5536-S.E2AMHLANTH5175.52ESSB 5536H AMD1141By Representative LantzADOPTED 03/05/2004 Strike everything after the enacting clause and insert thefollowing:NEW SECTION.Sec. A new section is added to chapter 64.34 RCWto read as follows: (1) The legislature finds, declares, and determines that: (a) Washington's cities and counties under the growth managementact are required to encourage urban growth in urban growth areas atdensities that accommodate twentyyear growth projections; (b) The growth management act's planning goals include encouragingthe availability of affordable housing for all residents of the stateand promoting a variety of housing types; (c) Quality condominium construction needs to be encouraged toachieve growth management act mandated urban densities and to ensurethat residents of the state, particularly in urban growth areas, havea broad range of ownership choices. (2) It is the intent of the legislature that limited changes bemade to the condominium act to ensure that a broad range of affordablehomeownership opportunities continue to be available to the residentsof the state, and to assist cities' and counties' efforts to achievethe density mandates of the growth management act.Sec. RCW 64.34.100 and 1989 c 43 s 1113 are each amended toread as follows: (1) The remedies provided by this chapter shall be liberallyadministered to the end that the aggrieved party is put in as good aposition as if the other party had fully performed. However,consequential, special, or punitive damages may not be awarded exceptas specifically provided in this chapter or by other rule of law. (2) Except as otherwise provided in chapter 64. RCW (sections 101through 2002 of this act) or in this subsection, any right or 1 obligation declared by this chapter is enforceable by judicialproceeding or, if provided for in the declaration or by other agreementbetween the parties, by arbitration. (3) If arbitration is provided for in the declaration with respectto claims arising under RCW 64.34.443, 64.34.445, or 64.34.450, suchprovision shall be binding on the association and all unit owners andmay not be amended without the consent of the declarant. In anyarbitration of claims arising under RCW 64.34.443, 64.34.445, or64.34.450, the arbitrator may award reasonable attorneys' fees andcosts, and arbitration fees and costs of arbitration, to thesubstantially prevailing party. Arbitration for claims arising underRCW 64.34.443, 64.34.445, or 64.34.450 shall be in accordance withchapter 7.06 RCW, and the mandatory arbitration rules adopted by thesupreme court, to the extent consistent with this section, and exceptas follows: (a) Chapter 7.06 RCW shall apply regardless of whether a county hasauthorized mandatory arbitration under RCW 7.06.010. No suit need becommenced in order to commence the arbitration. (b) The monetary limitations and limitations on type of relief inRCW 7.06.020 shall not apply. (c) Notwithstanding RCW 7.06.040, the compensation of thearbitrator shall be at the normal rate for such arbitrator in similarmatters. (d) All filings under RCW 7.06.050 shall be on the parties, notwith the clerk of the court. (e) Unless otherwise agreed by the parties, the arbitration hearingshall be conducted in the county in which the condominium is located. (f) For purposes of RCW 64.34.452, the commencement of anarbitration proceeding under this section shall be deemed to be theequivalent of the commencement of a judicial proceeding.Sec. RCW 64.34.324 and 1992 c 220 s 16 are each amended to readas follows: (1) Unless provided for in the declaration, the bylaws of theassociation shall provide for: (a) The number, qualifications, powers and duties, terms of office,and manner of electing and removing the board of directors and officersand filling vacancies; 2 (b) Election by the board of directors of such officers of theassociation as the bylaws specify; (c) Which, if any, of its powers the board of directors or officersmay delegate to other persons or to a managing agent; (d) Which of its officers may prepare, execute, certify, and recordamendments to the declaration on behalf of the association; ((and)) (e) The method of amending the bylaws; and (f) A statement of the standard of care for officers and members ofthe board of directors imposed by RCW 64.34.308(1). (2) Subject to the provisions of the declaration, the bylaws mayprovide for any other matters the association deems necessary andappropriate. (3) In determining the qualifications of any officer or director ofthe association, notwithstanding the provision of RCW 64.34.020(32) theterm "unit owner" in such context shall, unless the declaration orbylaws otherwise provide, be deemed to include any director, officer,partner in, or trustee of any person, who is, either alone or inconjunction with another person or persons, a unit owner. Any officeror director of the association who would not be eligible to serve assuch if he or she were not a director, officer, partner in, or trusteeof such a person shall be disqualified from continuing in office if heor she ceases to have any such affiliation with that person, or if thatperson would have been disqualified from continuing in such office asa natural person.Sec. RCW 64.34.425 and 1992 c 220 s 23 are each amended to readas follows: (1) Except in the case of a sale where delivery of a publicoffering statement is required, or unless exempt under RCW64.34.400(2), a unit owner shall furnish to a purchaser