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 by: Amy Schott Ferguson, Esq
CUNI, FERGUSON & LeVAY CO., L.P.A.
10655 Springfield Pike
Cincinnati, Ohio 45215
Telephone: 513.771.6768
July 21, 2004
| I. INTRODUCTION. The following is a summary of House Bill 135 (changes to the Ohio Condominium Statute, Chapter 5311, the "Code" ), effective July 20, 2004. This law only applies to condominiums, not to single family home subdivisions or "landominiums". Most condominiums are administered by "Condominium Associations", but in some association names, the word "condominium" does not appear. For example, Montgomery Towne Homeowners Association administers a condominium, but Montgomery Meadows Homeowners Association administers attached townhome landominiums (also known as PUDs - Planned Unit Developments). Consult your Declaration. Generally, if it is a "Declaration of Condominium Ownership", you have a condo. If it's a "Declaration of Covenants", you probably have a PUD. Chapter 5311 must be referenced in the Declaration in order to create a condominium.
II. SUMMARY. The following summary is intended to apply to a Condominium Association that has long since passed the developer transition period and is no longer subject to any control by the Developer. It is divided into three parts: first, those changes which will become effective no matter what the Association does; second, those which can be put into play by the Board if the Declaration does not already address the issue in the statute; and third, those changes which can only become effective by the vote of the homeowners. If your Association is still under developer control, there are additional changes which pertain to your Association. Please contact me and I will send you a summary of those changes as well.
A. Changes Which Are Effective No Matter What. You do not need to change your Declaration to effect these changes. The following changes are effective whether you like it or not. If you are amending your Declaration anyway, however (see Parts B and C of this Summary), you may include these changes in your amendment.
1. "Common Areas and Facilities" are now called "Common Elements". ALimited Common Areas and Facilities@ are now called "Limited Elements". 5311.01(F) and (W)
2. "Exclusive Use Areas" are Common Elements that the Declaration provides the Board can delegate to the use of a certain unit to the exclusion of other units. This delegation may be subject to criteria the Association establishes, including the payment of an additional fee that is part of each benefitted unit's common expenses and that is only to be used for the delegated Common Element. This Code Section will really only apply to brand new (post July 20, 2004) condominiums, because the concept and term "Exclusive Use Areas" is brand new (5311.01(T) and 5311.032(B)(1)). If this term does not already appear in the Declaration, you cannot establish or create it by Board amendment, because its practical effect will be to restrict certain persons' access to Common Elements, which can be only be accomplished by a vote of the homeowners. Examples: extra parking spaces, carports, common element garages.
3. The Board may authorize Limited Common Elements (but not Common Elements or Exclusive Use Areas) without a vote of the owners , for the construction of open, unenclosed patios, hedges, decks, fences, or similar improvements if those improvements are maintained and insured by the owner. However, the Board may not approve the construction of an addition to or an expansion of a unit into Limited Common Elements or Common Elements without the consent of all owners. The Board's use of this authority is subject to rules which it adopts. The Code section authorizing the Board to adopt rules (5311.081(B)(5)) is a Summary Part B Section: "unless otherwise provided in the declaration...the board...may...adopt rules that regulate...the modification, and appearance of units, Common Elements, and Limited Common Elements when the actions regulated by those rules affect Common Elements or other units." Does the declaration already provide that the Board can adopt rules of this type? If so, no amendment authorizing these rules to be enacted is necessary. If not, the Board should amend the Declaration (see Section B below) to provide that such rules can be enacted. For example, if an owner has a patio in his Limited Common Element and wishes to construct a deck upon the patio, the Board can authorize this construction subject to rules the Board enacts. The Board cannot, however, approve a patio enclosure that is a room addition.
5311.04(G).
4. The Association may purchase, hold title to, and sell real estate that is not declared to be part of the condominium property (i.e. that is not Limited Common Elements or Common Elements) with the approval of the Board and seventy-five percent (75%) of the owners. For example, the vacant lot next door is for sale and the Association wants to buy it and use it as a buffer zone, a playground, a park. The Board can then approve the purchase of this extra real estate as long as such a purchase is approved by seventy-five percent (75%) of the owners. Correspondingly, the Association cannot sell off an acre of vacant, unusable land if that land was already made part of the development (and is therefore Common Elements) without the unanimous consent of the owners.
5. The Board may amend the Declaration without a vote of the owners in any manner necessary for the following purposes:
a. To meet the requirements of institutional mortgagees, FNMA, FHLMC, FHA or VA;
b. To meet the requirements of insurance underwriters;
c. To bring the declaration into compliance with the Code (see Sections B and C);
d. To correct clerical or typographical errors or obvious factual errors in the declaration or an exhibit;
e. To designate a change in a statutory agent.
