AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT

D R A F T FOR DISCUSSION ONLY AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS MEETING IN ITS ONE-HUNDRED-AND-FOURTEENTH YEAR PITTSBURGH, PENNSYLVANIA JULY 22-29, 2005 AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT WITH 2005 PREFATORY NOTE AND PARTIAL COMMENTS Copyright 2005 By NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS The ideas and conclusions set forth in this draft, including the proposed statutory language and any comments or reporter s notes, have not been passed upon by the National Conference of Commissioners on Uniform State Laws or the Drafting Committee. They do not necessarily reflect the views of the Conference and its Commissioners and the Drafting Committee and its Members and Reporters. Proposed statutory language may not be used to ascertain the intent or meaning of any promulgated final statutory proposal.

DRAFTING COMMITTEE ON AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT The Committee appointed by and representing the National Conference of Commissioners on Uniform State Laws in preparing these Amendments to Uniform Common Interest Ownership Act consists of the following individuals: CARL H. LISMAN, 84 Pine St., P.O. Box 728, Burlington, VT 05402, Chair OWEN L. ANDERSON, University of Oklahoma College of Law, 300 Timberdell Rd., Norman, OK 73019 MARION W. BENFIELD, JR., 10 Overlook Circle, New Braunfels, TX 78132 LEVI J. BENTON, State of Texas, 301 Fannin, Room 206, Houston, TX 77002 DAVID D. BIKLEN, 153 N. Beacon St., Hartford, CT 06105, Enactment Plan Coordinator ELLEN F. DYKE, 8010 Towers Crescent Dr., Suite 300, Vienna, VA 22182 JOHN S. GILLIG, Office of the Speaker, State Capitol, Room 307, Frankfort, KY 40601 DALE G. HIGER, 101 S. Capitol Blvd., Suite 1900, Boise, ID 83702-5958 HIROSHI SAKAI, 3773 Diamond Head Circle, Honolulu, HI 96815 NATHANIEL STERLING, 4000 Middlefield Rd., Suite D-1, Palo Alto, CA 94303 YVONNE L. THARPES, P.O. Box 1690, St. Thomas, VI 00804 LEE YEAKEL, P.O. Box 164196, Austin, TX 78716-4196 WILLIAM R. BREETZ, JR., 35 Elizabeth St., Room K-202, Hartford, CT 06105, National Conference Reporter EX OFFICIO FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Rd., Room 3056, Norman, OK 73019, President LANI LIU EWART, Suite 1800, Alii Pl., 1099 Alakea St., Honolulu, HI 96813, Division Chair AMERICAN BAR ASSOCIATION ADVISOR GARY A. POLIAKOFF, 3111 Stirling Rd., Fort Lauderdale, FL 33312-6525, American Bar Association Advisor th REBECCA ANDERSON FISCHER, 633 17 St., Suite 3000, Denver, CO 80202, American Bar Association Section Advisor EXECUTIVE DIRECTOR WILLIAM H. HENNING, University of Alabama School of Law, Box 870382, Tuscaloosa, AL 35487-0382, Executive Director Copies of this Act may be obtained from: NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS 211 E. Ontario Street, Suite 1300 Chicago, Illinois 60611 312/915-0195 www.nccusl.org

AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT TABLE OF CONTENTS 2005 Prefatory Note...1 [ARTICLE] 1 GENERAL PROVISIONS [PART] 1 DEFINITIONS AND OTHER GENERAL PROVISIONS SECTION 1-101. SHORT TITLE...4 SECTION 1-102. APPLICABILITY...4 SECTION 1-103. DEFINITIONS...4 SECTION 1-104. VARIATION BY AGREEMENT................................. 11 SECTION 1-105. SEPARATE TITLES AND TAXATION........................... 11 SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, REGULATIONS, AND BUILDING CODES...12 SECTION 1-107. EMINENT DOMAIN...13 SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW APPLICABLE... 14 SECTION 1-109. CONSTRUCTION AGAINST IMPLICIT REPEAL.................. 14 SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION.......... 14 SECTION 1-111. SEVERABILITY...14 SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF CONTRACT..... 14 SECTION 1-113. OBLIGATION OF GOOD FAITH................................ 15 SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED................. 15 SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS......................... 16 [PART] 2 APPLICABILITY SECTION 1-201. APPLICABILITY TO NEW COMMON INTEREST COMMUNITIES... 17 SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES...................... 17 SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE LIABILITY PLANNED COMMUNITIES...18 SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST COMMUNITIES...18 SECTION 1-205. SAME; EXCEPTION FOR SMALL PRE-EXISTING COOPERATIVES AND PLANNED COMMUNITIES...19 SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS................ 19 SECTION 1-207. APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE COMMON INTEREST COMMUNITIES...20 SECTION 1-208. APPLICABILITY TO OUT-OF-STATE COMMON INTEREST COMMUNITIES...21