beforeexecution of any contract for sale of a unit, or otherwise beforeconveyance, a resale certificate, signed by an officer or authorizedagent of the association and based on the books and records of theassociation and the actual knowledge of the person signing thecertificate, containing: (a) A statement disclosing any right of first refusal or otherrestraint on the free alienability of the unit contained in thedeclaration; 3 (b) A statement setting forth the amount of the monthly commonexpense assessment and any unpaid common expense or special assessmentcurrently due and payable from the selling unit owner and a statementof any special assessments that have been levied against the unit whichhave not been paid even though not yet due; (c) A statement, which shall be current to within fortyfive days,of any common expenses or special assessments against any unit in thecondominium that are past due over thirty days; (d) A statement, which shall be current to within fortyfive days,of any obligation of the association which is past due over thirtydays; (e) A statement of any other fees payable by unit owners; (f) A statement of any anticipated repair or replacement cost inexcess of five percent of the annual budget of the association that hasbeen approved by the board of directors; (g) A statement of the amount of any reserves for repair orreplacement and of any portions of those reserves currently designatedby the association for any specified projects; (h) The annual financial statement of the association, includingthe audit report if it has been prepared, for the year immediatelypreceding the current year. (i) A balance sheet and a revenue and expense statement of theassociation prepared on an accrual basis, which shall be current towithin one hundred twenty days; (j) The current operating budget of the association; (k) A statement of any unsatisfied judgments against theassociation and the status of any pending suits or legal proceedings inwhich the association is a plaintiff or defendant; (l) A statement describing any insurance coverage provided for thebenefit of unit owners; (m) A statement as to whether there are any alterations orimprovements to the unit or to the limited common elements assignedthereto that violate any provision of the declaration; (n) A statement of the number of units, if any, still owned by thedeclarant, whether the declarant has transferred control of theassociation to the unit owners, and the date of such transfer; (o) A statement as to whether there are any violations of thehealth or building codes with respect to the unit, the limited commonelements assigned thereto, or any other portion of the condominium; 4 (p) A statement of the remaining term of any leasehold estateaffecting the condominium and the provisions governing any extension orrenewal thereof; ((and)) (q) A copy of the declaration, the bylaws, the rules or regulationsof the association, and any other information reasonably requested bymortgagees of prospective purchasers of units. Information requestedgenerally by the federal national mortgage association, the federalhome loan bank board, the government national mortgage association, theveterans administration and the department of housing and urbandevelopment shall be deemed reasonable, provided such information isreasonably available to the association; and (r) A statement, as required by section 301 of this act, as towhether the units or common elements of the condominium are covered bya qualified warranty, and a history of claims under any such warranty. (2) The association, within ten days after a request by a unitowner, and subject to payment of any fee imposed pursuant to RCW64.34.304(1)(l), shall furnish a resale certificate signed by anofficer or authorized agent of the association and containing theinformation necessary to enable the unit owner to comply with thissection. For the purposes of this chapter, a reasonable charge for thepreparation of a resale certificate may not exceed one hundred fiftydollars. The association may charge a unit owner a nominal fee forupdating a resale certificate within six months of the unit owner'srequest. The unit owner shall also sign the certificate but the unitowner is not liable to the purchaser for any erroneous informationprovided by the association and included in the certificate unless andto the extent the unit owner had actual knowledge thereof. (3) A purchaser is not liable for any unpaid assessment or feeagainst the unit as of the date of the certificate greater than theamount set forth in the certificate prepared by the association unlessand to the extent such purchaser had actual knowledge thereof. A unitowner is not liable to a purchaser for the failure or delay of theassociation to provide the certificate in a timely manner, but thepurchaser's contract is voidable by the purchaser until the certificatehas been provided and for five days thereafter or until conveyance,whichever occurs first.Sec. RCW 64.34.445 and 1992 c 220 s 26 are each amended to readas follows: 5 (1) A declarant and any dealer warrants that a unit will be in atleast as good condition at the earlier of the time of the conveyance ordelivery of possession as it was at the time of contracting, reasonablewear and tear and damage by casualty or condemnation excepted. (2) A declarant and any dealer impliedly warrants that a unit andthe common elements in the condominium are suitable for the ordinaryuses of real estate of its