MISSISSIPPI LEGISLATURE
2014 Regular Session
To: Judiciary A
By: Representative Nelson
AN ACT TO CREATE STATE UNIFORM LAW ON THE FORMATION AND LEGAL ADMINISTRATION OF HOMEOWNERS' ASSOCIATIONS; TO DEFINE TERMS USED IN THE PROVISIONS OF THIS ACT; TO PROVIDE THAT MEMBERSHIP OF A HOMEOWNERS' ASSOCIATION SHALL CONSIST ONLY OF OWNERS OF REAL PROPERTY IN THE JURISDICTION OF THE ASSOCIATION; TO PROVIDE FOR THE ORGANIZATION AND STRUCTURE OF AN ASSOCIATION; TO PROVIDE FOR THE TERMINATION OF CERTAIN CONTRACTS ENTERED INTO BY THE ASSOCIATION'S BOARD OF DIRECTORS; TO PRESCRIBE THE POWERS AND DUTIES OF THE ASSOCIATION AND ITS BOARD OF DIRECTORS; TO PROVIDE THE MANNER BY WHICH MEMBERS OF THE BOARD MAY BE REMOVED; TO PROVIDE A PROCEDURE TO ALLOW THE BOARD OF DIRECTORS OF AN ASSOCIATION TO AMEND THE GOVERNING DOCUMENTS TO REMOVE DISCRIMINATORY PROVISIONS CONTAINED THEREIN; TO ALLOW THE JUDICIARY TO ENFORCE A PROVISION OF THE GOVERNING DOCUMENTS DEEMED BY THE COURT TO BE UNCONSCIONABLE; TO PRESCRIBE THE INFORMATION TO BE CONTAINED IN THE ASSOCIATION BYLAWS; TO PROHIBIT THE GOVERNING DOCUMENTS FROM PROHIBITING THE DISPLAY OF THE UNITED STATES FLAG; TO PROHIBIT UNREASONABLE RESTRICTIONS ON THE INSTALLATION OR USE OF ENERGY EFFICIENCY MEASURES; TO ESTABLISH THE PROCEDURE TO BE FOLLOWED IN CONDUCTING MEETINGS OF THE BOARD AND WHAT CONSTITUTES A QUORUM; TO PROVIDE DISCLOSURE OF FINANCIAL AND CERTAIN OTHER INFORMATION OF THE ASSOCIATION'S STATUS TO HOMEOWNERS WITHIN THE ASSOCIATION; TO PROVIDE A REMEDY IN LAW OR EQUITY FOR VIOLATIONS OF THIS ACT; TO PROVIDE FOR THE ESTABLISHMENT OF RESERVE ACCOUNTS WITH FINANCIAL INSTITUTIONS TO FUND MAJOR MAINTENANCE, REPAIR AND REPLACEMENT OF COMMON ELEMENTS; TO REQUIRE THE PREPARATION OF A RESERVE STUDY AT LEAST EVERY THREE YEARS BY A RESERVE STUDY PROFESSIONAL; TO PRESCRIBE THE INFORMATION TO BE CONTAINED IN THE RESERVE STUDY; TO AUTHORIZE THE CONDITIONED WITHDRAWAL OF FUNDS FROM THE RESERVE ACCOUNT FOR UNFORESEEN OR UNBUDGETED EXPENDITURES; TO PLACE A LIMITATION ON THE AMOUNT OF FINES IMPOSED UPON A HOMEOWNER; TO EXEMPT THE ASSOCIATION OR HOMEOWNER FROM LIABILITY FOR THE ACTS OR OMISSIONS OF THE DEVELOPER IN CONNECTION WITH ANY PART OF THE COMMON AREAS; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. The intent of this chapter is to provide consistent laws regarding the formation and legal administration of homeowners' associations.
SECTION 2. For purposes of this act, the following terms shall have the meanings ascribed in this section, unless the context clearly indicates otherwise:
(a) "Assessment" means all sums chargeable to an owner by an association.
(b) "Baseline funding plan" means establishing a reserve funding goal of maintaining a reserve account balance above zero dollars throughout the thirty-year study period described under Sections 19 and 20 of this act.
(c) "Board of directors" or "board" means the body, regardless of name, with primary authority to manage the affairs of the association.
(d) "Common areas" means property owned, or otherwise maintained, repaired or administered by the association.
