HF3808

Purpose

• This bill aims to modernize oversight and governance of common interest communities (CICs) in Minnesota by clarifying definitions, expanding protections for unit owners, and increasing transparency around fines, collections, and how assessments are handled. It also tightens processes related to construction defect claims and the rights of developers (declarants) during the early development period.

Key Definitions and Terms

• Common interest community (CIC): Real estate where owners share common elements and pay for shared expenses.
• Declaration / Bylaws / Governing documents: Legal instruments that establish and regulate the CIC.
• Association: The unit owners’ board or equivalent entity that manages the CIC.
• Master association / Master declaration: An overarching entity and instrument that govern multiple related CICs or a larger development.
• Declarant: The developer or initial owner(s) of the CIC who maintain special rights during the development period.
• Special declarant rights: Specific powers reserved for the declarant, either for pre-August 2010 CICs or post-August 2010 CICs, including rights to complete improvements, add real estate, appoint directors, manage sales offices, and other development activities.
• Master developer: Person(s) designated as the master developer in the master declaration.
• Period of declarant control: Time period when the declarant may appoint or remove officers and directors of the association.
• Units / Common elements / Limited common elements: Individual ownership spaces, shared spaces, and portions of shared spaces allocated for specific use.
• Allocated interests / Common expense liability / Common expenses: The share of costs and voting rights assigned to each unit.
• First mortgage / Secured party: Financial interests in the CIC, including primary mortgage holders and other security interests.
• Construction defect claim: A civil action or arbitration for damages caused by defects in initial design or construction of improvements.
• Flexible / Leasehold / Planned community / Condominium / Cooperative: Types of CICs defined by ownership structure and how units and common elements are managed.
• Replacement reserve: Funds reserved for future major repairs and replacements.

Main Provisions and What the Bill Seeks to Accomplish

• Definitions and structure (Section 1)

  • Updates and clarifies definitions related to CICs, including what constitutes a CIC, condominium, cooperative, planned community, master association, master declaration, declarant, and related terms.
  • Introduces and clarifies special declarant rights with separate rules for CICs created before August 1, 2010 and those created on/after that date.
  • Defines key terms used throughout the law, such as allocated interests, common elements, and real estate components of CICs.

• Powers and duties of the unit owners association (Section 2)

  • The association can adopt, amend, and enforce rules and regulations concerning:
  • Use of common elements and units
  • Conduct that endangers health, safety, welfare, or damages to property
  • Exterior appearance, including balconies, patios, window treatments, signs, and displays
  • The association can prepare and manage budgets, hire agents/employees, enter into contracts, and acquire or convey property as part of the CIC.
  • The association may impose and collect assessments for common expenses, and may incur liabilities and defend in litigation on behalf of the CIC or unit owners.
  • The association may impose and collect late charges and fines for violations. However, there is a cap: late fees cannot exceed 15% of the installment amount unless the declaration provides otherwise.
  • The association must adopt and provide to every unit owner a policy regarding fines. This policy must include:
  • A representative list of violations that may incur a fine
  • A schedule of fine amounts
  • Remedies available for violations
  • The policy must also be provided to prospective purchasers.
  • If fines or assessments are levied, the association must send a dated written notice detailing:
  • The violation or assessment
  • The amount and reason
  • The specific section of the declaration/bylaws/rules allegedly violated
  • That unpaid fines/assessments can become liens and may lead to foreclosure
  • The unit owner’s right to a hearing
  • The availability of homeownership assistance from the Minnesota Homeownership Center
  • The association must follow due process for hearings and can’t charge attorney fees to a disputing owner for the hearing if the owner challenges the fine/assessment.
  • The association must comply with other state laws (e.g., sections 500.215, 500.216, 500.217) where applicable.
  • The association must post and file timely notices and provide for timely collection of fines and assessments, with opportunities for payment plans or adjustments as allowed.

