Condo Law Changes

NEW CONDOMINIUM LAW CHANGES

NEW CONDO RESERVE ACCOUNT STUDY AND DISCLOSURE REQUIREMENT

The 2008 Washington Legislature passed a new law with regard to condominium association reserve accounts and reserves studies which became effective on July 12, 2008.  The law applies to all condominiums created within this state after July 1, 1990. 

The new law starts off with apparently inconsistent language, which says:

An association is encouraged to establish a reserve account to fund major maintenance, repair and replacement of common elements, including limited common elements that will require major maintenance, repair or replacement within 30 years.  A reserve account shall be established in the name of the association [emphasis added].

The statute then requires any condo Association, “unless doing so would impose an unreasonable hardship”, to prepare and update a “reserve study”, which must be updated annually, and must be based upon a visual site inspection conducted by a “reserve study professional” at least every three years. 

A reserve study must include, among other things:

1. A reserve component list.
2. The date of the study.
3. The level of the reserve study performed (full reserve study, an update with visual site inspection, or an update with no visual site inspection).
4. The reserve account balance.
5. The percentage of the fully funded balance that the reserve account is funded.
6. Special assessments already implemented or planned.
7. Interest and inflation assumptions.
8. Current reserve account contribution rate.
9. Recommended reserve account contribution rate.
10. Projected reserve account balance for 30 years and a funding plan to pay for projected costs.
11. Whether the reserve study was prepared with the assistance of a reserve study professional. 

The reserve study must include the following disclosure:

If more than three years have passed since the date of the last reserve study prepared by a reserve study professional, the owners of 20% of the units may demand that the cost of a reserve study be included in the next budget.  If the demand is made and a reserve study is not prepared (even if the budget is rejected by the owners) a court may order specific performance and award reasonable attorney’s fees to the prevailing party in an action brought to enforce the requirement, unless the association can prove that preparation of the study would be in “unreasonable hardship”, which is defined to include (at least) a situation where the cost of preparing a reserve study would exceed 10% of the Association’s annual budget. 

The act applies to all condominiums created within Washington after July 1, 1990.

The new law requires that a copy of the Association’s current reserve study, if any, must be included as part of the public offering statement.  If the Association does not have a reserve study complying with the act, the public offering statement must include the statement:

This Association does not have a current reserve study.  The lack of a current reserve study poses certain risks to you, the purchaser.  Insufficient reserves may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a common element.

A resale certificate in connection with the sale of an existing unit must also have a copy of the current reserve study, or if none, the same statements set forth above.

The new act is going to require a substantial and ongoing expense for virtually every condominium association.  It will also require the maintenance of a specific reserve fund, with its related administrative costs and the possibility of misappropriation if it is not properly managed.  The reserve fund will certainly contain significant amounts of money for any medium to large condominium complex.  The qualifications of a “reserve study professional” are somewhat vague, and we anticipate that a number of persons presently engaged in the home inspection business will hold themselves out as qualified for this purpose.  In other words, we have significant concerns regarding the requirements of this act, and encourage condominium association board members and management to consult counsel regarding compliance.

NEW LAW REGULATES CONVERSION CONDOMINIUMS

The Washington Legislature passed, and the Governor signed, a new law with regard to conversion condominiums.  Among the changes are the following:

Notice of Condominium Conversion.   A condominium declarant must give existing apartment tenants 120 days notice of the conversion of the apartment into a condominium (instead of the current 90 days notice) and may not require that the tenant vacate the apartment before that 120-day period has expired. The notice must include information about any city or county relocation assistance program.  Local jurisdictions may require that declarants also submit a copy of the notice to the appropriate city or county department or agency.

City or County Requirements - Relocation Assistance and Construction Commencement. A city or county may require that:

(1) The declarant pay relocation assistance to tenants who:

• elect not to purchase a unit;
• are in lawful occupancy of a unit; and
• whose household income is below 80 percent of the median income.

Required relocation assistance may not exceed three months of an eligible tenant's rent at the time of the conversion notice, except in the case of eligible elderly or special needs tenants. Elderly tenants are persons at least 65 years of age and special needs tenants are persons with a mental or physical disability, disease, chemical dependency, or permanent medical condition. Such tenants may receive the greater of:

• three months of the tenant's or subtenant's rent; or
• actual costs of relocation which may include costs associated with securing replacement housing, up to a maximum of $1,500 in excess of the sum of three months of the tenant's or subtenant's rent.

Relocation assistance is exempt from the local government restriction on the imposition of fees on development of residential buildings.

(2)  Interior construction for the purpose of converting buildings into condominiums may not commence during the 120-day notice period unless:

• all residential tenants who have not elected to purchase a unit and who are in lawful occupancy in the building have vacated; or
• the declarant has offered existing tenants the opportunity to terminate their existing lease or rental agreement without cause or consequence, and then only to prepare vacant units to be used as model units or for a sales office.

Regardless of the circumstance, construction must not violate a tenant's right of quiet enjoyment during the 120-day notice period.

These provisions do not apply to any conversion condominiums for which a legal notice of conversion has been delivered to tenants before the effective date of the act, which is August 1, 2008.

Cities and counties planning under the Growth Management Act (GMA) are required to report annually to the Department of Community, Trade and Economic Development (DCTED) on condominium conversions occurring within their jurisdictions. Cities and counties may require declarants to provide required information to the appropriate city or county department. Information to be reported must include:

• the total number of apartment units converted into condominiums;
• the total number of condominium conversion projects; and
• the number of tenants who receive relocation assistance.