type and that any improvements made orcontracted for by such declarant or dealer will be: (a) Free from defective materials; ((and)) (b) Constructed in accordance with sound engineering andconstruction standards((, and)); (c) Constructed in a workmanlike manner; and (d) Constructed in compliance with all laws then applicable to suchimprovements. (3) A declarant and any dealer warrants to a purchaser of a unitthat may be used for residential use that an existing use, continuationof which is contemplated by the parties, does not violate applicablelaw at the earlier of the time of conveyance or delivery of possession. (4) Warranties imposed by this section may be excluded or modifiedas specified in RCW 64.34.450. (5) For purposes of this section, improvements made or contractedfor by an affiliate of a declarant, as defined in RCW 64.34.020(1), aremade or contracted for by the declarant. (6) Any conveyance of a unit transfers to the purchaser all of thedeclarant's implied warranties of quality. (7) In a judicial proceeding or arbitration for breach of any ofthe obligations arising under this section, the plaintiff must showthat the alleged breach has adversely affected or will adversely affectthe performance of that portion of the unit or common elements allegedto be in breach. As used in this subsection, an "adverse effect" mustbe more than technical and must be significant to a reasonable person.To establish an adverse effect, the person alleging the breach is notrequired to prove that the breach renders the unit or common elementuninhabitable or unfit for its intended purpose. (8) Proof of breach of any obligation arising under this section isnot proof of damages. Damages awarded for a breach of an obligationarising under this section are the cost of repairs. However, if it isestablished that the cost of such repairs is clearly disproportionate 6 to the loss in market value caused by the breach, then damages shall belimited to the loss in market value.Sec. RCW 64.34.450 and 1989 c 43 s 4113 are each amended toread as follows: (1) ((Except as limited by subsection (2) of this section)) Forunits intended for nonresidential use, implied warranties of quality: (a) May be excluded or modified by written agreement of theparties; and (b) Are excluded by written expression of disclaimer, such as "asis," "with all faults," or other language which in common understandingcalls the buyer's attention to the exclusion of warranties. (2) ((With respect to a purchaser of a unit that may be occupied))For units intended for residential use, no ((general)) disclaimer ofimplied warranties of quality is effective, ((but)) except that adeclarant ((and any)) or dealer may disclaim liability in ((aninstrument)) writing, in type that is bold faced, capitalized,underlined, or otherwise set out from surrounding material so as to beconspicuous, and separately signed by the purchaser, for a specifieddefect or specified failure to comply with applicable law, if: (a) Thedeclarant or dealer knows or has reason to know that the specificdefect or failure ((entered into and became a part of the basis of thebargain)) exists at the time of disclosure; (b) the disclaimerspecifically describes the defect or failure; and (c) the disclaimerincludes a statement as to the effect of the defect or failure. (3) A declarant or dealer may offer an express written warranty ofquality only if the express written warranty does not reduceprotections provided to the purchaser by the implied warranty set forthin RCW 64.34.445.Sec. RCW 64.34.452 and 2002 c 323 s 11 are each amended to readas follows: (1) A judicial proceeding or arbitration for breach of anyobligations arising under RCW 64.34.443 ((and)), 64.34.445, and64.34.450 must be commenced within four years after the cause of actionaccrues: PROVIDED, That the period for commencing ((an action)) ajudicial proceeding or arbitration for a breach accruing pursuant tosubsection (2)(b) of this section shall not expire prior to one yearafter termination of the period of declarant control, if any, under RCW 7 64.34.308(4). Such periods may not be reduced by either oral orwritten agreement, or through the use of contractual claims or noticeprocedures that require the filing or service of any claim or noticeprior to the expiration of the period specified in this section. Anarbitration is deemed commenced on delivery of a demand forarbitration. Any demand for arbitration shall be delivered bycertified mail, return receipt requested, and by ordinary first classmail, or, in the case of persons not resident in the United States ofAmerica, by such other comparable form of mailed notice as isreasonably available. The party initiating the arbitration shalladdress such a notice to the address last known to the initiating partyin the exercise of reasonable diligence, and also, in the case of anyentity that is required to have a registered agent in the state ofWashington, to the address of such a registered agent. Demand forarbitration shall be deemed delivered three days after the postmarkdate. "Judicial proceeding" as used in this section does not refer toa trial de novo appeal of an arbitration decision and award. (2) Subject to subsection (3) of this section, a cause of action orbreach of warranty of quality, regardless of the purchaser's lack ofknowledge of the breach, accrues: (a) As to a unit, the date the purchaser to whom the warranty isfirst made enters into possession if a possessory