April 1, 2005
CONDOMINIUMS — APPLICABLE LAW
By: George Coppolo, Chief Attorney
You asked (1) what sections, if any, of the common interest ownership act apply to large residential condominium developments created during the late 1960s and early 1970s; (2) can these condominiums opt to be governed by the current law; and (3) if so, what are some advantages of doing so.
The Common Interest Ownership Act (CIOA) governs the creation, alteration, management, termination, and sale of condominiums and other common interest communities formed in Connecticut after January 1, 1984 (CGS § 47-200 et seq.).
Certain provisions of CIOA automatically apply to any condominium created in Connecticut before January 1, 1984, but only with respect to events and circumstances that occur after December 31, 1983. These provisions involve:
2. applicability of local land use laws,
3. eminent domain,
4. interpretation and validity of bylaws and declaration,
5. description of units,
6. merger or consolidation,
7. powers of the association,
8. tort and contract liability,
9. liens for assessments,
10. association records,
11. resale of units,
12. statutory right of action,
13. amendment of the declaration,
14. definitions to the extent necessary, and
15. unconscionable contracts.
The law permits condominiums created before January 1, 1984, to amend their governing instruments (declaration, bylaws, survey, or plans) to conform to other portions of CIOA. Any amendment must be adopted in conformity with the law that applied when it was created and with the procedures and requirements specified by those instruments.
The law exempts from CIOA common interest communities created before January 1, 1984 formed pursuant to a special act of the legislature unless a majority of unit owners votes, in conformity with applicable law, to subject it that act (CGS § 47-217).
Prior to 1984, the Condominium Act of 1976 was in effect. It applied only to condominiums created after January 1, 1977. It required that public offering statements be given to purchasers and permitted expansion by the addition of additional land if the declaration called the project an “expandable condominium.”
Before 1977, the Unit Ownership Act passed in 1963 applied to condominiums declared in Connecticut. The act was fairly simple. It did not permit condominium expansion or phasing and provided for little consumer protection in the form of disclosures. Thus, many of the early, multiple phase projects were a chain of separate condominiums tied together by a master association.
We spoke with attorney Matthew Perlstein, a condominium law expert, about the possible advantages for condominium operating under either the 1963 or 1977 law opting to conform with CIOA . Perlstein identified several areas where conforming with CIOA might be desirable. But he also cautioned that many older condominiums are running quite well, often because of the skill of the attorneys who drafted their declaration and other condominium documents. Following are the areas Perlstein identified. This information is taken directly from a Fall 2003 newsletter his office prepared on this topic (Volume VI Issue 2, In Association).
According to Perlstein, the declaration and other documents of most condominiums declared before 1984 were based on statutes and models created before anyone had much experience in the operation of condominiums. Perlstein notes that these older documents were often problematic in several respects. For example, often they (1) made it difficult to amend the declaration to adjust to the changing needs of the community; (2) set maximum fees, fines, and late charges that do not reflect inflation; (3) set fixed dates for annual meetings; (4) set requirements for insurance that did not allow for changes in the types and cost of available coverage and deductibles; (5) restricted actions taken by the association without mortgagee approval; (6) overly restricted the actions the board may take; and (7) made it difficult for unit owners to review board actions.
Perlstein points out that older condominiums can adopt CIOA provisions to deal with these shortcomings. He notes that a great advantage of CIOA is the broad flexibility it gives associations in meeting the unique needs of each condominium. For example, CIOA (1) permits condominiums to allocate charges for special services to the individual units that benefit from them; (2) allows associations to adjust late charges, fines, and interest for inflation and changes in interest rates; (3) allows amendments to the declaration without an unreasonably high percentage of unit owners votes or mortgagee approval; and (4) allows the association to pledge its right to receive common charges as security for a loan, if the declaration specifically allows the association to do so.
Following is a summary of the CIOA provisions that automatically apply to older condominium developments and a discussion of some advantages in adopting other CIOA provisions.