• Construction defect claims process (Section 2, subsections e–f)

  • Before pursuing construction defect claims against a development party, the association must:
  • Mail or deliver written notice to unit owners describing the anticipated action, the nature of the claims, the relief sought, and how costs will be funded
  • Obtain approval from owners with majority votes of total association votes (excluding votes from declarants/affiliates or certain mortgagees)
  • Allow voting by electronic means or mailed ballots if permitted by law, but require a physical meeting for quorum purposes
  • Proxies require explicit reference to the notice
  • The association may initiate or participate in construction defect litigation, but failure to follow the notice/vote requirements can result in dismissal if not cured within a defined period.

• Assessments for common expenses (Sections 3)

  • For CICs created before August 1, 2010:
  • If no common expense assessment has been levied, the declarant pays operating expenses and funds the replacement reserve until substantial completion.
  • If assessments have been levied, all owners (including the declarant) pay their share. The declaration may cap the declarant’s liability (e.g., to 25% or more of the assessment) until substantial completion.
  • If a reduced assessment is provided for the declarant, the declarant must make up any operating deficit within 60 days after declarant control ends, using accrual accounting to determine the deficit.
  • Replacement reserves:
  • Funds are required for replacement reserves for each unit, starting no later than substantial completion.
  • Ongoing assessments:
  • Assessments are made at least annually based on an approved budget.
  • The bill emphasizes obtaining assistance from the Minnesota Homeownership Center when dealing with financial or governance issues.

• Special declarant rights (Sections 7.1–7.14)

  • Defines rights for pre-2010 and post-2010 CICs, including:
  • Completing improvements, adding real estate, subdividing or combining units, maintaining sales or management offices, using easements through common elements, creating or empowering a master association, and appointing/removing officers or directors during declarant control.
  • Prohibits using special declarant rights to evade other obligations or limitations imposed by the statute.

• Additional governance and process details (Various sections)

  • Clarifies that master associations and master declarations exist where applicable and that development-related powers can be exercised with appropriate oversight.
  • Strengthens procedural requirements around governance, elections, and meetings.
  • Ensures that certain relationships with declarants and affiliates are not used to circumvent protections for unit owners.

Significant Changes to Existing Law

• Fines and late charges:
  • Establishes a clear cap on late charges (not exceeding 15%), and requires a formal fines policy with a schedule and list of violations.
• Disclosure and notice requirements:
  • Requires associations to provide fines policies to prospective buyers and to include detailed notices when fines or assessments are levied.
• Construction defect claims:
  • Imposes a formal notice and owner-approval process before pursuing construction defect claims, with voting rules and timelines.
• Assessments and reserves:
  • Clarifies how assessments are allocated, the declarant’s potential liability during the development period, and mandatory funding of replacement reserves with a defined timeline.
• Special declarant rights:
  • Distinguishes between rights applicable to pre-2010 and post-2010 CICs and restricts the use of rights to evade obligations.
• Governance structures:
  • Reconfirms and clarifies powers of the unit owners association, including budgets, enforcement, contracts, and the ability to manage common elements; aligns with modern governance expectations.

Practical Implications

• For unit owners:
  • Stronger protections against excessive fines and more transparent, documented processes for fines and collections.
  • Clear rights to hearings and due process when fines or assessments are challenged.
  • Greater transparency around construction defect campaigns and related funding.
• For developers/declarants:
  • Reduced ability to leverage special declarant rights to bypass future obligations.
  • Clear timelines and conditions around declarant control and transition of control to the association.
• For associations:
  • More structured processes for budgets, reserves, and long-term financial planning.
  • Required policies and notices to improve buyer information and governance accountability.

Relevant Terms common interest community, declaration, bylaws, governing documents, association, master association, master declaration, declarant, special declarant rights (pre-2010, post-2010), period of declarant control, unit, ownership, common elements, limited common elements, common expenses, common expense liability, allocated interests, replacement reserve, budgets, assessments, late charges, fines policy, due process, hearing, lien, foreclosure, construction defect claim, development party, master developer, flexible CIC, leasehold CIC, cooperative, condominium, planned community, first mortgage, secured party, notices, electronic voting, proxies, homeownership assistance, Minnesota Homeownership Center.