interest was conveyedor the date of acceptance of the instrument of conveyance if anonpossessory interest was conveyed; and (b) As to each common element, at the latest of (i) the date thefirst unit in the condominium was conveyed to a bona fide purchaser,(ii) the date the common element was completed, or (iii) the date thecommon element was added to the condominium. (3) If a warranty of quality explicitly extends to futureperformance or duration of any improvement or component of thecondominium, the cause of action accrues at the time the breach isdiscovered or at the end of the period for which the warrantyexplicitly extends, whichever is earlier. (4) If a written notice of claim is served under RCW 64.50.020within the time prescribed for the filing of an action under thischapter, the statutes of limitation in this chapter and any applicablestatutes of repose for constructionrelated claims are tolled untilsixty days after the period of time during which the filing of anaction is barred under RCW 64.50.020. 8 (5) Nothing in this section affects the time for filing a claimunder chapter 64.- RCW (sections 101 through 2002 of this act).NEW SECTION.Sec. (1) A committee is established to study therequired use of independent thirdparty inspections of residentialcondominiums as a way to reduce the problem of water penetration inresidential condominiums. (2) The committee consists of the following members who shall bepersons with experience and expertise in condominium law andcondominium construction: (a) A member, who shall be the chair of the committee, to beappointed by the governor; (b) Two members to be appointed by the majority leader of thesenate; and (c) Two members to be appointed by the speaker of the house ofrepresentatives. (3) The committee shall: (a) Examine the problem of water penetration of condominiums andthe efficacy of requiring independent thirdparty inspections ofcondominiums, including plan inspection and inspection duringconstruction, as a way to reduce the problem of water penetration; (b) Deliver to the judiciary committees of the senate and house ofrepresentatives, not later than December 31, 2004, a report of thefindings and conclusions of the committee, and any proposed legislationimplementing thirdparty water penetration inspections.Sec. RCW 64.34.020 and 1992 c 220 s 2 are each amended to readas follows: In the declaration and bylaws, unless specifically providedotherwise or the context requires otherwise, and in this chapter: (1) "Affiliate ((of a declarant))" means any person who controls,is controlled by, or is under common control with ((a declarant)) thereferenced person. A person "controls" ((a declarant)) another personif the person: (a) Is a general partner, officer, director, oremployer of the ((declarant)) referenced person; (b) directly orindirectly or acting in concert with one or more other persons, orthrough one or more subsidiaries, owns, controls, holds with power tovote, or holds proxies representing, more than twenty percent of thevoting interest in the ((declarant)) referenced person; (c) controls in 9 any manner the election of a majority of the directors of the((declarant)) referenced person; or (d) has contributed more thantwenty percent of the capital of the ((declarant)) referenced person.A person "is controlled by" ((a declarant)) another person if the((declarant)) other person: (i) Is a general partner, officer,director, or employer of the person; (ii) directly or indirectly oracting in concert with one or more other persons, or through one ormore subsidiaries, owns, controls, holds with power to vote, or holdsproxies representing, more than twenty percent of the voting interestin the person; (iii) controls in any manner the election of a majorityof the directors of the person; or (iv) has contributed more thantwenty percent of the capital of the person. Control does not exist ifthe powers described in this subsection are held solely as security foran obligation and are not exercised. (2) "Allocated interests" means the undivided interest in thecommon elements, the common expense liability, and votes in theassociation allocated to each unit. (3) "Assessment" means all sums chargeable by the associationagainst a unit including, without limitation: (a) Regular and specialassessments for common expenses, charges, and fines imposed by theassociation; (b) interest and late charges on any delinquent account;and (c) costs of collection, including reasonable attorneys' fees,incurred by the association in connection with the collection of adelinquent owner's account. (4) "Association" or "unit owners' association" means the unitowners' association organized under RCW 64.34.300. (5) "Board of directors" means the body, regardless of name, withprimary authority to manage the affairs of the association. (6) "Common elements" means all portions of a condominium otherthan the units. (7) "Common expenses" means expenditures made by or financialliabilities of the association, together with any allocations toreserves. (8) "Common expense liability" means the liability for commonexpenses allocated to each unit pursuant to RCW 64.34.224. (9) "Condominium" means real property, portions of which aredesignated for separate ownership and the remainder of which isdesignated for common ownership solely by the owners of those portions.Real property is not a condominium unless the undivided interests in 10 the common elements are vested in the unit owners, and