2011 Kentucky Condominium Act and 2012 Revision Bill Louisville, Lexington, Covington June 13 June 26 July 11

Transcription

1 2011 Kentucky Condominium Act and 2012 Revision Bill Louisville, Lexington, Covington June 13 June 26 July 11 An Educational Seminar presented by: Kentucky Chapter of the Community Associations Institute Kentucky Legislative Action Committee 1

2 Program Agenda Introduction L. Thomas Richards, CMCA, AMS, PCAM President and Founder Community Management Associates, LLC. AAMC Past President; CAI-Kentucky Chapter Chair; Legislative Action Committee-Kentucky Presentation of HB 391 and HB 433 Richard V. Hornung, Attorney Owner and President, Hebel & Hornung, PSC Immediate Past President; CAI-Kentucky Chapter Practical Impact on Managing your Condominium L. Thomas Richards, CMCA, AMS, PCAM 2

3 Disclaimer This presentation has been developed by various volunteers and the opinions expressed are those of the speakers The presentation is intended for the use of the seminar attendees The opinions, supporting presentation materials and discussions are offered for the purpose of providing education and creating discussion on the seminar topic. They are not intended to be and should not be relied upon as legal advice. 3

4 Why is a New Condo Act Required? Current Horizontal Property Act was passed into law in 1962 The New Law is modeled after the Uniform Condominium Act developed in mid 1980 s The underlying purposes and policies of this Act are: To simplify, clarify, and modernize the law governing condominiums; and To make uniform the law among the various jurisdictions Improve consumer protection Update the law to reflect new types of condominium developments 4

5 Who does the Act Impact? Developers of Condominium Projects Condominium Owners Condominium Boards Buyers & Sellers of Condominiums Association Managers Association Attorneys and CPA s Bankers and Mortgage Companies Insurance Companies Realtors 5

6 Kentucky Uniform Condominium Act as amended April 12, 2012 Richard V. Hornung, Attorney Owner and President Hebel & Hornung, PSC Immediate Past President; CAI-Kentucky Chapter 6

7 Kentucky Horizontal Property Act Current condos still governed in part by old law May elect to re-form under new law All condos subject to these certain new provisions 7

8 The Kentucky solution Passage of: Uniform Condominium Act Has existed in most urbanized states for 20+ years HB 391- Took effect HB 433- Took effect

9 Benefits of Uniform Act for ALL Stakeholders All condo associations to: Keep and make available up-to-date financial records Disclose needed capital repairs 9

10 Benefits of Uniform Act for ALL Stakeholders Standard financial record keeping Disclosure of capital repair needs Helps to: Disclose maintenance issues before they cause property values to steeply decline. 10

11 Provisions relating to existing condos KRS Gives a clear formula for: Tax assessment by unit, Homesteads for residences KRS Prohibits zoning discrimination KRS Provides a formula for eminent domain takings and allocations of awards 11

12 Provisions relating to existing condos Construes bylaws as severable and not against the rule on perpetuities Identifies priority of documents Unit description rules for: Deed recordings KRS KRS At the Courthouse in County of the property 12

13 Provisions relating to existing condos KRS Empowers the board to amend bylaws, adopt and amend budget, enter contracts, obtain insurance, etc. Create and levy fines for violations Impose charges for certificates Impose Emergency Assessments 13

14 Emergency Assessment Clause For all existing and new projects Available regardless of declaration Is not a Special Assessment Must have judicial order or Opinion fixed with a professional seal from architect or engineer Two ways to initiate: KRS ( 4) Approval by 75% of the Total Board of Directors Approval by a majority vote of owners present at a special membership meeting Assessment may be lessened or rescinded by simple majority vote of the total owners 14

15 Provisions relating to existing condos KRS Existing and New Projects Control turned over to Homeowners not later than- 60 days after 75% units conveyed or 2 years after right to add more units expires 7 years after first unit conveyed other than declarant New Board Adopted Budget Process To owners within 30 days after Board adopts If an increase of greater than 15%, schedule a special meeting set to consider ratification Budget is deemed ratified unless a majority of total owners vote to reject the budget 15

16 Provisions relating to existing condos KRS Tort liability formula for developer, board, and owners Declarant/Developer cannot waive liability KRS Automatic Liens for assessments and fines 5-year lien limit - Includes collection costs and Legal Fees 16

17 Provisions relating to existing condos KRS 381.New Section # Director and Officer Conduct Standards Defines the Standard of conduct that already exists for not-for-profit corporations (KRS ) Improved definition of Fiduciary Responsibility Discharge their duties: In good Faith; On an informed basis; In the best interest of the association and members Extends standard of care to unincorporated condos 17

18 Provisions relating to new condos For condos filed after January 1, Provides for separate unit assessments Provides intent to modernize condo laws Provides severability of laws Provides obligation of good faith Provides for recording of declarations Provides for unit boundaries Provides for Declaration contents Provides for Leasehold Condominiums Provides for allocation of interest/voting 18

19 Provisions relating to new condos Provides for limited common elements Provides requirements for plats and plans Provides for development rights/duties Provides for alteration of units Provides for relocation of unit boundaries Provides for subdivision of units Provides for easements/encroachments Provides for Amendment rights Provides for rights of Termination Provides for Lenders Rights 19

