Stoll Keenon Ogden PLLC | Advertising Material
THE KENTUCKY CONDOMINIUM ACT
By Scott W. Brinkman
Stoll Keenon Ogden PLLC
© July 15, 2010
The Kentucky Horizontal Property Law was enacted by the Kentucky General Assembly effective as of June 14, 1962. John F. Kennedy was President, the Cuban missile crisis had not yet occurred, the Beatles were an obscure musical group playing in nightclubs in and around Liverpool, England and the form of condominium ownership was rare in Kentucky. The Kentucky Horizontal Property Law is very basic although it does establish the parameters of the condominium form of real property ownership. Various amendments to the Kentucky Horizontal Property law were enacted in 1974 and 1998.
The Kentucky Condominium Act, which was signed into law by Governor Beshear on April 8, 2010 and has an effective date of January 1, 2011, broadly re-writes Kentucky law governing the condominium form of ownership to create more certainty and clarity with respect to the rights, duties and obligations of developers of condominiums, unit owners within condominiums, associations that own the common elements of a condominium, and the members and officers of the executive board of the association charged with the responsibility to enforce the rights and discharge the duties of the association. Although modeled after the Uniform Condominium Act drafted by the National Conference of Commissioners on Uniform State Laws, the Kentucky Condominium Act is less sweeping that the Uniform Condominium Act. Still, the Kentucky Condominium Act strikes a balance between creating more clarity, transparency and accountability among the various stakeholders in a condominium project without creating an overly burdensome legislative structure that results in the discouragement of this type of real property ownership. The final version of the Kentucky Condominium Act enacted into law went through many different drafts and reflects the input of legislators, many real estate attorneys throughout Kentucky, and various organizations such as the Kentucky Chapter of the Community Associations Institute, the Kentucky Homebuilders Association, the Kentucky Realtors Association, the Kentucky Bankers Associations and other groups who maintain a particular interest in Kentucky having a clear and comprehensive legislative structure governing the form of condominium ownership.
The Kentucky Condominium Act applies to all condominiums created within the Commonwealth of Kentucky after January 1, 2011. In addition, several provisions of the Kentucky Condominium Act apply to all condominiums created before the effective date of the legislation, but only to the extent of events or circumstances occurring after the effective date of the legislation, and these sections of the Kentucky Condominium Act do not invalidate existing provisions of the declaration, bylaws, plats or plans of those condominiums, namely:
(a) the provisions governing the ad valorem taxation of condominiums set forth in Section 5 of the legislation;
(b) the interrelationship between the Kentucky Condominium Act and local zoning, subdivision, building code and other real estate use laws set forth in Section 6 of the legislation;
(c) the provisions setting forth the effect of condemnation of a condominium or any part thereof set forth in Section 7 of the legislation;
(d) the general provisions of Section 15 of the legislation describing the relationship between a declaration and bylaws, stating that all provisions of the declaration and bylaws are severable and that title to a unit and common elements is not rendered unmarketable or otherwise affected by reason of an insubstantial failure of the declaration to comply with the provisions of the Kentucky Condominium Act, and providing that the rule against perpetuities shall not be applied to defeat any provision of the declaration, bylaws, rules or regulations of the association;
(e) the provisions of Section 16 of the legislation defining what is required to create a sufficient legal description of a unit and the rights, obligations and interests appurtenant to the unit;
(f) the provisions describing the powers of an association set forth in Section 34 of the legislation;
(g) Section 35 of the legislation, which includes provisions setting forth the maximum permitted period of declarant control and the composition of, and certain rights and powers of, the executive board of the association; (h) Section 42 of the legislation which includes provisions exculpating the association and unit owners from torts committed by the declarant and providing that an action alleging a wrong committed by the association shall be brought against the association and not the unit owners;
(i) the provisions of Section 47 of the legislation governing liens for assessments against the units for common expenses;
(j) the provisions of Section 49 of the legislation obligating an association to maintain financial records in sufficient detail to enable the association to perform its statutory obligations; and
(k) the definitions set forth in Section 3 of the legislation to the extent necessary to construe the various Sections of the Act noted in this paragraph.