[ARTICLE] 2 CREATION, ALTERATION, AND TERMINATION OF COMMON INTEREST COMMUNITIES SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES............. 22 SECTION 2-102. UNIT BOUNDARIES...22 SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND BYLAWS...23 SECTION 2-104. DESCRIPTION OF UNITS...24 SECTION 2-105. CONTENTS OF DECLARATION................................ 24 SECTION 2-106. LEASEHOLD COMMON INTEREST COMMUNITIES.............. 26 SECTION 2-107. ALLOCATION OF ALLOCATED INTERESTS..................... 28 SECTION 2-108. LIMITED COMMON ELEMENTS............................... 29 SECTION 2-109. PLATS AND PLANS...30 SECTION 2-110. EXERCISE OF DEVELOPMENT RIGHTS........................ 33 SECTION 2-111. ALTERATIONS OF UNITS...34 SECTION 2-112. RELOCATION OF UNIT BOUNDARIES.......................... 35 SECTION 2-113. SUBDIVISION OF UNITS...36 [SECTION 2-114. EASEMENT FOR ENCROACHMENTS.......................... 36 [SECTION 2-114. MONUMENTS AS BOUNDARIES.............................. 37 SECTION 2-115. USE FOR SALES PURPOSES...37 SECTION 2-116. EASEMENT RIGHTS...38 SECTION 2-117. AMENDMENT OF DECLARATION............................. 38 SECTION 2-118. TERMINATION OF COMMON INTEREST COMMUNITY........... 40 SECTION 2-119. RIGHTS OF SECURED LENDERS............................... 45 SECTION 2-120. MASTER ASSOCIATIONS...46 SECTION 2-121. MERGER OR CONSOLIDATION OF COMMON INTEREST COMMUNITIES...47 SECTION 2-122. ADDITION OF UNSPECIFIED REAL ESTATE.................... 49 SECTION 2-123. MASTER PLANNED COMMUNITIES............................ 49 SECTION 2-124. ARRANGEMENTS BETWEEN COMMON INTEREST COMMUNITIES...50 [ARTICLE] 3 MANAGEMENT OF THE COMMON INTEREST COMMUNITY SECTION 3-101. ORGANIZATION OF UNIT OWNERS ASSOCIATION............. 52 SECTION 3-102. POWERS OF UNIT OWNERS ASSOCIATION.................... 52 SECTION 3-103. EXECUTIVE BOARD MEMBERS AND OFFICERS................ 58 SECTION 3-104. TRANSFER OF SPECIAL DECLARANT RIGHTS.................. 61 SECTION 3-105. TERMINATION OF CONTRACTS AND LEASES OF DECLARANT... 64 SECTION 3-106. BYLAWS...65 SECTION 3-107. UPKEEP OF COMMON INTEREST COMMUNITY................. 66 SECTION 3-108. MEETINGS...67 SECTION 3-109. QUORUMS...68 SECTION 3-110. VOTING; PROXIES...68

SECTION 3-111. TORT AND CONTRACT LIABILITY; TOLLING OF LIMITATION PERIOD...69 SECTION 3-112. CONVEYANCE OR ENCUMBRANCE OF COMMON ELEMENTS... 70 SECTION 3-113. INSURANCE...73 SECTION 3-114. SURPLUS FUNDS...77 SECTION 3-115. ASSESSMENTS FOR COMMON EXPENSES...................... 77 SECTION 3-116. LIEN FOR ASSESSMENTS...78 SECTION 3-117. OTHER LIENS...84 SECTION 3-118. ASSOCIATION RECORDS...86 SECTION 3-119. ASSOCIATION AS TRUSTEE...86 SECTION 3-120. RULES AND CHARGES...87 [ARTICLE] 4 PROTECTION OF PURCHASERS SECTION 4-101. APPLICABILITY; WAIVER...88 SECTION 4-102. LIABILITY FOR PUBLIC OFFERING STATEMENT REQUIREMENTS...88 SECTION 4-103. PUBLIC OFFERING STATEMENT; GENERAL PROVISIONS........ 89 SECTION 4-104. SAME; COMMON INTEREST COMMUNITIES SUBJECT TO DEVELOPMENT RIGHTS...93 SECTION 4-105. SAME; TIME SHARES...96 SECTION 4-106. SAME; COMMON INTEREST COMMUNITIES CONTAINING CONVERSION BUILDINGS...96 SECTION 4-107. SAME; COMMON INTEREST COMMUNITY SECURITIES......... 97 SECTION 4-108. PURCHASER S RIGHT TO CANCEL............................ 97 SECTION 4-109. RESALES OF UNITS...98 SECTION 4-110. ESCROW OF DEPOSITS...100 SECTION 4-111. RELEASE OF LIENS...101 SECTION 4-112. CONVERSION BUILDINGS...101 SECTION 4-113. EXPRESS WARRANTIES OF QUALITY........................ 103 SECTION 4-114. IMPLIED WARRANTIES OF QUALITY......................... 104 SECTION 4-115. EXCLUSION OR MODIFICATION OF IMPLIED WARRANTIES OF QUALITY...105 SECTION 4-116. STATUTE OF LIMITATIONS FOR WARRANTIES................ 106 SECTION 4-117. EFFECT OF VIOLATIONS ON RIGHTS OF ACTION; ATTORNEY S FEES...107 SECTION 4-118. LABELING OF PROMOTIONAL MATERIAL.................... 108 SECTION 4-119. DECLARANT S OBLIGATION TO COMPLETE AND RESTORE.... 108 SECTION 4-120. SUBSTANTIAL COMPLETION OF UNITS....................... 109 [OPTIONAL] [ARTICLE] 5 ADMINISTRATION AND REGISTRATION OF COMMON INTEREST COMMUNITIES

AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT 2005 Prefatory Note 1. Introduction. The Uniform Common Interest Ownership Act ( UCIOA ) is the Conference s long term effort to offer comprehensive legislation to the States governing the creation and administration of all forms of shared ownership of real estate, including the three most commonly found forms: Condominiums, planned communities and real estate cooperatives. All these forms of shared ownership of individual units whether condominium apartments in a high rise building, lots in a single family subdivision to which common property is appurtenant, expensive real estate cooperatives in Manhattan or federally subsidized cooperatives throughout urban America share certain important characteristics: namely, the owners pay periodic fees usually monthly to an association in which those owners are members, and that association in turn uses the income derived from its members to pay for the upkeep of common property that is owned or used by all those owners. UCIOA uses a generic term common interest community to refer to all three forms. As drafted, UCIOA today addresses the three areas where, historically, legal disputes and uncertainty arose in the common interest community field: (1) the wide range of legal tools necessary to create and develop common interest communities of all sizes and types; (2) basic governance issues of the unit owners association, whether that association is organized as a non-stock corporation under state law or any other form of entity; and (3) consumer protection issues in the dealings between retail buyers of units and the developers of those projects. That drafting effort has been broadly successful; today, in 2005, UCIOA is the law in at least seven States, while the Uniform Condominium Act or substantially similar laws exist in 14 other 1 States and the Uniform Planned Community Act is the law in two States. 2. Focus of the 2005 Drafting Committee. The Committee is focused primarily on two 1 UCIOA: Alaska, Colorado, Connecticut, Minnesota, Nevada, West Virginia, Vermont UCA: Alabama, Arizona, Louisiana, Maine, Missouri, Nebraska, New Hampshire, New Mexica, North Carolina, Pennsylvania, Rhode Island, Texas, Virginia, Washington UPCA: Pennsylvania, North Carolina 1

groups of issues. First, we seek to address a variety of questions that have arisen in more than 25 years since States began to adopt UCIOA, UCA, UPCA and similar statutes. Some of these issues are really minor tweaks to the Acts as drafted, while others pose more significant policy issues. Second and more controversial are a whole category of issues involving disputes between individual unit owners and the associations that manage the community. These disputes have arisen to varying degrees around the country, but most commonly in States such as California, Texas, Florida, Arizona and Nevada. These are States that have experienced explosive growth in their populations and a parallel explosion in the creation of projects particularly in planned community -type subdivisions that would meet UCIOA s and UPCA s definition of a planned community. The legal framework in these states applicable to common interest communities is widely fragmented, and the outcomes of various disputes often depends on whether the project is a condominium governed by a State s condominium law, or a common law planned community which has no statutory governance structure in place. It is the Drafting Committee s present intention to draw together a number of existing UCIOA provisions (or modifications) and several new provisions into a free-standing assemblage of internally consistent sections which might be adopted apart from UCIOA as a so-called Bill of Rights. If adopted, it would apply to unit owners and associations in all forms of common interest communities, whether or not the adopting State had also adopted UCIOA or any of its constituent Acts. The materials that follow identify a range of these issues, and the Drafting Committee seeks guidance from the Commissioners that we can take to our subsequent meetings with advisors and observers. 3. History of the Act. UCIOA is the result of a long drafting history in the Uniform Laws Conference. The now withdrawn Uniform Land Transactions Act ( ULTA ) originally contained an article dealing with Condominiums as part of its effort to comprehensively address all forms of real estate ownership. After ULTA was promulgated in 1975, the Conference authorized a Drafting Committee to draft the Uniform Condominium Act, which was first promulgated in 1978. A revised draft of UCA was adopted in 1980, at the time the Conference also promulgated the Uniform Planned Community Act. UCIOA was adopted at the 1982 Annual Meeting of the Conference. 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)). UCIOA was amended again in 1994 to incorporate the lessons learned in many States as a result of the dramatic growth of common interest communities in the 12 years since UCIOA was 2

first adopted in 1978. A list of the principal changes made by the 1994 amendments to UCIOA appears in the Prefatory Note to the 1994 version of UCIOA. 4. Drafting Committee Schedule. The Draft Committee has held two meetings since the 2004 Annual Meeting, and presents this draft for first reading. However, the potential scale of the project is large and there are a large number of stakeholders in this field who have to date been unable to have observers from their constituencies become involved in the drafting process. As a consequence, the Drafting Committee has recommended to the Executive Board that this Act not go to final reading until the Annual Meeting of 2007 and the Executive Committee has agreed. 3

1 AMENDMENTS TO UNIFORM COMMON INTEREST OWNERSHIP ACT (1994) 2 3 [ARTICLE] 1 4 GENERAL PROVISIONS 5 6 [PART] 1 7 DEFINITIONS AND OTHER GENERAL PROVISIONS 8 9 SECTION 1-101. SHORT TITLE. This [Act] may be cited as the Uniform Common 10 Interest Ownership Act. 11 SECTION 1-102. APPLICABILITY. Applicability of this [Act] is governed by [Part] 12 2 of this [article]. 13 SECTION 1-103. DEFINITIONS. In the declaration and bylaws (Section 3-106), 14 unless specifically provided otherwise or the context otherwise requires, and in this [Act]: 15 (1) Affiliate of a declarant means any person who controls, is controlled by, or 16 is under common control with a declarant. A person controls a declarant if the person (i) is a 17 general partner, officer, director, or employer of the declarant, (ii) directly or indirectly or acting 18 in concert with one or more other persons, or through one or more subsidiaries, owns, controls, 19 holds with power to vote, or holds proxies representing, more than 20 percent of the voting 20 interest in the declarant, (iii) controls in any manner the election of a majority of the directors of 21 the declarant, or (iv) has contributed more than 20 percent of the capital of the declarant. A 22 person is controlled by a declarant if the declarant (i) is a general partner, officer, director, or 4

1 employer of the person, (ii) directly or indirectly or acting in concert with one or more other 2 persons, or through one or more subsidiaries, owns, controls, holds with power to vote, or holds 3 proxies representing, more than 20 percent of the voting interest in the person, (iii) controls in 4 any manner the election of a majority of the directors of the person, or (iv) has contributed more 5 than 20 percent of the capital of the person. Control does not exist if the powers described in this 6 paragraph are held solely as security for an obligation and are not exercised. 7 (2) Allocated interests means the following interests allocated to each unit: (i) 8 In a condominium, the undivided interest in the common elements, the common expense 9 liability, and votes in the association; (ii) in a cooperative, the common expense liability and the 10 ownership interest and votes in the association; and (iii) in a planned community, the common 11 expense liability and votes in the association. 12 (3) Association or unit owners association means the unit owners 13 association organized under Section 3-101. 14 (4) Common elements means (i) in the case of (A) a condominium or 15 cooperative, all portions of the common interest community other than the units; and (B) a 16 planned community, any real estate within a planned community which is owned or leased by 17 the association, other than a unit; and (ii) in all common interest communities, any other interests 18 in real estate for the benefit of unit owners which are subject to the declaration. 19 (5) Common expenses means expenditures made by, or financial liabilities of, 20 the association, together with any allocations to reserves. 21 (6) Common expense liability means the liability for common expenses 22 allocated to each unit pursuant to Section 2-107. 5