unless adeclaration and a survey map and plans have been recorded pursuant tothis chapter. (10) "Conversion condominium" means a condominium (a) that at anytime before creation of the condominium was lawfully occupied wholly orpartially by a tenant or subtenant for residential purposes pursuant toa rental agreement, oral or written, express or implied, for which thetenant or subtenant had not received the notice described in (b) ofthis subsection; or (b) that, at any time within twelve months beforethe conveyance of, or acceptance of an agreement to convey, any unittherein other than to a declarant or any affiliate of a declarant, waslawfully occupied wholly or partially by a residential tenant of adeclarant or an affiliate of a declarant and such tenant was notnotified in writing, prior to lawfully occupying a unit or executing arental agreement, whichever event first occurs, that the unit was partof a condominium and subject to sale. "Conversion condominium" shallnot include a condominium in which, before July 1, 1990, any unittherein had been conveyed or been made subject to an agreement toconvey to any transferee other than a declarant or an affiliate of adeclarant. (11) "Conveyance" means any transfer of the ownership of a unit,including a transfer by deed or by real estate contract and, withrespect to a unit in a leasehold condominium, a transfer by lease orassignment thereof, but shall not include a transfer solely forsecurity. (12) "Dealer" means a person who, together with such person'saffiliates, owns or has a right to acquire either six or more units ina condominium or fifty percent or more of the units in a condominiumcontaining more than two units. (13) "Declarant" means ((any person or group of persons acting inconcert who)): (a) Any person who executes as declarant a declaration as definedin subsection (15) of this section((,)); or (b) ((reserves or succeeds to any special declarant right under))Any person who reserves any special declarant right in the declaration;or (c) Any person who exercises special declarant rights or to whomspecial declarant rights are transferred; or 11 (d) Any person who is the owner of a fee interest in the realproperty which is subjected to the declaration at the time of therecording of an instrument pursuant to RCW 64.34.316 and who directlyor through one or more affiliates is materially involved in theconstruction, marketing, or sale of units in the condominium created bythe recording of the instrument. (14) "Declarant control" means the right of the declarant orpersons designated by the declarant to appoint and remove officers andmembers of the board of directors, or to veto or approve a proposedaction of the board or association, pursuant to RCW 64.34.308 (4) or(5). (15) "Declaration" means the document, however denominated, thatcreates a condominium by setting forth the information required by RCW64.34.216 and any amendments to that document. (16) "Development rights" means any right or combination of rightsreserved by a declarant in the declaration to: (a) Add real propertyor improvements to a condominium; (b) create units, common elements, orlimited common elements within real property included or added to acondominium; (c) subdivide units or convert units into common elements;(d) withdraw real property from a condominium; or (e) reallocatelimited common elements with respect to units that have not beenconveyed by the declarant. (17) "Dispose" or "disposition" means a voluntary transfer orconveyance to a purchaser or lessee of any legal or equitable interestin a unit, but does not include the transfer or release of a securityinterest. (18) "Eligible mortgagee" means the holder of a mortgage on a unitthat has filed with the secretary of the association a written requestthat it be given copies of notices of any action by the associationthat requires the consent of mortgagees. (19) "Foreclosure" means a forfeiture or judicial or nonjudicialforeclosure of a mortgage or a deed in lieu thereof. (20) "Identifying number" means the designation of each unit in acondominium. (21) "Leasehold condominium" means a condominium in which all or aportion of the real property is subject to a lease, the expiration ortermination of which will terminate the condominium or reduce its size. (22) "Limited common element" means a portion of the common 12 elements allocated by the declaration or by operation of RCW 64.34.204(2) or (4) for the exclusive use of one or more but fewer than all ofthe units. (23) "Master association" means an organization described in RCW64.34.276, whether or not it is also an association described in RCW64.34.300. (24) "Mortgage" means a mortgage, deed of trust or real estatecontract. (25) "Person" means a natural person, corporation, partnership,limited partnership, trust, governmental subdivision or agency, orother legal entity. (26) "Purchaser" means any person, other than a declarant or adealer, who by means of a disposition acquires a legal or equitableinterest in a unit other than (a) a leasehold interest, includingrenewal options, of less than twenty years at the time of creation ofthe unit, or (b) as security for an obligation. (27) "Real property" means any fee, leasehold or other estate orinterest in, over, or under land, including structures, fixtures, andother improvements thereon and easements, rights and interestsappurtenant thereto which by custom, usage, or law pass with aconveyance of land although not described