The Act provides that any amendment to the declaration, bylaws, plats or plans of any condominium created before the effective date of the legislation must conform to the provisions of the Act. The Rule Against Perpetuities shall not be applied to defeat any provision of the declaration, bylaws, rules or regulations governing a condominium. Further, to the extent of a conflict between the provisions of the declaration and the bylaws, the declaration prevails except to the extent the declaration is inconsistent with the provisions of the KCA.
All of the condominium owners within a condominium development also have the right by unanimous vote to have the Kentucky Condominium Act apply to a condominium created before the effective date of the legislation, and in that event the declaration, bylaws, plats and plans of such condominium will need to be modified or amended to the extent necessary to be consistent with the Kentucky Condominium Act. The KCA also creates one additional important exception to the principle that the provisions of the Kentucky Condominium Act do not apply to condominiums created before the effective date of the legislation. The Act empowers the executive board of the condominium association to rely on the provisions of the Act to deal with any situation that creates a public safety or health issue to one or more condominium owners within the association.
Unless specifically permitted by one or more sections of the new law, the provisions of the Act may not be waived by agreement, and rights conferred under the legislation may not be waived. In addition, it does not supersede the zoning, subdivision, building code or other real estate use law, ordinance or regulation of any political subdivision. Contrariwise, no zoning, subdivision, building code, or other real estate use law, ordinance or regulation may prohibit the condominium form of ownership or impose any requirement upon a condominium that it would not impose upon a physically identical development under a different form of ownership.
The KCA encompasses many forms of real property ownership and is intended to be flexible in allowing many different types of projects to qualify as a condominium subject to the provisions of the legislation. The key definitions in this regard are “condominium” and “real estate.” The KCA defines a condominium to mean “single units in a single-unit or a multiple-unit structure or structures, portions of which are designated for separate ownership and remainder of which is designated for common ownership solely by the owners of those portions.” Importantly, real estate cannot qualify as a condominium within the meaning of the new legislation unless the undivided interests in the common elements are vested in the unit owners. “Real estate” is defined in the Act as “any fee simple interest, leasehold estate, or other estate or interest in, over, or under land, including structures, fixtures, and other improvements and interests by which custom, usage, or law pass with a conveyance of land though not described in the contract of sale or instrument of conveyance.” Real estate specifically includes parcels with or without upper or lower boundaries, and spaces that may be filled with air or water. A condominium can only be created recording a declaration executed in the same manner as a deed in every county in which a portion of the condominium is located. The condominium shall be indexed in the name of the condominium, the association and each person executing the declaration. A “declaration” is defined as any instrument, including a master deed, however denominated, that creates a condominium, and any amends those instruments. Again, the Act is designed to create flexibility in how a condominium is created, although the preference appears to be the use of master deeds to create condominiums.
The KCA also makes clear that, unless displaced by a particular provision of the legislation, the principles of law and equity, including the law of corporations and unincorporated associations, the law of real property, and the law relative to capacity to contract, principal and agent, eminent domain, estoppel, fraud, misrepresentation, duress, coercion, mistake, receivership, substantial performance, other validating or invalidating cause, supplement the provisions of the Act. The legislation also provides that every contract or duty governed by the legislation imposes an obligation of good faith in its performance or enforcement. In this regard, the Act is similar to the Uniform Commercial Code as enacted in the Commonwealth of Kentucky, which equally imposes on obligation of good faith in the performance and enforcement of every contract and duty within the Uniform Commercial Code.
The Kentucky Condominium Act clarifies the relationship between condominiums, including condominiums in various stages of development, and ad valorem taxation. The KCA also clarifies the effect of eminent domain on a condominium including the manner in which condemnation awards are to be allocated between the units and the common elements. For instance, Section 7(3) of the Act provides that any portion of a condemnation award attributable to the common elements of a condominium project shall be paid to the condominium association and, unless the declaration provides to the contrary, the award attributable to the acquisition of a limited common element shall be equally divided among the owners of the units to which the limited common element was allocated at the time of acquisition. This particular section of the K Act should help the courts in determining the appropriate manner in which to allocate condemnation awards attributable to condominiums including common elements and limited common elements.
