BILL REQ. #:  S-0895.2 

Read first time 01/29/2003.   Referred to Committee on Judiciary.

     AN ACT Relating to condominiums; amending RCW 64.34.100, 64.34.216, 64.34.410, 64.34.425, 64.34.443, 64.34.445, 64.34.450, and 64.34.452; and creating a new section.

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

NEW SECTION.  Sec. 1   The legislature finds, declares, and determines that:
     (1) Washington's cities and counties under the growth management act are required to encourage urban growth in urban growth areas at densities that accommodate twenty-year growth projections;
     (2) One of the growth management act's planning goals is to encourage the availability of affordable housing for all residents of the state and promote a variety of housing types;
     (3) Condominium construction needs to be encouraged to achieve growth management act mandated urban densities and ensure that residents of the state, particularly in urban growth areas, have a broad range of ownership choices;
     (4) Ambiguity in the condominium act, particularly relating to implied warranties of quality, has led to legal actions and threats of legal action that allege defects and deviations in construction that have no effect on the habitability or utility of condominiums;
     (5) The result of these legal challenges is that many home builders cannot obtain insurance to build condominiums and as further result condominium construction is declining thereby reducing rather than expanding home ownership opportunities for the residents of Washington state; and
     (6) Legislative action is needed to encourage residential condominium construction by:
     (a) Permitting alternative methods of dispute resolution such as arbitration and setting standards to allow resolution of disputes in an expeditious and fair manner;
     (b) Requiring expanded disclosure to owners if arbitration is required or implied warranties are excluded, modified, or replaced with an express warranty of quality;
     (c) Requiring expanded disclosure to purchasers of legal proceeding;
     (d) Clarifying that an express written warranty of quality binds not only the unit owner but also the association;
     (e) Clarifying that implied warranties of quality extend only to defects or deviations that have a material effect on the habitability or utility of a unit or common area;
     (f) Clarifying that recovery of damages is limited to the cost of repair or diminution in the value of a unit, whichever is less;
     (g) Allowing unit purchasers to accept an express written warranty of quality in lieu of implied warranties; and
     (h) Protecting associations, boards, and officers from liability for failing to commence legal proceedings relating to condominium warranties.
     It is the intent of the legislature that this act improve and clarify procedures for resolving claims relating to condominium construction and ensure that both a broad range of homeownership opportunities continue to be available to the residents of the state and that cities and counties can achieve density mandates of the growth management act.

Sec. 2   RCW 64.34.100 and 1989 c 43 s 1-113 are each amended to read as follows:
     (1) The remedies provided by this chapter shall be liberally administered to the end that the aggrieved party is put in as good a position as if the other party had fully performed. However, consequential, special, or punitive damages may not be awarded except as specifically provided in this chapter or by other rule of law.
     (2) Any right or obligation declared by this chapter is enforceable by judicial proceeding or by binding arbitration under chapter 7.04 RCW as provided for specifically either in a written agreement signed by the unit purchaser, in the declaration, or by agreement of the parties.
     (3) Binding arbitration under this chapter must comply with the following minimum standards:
     (a) Unless the parties agree otherwise, all disputes must be heard by three qualified arbitrators, one appointed by each of the disputing parties and the third, who will chair the panel, appointed by the first two arbitrators. Should three arbitrators fail to be appointed, then arbitrators shall be appointed by the superior court of the county in which the condominium is located pursuant to RCW 7.04.050; and
     (b) Arbitrators must be lawyers licensed to practice in Washington state with a minimum of at least ten years of experience in condominium or construction law and a person may not serve as an arbitrator in any arbitration in which that person has any financial or personal interest; and
     (c) The arbitration hearing must be conducted in a manner that permits full, fair, and expeditious presentation of the case by both parties. The arbitrators are bound by the substantive law of Washington state, but are not bound by the rules of evidence. Parties may, but are not required to, be represented by attorneys. The arbitrators may permit discovery to ensure a fair hearing but may limit the scope or manner of discovery for good cause to avoid excessive delay and costs to the parties. Unless the parties agree otherwise, the arbitration hearing must be completed within one hundred twenty days of the initial demand for arbitration.