1 (7) Common interest community means includes a condominium, cooperative 2 or planned community. In all common interest communities, a person, by virtue of his ownership 3 of a unit, is obligated by the declaration to pay for real estate taxes or insurance premiums on, 4 services for, or maintenance or improvements of, common elements or other units. real estate 5 with respect to which a person, by virtue of his ownership of a unit, is obligated to pay for real 6 estate taxes, insurance premiums, maintenance, or improvement of other real estate described in 7 a declaration. Ownership of a unit does not include holding a leasehold interest of less than 8 [20] years in a unit, including renewal options. 9 (8) A Condominium means a common interest community in which portions of 10 the real estate with respect to which any person, by virtue of his ownership of a unit, is obligated 11 by the declaration to pay for real estate taxes or insurance premiums on, services for, or 12 maintenance or improvements of, common elements or other units. In a condominium, portions 13 of the real estate are designated for separate ownership and the remainder of the real estate is 14 designated for common ownership solely by the owners of those portions. A common interest 15 community is not a condominium unless the undivided interests in the common elements are 16 vested in the unit owners. 17 (9) Conversion building means a building that at any time before creation of the 18 common interest community was occupied wholly or partially by persons other than purchasers 19 and persons who occupy with the consent of purchasers. 20 (10) Cooperative means a common interest community in which the real estate 21 with respect to which any person, by virtue of his ownership of a unit, is obligated by the 22 declaration to pay for real estate taxes or insurance premiums on, services for, or maintenance or 6

1 improvements of, common elements or other units. In a cooperative, all the real estate described 2 in the declaration is owned by an association, each of whose members is entitled by virtue of his 3 ownership interest in the association to exclusive possession of a unit. 4 (11) Dealer means a person in the business of selling units for his own account. 5 (12) Declarant means any person or group of persons acting in concert who (i) 6 as part of a common promotional plan, offers to dispose of his or its interest in a unit not 7 previously disposed of or (ii) reserves or succeeds to any special declarant right [, or (iii) applies 8 for registration of a common interest community under [Article] 5]. 9 (13) Declaration means any instruments, however denominated, that create a 10 common interest community, including any amendments to those instruments. 11 (14) Development rights means any right or combination of rights reserved by a 12 declarant in the declaration to (i) add real estate to a common interest community; (ii) create 13 units, common elements, or limited common elements within a common interest community; (iii) 14 subdivide units or convert units into common elements; or (iv) withdraw real estate from a 15 common interest community. 16 (15) Dispose or disposition means a voluntary transfer to a purchaser of any 17 legal or equitable interest in a unit, but the term does not include the transfer or release of a 18 security interest. 19 (16) Executive board means the body, regardless of name, designated in the 20 declaration to act on behalf of the association. 21 (17) Identifying number means a symbol or address that identifies only one unit 22 in a common interest community. 7

1 (18) Leasehold common interest community means a common interest 2 community in which all or a portion of the real estate is subject to a lease the expiration or 3 termination of which will terminate the common interest community or reduce its size. 4 (19) Limited common element means a portion of the common elements 5 allocated by the declaration or by operation of Section 2-102(2) or (4) for the exclusive use of 6 one or more but fewer than all of the units. 7 (20) Master association means an organization described in Section 2-120, 8 whether or not it is also an association described in Section 3-101. 9 (21) Offering means any advertisement, inducement, solicitation, or attempt to 10 encourage any person to acquire any interest in a unit, other than as security for an obligation. 11 An advertisement in a newspaper or other periodical of general circulation, or in any broadcast 12 medium to the general public, of a common interest community not located in this State, is not 13 an offering if the advertisement states that an offering may be made only in compliance with the 14 law of the jurisdiction in which the common interest community is located. 15 (22) Person means an individual, corporation, business trust, estate, trust, 16 partnership, association, joint venture, government, governmental subdivision or agency, or 17 other legal or commercial entity. [In the case of a land trust, however, person means the 18 beneficiary of the trust rather than the trust or the trustee.] 19 (23) Planned community means a common interest community real estate with 20 respect to which any person, by virtue of his ownership of a unit, is obligated by the declaration 21 to pay for real estate taxes or insurance premiums on, services for, or maintenance or 22 improvements of, common elements or other units. A common interest community is not a 8

1 planned community unless the common elements are owned by the association. that is not a 2 condominium or a cooperative. In a planned community, portions of the real estate described in 3 the declaration are designated for separate ownership and the remainder of the real estate is 4 designated for ownership by the association. A condominium or cooperative may be part of a 5 planned community. 6 (24) Proprietary lease means an agreement with the association pursuant to 7 which a member is entitled to exclusive possession of a unit in a cooperative. 8 (25) Purchaser means a person, other than a declarant or a dealer, who by 9 means of a voluntary transfer acquires a legal or equitable interest in a unit other than (i) a 10 leasehold interest (including renewal options) of less than 20 years, or (ii) as security for an 11 obligation. 12 (26) Real estate means any leasehold or other estate or interest in, over, or 13 under land, including structures, fixtures, and other improvements and interests that by custom, 14 usage, or law pass with a conveyance of land though not described in the contract of sale or 15 instrument of conveyance. Real estate includes parcels with or without upper or lower 16 boundaries, and spaces that may be filled with air or water. 17 (27) Residential purposes means use for dwelling or recreational purposes, or 18 both. 19 (28) Security interest means an interest in real estate or personal property, 20 created by contract or conveyance, which secures payment or performance of an obligation. The 21 term includes a lien created by a mortgage, deed of trust, trust deed, security deed, contract for 22 deed, land sales contract, lease intended as security, assignment of lease or rents intended as 9