The Act should prove to be helpful in clarifying the portions of a condominium unit that constitutes part of the unit versus a common element or limited common element. Many questions have arisen over the years as to the appropriate distinction between property owned by the unit owner and property that constitutes either a common element or a limited common element. The distinction is important from an insurance perspective, an ad valorem real property taxation perspective, and an eminent domain perspective.
The Kentucky Condominium Act makes the following distinctions with respect to the property commonly associated with a condominium unit.
First, all walls, floors or ceilings of a unit are designated as boundaries of a unit, all lath, furring, wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finished flooring, and any other materials constituting any part of the finished surfaces thereof are part of the unit, and all other portions of the walls, floors or ceilings are a part of the common elements unless otherwise specified in the declaration.
Second, if any chute, flue, duct, wire, conduit, heating system, air conditioning system, bearing wall, bearing column, or any other fixture lies partially within and partially outside the designated boundaries of a unit, any portion thereof serving only that unit is a limited common element allocated solely to that unit, and any portion thereof serving more than one unit or any portion of the common elements is a part of the common elements unless otherwise specified in the declaration.
3rd, all spaces, interior partitions, and other fixtures and improvements within the boundaries of a unit are part of the unit subject to the provisions of the legislation noted above in this paragraph.
4th, any shutters, awnings, window boxes, doorsteps, stoops, porches, balconies, patios, and all exterior doors and windows or other fixtures designed to serve a single unit, but located outside the unit’s boundaries, are limited common elements allocated exclusively to that unit.
5th, any sprinkler system, alarm system, or other system of protection that serves more than one unit, unless all units served are owned by the same owner, shall be part of the common elements.
Finally, all interior hallways, stairways, and other interior space, including all fixtures located within these spaces, that are located outside of a unit shall be limited common elements allocated exclusively to the units appurtenant to or otherwise accessible from such interior spaces.
The Act allows the unit owners of units to which a limited common element is appurtenant to reallocate the limited common element among such units by amendment to the declaration unless the declaration otherwise provides. Unit owners should insist upon having the flexibility to allocate limited common elements among the units in such proportion as is acceptable to such unit owners.
The KCA also specifies the information that must be contained in a declaration in order for the declaration to be effective to create a condominium; this section of the new legislation is particularly important for prospective purchasers and lenders with respect to a condominium that is under development. The declaration must include the name of the condominium, which must include the word “condominium” or be followed by the words “a condominium” and the association, a legally sufficient description of the real estate included in the condominium and the county or counties in which the condominium is located, the maximum number of units which the developer serves the right to create and the description of the boundaries of each such unit, a description of the limited common elements including any real estate that may be allocated subsequently as limited common elements.
Importantly, the declaration must also include a description of any development rights and other special declarant rights reserved by the declarant and, if any development right may be exercised with respect to different parcels of real estate at different times, a statement to that effect together with a statement clarifying the order in which development rights may be exercised as to different parcels of real estate or a statement that no assurances are made concerning the boundaries or order in which the exercise of development rights may occur. These clarifying statements should help prospective purchasers and lenders in analyzing the manner in which a partially developed condominium is to be developed.
The Act also reflects the fact that condominiums are developed under ground or other long-term leases. A memorandum of lease must be recorded with respect to any lease the expiration or termination of which may terminate the condominium or reduce its size. The legislation further stipulates the information that must be included in the memorandum of lease. The legislation provides additional protections for owners of units subject to the leasehold condominium. Although leasehold condominiums are probably fairly rare in Kentucky, the new legislation does create more certainty with respect to the rights of unit owners subject to leasehold condominiums and the manner in which leasehold condominiums must be described in the real estate records.