Sec. 3   RCW 64.34.216 and 1992 c 220 s 7 are each amended to read as follows:
     (1) The declaration for a condominium must contain:
     (a) The name of the condominium, which must include the word "condominium" or be followed by the words "a condominium," and the name of the association;
     (b) A legal description of the real property included in the condominium;
     (c) A statement of the number of units which the declarant has created and, if the declarant has reserved the right to create additional units, the number of such additional units;
     (d) The identifying number of each unit created by the declaration and a description of the boundaries of each unit if and to the extent they are different from the boundaries stated in RCW 64.34.204(1);
     (e) With respect to each existing unit:
     (i) The approximate square footage;
     (ii) The number of bathrooms, whole or partial;
     (iii) The number of rooms designated primarily as bedrooms;
     (iv) The number of built-in fireplaces; and
     (v) The level or levels on which each unit is located.
     The data described in (ii), (iii), and (iv) of this subsection (1)(e) may be omitted with respect to units restricted to nonresidential use;
     (f) The number of parking spaces and whether covered, uncovered, or enclosed;
     (g) The number of moorage slips, if any;
     (h) A description of any limited common elements, other than those specified in RCW 64.34.204 (2) and (4), as provided in RCW 64.34.232(2)(j);
     (i) A description of any real property which may be allocated subsequently by the declarant as limited common elements, other than limited common elements specified in RCW 64.34.204 (2) and (4), together with a statement that they may be so allocated;
     (j) A description of any development rights and other special declarant rights under RCW 64.34.020(29) reserved by the declarant, together with a description of the real property to which the development rights apply, and a time limit within which each of those rights must be exercised;
     (k) If any development right may be exercised with respect to different parcels of real property at different times, a statement to that effect together with: (i) Either a statement fixing the boundaries of those portions and regulating the order in which those portions may be subjected to the exercise of each development right, or a statement that no assurances are made in those regards; and (ii) a statement as to whether, if any development right is exercised in any portion of the real property subject to that development right, that development right must be exercised in all or in any other portion of the remainder of that real property;
     (l) Any other conditions or limitations under which the rights described in (j) of this subsection may be exercised or will lapse;
     (m) An allocation to each unit of the allocated interests in the manner described in RCW 64.34.224;
     (n) Any restrictions in the declaration on use, occupancy, or alienation of the units;
     (o) A cross-reference by recording number to the survey map and plans for the units created by the declaration; and
     (p) All matters required or permitted by RCW 64.34.220 through 64.34.232, 64.34.256, 64.34.260, 64.34.276, ((and)) 64.34.308(4), and 64.34.450.
     (2) All amendments to the declaration shall contain a cross-reference by recording number to the declaration and to any prior amendments thereto. All amendments to the declaration adding units shall contain a cross-reference by recording number to the survey map and plans relating to the added units and set forth all information required by RCW 64.34.216(1) with respect to the added units.
     (3) The declaration may contain any other matters the declarant deems appropriate.