PROVISIONS THAT APPLY TO OLD CONDOMINIUMS
CIOA makes the following provisions automatically apply to any large residential condominium (over 12 units) created in Connecticut before January 1, 1984, but only with respect to events and circumstances occurring after December 31, 1983.
Separate Titles and Taxation (CGS § 47-204)
If there is any unit owner other than a declarant, (1) each unit that has been created, together with its interest in the common elements, constitutes a separate parcel of real property; and (2) each unit must be separately taxed and assessed, and no separate tax or assessment may be rendered against any common elements for which a declarant has reserved no development rights.
Any portion of the common elements for which the declarant has reserved any development right must be separately taxed and assessed against the declarant, and the declarant alone is liable for those taxes.
If there is no unit owner other than a declarant, the real property comprising the common interest community may be taxed and assessed in any manner the law provides.
Applicability of Real Property Use Laws to Conversion of Buildings to Common Interest Ownership (CGS § 47-205)
No zoning, building code, subdivision, or other land use law, ordinance, or regulation may prohibit the conversion of any building to the common interest form of ownership.
Eminent domain (CGS § 47-206)
If a unit is acquired by eminent domain, or part of a unit is acquired by eminent domain leaving the unit owner with a remnant that may not practically or lawfully be used for any purpose the declaration permits, the payment for taking the property must include compensation for that unit and its allocated interests, whether or not any common elements are acquired.
On acquisition, unless a court decree provides otherwise, that unit's allocated interests are automatically reallocated to the remaining units in proportion to the respective allocated interests of those units before the taking. The association must promptly execute and record an amendment to the declaration reflecting the reallocations. Any remnant of a unit remaining after part of a unit is taken becomes a common element.
If part of a unit is acquired by eminent domain, and the remnant may be used, the award must compensate the unit owner for the reduction in the unit's value and its interest in the common elements, whether or not any common elements are acquired. On acquisition, unless the court decree otherwise provides, (1) that unit's allocated interests are reduced in proportion to the reduction in the size of the unit, or on any other basis the declaration specifies and (2) the portion of the allocated interests divested from the partially acquired unit are automatically reallocated to that unit and to the remaining units in proportion to the respective allocated interests of those units before the taking, with the partially-acquired unit participating in the reallocation on the basis of its reduced allocated interests.
If part of the common elements is acquired by eminent domain, the award shall compensate the unit owners affected by the taking for the reduction in value of the units resulting from the acquisition, and the portion of the award attributable to the common elements taken shall be paid to the association. Unless the declaration provides otherwise, any portion of the award attributable to the acquisition of a limited common element shall be equally divided among the owners of the units to which that limited common element was allocated at the time of acquisition.
The court decree must be recorded in every town in which any portion of the common interest community is located.
Construction and Validity of Declaration and Bylaws (CGS § 47-222)
The rule against perpetuities does not apply to defeat any provision of the declaration or of the bylaws, rules, or regulations.
If there is a conflict between the declaration and the bylaws, the declaration prevails except to the extent the declaration is inconsistent with CIOA.
Title to a unit and common elements is not rendered unmarketable or otherwise affected by reason of an insubstantial failure of the declaration to comply with CIOA.
It is an insubstantial failure if the surveys or plans required by law and identified in the declaration, are not recorded simultaneously with the declaration but are subsequently recorded.
Description of Unit (CGS § 47-223)
A description of a unit specifying the common interest community's name, the original declaration's recording date, the town in which the common interest community is located, and the unit's identifying number, is a legally sufficient description of that unit and all rights, obligations, and interests of that unit created by the declaration or bylaws.
Merger or Consolidation of Common Interest Communities (CGS § 47-240)
Any two or more common interest communities of the same form of ownership, may be merged or consolidated into a single common interest community by agreement of the unit owners. In the event of a merger or consolidation, unless the agreement otherwise provides, (1) the resulting common interest community is the legal successor, for all purposes, of all of the preexisting common interest communities, and (2) the operations and activities of all associations of the preexisting common interest communities are merged or consolidated into a single association that holds all powers, rights, obligations, assets, and liabilities of all preexisting associations.