The Act requires the declaration to allocate a fraction or percentage of undivided interests in the common elements and in the common expenses of the association, and a portion of the votes in the association, to each unit and to state the formulas used to establish those allocations. The allocations may not discriminate in favor of units owned by the declarant. The declaration must also state the formulas to be used to reallocate the allocated interests among units in a condominium after any units are added or withdrawn from the condominium. The legislation also allows a declaration to provide that different allocations of votes shall be made to the units on particular matters specified in the declaration and for class voting on specified issues affecting the class if necessary to protect the valid interests of the class. However, the declaration may not permit cumulative voting, including cumulative voting for the purpose of electing members of the executive board. The legislation also specifies that the sum of the undivided interests in the common elements and common expense liabilities allocated at any time to all of the units shall equal one if stated as fractions or 100% if stated as percentages. Importantly, the common elements of a condominium are not subject to partition, and any purported conveyance, encumbrance, judicial sale, or other voluntary or involuntary transfer of an undivided interest in the common elements made without the unit to which that interest is allocated is void.
The KCA specifies that plats and plans are part of the declaration. Each plat is required to include:
(a) the name and a survey or general schematic map of the entire condominium;
(b) the location and dimensions of all real estate not subject to development rights, or subject only to the development right to withdraw, and the location and dimensions of all existing improvements within that real estate;
(c) a legally sufficient description of any real estate subject to development rights, labeled to identify the rights applicable to each parcel;
(d) the extent of any encroachments by or upon any portion of the condominium;
(e) the location, with reference to an established datum, of any horizontal unit boundaries not shown or projected on plans recorded pursuant to subsection (4) of Section 21 of the Kentucky Condominium Act;
(f) a legally sufficient description of any real estate to which the unit owners will own only an estate for years, labeled as “leasehold real estate”;
(g) the distance between noncontiguous parcels of real estate comprising the condominium;
(h) the location and dimensions of limited common elements, including porches, balconies and patios, other than parking spaces and other limited common elements otherwise described in other sections of the legislation; and
(i) in the case of real estate not subject to development rights, all other matters customarily shown on land surveys prepared in accordance with standards established pursuant to KRS 322.290.
The plat must also label any contemplated improvement as “MUST BE BUILT” or “NEED NOT BE BUILT.” Upon exercising any development right, the declarant must record either new plats and plans necessary to conform to the requirements of the legislation or new certifications of plats and plans previously recorded if those plats and plans otherwise conform to the requirements of the legislation. In the latter instance, the certification of a plat or plan must be made by a professional land surveyor, licensed architect or professional engineer.
The Kentucky Condominium Act creates a variety of new sections governing the exercise of development rights by declarants. The legislation specifies that, in order to exercise any development right as to specific real estate, the declarant must prepare, execute and record an amendment to the declaration, which must assign an identifying number to each new unit created through the exercise of the development rights, must reallocate the allocated interests among all units, and must describe any common elements and any limited common elements created through the exercise of the development rights. The legislation also prescribes the manner in which a declaration must be amended in the event a declarant exercises a development right to subdivide or convert a unit previously created into additional units, common elements or both.
Sections 23, 24 and 25 of the new legislation provide guidance as to the right of unit owners to make improvements or alterations to their units, to change the exterior appearance of a unit or any other portion of the condominium, to remove or alter intervening partitions or create apertures between adjoining units, to relocate boundaries between adjoining units, and to subdivide units. The declarant is permitted to establish specific provisions governing these matters in the declaration, but if the declaration is silent on one or more of these matters, the Kentucky Condominium Act provides a great deal of clarity with respect to these particular matters.
The Act provides guidance regarding the extent to which easements are created within units or the common elements. To the extent any unit or common element encroaches on any other unit or common element, a valid easement for the encroachment exists, although the easement does not relieve a unit owner of liability in case of willful misconduct or relieve a declarant or any other person of liability for failure to adhere to plats and plans. Subject to the provisions of the declaration, a declarant has an easement through the common elements as may be reasonably necessary for the purpose of discharging a declarant’s obligations or exercising special declarant rights.
