HF 3520

as introduced - 89th Legislature (2015 - 2016) Posted on 03/29/2016 11:17am

A bill for an act
relating to real property; amending the Minnesota Common Interest Ownership
Act to provide for construction defect claims; amending Minnesota Statutes
2014, sections 515B.1-103; 515B.3-102; 515B.3-107; 515B.3-111; 515B.3-114;
515B.4-113; 515B.4-116.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2014, section 515B.1-103, is amended to read:

515B.1-103 DEFINITIONS.

In the declaration and bylaws, unless specifically provided otherwise or the context
otherwise requires, and in this chapter:

(1) "Additional real estate" means real estate that may be added to a flexible
common interest community.

(2) "Affiliate of a declarant" means any person who controls, is controlled by, or is
under common control with a declarant.

(A) A person "controls" a declarant if the person (i) is a general partner, officer,
director, or employer of the declarant, (ii) directly or indirectly or acting in concert with
one or more other persons, or through one or more subsidiaries, owns, controls, holds with
power to vote, or holds proxies representing, more than 20 percent of the voting interest in
the declarant, (iii) controls in any manner the election of a majority of the directors of the
declarant, or (iv) has contributed more than 20 percent of the capital of the declarant.

(B) A person "is controlled by" a declarant if the declarant (i) is a general partner,
officer, director, or employer of the person, (ii) directly or indirectly or acting in concert
with one or more other persons, or through one or more subsidiaries, owns, controls, holds
with power to vote, or holds proxies representing, more than 20 percent of the voting
interest in the person, (iii) controls in any manner the election of a majority of the directors
of the person, or (iv) has contributed more than 20 percent of the capital of the person.

(C) Control does not exist if the powers described in this subsection are held solely
as a security interest and have not been exercised.

(3) "Allocated interests" means the following interests allocated to each unit: (i) in
a condominium, the undivided interest in the common elements, the common expense
liability, and votes in the association; (ii) in a cooperative, the common expense liability
and the ownership interest and votes in the association; and (iii) in a planned community,
the common expense liability and votes in the association.

(4) "Association" means the unit owners' association organized under section
515B.3-101.

(5) "Board" means the body, regardless of name, designated in the articles of
incorporation, bylaws or declaration to act on behalf of the association, or on behalf of
a master association when so identified.

(6) "CIC plat" means a common interest community plat described in section
515B.2-110.

(7) "Common elements" means all portions of the common interest community
other than the units.

(8) "Common expenses" means expenditures made or liabilities incurred by or on
behalf of the association, or master association when so identified, together with any
allocations to reserves.

(9) "Common expense liability" means the liability for common expenses allocated
to each unit pursuant to section 515B.2-108.

(10) "Common interest community" or "CIC" means contiguous or noncontiguous
real estate within Minnesota that is subject to an instrument which obligates persons
owning a separately described parcel of the real estate, or occupying a part of the real
estate pursuant to a proprietary lease, by reason of their ownership or occupancy, to pay
for (i) real estate taxes levied against; (ii) insurance premiums payable with respect to; (iii)
maintenance of; or (iv) construction, maintenance, repair or replacement of improvements
located on, one or more parcels or parts of the real estate other than the parcel or part that
the person owns or occupies. Real estate which satisfies the definition of a common
interest community is a common interest community whether or not it is subject to
this chapter. Real estate subject to a master declaration, regardless of when the master
declaration was recorded, shall not collectively constitute a separate common interest
community unless so stated in the master declaration.

(11) "Condominium" means a common interest community in which (i) portions of
the real estate are designated as units, (ii) the remainder of the real estate is designated for
common ownership solely by the owners of the units, and (iii) undivided interests in the
common elements are vested in the unit owners.

new text begin (11a) "Construction defect claim" means a civil action or an arbitration proceeding
based on any legal theory including, but not limited to, claims under chapter 327A for
damages, indemnity, or contribution brought against a development party to assert a claim,
counterclaim, cross-claim, or third-party claim for damages or loss to, or the loss of use of,
real or personal property or personal injury caused by a defect in the design or construction
of an improvement to real property that is part of the common interest community.
new text end

(12) "Conversion property" means real estate on which is located a building that
at any time within two years before creation of the common interest community was
occupied for residential use wholly or partially by persons other than purchasers and
persons who occupy with the consent of purchasers.