An agreement of two or more common interest communities to merge or consolidate must be evidenced by an agreement executed, recorded, and certified by the president of the association of each of the preexisting common interest communities following approval by unit owners to which are allocated the percentage of votes in each common interest community required to terminate that common interest community. The agreement must be recorded in every town in which a portion of the common interest community is located and is not effective until recorded.
Every merger or consolidation agreement must provide for the reallocation of the allocated interests in the new association among the units of the resulting common interest community either by stating (1) the reallocations or (2) the formulas on which they are based.
Powers of Unit Owners' Association (CGS § 47-244)
Subject to the declaration's provisions, the association, even if unincorporated, may:
1. adopt and amend bylaws, rules, and regulations;
2. adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses;
3. hire and discharge managing agents and other employees, agents, and independent contractors;
4. institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the common interest community;
5. make contracts and incur liabilities;
6. regulate the use, maintenance, repair, replacement, and modification of common elements;
7. cause additional improvements to be made as a part of the common elements;
8. acquire, hold, encumber, and convey in its own name any right, title, or interest to real property or personal property (but, common elements in a condominium may be conveyed or subjected to a security interest only pursuant to CGS § 47-254);
9. grant easements, leases, licenses, and concessions through or over the common elements;
10. impose and receive any payments, fees, or charges for the use, rental, or operation of the common elements, other than certain limited common elements and for services provided to unit owners;
11. impose charges, interest, or both, for late payment of assessments and, after notice and an opportunity to be heard, levy reasonable fines for violations of the declaration and association bylaws, rules, and regulations;
12. impose reasonable charges to prepare and record amendments to the declaration, resale certificates, or statements of unpaid assessments;
13. provide for the indemnification of its officers and executive board and maintain directors' and officers' liability insurance;
14. assign its right to future income, including the right to receive common expense assessments, but only to the extent the declaration expressly so provides;
15. exercise any other powers conferred by the declaration or bylaws;
16. exercise all other powers that may be exercised by legal entities of the same type as the association;
17. exercise any other powers necessary and proper to govern and operate the association; and
18. require, by regulation, that disputes between the executive board and unit owners, or between two or more unit owners regarding the common interest community, must be submitted to nonbinding alternative dispute resolution in the manner described in the regulation as a prerequisite to beginning a judicial proceeding.
The declaration may not impose limitations on the power of the association to deal with the declarant that are more restrictive than the limitations imposed on the power of the association to deal with other persons.
Unless the declaration or CIOA grants greater authority, an association can only adopt rules and regulations that affect the use or occupancy of residential units to:
1. prevent any use that violates the declaration;
2. regulate any occupancy that violates the declaration or adversely affects the use and enjoyment of other units or the common elements by other unit owners; or
3. restrict the leasing of residential units to the extent those rules are reasonably designed to meet first mortgage underwriting requirements of institutional lenders that regularly purchase or insure first mortgages on units in common interest communities, but no restrictions are enforceable unless notice is recorded on the land records and indexed in the grantor index in the association's name.
The association may not otherwise regulate any use or occupancy of units.
If a tenant of a unit owner violates the declaration, bylaws, or association rules and regulations, in addition to exercising any of its powers against the unit owner, the association may:
1. impose charges, interest, or both, for late payment of assessments on the tenant;
2. after giving notice to the tenant and the unit owner and an opportunity to be heard, levy reasonable fines against the tenant, unit owner, or both, for the violation; and
3. enforce any other rights against the tenant for a violation that the unit owner as landlord could lawfully have exercised under the lease, including the right to evict the tenant if the tenant or unit owner fails to cure the violation within ten days after the association notifies the tenant and unit owner of that violation.
Liability (CGS §47-253)
A unit owner is not liable, solely by reason of being a unit owner, for injury or damage arising out of the condition or use of the common elements. Neither the association nor any unit owner except the declarant is liable for that declarant's torts in connection with any part of the common interest community that the declarant has the responsibility to maintain.
