For an estimated 250,000 condominium owners in Connecticut, this month will be remembered as the watershed time when unprecedented legal protections went into effect.
Thanks to legislation adopted by the General Assembly and signed by Gov. M. Jodi Rell, the playing field – according to state Consumer Protection Commissioner Jerry Farrell Jr. – for condo boards and unit owners has been somewhat leveled.
While the traditional media has for the most part not picked up on this huge story, the unprecedented new rights for condo owners in Connecticut went into effect July 1. It gives them the right to know when their boards of associations meet, to attend the meetings, to be able to speak up and to get access to documents that before could simply be denied.
“It actually gives owners a leg up,” Farrell said. As an attorney who practiced real estate law prior to becoming consumer protection chief, Farrell spent many hours counseling potential condo owners about the risks they faced and their lack of rights.
William W. Ward, a Stamford attorney who specializes in condo law, agrees with Farrell that the updated condo act provides new protection to condo owners, but foresees more work and stress for condo associations that must abide by the rules, some of which will cost them money and some of which he says are not defined clearly.
As anyone who has ever purchased a condo knows, there is no such thing as “carefree” condo living.
While much of the work – especially outside jobs like the lawn care and plowing – is handled for condo owners, you give up many rights when you join an association.
I have had dozens of requests for help from condo owners who tell me that their boards are secretive, that they award contracts to friends and relatives of board members, arbitrarily enforce rules, refuse to provide financial documents, meet in secret, and harass those who oppose them.
Then there are the unit owners with too much time on their hands, or who hate animals, and enjoy making life miserable for those who violate the most meaningless rules. They are often referred to as “condo Nazis.”
The major changes in the condo laws were actually signed by Gov. Rell a year ago, but because there were so many new provisions, most only went into effect on July 1.
Besides requiring all boards to inform unit owners of all meetings, permit unit owners to speak at the meetings, and to provide financial or otherwise important documents, the legislation also makes it easier for associations to borrow money without having to track down every unit owner, and it makes it easier for associations at condos built before 1984 to borrow money based on future income.
One of the more interesting aspects of the amended Act is a requirement that all material provided to board members must be made “reasonably available” to unit owners, said Ward, who represents 120 condo associations in complexes ranging from four to 237 units.
In a lengthy analysis of the revisions (available in full on CtWatchdog.com), Ward notes that these board member packets normally contain sensitive and confidential information, which the act does not give specific guidance for.
For example, Ward said unit owners have a right to know that some other owners are behind on their monthly maintenance fees, but they don’t have a right to know the identities of those who are late payers.
There are also legal matters, complaints, and contract negotiations that the board would not want to be made public.
Then there is the question of how much to charge for making copies of documents and who would provide the documents, especially in the case of small associations.
But looking at the larger picture, Ward said the act is clear in its intent to require more transparency and give unit owners the right to know what is happening in their association.
And while the changes in this act will not solve all condo issues, the more information that an owner or prospective owner has available, the better decisions they can make.
FULL ANALYSIS OF CONDO ACT
ACKERLY & WARD
William W. Ward
July 1, 2010 Revisions to the Connecticut Condominium Statutes
On July 8, 2009 Governor Rell signed the most comprehensive amendments to the condominium statutes, since the statutes were originally enacted. The amendments affect everyone living in shared communities, condominiums, cooperatives, and planned unit developments. Due to the number of revisions, most were not effective until July 1, 2010.
Two provisions were effective upon passage. The first removed hurdles facing Associations seeking mortgagee approval for specific actions such as amending Bylaws and Declarations. If a mortgagee does not respond within forty-five (45) days after being notified of a proposed action in a record, the mortgagee’s consent is granted automatically.
The second change affected Associations created before 1984, which would not have the right to obtain a loan without first amending their documents. Pre-1984 Associations now have the right to pledge their future income to secure a loan unless the Declaration specifically prohibits such an assignment.
The legislative intent behind many of the changes is to create transparency in the affairs of Associations. The legislature wants Unit Owners to be able to offer opinions as to issues facing their communities. Prior to the legislation, owners often were unable to obtain information concerning Association affairs either through uncertainty in their documents or under the applicable statutes.
The new amendments require that every Board meeting be “open”. Every Unit Owner is now allowed to attend every Board meeting. A Board meeting cannot be held without a
portion of the meeting being allocated for comments by Unit Owners on any issue affecting the community. The Board must send notice and an agenda for each Board meeting to all Unit Owners at least five (5) days prior to the meeting. A Unit Owner is allowed to send an agent or representative to attend the Board meeting in his place. During Unit Owner participation Unit Owners are allowed to speak “comment regarding any matter affecting the Common Interest Community and the Association.” Finally, all materials provided to Board members for the meeting must be made “reasonably available” to Unit Owners.