(e) "Common expense" means the costs incurred by the association to exercise any of the powers provided for in this chapter.
(f) "Contribution rate" means, in a reserve study as described in Sections 19 and 20 of this act, the amount contributed to the reserve account so that the association will have cash reserves to pay major maintenance, repair, or replacement costs without the need of a special assessment.
(g) "Effective age" means the difference between the estimated useful life and remaining useful life.
(h) "Full funding plan" means setting a reserve funding goal of achieving one hundred percent (100%) fully funded reserves by the end of the thirty-year study period described under Sections 19 and 20 of this act, in which the reserve account balance equals the sum of the deteriorated portion of all reserve components.
(i) "Fully funded balance" means the current value of the deteriorated portion, not the total replacement value, of all the reserve components. The fully funded balance for each reserve component is calculated by multiplying the current replacement cost of the reserve component by its effective age, then dividing the result by the reserve component's useful life. The sum total of all reserve components' fully funded balances is the association's fully funded balance.
(j) "Governing documents" means the articles of incorporation, bylaws, plat, declaration of covenants, conditions, restrictions, rules and regulations of the association, or other written instrument by which the association has the authority to exercise any of the powers provided for in this chapter or to manage, maintain, or otherwise affect the property under its jurisdiction.
(k) "Homeowners' association" or "association" means a corporation, unincorporated association, or other legal entity, composed of members which are owners of residential reserve property located within the association's jurisdiction, as described in the governing documents, and by virtue of membership or ownership of property are obligated to pay real property taxes, insurance premiums, maintenance costs, or for improvement of common areas or other real property within the association's jurisdiction other than that which is owned by the member.
(l) "Lot" means a physical portion of the real property located within an association's jurisdiction designated for separate ownership.
(m) "Owner" means the title holder of a lot, but does not include a person who has an interest in a lot solely as security for an obligation.
(n) "Remaining useful life" means the estimated time, in years, before a reserve component will require major maintenance, repair or replacement to perform its intended function.
(o) "Replacement cost" means the current cost of replacing, repairing, or restoring a reserve component to its original functional condition.
(p) "Reserve component" means a common element whose cost of maintenance, repair or replacement is infrequent, significant, and impractical to include in an annual budget.
(q) "Reserve study professional" means an independent person who is suitably qualified by knowledge, skill, experience, training or education to prepare a reserve study in accordance with Section 20 of this act.
(r) "Residential real property" means any real property, the use of which is limited by law, covenant or otherwise to primarily residential or recreational purposes.
(s) "Significant assets" means that the current replacement value of the major reserve components which are seventy-five percent (75%) or more of the gross budget of the association, excluding the association's reserve account funds.
(t) "Useful life" means the estimated time, between years, that major maintenance, repair or replacement is estimated to occur.
SECTION 3. The membership of an association at all times shall consist exclusively of the owners of all real property over which the association has jurisdiction, both developed and undeveloped.
SECTION 4. (1) When a homeowner's association is required by a governing authority, as a condition of the approval for development of land, such association shall be organized by the developer no later than the date the first lot in the subdivision is conveyed to a purchaser. The membership of the association at all times shall consist exclusively of all owners or their heirs, personal representatives, successors or assigns. The association shall be organized as a nonprofit, not-for-profit or for-profit corporation or as a limited liability company in accordance with the laws of the State of Mississippi; except that the failure of the association to incorporate or organize as a limited liability company will not adversely affect either the existence of the subdivision for purposes of this act or the rights of persons acting in reliance upon such existence. Neither the choice of entity nor the organizational structure of the association shall be deemed to affect its substantive rights and obligations under this act.
(2) Not later than sixty (60) days after conveyance of twenty-five percent (25%) of the lots that may be created within the subdivision to owners other than the developer, a board of directors of the association shall be established with at least one (1) member and not less than twenty-five percent (25%) of the members of a board of directors who must be elected by the owners other than the developer.
(3) Not later than sixty (60) days after conveyance of fifty percent (50%) of the lots that may be created within the subdivision to owners other than the developer, not less than thirty-three and one-third percent (33-1/3%) of the members of the board of directors must be elected by the owners other than the developer. Thereafter, the procedure for electing the board of directors shall be as set forth in the bylaws of the association.