A legal proceeding alleging a wrong done by the association, including an action arising out of the condition or use of the common elements, may be maintained against the association but not against any unit owner. If the wrong occurred during any period of declarant control and the association gives the declarant reasonable notice of, and an opportunity to defend against, the action, the declarant who then controlled the association is liable to the association or to any unit owner for (1) all tort losses not covered by insurance suffered by the association or that unit owner, and (2) all costs that the association would not have incurred but for a breach of contract or other wrongful act or omission.
The declarant is liable to the association for all funds of the association collected during the period of declarant control that were not properly expended.
The declarant is also liable for the association's litigation expenses, including reasonable attorney's fees. Any statute of limitation affecting the association's right of action against a declarant under CIOA is tolled until the period of declarant control ends. A unit owner is not prohibited from maintaining an action because he is a unit owner or a member or officer of the association.
Lien for Assessments (CGS § 47-258)
The association has a statutory lien on a unit for any assessment it levies against that unit or imposed against its unit owner. Unless the declaration otherwise provides, fees, charges, late charges, fines, and interest charged are also enforceable as assessments. If an assessment is payable in installments, the full amount is a lien from the time the first installment becomes due.
The association's lien has priority over all other liens and encumbrances on a unit except (1) liens and encumbrances recorded before the declaration was recorded, (2) a first or second mortgage or other security interest on the unit recorded before the date on which the assessment became delinquent, and (3) liens for real property taxes and other governmental assessments or charges against the unit or cooperative. The lien is also prior to all first or second mortages and other security interests to the extent of an amount equal to six months of common expense assessments plus the association's costs and attorney's fees in enforcing its lien. A lien for any fine has this same priority. A judgment or decree to enforce a lien shall include costs and reasonable attorney's fees for the prevailing party.
Unless the declaration otherwise provides, if two or more associations have liens for assessments created at any time on the same property, those liens have equal priority. Recording the declaration constitutes record notice and perfection of the lien. No further recordation of any claim of lien for assessment under this section is required.
The association, on written request, must furnish to a unit owner a statement in recordable form setting forth the amount of unpaid assessments against the unit. The statement must be furnished within 10 business days after receipt of the request and is binding on the association, the executive board, and every unit owner.
In any action by the association to collect assessments or to foreclose a lien for unpaid assessments, the court may appoint a receiver to collect all sums alleged to be due from that unit owner prior to or during the pendency of the action.
Association Records (CGS § 47-260)
The association must keep financial records sufficiently detailed to enable it to comply with the requirements the law imposes for the resale of units. All financial and other records must be made reasonably available for examination by any unit owner and his authorized agents.
Resales of Units (CGS § 47-270)
A unit owner must furnish to a purchaser or his attorney before the closing, a copy of the declaration other than any surveys and plans, the bylaws, the rules or regulations of the association, and a certificate containing specified information including such things as:
1. the amount of the periodic common expense assessment and any unpaid common expense or special assessment currently due and payable from the selling unit owner;
2. any other fees payable by the owner of the unit being sold;
3. any capital expenditures in excess of $1,000 approved by the executive board for the current and next succeeding fiscal year;
4. the amount of any reserves for capital expenditures;
5. the association's current operating budget;
6. any unsatisfied judgments against the association and any pending suits in which the association is a defendant;
7. the insurance coverage provided for the benefit of unit owners;
8. any restrictions in the declaration affecting the amount that may be received by a unit owner on sale, condemnation, casualty loss to the unit or the common interest community, or termination of the common interest community;
9. a statement describing any pending sale or encumbrance of common elements; and
10. a statement disclosing the effect on the unit to be conveyed of any restrictions on the owner's right to use or occupy the unit or to lease the unit to another person.
The association, within 10 business days after receiving a written request by a unit owner and payment of a fee of not more than $75 must furnish a certificate containing the information necessary to enable the unit owner to comply with this section, and any other documents required by this section.
The association must, during January in each year, file in the office of the town clerk where the condominium is located a certificate setting forth the name and mailing address of the association officer or the managing agent from whom a resale certificate may be requested.
