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Alerts and Updates

Pennsylvania Amends Statutes Affecting Condominiums, Cooperatives and Planned Communities

December 14, 2018

Pennsylvania Amends Statutes Affecting Condominiums, Cooperatives and Planned Communities

December 14, 2018

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Because the scope and operation of many of the provisions of the Amendments are not entirely clear from the mere text, associations, developers, unit owners and lenders will need more guidance on how to comply with some of these Amendments. True clarity may only come from further amendments or by judicial interpretation in litigation.

On October 19, 2018, Governor Tom Wolf signed Act No. 2018-84 that will amend Pennsylvania’s Uniform Condominium Act, Real Estate Cooperative Act and Uniform Planned Community Act. The Amendments become effective on December 18, 2018, and will affect various operations of―and the rights and obligations of associations, unit owners, developers and lenders in―all common-interest ownership projects and communities.

Below is a summary of many of the changes made by the Amendments. Some will apply to condominiums, cooperatives and planned communities, while others only apply to planned communities. Some amendments will apply to declarations recorded after the Amendments become effective. Others will apply to existing and newly created communities or projects. And, as to some, the applicability is not entirely clear. Although the Amendments have an effective date, there are no transition provisions to explain their application to existing condominiums, cooperatives and planned communities.

Changes for Condominiums, Cooperatives and Planned Communities

The Amendments’ first change appears to affect only those projects for which a declaration is recorded after the Amendments become effective (or where an existing declaration is amended after that date to assign an association or unit owners responsibilities regarding operation or maintenance of storm water management facilities). If the declaration assigns an association or unit owner responsibility for the operation and maintenance of storm water management facilities, the declaration must include a statement that “upon approval of the permittee’s notice of termination by the Department of Environmental Protection or by an authorized county conservation district,” the association or unit owner then will become responsible for the storm water management facilities’ permit terms and conditions “including long-term operation and maintenance of postconstruction storm water best practices in accordance with applicable requirements.” However, the declarant remains responsible “for compliance with other obligations with respect to storm water management facilities as may be required by the approved subdivision and land development plans, the declaration or this [Act] until such time as the obligations of the declarant may cease.”

― While the obligations of the association or unit owner will be “postconstruction,” the language is not very clear on either the scope of the declarant’s obligations or when those obligations will end.

In addition to levying reasonable fines for delinquent assessments or violations of the declaration, bylaws, or rules and regulations of the association, an association will have the power to “suspend unit owners’ rights, including, without limitation, the right to vote, to serve on the board or committees and right of access to common elements, recreational facilities or amenities.”

― This language raises some interesting questions. A unit owner whose assessments are delinquent may be denied access to the community’s pool, but will the association be permitted to bar the delinquent unit owner from driving on the private roads that are common elements in the community? Furthermore, the Amendments list these unit owner rights specifically, but indicates that others may be suspended. To what other unit owner rights might this suspension power apply?

If an election of the association’s executive board (in which at least a majority of the members are unit owners) has not taken place prior to the termination of the period of declarant’s control of the association, then any executive board member who was elected by the unit owners may call a special meeting for the unit owners to do so. If there is no executive board member elected by the unit owners, then unit owners holding at least 10 percent of the votes in the association may call that special meeting.

― It is clear that this right would apply to an association of a community whose declaration is filed after the effective date of the Amendments. But does it also apply to an association in an existing community where the declarant has not yet turned over control of the association to the unit owners?

 The Acts already provide that the conveyance or encumbrance of common elements in a condominium, part of the cooperative or portions of common facilities in a planned community, respectively, is void unless done in accordance with requirements specified in the applicable Act. Those requirements include obtaining approval of persons holding at least 80 percent of the votes in the association in a condominium or planned community, and at least 66.66  percent of the votes in a cooperative (or a higher percentage if specified in the applicable declaration). The Amendments specify that a “tax sale” or “involuntary transfer” of common elements (for condominiums), of part of the cooperative (for cooperatives) and of common facilities (for planned communities), as well as the “judicial sale” of a portion of cooperative, must also comply with these requirements.