With certain specific exceptions stated elsewhere in the Act, a declaration, including the plats and plans, may be amended only be vote or agreement of unit owners of units to which at least 67% of the votes in the association are allocated, or any larger majority specified in the declaration. However, the declaration may specify a smaller number if all of the units are restricted exclusively to nonresidential use. This is one of the several examples in the Kentucky Condominium Act in which a distinction is drawn between residential and nonresidential use of a condominium. Any action to challenge the validity of an amendment adopted by an association pursuant to this section of the new legislation must be brought no later than one year after the amendment is recorded. Finally, except to the extent expressly permitted or required by other provisions of the new legislation, no amendment to a declaration that creates or increases special declarant rights, increases the number of units, changes the boundaries of any unit, the allocated interests of a unit, or the uses to which any unit is restricted shall be effective unless unanimously approved by all of the unit owners.
A condominium may be terminated by agreement of unit owners to which at least 80% of the votes in the association are allocated. A declaration may specify a smaller percentage only if all of the units in the condominium are restricted exclusively to nonresidential uses. Although terminations of condominiums may not happen frequently, the new legislation includes specific provisions regarding the rights, duties and obligations of unit owners, the association and mortgagees in the event of a proposal to terminate a condominium as well as upon the termination of a condominium in accordance with the provisions of the legislation.
The Kentucky Condominium Act recognizes the existence of professional organizations that manage multiple condominiums. The new legislation specifically provides that the provisions of the legislation applicable to any unit owners’ association apply equally to any such professional management organizations except as otherwise provided in the legislation. The guidance created by this section of the legislation should prove helpful both to professional management organizations as well as condominiums managed by such professional management organizations.
There is created a statutory framework for the merger of two or more condominiums into a single condominium. In short, condominiums may be merged in the same legal manner in which they may be terminated. Although mergers of condominiums may be rare, the new legislation offers guidance to those unit owners within condominiums who may desire to merge their condominiums into a single condominium.
The Kentucky Condominium Act includes numerous provisions regulating condominium associations. As an initial matter, the legislation provides that, unless otherwise stated in the declaration, a unit owner’s association shall be organized no later than the dated the first unit in the condominium is conveyed. The membership of the association must at all times consist exclusively of all of the unit owners. The association may be organized as a for-profit or nonprofit corporation or as an unincorporated association. Section 34 of the legislation includes the specific powers of the association, which can be varied by the declaration. The enumerated powers of the association are very broad and inclusive. As noted above, the declaration may alter the statutory powers of an association, but the new legislation specifically provides that the declaration may not impose limitations on the power of the association to deal with the declarant that are more restrictive than the limitations imposed on the power of the association to deal with other persons. The new legislation also empowers an association to impose an emergency assessment against a unit for the specific reasons set forth in the legislation, subject to approval of the emergency assessment by a simple majority of unit owners present at a special meeting of unit owners called for the purpose of approving the emergency assessment.
The new legislation provides that, except as provided in the declaration, the bylaws or subsection (2) of Section 35, the executive board of the association may act in all instances on behalf of the association. The officers and members of the executive board are held to a standard of ordinary and reasonable care in the performance of their duties. One of the most, if not the most, important duty of an executive board is to adopt an annual budget for the condominium. Section 46 of the legislation requires that, once a common expense assessment has been made by the association, assessments must be made at least annually and be based upon a budget adopted at least annually by the association. If the executive board adopts a proposed budget, the executive board must provide a summary of the budget to all unit owners within 30 days of adoption and must schedule a meeting of unit owners to consider ratification of the budget upon not less than 14 days and not more than 30 days after the summary has been provided to the unit owners. However, in the interest of ensuring that budgets are formulated for condominiums, the legislation provides that a budget formulated by an executive board shall be deemed ratified at a meeting of unit owners, whether or not a quorum is present, unless at the meeting a majority of all of the unit owners, or any larger vote specified in the declaration, reject the budget. If the proposed budget is rejected, the last budget ratified by the unit owners shall be continued until such time as the unit owners ratify a subsequent budget proposed by the executive board.