Sec. 4   RCW 64.34.410 and 2002 c 323 s 10 are each amended to read as follows:
     (1) A public offering statement shall contain the following information:
     (a) The name and address of the condominium;
     (b) The name and address of the declarant;
     (c) The name and address of the management company, if any;
     (d) The relationship of the management company to the declarant, if any;
     (e) A list of up to the five most recent condominium projects completed by the declarant or an affiliate of the declarant within the past five years, including the names of the condominiums, their addresses, and the number of existing units in each. For the purpose of this section, a condominium is "completed" when any one unit therein has been rented or sold;
     (f) The nature of the interest being offered for sale;
     (g) A brief description of the permitted uses and use restrictions pertaining to the units and the common elements;
     (h) A brief description of the restrictions, if any, on the renting or leasing of units by the declarant or other unit owners, together with the rights, if any, of the declarant to rent or lease at least a majority of units;
     (i) The number of existing units in the condominium and the maximum number of units that may be added to the condominium;
     (j) A list of the principal common amenities in the condominium which materially affect the value of the condominium and those that will or may be added to the condominium;
     (k) A list of the limited common elements assigned to the units being offered for sale;
     (l) The identification of any real property not in the condominium, the owner of which has access to any of the common elements, and a description of the terms of such access;
     (m) The identification of any real property not in the condominium to which unit owners have access and a description of the terms of such access;
     (n) The status of construction of the units and common elements, including estimated dates of completion if not completed;
     (o) The estimated current common expense liability for the units being offered;
     (p) An estimate of any payment with respect to the common expense liability for the units being offered which will be due at closing;
     (q) The estimated current amount and purpose of any fees not included in the common expenses and charged by the declarant or the association for the use of any of the common elements;
     (r) Any assessments which have been agreed to or are known to the declarant and which, if not paid, may constitute a lien against any units or common elements in favor of any governmental agency;
     (s) The identification of any parts of the condominium, other than the units, which any individual owner will have the responsibility for maintaining;
     (t) If the condominium involves a conversion condominium, the information required by RCW 64.34.415;
     (u) Whether timesharing is restricted or prohibited, and if restricted, a general description of such restrictions;
     (v) A list of all development rights reserved to the declarant and all special declarant rights reserved to the declarant, together with the dates such rights must terminate, and a copy of or reference by recording number to any recorded transfer of a special declarant right;
     (w) A description of any material differences in terms of furnishings, fixtures, finishes, and equipment between any model unit available to the purchaser at the time the agreement for sale is executed and the unit being offered;
     (x) Any liens on real property to be conveyed to the association required to be disclosed pursuant to RCW 64.34.435(2)(b);
     (y) A list of any physical hazards known to the declarant which particularly affect the condominium or the immediate vicinity in which the condominium is located and which are not readily ascertainable by the purchaser;
     (z)(i) A brief description of any construction warranties to be provided to the purchaser;
     (ii) A brief statement as to whether any express written warranty replaces or other document excludes or modifies the implied warranties of quality provided in RCW 64.34.445 or requires arbitration of disputes or claims involving breach of the express warranties of quality provided in RCW 64.34.443 or the implied warranties of quality provided in RCW 64.34.445;
     (aa) Any building code violation citations received by the declarant in connection with the condominium which have not been corrected;
     (bb) A statement of any unsatisfied judgments or pending suits against the association, a statement of the status of any pending suits material to the condominium of which the declarant has actual knowledge, and a statement of any litigation brought by an owners' association, unit owner, or governmental entity in which the declarant or any affiliate of the declarant has been a defendant, arising out of the construction, sale, or administration of any condominium within the previous five years, together with the results thereof, if known;
     (cc) Any rights of first refusal to lease or purchase any unit or any of the common elements;
     (dd) The extent to which the insurance provided by the association covers furnishings, fixtures, and equipment located in the unit;
     (ee) A notice which describes a purchaser's right to cancel the purchase agreement or extend the closing under RCW 64.34.420, including applicable time frames and procedures;
     (ff) Any reports or statements required by RCW 64.34.415 or 64.34.440(6)(a). RCW 64.34.415 shall apply to the public offering statement of a condominium in connection with which a final certificate of occupancy was issued more than sixty calendar months prior to the preparation of the public offering statement whether or not the condominium is a conversion condominium as defined in RCW 64.34.020(10);
     (gg) A list of the documents which the prospective purchaser is entitled to receive from the declarant before the rescission period commences;
     (hh) A notice which states: A purchaser may not rely on any representation or express warranty unless it is contained in the public offering statement or made in writing signed by the declarant or by any person identified in the public offering statement as the declarant's agent;
     (ii) A notice which states: This public offering statement is only a summary of some of the significant aspects of purchasing a unit in this condominium and the condominium documents are complex, contain other important information, and create binding legal obligations. You should consider seeking the assistance of legal counsel;
     (jj) Any other information and cross-references which the declarant believes will be helpful in describing the condominium to the recipients of the public offering statement, all of which may be included or not included at the option of the declarant;
     (kk) A notice that addresses compliance or noncompliance with the housing for older persons act of 1995, P.L. 104-76, as enacted on December 28, 1995; and
     (ll) A notice that is substantially in the form required by RCW 64.50.050.
     (2) The public offering statement shall include copies of each of the following documents: The declaration, the survey map and plans, the articles of incorporation of the association, bylaws of the association, rules and regulations, if any, current or proposed budget for the association, ((and)) the balance sheet of the association current within ninety days if assessments have been collected for ninety days or more, and any express written warranty or other document disclosed pursuant to subsection (1)(z) of this section.
     If any of the foregoing documents listed in this subsection are not available because they have not been executed, adopted, or recorded, drafts of such documents shall be provided with the public offering statement, and, before closing the sale of a unit, the purchaser shall be given copies of any material changes between the draft of the proposed documents and the final documents.
     (3) The disclosures required by subsection (1)(g), (k), (s), (u), (v), (z), and (cc) of this section shall also contain a reference to specific sections in the condominium documents which further explain the information disclosed.
     (4) The disclosures required by subsection (1)(ee), (hh), (ii), and (ll) of this section shall be located at the top of the first page of the public offering statement and be typed or printed in ten-point bold face type size.
     (5) A declarant shall promptly amend the public offering statement to reflect any material change in the information required by this section.