SECTION 5. The following contracts and leases, if entered into before the board of directors elected by the owners pursuant to Section 4 of this act takes office, may be terminated without penalty by the association, at any time after the board of directors elected by the owners pursuant to Section 4 of this act takes office, upon not less than ninety (90) days' notice to the other party:
(a) Any management contract, employment contract, or lease of recreational or parking areas or facilities;
(b) Any other contract or lease between the association, the developer or an affiliate of the developer; or
(c) Any contract or lease that is not bona fide or was unconscionable to the owners at the time entered into under the circumstances then prevailing.
SECTION 6. Unless otherwise provided in this act or the governing documents, an association may:
(a) Adopt and amend bylaws, rules and regulations;
(b) Adopt and amend budgets for revenues, expenditures, and reserves, and impose and collect assessments for common expenses from owners;
(c) Hire and discharge or contract with managing agents and other employees, agents and independent contractors;
(d) Institute, defend or intervene in litigation or administrative proceedings in its own name on behalf of itself or two (2) or more owners on matters affecting the homeowner's association, but not on behalf of owners involved in disputes that are not the responsibility of the association;
(e) Make contracts and incur liabilities;
(f) Regulate the use, maintenance, repair, replacement and modification of common areas;
(g) Cause additional improvements to be made as a part of the common areas;
(h) Acquire, hold, encumber and convey in its own name any right, title or interest to real or personal property that it possesses;
(i) Grant easements, leases, licenses and concessions through or over the common areas and petition for or consent to the vacation of streets and alleys;
(j) Impose and collect any payments, fees or charges for the use, rental, or operation of the common areas;
(k) Impose and collect charges for late payments of assessments and, after notice and an opportunity to be heard by the board of directors or by the representative designated by the board of directors and in accordance with the procedures as provided in the bylaws or rules and regulations adopted by the board of directors, levy reasonable fines in accordance with a previously established schedule adopted by the board of directors and furnished to the owners for violation of the bylaws, rules and regulations of the association;
(l) Exercise any other powers conferred by the bylaws;
(m) Exercise all other powers that may be exercised in this state by the same type of corporation as the association; and
(n) Exercise any other powers necessary and proper for the governance and operation of the association.
SECTION 7. (1) Except as provided in the association's governing documents or this chapter, the board of directors shall act in all instances on behalf of the association. In the performance of their duties, the officers and members of the board of directors shall exercise the degree of care and loyalty required of an officer or director of a corporation.
(2) The board of directors shall not act on behalf of the association to amend the articles of incorporation, to take any action that requires the vote or approval of the owners, to terminate the association, to elect members of the board of directors, or to determine the qualifications, powers, and duties, or terms of office of members of the board of directors; but the board of directors may fill vacancies in its membership of the unexpired portion of any term.
(3) Within thirty (30) days after adoption by the board of directors of any proposed regular or special budget of the association, the board shall set a date for a meeting of the owners to consider ratification of the budget not less than fourteen (14) nor more than sixty (60) days after mailing of the summary. Unless at that meeting the owners of a majority of the votes in the association are allocated or any larger percentage specified in the governing documents reject the budget, in person or by proxy, the budget is ratified, whether or not a quorum is present. In the event the proposed budget is rejected or the required notice is not given, the periodic budget last ratified by the owners shall be continued until such time as the owners ratify a subsequent budget proposed by the board of directors.
(4) As part of the summary of the budget provided to all owners, the board of directors shall disclose to the owners:
(a) The current amount of regular assessments budgeted for contribution to the reserve account, the recommended contribution rate from the reserve study, and the funding plan upon which the recommended contribution rate is based;
(b) If additional regular or special assessments are scheduled to be imposed, the date the assessments are due, the amount of the assessments per owner per month or year, and the purpose of the assessments;
(c) Based upon the most recent reserve study and other information, whether currently projected reserve account balances will be sufficient at the end of each year to meet the association's obligation for major maintenance, repair, or replacement of reserve components during the next thirty (30) years;
(d) If reserve account balances are not projected to be sufficient, what additional assessments may be necessary to ensure that sufficient reserve account funds will be available each year during the next thirty (30) years, the approximate dates assessments may be due, and the amount of the assessments per owner per month or year;
(e) The estimated amount recommended in the reserve account at the end of the current fiscal year based on the most recent reserve study, the projected reserve account cash balance at the end of the current fiscal year, and the percent funded at the date of the latest reserve study;
(f) The estimated amount recommended in the reserve account based upon the most recent reserve study at the end of each of the next five (5) budget years, the projected reserve account cash balance in each of those years, and the projected percent funded for each of those years; and
(g) If the funding plan approved by the association is implemented, the projected reserve account cash balance in each of the next five (5) budget years and the percent funded for each of those years.