The declaration may provide for a period of declarant control of the association, but the period of declarant control must terminate no later than the earlier of:
(a) 60 days after conveyance of 75% of the units which may be created to unit owners other than a declarant;
(b) 2 years after all declarants have ceased to offer units for sale in the ordinary course of business;
(c) 2 years after any development right to add new units was last exercised; or
(d) 7 years after the first unit was conveyed to a unit owner other than a declarant.
In addition, a declarant may voluntarily surrender the right to appoint and remove officers and members of the executive board before the termination of control subject to the right to retain approval rights over the actions of the executive board for the duration of the period of declarant control. Unit owners have the right to elect members of the executive board during the period of declarant control. Specifically, not later than 60 days after 25% of the units have been conveyed by the declarant, at least 1 and not less than 25% of the members of the executive board shall be elected by the unit owners other than the declarant. Further, not later than 60 days after 50% of the units have been conveyed by the declarant, the required number of members of the executive board elected by the unit owners increases to not less than one-3rd of the members of the executive board. Finally, not later than the termination of any period of declarant control, the unit owners shall elect an executive board of at least 3 members, a majority of whom shall be equity owners or owners of equity interests in units. The executive board shall elect the officers of the association. Any member of the executive board elected by the unit owners may be removed by the unit owners, without or without cause, by a two-3rds vote of all persons present and entitled to vote at any meeting of the unit owners at which a quorum is present. Given that a quorum can exist at a meeting of the association if persons entitled to cast 20% of the votes which may be cast for election of the executive board are present at the meeting either in person or by proxy, the legislation creates a very low threshold for the removal of any member of the executive board elected by the members.
Section 36 of KCA sets forth provisions governing the creation, exercise, transfer and termination of special declarant rights. Special declarant rights are defined as rights reserved for the benefit of a declarant to:
(a) complete improvements indicated on plats and plans filed with the declaration;
(b) exercise any development rights;
(c) maintain sales offices, management offices, signs advertising the condominium, and models;
(d) use easements through the common elements for the purpose of making improvements within the condominium or within real estate which may be added to the condominium;
(e) make the condominium part of a larger condominium or a planned community;
(f) make the condominium subject to a master association; or
(g) appoint or remove any officer of the association, master association, or any executive board member during any period of declarant control.
These provisions are very detailed and should provide a great deal of guidance to all parties having an interest in a condominium in which the declarant has created special declarant rights.
The Act details certain matters that must be addressed in the bylaws, namely:
(a) the number of members of the executive board and the titles of the officers of the association;
(b) election by the executive board of a president, treasurer, secretary, and any other officers of the association the bylaws specify;
(c) the qualifications, powers and duties, terms of office, and manner of electing and removing executive board members and officers and filling vacancies;
(d) which, if any, of its powers the executive board or officers may delegate to other persons or to a managing agent;
(e) which of its officers may prepare, execute, certify, and record amendments to the declaration on behalf of the association; and
(f) the method of amending the bylaws.
With certain enumerated exceptions, 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 his or her unit.
A meeting of the members of the association must be held at least once a year and specifies the manner in which the annual or any special meeting of the members shall be called. There is defined what will be a quorum of the association and the executive board, and there is specified the manner in which the vote appurtenant to each unit is to be cast including through the use of a proxy.
Neither the association nor any unit owner except the declarant shall be liable for the declarant’s torts in connection with any part of the condominium which that declarant has the responsibility to maintain.
Further, the legislation provides that an action alleging a wrong done by the association must be brought against the association and not against the unit owner. In addition, any statute of limitation affecting the association’s right of action is tolled until the period of declarant control terminates.
The legislation sets forth the circumstances in which the common elements of a condominium may be conveyed or subjected to a lien or security interest by the association. Again, a distinction is drawn between residential and nonresidential condominiums in terms of the percentage of unit owner approval required in order for an association to validly convey or encumber common elements.
