This article is written for real estate developers, builders, lawyers, land planners, real estate brokers and other real estate professionals who want to know more about changes in Washington’s owner association and condominium statutes.
On July 1, 2018, major changes to Washington law governing homeowners and condominium owners associations took effect. Representing approximately 12 years of effort by lawyers, developers, builders and real estate professionals, these changes affect all aspects of owners’ associations, also known as “Common Interest Communities,” or “CICs” for short. The changes are contained in a new statute called the Washington Uniform Common Interest Ownership Act, or “WUCIOA,” which governs how CICs are created, governed, amended, operated and terminated. WUCIOA affects developers, owners, buyers, sellers, lenders, title insurance companies and existing homeowners and condominium owners associations.
Common Interest Communities
Common Interest Communities are a central term in WUCIOA. They include any real estate community or development where an owner of real estate must pay a share of expenses related to other real estate, simply by owning real estate in that community. The central element of a CIC is the sharing of the costs of operating a community with other owners. CICs come in three types: a planned community (such as a planned unit development); a condominium; and a cooperative. Planned communities are further divided between “plat communities” and “miscellaneous communities.”
Applicability and Exemptions
WUCIOA applies to all CICs created on or after July 1, 2018. On this day, a number of other statutes that govern condos and subdivisions no longer apply to CICs, including the Land Development Act (RCW Ch. 58.19), the Horizontal Property Regimes Act (RCW 64.32), the Washington Condominium Act (RCW 64.34) and the Homeowners Association Act (RCW 64.38). Note that these statutes still apply to condominiums and subdivisions created before July 1, 2018, unless those projects opt into the WUCIOA.
For certain small planned communities, only three sections of WUCIOA apply unless the small planned community opts into the statute. These provisions address separate titles and taxation, the application of local laws and eminent domain. A small planned community is one that has no more than 12 units and provides that the annual average assessment of any residential unit (excluding insurance premiums and optional user fees) is no more than $300 per year.
For pre-existing CICs (which exist before July 1, 2018), only two sections of WUCIOA apply – Section 120, which allows pre-existing CICs to opt-in to WUCIOA, and Section 326, which requires that associations prepare annual budgets and establishes standards for budget ratification.
Creating and Altering Common Interest Communities
CICs can only be created by recording a declaration and a map. Declarations are recorded like deeds. Maps are either a plat map for a plat community or a map that complies with WUCIOA for condominium and miscellaneous communities.
WUCIOA spells out in detail the requirements for declarations. For most attorneys, developers and real estate professionals who work with condominiums, the requirements will look familiar; however, for those professionals who work with homeowners associations and subdivisions, the declaration requirements will look substantially different.
Most changes to a declaration require at least a 67% affirmative vote. However, certain major changes, such as changing the boundaries of the CIC or increasing the number of units, require a 90% affirmative vote. These are minimum requirements that cannot be changed.
Some changes to a declaration require that lenders who have a security interest in owners’ units give permission to the change. WUCIOA also describes specific requirements for mergers and termination of CICs as well as changes to units and to common areas.
As those who deal with existing homeowners associations know, the laws which apply to HOAs was fairly sparse and scattered through Washington statutes. WUCIOA creates a uniform and organized set of rules and guidelines for those who manage CICs and the owners who live in CICs.
CICs are now required to have an entity (either a corporation or a limited liability company) formed for the association before the first unit is sold to a purchaser. All unit owners must be members. There must be a board of directors, and WUCIOA now prescribes the duties of care and loyalty that the association’s directors and officers must meet (basically, the association’s directors and officers have the same duty of care and loyalty as in a regular corporation). There are now limits on certain association powers, including the power to impose fines, deny access to unit owners, suspend the right to vote or services to owners, and assign the right to collect assessments.
WUCIOA also establishes rules for the holding and conducting of association meetings, quorums and voting; retention and management of association records; standards and limits for rulemaking; giving of notices and the providing of electronic notices; and the regulation of reserve accounts, among others.
Public Offering Statements
Article 4 of WUCIOA deals with consumer protection provisions. Among the more significant changes to the present law governing HOAs is that Article 4 now requires that “declarants and dealers” must deliver a disclosure document to prospective unit purchasers called a “public offering statement.” In the case of resales of units, unit owners must give to a prospective purchaser a disclosure document called a “resale certificate.” While these requirements have been in place for condominiums, they are new as to homeowner associations.
Public offering statements must provide certain information to the prospective purchasers, including information regarding the declarant and the community, and must contain copies of certain documents which were created in regard to the development of the community. These statements must be modified if any material changes occur prior to delivery to the prospective purchasers. Under WUCIOA, a prospective purchaser has seven days after receiving the statement to cancel the purchase contract without penalty.
Resale certificates are required for all sales unless there is a specific exemption or if the seller is already required to provide a public offering statement. Resale certificates must include copies of the governing documents and require certain disclosures about assessments and fees concerning the unit under contract and the association’s finances, liabilities and insurance. While the seller is required to provide the resale certificate, the association itself is required to prepare the certificate upon request.
WUCIOA is a major change to the laws governing condominiums and homeowners associations in Washington state. Real estate professionals, developers, builders and attorneys who work with residential real estate should become familiar with the provisions of WUCIOA and how it affects existing and future residential projects.
This article was originally featured in the July 19, 2018 edition of the Spokane Journal of Business. https://www.spokanejournal.com/local-news/new-statute-affects-condo-homeowners-associations/