest community. 34

35 28. NRS [UCIOA 2-103] NRS Construction and validity of declaration and bylaws. 1. The inclusion in a governing document of an association of a provision that violates any provision of this chapter does not render any other provisions of the governing document invalid or otherwise unenforceable if the other provisions can be given effect in accordance with their original intent and the provisions of this chapter. 2. The rule against perpetuities and NRS to , inclusive, do not apply to defeat any provision of the declaration, bylaws, or rules or regulations adopted pursuant to NRS In the event of If a conflict exists between the provisions of the declaration and the bylaws, the declaration prevails except to the extent the declaration is inconsistent with this chapter. 4. 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 chapter. Whether a substantial failure impairs marketability is not affected by this chapter. (Added to NRS by 1991, 544; A 2003, 2225) Explanation: These 2008 UCIOA changes reflect technical drafting changes. 35

36 29. NRS [UCIOA 2-105] NRS Contents of declaration. 1. The declaration must contain: (a) 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; (b) The name of every county in which any part of the common-interest community is situated; (c) A legally sufficient description of the real estate included in the common-interest community; (d) A statement of the maximum number of units that the declarant reserves the right to create; (e) 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; (f) A description of any limited common elements, other than those specified in subsections 2 and 4 of NRS , as provided in paragraph (g) of subsection 2 of NRS and, in a planned community, any real estate that is or must become common elements; (g) A description of any real estate, except real estate subject to developmental rights, that may be allocated subsequently as limited common elements, other than limited common elements specified in subsections 2 and 4 of NRS , together with a statement that they may be so allocated; (h) A description of any developmental rights right and other special declarant s rights reserved by the declarant, together with a legally sufficient description of the real estate to which each of those rights applies, and a time limit within which each of those rights must be exercised; (i) If any developmental right may be exercised with respect to different parcels of real estate at different times, a statement to that effect together with: (1) 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 developmental right or a statement that no assurances are made in those regards; and (2) A statement whether, if any developmental right is exercised in any portion of the real estate subject to that developmental right, that developmental right must be exercised in all or in any other portion of the remainder of that real estate; (j) Any other conditions or limitations under which the rights described in paragraph (h) may be exercised or will lapse; (k) An allocation to each unit of the allocated interests in the manner described in NRS ; (l) Any restrictions: (1) On use, occupancy and on alienation of the units, including any restrictions on leasing which exceed the restrictions on leasing units which executive boards may impose pursuant to NRS (4); and (2) On on the amount for which a unit may be sold or on the amount that may be received by a unit s owner on sale, condemnation or casualty to the unit or to the commoninterest community, or on termination of the common-interest community; (m) The file number and book or other information to show where for recorded easements and licenses are recorded appurtenant to or included in the common-interest community or to 36

37 which any portion of the common-interest community is or may become subject by virtue of a reservation in the declaration; and (n) Any authorization pursuant to which the association may establish and enforce construction and design criteria and aesthetic standards in the manner provided in NRS and ; and (o) All matters required by NRS to , inclusive, and and 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. (Added to NRS by 1991, 544; A 1993, 2357) Explanation: These changes reflect a number of changes from the 1994 and 2008 UCIOA. Comment... Changes to NRS (1)(l), (2): 1994 UCIOA Prefatory Note: 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 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 has been amended to add subsection (c). 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, 37