1 security, pledge of an ownership interest in an association, and any other consensual lien or title 2 retention contract intended as security for an obligation. 3 (29) Special declarant rights means rights reserved for the benefit of a declarant 4 to (i) complete improvements indicated on plats and plans filed with the declaration (Section 2-5 109) or, in a cooperative, to complete improvements described in the public offering statement 6 pursuant to Section 4-103(a)(2); (ii) exercise any development right (Section 2-110); (iii) 7 maintain sales offices, management offices, signs advertising the common interest community, 8 and models (Section 2-115); (iv) use easements through the common elements for the purpose of 9 making improvements within the common interest community or within real estate which may 10 be added to the common interest community (Section 2-116); (v) make the common interest 11 community subject to a master association (Section 2-120); (vi) merge or consolidate a common 12 interest community with another common interest community of the same form of ownership 13 (Section 2-121); (vii) control any architectural or design review committee or process; or (viii) 14 appoint or remove any officer of the association or any master association or any executive 15 board member during any period of declarant control (Section 3-103(d)). 16 (30) Time share means a right to occupy a unit or any of several units during 17 [five] or more separated time periods over a period of at least [five] years, including renewal 18 options, whether or not coupled with an estate or interest in a common interest community or a 19 specified portion thereof. 20 (31) Unit means a physical portion of the common interest community 21 designated for separate ownership or occupancy, the boundaries of which are described pursuant 22 to Section 2-105(a)(5). If a unit in a cooperative is owned by a unit owner or is sold, conveyed, 10

1 voluntarily or involuntarily encumbered, or otherwise transferred by a unit owner, the interest in 2 that unit which is owned, sold, conveyed, encumbered, or otherwise transferred is the right to 3 possession of that unit under a proprietary lease, coupled with the allocated interests of that unit, 4 and the association s interest in that unit is not thereby affected. 5 (32) Unit owner means a declarant or other person who owns a unit, or a lessee 6 of a unit in a leasehold common interest community whose lease expires simultaneously with 7 any lease the expiration or termination of which will remove the unit from the common interest 8 community, but does not include a person having an interest in a unit solely as security for an 9 obligation. In a condominium or planned community, the declarant is the owner of any unit 10 community or cooperative, in contrast to a condominium, there is no common element interest 11 allocated to unit owners in a planned community or cooperative. 12 SECTION 1-104. VARIATION BY AGREEMENT. Except as expressly provided in 13 this [Act], its provisions may not be varied by agreement, and rights conferred by it may not be 14 waived. Except as provided in Section 1-207, a declarant may not act under a power of attorney, 15 or use any other device, to evade the limitations or prohibitions of this [Act] or the declaration. 16 SECTION 1-105. SEPARATE TITLES AND TAXATION. 17 (a) In a cooperative, unless the declaration provides that a unit owner s interest in 18 a unit and its allocated interests is real estate for all purposes, that interest is personal property. 19 [That interest is subject to the provisions of [insert reference to state homestead exemptions], 20 even if it is personal property.] 21 (b) In a condominium or planned community: 22 (1) If there is any unit owner other than a declarant, each unit that has 11

1 been created, together with its interest in the common elements, constitutes for all purposes a 2 separate parcel of real estate. 3 (2) If there is any unit owner other than a declarant, each unit must be 4 separately taxed and assessed, and no separate tax or assessment may be rendered against any 5 common elements for which a declarant has reserved no development rights. 6 (c) Any portion of the common elements for which the declarant has reserved any 7 development right must be separately taxed and assessed against the declarant, and the declarant 8 alone is liable for payment of those taxes. 9 (d) If there is no unit owner other than a declarant, the real estate comprising the 10 common interest community may be taxed and assessed in any manner provided by law. 11 SECTION 1-106. APPLICABILITY OF LOCAL ORDINANCES, 12 REGULATIONS, AND BUILDING CODES. 13 (a) A building code may not impose any requirement upon any structure in a 14 common interest community which it would not impose upon a physically identical development 15 under a different form of ownership. 16 (b) In condominiums and cooperatives, no zoning, subdivision, or other real estate 17 use law, ordinance, or regulation may prohibit the condominium or cooperative form of 18 ownership or impose any requirement upon a condominium or cooperative which it would not 19 impose upon a physically identical development under a different form of ownership. 20 (c) Except as provided in subsections (a) and (b), the provisions of this [Act] do 21 not invalidate or modify any provision of any building code, zoning, subdivision, or other real 22 estate use law, ordinance, rule, or regulation governing the use of real estate. 12