Cause of Action for Violation of CIOA; Punitive Damages, Court Costs and Attorney's Fees (CGS § 47-278)
If a declarant or any other person subject to CIOA fails to comply with any of its provisions or any provision of the declaration or bylaws, any one adversely affected can file a law suit. Punitive damages may be awarded for a wilful failure to comply with CIOA. The court may award court costs together with reasonable attorney's fees.
Parties to a dispute arising under CIOA, the declaration, or the bylaws may agree to resolve the dispute by any form of binding or nonbinding alternative dispute resolution. But, a declarant may agree with the association to do so only after the period of declarant control passes. An agreement to submit to any form of binding alternative dispute resolution must be in a writing signed by the parties.
Amendment of Declaration (CGS § 47-236(j))
If the declaration of a condominium, whether created before or after January 1, 1984, contains a provision requiring that amendments relating to the use of units, the relocation of boundaries between units and common elements, or the extension or creation of development rights may be adopted only by the vote or agreement of unit owners that have more than 80% of the votes in the association, such a proposed amendment is deemed approved under either of the following two situations.
Under the first situation,
1. unit owners of units to which more than 80% of the votes in the association are allocated vote for or agree to the proposed amendment,
2. no unit owner votes against the proposed amendment, and
3. notice of the proposed amendment is delivered to the unit owners holding the votes in the association that have not voted or agreed to the proposed amendment and no written objection of the proposed amendment is received by the association within 30 days after the association delivers notice.
Under the second situation,
1. unit owners of units to which more than 80% of the votes in the association are allocated vote for or agree to the proposed amendment;
2. at least one unit owner objects to the proposed amendment, and,
3. in a legal proceeding the association brings in the Superior Court against all objecting unit owners, the court finds that the objecting unit owner or owners do not have a unique minority interest, different in kind from the interests of the other unit owners, that the voting requirement of the declaration was intended to protect.
Definitions (CGS § 47-202)
The law defines certain terms that appear in CIOA and in a condominiuim's declaration and bylaws, unless specifically provided otherwise or the context otherwise requires. These include such terms as: “Affiliate of a declarant,” “Allocated interests,” “Association” or “unit owners' association,” “Common expenses,” “Common expense liability,” “Common interest community,” “Condominium,” Declarant,” “Declaration,” “Development rights,” “Executive board,” “Leasehold common interest community,” “Limited common element,” “Master association,” “Proprietary lease,” “Security interest,” “Special declarant rights,” “Unit,” and “Unit owner.”
Unconscionable Contracts or Contract Clauses (CGS § 47-210 (b) to (d))
The court, on finding as a matter of law that a contract or contract clause involving land or facilities in a residential condominium was unconscionable at the time the contract was made, may (1) refuse to enforce the contract, (2) enforce the remainder of the contract without the unconscionable clause, or (3) limit the application of any unconscionable clause in order to avoid an unconscionable result.
Whenever it is claimed, or appears to the court, that a contract or any contract clause is or may be unconscionable, the parties, in order to aid the court in making the determination, must be allowed to present evidence as to:
1. the commercial setting of the negotiations;
2. whether a party has knowingly taken advantage of the inability of the other party reasonably to protect his interests by reason of physical or mental infirmity, illiteracy, inability to understand the language of the agreement, or similar factors;
3. the effect and purpose of the contract or clause; and
4. if a sale, any gross disparity, at the time of contracting, between the amount charged for the property and the value of that property measured by the price at which similar property was readily obtainable in similar transactions.
A lease entered into before January 1, 1984, concerning use of land or facilities by unit owners in a residential common interest community, is presumed to be unconscionable if the lease requires the lessee to pay an annual rental and other expenses that exceed 15% of the appraised value of the leased property as improved, and seven of the following eight elements exist:
1. the lease was executed by persons none of whom at the time of the execution of the lease were elected by unit owners, other than the declarant;
2. the lease requires either the association or the unit owners to pay all real estate taxes on the subject real property;
3. the lease requires either the association or the unit owners to insure buildings or other facilities on the subject real property against fire or any other hazard;
4. the lease requires either the association or the unit owners to perform some or all maintenance obligations pertaining to the subject real property or facilities located on the subject real property;
5. the lease requires either the association or the unit owners to pay rent to the lessor for a period of twenty-one years or more;
6. the lease provides that failure of the lessee to make payments of rent due under the lease creates, establishes or permits establishment, of a lien upon individual units to secure claims for rent;
7. the lease provides for a periodic rental increase based upon reference to a price index; and
8. the lease or other condominium documents require that any transferee of a unit must assume obligations under the lease.
