SF 2821

as introduced - 92nd Legislature (2021 - 2022) Posted on 02/04/2022 10:25am

A bill for an act
relating to common interest communities; amending and adding provisions related
to dispute resolution for common interest communities; amending Minnesota
Statutes 2020, sections 515B.3-102; 515B.3-115; 515B.3-1151; proposing coding
for new law in Minnesota Statutes, chapter 515B.

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

Section 1.

Minnesota Statutes 2020, section 515B.3-102, is amended to read:

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

(a) Except as provided in subsections (b), (c), (d), and (e), 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 new text begin as provided
under section 515B.3-122 new text end , 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.

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

(1) mail or deliver written notice of the anticipated commencement of the action to each
unit owner at the addresses, if any, established for notices to owners in the declaration and,
if the declaration does not state how notices are to be given to owners, to 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; and

(2) obtain the approval of owners of units to which a majority of the total votes in the
association are allocated. Votes allocated to units owned by the declarant, an affiliate of the
declarant, or a mortgagee who obtained ownership of the unit through a foreclosure sale
are excluded. The association may obtain the required approval by a vote at an annual or
special meeting of the members or, if authorized by the statute under which the association
is created and taken in compliance with that statute, by a vote of the members taken by
electronic means or mailed ballots. If the association holds a meeting and voting by electronic
means or mailed ballots is authorized by that statute, the association shall also provide for
voting by those methods. Section 515B.3-110(c) applies to votes taken by electronic means
or mailed ballots, except that the votes must be used in combination with the vote taken at
a meeting and are not in lieu of holding a meeting, if a meeting is held, and are considered
for purposes of determining whether a quorum was present. Proxies may not be used for a
vote taken under this paragraph unless the unit owner executes the proxy after receipt of
the notice required under subsection (d)(1) and the proxy expressly references this notice.

(e) The association may intervene in a litigation or arbitration involving a construction
defect claim or assert a construction defect claim as a counterclaim, crossclaim, or third-party
claim before complying with subsections (d)(1) and (d)(2) but the association's complaint
in an intervention, counterclaim, crossclaim, or third-party claim shall be dismissed without
prejudice unless the association has complied with the requirements of subsection (d) within
90 days of the association's commencement of the complaint in an intervention or the
assertion of the counterclaim, crossclaim, or third-party claim.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2022.
new text end

Sec. 2.

Minnesota Statutes 2020, section 515B.3-115, is amended to read:

515B.3-115 ASSESSMENTS FOR COMMON EXPENSES; CIC CREATED
BEFORE AUGUST 1, 2010.

(a) The obligation of a unit owner to pay common expense assessments shall be as
follows:

(1) If a common expense assessment has not been levied, the declarant shall pay all
operating expenses of the common interest community, and shall fund the replacement
reserve component of the common expenses as required by subsection (b).

(2) If a common expense assessment has been levied, all unit owners, including the
declarant, shall pay the assessments allocated to their units, subject to the following:

(i) If the declaration so provides, a declarant's liability, and the assessment lien, for the
common expense assessments, exclusive of replacement reserves, on any unit owned by
the declarant may be limited to 25 percent or more of any assessment, exclusive of
replacement reserves, until the unit or any building located in the unit is substantially
completed. Substantial completion shall be evidenced by a certificate of occupancy in any
jurisdiction that issues the certificate.

(ii) If the declaration provides for a reduced assessment pursuant to paragraph (2)(i),
the declarant shall be obligated, within 60 days following the termination of the period of
declarant control, to make up any operating deficit incurred by the association during the
period of declarant control. The existence and amount, if any, of the operating deficit shall
be determined using the accrual basis of accounting applied as of the date of termination
of the period of declarant control, regardless of the accounting methodology previously
used by the association to maintain its accounts.

(b) The replacement reserve component of the common expenses shall be funded for
each unit in accordance with the projected annual budget required by section
515B.4-102(a)(23) provided that the funding of replacement reserves with respect to a unit
shall commence no later than the date that the unit or any building located within the unit
boundaries is substantially completed. Substantial completion shall be evidenced by a
certificate of occupancy in any jurisdiction that issues the certificate.