1 SECTION 1-107. EMINENT DOMAIN. 2 (a) If a unit is acquired by eminent domain or part of a unit is acquired by eminent 3 domain leaving the unit owner with a remnant that may not practically or lawfully be used for 4 any purpose permitted by the declaration, the award must include compensation to the unit 5 owner for that unit and its allocated interests, whether or not any common elements are acquired. 6 Upon acquisition, unless the decree otherwise provides, that unit s allocated interests are 7 automatically reallocated to the remaining units in proportion to the respective allocated interests 8 of those units before the taking, and the association shall promptly prepare, execute, and record 9 an amendment to the declaration reflecting the reallocations. Any remnant of a unit remaining 10 after part of a unit is taken under this subsection is thereafter a common element. 11 (b) Except as provided in subsection (a), if part of a unit is acquired by eminent 12 domain, the award must compensate the unit owner for the reduction in value of the unit and its 13 interest in the common elements, whether or not any common elements are acquired. Upon 14 acquisition, unless the decree otherwise provides, (i) that unit s allocated interests are reduced in 15 proportion to the reduction in the size of the unit, or on any other basis specified in the 16 declaration and (ii) the portion of the allocated interests divested from the partially acquired unit 17 are automatically reallocated to that unit and to the remaining units in proportion to the 18 respective allocated interests of those units before the taking, with the partially-acquired unit 19 participating in the reallocation on the basis of its reduced allocated interests. 20 (c) If part of the common elements is acquired by eminent domain, the portion of 21 the award attributable to the common elements taken must be paid to the association. Unless the 22 declaration provides otherwise, any portion of the award attributable to the acquisition of a 13

1 limited common element must be equally divided among the owners of the units to which that 2 limited common element was allocated at the time of acquisition. 3 SECTION 1-108. SUPPLEMENTAL GENERAL PRINCIPLES OF LAW 4 APPLICABLE. The principles of law and equity, including the law of corporations [and 5 unincorporated associations], the law of real property, and the law relative to capacity to 6 contract, principal and agent, eminent domain, estoppel, fraud, misrepresentation, duress, 7 coercion, mistake, receivership, substantial performance, or other validating or invalidating 8 cause supplement the provisions of this [Act], except to the extent inconsistent with this [Act]. 9 SECTION 1-109. CONSTRUCTION AGAINST IMPLICIT REPEAL. This [Act] 10 being a general act intended as a unified coverage of its subject matter, no part of it shall be 11 construed to be impliedly repealed by subsequent legislation if that construction can reasonably 12 be avoided. 13 SECTION 1-110. UNIFORMITY OF APPLICATION AND CONSTRUCTION. 14 This [Act] shall be applied and construed so as to effectuate its general purpose to make uniform 15 the law with respect to the subject of this [Act] among States enacting it. 16 SECTION 1-111. SEVERABILITY. If any provision of this [Act] or the application 17 thereof to any person or circumstances is held invalid, the invalidity does not affect other 18 provisions or applications of this [Act] which can be given effect without the invalid provisions 19 or applications, and to this end the provisions of this [Act] are severable. 20 SECTION 1-112. UNCONSCIONABLE AGREEMENT OR TERM OF 21 CONTRACT. 22 (a) The court, upon finding as a matter of law that a contract or contract clause 14

1 was unconscionable at the time the contract was made, may refuse to enforce the contract, 2 enforce the remainder of the contract without the unconscionable clause, or limit the application 3 of any unconscionable clause in order to avoid an unconscionable result. 4 (b) Whenever it is claimed, or appears to the court, that a contract or any contract 5 clause is or may be unconscionable, the parties, in order to aid the court in making the 6 determination, must be afforded a reasonable opportunity to present evidence as to: 7 (1) the commercial setting of the negotiations; 8 (2) whether a party has knowingly taken advantage of the inability of the 9 other party reasonably to protect his interests by reason of physical or mental infirmity, 10 illiteracy, inability to understand the language of the agreement, or similar factors; 11 (3) the effect and purpose of the contract or clause; and 12 (4) if a sale, any gross disparity, at the time of contracting, between the 13 amount charged for the property and the value of that property measured by the price at which 14 similar property was readily obtainable in similar transactions. A disparity between the contract 15 price and the value of the property measured by the price at which similar property was readily 16 obtainable in similar transactions does not, of itself, render the contract unconscionable. 17 SECTION 1-113. OBLIGATION OF GOOD FAITH. Every contract or duty 18 governed by this [Act] imposes an obligation of good faith in its performance or enforcement. 19 SECTION 1-114. REMEDIES TO BE LIBERALLY ADMINISTERED. 20 (a) The remedies provided by this [Act] shall be liberally administered to the end 21 that the aggrieved party is put in as good a position as if the other party had fully performed. 22 However, consequential, special, or punitive damages may not be awarded except as specifically 15

1 provided in this [Act] or by other rule of law. 2 (b) Any right or obligation declared by this [Act] is enforceable by judicial 3 proceeding. 4 SECTION 1-115. ADJUSTMENT OF DOLLAR AMOUNTS. 5 (a) From time to time the dollar amount specified in Section 1-203 must change, 6 as provided in subsections (b) and (c), according to and to the extent of changes in the Consumer 7 Price Index for Urban Wage Earners and Clerical Workers: U.S. City Average, All Items 1967 = 8 100, compiled by the Bureau of Labor Statistics, United States Department of Labor, (the 9 Index ). The Index for December, 1979, which was 230, is the Reference Base Index. 10 (b) The dollar amount specified in Section 1-203 and any amount stated in the 11 declaration pursuant to that section, must change on July 1 of each year if the percentage of 12 change, calculated to the nearest whole percentage point, between the Index at the end of the 13 preceding year and the Reference Base Index is 10 percent or more, but 14 (i) the portion of the percentage change in the Index in excess of a 15 multiple of 10 percent must be disregarded and the dollar amount shall change only in multiples 16 of 10 percent of the amount appearing in this [Act] on the date of enactment; 17 (ii) the dollar amount must not change if the amount required by this 18 section is that currently in effect pursuant to this [Act] as a result of earlier application of this 19 section; and 20 (iii) in no event may the dollar amount be reduced below the amount 21 appearing in this [Act] on the date of enactment. 22 (c) If the Index is revised after December, 1979, the percentage of change 16