OLD CONDOMINIUMS MAY CHOOSE TO BE GOVERENED BY CIOA
The law allows condominiums created before January 1, 1984 to amend their declaration, bylaws, or surveys and plans to achieve any result CIOA permits regardless of what the applicable law provided before January 1, 1984 (CGS § 47-218).
But any such amendment must be adopted in conformity with any procedures and requirements for amending the documents specified by those documents. If these documents do not specify such procedures, they must be adopted in comformity with CIOA. If an amendment gives anyone any rights, powers, or privileges that CIOA permits, all related obligations, liabilities, and restrictions contained in CIOA also apply to that person.
AREAS WHERE CIOA MAY PROVIDE ADVANTAGES OVER OLD LAW
We spoke with attorney Matthew Perlstein, a condominium law expert, about the possible advantages for condominium operating under either the 1963 or 1977 law (old condominium) opting to conform with CIOA . Perlstein identified several areas where conforming with CIOA might help older condominiums.
Provide for Special Allocation of Charges.
CIOA permits condominiums to allocate charges for special services to the individual units that benefit from them. Associations may want to provide optional services to the units. CIOA allows condominiums to amend their documents to authorize this, and to allow them to charge the cost of these optional services to those units benefited. Similarly, CIOA allows condominiums to assess additional charges to units that require them because of their nature or use.
Late Charges and Fines
Older condominiums often have fixed charges and fines that the association may assess. CIOA allows associations to adjust late charges, fines, and interest for inflation and changes in interest rates.
Amendments to Declaration
Older condominiums often make it difficult to amend the declaration by imposing very high approval requirements or mortgagee approval. CIOA allows amendments to the declaration without unreasonably high percentage of unit owner votes or mortgagee approval.
Borrowing by the Association
Old condominiums often do not allow their association to pledge their right to receive common charges as security for a loan. CIOA allows associations to pledge its right to do so as long as their declaration specifically allows it.
Eliminate Fixed Meeting Dates
Sometimes older condominiums require that annual association meetings occur on a specified date. This may not be a convenient date for a condominium's annual meeting each year. CIOA allows documents to be amended to remove fixed meeting dates. The amendment can authorize the board to determine the date of the annual meeting from year to year. If a condominium determines that the documents should be somewhat specific as to the time for annual meetings, an amendment to the declaration could require that the meeting be held at any time during a specific two-month period.
Reduce Required Mortgagee Approvals
Some older condominiums may require mortgagee approval before the association can do certain things. CIOA allows condominiums to amend their declaration to require mortgagee approval only where lending guidelines require it. The declaration may also limit the approval process to those mortgagees who have given the association written notice of their mortgage.
Revise the Budget Approval Process
Some older condominiums have documents that require cumbersome approval votes each time a condominium adopts a budget. Others contain no approval process at all, leaving unit owners no control over the budget, short of recalling the board. CIOA allows condominiums to adopt a balanced provision, allowing the unit owners to reject the budget if an absolute majority of them vote to disapprove it but otherwise allowing the board to take charge of the budget process.
Update Insurance Requirements
Many documents in older condominiums may be too rigid in their insurance requirements. They sometimes set unrealistically low deductibles, require standby insurance trusts and expensive annual appraisals, and mandate outdated and inadequate coverage. CIOA allows condominiums to amend their documents to purchase better coverage at a lower cost under modern insurance requirements.
Some old condominiums have documents that allocate maintenance responsibilities between the unit owners and the association in inefficient ways. Because of this, the association may have difficulty providing the unit owners with some services. CIOA allows condominiums to amend their documents to revise the maintenance provisions to make it easier for associations to provide services.