(c) After an assessment has been levied by the association, assessments shall be levied
at least annually, based upon a budget approved at least annually by the association.

(d) Except as modified by subsections (a)(1) and (2), (e), (f), and (g), all common
expenses shall be assessed against all the units in accordance with the allocations established
by the declaration pursuant to section 515B.2-108.

(e) Unless otherwise required by the declaration:

(1) any common expense associated with the maintenance, repair, or replacement of a
limited common element shall be assessed against the units to which that limited common
element is assigned, equally, or in any other proportion the declaration provides;

(2) any common expense or portion thereof benefiting fewer than all of the units may
be assessed exclusively against the units benefited, equally, or in any other proportion the
declaration provides;

(3) the costs of insurance may be assessed in proportion to risk or coverage, and the
costs of utilities may be assessed in proportion to usage;

(4) new text begin subject to section 515B.3-123, new text end reasonable attorneys fees and costs incurred by the
association in connection with (i) the collection of assessments and, (ii) the enforcement of
this chapter, the articles, bylaws, declaration, or rules and regulations, against a unit owner,
may be assessed against the unit owner's unit; and

(5) fees, charges, late charges, fines and interest may be assessed as provided in section
515B.3-116(a).

(f) Assessments levied under section 515B.3-116 to pay a judgment against the association
may be levied only against the units in the common interest community at the time the
judgment was entered, in proportion to their common expense liabilities.

(g) If any damage to the common elements or another unit is caused by the act or omission
of any unit owner, or occupant of a unit, or their invitees, the association may assess the
costs of repairing the damage exclusively against the unit owner's unit to the extent not
covered by insurance.

(h) Subject to any shorter period specified by the declaration or bylaws, if any installment
of an assessment becomes more than 60 days past due, then the association may, upon ten
days' written notice to the unit owner, declare the entire amount of the assessment
immediately due and payable in full.

(i) If common expense liabilities are reallocated for any purpose authorized by this
chapter, common expense assessments and any installment thereof not yet due shall be
recalculated in accordance with the reallocated common expense liabilities.

(j) An assessment against fewer than all of the units must be levied within three years
after the event or circumstances forming the basis for the assessment, or shall be barred.

(k) This section applies only to common interest communities created before August 1,
2010.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2022.
new text end

Sec. 3.

Minnesota Statutes 2020, section 515B.3-1151, is amended to read:

515B.3-1151 ASSESSMENTS FOR COMMON EXPENSES; CIC CREATED ON
OR AFTER AUGUST 1, 2010.

(a) The association shall approve an annual budget of common expenses at or prior to
the conveyance of the first unit in the common interest community to a purchaser and
annually thereafter. The annual budget shall include all customary and necessary operating
expenses and replacement reserves for the common interest community, consistent with
this section and section 515B.3-114. For purposes of replacement reserves under subsection
(b), until an annual budget has been approved, the reserves shall be paid based upon the
budget contained in the disclosure statement required by section 515B.4-102. The obligation
of a unit owner to pay common expenses shall be as follows:

(1) If a common expense assessment has not been levied by the association, the declarant
shall pay all common expenses of the common interest community, including the payment
of the replacement reserve component of the common expenses for all units in compliance
with subsection (b).

(2) If a common expense assessment has been levied by the association, all unit owners,
including the declarant, shall pay the assessments levied against their units, except as follows:

(i) The declaration may provide for an alternate common expense plan whereby the
declarant's common expense liability, and the corresponding assessment lien against the
units owned by the declarant, is limited to: (A) paying when due, in compliance with
subsection (b), an amount equal to the full share of the replacement reserves allocated to
units owned by the declarant, as set forth in the association's annual budget approved as
provided in this subsection; and (B) paying when due all accrued expenses of the common
interest community in excess of the aggregate assessments payable with respect to units
owned by persons other than a declarant; provided, that the alternate common expense plan
shall not affect a declarant's obligation to make up any operating deficit pursuant to item
(iv), and shall terminate upon the termination of any period of declarant control unless
terminated earlier pursuant to item (iii).