(5) The owners by a majority vote of the voting power in the association present, in person or by proxy, and entitled to vote at any meeting of the owners at which a quorum is present, may remove any member of the board of directors with or without cause.
SECTION 8. (1) The association, acting through a simple majority vote of its board of directors, may amend the association's governing documents for the purpose of removing:
(a) Every covenant, condition or restriction that purports to forbid or restrict the conveyance, encumbrance, occupancy or lease thereof to individuals of a specified race, creed, color, sex or national origin; families with children status; individuals with any sensory, mental or physical disability; or individuals who use a trained dog guide or service animal because they are blind or deaf or have a physical disability; and
(b) Every covenant, condition, restriction or prohibition, including a right of entry or possibility of reverter, that directly or indirectly limits the use or occupancy of real property on the basis of race, creed, color, sex or national origin; families with children status; the presence of any sensory, mental or physical disability; or the use of a trained dog guide or service animal by a person with a physical disability or who is blind or deaf.
(2) Upon the board of director's receipt of a written request by a member of the association that the board exercise its amending authority granted under subsection (1) of this section, the board must, within a reasonable time, amend the governing documents, as provided under this section.
(3) Amendments under subsection (1) of this section may be executed by any board officer.
(4) Amendments made under subsection (1) of this section must be recorded in the association's records and state the following:
"This amendment strikes from these covenants, conditions and restrictions those provisions that are void under Section 8 of this act. Specifically, this amendment strikes:
(a) Those provisions that forbid or restrict use, occupancy, conveyance, encumbrance or lease of real property to individuals of a specified race, creed, color, sex or national origin; families with children status; individuals with any sensory, mental or physical disability; or individuals who use a trained dog guide or service animal because they are blind or deaf or have a physical disability; and
(b) Every covenant, condition, restriction or prohibition, including a right of entry or possibility of reverter, that directly or indirectly limits the use or occupancy of real property on the basis of race, creed, color, sex or national origin; families with children status; the presence of any sensory, mental or physical disability; or the use of a trained dog guide or service animal by a person with a physical disability or who is blind or deaf."
(5) Board action under this section does not require the vote or approval of the owners.
(6) Any owner, occupant, or tenant in the association or board may bring an action in chancery court to have any provision of a written instrument that is void pursuant to Section 8 of this act stricken from the public records.
(7) Nothing in this section prohibiting discrimination based on families with children status applies to housing for older persons as defined by the Federal Fair Housing Amendments Act of 1988, 42 USCS Section 3607(b)(1) through (3), as amended by the Housing for Older Persons Act of 1995, P.L. 104-76, as enacted on December 28, 1995. Nothing in this section authorizes requirements for housing for older persons different than the requirements in the Federal Fair Housing Amendments Act of 1988, 42 USCS Section 3607(b)(1) through (3), as amended by the Housing for Older Persons Act of 1995, P.L. 104-76, as enacted on December 28, 1995.
(8) Except as otherwise provided in subsection (2) of this section:
(a) Nothing in this section creates a duty on the part of owners, occupants, tenants, associations or boards to amend the governing documents as provided in this section, or to bring an action as authorized under this section; and
(b) An owner, occupant, tenant, association or board is not liable for failing to amend the governing documents or to pursue an action in court as authorized under this section.
SECTION 9. The court, upon finding as a matter of law that a clause within the governing documents is unconscionable, may refuse to enforce the clause, enforce the remainder of the governing documents without the unconscionable clause, or limit the application of any unconscionable clause in order to avoid an unconscionable result.
SECTION 10. Unless provided for in the governing documents, the bylaws of the association shall provide for:
(a) The number, qualifications, powers and duties, terms of office, and manner of electing the board of directors subsequent to the election set forth in Section 4 of this act, the manner of removing the board of directors, the manner of electing and removing officers and the method of filling vacancies;
(b) Election by the board of directors of the officers of the association as the bylaws specify;
(c) Which, if any, of its powers the board of directors or officers may delegate to other persons or to a managing agent;
(d) Which of its officers may prepare, execute, certify and record amendments to the governing documents on behalf of the association;
(e) The method of amending the bylaws; and
(f) Subject to the provisions of the governing documents, any other matters the association deems necessary and appropriate.