1 pursuant to this section must be calculated on the basis of the revised Index. If the revision of the 2 Index changes the Reference Base Index, a revised Reference Base Index must be determined by 3 multiplying the Reference Base Index then applicable by the rebasing factor furnished by the 4 Bureau of Labor Statistics. If the Index is superseded, the Index referred to in this section is the 5 one represented by the Bureau of Labor Statistics as reflecting most accurately changes in the 6 purchasing power of the dollar for consumers. 7 8 [PART] 2 9 APPLICABILITY 10 11 SECTION 1-201. APPLICABILITY TO NEW COMMON INTEREST 12 COMMUNITIES. Except as provided in Sections 1-202 and 1-203, this [Act] applies to all 13 common interest communities created within this State after the effective date of this [Act]. The 14 provisions of [insert reference to all present statutes expressly applicable to planned 15 communities, condominiums, cooperatives, or horizontal property regimes] do not apply to 16 common interest communities created after the effective date of this [Act]. Amendments to this 17 [Act] apply to all common interest communities created after the effective date of this [Act] or 18 subjected to this [Act], regardless of when the amendment is adopted in this State. 19 SECTION 1-202. EXCEPTION FOR SMALL COOPERATIVES. If a cooperative 20 contains no more than 12 units and is not subject to any development rights, it is subject only to 21 Sections 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes) and 1-107 22 (Eminent Domain) of this [Act] unless the declaration provides that the entire [Act] is applicable. 17

1 SECTION 1-203. EXCEPTION FOR SMALL AND LIMITED EXPENSE 2 LIABILITY PLANNED COMMUNITIES. 3 (a) If a planned community that is not subject to any development right: 4 (1) contains no more than 12 units; or 5 (2) provides, in its declaration, that the annual average common expense 6 liability of all units restricted to residential purposes, exclusive of optional user fees and any 7 insurance premiums paid by the association, may not exceed $300 as adjusted pursuant to 8 Section 1-115 (Adjustment of Dollar Amounts), it is subject only to Sections 1-105 (Separate 9 Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and Building 10 Codes), and 1-107 (Eminent Domain) unless the declaration provides that this entire [Act] is 11 applicable. 12 (b) The exemption provided in subsection (a)(2) applies only if: 13 (1) the declarant reasonably believes in good faith that the maximum 14 stated assessment will be sufficient to pay the expenses of the planned community; and 15 (2) the declaration provides that the assessment may not be increased 16 during the period of declarant control without the consent of all unit owners. 17 SECTION 1-204. APPLICABILITY TO PRE-EXISTING COMMON INTEREST 18 COMMUNITIES. Except as provided in Section 1-205 (Same; Exception for Small Pre- 19 Existing Cooperatives and Planned Communities), Sections 1-105 (Separate Titles and 20 Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and Building Codes), 1-107 21 (Eminent Domain), 2-103 (Construction and Validity of Declaration and Bylaws), 2-104 22 (Description of Units), 2-121 (Merger or Consolidation of Common Interest Communities), 3-18

1 102(a)(1) through (6) and (11) through (16) (Powers of Unit Owners Association), 3-111 (Tort 2 and Contract Liability), 3-116 (Lien for Assessments), 3-118 (Association Records), 4-109 3 (Resales of Units), and 4-117 (Effect of Violation on Rights of Action; Attorney s Fees), and 4 Section 1-103 (Definitions) to the extent necessary in construing any of those sections, apply to 5 all common interest communities created in this State before the effective date of this [Act]; but 6 those sections apply only with respect to events and circumstances occurring after the effective 7 date of this [Act] and do not invalidate existing provisions of the [declaration, bylaws, or plats or 8 plans] of those common interest communities. 9 SECTION 1-205. SAME; EXCEPTION FOR SMALL PRE-EXISTING 10 COOPERATIVES AND PLANNED COMMUNITIES. If a cooperative or planned 11 community created within this State before the effective date of this [Act] contains no more than 12 12 units and is not subject to any development rights, it is subject only to Sections 1-105 13 (Separate Titles and Taxation), 1-106 (Applicability of Local Ordinances, Regulations, and 14 Building Codes), and 1-107 (Eminent Domain) unless the declaration is amended in conformity 15 with applicable law and with the procedures and requirements of the declaration to take 16 advantage of the provisions of Section 1-206, in which case all the sections enumerated in 17 Section 1-204 apply to that cooperative or planned community. 18 SECTION 1-206. AMENDMENTS TO GOVERNING INSTRUMENTS. 19 (a) The declaration, bylaws, or plats and plans of any common interest 20 community created before the effective date of this [Act] may be amended to achieve any result 21 permitted by this [Act], regardless of what applicable law provided before this [Act] was 22 adopted. 19

1 (b) An amendment to the declaration, bylaws, or plats and plans authorized by 2 this section must be adopted in conformity with any procedures and requirements for amending 3 the instruments specified by those instruments or, if there are none, in conformity with the 4 amendment procedures of this [Act]. If an amendment grants to any person any rights, powers, or 5 privileges permitted by this [Act], all correlative obligations, liabilities, and restrictions in this 6 [Act] also apply to that person. 7 SECTION 1-207. APPLICABILITY TO NONRESIDENTIAL AND MIXED-USE 8 COMMON INTEREST COMMUNITIES. 9 (a) Nonresidential common interest community means a common interest 10 community in which all units are restricted exclusively to nonresidential purposes. Except as 11 provided in subsection (e), this section applies only to nonresidential common interest 12 communities. 13 (b) A nonresidential common interest community is not subject to this [Act] 14 unless the declaration otherwise provides. 15 (c) The declaration of a nonresidential common interest community may provide 16 that the entire [Act] applies to the community or that only Sections 1-105 (Separate Titles and 17 Taxation), 1-106 (Applicability of Local Ordinances, Regulations and Building Codes), and 1-18 107 (Eminent Domain) apply. 19 (d) If the entire [Act] applies to a nonresidential common interest community, the 20 declaration may also require, subject to Section 1-112 (Unconscionable Agreement or Term of 21 Contract), that: 22 (1) notwithstanding Section 3-105 (Termination of Contracts and Leases 20