5311.05(E)(1)
6. All of the power and authority of the Association is exercised by the Board. Board Members must be elected from among the owners or their spouses. If the owner is not an individual, the owner's representative (member, partner, director, employee) can serve on the Board.
5311.08(A)(1)
7. Board meetings may be held by any communication method, including electronic or telephonic, if each board member can hear, participate, and respond to every other board member. Board meetings can now be held in private chat rooms. Board meetings can also be held by speaker phone. Board meetings cannot, however, be held by a series of emails.
5311.08(4)(a)
8. Instead of a meeting, the Board may take action with the unanimous written consent of the Board members. The written consents must be filed with the meeting minutes.
5311.08(4)(b)
9. The By-Laws must provide by whom and the procedure by which administrative rules may be adopted and amended. The rules may govern any aspect of the condominium property that is not required to be governed by the By-Laws and may include standards governing the type and nature of information and documents that are subject to examination and copying by owners, including the times and location at which items may be examined and copied and any required fee for copying the information or documents.
5311.08(B)(6)
10. Within thirty (30) days after an owner buys a unit, he must provide this information in writing to the Board:
a. Home address, home and business mailing addresses, and home and business telephone numbers of owners and all occupants of the unit.
b. Name, business address, and business telephone number of any person who manages the owner's unit. Within thirty (30) days after a change in any of this information, an owner must notify the Board of the change. When the Board requests, an owner must verify or update this information.
5311.09(A)(2) and (3)
11. Any owner may examine the books, records, and minutes of the Association subject to Board rules. However, the Association is not required to permit examination and/or copying the following:
a. Information pertaining to condominium property-related personnel matters;
b. Communications with attorneys;
c. Information pertaining to contracts or transactions currently under negotiation, or information that is contained in a contract or other agreement containing confidentiality requirements;
d. Information relating to enforcement of the Declaration, By-Laws, or rules against owners;
e. Information which is prohibited to be disclosed by state or federal law.
5311.091
12. Whether the Association forecloses on its lien or is named in a bank foreclosure, the owner is still required to pay a reasonable rental for the unit while the foreclosure remains pending. The Association is entitled to have a receiver appointed even if it is not the plaintiff in the lawsuit. The receiver must apply each rental payment collected first to the common expenses. Although the procedure to have a receiver appointed is expensive, if the Association is fairly confident that the owner will eventually pay (and the property will not be sold at sheriff's sale, which rarely results in the Association's debt being paid), this is a worthwhile endeavor. Previously, if a receiver was appointed, any rents collected went to pay lienholders superior in priority to the Association. In other words, although it is logical to assume that a receiver would pay the taxes, the mortgage payment, and the assessments, the practical effect of a receiver appointed prior to July 20, 2004 was that the receiver applied all of the rental payments to the first mortgage and none to the common expenses.
5311.18(B)(2)
13. If a bank or lienholder other than the Association forecloses, that lienholder must name the Association as a defendant, even if the Association has no recorded lien. This means that the Association will likely be served with a summons and complaint each and every time a lender forecloses on the first or second mortgage of a condominium unit, even if the Association has no recorded lien. It is imperative that the Association not discard this paperwork even though it has no lien. Forward the summons and complaint to your legal counsel and have him or her file a protective answer on the Association's behalf so that in the course of the foreclosure action should the assessments become delinquent the Association can share in the proceeds of any sale of the unit.
5311.18 (B)(3)
14. In a foreclosure action, an owner cannot assert as a defense, set-off, counterclaim, or cross-claim that the Association has failed to provide him with any service, goods, work, or material or failed in any other duty. Most contested foreclosures arise as a result of an owner's claim that the Association breached its duty to maintain the common area. This new Code Section takes away virtually all rights an owner has to contest a breach of the Association's duty.
5311.18(B)(6)
15. Not only owners, but also the Association, must comply with the Declaration, By-Laws, and Rules. Violations are grounds for the owner or the Association to be sued. An award of court costs and reasonable attorney's fees can be made in both types of action. The practical affect of this section is that it is no longer imperative that an Association have in its Declaration a provision that it can recover its reasonable attorneys fees in the event it must file suit to enforce its covenants. That right is now given by the Code and is just as enforceable as if such language appeared within the Declaration. The flip side, however, is that owners now have the right to recover their attorneys fees from the Association if the Association is found to have breached its duty imposed by the Declaration and/or By-Laws.