SECTION 11. (1) The governing documents may not prohibit the outdoor display of the flag of the United States by an owner or resident on the owner's or resident's property if the flag is displayed in a manner consistent with Federal Flag Display Law, 4 USCS Section 1 et seq. The governing documents may include reasonable rules and regulations, consistent with 4 USCS Section 1 et seq., regarding the placement and manner of display of the flag of the United States.
(2) The governing documents may not prohibit the installation of a flagpole for the display of the flag of the United States. The governing documents may include reasonable rules and regulations regarding the location and the size of the flagpole.
(3) For purposes of this section, "flag of the United States" means the flag of the United States as defined in Federal Flag Display Law, 4 USCS Section 1 et seq., that is made of fabric, cloth or paper and that is displayed from a staff or flagpole or in a window. For purposes of this section, "flag of the United States" does not mean a flag depiction or emblem made of lights, paint, roofing, siding, paving materials, flora or balloons, or of any similar building, landscaping or decorative component.
SECTION 12. (1) (a) Notwithstanding any provision in the declaration, bylaws, or rules and regulations of the association to the contrary, an association shall not effectively prohibit the installation or use of an energy efficiency measure.
(b) As used in this section, "energy efficiency measure" means a device or structure that reduces the amount of energy derived from fossil fuels that is consumed by a residence or business located on the real property. "Energy efficiency measure" is further limited to include only the following types of devices or structures:
(i) An awning, shutter, trellis, ramada or other shade structure that is marketed for the purpose of reducing energy consumption;
(ii) A garage or attic fan and any associated vents or louvers;
(iii) An evaporative cooler;
(iv) An energy-efficient outdoor lighting device, including, without limitation, a light fixture containing a coiled or straight fluorescent light bulb, and any solar recharging panel, motion detector, or other equipment connected to the lighting device; and
(2) Subsection (1) of this section shall not apply to:
(a) Reasonable aesthetic provisions that govern the dimensions, placement, or external appearance of an energy efficiency measure. In creating reasonable aesthetic provisions, associations shall consider:
(i) The impact on the purchase price and operating costs of the energy efficiency measure;
(ii) The impact on the performance of the energy efficiency measure; and
(iii) The criteria contained in the governing documents of the property within the association's jurisdiction.
(b) Bona fide safety requirements, consistent with an applicable building code or recognized safety standard, for the protection of persons and property.
(3) This section shall not be construed to confer upon any owner the right to place an energy efficiency measure on property that is:
(a) Owned by another person;
(b) Leased, except with permission of the lessor;
(c) Collateral for a commercial loan, except with permission of the secured party; or
(d) A limited common element or general common element of property within the association's jurisdiction.
SECTION 13. (1) A meeting of the association must be held at least once each year. Special meetings of the association may be called by the president, a majority of the board of directors, or by owners having ten percent (10%) of the votes in the association. Not less than fourteen (14) nor more than sixty (60) days in advance of any meeting, the secretary or other officers of the board of directors specified in the bylaws shall cause notice to be hand-delivered or sent prepaid by first-class United States mail to the mailing address of each owner or to any other mailing address designated in writing by the owner. The notice of any meeting shall state the date, time and place of the meeting and the business to be placed on the agenda by the board of directors for a vote by the owners, including the general nature of any proposed amendment to the articles of incorporation, bylaws, any budget or changes in the previously approved budget that result in a change in assessment obligation, and any proposal to remove a director.
(2) Except as provided in this subsection, all meetings of the board of directors shall be open for observation by all owners of record and their authorized agents. The board of directors shall not take up for consideration any matter not set forth in the notice of meeting. The board of directors shall keep minutes of all actions taken by the board, which shall be available to all owners. Upon the affirmative vote in open meeting to assemble in closed session, the board of directors may convene in closed executive session to consider personnel matters; consult with legal counsel or consider communications with legal counsel; and discuss likely or pending litigation, matters involving possible violations of the governing documents of the association, and matters involving the possible liability of an owner to the association. The motion shall state specifically the purpose for the closed session. Reference to the motion and the stated purpose for the closed session shall be included in the minutes. The board of directors shall restrict the consideration of matters during the closed portions of meetings only to those purposes specifically exempted and stated in the motion. No motion, or other action adopted, passed or agreed to in closed session may become effective unless the board of directors, following the closed session, reconvenes in open meeting and votes in the open meeting on such motion, or other action which is reasonably identified. The requirements of this subsection shall not require the disclosure of information in violation of law or which is otherwise exempt from disclosure.