(13) "Cooperative" means a common interest community in which the real estate
is owned by an association, each of whose members is entitled to a proprietary lease by
virtue of the member's ownership interest in the association.

(14) "Dealer" means a person in the business of selling units for the person's own
account.

(15) "Declarant" means:

(i) if the common interest community has been created, (A) any person who has
executed a declaration, or a supplemental declaration or amendment to a declaration
adding additional real estate, except secured parties, a spouse holding only an inchoate
interest, persons whose interests in the real estate will not be transferred to unit owners,
or, in the case of a leasehold common interest community, a lessor who possesses no
special declarant rights and who is not an affiliate of a declarant who possesses special
declarant rights, or (B) any person who reserves, or succeeds under section 515B.3-104 to
any special declarant rights; or

(ii) any person or persons acting in concert who have offered prior to creation of
the common interest community to transfer their interest in a unit to be created and not
previously transferred.

(16) "Declaration" means any instrument, however denominated, that creates a
common interest community.

new text begin (16a) "Development party" means an architect, contractor, construction manager,
subcontractor, developer, declarant, engineer, or inspector performing or furnishing
the design, supervision, inspection, construction, coordination, or observation of the
construction of any improvement to real property that is part of the common interest
community, or any of such person's affiliates, officers, directors, shareholders, members,
or employees.
new text end

(17) "Dispose" or "disposition" means a voluntary transfer to a purchaser of any
legal or equitable interest in the common interest community, but the term does not include
the transfer or release of a security interest.

(18) "Flexible common interest community" means a common interest community
to which additional real estate may be added.

(19) "Leasehold common interest community" means a common interest community
in which all or a portion of the real estate is subject to a lease the expiration or termination
of which will terminate the common interest community or reduce its size.

(20) "Limited common element" means a portion of the common elements allocated
by the declaration or by operation of section 515B.2-109(c) or (d) for the exclusive use of
one or more but fewer than all of the units.

(21) "Master association" means an entity created on or after June 1, 1994, that
directly or indirectly exercises any of the powers set forth in section 515B.3-102 on behalf
of one or more members described in section 515B.2-121(b), (i), (ii) or (iii), whether or
not it also exercises those powers on behalf of one or more property owners' associations
described in section 515B.2-121(b)(iv). A person (i) hired by an association to perform
maintenance, repair, accounting, bookkeeping or management services, or (ii) granted
authority under an instrument recorded primarily for the purpose of creating rights or
obligations with respect to utilities, access, drainage, or recreational amenities, is not,
solely by reason of that relationship, a master association.

(22) "Master declaration" means a written instrument, however named, (i) recorded
on or after June 1, 1994, and (ii) complying with section 515B.2-121, subsection (e).

(23) "Master developer" means a person who is designated in the master declaration
as a master developer or, in the absence of such a designation, the owner or owners of
the real estate subject to the master declaration at the time the master declaration is
recorded, except (i) secured parties and (ii) a spouse holding only an inchoate interest.
A master developer is not a declarant unless the master declaration states that the real
estate subject to the master declaration collectively is or collectively will be a separate
common interest community.

(24) "Period of declarant control" means the time period provided for in section
515B.3-103(c) during which the declarant may appoint and remove officers and directors
of the association.

(25) "Person" means an individual, corporation, limited liability company,
partnership, trustee under a trust, personal representative, guardian, conservator,
government, governmental subdivision or agency, or other legal or commercial entity
capable of holding title to real estate.

(26) "Planned community" means a common interest community that is not a
condominium or a cooperative. A condominium or cooperative may be a part of a planned
community.

(27) "Proprietary lease" means an agreement with a cooperative association whereby
a member of the association is entitled to exclusive possession of a unit in the cooperative.

(28) "Purchaser" means a person, other than a declarant, who by means of a
voluntary transfer acquires a legal or equitable interest in a unit other than (i) a leasehold
interest of less than 20 years, including renewal options, or (ii) a security interest.