5311.19(A)
16. You must allow owners to place a flagpole or display the United States flag on or within the Limited Common Elements or on the immediately adjacent exterior of the building in which the unit is located, if the flag is displayed in accordance with any of the following:
a. The patriotic customs in 4 USCA 5-10;
b. The recommended flagpole standards set forth in AOur Flag@;
c. Any federal law, the President's or Governor's proclamation, Code, or local ordinance.
The sources referenced above in A, B, and C are available online.
5311.191
17. Common Profits can be retained by the Board as reserves. However, please note that "Common Profits" are not the same thing as "Common Surplus". Common Profits are the amount by which the total income received from assessments charged for special benefits to specific units, rents received from the rental of equipment or space and Common Elements, and any other fee, charge or income other than common assessments exceeds expenses allocable to the particular income, rental, fee or charge. On the contrary, Common Surplus is the amount by which common assessments collected during any period exceed Common Expenses. This Section does not give the Board the authority to take any amounts collected over and above the operating budget and place them in reserves. That may be what the Code meant to accomplish, but that is not exactly what it says.
5311.81
A. Changes Which Can Be Enacted by Board Vote. All of the Code sections summarized in this part begin with "unless otherwise provided by the Declaration or By-Laws". It is imperative that the Board (through its legal counsel) carefully review the Declaration and By-Laws to determine if a section of those documents already address an issue in one of these Code sections. For example, Section 5311.081(B)(1) states that unless otherwise provided in the Declaration and/or By-Laws, the Association, through its Board, may hire and fire an attorney. If the Declaration is silent on this issue, the Board may amend the Declaration to include this Code Section. If the Declaration conflicts with the Statute (ie it provides that the Association can only hire an attorney by a majority vote of the owners), then the Board cannot amend the Declaration to include this Code Section and the owners must vote on the amendment the same way they would if there was no statute (at least a 75% vote). If the Board can amend the Declaration, it should, but it can only do so by recording an amendment with the County Recorder's Office. Once it does so, an owner only has one year from the recording date to challenge the validity of the amendment in Court.
5311.05(E)(3)
1. Definition of "Common Elements" and a "Unit". It would be extremely unusual for a Declaration to not define these terms. As it always has, the Code gives definitions by default. There were no substantive changes to this section of the Code. Unless the definition in the Declaration is woefully incomplete, the Code probably will not be helpful. Section 5311.03 (D)(2) does clarify, however, that windows and doors, sashes, thresholds, frames, jambs and hardware in the perimeter walls, floors, ceilings are part of the unit.
5311.01(F) and 5311.03 (D)(2)
2. If the Association or owners are required to be members of a non-profit organization that provides facilities, recreation, education, or social services to owners of property other than the condominium property, then the declaration must state so (for example, the owners are also required to be members of a swim club which also serves other non owners).
5311.05(B)(9)
3. If the owners of two adjoining units want to re-allocate their unit boundaries and Limited Common Elements (with a corresponding re-allocation of Common Elements), they must do so by submitting a written application to the Board. Within thirty days from receipt of the application, unless the Board finds it unreasonable, the Board must prepare an amendment to the Declaration making the reallocation, at the affected owners' expense.
5311.031
4. Similarly, if the owners of two units want to re-allocate the right to use Limited Common Elements, they must prepare an amendment to the Declaration at their expense and submit the amendment to the Board, who records it at the affected unit owners' expense. For example, owners want to switch or assign the right to use a Limited Common Element garage.
5311.032(A)
5. All meetings of the Association are open to the owners.
5311.08(A)(3)
6. The people present in person or by proxy at an owners meeting constitute a quorum. Most Declarations "otherwise provide" on this subject matter.
5311.08(A)(3)
7. The Association, through the Board, must adopt and amend budgets for revenues, expenditures, and reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments. The amount set aside annually for reserves must not be less than ten percent (10%) of the budget for that year unless the reserve requirement is waived annually by the owners exercising at least a majority of the voting power of the Association.