1 of Declarant), any management contract, employment contract, lease of recreational or parking 2 areas or facilities, and any other contract or lease between the association and a declarant or an 3 affiliate of a declarant continues in force after the declarant turns over control of the association; 4 and 5 (2) notwithstanding Section 1-104 (Variation by Agreement), purchasers 6 of units must execute proxies, powers of attorney, or similar devices in favor of the declarant 7 regarding particular matters enumerated in those instruments. 8 (e) A common interest community that contains units restricted exclusively to 9 nonresidential purposes and other units that may be used for residential purposes is not subject to 10 this [Act] unless the units that may be used for residential purposes would comprise a common 11 interest community in the absence of the nonresidential units or the declaration provides that this 12 [Act] applies as provided in subsection (c) or (d). 13 SECTION 1-208. APPLICABILITY TO OUT-OF-STATE COMMON INTEREST 14 COMMUNITIES. This [Act] does not apply to common interest communities or units located 15 outside this State, but the public offering statement provisions (Sections 4-102 through 4-108) 16 apply to all contracts for the disposition thereof signed in this State by any party unless exempt 17 under Section 4-101(b) [and the agency regulation provisions under [Article] 5 apply to any 18 offering thereof in this State]. 21

1 [ARTICLE] 2 2 CREATION, ALTERATION, AND 3 TERMINATION OF COMMON INTEREST COMMUNITIES 4 5 SECTION 2-101. CREATION OF COMMON INTEREST COMMUNITIES. 6 (a) A common interest community may be created pursuant to this [Act] only by 7 recording a declaration executed in the same manner as a deed and, in a cooperative, by 8 conveying the real estate subject to that declaration to the association. The declaration must be 9 recorded in every [county] in which any portion of the common interest community is located 10 and must be indexed [in the grantee s index] in the name of the common interest community and 11 the association and [in the grantor s index] in the name of each person executing the declaration. 12 (b) In a condominium, a declaration, or an amendment to a declaration, adding 13 units may not be recorded unless (i) all structural components and mechanical systems of all 14 buildings containing or comprising any units thereby created are substantially completed in 15 accordance with the plans, as evidenced by a recorded certificate of completion executed by an 16 independent [registered] engineer, surveyor, or architect [, or (ii) unless the agency has approved 17 the declaration or amendment in the manner prescribed in Section 5-103(b)]. 18 SECTION 2-102. UNIT BOUNDARIES. Except as provided by the declaration: 19 (1) If walls, floors, or ceilings are designated as boundaries of a unit, all lath, 20 furring, wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finished flooring, and 21 any other materials constituting any part of the finished surfaces thereof are a part of the unit, 22 and all other portions of the walls, floors, or ceilings are a part of the common elements. 22

1 (2) If any chute, flue, duct, wire, conduit, bearing wall, bearing column, or any 2 other fixture lies partially within and partially outside the designated boundaries of a unit, any 3 portion thereof serving only that unit is a limited common element allocated solely to that unit, 4 and any portion thereof serving more than one unit or any portion of the common elements is a 5 part of the common elements. 6 (3) Subject to paragraph (2), all spaces, interior partitions, and other fixtures and 7 improvements within the boundaries of a unit are a part of the unit. 8 (4) Any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, 9 patios, and all exterior doors and windows or other fixtures designed to serve a single unit, but 10 located outside the unit s boundaries, are limited common elements allocated exclusively to that 11 unit. 12 SECTION 2-103. CONSTRUCTION AND VALIDITY OF DECLARATION AND 13 BYLAWS. 14 (a) All provisions of the declaration and bylaws are severable. 15 (b) The rule against perpetuities does not apply to defeat any provision of the 16 declaration, bylaws, rules, or regulations adopted pursuant to Section 3-102(a)(1). 17 (c) In the event of a conflict between the provisions of the declaration and the 18 bylaws, the declaration prevails except to the extent the declaration is inconsistent with this 19 [Act]. 20 (d) Title to a unit and common elements is not rendered unmarketable or 21 otherwise affected by reason of an insubstantial failure of the declaration to comply with this 22 [Act]. Whether a substantial failure impairs marketability is not affected by this [Act]. 23

1 SECTION 2-104. DESCRIPTION OF UNITS. A description of a unit which sets 2 forth the name of the common interest community, the [recording data] for the declaration, the 3 [county] in which the common interest community is located, and the identifying number of the 4 unit, is a legally sufficient description of that unit and all rights, obligations, and interests 5 appurtenant to that unit which were created by the declaration or bylaws. 6 SECTION 2-105. CONTENTS OF DECLARATION. 7 (a) The declaration must contain: 8 (1) the names of the common interest community and the association and a 9 statement that the common interest community is either a condominium, cooperative, or planned 10 community; 11 (2) the name of every [county] in which any part of the common interest 12 community is situated; 13 (3) a legally sufficient description of the real estate included in the 14 common interest community; 15 (4) a statement of the maximum number of units that the declarant 16 reserves the right to create; 17 (5) in a condominium or planned community, a description of the 18 boundaries of each unit created by the declaration, including the unit s identifying number or, in 19 a cooperative, a description, which may be by plats or plans, of each unit created by the 20 declaration, including the unit s identifying number, its size or number of rooms, and its location 21 within a building if it is within a building containing more than one unit; 22 (6) a description of any limited common elements, other than those 24