That last requirement will require significant changes in current practices since the management package often contains confidential information, which cannot be shared with Unit Owners. Therefore, two (2) different management packages will need to be prepared. One will be for Board members only and contain the confidential information. The second package – to be made reasonably available to Unit Owners – must be redacted to remove any confidential or private information such as Unit Owners delinquencies, information concerning on going litigation, negotiation of commercial contracts, or anything else to be reviewed in Executive Session. The record-keeping statute protects those records, which must be kept in confidence.
The list of items, which should be considered in an Executive Session include consultation with legal counsel concerning legal matters, discussion of existing litigation or potential litigation or mediation, arbitration, or administrative proceedings; labor or personnel matters; contracts, leases, or other commercial transactions being negotiated, including the review of bids or proposals, if premature general knowledge of these matters placed the Association at a disadvantage; and to prevent public knowledge of any matter that the Board or committee determines would violate the privacy of any person. My opinion is that this provision requires that all hearings for infractions or violations of the condominium documents should be held in Executive Session. No final vote or action may be taken during Executive Session; therefore, the Board must reconvene into open session and vote on the record.
The Board meetings may now be held by phone, video, or other electronic methods, however, Boards must ensure Unit Owners are able to participate, hear everything discussed, and have the ability to comment – at least during the public participation period.
The legislation also prevents Unit Owners from claiming a Board’s action was illegal unless the Unit Owner challenges the action in Court within sixty (60) days of the approved minutes of the Board meeting being distributed to Unit Owners.
The above does not change the Board’s ability to act by unanimous consent provided the consent is documented into a written record, authenticated by all members, and promptly provided to all Unit Owners. The above rules do apply, however, to any committee meeting if the committee is authorized to act on behalf of the Association.
Many of the same changes apply to Unit Owner meetings. There must be a period for Unit Owner comment. Electronic notices for all meetings are now legal. The notice of a Unit Owner meeting must contain a statement of the general nature of any proposed amendments. Telephone, video, or any other conferencing processes are now allowed for owner meetings. Special meetings of the owners may now be called by the President, majority of the Executive Board, or Unit Owners having at least twenty percent (20%) of the voting right if the Association fails to call or notice a special meeting within fifteen (15) days after receipt of a petition by the secretary requesting the special meeting. The only business allowed to be transacted at the special meeting is business specified in the
The Amendment process has been modified slightly. Post-1984 condominiums are now allowed to reduce the vote required to amend its Declaration from the traditional two-thirds (2/3) to not less then a majority. It also allows specific amendments to be approved by vote of Unit Owners or Units in a specified group affected by the Amendment, rather than approval by the entire community. It also allows use restrictions to be approved by eighty percent (80%) of the affected Units rather than the entire community.
Two (2) significant changes involve removal of Board Members. A majority of Unit Owners at an Owner’s Meeting may now remove a member of the Board provided that the proposed removal was in the notice of the meeting. In addition, Robert’s Rules of Order apply to all owner’s meetings unless the Declaration or Bylaws provide otherwise or two-thirds (2/3) of the votes allocated to owners present at the meeting vote to suspend those rules.
Directed or undirected proxy now allows balloting in person at a meeting, or. No owner may vote more then fifteen percent (15%) of the vote in the Association with undirected proxies. Voting is also allowed without a meeting either electronically or by paper ballot. If the voting is by ballot, the ballot must set forth each proposed action or office to be filled and provide an opportunity to vote for or against the action or the candidate for office. The ballots must also indicate the responses need to meet quorum requirements, state the percentage of votes necessary to approve each matter, specify the time and date which the ballot must be delivered to the Association to be counted, and a deadline for and manner by which Unit Owners wishing to deliver information to all Unit Owners regarding the subject of the vote may do so.
Possibly the most controversial, and significant, changes to the act involve insurance. All Associations must now purchase fidelity insurance for members of the Board of Directors, which covers losses from theft, embezzlement, burglary, etc. The second major change makes it mandatory for the master policy to cover all improvements and betterments to the units rather than covering only the original developer-installed components of the Unit. Associations can “opt-out” from this provision, but it requires that the Association amend the Declaration, create an inventory of the developer-installed components, distribute that list annually to every Unit Owner, and include that list in all Resale Certificates. The third major insurance amendment allows the Association to assess the deductible, or any unreimbursed loss for damage, which occurs as a result of “willful misconduct”, gross negligence, or violation of written maintenance standards against the offending Unit Owner.
RULEMAKING AND ENFORCEMENT
The definition of a Rule is expanded to cover any policy, guideline, restriction, procedure, regulation, or maintenance standard. They must be consistent with the condominium documents and Connecticut Law. They cannot be arbitrary and capricious and must be within the scope of authority of the Board to adopt and must be adopted in conformity with Unit Owner’s right to Notice and Comment.