5311.081(A)(1)
8. The new code also gives quite a few discretionary powers to the Board of Directors. Although most of these powers are probably already in the Declaration and/or By-Laws, some may not be. They are as follows:
a. Hire and fire managing agents, attorneys, accountants and other independent contractors and employees that the Board determines are necessary in the management of the condominium property.
b. Involvement in litigation or administrative proceedings involving the Association, the Board, or two (2) or more unit owners relating to matters affecting the condominium property.
c. Enter into contracts relating to the operation of the condominium property.
d. Regulate the use, maintenance, repair, replacement, modification and appearance of the condominium property.
e. Adopt rules that regulate the use or occupancy of units, and the maintenance, repair, replacement, modification, and appearance of the units, Common Elements, and Limited Common Elements when the actions regulated by those rules affect Common Elements or other units.
f. Cause additional improvements to be made as part of the Common Elements.
g. Purchase, encumber and convey units and subject to any restrictions in the Declaration and with the seventy-five percent (75%) approval of the owners, purchase, encumber, and convey property.
h. Acquire and dispose of personal property.
i. Hold title in the name of the Association to any real property or personal property acquired by the Association.
j. Grant easements, leases, licenses, and concessions through or over the Common Elements.
k. Impose and collect fees or other charges for the use, rental or operations of the Common Elements or for services provided to owners.
l. Impose interest and late charges for the late payment of assessments, returned check charges, and reasonable enforcement assessments for violations of the governing documents and/or damage to the Common Elements or other property.
m. Adopt and amend rules that regulate the collection of delinquent assessments and the application of payments of delinquent assessments.
n. Impose reasonable charges for preparing, recording or copying amendments to the Declaration or statements of unpaid assessments.
o. Enter a unit when conditions exist that involve an imminent risk of damage or harm to Common Elements, another unit, or to the health or safety of the occupants of that unit or another unit.
p. If provided in the Declaration or By-Laws, assign the Association's rights to common assessments or other future income to a lender as security for a loan to the Association.
q. Suspend the voting privileges and use of recreational facilities of an owner who is delinquent on the payment of assessments for more than thirty (30) days.
r. Purchase insurance and fidelity bonds the Directors consider appropriate or necessary.
s. Invest excess funds in investments that meet standards for fiduciary investments under Ohio law.
t. A catch all: exercise powers that are conferred by the Declaration or By-Laws; powers which are necessary to incorporate the Association; powers permitted to be exercised in Ohio by a non-profit corporation; or powers necessary for the government and operation of the Association.
9. The Association's lien for assessments includes common expenses, interest, administrative late fees, enforcement assessments, collection costs, attorney's fees, and paralegal fees. The Code is very specific that if the Association wishes to impose an enforcement assessment due to an owner's violation of the Declaration, By-Laws or Rules, a specific procedure is necessary:
a. The Association must give the owner written notice of a description of the property damage or violation; the amount of the proposed assessment; a statement that owner has a right to a hearing before the board to contest the violation; a statement of procedures required to request a hearing; and a reasonable date by which the owner must cure the violation to avoid an assessment.
b. The owner can request a hearing by written notice within ten days from receiving the Board's letter. No request - no hearing necessary - automatic imposition of assessment.
c. The Board must hold a hearing if requested and give the owner seven days notice of the date/time/place.
d. Within thirty days of the hearing, the Board must give written notice of the assessment.
5311.18(A)(1)
10. The Association must credit the owners' payments in the following priority:
a. Interest
b. Administrative late fees
c. Collection costs, attorney's fees, and paralegal fees
d. Common expenses or "penalty" (enforcement) assessments.
5311.18(A)(2)
11. The Association may evict a tenant for violations of the Declaration, By-Laws, or Rules. The Association must give the owner at least ten (10) days written notice. The Association may also be required to give the tenant written notice The costs of the eviction, including reasonable attorney's fees, are charged to the owner and become a lienable special assessment.
5311.19(B)
B. Changes Which Can Only Be Enacted by Homeowner Vote.
1. Ninety Percent (90%) of the owners can vote to amend the Declaration to provide that these common expenses can be computed on an equal, per unit basis:
a. Administration, operation, maintenance, repair, and replacement of security, telecommunications, rubbish removal, roads, entrances, recreation facilities, landscaping and grounds care.
b. Legal, accounting, and management expenses.
All other expenses must be computed on the basis of the owners' undivided interest in the Common Elements allocated to each unit.
2. Seventy-five percent (75%) of the owners must vote in favor of purchasing and selling real estate not declared to be part of the condominium property (see Section A(4) above).
C. Recommendations. I recommend that the Association employ its legal counsel to conduct a review of the existing Declaration and By-Laws to determine which sections may be amended by the Board and which sections may be amended by homeowner vote. Counsel can also prepare such an amendment for the Board's review. It is my opinion that the changes set forth in Part B of this summary cannot be effective until and unless the Board has signed and recorded an amendment incorporating them. In other words, I would not recommend that an Association levy an enforcement assessment or evict a tenant for violations of the Declaration without first adopting and recording an amendment authorizing it to do so, if the Declaration and/or By-Laws do not otherwise address the subject.
