18VAC48-20 Condominium Regulations

REGULATIONS

Vol. 27 Iss. 11 - January 31, 2011

TITLE 18. PROFESSIONAL AND OCCUPATIONAL LICENSING

COMMON INTEREST COMMUNITY BOARD

Chapter 20

Fast-Track Regulation

Title of Regulation: 18VAC48-20. Condominium Regulations (adding 18VAC48-20-733, 18VAC48-20-735, 18VAC48-20-737, 18VAC48-20-739).

Statutory Authority: §§ 54.1-2349 and 55-79.84:1 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: March 2, 2011.

Effective Date: April 1, 2011.

Agency Contact: Trisha Henshaw, Executive Director, Common Interest Community Board, 9960 Mayland Drive, Suite 400, Richmond, VA 23233, telephone [phone], FAX [phone], or email [e-mail].

Basis: Section 54.1-2349 of the Code of Virginia states in part that the board shall have the power and duty to promulgate regulations to carry out the requirements of Chapter 23.3 of Title 54.1 of the Code of Virginia. In addition, § 55-79.98 of the Condominium Act states in part that the board shall prescribe reasonable rules which shall be adopted, amended, or repealed in compliance with law applicable to the administrative procedures of agencies of government. Section 55-79.84:1 B of the Code of Virginia specifies that the board may promulgate reasonable regulations that govern the return of bonds submitted in accordance with this section. Section 54.1-201 E of the Code of Virginia states in part that regulatory boards shall promulgate regulations in accordance with the Administrative Process Act necessary to assure continued competence, to prevent deceptive or misleading practices by practitioners and to effectively administer the regulatory system administered by the regulatory board. This regulation is necessary to protect the interests of associations by ensuring that the declarant has filed an appropriate bond or letter of credit, as well as the interests of the declarant by providing the requirements for returning a bond or letter of credit if the unit owners' association is unresponsive. In addition, the regulation clarifies the boards authority to discipline a regulant for failing to properly maintain the bond or letter of credit required by law.

Purpose: Section 55-79.83 of the Code of Virginia provides that the expenses for common elements are to be paid by the condominium unit in accordance with this section and the condominium instruments. In addition, § 55-79.83 states in part that "neither a unit owned by the declarant nor any other unit may be exempted from assessments made pursuant to this section by reason of the identity of the unit owner thereof." Section 55-79.84:1 A of the Code of Virginia states that the declarant of a condominium containing registered units shall post and file with the board a bond in favor of the unit owners' association for the payment of delinquent assessments. The amount of the bond is $1,000 per unit, with a minimum of $10,000 and a maximum of $100,000. The bond shall be maintained by the declarant for so long as the declarant owns more than 10% of the units in the condominium or, if the declarant owns less than 10% of the units, until the declarant is current in the payment of assessments. For a condominium containing less than 10 units, the bond may be returned once the declarant owns one unit in the condominium and is current in the payment of assessments. Further, the amendment includes the procedures for returning a bond or letter of credit upon proper termination of the condominium registration. In addition, the regulation clarifies the board's authority to discipline a regulant for failing to properly maintain the bond or letter of credit required by law. Because the statute only covers the filing of the bond with the board, the amount, and the point at which it may be returned, there has been confusion and inconsistency in the process for determining whether a declarant is current in the payment of assessments, the process for the unit owners' association to affirm such, and the requirements for ensuring the bond or letter of credit is current and maintained throughout the required period. There have been situations where a unit owners' association cannot collect assessments from a declarant but is unable to make a claim on the bond or letter of credit because it has lapsed and the board has not been notified. In addition, the procedures currently being followed for returning bonds and terminating condominium registrations are often not known by declarants of condominiums, or their agents, or the unit owners' associations. The amendments will place in administrative code these provisions, thus providing more accessibility to affected parties and ensuring consistency in their application.

Rationale for Using Fast-Track Process: The amendments formalize the procedures currently used by the Common Interest Community Board staff to return the bond or letter of credit required by § 55-79.84:1 of the Code of Virginia. Currently, it is more detrimental to protection of the public (including associations and declarants) by not having the process formalized in regulation in a manner that can be clearly understood by the affected consitutents. The board determined that these procedures should be codified in the board's regulations to ensure accessibility by affected persons and consistency in their application.