in the contract of sale orinstrument of conveyance. "Real property" includes parcels, with orwithout upper or lower boundaries, and spaces that may be filled withair or water. (28) "Residential purposes" means use for dwelling or recreationalpurposes, or both. (29) "Special declarant rights" means rights reserved for thebenefit of a declarant to: (a) Complete improvements indicated onsurvey maps and plans filed with the declaration under RCW 64.34.232;(b) exercise any development right under RCW 64.34.236; (c) maintainsales offices, management offices, signs advertising the condominium,and models under RCW 64.34.256; (d) use easements through the commonelements for the purpose of making improvements within the condominiumor within real property which may be added to the condominium under RCW64.34.260; (e) make the condominium part of a larger condominium or adevelopment under RCW 64.34.280; (f) make the condominium subject to amaster association under RCW 64.34.276; or (g) appoint or remove anyofficer of the association or any master association or any member of 13 the board of directors, or to veto or approve a proposed action of theboard or association, during any period of declarant control under RCW64.34.308(4). (30) "Timeshare" shall have the meaning specified in the timeshareact, RCW 64.36.010(11). (31) "Unit" means a physical portion of the condominium designatedfor separate ownership, the boundaries of which are described pursuantto RCW 64.34.216(1)(d). "Separate ownership" includes leasing a unitin a leasehold condominium under a lease that expires contemporaneouslywith any lease, the expiration or termination of which will remove theunit from the condominium. (32) "Unit owner" means a declarant or other person who owns a unitor leases a unit in a leasehold condominium under a lease that expiressimultaneously with any lease, the expiration or termination of whichwill remove the unit from the condominium, but does not include aperson who has an interest in a unit solely as security for anobligation. "Unit owner" means the vendee, not the vendor, of a unitunder a real estate contract.Sec. RCW 64.34.312 and 1989 c 43 s 3104 are each amended toread as follows: (1) Within sixty days after the termination of the period ofdeclarant control provided in RCW 64.34.308(4) or, in the absence ofsuch period, within sixty days after the first conveyance of a unit inthe condominium, the declarant shall deliver to the association allproperty of the unit owners and of the association held or controlledby the declarant including, but not limited to: (a) The original or a photocopy of the recorded declaration andeach amendment to the declaration; (b) The certificate of incorporation and a copy or duplicateoriginal of the articles of incorporation of the association as filedwith the secretary of state; (c) The bylaws of the association; (d) The minute books, including all minutes, and other books andrecords of the association; (e) Any rules and regulations that have been adopted; (f) Resignations of officers and members of the board who arerequired to resign because the declarant is required to relinquishcontrol of the association; 14 (g) The financial records, including canceled checks, bankstatements, and financial statements of the association, and sourcedocuments from the time of incorporation of the association through thedate of transfer of control to the unit owners; (h) Association funds or the control of the funds of theassociation; (i) All tangible personal property of the association, representedby the declarant to be the property of the association or ostensiblythe property of the association, and an inventory of the property; (j) Except for alterations to a unit done by a unit owner otherthan the declarant, a copy of the declarant's plans and specificationsutilized in the construction or remodeling of the condominium, with acertificate of the declarant or a licensed architect or engineer thatthe plans and specifications represent, to the best of their knowledgeand belief, the actual plans and specifications utilized by thedeclarant in the construction or remodeling of the condominium; (k) Insurance policies or copies thereof for the condominium andassociation; (l) Copies of any certificates of occupancy that may have beenissued for the condominium; (m) Any other permits issued by governmental bodies applicable tothe condominium in force or issued within one year before the date oftransfer of control to the unit owners; (n) All written warranties that are still in effect for the commonelements, or any other areas or facilities which the association hasthe responsibility to maintain and repair, from the contractor,subcontractors, suppliers, and manufacturers and all owners' manuals orinstructions furnished to the declarant with respect to installedequipment or building systems; (o) A roster of unit owners and eligible mortgagees and theiraddresses and telephone numbers, if known, as shown on the declarant'srecords and the date of closing of the first sale of each unit sold bythe declarant; (p) Any leases of the common elements or areas and other leases towhich the association is a party; (q) Any employment contracts or service contracts in which theassociation is one of the contracting parties or service contracts inwhich the association or the unit owners have an obligation or a 15 responsibility, directly or indirectly, to pay some or all of the feeor charge of the person performing