As always, should you have any questions with respect to this summary or the law in general or should you wish for me to make a personal presentation to your Association, please do not hesitate to contact me.
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I. INTRODUCTION. The following is a summary of House Bill 135 (changes to the Ohio Condominium Statute, Chapter 5311, the "Code" ), effective July 20, 2004. This law only applies to condominiums, not to single family home subdivisions or "landominiums". Most condominiums are administered by "Condominium Associations", but in some association names, the word "condominium" does not appear. For example, Montgomery Towne Homeowners Association administers a condominium, but Montgomery Meadows Homeowners Association administers attached townhome landominiums (also known as PUDs - Planned Unit Developments). Consult your Declaration. Generally, if it is a "Declaration of Condominium Ownership", you have a condo. If it's a "Declaration of Covenants", you probably have a PUD. Chapter 5311 must be referenced in the Declaration in order to create a condominium.
II. SUMMARY. The following summary is intended to apply to a Condominium Association that has long since passed the developer transition period and is no longer subject to any control by the Developer. It is divided into three parts: first, those changes which will become effective no matter what the Association does; second, those which can be put into play by the Board if the Declaration does not already address the issue in the statute; and third, those changes which can only become effective by the vote of the homeowners. If your Association is still under developer control, there are additional changes which pertain to your Association. Please contact me and I will send you a summary of those changes as well.
A. Changes Which Are Effective No Matter What. You do not need to change your Declaration to effect these changes. The following changes are effective whether you like it or not. If you are amending your Declaration anyway, however (see Parts B and C of this Summary), you may include these changes in your amendment.
1. "Common Areas and Facilities" are now called "Common Elements". ALimited Common Areas and Facilities@ are now called "Limited Elements". 5311.01(F) and (W)
2. "Exclusive Use Areas" are Common Elements that the Declaration provides the Board can delegate to the use of a certain unit to the exclusion of other units. This delegation may be subject to criteria the Association establishes, including the payment of an additional fee that is part of each benefitted unit's common expenses and that is only to be used for the delegated Common Element. This Code Section will really only apply to brand new (post July 20, 2004) condominiums, because the concept and term "Exclusive Use Areas" is brand new (5311.01(T) and 5311.032(B)(1)). If this term does not already appear in the Declaration, you cannot establish or create it by Board amendment, because its practical effect will be to restrict certain persons' access to Common Elements, which can be only be accomplished by a vote of the homeowners. Examples: extra parking spaces, carports, common element garages.
3. The Board may authorize Limited Common Elements (but not Common Elements or Exclusive Use Areas) without a vote of the owners , for the construction of open, unenclosed patios, hedges, decks, fences, or similar improvements if those improvements are maintained and insured by the owner. However, the Board may not approve the construction of an addition to or an expansion of a unit into Limited Common Elements or Common Elements without the consent of all owners. The Board's use of this authority is subject to rules which it adopts. The Code section authorizing the Board to adopt rules (5311.081(B)(5)) is a Summary Part B Section: "unless otherwise provided in the declaration...the board...may...adopt rules that regulate...the modification, and appearance of units, Common Elements, and Limited Common Elements when the actions regulated by those rules affect Common Elements or other units." Does the declaration already provide that the Board can adopt rules of this type? If so, no amendment authorizing these rules to be enacted is necessary. If not, the Board should amend the Declaration (see Section B below) to provide that such rules can be enacted. For example, if an owner has a patio in his Limited Common Element and wishes to construct a deck upon the patio, the Board can authorize this construction subject to rules the Board enacts. The Board cannot, however, approve a patio enclosure that is a room addition.
5311.04(G).
4. The Association may purchase, hold title to, and sell real estate that is not declared to be part of the condominium property (i.e. that is not Limited Common Elements or Common Elements) with the approval of the Board and seventy-five percent (75%) of the owners. For example, the vacant lot next door is for sale and the Association wants to buy it and use it as a buffer zone, a playground, a park. The Board can then approve the purchase of this extra real estate as long as such a purchase is approved by seventy-five percent (75%) of the owners. Correspondingly, the Association cannot sell off an acre of vacant, unusable land if that land was already made part of the development (and is therefore Common Elements) without the unanimous consent of the owners.
5. The Board may amend the Declaration without a vote of the owners in any manner necessary for the following purposes:
a. To meet the requirements of institutional mortgagees, FNMA, FHLMC, FHA or VA;
b. To meet the requirements of insurance underwriters;
c. To bring the declaration into compliance with the Code (see Sections B and C);
d. To correct clerical or typographical errors or obvious factual errors in the declaration or an exhibit;
e. To designate a change in a statutory agent.