Sec. 5   RCW 64.34.425 and 1992 c 220 s 23 are each amended to read as follows:
     (1) Except in the case of a sale where delivery of a public offering statement is required, or unless exempt under RCW 64.34.400(2), a unit owner shall furnish to a purchaser before execution of any contract for sale of a unit, or otherwise before conveyance, a resale certificate, signed by an officer or authorized agent of the association and based on the books and records of the association and the actual knowledge of the person signing the certificate, containing:
     (a) A statement disclosing any right of first refusal or other restraint on the free alienability of the unit contained in the declaration;
     (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 and a statement of any special assessments that have been levied against the unit which have not been paid even though not yet due;
     (c) A statement, which shall be current to within forty-five days, of any common expenses or special assessments against any unit in the condominium that are past due over thirty days;
     (d) A statement, which shall be current to within forty-five days, of any obligation of the association which is past due over thirty days;
     (e) A statement of any other fees payable by unit owners;
     (f) A statement of any anticipated repair or replacement cost in excess of five percent of the annual budget of the association that has been approved by the board of directors;
     (g) A statement of the amount of any reserves for repair or replacement and of any portions of those reserves currently designated by the association for any specified projects;
     (h) The annual financial statement of the association, including the audit report if it has been prepared, for the year immediately preceding the current year.
     (i) A balance sheet and a revenue and expense statement of the association prepared on an accrual basis, which shall be current to within one hundred twenty days;
     (j) The current operating budget of the association;
     (k) A statement of any unsatisfied judgments against the association and the status of any pending suits or legal proceedings in which the association is a plaintiff or defendant;
     (l) A statement describing any insurance coverage provided for the benefit of unit owners;
     (m) A statement as to whether there are any alterations or improvements to the unit or to the limited common elements assigned thereto that violate any provision of the declaration;
     (n) A statement of the number of units, if any, still owned by the declarant, whether the declarant has transferred control of the association to the unit owners, and the date of such transfer;
     (o) A statement as to whether there are any violations of the health or building codes with respect to the unit, the limited common elements assigned thereto, or any other portion of the condominium;
     (p) A statement of the remaining term of any leasehold estate affecting the condominium and the provisions governing any extension or renewal thereof; and
     (q) A copy of the declaration, the bylaws, the rules or regulations of the association, and any other information reasonably requested by mortgagees of prospective purchasers of units. Information requested generally by the federal national mortgage association, the federal home loan bank board, the government national mortgage association, the veterans administration and the department of housing and urban development shall be deemed reasonable, provided such information is reasonably available to the association.
     (2) The association, within ten days after a request by a unit owner, and subject to payment of any fee imposed pursuant to RCW 64.34.304(1)(l), shall furnish a resale certificate signed by an officer or authorized agent of the association and containing the information necessary to enable the unit owner to comply with this section. For the purposes of this chapter, a reasonable charge for the preparation of a resale certificate may not exceed one hundred fifty dollars. The association may charge a unit owner a nominal fee for updating a resale certificate within six months of the unit owner's request. The unit owner shall also sign the certificate but the unit owner is not liable to the purchaser for any erroneous information provided by the association and included in the certificate unless and to the extent the unit owner had actual knowledge thereof.
     (3) A purchaser is not liable for any unpaid assessment or fee against the unit as of the date of the certificate greater than the amount set forth in the certificate prepared by the association unless and to the extent such purchaser had actual knowledge thereof. A unit owner is not liable to a purchaser for the failure or delay of the association to provide the certificate in a timely manner, but the purchaser's contract is voidable by the purchaser until the certificate has been provided and for five days thereafter or until conveyance, whichever occurs first.