Boards will now have greater discretion in determining whether to enforce a specific Rule. The Board will not be guilty of selective enforcement or discriminatory enforcement if the Board determines that its legal position does not justify action, the covenant, restriction, or rule being violated is, or is likely to be, construed to be inconsistent with law; the violation is not so material that it is objectionable to a reasonable person, or to justify the cost of enforcement; or it is not in the best interest of the Association to pursue an enforcement action. This will allow Boards to make a case-by-case determination of the merits of enforcement regardless of past practices of the Board.
After Notice and Hearing the Board may suspend the rights or privilege of a Unit Owner, who fails to pay assessments to utilize Common Areas as recreational facilities. Prior to initiating a collection action against a delinquent Unit Owner, the Unit Owner must be delinquent in am amount equal to two (2) months of common charges, the Board must first make a demand in a record for payment, and foreclosure cannot be initiated unless the Board votes to approve the foreclosure or there is an adopted collection policy authorizing foreclosure upon the delinquency being an amount equal to two (2) months of common charges or more. The Association’s statutory lien was extended from two (2) to three (3) years, which allows the Board to delay foreclosure if so desired. Boards are now given much greater discretion in determining when, or if, it is appropriate to take enforcement action for violations.
The number of disputes between Unit Owners and the Board concerning inspection of records should be greatly reduced with the passage of these amendments. For the first time a detailed list of required records subject to inspection are included in the statute. The list includes detailed records of receipts and expenditures; other appropriate accounting records; approved minutes of all owner and Board meetings; a record of all actions taken without a Board meeting; a record of all actions taken by committees in lieu of Board action; names and addresses of all owners in alphabetical order along with the voting percentage each owner is entitled to cast; original or restated organizational documents; bylaws, amendments, and current rules; all financial statements and tax returns for three (3) years; names and addresses of Board members and officers; current annual report filed with the Secretary of State; financial and other records required to comply with the Resale Certificate requirements; all current contracts; records of approvals or denials for request for design or architectural approval from owners; and ballots, proxies, and other voting records for one (1) year.
All of these records can be copied or examined by either an owner or an agent upon five (5) days notice reasonably identifying the specific records requested. The Board may establish a policy requiring the Unit Owners to pay a reasonable charge for the copies and supervision of the inspection. The statute details, which must be withheld as confidential or privileged. It also specifically states the Association is not obligated to compile or synthesize the information that prohibits the use of the information for any commercial purposes.
The legislation expanded the information now required to be included in the Resale Certificate. Court and administrative proceedings in which the Association is a party, other then non-foreclosure collections, must be disclosed. The Board must disclose pending suits, the number of the Units sixty (60) or more days delinquent on a specified date within sixty (60) days of the date of the certificate, the number of foreclosures brought against owners by the Association in the last twelve (12) months, number of foreclosures pending within sixty (60) days of the resale requirement, all maintenance standards, which an owner can be responsible for violating, and a list of original components if the master policy excludes improvements and betterments coverage. The fee for the Resale Certificate is now $125.00 plus either 0.05 cents per page for photocopies or $10.00 for an electronic copy.
Associations established after 1984 must now allow a “cooling off” period before suing for construction defects. Associations must give a forty-five (45) day notice to the developer. During that time the developer has the right to propose a repair plan before the Association can file a lawsuit. All applicable statutes of limitation are tolled during the opportunity to cure period as long as the plan is being implemented in good faith.
BUDGETS AND ASSESSMENTS
All Association budgets now are subject to ratification. Thirty (30) days before adopting the annual budget the Board must give a summary to Unit Owners, which explains how reserves are calculated and funded, and setting a date within ten to sixty (10-60) days for approval. At the owner’s meeting the budget is approved unless a majority of the Association’s votes reject the budget. Please note it is a majority vote of the entire Association, not a majority at those present at the meeting. Special assessments follow the same ratification process if individually, or cumulatively, the special assessment exceeds fifteen (15%) percent of the budget within any budget year. It does allow emergency special assessments upon two-thirds (2/3) approval of the Board, but notice must be provided promptly to the Unit Owners and the funds are limited to use for the item approved.
The massive changes will affect every Community Association in Connecticut. All Associations must or should adopt a plan to educate themselves and implement the amendments. A Resale Certificate must be revised, collection and inspection policies should be established, maintenance standards need to be adopted, recordkeeping procedures should be reviewed, procedures should be adopted to ensure the confidentiality and privacy of the records due to the increase access given to Unit Owners, and meeting policies should be established to govern the method and conduct of Unit Owners in the open meetings.
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