(ii) The alternate common expense plan may be authorized only by including in the
declaration and the disclosure statement required by section 515B.4-102 provisions
authorizing and disclosing the alternate common expense plan as described in item (i), and
including in the disclosure statement either (A) a statement that the alternate common
expense plan will have no effect on the level of services or amenities anticipated by the
association's budget contained in the disclosure statement, or (B) a statement describing
how the services or amenities may be affected.

(iii) A declarant shall give notice to the association of its intent to utilize the alternate
common expense plan and a commencement date after the date the notice is given. The
alternate common expense plan shall be valid only for periods after the notice is given. A
declarant may terminate its right to utilize the alternate common expense plan prior to the
termination of the period of declarant control only by giving notice to the association and
the unit owners at least 30 days prior to a selected termination date set forth in the notice.

(iv) If a declarant utilizes an alternate common expense plan, that declarant shall cause
to be prepared and delivered to the association, at the declarant's expense, within 90 days
after the termination of the period of declarant control, an audited balance sheet and profit
and loss statement certified to the association and prepared by an accountant having the
qualifications set forth in section 515B.3-121(b). The audit shall be binding on the declarant
and the association.

(v) If the audited profit and loss statement shows an accumulated operating deficit, the
declarant shall be obligated to make up the deficit within 15 days after delivery of the audit
to the association, and the association shall have a claim against the declarant for an amount
equal to the deficit until paid. A declarant who does not utilize an alternate common expense
plan is not liable to make up any operating deficit. If more than one declarant utilizes an
alternate common expense plan, all declarants who utilize the plan are jointly and severally
liable to the association for any operating deficit.

(vi) The existence and amount, if any, of the operating deficit shall be determined using
the accrual method of accounting applied as of the date of termination of the period of
declarant control, regardless of the accounting methodology previously used by the
association to maintain its accounts.

(vii) Unless approved by a vote of the unit owners other than the declarant and its
affiliates, the operating deficit shall not be made up, prior to the election by the unit owners
of a board of directors pursuant to section 515B.3-103(d), through the use of a special
assessment described in subsection (c) or by assessments described in subsections (e), (f),
and (g).

(viii) The use by a declarant of an alternate common expense plan shall not affect the
obligations of the declarant or the association as provided in the declaration, the bylaws, or
this chapter, or as represented in the disclosure statement required by section 515B.4-102,
except as to matters authorized by this chapter.

(b) The replacement reserves required by section 515B.3-114 shall be paid to the
association by each unit owner for each unit owned by that unit owner in accordance with
the association's annual budget approved pursuant to subsection (a), regardless of whether
an annual assessment has been levied or whether the declarant has utilized an alternate
common expense plan under subsection (a)(2). Replacement reserves shall be paid with
respect to a unit commencing as of the later of (1) the date of creation of the common interest
community or (2) the date that the structure and exterior of the building containing the unit,
or the structure and exterior of any building located within the unit boundaries, but excluding
the interior finishing of the structure itself, are substantially completed. If the association
has not approved an annual budget as of the commencement date for the payment of
replacement reserves, then the reserves shall be paid based upon the budget contained in
the disclosure statement required by section 515B.4-102.

(c) After an assessment has been levied by the association, assessments shall be levied
at least annually, based upon an annual budget approved by the association. In addition to
and not in lieu of annual assessments, an association may, if so provided in the declaration,
levy special assessments against all units in the common interest community based upon
the same formula required by the declaration for levying annual assessments. Special
assessments may be levied only (1) to cover expenditures of an emergency nature, (2) to
replenish underfunded replacement reserves, (3) to cover unbudgeted capital expenditures
or operating expenses, or (4) to replace certain components of the common interest
community described in section 515B.3-114(a), if such alternative method of funding is
approved under section 515B.3-114(a)(5). The association may also levy assessments against
fewer than all units as provided in subsections (e), (f), and (g). An assessment under
subsection (e)(2) for replacement reserves is subject to the requirements of section
515B.3-1141(a)(5).

(d) Except as modified by subsections (a), clauses (1) and (2), (e), (f), and (g), all common
expenses shall be assessed against all the units in accordance with the allocations established
by the declaration pursuant to section 515B.2-108.

