You see more and more planned communities in Minnesota everyday. Townhouse, condominium and other forms of planned communities are becoming increasingly prevalent in Minnesota real estate development. With the increased popularity of planned communities, Minnesota community associations law has developed in leaps and bounds over the last several years. Minnesota community associations law came of age on June 1, 1994, when the Minnesota Common Interest Ownership Act, Minnesota Statutes Chapter 515B (MCIOA) became effective. MCIOA governs common interest communities (CICs), which include planned communities, condominiums[ii] and cooperatives.[iii] The Minnesota Legislature amended MCIOA in 1999 to address minor technical issues arising out of MCIOAs usage during the first five years, and expanded MCIOAs coverage for pre-MCIOA condominiums.
Prior to MCIOA, the Minnesota Condominium Act, Minnesota Statutes Chapter 515, and the Uniform Condominium Act, Minnesota Statutes Chapter 515A, governed condominiums in Minnesota. The Minnesota Condominium Act governed condominiums prior to August 1, 1980, when the Uniform Condominium Act became effective. Both the Minnesota Condominium Act and the Uniform Condominium Act provided substantial benefits to Minnesota condominiums, but MCIOA represents a substantial improvement in their operation and governance.
Before the Minnesota Legislature enacted MCIOA, other planned communities, including townhouse and homeowners associations, relied solely upon their governing documents and common law for operative authority. As such, these planned communities relied heavily on the relative strength of their governing documents to govern their respective communities. Not surprisingly, many of the early governing documents for these planned communities suffered from weak drafting skills, which handcuffed the communities in governing their associations. Moreover, the weakness of the early governing documents left Minnesota judges and lawyers to interpret those provisions without the benefit of statutory guidance.
Applicability of MCIOA
MCIOA provides statutory authority for common interest communities formed on or after June 1, 1994. MCIOA governs condominiums formed under the Minnesota Condominium Act (prior to August 1, 1980) with limited applicability.[iv] However, MCIOA applies only to events and circumstances occurring on and after June 1, 1994, and does not invalidate the declarations, bylaws or condominium plats of the existing condominium. MCIOA also governs condominiums formed under the Uniform Condominium Act (on or after August 1, 1980, but prior to June 1, 1994) with some exceptions.[v] Again, MCIOA applies to events and circumstances occurring on and after June 1, 1994, and does not invalidate the declarations, bylaws or condominium plats of the existing condominium. Moreover, MCIOA provides that the Uniform Condominium Act governs all rights and obligations of a declarant of a condominium subject to the Uniform Condominium Act, and the rights and claims of unit owners against the declarant.
MCIOA does not apply to planned communities, including townhouse, homeowners and other common interest associations, formed prior to June 1, 1994. As set forth above, these communities are governed solely by their governing documents and common law. However, MCIOA allows planned communities not otherwise subject to MCIOA to opt in to MCIOA by following the procedures set forth therein. Generally, planned communities not otherwise subject to MCIOA may opt in to the statute by amending the bylaws and declaration of the planned community to specifically state that it wishes to be governed by MCIOA and by complying with the requirements thereunder.
Advantages of MCIOA
Minnesota common interest communities, regardless of whether they became automatically governed by MCIOA, or whether they elected to opt in to MCIOA, receive many advantages from MCIOA. The largest legal advantage is the statutory authority that MCIOA provides. A Minnesota community association subject to MCIOA may, through its Board of Directors, adopt, amend and revoke rules and regulations consistent with the articles of incorporation, bylaws and declaration of the community association. The rules and regulations may encompass a wide range of topics, and includes (a) regulating the use of common areas; (b) regulating the use of the units and conduct of unit occupants which may jeopardize the health, safety or welfare of other occupants, which involve noise or other disturbing activity, or which may damage common areas or other units; (c) regulating or prohibiting pets; (d) regulating changes in the appearance of the common areas and conduct which may damage the association community as a whole; (e) regulating the exterior appearance of the buildings and other improvements within the association; (f) implementing or enforcing the requirements of the articles of incorporation, declaration and bylaws; and (g) facilitating the general operation and administration of the association.
MCIOA allows the community associations Board of Directors to adopt, amend or revoke these rules and regulations without the necessity of seeking approval from the community associations membership. This provides a substantial benefit to community associations in that the elected Board of Directors is able to quickly and cost effectively adopt, amend or revoke rules and regulations in order to govern the community association. While this seems to be a substantial amount of power to provide to a community associations Board of Directors, it is not without control. In the event that a Board of Directors adopt rules and regulations that are inconsistent with the membership majorities views, the membership may seek to remove members from the Board of Directors in order to elect a representative Board of Directors.
As set forth above, early versions of declarations and bylaws for Minnesota community association sometimes suffer from vague and ambiguous drafting. MCIOA can clarify these issues, and provides Minnesota community associations, attorneys and judges with a more clearly defined basis for determining the community associations legal power and authority.
MCIOA allows the Board of Directors to adopt and amend budgets for revenues, expenditures and reserves, and to levy and collect assessments for common expenses from unit owners. MCIOA allows a community associations Board of Directors to hire and fire agents and independent contractors; engage in litigation; enter into contracts and incur debts; regulate the use, maintenance, repair, replacement and modification of the common areas and the unit; and cause improvements to be made as part of the common area.