20 Provisions relating to new condos Provides for Master Association Rights Provides for Merger/Consolidation Provides for Association Organization Provides for Transfer of Declarant Rights Provides for Bylaws requirements Provides for Upkeep/Maintenance Provides for Meeting Requirements Provides for Quorum Requirements Provides Rules for Voting and Proxies Provides for Common Element Conveyance/Encumbrance 20

21 Provisions relating to new condos Provides for Insurance Rights Provides Rules for Surplus Funds Provides Assessment Provisions Provides Rules for Other Liens Provides for Association as Trustee Provides Waiver Rules for Certificates Provides Rules upon Unit Resale Provides for Release of Liens Provides for Declarant s Duty to Complete and Restore 21

22 Revised Provisions relating to HB 433 Please refer to your additional Handout for HB 433 which contains all redline changes made to the prior Act. 22

23 Practical Impact on Managing your Condominium Association L. Thomas Richards, CMCA, AMS, PCAM President & Founder Community Management Associates, LLC. Past President CAI Kentucky Chapter Chair Legislative Action Committee -Kentucky 23

24 Key Takeaways 1. The rules have changed 2. Accountability of Boards & Directors has increased 3. Managing tomorrow the same way as you have for past ten years is asking for trouble (lawsuits) 4. Many aspects are more important 1. Disclosure documents 2. Recording Board Actions in Meeting Minutes 3. Financial Management 1. Improving quality of financial records 2. Budgeting & Budget approvals 3. Annual external reviews and audits 4. Long term financial planning 4. Owner Board communications 24

25 Impact on Board Operations Boards need to discharge their duties: In good faith; On an informed basis; In the best interest of the association & members Long Term Replacement and Financial Planning are more important Reserve Studies to plan Capital Expenditures Regular Dues Increases vs. Special Assessments Deferred maintenance leads to Death Spiral Maintain Accurate Minutes & Records Discussions of Special Assessments should be recorded and then disclosed 25

26 Financial Management KRS Financial records and Financial Statements in accordance with Generally Accepted Accounting Principles (GAAP) Annual external preparation of Financial Statements in accordance with the following income standards: <$100,000; Report of receipts and disbursements $100,001 & $250,000; Standards of Compilation $250,001 & $500,000: Standards of a Review >$500,001; Standards of an Audit Boards have the authority and sole discretion to increase the standard of preparation 26

27 Financial Information Disclosures Total Amount of Reserve Funds Capital Expenditure Plan Current Balance Sheet and Income & Expense Statements Current Year Budget Special Assessment History & Projection Report the date of the last available externally prepared financial statements 27

28 Resale Seller Disclosure KRS KREC form is in your handout as reference Form can be used but it is not required Header information identifies the property to be sold and its location Item A; association s right of first refusal Item B; amount of the monthly common expense assessment Item C; amount of all unpaid assessments Item D; any other unpaid amounts that are due Item E; Capital expenditures for the current year and the next two years 28

29 Resale Seller Disclosure KRS Item F; Amount of Reserves for Capital expenditures for the current year and the next two years Item G; Copies of the Current Operating Budget and most recent Balance Sheet and Income and Expense Statements Item H; Date of the most current financial report prepared for the association per KRS Item I; amount of any unsatisfied judgments against the association Item J; Disclosure of any legal suits in which the association is a named party and the amount in dispute or contest is more than $10,000 29

30 Resale Seller Disclosure KRS Item K; If the association maintains insurance attach a copy of the Insurance Certificate Item L; Disclosure of any leasehold estate Item M: Name and mailing address of the association manager or Authorized agent Signature of person preparing the certificate Attachments: Operating Budget, Balance Sheet and Income Statement Insurance Certificate Governing documents; Declaration, Articles of Incorporation, Bylaws and Rules of the association 30

31 Resale Seller Disclosure KRS Significant Considerations Recommend that the association add a disclaimer statement to the Certificate stating the information is accurate as of the date of issuance and that the information is subject to change at anytime without notice The association cannot deny the validity of any statement contained in the certificate Association may charge for the preparation in an amount not to exceed 80% of one month s assessment up to max $225 May charge $50 for an update to a previously issued certificate Association s need to keep track of every certificate issued for their own records Include a copy of the actual certificate 31

32 Where should a board start? All Board members review the Red line attachment contained in your handout Get association s financial records in order Have an accountant prepare last year s financial statements in accordance with KRS Update a Reserve Study or have one prepared Prepare a generic seller disclosure certificate and review as a board Implement a rolling five year financial plan Review board records Prepare a plan for tracking disclosure certificates 32

33 What about Patio Homes or Townhomes that aren t real Condominiums? The KUCA does not extend to other forms of Common Interest Communities (CIC), however; Buyers looking to purchase in Patio Home communities will quickly learn to ask for the same disclosure statement information Patio Homes and Townhomes without Reserves will likely become less desirable to buyers Many states have already moved to include these communities under their CIC law 33

34 What about Patio Homes or Townhomes that aren t real Condominiums? The rationale in creating the Law were to: Improve the financial and physical condition of the commonwealth s condominium properties Reduce the potential for extreme de-valuing of these properties in the future Improve consumer protection through requiring better, more reliable information be made available to owners and buyers Use the Law s requirements to improve your Patio Home and Townhome association 34