(29) "Real estate" means any fee simple, leasehold or other estate or interest in, over,
or under land, including structures, fixtures, and other improvements and interests that by
custom, usage, or law pass with a conveyance of land though not described in the contract
of sale or instrument of conveyance. "Real estate" may include spaces with or without
upper or lower boundaries, or spaces without physical boundaries.

(30) "Residential use" means use as a dwelling, whether primary, secondary or
seasonal, but not transient use such as hotels or motels.

(31) "Secured party" means the person owning a security interest as defined in
paragraph (32).

(32) "Security interest" means a perfected interest in real estate or personal
property, created by contract or conveyance, which secures payment or performance of an
obligation. The term includes a mortgagee's interest in a mortgage, a vendor's interest in
a contract for deed, a lessor's interest in a lease intended as security, a holder's interest
in a sheriff's certificate of sale during the period of redemption, an assignee's interest in
an assignment of leases or rents intended as security, in a cooperative, a lender's interest
in a member's ownership interest in the association, a pledgee's interest in the pledge of
an ownership interest, or any other interest intended as security for an obligation under a
written agreement.

(33a) This definition of special declarant rights applies only to common interest
communities created before August 1, 2010. "Special declarant rights" means rights
reserved in the declaration for the benefit of a declarant to:

(i) complete improvements indicated on the CIC plat, planned by the declarant
consistent with the disclosure statement or authorized by the municipality in which the
CIC is located;

(ii) add additional real estate to a common interest community;

(iii) subdivide or combine units, or convert units into common elements, limited
common elements, or units;

(iv) maintain sales offices, management offices, signs advertising the common
interest community, and models;

(v) use easements through the common elements for the purpose of making
improvements within the common interest community or any additional real estate;

(vi) create a master association and provide for the exercise of authority by the
master association over the common interest community or its unit owners;

(vii) merge or consolidate a common interest community with another common
interest community of the same form of ownership; or

(viii) appoint or remove any officer or director of the association, or the master
association where applicable, during any period of declarant control.

(33b) This definition of special declarant rights applies only to common interest
communities created on or after August 1, 2010. "Special declarant rights" means rights
reserved in the declaration for the benefit of a declarant and expressly identified in the
declaration as special declarant rights. Such special declarant rights may include but
are not limited to the following:

(i) to complete improvements indicated on the CIC plat, planned by the declarant
consistent with the disclosure statement or authorized by the municipality in which the
common interest community is located, and to have and use easements for itself and its
employees, agents, and contractors through the common elements for such purposes;

(ii) to add additional real estate to a common interest community;

(iii) to subdivide or combine units, or convert units into common elements, limited
common elements and/or units, pursuant to section 515B.2-112;

(iv) to maintain and use sales offices, management offices, signs advertising the
common interest community, and models, and to have and use easements for itself and its
employees, agents, and invitees through the common elements for such purposes;

(v) to appoint or remove any officer or director of the association during any period
of declarant control;

(vi) to utilize an alternate common expense plan as provided in section
515B.3-115(a)(2);

(vii) to grant common element licenses as provided in section 515B.2-109(e); or

(viii) to review, and approve or disapprove, the exterior design, materials, size,
site location, and other exterior features of buildings and other structures, landscaping
and other exterior improvements, located within the common interest community, and
any modifications or alterations thereto.

Special declarant rights shall not be reserved or utilized for the purpose of evading
any limitation or obligation imposed on declarants by this chapter.

(34) "Time share" means a right to occupy a unit or any of several units during three
or more separate time periods over a period of at least three years, including renewal
options, whether or not coupled with a fee title interest in the common interest community
or a specified portion thereof.

(35) "Unit" means a portion of a common interest community the boundaries
of which are described in the common interest community's declaration and which is
intended for separate ownership, or separate occupancy pursuant to a proprietary lease.

(36) "Unit identifier" means English letters or Arabic numerals, or a combination
thereof, which identify only one unit in a common interest community and which meet
the requirements of section 515B.2-104.