the service; ((and)) (r) A copy of any qualified warranty issued to the association asprovided for in section 1001 of this act; and (s) All other contracts to which the association is a party. (2) Upon the transfer of control to the unit owners, the records ofthe association shall be audited as of the date of transfer by anindependent certified public accountant in accordance with generallyaccepted auditing standards unless the unit owners, other than thedeclarant, by twothirds vote elect to waive the audit. The cost ofthe audit shall be a common expense unless otherwise provided in thedeclaration. The accountant performing the audit shall examinesupporting documents and records, including the cash disbursements andrelated paid invoices, to determine if expenditures were forassociation purposes and the billings, cash receipts, and relatedrecords to determine if the declarant was charged for and paid theproper amount of assessments.Sec. RCW 64.34.410 and 2002 c 323 s 10 are each amended toread as follows: (1) A public offering statement shall contain the followinginformation: (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, ifany; (e) A list of up to the five most recent condominium projectscompleted by the declarant or an affiliate of the declarant within thepast five years, including the names of the condominiums, theiraddresses, and the number of existing units in each. For the purposeof this section, a condominium is "completed" when any one unit thereinhas been rented or sold; (f) The nature of the interest being offered for sale; (g) A brief description of the permitted uses and use restrictionspertaining to the units and the common elements; (h) A brief description of the restrictions, if any, on the rentingor leasing of units by the declarant or other unit owners, together 16 with the rights, if any, of the declarant to rent or lease at least amajority of units; (i) The number of existing units in the condominium and the maximumnumber of units that may be added to the condominium; (j) A list of the principal common amenities in the condominiumwhich materially affect the value of the condominium and those thatwill or may be added to the condominium; (k) A list of the limited common elements assigned to the unitsbeing 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 adescription of the terms of such access; (m) The identification of any real property not in the condominiumto which unit owners have access and a description of the terms of suchaccess; (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 unitsbeing offered; (p) An estimate of any payment with respect to the common expenseliability for the units being offered which will be due at closing; (q) The estimated current amount and purpose of any fees notincluded in the common expenses and charged by the declarant or theassociation for the use of any of the common elements; (r) Any assessments which have been agreed to or are known to thedeclarant and which, if not paid, may constitute a lien against anyunits or common elements in favor of any governmental agency; (s) The identification of any parts of the condominium, other thanthe units, which any individual owner will have the responsibility formaintaining; (t) If the condominium involves a conversion condominium, theinformation required by RCW 64.34.415; (u) Whether timesharing is restricted or prohibited, and ifrestricted, a general description of such restrictions; (v) A list of all development rights reserved to the declarant andall special declarant rights reserved to the declarant, together withthe dates such rights must terminate, and a copy of or reference byrecording number to any recorded transfer of a special declarant right; 17 (w) A description of any material differences in terms offurnishings, fixtures, finishes, and equipment between any model unitavailable to the purchaser at the time the agreement for sale isexecuted and the unit being offered; (x) Any liens on real property to be conveyed to the associationrequired to be disclosed pursuant to RCW 64.34.435(2)(b); (y) A list of any physical hazards known to the declarant whichparticularly affect the condominium or the immediate vicinity in whichthe condominium is located and which are not readily ascertainable bythe purchaser; (z) A brief description of any construction warranties to beprovided to the purchaser; (aa) Any building code violation citations received by thedeclarant in connection with the condominium which have not beencorrected; (bb) A statement of any unsatisfied judgments or pending suitsagainst the association, a statement of the status of any pending suitsmaterial to the condominium of which the declarant has actualknowledge, and a statement of any litigation brought by an owners'association, unit owner, or governmental entity in which the declarantor any affiliate of the declarant has been a defendant, arising out ofthe construction, sale, or administration of any condominium within theprevious five years, together with the results thereof, if known; (cc) Any rights of first refusal to lease or purchase any unit orany of the common elements; (dd) The extent to which the insurance provided by the associationcovers furnishings, fixtures, and equipment located in the unit; (ee) A notice which describes a purchaser's right to cancel thepurchase agreement or extend the closing under RCW 64.34.420, includingapplicable time frames and procedures; (ff) Any reports or