SF4035

Purpose

This bill aims to reform how common interest communities (CICs) operate in Minnesota. It focuses on limiting late charges, standardizing how associations handle fines and collections, and requiring disclosures to buyers. It also updates key definitions and governance rules for CICs, including condominiums, cooperatives, and planned communities, and clarifies roles for declarants, master associations, and unit owners.

Main Provisions

• Definitions and terminology (Section 1)

  • Expands and clarifies terms used in CICs, such as:
  • common elements, common expenses, allocated interests, association, board, master association, master declaration, master developer, declarant, special declarant rights, flexible and leasehold CICs, and types of CICs (condominium, cooperative, planned community).
  • Introduces specific definitions for construction defect claims and related concepts.
  • Distinguishes special declarant rights for CICs created before August 1, 2010 and those created on/after that date.

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

  • The association can:
  • adopt, amend, and revoke rules and regulations governing use of common elements and units.
  • regulate exterior appearances, including balconies, patios, window treatments, signs, and other displays.
  • regulate use of units, conduct of occupants, and safety/welfare concerns.
  • adopt budgets, levy and collect assessments, hire management, and enter contracts.
  • sue or defend in litigation and manage other typical governance activities.
  • New requirement: associations must adopt and provide a policy regarding fines. This policy must:
  • list violations that may incur fines and the fines’ amounts.
  • explain remedies available for violations.
  • be provided to prospective purchasers.
  • When fines or assessments are imposed, the association must send a dated written notice to the unit owner with details about the violation or charge, the amount, and the basis for the lien if unpaid.
  • If a unit owner disputes a fine or assessment, attorney fees costs cannot be charged to the owner without a hearing, and the owner must be allowed to be heard by the board or a committee.
  • The association can impose reasonable charges for reviewing and recording amendments to the declaration or for providing resale certificates and copies of records.
  • The association must provide for indemnification of officers and directors and maintain insurance.
  • The association must conduct meetings and elections with reasonable procedures.
  • Before pursuing construction defect claims against a development party, the association must provide notice to unit owners and obtain a majority vote of the total association votes (excluding certain prohibited votes, such as those owned by declarants or certain mortgagees). Voting may occur at a meeting or by electronic means or mailed ballots, with proxies allowed only under specified conditions.
  • Separate rules govern how votes by electronic means or mailed ballots are counted and quorum determined, and how proxies may be used.

• Assessments, reserves, and funding (Section 3)

  • Applies to CICs created before August 1, 2010 (with related provisions for older/newer CICs as noted).
  • If no common expense assessment has been levied, the declarant pays operating expenses and funds the replacement reserve requirement.
  • If assessments have been levied, all unit owners (including the declarant) pay their share, with special provisions:
  • The declarant’s liability may be limited to a specified portion (e.g., 25% or more) of the assessment until substantial completion of the units/building, as defined by a certificate of occupancy.
  • If a reduced assessment is provided, the declarant must make up any operating deficit within 60 days after the end of the declarant control period. The deficit amount is determined on an accrual basis as of that termination date.
  • Replacement reserves must be funded for each unit according to the projected annual budget, with funding beginning no later than substantial completion.
  • Assessments must be levied at least annually based on an approved budget.
  • The bill references compliance with existing state residential lending and homeownership programs (sections 500.215, 500.216, 500.217) and preserves certain protections for homeowners.

• Special declarant rights and governance

  • The bill outlines the scope of special declarant rights (for pre-2010 and post-2010 CICs) and provides limits to ensure they cannot be used to evade obligations or defeat the purpose of the governance framework.
  • It clarifies when and how declarants can appoint or remove officers/directors during declarant control and how master developers and master associations fit into the governance structure.

• Construction defect claims process

  • The association must notify unit owners of anticipated construction defect litigation and obtain owner approval by majority vote before pursuing such claims.
  • Votes can be conducted at meetings or via electronic means/mailed ballots, with safeguards on timing and quorum.
  • Provisions also address whether the association can intervene in or file construction defect claims and the timing of compliance.

Significant Changes to Existing Law

• Limiting late fee charges

  • Associations may not impose late fees exceeding 15% of the overdue installment, unless the declaration provides otherwise.

• Fines policy and disclosures

  • Associations must adopt a formal fines policy with a schedule of violations and fines, and must provide this policy to prospective purchasers. Fines and related notices must include explicit details about violations, amounts, and lien status.

• Notices, hearings, and collection rights

  • Clear requirements for written notices when fines or assessments are imposed.
  • Units owners have the right to a hearing before fines are upheld, and attorney fees cannot be charged during disputes unless after due process.

• Construction defect litigation process

  • New procedural requirements require notice to unit owners and majority owner approval before pursuing construction defect claims against development parties, with specified voting methods.

• Budgeting, reserves, and declarant responsibilities

  • Revisions to how replacement reserves are funded and when they begin, tied to substantial completion.
  • Clarified rules around declarant liability during the period of declarant control and how deficits are addressed.

• Special declarant rights and governance

  • Expanded and clarified definitions to better distinguish rights of declarants before and after certain dates, and to prevent abuse that would undermine the governance of CICs.

• Governance instruments and voting

  • Provisions regarding electronic voting and proxies, while preserving the need for in-person meetings to establish quorum in many cases.

Who is Affected

• Homeowners in Minnesota CICs (condominiums, cooperatives, and planned communities), including unit owners, declarants, master associations, and master developers.
• Associations for CICs, especially in the areas of fines, collections, governance, budgeting, reserves, and construction defect processes.

Relevant Terms - common interest community (CIC) - association - unit owner - declarant - special declarant rights - master association - master declaration - master developer - CIC plat - common elements - common expenses - allocated interests - board - budgets - assessments - replacement reserves - liens - fines policy - violations - construction defect claim - operating deficit - substantial completion - certificate of occupancy - first mortgage, first mortgagee - flexible common interest community - leasehold common interest community - planned community - condominium - cooperative - governing documents - resale certificate - electronic voting - proxies - notices and hearings

Relevant Terms (synonyms / related public usage) - homeowners association (HOA) (in public discussion often used to describe a unit owners association) - lien foreclosure - reserve funding - budgeting and reserve study - aesthetics and architectural control - enforcement and fines - due process in fines - construction defects and development party - voting rights and quorum - development rights and control period

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