(37) "Unit owner" means a declarant or other person who owns a unit, a lessee under
a proprietary lease, or a lessee of a unit in a leasehold common interest community whose
lease expires simultaneously with any lease the expiration or termination of which will
remove the unit from the common interest community, but does not include a secured
party. In a common interest community, the declarant is the unit owner of a unit until that
unit has been conveyed to another person.

Sec. 2.

Minnesota Statutes 2014, section 515B.3-102, is amended to read:

515B.3-102 POWERS OF UNIT OWNERS' ASSOCIATION.

(a) Except as provided in subsections (b) deleted text begin and deleted text end new text begin , new text end (c), new text begin (d), and (e), new text end and subject to the
provisions of the declaration or bylaws, the association shall have the power to:

(1) adopt, amend and revoke rules and regulations not inconsistent with the articles
of incorporation, bylaws and declaration, as follows: (i) regulating the use of the common
elements; (ii) regulating the use of the units, and conduct of unit occupants, which may
jeopardize the health, safety or welfare of other occupants, which involves noise or
other disturbing activity, or which may damage the common elements or other units;
(iii) regulating or prohibiting animals; (iv) regulating changes in the appearance of the
common elements and conduct which may damage the common interest community;
(v) regulating the exterior appearance of the common interest community, including,
for example, balconies and patios, window treatments, and signs and other displays,
regardless of whether inside a unit; (vi) implementing the articles of incorporation,
declaration and bylaws, and exercising the powers granted by this section; and (vii)
otherwise facilitating the operation of the common interest community;

(2) adopt and amend budgets for revenues, expenditures and reserves, and levy and
collect assessments for common expenses from unit owners;

(3) hire and discharge managing agents and other employees, agents, and
independent contractors;

(4) institute, defend, or intervene in litigation or administrative proceedings (i) in
its own name on behalf of itself or two or more unit owners on matters affecting the
common elements or other matters affecting the common interest community or, (ii) with
the consent of the owners of the affected units on matters affecting only those units;

(5) make contracts and incur liabilities;

(6) regulate the use, maintenance, repair, replacement, and modification of the
common elements and the units;

(7) cause improvements to be made as a part of the common elements, and, in the
case of a cooperative, the units;

(8) acquire, hold, encumber, and convey in its own name any right, title, or interest
to real estate or personal property, but (i) common elements in a condominium or planned
community may be conveyed or subjected to a security interest only pursuant to section
515B.3-112, or (ii) part of a cooperative may be conveyed, or all or part of a cooperative
may be subjected to a security interest, only pursuant to section 515B.3-112;

(9) grant or amend easements for public utilities, public rights-of-way or other
public purposes, and cable television or other communications, through, over or under
the common elements; grant or amend easements, leases, or licenses to unit owners for
purposes authorized by the declaration; and, subject to approval by a vote of unit owners
other than declarant or its affiliates, grant or amend other easements, leases, and licenses
through, over or under the common elements;

(10) impose and receive any payments, fees, or charges for the use, rental, or
operation of the common elements, other than limited common elements, and for services
provided to unit owners;

(11) impose interest and late charges for late payment of assessments and, after
notice and an opportunity to be heard before the board or a committee appointed by it,
levy reasonable fines for violations of the declaration, bylaws, and rules and regulations
of the association;

(12) impose reasonable charges for the review, preparation and recordation of
amendments to the declaration, resale certificates required by section 515B.4-107,
statements of unpaid assessments, or furnishing copies of association records;

(13) provide for the indemnification of its officers and directors, and maintain
directors' and officers' liability insurance;

(14) provide for reasonable procedures governing the conduct of meetings and
election of directors;

(15) exercise any other powers conferred by law, or by the declaration, articles
of incorporation or bylaws; and

(16) exercise any other powers necessary and proper for the governance and
operation of the association.

(b) Notwithstanding subsection (a) the declaration or bylaws may not impose
limitations on the power of the association to deal with the declarant which are more
restrictive than the limitations imposed on the power of the association to deal with other
persons.