SECTION 14. Unless the governing documents specify a different percentage, a quorum is present throughout any meeting of the association if the owners to which thirty-four percent (34%) of the votes of the association are allocated are present in person or by proxy at the beginning of the meeting.
SECTION 15. Votes allocated to an owner may be cast pursuant to a proxy duly executed by the owner and presented at the meeting or meetings for which the proxy is designated. A proxy shall not be valid if obtained through fraud or misrepresentation.
SECTION 16. (1) The association or its managing agent shall keep financial and other records sufficiently detailed to enable the association to fully declare to each owner the true statement of its financial status. All financial and other records of the association, including, but not limited to, checks, bank records and invoices, in whatever form they are kept, are the property of the association. Each association managing agent shall turn over all original books and records to the association immediately upon termination of the management relationship with the association, or upon such other demand as is made by the board of directors. An association's managing agent is entitled to keep copies of association records. All records which the managing agent has turned over to the association shall be made reasonably available for the examination and copying by the managing agent.
(2) All records of the association, including the names and addresses of owners and other occupants of the lots, shall be available for examination by all owners, holders of mortgages on the lots, and their respective authorized agents on reasonable advance notice during normal working hours at the offices of the association or its managing agent. The association shall not release the unlisted telephone number of any owner. The association may impose and collect a reasonable charge for copies and any reasonable costs incurred by the association in providing access to records.
(3) At least annually, the association shall prepare, or cause to be prepared, a financial statement of the association. The financial statements of associations with annual assessments of Fifty Thousand Dollars ($50,000.00) or more shall be audited at least annually by an independent certified public accountant, but the audit may be waived if sixty-seven percent (67%) of the votes cast by owners, in person or by proxy, at a meeting of the association at which a quorum is present, vote each year to waive the audit.
(4) The funds of the association shall be kept in accounts in the name of the association and shall not be commingled with the funds of any other association, nor with the funds of any manager of the association, nor any member of the association or members of the board of directors, nor any other person responsible for the custody of such funds.
SECTION 17. The association shall make the following information available to owners upon reasonable notice. In addition, if the association's address, designated agent or management company changes, the association shall make updated information available within ninety (90) days after the change:
(a) The name of the association;
(b) The name of the association's designated agent or management company, if any;
(c) A valid physical address and telephone number for both the association and the designated agent or management company, if any;
(d) A list of all association insurance policies, including, but not limited to, property, general liability, association director and officer professional liability and fidelity policies. Such list shall include the company names, policy limits, policy deductibles, additional named insureds and expiration dates of the policies listed.
(e) All the association's bylaws, articles, and rules and regulations;
(f) The minutes of the executive board and member meetings for the fiscal year immediately preceding the current annual disclosure; and
(g) The association's responsible governance policies.
SECTION 18. Any violation of the provisions of this act entitles an aggrieved party to any remedy provided by law or in equity. The court, in an appropriate case, may award reasonable attorney's fees to the prevailing party.
SECTION 19. (1) An association is encouraged to establish a reserve account with a financial institution to fund major maintenance, repair, and replacement of common elements, including limited common elements that will require major maintenance, repair, or replacement within thirty (30) years. If the association establishes a reserve account, the account must be in the name of the association. The board of directors is responsible for administering the reserve account.
(2) Unless doing so would impose an unreasonable hardship, an association with significant assets shall prepare and update a reserve study, in accordance with the association's governing documents and this act. The initial reserve study must be based upon a visual site inspection conducted by a reserve study professional.
(3) Unless doing so would impose an unreasonable hardship, the association shall update the reserve study annually. At least every three (3) years, an updated reserve study must be prepared and based upon a visual site inspection conducted by a reserve study professional.
(4) The decisions relating to the preparation and updating of a reserve study must be made by the board of directors in the exercise of the reasonable discretion of the board. The decisions must include whether a reserve study will be prepared or updated, and whether the assistance of a reserve study professional will be utilized.
SECTION 20. (1) A reserve study is supplemental to the association's operating and maintenance budget. In preparing a reserve study, the association shall estimate the anticipated major maintenance, repair and replacement costs, whose infrequent and significant nature make them impractical to be included in an annual budget.
