Bills That Passed This Legislative Session and How to Comply

March 26, 2013

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.

SB 64 Homeowner Association Reserve Account Amendments

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.

HB 101 Homeowners Association Amendments

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.

SB 90 Condominium and Community Association Amendments

  • 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.

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Last Week of Legislative Session: What’s in Store?

March 11, 2013

By Curtis G. Kimble.

It’s the last week of the Utah 2013 general legislative session, which is set to end Thursday, March 14, at midnight, and there are a few HOA bills on the path to becoming law.  Here’s a summary and update on where they are in the process:

HB 335 Condominium Owner Rental Amendments

HB 335 would amend the Condo Act to state a condominium project that recorded its initial declaration before May 12, 2009, would not be able to prohibit or restrict a unit owner’s ability to rent to any greater extent than is described in the declaration that was recorded at the time the unit owner purchased the unit owner’s unit, unless the association obtains the unit owner’s written consent.

This bill is in the House Rules Committee where it has been for a few weeks. This bill will not pass this session.

SB 64 1st sub Homeowner Association Reserve Account Amendments

This substituted version of SB 64 is completely different than the original version (see my prior post).  The most important part of this bill, in my opinion, is that now the decision of whether and how to fund a reserve is back where it belongs. If passed, this version of the law will put that decision back to the board (as most CC&Rs require, and where the decision will be subject to the fiduciary obligations of the decision makers).  This bill would also allow 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.

Additionally, this bill provides for specific enforcement procedures if the association fails to comply with certain of its provisions.  The association will be required to provide a summary each year of the reserve analysis to each owner (not just at the annual meeting) and a complete copy of the reserve analysis to an owner upon request.  The board also has to include a reserve fund line item in the annual budget in the amount the board determines and the homeowners can veto that determination (as discussed above).

If an association fails to comply, 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 bill has passed through the Senate, though the House committee, and is in the House for a vote.  My guess is that this bill will pass, depending on the calendar.

SB 90 1st sub Condominium and Community Association Amendments

SB 90 1st sub changes which associations the Community Association Act applies to.  It currently only applies to wholly residential associations (associations where each member is an owner of a residential lot).  This bill makes the Act applicable to any association with at least one residential lot.  So, it will apply to mixed-use (commercial/residential) projects with at least one residential lot.

The bill states that, unless otherwise provided in the CC&Rs, developers essentially have control of the association for eternity (that is, for seven years after all declarants have ceased to offer lots for sale in the ordinary course of business (compare this with the Condo Act where it’s 3 years after recording the CC&Rs for a typical project)), or 60 days after 75% of the lots that may be created are sold, whichever happens first.

This bill contains changes to the reserve analysis law, as well, which are very similar to SB 64 1st sub (minus the veto and enforcement provisions).

The bill enacts some provisions relating to making changes to adjoining units or lots acquired by same owner, and relating to the consolidation or merger of associations (i.e., a procedure for merging, if two associations wanted to merge or consolidate).

Finally, the bill cleans up the insurance provisions in the Condo Act and Community Association Act and exempts commercial condominiums and lots from its requirements.

This bill has passed the Senate and is now on its way to the House.  Whether it can get through the House in time is anybody’s guess, but my bet is that it will.

SB 274 Condominium Foreclosure Amendments

SB 274 would require a bank or lender to pay a unit or lot’s share of certain common expenses from the time the lender starts the foreclosure process (by filing a notice of default) on a unit or lot.   Many banks start the foreclosure process and then wait for months and sometimes years before completing it, even if the homeowner has given up and long since moved out.  Meanwhile, the association still has to carry applicable insurance and carry out maintenance benefiting the unit or lot.  The bank won’t foreclose because they don’t want to have to start paying assessments.  This bill would address the problem to a small degree by requiring the bank to pay the unit or lots share of “landscaping maintenance in the common areas, water and insurance.”

If this bill gets through the banking lobby, I’d be amazed, but it has passed favorably out of committee and is on the Senate calendar for vote.

HB 101 1st sub Homeowners Association Amendments

The statute requiring all HOAs to register as an HOA with the state of Utah is being merely clarified once again with this bill.   There is no change in its requirements or implications.  It passed the Senate and House.

SB 262 Employment and Housing Antidiscrimination Amendments

SB 262 modifies the Utah Fair Housing Act, which is important for HOAs because the Fair Housing Act prohibits an HOA from discriminating against certain “protected classes” of people in its rules, covenants or practices.  If this bill passes, it would prohibit discrimination based on sexual orientation or gender identity.  Specifically, the bill states (the underlined language is new language):  “It is a discriminatory housing practice to do any of the following because of a person’s race, color, religion, sex, national origin, familial status, source of income, [or] disability, sexual orientation, or gender identity: . . . deny or make unavailable [any] a dwelling from any person; (b) discriminate against [any] a person in the terms, conditions, or privileges: (i) of the sale or rental of [any] a dwelling; or (ii) in providing facilities or services in connection with the dwelling; . . ..”

This bill passed out of the Senate committee with a favorable recommendation and is on the reading calendar of the Senate (to be voted on).

I’ll let you know which bills pass this session after it ends.


Utah LAC Issues Statement on SB 64 (Reserves)

February 22, 2013

By Curtis G. Kimble.

As many of you may know, the 2013 General Session of the Utah Legislature is in full swing on Capitol Hill.  A few bills enacting or amending HOA laws are in the works and I’ll be summarizing and commenting on those over the next couple of weeks.

As to one such bill, SB 64, CAI’s Utah Legislative Action Committee issued a position statement today coming down quite aggressively against it.  SB 64 amends the reserve funding requirements of Utah Code Sections 57-8-7.5 and 57-8a-211 and, if passed, will require an association to begin funding the reserve fund in the manner and amount determined by the vote of the owners within 90 days after the vote, and to file a certificate of compliance with the Department of Commerce within 30 days of starting to fund a reserve fund.  It also requires that if an association does not file a certificate of compliance within the required 30 days, the association may not levy a special assessment until it files a certificate of compliance.  View SB 64 here.  View the position statement here (I am not a member of ULAC and their position is not necessarily mine, nor mine theirs).

UPDATE March 1: view the substitute bill SB 64 here and a comparison of the changes to the original SB 64 here.

The original requirement of this law requiring the decision of whether to fund a reserve account to be made by a majority of those owners who happen to show up at the annual meeting, is one that I’ve always been opposed to for various reasons, not the least of which is that it unconstitutionally interferes with the obligation contained almost universally in preexisting HOA contracts (CC&Rs) that the board establish a reasonable reserve.  For reasons similar to those contained in the ULAC position statement, I am opposed to SB 64, as well.

If you have an opinion one way or the other on pending legislation, don’t be afraid to voice it to your representatives in the Legislature.  Follow this link to identify who they are and contact them: Utah State District Maps


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