By Curtis G. Kimble.
The 2013 Utah General Legislative Session has ended and the bills that passed have been finalized in their enrolled form to await signature by the Governor. Which bills passed and which ones didn’t?
Only three of the six bills I discussed in my last post ended up passing the House and the Senate. They all affect condo and non-condo HOAs in more or less the same way.
As I noted before, this law will give the decision back to the board of whether and how to fund a reserve (as most CC&Rs require, and where the decision makers will be subject to fiduciary duties). Specifically, the law:
- Specifies that a reserve analysis must include certain things, such as a list of the maintenance items that will require reserve funds, their remaining useful life, and their cost to repair or replace; an estimate of the contribution to a reserve fund necessary to meet the cost to repair or replace each component; and a reserve funding plan that recommends how the association may fund the annual contribution.
- Requires an association to provide a summary each year of the reserve analysis to each owner (not just to those at the annual meeting) and a complete copy of the reserve analysis, including any updates, to an owner upon request.
- Requires the board to include a reserve fund line item in the annual budget in the amount the board determines based on the reserve analysis and based on what “the board determines is prudent under the circumstances” (there is no requirement that the amount be higher than 1$ or even 0$ – not that I recommend that). This is important because it is almost inevitable that the association will not agree with the amounts recommended by a professional reserve study. Almost every association feels that their reserve professional has recommended that they set aside more than they really need. This law allows flexibility so the board can fund reserves in the amount they deem is prudent with all things considered. However, if the CC&Rs requires a certain level of reserve funding, the CC&Rs will control; this law does not authorize a board to fund reserves lower than what their governing documents might require.
- Allows the homeowners to veto the reserve fund contribution if they don’t like it (whether too low or too high) by a 51% vote of the owners at a special meeting called within 45 days of when the annual budget is adopted.
Additionally, the law provides for specific enforcement procedures if the association fails to comply with certain of its provisions. An owner can sue for a court order compelling the association to comply, for $500 or the owner’s actual damages, whichever is greater, other available remedies, and costs and attorney fees.
This revision to the statute requiring all HOAs to register as an HOA with the state of Utah merely restates what it said before in a little different way. There is no change in the law’s requirements or implications.
- With this new law, an association cannot charge a fee for review and approval of plans for construction or improvement of a unit or lot that exceeds the actual cost of reviewing and approving the plans.
- The law clarifies what happens when there’s a loss to a unit that initially doesn’t look like it will exceed the association’s deductible but then the loss ends up costing more than the amount of the deductible. The law says that if the board determines that a covered loss is likely not to exceed the deductible, and until it becomes apparent the loss exceeds the deductible and a claim is submitted to the association’s insurer, the unit owner’s policy is the primary policy for coverage. So, the unit owner’s policy is primary, but only until it becomes clear that the damage will cost more to repair than the deductible.
- For commercial condominium projects ( projects with no residential units), the insurance requirements of Utah Code 57-8-43 no longer apply for insurance policies issued or renewed after July 1, 2013. For mixed-use projects (projects with both commercial and residential units), a commercial unit, including any fixture, improvement or betterment therein and including appurtenant limited common area, does not have to be insured by the association, unless the CC&Rs require it.
- The Community Association Act is now applicable to any association with at least one residential lot (not just associations made up entirely of residential lots). So, it will generally apply to mixed-use (commercial/residential) projects (except the insurance provisions were amended to not be applicable to commercial lots, the same as with condominium projects).
The following changes will not take effect until July 1, 2014:
- The law will now authorize not only condos, but non-condo HOAs as well to access a unit or lot as necessary for maintenance, repair or replacement of common areas or for making an emergency repair, provided that 24 hours’ notice is given, or reasonable notice is given (or attempted) in an emergency. The association is liable to repair damage it causes to the common areas or to a lot or unit the association uses to access common areas, and it must repair that damage within a reasonable time, except in developer-controlled community associations (where many of the laws in the Community Association Act don’t apply, thanks to legislators favoring developers much more than homeowners (contact your legislator and let them know favoring developers over homeowners isn’t acceptable!)).
- The law authorizes a unit or lot owner to remove or alter a wall between two units or lots if the owner owns both units/lots, even if the wall is common area, unless restricted by the CC&Rs (most condo CC&Rs do, in fact, restrict this) and unless it would impair the structural integrity, mechanical systems or support of the building, the common areas, or a unit/lot. The board may require the owner to submit, at the owner’s expense, an engineer’s or architect’s opinion stating that a proposed change will not impair the structural integrity or mechanical systems of the building or either lot, reduce the support or integrity of common areas, or compromise structural components. The board may require the owner to pay all of the association’s legal and other expenses related to the proposed alteration, as well. The removal or alteration of the wall does not change the assessment or voting right attributable to either of the units/lots (unless the CC&Rs say so).
- The law also contains a procedure for the unlikely event that two or more associations want to consolidate or merge together into one association.
While these bills are not actually law until signed by the Governor, there is little chance that the Governor will veto any of them (I will, of course, let you know if he does). (UPDATE: Each of these bills were signed by the Governor and are now law.) The laws take effect May 14, 2013, except the ones mentioned above that don’t take effect until July 1, 2014.
As always, please note that none of the above is legal advice and should not be relied on as statements of the requirements of the law applicable to any particular scenario or circumstance. The statutes themselves should be referred to for their exact and full contents and an attorney consulted with for application of any relevant law to a particular set of facts.