An association is required to maintain, to the extent reasonably available, property insurance on the common elements and liability insurance. If any such insurance is not reasonably available, the association is obligated to immediately inform the unit owners of such fact. All insurance obtained by the association shall provide that:
(a) each unit owner is an insured person under the policy with respect to liability arising out of his or her interest in the common elements or membership in the association;
(b) the insurer waives its right to subrogation under the policy against any unit owner or member of his or her household;
(c) no act or omission by any unit owner, unless acting within the scope of his or her authority on behalf of the association, will void the policy or be a condition to recovery under the policy; and
(d) if, at the time of a loss under the policy, there is other insurance in the name of a unit owner covering the same risk covered by the policy, the association’s policy provides primary insurance.
The association is obligated to use any insurance proceeds received with respect to a casualty loss to the condominium to repair or replace the portion of the condominium that has been damaged or destroyed unless:
(a) the condominium is terminated;
(b) repair or replacement of the condominium would be illegal under any state statute or local health or safety ordinance; or
(c) 80% of the unit owners, including every owner of a unit or assigned limited common element which will not be rebuilt, vote not to rebuild.
Section 44 includes other important provisions governing insurers which issue insurance policies subject to the provisions of the Kentucky Condominium Act and the disposition of insurance proceeds including a provision that prohibits an insurer from canceling or refusing to renew an issued insurance policy until 30 days after notice of the proposed cancellation or nonrenewal has been mailed to the association, each unit owner, and each mortgagee to whom a certificate or memorandum of insurance has been issued at their respective last know addresses.
The KCA continues existing law by permitting the association to make common expense assessments against the unit owners.
First, until the association makes a common expense assessment, the declarant must pay all common expenses.
Second, after any assessment has been made by the association, assessments shall be made at least annually and be based upon a budget adopted at least annually by the association.
3rd, except for certain specific exceptions noted below, common expenses shall be assessed against all the units in accordance with the allocation of the undivided interests in the common elements and in the common expenses of the association as set forth in the declaration.
4th, the association has the right to charge interest on delinquent assessments at a rate not exceeding 18% per year.
5th, to the extent required by the declaration, 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 provided in the declaration; any common expense or portion thereof benefiting fewer than all of the units shall be assessed exclusively against the units benefited; and the costs of insurance shall be assessed in proportion to risk and the costs of utilities shall be assessed in proportion to usage.
6th, assessments may be made to pay a judgment against the association and, if made, shall only be made against the units in the condominium at the time the judgment was entered, in proportion to their common expense liabilities.
7th, if any common expense is caused by the misconduct of any unit owner, the association may assess that expense exclusively against his or her unit.
The association shall have a lien on a unit for any assessment levied against that unit or fines imposed against its unit owner from the time the assessment or fine becomes due. The lien may be foreclosed in the same manner as mortgages on real estate. The lien shall take priority over all other liens and encumbrances on a unit other than:
(a) liens and encumbrances recorded before the recordation of the declaration;
(b) any mortgage on the unit recorded before the date on which the assessment secured by the lien became delinquent; and
(c) liens for real estate taxes and other governmental assessments or charges against the unit.
Clearly, the lien for assessments does not have priority over existing liens or governmental liens. However, the legislation makes clear that the recordation of the declaration constitutes record notice and perfection of the lien, and no further recordation of any claim of lien for an assessment shall be required. The lien will be extinguished unless proceedings to enforce the lien are instituted within 5 years after the full amount of the assessments becomes due, and a judgment or decree in any action to enforce the lien shall include costs and reasonable attorneys’ fees for the prevailing party. The lien is recourse to the unit owner, given that the KCA does not prohibit the association from bringing an action or suit against the unit owner to recover the amounts secured by the lien. The association is also not precluded from taking a deed to the unit in lieu of foreclosure to recover the amounts secured by the lien. An association is obligated to provide a unit owner within 10 days after request a recordable statement setting forth the amount of unpaid assessments against his or her unit, which statement shall be binding upon the association, the executive board and every unit owner.
The KCA includes provisions dealing with money judgments against a condominium. Specifically, the legislation provides that, except in subsection (2) of Section 48, a judgment for money against the association, if recorded, shall not be a lien on the common elements but shall be a lien in favor of the judgment lienholder against all of the units in the at the time the judgment is entered. The exception is that, if the association has granted a lien or security interest in the common elements to a judgment creditor of the association, the holder of the lien or security interest shall exercise its right against the common elements before its judgment lien on any unit may be enforced. Section 48 also clarifies that a unit owner of unit subject to a judgment lien that encumbers other units may obtain a release of his or her unit from the judgment lien by paying the proportionate amount secured by the judgment lien.
