• Delaware Common Interest Ownership Act Amended and Deferred
  • July 14, 2009
  • Law Firm: Richards, Layton & Finger, P.A. - Wilmington Office
  • On October 31, 2008, Governor Minner signed into law the Delaware Uniform Common Interest Ownership Act, commonly referred to as DUCIOA. DUCIOA, which was effective October 31, 2008, affected both new and existing communities, including certain maintenance associations.

    When the General Assembly returned in January, legislation was introduced to make certain technical amendments, including deferring the effective date of DUCIOA to July 1, 2009. The legislation, introduced as HB 45, passed both houses and was signed by the Governor on February 4, 2009.

    Prior to the July 1, 2009 effective date of DUCIOA, a set of overall amendments was put together with input from various constituencies and was introduced as HB No. 156, as amended.

    HB No. 156 continues the efforts represented by HB No. 45 in this legislative session to update and improve DUCIOA in order to ensure that it remains current and effective for the citizens of the State of Delaware who own units in condominiums, cooperatives and planned communities.

    Governor Markell signed the bill on July 2, 2009.

    • Importantly, the proposed amendments make the effective date of DUCIOA, as amended by these amendments, 90 days after the Governor signed the bill.
    • Almost half of the proposed amendments are to incorporate changes that the National Conference of Commissioners of Uniform Laws have made to the Uniform Common Interest Ownership Act since DUCIOA was introduced and adopted, or to make clean-up changes to a long and complex act.
    • The proposed amendments reflect input from various sources, including homeowners, members of condominium boards, condominium managers, realtors and builders.
    • The substantive changes are viewed as being the following:
      • The bill amends a number of the provisions governing the required repair and replacement reserve to make compliance easier for communities.
      • The bill raises the minimum size requirements for a community to be governed by all of DUCIOA in order to make compliance easier and less costly for small communities.
      • The bill clarifies how amendments to the governing documents are carried out and allows amendments to be made in an existing community to comply with DUCIOA requirements and with requirements of the Federal National Mortgage Association and other governmental organizations that regulate mortgage lending so that the community will be eligible for those mortgage programs.
      • The bill provides for special means of calling a meeting of the community in the event of a catastrophe, such as a hurricane.
      • The bill makes compliance less costly by changing the audit requirement for a community having more than 50 units to once every three years rather than annually.
      • The bill amends a number of provisions to make it easier for an association to schedule and run its meetings of homeowners.
      • The bill requires that a community association maintain so-called fidelity insurance that protects the community association from misappropriation of funds or similar events.
      • The bill improves the guidance given to an association for the level of funding that is required for the repair and replacement reserve required of all communities under DUCIOA.
      • The bill improves the rights of an association to collect assessments ahead of a mortgage or similar lien on a unit.
      • The bill supports certainty of land titles in Delaware by eliminating the possibility of a secret lien on a unit owner’s property that could exist without the knowledge of the unit owner.
      • The bill makes clear that the requirements of the General Corporation Law of the State of Delaware will control an association that is formed as a Delaware corporation in the event that there are inconsistent requirements in DUCIOA. This is to preserve the importance of Delaware corporate law to the operation of Delaware corporations.
      • The bill improves on the requirements of DUCIOA for providing sale and resale information to purchasers by making compliance more efficient and less expensive without sacrificing the value of the required disclosures to prospective purchasers.
      • The bill provides the association with the authority to charge a reasonable fee for providing the information that a unit owner needs to create a resale certificate.

    In addition, comparable changes have been made to the Unit Property Act, which governs nonresidential and residential condominiums in Delaware formed prior to the effective date of DUCIOA. HB No. 183, as amended, revises the Unit Property Act to be consistent with DUCIOA, especially with respect to requirements for repair and replacement reserves. These amendments are to be effective 90 days after the Governor signed the bill.

    Governor Markell signed the bill on July 2, 2009.

    • The substantive changes are viewed as being the following:
      • The bill requires a repair and replacement reserve for residential condominiums that mirrors the current requirements of DUCIOA for reserves studies that set the amount of the reserves and estimate when the reserve will be needed in the future based on the estimated useful life of the improvements.
      • The bill provides a formula for setting a minimum percentage of the annual budget to serve as the repair and replacement reserve, consistent with the proposed changes to DUCIOA.
      • The bill provides a formula for an existing residential condominium project, which will now be required to have a repair and replacement reserve, to come into compliance with the required reserve over time. This is to avoid the need for large, one-time special assessments when major repairs or replacements are needed. The intention is to give time to the council to get the necessary funds without overburdening the unit owners with special assessments for immediately funding to 100% of the reserve amount.
        • For example, in an existing condominium, the council may have a reserve study from an HVAC contractor that requires substantial replacements of the air conditioning units in 10 years at an estimated cost of $25,000. If on October 1, 2009 that condominium has no reserves for that purpose, the council has to include in its annual assessments of unit owners over the next 3 years enough money to fund the reserve so that, based on ongoing regular monthly assessments over that 10-year period, the community will have a reserve of $25,000 within 10 years.
      • Consistent with DUCIOA, a nonresidential condominium is not required to have a repair and replacement reserve, and may elect to exempt itself from the requirement by doing so in its declaration or by the vote of a majority of the unit owners.