(2) A reserve study must include:
(a) A reserve component list, including any reserve component that would cost more than one percent (1%) of the annual budget of the association, not including the reserve account, for major maintenance, repair or replacement. If one (1) of these reserve components is not included in the reserve study, the study should provide commentary explaining the basis for its exclusion. The study must also include quantities and estimates for the useful life of each reserve component, remaining useful life of each reserve component, and current major maintenance, repair or replacement cost for each reserve component;
(b) The date of the study, and a statement that the study meets the requirements of this act;
(c) Identify the following level of reserve study performed:
(i) Level I: Full reserve study funding analysis and plan;
(ii) Level II: Update with visual site inspection; or
(iii) Level III: Update with no visual site inspection;
(d) The association's reserve account balance;
(e) The percentage of the fully funded balance that the reserve account is funded;
(f) Special assessments already implemented or planned;
(g) Interest and inflation assumptions;
(h) Current reserve account contribution rates for a full funding plan and baseline funding plan;
(i) A recommended reserve account contribution rate, a contribution rate for a full funding plan to achieve one hundred percent (100%) fully funded reserves by the end of the thirty-year study period, a baseline funding plan to maintain the reserve balance above zero throughout the thirty-year study period without special assessments, and a contribution rate recommended by the reserve study professional;
(j) A projected reserve account balance for thirty (30) years and a funding plan to pay for projected costs from that reserve account balance without reliance on future unplanned special assessments; and
(k) A statement on whether the reserve study was prepared with the assistance of a reserve study professional.
(3) A reserve study must also include the following disclosure:
"This reserve study should be reviewed carefully. It may not include all common and limited common element components that will require major maintenance, repair or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, 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 reserve component."
SECTION 21. (1) When more than three (3) years have passed since the date of the last reserve study prepared by a reserve study professional, the owners to which at least thirty-five percent (35%) of the votes are allocated may demand, in writing, to the board of directors that the cost of a reserve study be included in the next budget and that the study be prepared by the end of that budget year. The written demand must refer to this section. The board of directors shall, upon receipt of the written demand, provide the owners reasonable assurance that the board will include a reserve study in the next budget and, if the budget is not rejected by a majority of the owners, will arrange for the completion of a reserve study.
(2) If a written demand under this section is made and a reserve study is not timely prepared, a court may order specific performance and award reasonable attorney's fees to the prevailing party in any legal action brought to enforce this section. An association may assert unreasonable hardship as an affirmative defense in any action brought against it under this section. Without limiting this affirmative defense, an unreasonable hardship exists where the cost of preparing a reserve study would exceed five percent (5%) of the association's annual budget.
(3) An owner's duty to pay for common expenses is not excused because of the board of director's failure to comply with this section or this chapter. A budget ratified by the owners is not invalidated because of the board of director's failure to comply with this section or the provisions of this act.
SECTION 22. An association may withdraw funds from its reserve account to pay for unforeseen or unbudgeted costs that are unrelated to maintenance, repair or replacement of the reserve components. The board of directors shall record any such withdrawal in the minute books of the association, cause notice of any such withdrawal to be hand delivered or sent prepaid by first-class United States mail to the mailing address of each owner or to any other mailing address designated in writing by the owner, and adopt a repayment schedule not to exceed twenty-four (24) months unless it determines that repayment within twenty-four (24) months would impose an unreasonable burden on the owners. Payment for major maintenance, repair, or replacement of the reserve components out of cycle with the reserve study projections or not included in the reserve study may be made from the reserve account without meeting the notification or repayment requirements under this section.
SECTION 23. Monetary damages or any other liability may not be awarded against or imposed upon the association, the officers or board of directors of the association, or those persons who may have provided advice or assistance to the association or its officers or directors, for failure to:
(a) Establish a reserve account;
(b) Have a current reserve study prepared or updated in accordance with the requirements of this chapter; or
(c) Make the reserve disclosures in accordance with this chapter.
SECTION 24. An association is not required to follow the reserve study requirements under Section 19 of this act if the cost of the reserve study exceeds five percent (5%) of the association's annual budget, the association does not have significant assets, or there are ten (10) or fewer homes in the association.
SECTION 25. Every contract or duty governed by this act imposes an obligation of good faith in its performance or enforcement.