― The application of these unit owner approval requirements to a tax sale, involuntary sale or judicial sale raises some interesting questions. Will a lender who has made a bank loan to an association secured by an interest in some portion of a condominium’s common elements, part of a cooperative or planned community’s common facilities (and obtained the required unit owner approval for the loan) be required obtain a separate approval from the unit owner after the association has defaulted in order to complete the foreclosure of the mortgaged property?

An “interest in common elements,” “part of the cooperative” or “an interest in common facilities,” respectively, that is conveyed or subjected to an encumbrance will remain subject to the declaration after such conveyance or encumbrance unless specifically provided otherwise in the deed or agreement of conveyance or encumbrance.

― Lenders should consider the impact of this Amendment. If a portion of a common elements or common facilities or a part of a cooperative has been encumbered by a mortgage that predates the effective date of the Amendments, will that mortgage need to be amended in order for the lender to take back the mortgaged property free of the declaration after a mortgage default?

Before conveying a unit to a purchaser other than the declarant and before the declarant conveys any real estate to the association, the declarant has been required to have the real estate released from all liens. The Amendments refer to “liens” as “including, without limitation, real estate taxes” in the case of a declarant conveying real estate to the association, but the same language is not included in the provision regarding conveyances to purchasers.

― Why was the same language referring to “real estate taxes” not also included for a declarant conveying a unit to a purchaser free of liens, and what is the implication of its absence?

Changes are being made to the time period within which an association has the right to bring an action to enforce a claim against a declarant for the statutory warranty against structural defects. The period had been six years from when the warranty begins. The Amendments make the deadline six years after the warranty begins or two years after the unit owners elect an executive board, whichever is later―thereby potentially stretching the time for a warranty claim if there has not been an executive board election after the termination of declarant control.

― Will this Amendment serve to reinstate a period for an association to bring a warranty claim in a community where the former six-year period has already expired but there has not yet been an election of an executive board controlled by the unit owners?

The most puzzling Amendment (which applies only to planned communities) relates to certain special rights that a declarant can retain: (i) to cause provisions of the Act regarding master associations to apply to the planned community; (ii) to merge or consolidate the planned community with another planned community; (iii) to subject any portion of the planned community to an easement in favor of anyone who is not an owner or occupant of a unit; or (iv) to designate as a common facility any portion of a planned community or any improvement or facility then existing or contemplated for the planned community. For a declarant to retain any of these rights, the Planned Community Act has required the declarant to include in the declaration appropriate disclosures and information about the parameters of and what to expect from the exercise of these special rights. The Amendment provides that if the declarant “preserved the rights” described above, “the declarant’s failure to include in the declaration any of the provisions or statements” that the Act required for each of the rights preserved “shall not affect the enforceability of the provisions or statements as if they were included in the declaration.”

― Is this Amendment intended only to apply to declarations which, as of the effective dates of the amendments, “preserved” one of the rights prior to the Amendment’s effective date, or is it to apply for future declarations to allow the specific provisions for a particular right to be omitted? If the purpose of the required provisions or statements is to provide disclosure of how the planned community and its unit owners are to be affected by the exercise of the preserved rights and to provide certain specifics about those rights with the declaration stating the parameters of the rights if exercised by the declarant, how are such unstated “provisions or statements” to be enforced? Without the specifics provided in the declaration for the particular right reserved, what is there to enforce? And by whom, and against whom, are they to be enforced?

Because the scope and operation of many of the provisions of the Amendments are not entirely clear from the mere text, associations, developers, unit owners and lenders will need more guidance on how to comply with some of these Amendments. True clarity may only come from further amendments or by judicial interpretation in litigation.

Associations, executive boards, declarants, and unit owners and lenders should consider how these Amendments will affect their respective rights and obligations and the operations of the common-interest communities in which they have interests.

For Further Information

If you have questions about these Amendments or this Alert, please contact David I. Haas, Aaron R. Feinblatt, any of the Pennsylvania attorneys in our Real Estate Practice Group or the attorney with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.