(e) Unless otherwise required by the declaration:

(1) any common expense associated with the maintenance, repair, or replacement of a
limited common element shall be assessed against the units to which that limited common
element is assigned, equally, or in any other proportion the declaration provides;

(2) any common expense or portion thereof benefiting fewer than all of the units may
be assessed exclusively against the units benefited, equally, or in any other proportion the
declaration provides;

(3) the costs of insurance may be assessed in proportion to risk or coverage, and the
costs of utilities may be assessed in proportion to usage;

(4) new text begin subject to section 515B.3-123, new text end reasonable attorney fees and costs incurred by the
association in connection with (i) the collection of assessments, and (ii) the enforcement of
this chapter, the articles, bylaws, declaration, or rules and regulations, against a unit owner,
may be assessed against the unit owner's unit; and

(5) fees, charges, late charges, fines, and interest may be assessed as provided in section
515B.3-116(a).

(f) Assessments levied under section 515B.3-116 to pay a judgment against the association
may be levied only against the units in the common interest community at the time the
judgment was entered, in proportion to their common expense liabilities.

(g) If any damage to the common elements or another unit is caused by the act or omission
of any unit owner, or occupant of a unit, or their invitees, the association may assess the
costs of repairing the damage exclusively against the unit owner's unit to the extent not
covered by insurance.

(h) Subject to any shorter period specified by the declaration or bylaws, if any installment
of an assessment becomes more than 60 days past due, then the association may, upon ten
days' written notice to the unit owner, declare the entire amount of the assessment
immediately due and payable in full.

(i) If common expense liabilities are reallocated for any purpose authorized by this
chapter, common expense assessments and any installment thereof not yet due shall be
recalculated in accordance with the reallocated common expense liabilities.

(j) An assessment against fewer than all of the units must be levied within three years
after the event or circumstances forming the basis for the assessment, or shall be barred.

(k) This section applies only to common interest communities created on or after August
1, 2010.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2022.
new text end

Sec. 4.

new text begin [515B.3-122] DISPUTE RESOLUTION.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin This section does not apply where the board determines it necessary
to take an immediate action to prevent irreparable harm.
new text end

new text begin Subd. 2. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the terms defined in this subdivision
have the meanings given them.
new text end

new text begin (b) "Alternative dispute resolution" means mediation, arbitration, conciliation, or other
nonjudicial procedure that involves a neutral party in the decision-making process.
new text end

new text begin (c) "Enforcement action" means an action that results in:
new text end

new text begin (1) imposing an assessment or other charge, but not an assessment for common expenses;
new text end

new text begin (2) levying a fine for violations of the declaration, bylaws, or rules and regulations of
the association when the fine is levied under section 515B.3-102, paragraph (a), clause (11);
or
new text end

new text begin (3) foreclosing on a lien under section 515B.3-116.
new text end

new text begin Subd. 3. new text end

new text begin Dispute resolution process required. new text end

new text begin Every association shall adopt the dispute
resolution procedures set forth in this section. The association must provide written notice
in plain language to each new unit owner that describes the dispute resolution process
adopted by the association.
new text end

new text begin Subd. 4. new text end

new text begin Notice of assessment. new text end

new text begin (a) Before taking an enforcement action, an association
must provide a plain language notice to a unit owner that must:
new text end

new text begin (1) identify the violation and the specific portion of the declaration, bylaws, or rules and
regulations allegedly violated;
new text end

new text begin (2) inform the owner that the assessment for the fine constitutes a lien which, if not
satisfied, could lead to a foreclosure action; and
new text end

new text begin (3) describe the dispute resolution process required under this section.
new text end

new text begin (b) An association may not take an enforcement action until more than 30 days have
elapsed since the notice required under paragraph (a) was sent to the unit owner or during
the pendency of the dispute resolution process established under this section.
new text end

new text begin (c) If the owner notifies the association that the owner disputes whether the association
is justified to proceed with the enforcement action, the association may not take the action
unless the parties have endeavored to resolve the dispute as provided in this section. Nothing
in this section prevents the association from initiating the dispute resolution process if the
unit owner's request is made after the 30-day period provided under paragraph (b).
new text end