Substance: The regulation creates a section that specifies requirements for both the declarant of a registered condominium and the unit owners' association for the release of a bond or letter of credit to ensure the payment of assessments by the declarant. The section also specifies action taken by the board if the unit owners' association indicates that the declarant is not current in the payment of assessments, or no response is received from the unit owners' association.

The regulation includes provisions regarding the return of a bond or letter of credit upon the proper termination of a condominium registration when all units have been sold, or if no units have been sold and the declarant decides to use the property for other purposes other than residential condominiums (i.e., rental apartments). Further, the proposed amendment includes provisions for maintaining the bond or letter of credit and the consequences for failure to do so. Finally, the proposed regulatory amendment clarifies the board's authority against regulants that fail to respond to requests for specific information in a timely manner.

Issues: The primary advantage to declarants of condominiums is that the requirements for having a bond or letter of credit returned in accordance with § 55-79.84:1 of the Code of Virginia will be clearer and more consistent and their obligation to pay assessments on units they own will be emphasized. In addition, the expectations for maintaining the bond or letter of credit will be clearly stated, as well as the consequences for failure to do so.

The primary advantage to unit owners' associations and their membership is that their role in verifying payment of assessments will be clarified, as well as the importance of responding to the request for such verification by the board, as failure to respond could result in the return of the bond or letter of credit to a declarant that is delinquent in assessments if the association fails to respond, thus removing a source available to the association to recover unpaid funds.

The primary advantage to the board is that the proposed language codifies and streamlines the requirements, thus ensuring consistency in application and clarifying the requirements related to bonds and letters of credit for which there is only a brief statutory reference at this time.

There are no known advantages or disadvantages to the public or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. Section 55-79.84:1 A of the Code of Virginia states that the declarant of a condominium containing registered units shall post and file with the Common Interest Community Board (Board) a bond in favor of the unit owners association for the payment of delinquent assessments. Further, the Code specifies the amount of the bond and when it shall be returned. According to the Department of Professional and Occupational Regulation, the procedures currently being followed for returning bonds and terminating condominium registrations are often not known by declarants of condominiums, or their agents, or the unit owners associations. Therefore the Board proposes to incorporate into these regulations the procedures currently practiced by the Board staff concerning the requirements governing return of a bond or letter of credit to the declarant of a condominium project.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. The proposed new language for these regulations is for the most part repetitive of statute and thus will have no impact beyond the benefit of clarifying the law. Section 55-79.84:1 does state that "The Board may promulgate reasonable regulations which govern the return of bonds submitted in accordance with this section." The proposed language repeats the statute by stating that "The board shall return the bond or letter of credit to the declarant if (i) the unit owners' association confirms that the declarant is current in the payment of assessments and owns less than 10 percent of the units in the condominium," but adds that the Board shall return the bond or letter of credit if "no response is received from the unit owners' association within 90 days. The 90-day timeframe in subsection (ii) may be extended at the discretion of the board." Ninety days is plenty of time for the owners' association to respond with information toward whether the declarant is current in the payment of assessments and owns less than 10 percent of the units in the condominium. Adding this language to the regulations will be beneficial in that it will inform declarants as to when they can expect to have their bond or letter of credit returned.

Businesses and Entities Affected. The proposed amendments affect the 572 registered condominiums in Virginia and the same number of unit owners associations connected with them.

Localities Particularly Affected. The proposed amendments do not disproportionately affect particular localities.

Projected Impact on Employment. The proposal amendments are unlikely to significantly affect employment.

Effects on the Use and Value of Private Property. The proposed amendments are unlikely to significantly affect the use and value of private property.

Small Businesses: Costs and Other Effects. The proposed amendments are unlikely to significantly affect costs for small businesses, but will reduce some uncertainty for condominium project declarants concerning when they can expect to have their bond or letter of credit returned.

Small Businesses: Alternative Method that Minimizes Adverse Impact. The proposed amendments are unlikely to adversely affect small businesses.