SECTION 26. (1) Notwithstanding any law to the contrary, no action shall be commenced or maintained to enforce the terms of any building restriction contained in the provisions of the governing documents or to compel the removal of any building or improvement because of the violation of the terms of any such building restriction unless the action is commenced within one (1) year from the date from which the person commencing the action knew or in the exercise of reasonable diligence should have known of the violation for which the action is sought to be brought or maintained.
(2) The governing documents of an association must be recorded in the land records of every county in which any portion of the property subject to the association's jurisdiction is located and must be indexed in the grantee's index in the name of the development making up the property subject to the association's jurisdiction and in the name of the association and in the grantor's index.
SECTION 27. The rule against perpetuities does not apply to defeat any provision of the declaration, bylaws or rules and regulations.
SECTION 28. Notwithstanding any provision of the declaration, bylaws, articles, or rules and regulations to the contrary, the association may not fine any owner for an alleged violation unless:
(a) The association has adopted, and follows, a written policy governing the imposition of fines; and
(b) The policy includes a fair and impartial fact finding process concerning whether the alleged violation actually occurred and whether the owner is the one who should be held responsible for the violation. This process may be informal but shall, at a minimum, guarantee the owner notice and an opportunity to be heard before an impartial decision maker.
SECTION 29. Maintenance, repair or replacement of any drainage structure or facilities, or other public improvements required by the local governmental entity as a condition of development of the property subject to the association's jurisdiction or any part thereof shall be the responsibility of the association, unless such improvements have been dedicated to and accepted by the local governmental entity for the purpose of maintenance, repair or replacement or unless such maintenance, repair, or replacement has been authorized by law to be performed by a special district or other body politic.
SECTION 30. Neither the association nor any owner except the developer is liable for any cause of action based upon the developer's acts or omissions in connection with any part of the common areas which that developer has the responsibility to maintain. Otherwise, any action alleging an act or omission by the association must be brought against the association and not against any owner. If the act or omission occurred during any period of developer control and the association gives the developer reasonable notice of and an opportunity to defend against the action, the developer is liable to the association or to any owner for all tort losses not covered by insurance suffered by the association or that owner and all costs that the association would not have incurred but for such act or omission. Whenever the developer is liable to the association or owner under this section, the developer is also liable for all expenses of litigation, including reasonable attorney's fees, incurred by the association or owner.
Any statute of limitation affecting the association's right of action under this section is tolled until the period of developer control terminates. An owner is not precluded from maintaining an action contemplated by this section by being a member or officer of the association.
SECTION 31. The developer is liable to the association for all funds of the association collected during the period of developer control which were not properly expended.
SECTION 32. (1) The association, if such association is incorporated or organized as a limited liability company, has a statutory lien on a lot for any assessment levied against that lot. The amount of the lien shall include all those items set forth in this act from the time such items become due. If an assessment is payable in installments, each installment is a lien from the time it becomes due, including the due date set by any valid association's acceleration of installment obligations.
(2) Recording of the declaration constitutes record notice and perfection of the lien. No further recordation of any claim of lien for assessments is required.
(3) A lien for unpaid assessments is extinguished unless proceedings to enforce the lien are instituted within six (6) years after the full amount of assessments become due.
(4) The association shall be entitled to costs and reasonable attorney's fees incurred by the association in a judgment or decree in any action or suit brought by the association under this section.
(5) The association shall furnish to an owner or such owner's designee or to a holder of a security interest, or its designee, upon written request, delivered personally or by certified mail, first-class postage prepaid, return receipt requested, to the association's registered agent, a written statement setting forth the amount of unpaid assessments currently levied against such owner's lot. The statement shall be furnished within fourteen (14) calendar days after receipt of the request and is binding on the association, the board of directors and every owner. If no statement is furnished to the owner or holder of a security interest, or his or her designee, delivered personally or by certified mail, first-class postage prepaid, return receipt requested, to the inquiring party, then the association shall have no right to assert a lien upon the unit for unpaid assessments which were due as of the date of the request.
(6) In any action by an association to collect assessments or to foreclose a lien for unpaid assessments, the court may appoint a receiver of the owner to collect all sums alleged to be due from the owner prior to or during the pending of the action. The court may order the receiver to pay any sums held by the receiver to the association during the pending of the action to the extent of the association's common expense assessments.
(7) The association's lien against an owner may be foreclosed in like manner as a mortgage on real estate.
SECTION 33. This act shall take effect and be in force from and after its passage.