The KCA provides that the association must keep financial records sufficiently detailed to enable the association and its unit holders to comply with the provisions of Section 52 of the Act. All financial and other records of the association must be made reasonably available for examination by any unit owner or his or her authorized agents.
Within 10 days after request by a unit owner, an association must furnish a certificate to the unit owner containing the information needed by the unit owner to comply with subsection (1) of Section 52. The seller of a unit is obligated to furnish to the purchaser of the unit upon request and before the execution of any contract for sale of the unit, otherwise before the conveyance of the unit, a copy of the declaration, other than the plats and plans, and a copy of the bylaws, the rules or regulations of the association, and a certificate containing the following information:
(a) a statement disclosing the effect on the proposed disposition of any right of first refusal or other restraint on the free alienability of the unit;
(b) a statement setting forth the amount of the monthly common expense assessment and any unpaid common expense or special assessment currently due and payable from the selling unit owner;
(c) a statement of any other fees payable by unit owners;
(d) a statement of any capital expenditures anticipated by the association for the current and, if known, the next 2 fiscal years;
(e) a statement of the amount of any reserves for capital expenditures, if any, and of any portions of those reserves designated by the association for any specified projects;
(f) the most recent regularly prepared balance sheet and income and expense statement, if any, of the association;
(g) the current operating budget of the association;
(h) a statement of any unsatisfied judgments against the association and the status of any pending suits in which the association is a defendant;
(i) a statement describing any insurance coverage provided for the benefit of unit owners; and
(j) if any portion of the condominium is situated upon a leasehold estate, a statement of the remaining term of any leasehold estate affecting the condominium and the provisions governing any extension or renewal thereof.
A unit owner providing the foregoing certificate to a purchaser shall not be liable to the purchaser for any erroneous information provided by the association and included in the certificate. Also, a unit owner shall not be liable to a purchaser for the failure or delay of the association to provide the certificate in a timely manner, but the sales contract is voidable by the purchaser until the certificate has been provided and for 5 days thereafter or until the conveyance, whichever first occurs. The certificate must also be prepared or delivered in the case of:
(a) a gratuitous disposition of a unit;
(b) a disposition pursuant to a court order;
(c) a disposition by a government or governmental agency;
(d) a disposition by foreclosure or deed in lieu of foreclosure;
(e) a disposition to a person in the business of selling real estate who intends to offer those units to purchasers; or
(f) a disposition that may be canceled at any time and for any reason by the purchaser without penalty.
A declarant is obligated to have any real estate being conveyed to an association released from all liens that, upon foreclosure, would deprive unit owners of any right of access to or easement of support for their units.
KRS 381.865 was also amended pursuant to the Kentucky Condominium Act. KRS 381.865 provided that the books and records required to be maintained by the administrator, board of administration or other appointed person of an existing condominium must be kept in accordance with good accounting procedures and must be audited at least once a year by an auditor outside of the organization. As amended, KRS 381.865 now provides that such books and records shall be audited or reviewed at least once a year by an independent accountant outside of the organization. Audits can be expensive; by amending KRS 381.865, associations and executive boards will now have the option to have the books and records either audited or reviewed by an independent accountant. In either an audit or a review, the accountant must be independent.
The Kentucky Condominium Act represents a significant enlargement of the statutory framework governing condominiums, especially condominiums created after the effective date of the Act. To comply with the Act, it will be incumbent upon declarants and unit owners to create or resuscitate, if already created, associations that will be proactive in the management of the condominium through its executive board. The legislation was drafted with the intent and purpose of ensuring that condominiums in Kentucky are well-managed by informed unit owners, acting through the association and the executive board, but without imposing unreasonable and unnecessary requirements and restrictions that will deter this type of real property ownership. Time will tell whether the appropriate balance was achieved.