(c) Notwithstanding subsection (a), powers exercised under this section must comply
with section 500.215.

new text begin (d) Notwithstanding subsection (a)(4) or any other provision of this chapter,
the association, before instituting or intervening in litigation or arbitration involving
construction defect claims against a development party, shall:
new text end

new text begin (1) mail or deliver written notice of the anticipated commencement of such action to
each unit owner at the owner's last known address. The notice shall specify the nature of
the construction defect claims to be alleged, the relief sought, and the manner in which the
association proposes to fund the cost of pursuing the construction defect claims, including
attorney fees, expert fees, and court or arbitration costs;
new text end

new text begin (2) provide notice of and hold a special meeting in accordance with section
515B.3-108 for the purpose of advising unit owners of the information specified in this
subsection; and
new text end

new text begin (3) after the special meeting required by this subsection, obtain the written consent
of the owners of units to which at least two-thirds of the total votes in the association are
allocated, excluding votes allocated to units owned by the declarant. This consent must
be obtained directly and not as a result of proxy voting.
new text end

new text begin (e) As a condition precedent to any construction defect claim, the parties to the claim
must submit the matter to mediation before a mutually agreeable neutral third party.
If the parties are not able to agree on a mediator, the parties shall use the alternative
selection method specified in the governing documents or, if no alternative selection
method is provided, the parties may petition the district court in the jurisdiction in which
the common interest community is located to appoint a mediator.
new text end

Sec. 3.

Minnesota Statutes 2014, section 515B.3-107, is amended to read:

515B.3-107 UPKEEP OF COMMON INTEREST COMMUNITY.

(a) Except to the extent provided by the declaration, this subsection or section
515B.3-113, the association is responsible for the maintenance, repair and replacement of
the common elements, and each unit owner is responsible for the maintenance, repair and
replacement of the unit owner's unit. Damage to the common elements or any unit as a
result of the acts or omissions of a unit owner or the association new text begin , including damage resulting
from the association's or unit owner's lack of maintenance or failure to perform necessary
repairs or replacement, new text end is the responsibility of the deleted text begin person deleted text end new text begin unit owner or association
responsible for new text end causing the damage, or whose agents or invitees caused the damage.

new text begin (b) Annually, the association's board of directors shall prepare, approve, and provide
to all unit owners a written preventative maintenance plan and maintenance schedule
for the common elements. The minimum requirements of the association's preventative
maintenance plan shall include: providing for all maintenance required by manufacturer or
builder warranties on materials, systems, or equipment; inspection and repair of weather
barriers including roofing, windows, siding, caulking, and flashing; and inspection and
repair of minor nonstructural cracking of concrete and masonry elements. The association
shall follow the approved preventative maintenance plan.
new text end

deleted text begin (b) deleted text end new text begin (c) new text end The association shall have access through and into each unit for purposes
of performing maintenance, repair or replacement for which the association may be
responsible. The association and any public safety personnel shall also have access
for purposes of abating or correcting any condition in the unit which violates any
governmental law, ordinance or regulation, which may cause material damage to or
jeopardize the safety of the common interest community, or which may constitute a health
or safety hazard for occupants of units.

deleted text begin (c) deleted text end new text begin (d) new text end Neither the association, nor any unit owner other than the declarant or
its affiliates, is subject to a claim for payment of expenses incurred in connection with
any additional real estate.

Sec. 4.

Minnesota Statutes 2014, section 515B.3-111, is amended to read:

515B.3-111 TORT AND CONTRACT LIABILITY.

(a) Neither the association nor any unit owner except the declarant is liable for that
declarant's torts in connection with any part of the common interest community. An action
alleging a tort or contract violation by the association shall not be brought against a unit
owner solely by reason of ownership. If the tort or contract violation occurred during
any period of declarant control and the association or a unit owner gives the declarant
reasonable notice of and an opportunity to defend against the action, the declarant who
then controlled the association is liable to the association or to any unit owner for (i) all
losses not covered by insurance suffered by the association or that unit owner, and (ii) all
costs that the association would not have incurred but for the tort or contract violation.