Real Estate Development Costs. The proposed amendments are unlikely to have a large impact on real estate development costs, but will reduce some uncertainty for declarants of condominiums concerning when they can expect to have their bond or letter of credit returned.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 14 (10). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

Agency's Response to the Department of Planning and Budget's Economic Impact Analysis: Concur with the approval.

Summary:

The amendments incorporate the requirements governing return of a bond or letter of credit to the declarant of a condominium project as required by § 55-79.84:1 of the Code of Virginia. The amendments also require the declarant to maintain the bond or letter of credit and notify the board office of any change to the bond or letter of credit.

18VAC48-20-733. Return of bond or letter of credit to declarant.

A. The declarant of a condominium required to post a bond or letter of credit pursuant to § 55-79.84:1 of the Code of Virginia shall maintain such bond or letter of credit for all units registered with the board until the declarant owns less than 10% of the units in the condominium and is current in the payment of assessments. For condominiums containing less than 10 units, the bond or letter of credit shall be maintained until the declarant owns only one unit.

B. The declarant shall submit a written request to the board for the return of the bond or letter of credit. The written request shall attest that the declarant (i) owns less than 10% of the units or for condominiums containing less than 10 units, that the declarant owns only one unit and (ii) is current in the payment of assessments. The written request shall provide contact information for the unit owners' association.

C. Upon receipt of the written request from the declarant, the board shall send a request to the unit owners' association to confirm the information supplied by the declarant.

D. The board shall return the bond or letter of credit to the declarant if (i) the unit owners' association confirms that the declarant is current in the payment of assessments and owns less than 10% of the units in the condominium or (ii) no response is received from the unit owners' association within 90 days. The 90-day timeframe in clause (ii) of this subsection may be extended at the discretion of the board.

E. If the unit owners' association attests the declarant is not current in the payment of assessments, the board shall retain the bond or letter of credit until confirmation is received that the declarant is current in the payment of assessments.

The board may ask for additional information from the unit owners' association or the declarant as needed to confirm compliance with § 55-79.84:1 of the Code of Virginia.

18VAC48-20-735. Return of bond or letter of credit upon termination of registration.

A. Pursuant to § 55-79.93 of the Code of Virginia, the board shall terminate the registration of the condominium upon receipt of written notification from the declarant attesting that all units have been disposed of and that all periods for conversion or expansion have expired. If the bond or letter of credit on file with the board has not been returned previously, it will be considered for return in accordance with 18VAC48-20-733.

B. If no units have been sold and the declarant decides to use the property for other purposes other than residential condominiums, the board shall issue an order terminating the registration of the condominium upon receipt of written request from the declarant and shall return the bond or letter of credit required.

18VAC48-20-737. Maintenance of bond or letter of credit.

A. The declarant shall report the cancellation, amendment, expiration, termination, or any other change of any bond or letter of credit submitted in accordance with § 55-79.84:1 of the Code of Virginia within five days of the change.

B. Failure to report a change in the bond or letter of credit shall result in further action by the board in accordance with Chapter 4.2 (§ 55-79.39 et seq.) of Title 55 of the Code of Virginia.

18VAC48-20-739. Response to inquiry and provision of records.

A. The declarant must respond within 10 days to a request by the board or any of its agents regarding any complaint filed with the department. The board may extend such time frame upon a showing of extenuating circumstances prohibiting delivery within such 10-day period.

B. Unless otherwise specified by the board, the declarant shall produce to the board or any of its agents within 10 days of the request any document, book, or record concerning any transaction in which the declarant was involved, or for which the declarant is required to maintain records for inspection and copying by the board or its agents. The board may extend such time frame upon a showing of extenuating circumstances prohibiting delivery within such 10-day period.

C. A declarant shall not provide a false, misleading, or incomplete response to the board or any of its agents seeking information in the investigation of a complaint filed with the board.

D. With the exception of the requirements of subsections A and B of this section, a declarant must respond to an inquiry by the board or its agent within 21 days.

VA.R. Doc. No. R11-2504; Filed January 11, 2011, 11:09 a.m.