5311.05(E)(1)
6. All of the power and authority of the Association is exercised by the Board. Board Members must be elected from among the owners or their spouses. If the owner is not an individual, the owner's representative (member, partner, director, employee) can serve on the Board.
5311.08(A)(1)
7. Board meetings may be held by any communication method, including electronic or telephonic, if each board member can hear, participate, and respond to every other board member. Board meetings can now be held in private chat rooms. Board meetings can also be held by speaker phone. Board meetings cannot, however, be held by a series of emails.
5311.08(4)(a)
8. Instead of a meeting, the Board may take action with the unanimous written consent of the Board members. The written consents must be filed with the meeting minutes.
5311.08(4)(b)
9. The By-Laws must provide by whom and the procedure by which administrative rules may be adopted and amended. The rules may govern any aspect of the condominium property that is not required to be governed by the By-Laws and may include standards governing the type and nature of information and documents that are subject to examination and copying by owners, including the times and location at which items may be examined and copied and any required fee for copying the information or documents.
5311.08(B)(6)
10. Within thirty (30) days after an owner buys a unit, he must provide this information in writing to the Board:
a. Home address, home and business mailing addresses, and home and business telephone numbers of owners and all occupants of the unit.
b. Name, business address, and business telephone number of any person who manages the owner's unit. Within thirty (30) days after a change in any of this information, an owner must notify the Board of the change. When the Board requests, an owner must verify or update this information.
5311.09(A)(2) and (3)
11. Any owner may examine the books, records, and minutes of the Association subject to Board rules. However, the Association is not required to permit examination and/or copying the following:
a. Information pertaining to condominium property-related personnel matters;
b. Communications with attorneys;
c. Information pertaining to contracts or transactions currently under negotiation, or information that is contained in a contract or other agreement containing confidentiality requirements;
d. Information relating to enforcement of the Declaration, By-Laws, or rules against owners;
e. Information which is prohibited to be disclosed by state or federal law.
5311.091
12. Whether the Association forecloses on its lien or is named in a bank foreclosure, the owner is still required to pay a reasonable rental for the unit while the foreclosure remains pending. The Association is entitled to have a receiver appointed even if it is not the plaintiff in the lawsuit. The receiver must apply each rental payment collected first to the common expenses. Although the procedure to have a receiver appointed is expensive, if the Association is fairly confident that the owner will eventually pay (and the property will not be sold at sheriff's sale, which rarely results in the Association's debt being paid), this is a worthwhile endeavor. Previously, if a receiver was appointed, any rents collected went to pay lienholders superior in priority to the Association. In other words, although it is logical to assume that a receiver would pay the taxes, the mortgage payment, and the assessments, the practical effect of a receiver appointed prior to July 20, 2004 was that the receiver applied all of the rental payments to the first mortgage and none to the common expenses.
5311.18(B)(2)
13. If a bank or lienholder other than the Association forecloses, that lienholder must name the Association as a defendant, even if the Association has no recorded lien. This means that the Association will likely be served with a summons and complaint each and every time a lender forecloses on the first or second mortgage of a condominium unit, even if the Association has no recorded lien. It is imperative that the Association not discard this paperwork even though it has no lien. Forward the summons and complaint to your legal counsel and have him or her file a protective answer on the Association's behalf so that in the course of the foreclosure action should the assessments become delinquent the Association can share in the proceeds of any sale of the unit.
5311.18 (B)(3)
14. In a foreclosure action, an owner cannot assert as a defense, set-off, counterclaim, or cross-claim that the Association has failed to provide him with any service, goods, work, or material or failed in any other duty. Most contested foreclosures arise as a result of an owner's claim that the Association breached its duty to maintain the common area. This new Code Section takes away virtually all rights an owner has to contest a breach of the Association's duty.
5311.18(B)(6)
15. Not only owners, but also the Association, must comply with the Declaration, By-Laws, and Rules. Violations are grounds for the owner or the Association to be sued. An award of court costs and reasonable attorney's fees can be made in both types of action. The practical affect of this section is that it is no longer imperative that an Association have in its Declaration a provision that it can recover its reasonable attorneys fees in the event it must file suit to enforce its covenants. That right is now given by the Code and is just as enforceable as if such language appeared within the Declaration. The flip side, however, is that owners now have the right to recover their attorneys fees from the Association if the Association is found to have breached its duty imposed by the Declaration and/or By-Laws.