Sec. 6   RCW 64.34.443 and 1989 c 428 s 2 are each amended to read as follows:
     (1) Express warranties made by any seller to a purchaser of a unit, if relied upon by the purchaser, are created as follows:
     (a) Any written affirmation of fact or promise which relates to the unit, its use, or rights appurtenant thereto, area improvements to the condominium that would directly benefit the unit, or the right to use or have the benefit of facilities not located in the condominium creates an express warranty that the unit and related rights and uses will conform to the affirmation or promise;
     (b) Any model or written description of the physical characteristics of the condominium at the time the purchase agreement is executed, including plans and specifications of or for improvements, creates an express warranty that the condominium will conform to the model or description except pursuant to RCW 64.34.410(1)(((v))) (w);
     (c) Any written description of the quantity or extent of the real property comprising the condominium, including plats or surveys, creates an express warranty that the condominium will conform to the description, subject to customary tolerances; and
     (d) A written provision that a buyer may put a unit only to a specified use is an express warranty that the specified use is lawful.
     (2) Neither formal words, such as "warranty" or "guarantee," nor a specific intention to make a warranty are necessary to create an express warranty of quality, but a statement purporting to be merely an opinion or commendation of the real estate or its value does not create a warranty. A purchaser may not rely on any representation or express warranty unless it is contained in the public offering statement or made in writing signed by the declarant or declarant's agent identified in the public offering statement.
     (3) Any conveyance of a unit transfers to the purchaser all express warranties of quality made by previous sellers.
     (4) An express written warranty between a declarant and a unit purchaser is binding upon the association and subsequent purchasers.

