Condos: 2015 Legislative Update

The 84^th Texas Legislature made multiple changes to the laws affecting property owners associations.  The majority of the changes impact single family HOAs, but one important change was made to Chapter 82 of the Texas Property Code, or the Texas Uniform Condominium Act (“TUCA”).  Section 82.119 takes effect on September 1, 2015, and represents a major change to construction defect litigation.

 
The new section, entitled Construction Defect Litigation, requires the condo board to take specific steps prior to initiating a lawsuit for construction or design defects of units or common elements.  Specifically, the condo board must obtain an inspection and report from an independent, licensed professional engineer.  Another important aspect is that the condo board must notify all parties that may be subject to a claim that an inspection will be taking place.  The potential parties must be given at least 10 days’ notice, and must be permitted to attend the inspection.  The report must identify the location of the defect, describe the current physical condition, and describe any modifications undertaken by the Association or the homeowners. 

Upon completion, the inspection report must be provided to each party potentially subject to a claim.  To the extent that defects are found, the statute provides for a cure period, allowing the developer, contractor, or subcontractor the opportunity to remedy the defect.

As if the foregoing hurdles were not enough to protect the developers, the condominium board must obtain approval of at least 50% of the total votes in the Association prior to filing suit or initiating an arbitration proceeding.  

I have long recommended that homeowner boards undertake an engineering inspection upon turnover.  This inspection is sometimes referred to as a “turnover inspection”.  This seems especially important given the new requirements of section 82.119.

Texas Requires All Governing Documents Be Recorded!

As has been widely discussed over the past year, the 82nd Texas Legislature made many changes to the laws affecting property owners' associations (including condominiums and single-family residential HOAs). Perhaps the most important legislative mandate from this session deals with how associations must disseminate their governing documents.

Prior to January 1, 2012, it was required that a property owners association provide copies of any informative documents regarding membership in the association. Additionally, owners must be provided with documents such as the property's Declaration, any Restrictions, Bylaws, Rules and Regulations, and any other documents that help govern the establishment, maintenance, or operation of any property under the association's control.

New Texas legislation requires that all governing documents be recorded with the relevant County's Real Property Records. Pursuant to Texas Property Code Section 202.006, any governing document that is not recorded with the appropriate county by January 1, 2012 will have no force or effect. If you are a property manager or board member, this means that you should check on whether your documents have been appropriately recorded.

Amending a Texas Condominium’s Declaration

The procedure for adopting changes to a Texas condominium’s declaration differs depending on the year the condominium’s declaration was recorded. Chapter 81 of the Texas Property Code governs if the declaration was recorded before January 1st of 1994, at which point Texas adopted the Uniform Condominium Act. For properties that recorded their declarations before this Act was adopted, the process for amending the condominium’s declaration is simpler. Section 81.111 states that any amendments to a declaration that was previously recorded with the county clerk must be made at an “apartment owners” meeting. (Under Chapter 81, “apartment” means an enclosed space within a building that has direct exit to a thoroughfare or common space. Today the same parcels of a building would typically be called “condominiums” or “units”.) The amendment needs to be supported by at least 67% of the ownership interest in the condominium.


Chapter 82 of the Texas Property Code, which is the Texas Uniform Condominium Act (“TUCA”), is applicable to any condominium that recorded its declaration with the county clear after January 1st of 1994. According to § 82.002, it also applies if a condominium that recorded its declaration before January 1st of 1994 either puts a provision in its declaration saying that this Act would apply when adopted or if its declaration is amended to say that this Act will apply.


The process to amend a declaration is more involved under Chapter 82. According to § 82.067, support of 67% of the ownership interest is still required, but the amendment can be adopted by written ballot or an owner’s meeting that all owners have been informed of in writing. If an amendment is adopted, it must be recorded in every county where part of the condominium sits.


Section 82.067 also specifies certain amendments that require 100% of the votes. These amendments include, but are not limited to, changing special declarant rights, increasing the number of units, and changing unit use restrictions. Even with 100% owner support, an amendment may not increase or otherwise modify the obligations or rights of a declarant without the declarant’s agreement.


The association’s board must further designate an officer to prepare, execute, record, and certify any amendments made. If the board does not do so, the president of the association may take on the role of officer. The declaration can be amended by the association to allow the board to evict a tenant for not following the association rules, for not paying for damage he caused to the condominium, or for being at least 60 days delinquent on rent payments.


While the Texas Property Code sets specific requirements for amending a condominium’s declaration, it is important to remember that these are not the only rules governing such amendments. Condominiums can place different rules or procedures directly into the declaration itself. If this is the case, the rules set out in the declaration are valid unless they are in direct conflict with the language of the Texas Property Code.


***This article was prepared by Rachel Robinson and edited by Austin Attorney Chloe Love.

TUCA: Where do liens come from?

Amongst condo-dwellers and their property management (to a lesser extent, single family home-owners subject to an owners’ association), I frequently hear the phrase, “Let’s just file a lien.” This is often mentioned when an owner and member of the association has failed to make timely payment of their regular monthly assessments. However, “filing a lien” is not really an accurate statement of how the Association should perfect it’s interest in the property.

Under the Texas Uniform Condominium Act (“TUCA”), which applies to all condos in the State of Texas that were formed on or after January 1, 1994, the Association already has a lien against delinquent owners, without the need of any filing. TUCA Section 82.113 provides that an assessment levied by an association against a unit or unit owner is a personal obligation of the unit owner and is secured by a continuing lien on the unit and on rents and insurance proceeds received by the unit owner and relating to the owner’s unit. Emphasis added.
Furthermore, the association’s lien has priority over many other types of liens. Typically, the governing documents for your condominium will echo the statement from §82.113 of TUCA, further stating that a continuing lien in favor of the association exists whenever an owner is delinquent in payment of his/her assessments.

Usually, once I provide this explanation, condo board members follow up with a very good question, “If the lien already exists, why are we filing anything in the real property records?” The answer to that question is simply one of logistics. For sake of explanation, let’s say Bad Neighbor owes the Association $10,000 in past due assessments. Let’s further assume that Bad Neighbor has indicated that he has no intention of ever paying his assessments, because he disagrees with the management decisions that have been made by the Board. If Bad Neighbor then chooses to sell his unit to Innocent Purchaser, there would be nothing to indicate to the innocent purchaser that there are any current amounts owed to the Association. However, if the Association has chosen to file a “Notice of Lien” in the real property records, potential purchasers and title companies will be able to see that Bad Neighbor owes money to the Association. Typically, a title company will require that all liens be cleared before they will issue title insurance, which will likely result in the Association being paid. Therefore, filing a Notice of Lien may just be the lowest-cost method of collection past due assessments. (However, beware of first lien holder foreclosures, as has been discussed previously in this blog)