5311.19(A)
16. You must allow owners to place a flagpole or display the United States flag on or within the Limited Common Elements or on the immediately adjacent exterior of the building in which the unit is located, if the flag is displayed in accordance with any of the following:
a. The patriotic customs in 4 USCA 5-10;
b. The recommended flagpole standards set forth in AOur Flag@;
c. Any federal law, the President's or Governor's proclamation, Code, or local ordinance.
The sources referenced above in A, B, and C are available online.
5311.191
17. Common Profits can be retained by the Board as reserves. However, please note that "Common Profits" are not the same thing as "Common Surplus". Common Profits are the amount by which the total income received from assessments charged for special benefits to specific units, rents received from the rental of equipment or space and Common Elements, and any other fee, charge or income other than common assessments exceeds expenses allocable to the particular income, rental, fee or charge. On the contrary, Common Surplus is the amount by which common assessments collected during any period exceed Common Expenses. This Section does not give the Board the authority to take any amounts collected over and above the operating budget and place them in reserves. That may be what the Code meant to accomplish, but that is not exactly what it says.
5311.81
A. Changes Which Can Be Enacted by Board Vote. All of the Code sections summarized in this part begin with "unless otherwise provided by the Declaration or By-Laws". It is imperative that the Board (through its legal counsel) carefully review the Declaration and By-Laws to determine if a section of those documents already address an issue in one of these Code sections. For example, Section 5311.081(B)(1) states that unless otherwise provided in the Declaration and/or By-Laws, the Association, through its Board, may hire and fire an attorney. If the Declaration is silent on this issue, the Board may amend the Declaration to include this Code Section. If the Declaration conflicts with the Statute (ie it provides that the Association can only hire an attorney by a majority vote of the owners), then the Board cannot amend the Declaration to include this Code Section and the owners must vote on the amendment the same way they would if there was no statute (at least a 75% vote). If the Board can amend the Declaration, it should, but it can only do so by recording an amendment with the County Recorder's Office. Once it does so, an owner only has one year from the recording date to challenge the validity of the amendment in Court.
5311.05(E)(3)
1. Definition of "Common Elements" and a "Unit". It would be extremely unusual for a Declaration to not define these terms. As it always has, the Code gives definitions by default. There were no substantive changes to this section of the Code. Unless the definition in the Declaration is woefully incomplete, the Code probably will not be helpful. Section 5311.03 (D)(2) does clarify, however, that windows and doors, sashes, thresholds, frames, jambs and hardware in the perimeter walls, floors, ceilings are part of the unit.
5311.01(F) and 5311.03 (D)(2)
2. If the Association or owners are required to be members of a non-profit organization that provides facilities, recreation, education, or social services to owners of property other than the condominium property, then the declaration must state so (for example, the owners are also required to be members of a swim club which also serves other non owners).
5311.05(B)(9)
3. If the owners of two adjoining units want to re-allocate their unit boundaries and Limited Common Elements (with a corresponding re-allocation of Common Elements), they must do so by submitting a written application to the Board. Within thirty days from receipt of the application, unless the Board finds it unreasonable, the Board must prepare an amendment to the Declaration making the reallocation, at the affected owners' expense.
5311.031
4. Similarly, if the owners of two units want to re-allocate the right to use Limited Common Elements, they must prepare an amendment to the Declaration at their expense and submit the amendment to the Board, who records it at the affected unit owners' expense. For example, owners want to switch or assign the right to use a Limited Common Element garage.
5311.032(A)
5. All meetings of the Association are open to the owners.
5311.08(A)(3)
6. The people present in person or by proxy at an owners meeting constitute a quorum. Most Declarations "otherwise provide" on this subject matter.
5311.08(A)(3)
7. The Association, through the Board, must adopt and amend budgets for revenues, expenditures, and reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments. The amount set aside annually for reserves must not be less than ten percent (10%) of the budget for that year unless the reserve requirement is waived annually by the owners exercising at least a majority of the voting power of the Association.
5311.081(A)(1)
8. The new code also gives quite a few discretionary powers to the Board of Directors. Although most of these powers are probably already in the Declaration and/or By-Laws, some may not be. They are as follows:
a. Hire and fire managing agents, attorneys, accountants and other independent contractors and employees that the Board determines are necessary in the management of the condominium property.
b. Involvement in litigation or administrative proceedings involving the Association, the Board, or two (2) or more unit owners relating to matters affecting the condominium property.
c. Enter into contracts relating to the operation of the condominium property.
d. Regulate the use, maintenance, repair, replacement, modification and appearance of the condominium property.
e. Adopt rules that regulate the use or occupancy of units, and the maintenance, repair, replacement, modification, and appearance of the units, Common Elements, and Limited Common Elements when the actions regulated by those rules affect Common Elements or other units.