(b) deleted text begin Whenever the declarant is liable to the association or a unit owner under this
section, the declarant is also liable for all expenses of litigation, including reasonable
attorney's fees, incurred by the association or unit owner. deleted text end Any statute of limitation
affecting a right of action under this section is tolled until the period of declarant control
terminates. A unit owner is not precluded from maintaining an action contemplated by
this section because of being a unit owner or an officer or director of the association.

(c) Except as provided in subsections (a) and (b) with respect to a declarant, no
unit owner shall have tort liability arising out of ownership of the common elements if
the association has liability insurance coverage on the occurrence in an amount not less
than $1,000,000.

Sec. 5.

Minnesota Statutes 2014, section 515B.3-114, is amended to read:

515B.3-114 RESERVES; SURPLUS FUNDS.

(a) The annual budgets of the association shall provide from year to year, on
a cumulative basis, for adequate reserve funds to cover the new text begin maintenance, repair, or
new text end replacement of those parts of the common interest community which the association is
obligated to new text begin maintain, repair, or new text end replace. These reserve requirements shall not apply to a
common interest community which is restricted to nonresidential use.

(b) Unless the declaration provides otherwise, any surplus funds that the association
has remaining after payment of or provision for common expenses and reserves shall be
(i) credited to the unit owners to reduce their future common expense assessments or (ii)
credited to reserves, or any combination thereof, as determined by the board of directors.

(c) This section applies to common interest communities only for their fiscal years
commencing before January 1, 2012.

Sec. 6.

Minnesota Statutes 2014, section 515B.4-113, is amended to read:

515B.4-113 IMPLIED WARRANTIES.

(a) A declarant warrants to a purchaser that a unit will be in at least as good condition
at the earlier of the time of the conveyance or delivery of possession as it was at the time
of contracting, reasonable wear and tear excepted.

(b) A declarant warrants to a purchaser that:

(1) a unit and the common elements in the common interest community are suitable
for the ordinary uses of real estate of its type; and

(2) any improvements subject to use rights by the purchaser, made or contracted
for by the declarant, or made by any person in contemplation of the creation of the
common interest community, will be (i) free from defective materials and (ii) constructed
in accordance with applicable law, according to sound engineering and construction
standards, and in a workmanlike manner.

(c) In addition, a declarant warrants to a purchaser of a unit which under the
declaration is available for residential use that the residential use will not violate applicable
law at the earlier of the time of conveyance or delivery of possession.

(d) Warranties imposed by this section may be excluded or modified only as
specified in section 515B.4-114.

(e) For purposes of this section, improvements made or contracted for by an affiliate
of a declarant are made or contracted for by the declarant.

(f) Any conveyance of a unit transfers to the purchaser all implied warranties.

(g) This section does not in any manner abrogate the provisions of chapter 327A
relating to statutory warranties for housing, or affect any other cause of action under a
statute or the common law.

new text begin (h) A development party shall not have liability under this section for loss or damage
caused by the failure of the association or a unit owner to comply with obligations
imposed by section 515B.3-107.
new text end

Sec. 7.

Minnesota Statutes 2014, section 515B.4-116, is amended to read:

515B.4-116 RIGHTS OF ACTION; ATTORNEY'S FEES.

(a) In addition to any other rights to recover damages, attorney's fees, costs or
expenses, whether authorized by this chapter or otherwise, if a declarant, an association, or
any other person violates any provision of this chapter, or any provision of the declaration,
bylaws, or rules and regulations any person or class of persons adversely affected by
the failure to comply has a claim for appropriate relief. new text begin Subject to the requirements of
section 515B.3-102, new text end the association shall have standing to pursue claims on behalf of the
unit owners of two or more units.

(b) The court may award reasonable attorney's fees and costs of litigation to the
prevailing party. Punitive damages may be awarded for a willful failure to comply. new text begin This
subsection does not apply to litigation or arbitration involving construction defect claims
against a development party.
new text end

(c) The remedies provided for under this chapter are not exclusive and do not
abrogate any remedies under other statutes or the common law, notwithstanding whether
those remedies are referred to in this chapter.

new text begin EFFECTIVE DATE. new text end

new text begin This act is effective ....... and applies to construction defect
claims arising from incidents occurring on or after that date.
new text end