Sec. 7   RCW 64.34.445 and 1992 c 220 s 26 are each amended to read as follows:
     (1) A declarant and any dealer warrants that a unit will be in at least as good condition at the earlier of the time of the conveyance or delivery of possession as it was at the time of contracting, reasonable wear and tear and damage by casualty or condemnation excepted.
     (2) A declarant and any dealer impliedly warrants that a unit and the common elements in the condominium are suitable for the ordinary uses of real estate of its type and that any improvements made or contracted for by such declarant or dealer will be:
     (a) Free from defective materials; and
     (b) Constructed in accordance with sound engineering and construction standards, and in a workmanlike manner in compliance with all laws then applicable to such improvements. However, there is no breach of an implied warranty of quality unless the defect or deviation has a material effect on either (i) the habitability of the unit or common element; or (ii) utility of the unit or common element for its intended purpose.
     (3) A declarant and any dealer warrants to a purchaser of a unit that may be used for residential use that an existing use, continuation of which is contemplated by the parties, does not violate applicable law at the earlier of the time of conveyance or delivery of possession.
     (4) Warranties imposed by this section may be replaced, excluded, or modified as specified in RCW 64.34.450 and the replacement, exclusion, or modification is binding upon the association and subsequent purchasers.
     (5) For purposes of this section, improvements made or contracted for by an affiliate of a declarant, as defined in RCW 64.34.020(1), are made or contracted for by the declarant.
     (6) Any conveyance of a unit transfers to the purchaser all of the declarant's implied warranties of quality.
     (7) If damages are recoverable under subsection (2) of this section, then the amount of damages that may be recovered is either (a) the diminution in value of the unit and allocated interest in the common elements, caused by the defect or deviation, or (b) the cost to repair the defect or deviation, whichever is less.

Sec. 8   RCW 64.34.450 and 1989 c 43 s 4-113 are each amended to read as follows:
     (1) ((Except as limited by subsection (2) of this section)) For units intended for nonresidential use, implied warranties of quality:
     (a) May be excluded or modified by written agreement of the parties; and
     (b) Are excluded by written expression of disclaimer, such as "as is," "with all faults," or other language which in common understanding calls the buyer's attention to the exclusion of warranties.
     (2) ((With respect to a purchaser of a unit that may be occupied for residential use,)) For units intended for residential use:
     (a) No general disclaimer of implied warranties of quality is effective, but a declarant and any dealer may disclaim liability in an instrument signed by the purchaser for a specified defect or specified failure to comply with applicable law, if the defect or failure entered into and became a part of the basis of the bargain; and
     (b) A unit purchaser may choose to replace implied warranties of quality with an express written warranty of quality if:
     (i) The declaration and public offering statement state clearly in fourteen-point bold face type that an express written warranty of quality is offered to replace implied warranties;
     (ii) The express warranty is set forth in full in a document recorded with the declaration; and
     (iii) The unit purchaser agrees to the replacement and acknowledges in a recorded written instrument that implied warranties of quality are replaced by an express written warranty.

Sec. 9   RCW 64.34.452 and 2002 c 323 s 11 are each amended to read as follows:
     (1) A judicial proceeding or arbitration for breach of any obligations arising under RCW 64.34.443 and 64.34.445 must be commenced within four years after the cause of action accrues: PROVIDED, That the period for commencing an action for a breach accruing pursuant to subsection (2)(b) of this section shall not expire prior to one year after termination of the period of declarant control, if any, under RCW 64.34.308(4). Such period may not be reduced by either oral or written agreement. However, an association and its board of directors and officers are not liable for failing to commence a judicial proceeding or arbitration under this section.
     (2) Subject to subsection (3) of this section, a cause of action or breach of warranty of quality, regardless of the purchaser's lack of knowledge of the breach, accrues:
     (a) As to a unit, the date the purchaser to whom the warranty is first made enters into possession if a possessory interest was conveyed or the date of acceptance of the instrument of conveyance if a nonpossessory interest was conveyed; and
     (b) As to each common element, at the latest of (i) the date the first unit in the condominium was conveyed to a bona fide purchaser, (ii) the date the common element was completed, or (iii) the date the common element was added to the condominium.
     (3) If a warranty of quality explicitly extends to future performance or duration of any improvement or component of the condominium, the cause of action accrues at the time the breach is discovered or at the end of the period for which the warranty explicitly extends, whichever is earlier.
     (4) If a written notice of claim is served under RCW 64.50.020 within the time prescribed for the filing of an action under this chapter, the statutes of limitation in this chapter and any applicable statutes of repose for construction-related claims are tolled until sixty days after the period of time during which the filing of an action is barred under RCW 64.50.020.