f. Cause additional improvements to be made as part of the Common Elements.
g. Purchase, encumber and convey units and subject to any restrictions in the Declaration and with the seventy-five percent (75%) approval of the owners, purchase, encumber, and convey property.
h. Acquire and dispose of personal property.
i. Hold title in the name of the Association to any real property or personal property acquired by the Association.
j. Grant easements, leases, licenses, and concessions through or over the Common Elements.
k. Impose and collect fees or other charges for the use, rental or operations of the Common Elements or for services provided to owners.
l. Impose interest and late charges for the late payment of assessments, returned check charges, and reasonable enforcement assessments for violations of the governing documents and/or damage to the Common Elements or other property.
m. Adopt and amend rules that regulate the collection of delinquent assessments and the application of payments of delinquent assessments.
n. Impose reasonable charges for preparing, recording or copying amendments to the Declaration or statements of unpaid assessments.
o. Enter a unit when conditions exist that involve an imminent risk of damage or harm to Common Elements, another unit, or to the health or safety of the occupants of that unit or another unit.
p. If provided in the Declaration or By-Laws, assign the Association's rights to common assessments or other future income to a lender as security for a loan to the Association.
q. Suspend the voting privileges and use of recreational facilities of an owner who is delinquent on the payment of assessments for more than thirty (30) days.
r. Purchase insurance and fidelity bonds the Directors consider appropriate or necessary.
s. Invest excess funds in investments that meet standards for fiduciary investments under Ohio law.
t. A catch all: exercise powers that are conferred by the Declaration or By-Laws; powers which are necessary to incorporate the Association; powers permitted to be exercised in Ohio by a non-profit corporation; or powers necessary for the government and operation of the Association.
9. The Association's lien for assessments includes common expenses, interest, administrative late fees, enforcement assessments, collection costs, attorney's fees, and paralegal fees. The Code is very specific that if the Association wishes to impose an enforcement assessment due to an owner's violation of the Declaration, By-Laws or Rules, a specific procedure is necessary:
a. The Association must give the owner written notice of a description of the property damage or violation; the amount of the proposed assessment; a statement that owner has a right to a hearing before the board to contest the violation; a statement of procedures required to request a hearing; and a reasonable date by which the owner must cure the violation to avoid an assessment.
b. The owner can request a hearing by written notice within ten days from receiving the Board's letter. No request - no hearing necessary - automatic imposition of assessment.
c. The Board must hold a hearing if requested and give the owner seven days notice of the date/time/place.
d. Within thirty days of the hearing, the Board must give written notice of the assessment.
5311.18(A)(1)
10. The Association must credit the owners' payments in the following priority:
a. Interest
b. Administrative late fees
c. Collection costs, attorney's fees, and paralegal fees
d. Common expenses or "penalty" (enforcement) assessments.
5311.18(A)(2)
11. The Association may evict a tenant for violations of the Declaration, By-Laws, or Rules. The Association must give the owner at least ten (10) days written notice. The Association may also be required to give the tenant written notice The costs of the eviction, including reasonable attorney's fees, are charged to the owner and become a lienable special assessment.
5311.19(B)
B. Changes Which Can Only Be Enacted by Homeowner Vote.
1. Ninety Percent (90%) of the owners can vote to amend the Declaration to provide that these common expenses can be computed on an equal, per unit basis:
a. Administration, operation, maintenance, repair, and replacement of security, telecommunications, rubbish removal, roads, entrances, recreation facilities, landscaping and grounds care.
b. Legal, accounting, and management expenses.
All other expenses must be computed on the basis of the owners' undivided interest in the Common Elements allocated to each unit.
2. Seventy-five percent (75%) of the owners must vote in favor of purchasing and selling real estate not declared to be part of the condominium property (see Section A(4) above).
C. Recommendations. I recommend that the Association employ its legal counsel to conduct a review of the existing Declaration and By-Laws to determine which sections may be amended by the Board and which sections may be amended by homeowner vote. Counsel can also prepare such an amendment for the Board's review. It is my opinion that the changes set forth in Part B of this summary cannot be effective until and unless the Board has signed and recorded an amendment incorporating them. In other words, I would not recommend that an Association levy an enforcement assessment or evict a tenant for violations of the Declaration without first adopting and recording an amendment authorizing it to do so, if the Declaration and/or By-Laws do not otherwise address the subject.
As always, should you have any questions with respect to this summary or the law in general or should you wish for me to make a personal presentation to your Association, please do not hesitate to contact me. |
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