new text begin Subd. 5. new text end

new text begin Informal resolution process through association. new text end

new text begin If an owner initiates a
dispute under subdivision 4, paragraph (c), the board must designate one member as its
representative to meet and confer with the owner in an attempt to resolve the dispute. If the
parties cannot resolve the dispute, a unit owner has the right to a hearing under subdivision
6.
new text end

new text begin Subd. 6. new text end

new text begin Hearing before the board. new text end

new text begin (a) The board or a committee appointed by the
board must timely schedule and conduct a hearing. Notice of the place and time of the
hearing must be provided at least ten days prior to the date of the scheduled hearing in the
manner prescribed by section 515B.1-115. Any reasonable request by the unit owner for
rescheduling the hearing must be approved.
new text end

new text begin (b) At the hearing, the unit owner has the right to present oral or written testimony and
evidence and present and cross-examine witnesses, either personally or through an attorney
or other representative.
new text end

new text begin (c) The decision of the board must:
new text end

new text begin (1) be in writing;
new text end

new text begin (2) be personally delivered or mailed to the unit owner as soon as practicable after the
hearing;
new text end

new text begin (3) explain the reason for the decision; and
new text end

new text begin (4) cite the applicable provision or provisions of any declaration, articles of incorporation,
bylaws, lease, or rules and regulations of the association.
new text end

new text begin Subd. 7. new text end

new text begin Alternative dispute resolution. new text end

new text begin (a) A unit owner and the association may at
any time agree to engage in alternative dispute resolution.
new text end

new text begin (b) The alternative dispute resolution method may be binding or nonbinding. The cost
for alternative dispute resolution shall be shared equally between the parties, unless another
cost-sharing arrangement is mutually agreed upon.
new text end

new text begin Subd. 8. new text end

new text begin Effect of resolution through association dispute resolution process. new text end

new text begin A
resolution arrived at by the parties through an informal process or after a hearing must be
put in writing and signed by both parties. The signed document is binding on both parties
and is judicially enforceable.
new text end

new text begin Subd. 9. new text end

new text begin No retaliation. new text end

new text begin Neither an association nor any of its agents may take, directly
or indirectly, any retaliatory action against a unit owner because the owner has filed a dispute
with the association.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2022.
new text end

Sec. 5.

new text begin [515B.3-123] FINES AND ATTORNEY FEES.
new text end

new text begin Subdivision 1. new text end

new text begin Fines. new text end

new text begin (a) A fine under section 515B.3-102, paragraph (a), clause (11),
must be commensurate with the violation.
new text end

new text begin (b) An association may not levy a fine against a unit owner for a violation of any provision
of the governing documents committed by an invitee of the owner unless:
new text end

new text begin (1) the owner participated in or authorized the violation;
new text end

new text begin (2) the owner was aware of the commission or intent to commit the violation and made
no attempt to prevent it; or
new text end

new text begin (3) the violation poses an imminent threat to the health, safety, or welfare to other unit
owners, visitors, or staff.
new text end

new text begin Subd. 2. new text end

new text begin Attorney fees. new text end

new text begin An association, prior to issuing a notice under section 580.03
initiating a foreclosure of a lien under section 515B.3-116, may not assess attorney fees to
any unit owner for:
new text end

new text begin (1) providing advice to the association regarding a dispute between a unit owner and
the association;
new text end

new text begin (2) preparing or delivering notices, demands for payment, responses to complaints or
disputes by unit owners, or other communications to the unit owner on behalf of the board;
or
new text end

new text begin (3) the association's participation in the dispute resolution process under section
515B.3-122.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2022.
new text end

Sec. 6.

new text begin [515B.3-124] PAYMENT PLANS FOR ARREARS.
new text end

new text begin In collecting past-due assessments and other delinquent payments, an association must
offer and enter into a reasonable, mutually agreeable payment plan with the unit owner to
satisfy any arrears. The payment plan must be consistent with a unit owner's financial
circumstances and any extenuating circumstances of the household. An association may,
but is not required to, offer a new payment plan if the unit owner defaults on the initial plan.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2022.
new text end