MCIOA creates statutory assessment and lien powers that were previously available only for condominiums. These include a specific statutory basis for late fees, acceleration of delinquent monthly installments of the annual assessment, and automatic liens. Moreover, for all mortgages recorded or filed after June 1, 1994, MCIOA creates a six month super lien, which allows the association to collect monthly installments of the annual assessment becoming due and payable during the six month redemption period of the mortgage companys mortgage foreclosure proceedings. MCIOA provides that the associations lien may be foreclosed by advertisement pursuant to the provisions of Minnesota Statutes Chapters 580 and 592, which provides the association with a more simple and cost effective method of foreclosing its lien for unpaid assessments, late fees, attorneys fees and costs. Note that attorneys fees and costs incurred by a community association subject to MCIOA are not governed by Minnesota Statutes Chapter 580 and 582.[vi] Specifically, attorneys fees and costs incurred to foreclose a lien for a common interest community subject to MCIOA are governed by MCIOA and the common interest communities governing documents in determining the amount of attorneys fees and costs that may be collected from the homeowner in the lien foreclosure proceedings.
Similarly, MCIOA allows for reasonable attorneys fees and costs for the collection of assessments, including the enforcement of various restrictions under MCIOA and the governing documents (to be assessed against the unit and its owners). Fees, late charges, fines and interest may also be assessed to the unit owner and become liens against the unit as soon as they are assessed. These charges may be foreclosed as described above.
Perceived Disadvantages of MCIOA
MCIOA is not without its perceived disadvantages. Under MCIOA, common interest communities are required to provide for adequate reserve funds and insurance to recover replacement of common areas that the association is obligated to maintain, repair or replace. While MCIOA does not provide a specific formula or definition for adequate reserves, the required sums are typically measured by the amounts necessary to perform the maintenance and repair obligations, while allowing the association a reasonable amount of time to collect those amounts during the reasonable life of the item that the association is obligated to maintain or repair.
Unit owners may be required to pay higher assessments to fund MCIOAs adequate reserve fund and insurance requirements; hence the perceived disadvantage. However, common interest communities and unit owners should view this requirement as an advantage to the communitys continued existence. The obligation to maintain adequate reserve funds will allow the association to maintain its attractive appearance, which benefits unit owners and should allow the common interest community to maintain attractive property values.
MCIOA requires common interest communities to provide certain insurance coverages for individual units. However, if any damage to the common areas or another individuals unit is caused by MCIOA or omission of a unit owner (or his/her tenants, guests or invitees), the association may assess the repair costs exclusively against that owners unit to the extent that the damage is not covered by insurance. For those common interest communities becoming governed by MCIOA, and which were not previously complying with the insurance provisions, MCIOA will undoubtedly require the common interest community to increase its annual assessments in order to meet the increased insurance coverage requirements. However, MCIOAs required insurance coverages will allow the individual unit owners to reduce their insurance coverage, and may provide annual savings to individual unit owners. In addition, MCIOAs insurance coverage requirements will benefit the association and its owners in that substantial control over the existence and quality of insurance coverage is gained.
MCIOA requires common interest communities to conduct an annual review of its financial statements by an independent certified public accountant. While the annual review requirement may increase costs, thirty percent (30%) of the unit owners are allowed to vote against the annual review of its financial statements at each annual meeting. The annual review requirement should be viewed as an advantage, because it provides the unit owners with additional security to ensure that the assets of the common interest community are being properly maintained and protected.
Finally, MCIOA requires resale disclosure certificates, which provide information to buyers of units within the common interest community. MCIOA requires minimum levels of information to buyers, which allows the buyers to make informed decisions on whether they wish to purchase a unit within the common interest community. As evidenced by a recent Minnesota case, the failure to abide by the minimum disclosures can adversely affect the common interest communitys ability to collect assessments from the new buyer in the future.[vii] However, MCIOAs required disclosures provide valuable information to incoming buyers, which makes for more informed unit owners.
Since MCIOA became effective on June 1, 1994, it has proven to be a valuable resource to Minnesota community associations. MCIOA provides Minnesota developers, community associations, unit owners and sellers and buyers of those units with significant advantages. In addition, Minnesota practitioners greatly benefit from the provisions of MCIOA in advising Minnesota community associations, unit owners and buyers/sellers of those units.
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 subject to a master association, regardless of when the master association was formed, shall not collectively constitute a separate common interest community unless so stated in the master declaration recorded against the real estate pursuant to section 515B.2-121, subsection (f) (1).
[ii] 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.
[iii] Cooperative means a common interest community in which the real estate is owned by an association, each of whose members is entitled by virtue of the members ownership interest in the association to a proprietary lease.
[iv] See Minn. Stat. §515B.1-102(b)(2).
[v] See Minn. Stat. §515B.1-102(b)(1).
[vi] See Minn. Stat. §515B.3-116(h)(4), as compared to Minn. Stat. §582.01, subdivisions 1 and 1a.
[vii] See Anthony Paul Neuman v. Innsbruck North Townhouse Association, Minn. Ct. App. C6-01-356 (2001). Innsbruck North Townhouse Association failed to advise Mr. Neuman of a special assessment in the written resale disclosure certificate. While the association provided Mr. Neuman with verbal information regarding a special assessment in a lesser amount, the Minnesota Court of Appeals did not allow the association to collect the full amount of the special assessment from Mr. Neuman, because the association did not follow the resale disclosure certificate requirements set forth in MCIOA.