statements required by RCW 64.34.415 or64.34.440(6)(a). RCW 64.34.415 shall apply to the public offeringstatement of a condominium in connection with which a final certificateof occupancy was issued more than sixty calendar months prior to thepreparation of the public offering statement whether or not thecondominium is a conversion condominium as defined in RCW64.34.020(10); (gg) A list of the documents which the prospective purchaser is 18 entitled to receive from the declarant before the rescission periodcommences; (hh) A notice which states: A purchaser may not rely on anyrepresentation or express warranty unless it is contained in the publicoffering statement or made in writing signed by the declarant or by anyperson identified in the public offering statement as the declarant'sagent; (ii) A notice which states: This public offering statement is onlya summary of some of the significant aspects of purchasing a unit inthis condominium and the condominium documents are complex, containother important information, and create binding legal obligations. Youshould consider seeking the assistance of legal counsel; (jj) Any other information and crossreferences which the declarantbelieves will be helpful in describing the condominium to therecipients of the public offering statement, all of which may beincluded or not included at the option of the declarant; (kk) A notice that addresses compliance or noncompliance with thehousing for older persons act of 1995, P.L. 10476, as enacted onDecember 28, 1995; ((and)) (ll) A notice that is substantially in the form required by RCW64.50.050; and (mm) A statement, as required by section 301 of this act, as towhether the units or common elements of the condominium are covered bya qualified warranty, and a history of claims under any such warranty. (2) The public offering statement shall include copies of each ofthe following documents: The declaration, the survey map and plans,the articles of incorporation of the association, bylaws of theassociation, rules and regulations, if any, current or proposed budgetfor the association, and the balance sheet of the association currentwithin ninety days if assessments have been collected for ninety daysor more. If any of the foregoing documents listed in this subsection are notavailable because they have not been executed, adopted, or recorded,drafts of such documents shall be provided with the public offeringstatement, and, before closing the sale of a unit, the purchaser shallbe given copies of any material changes between the draft of theproposed documents and the final documents. (3) The disclosures required by subsection (1)(g), (k), (s), (u), 19 (v), and (cc) of this section shall also contain a reference tospecific sections in the condominium documents which further explainthe 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 ofthe public offering statement and be typed or printed in tenpoint boldface type size. (5) A declarant shall promptly amend the public offering statementto reflect any material change in the information required by thissection.Sec. RCW 64.50.010 and 2002 c 323 s 2 are each amended to readas follows: Unless the context clearly requires otherwise, the definitions inthis section apply throughout this chapter. (1) "Action" means any arbitration, civil lawsuit, or action incontract or tort for damages or indemnity brought against aconstruction professional to assert a claim, whether by complaint,counterclaim, or crossclaim, for damage or the loss of use of real orpersonal property caused by a defect in the construction of a residenceor in the substantial remodel of a residence. "Action" does notinclude any civil action in tort alleging personal injury or wrongfuldeath to a person or persons resulting from a construction defect.Commencing an action means commencing an arbitration, lawsuit, oraction. (2) "Association" means an association, master association, orsubassociation as defined and provided for in RCW 64.34.020(4),64.34.276, 64.34.278, and 64.38.010(1). (3) "Claimant" means a homeowner or association who asserts a claimagainst a construction professional concerning a defect in theconstruction of a residence or in the substantial remodel of aresidence. (4) "Construction professional" means an architect, builder,builder vendor, contractor, subcontractor, engineer, or inspector,including, but not limited to, a dealer as defined in RCW 64.34.020(12)and a declarant as defined in RCW 64.34.020(13), performing orfurnishing the design, supervision, inspection, construction, orobservation of the construction of any improvement to real property, 20 whether operating as a sole proprietor, partnership, corporation, orother business entity. (5) "Homeowner" means: (a) Any person, company, firm, partnership,corporation, or association who contracts with a constructionprofessional for the construction, sale, or construction and sale of aresidence; and (b) an "association" as defined in this section."Homeowner" includes, but is not limited to, a subsequent purchaser ofa residence from any homeowner. (6) "Residence" means a singlefamily house, duplex, triplex,quadraplex, or a unit in a multiunit residential structure in whichtitle to each individual unit is transferred to the owner under acondominium or cooperative system, and shall include common elements asdefined in RCW 64.34.020(6) and common areas as defined in RCW64.38.010(4). (7) "Serve" or "service" means personal service or delivery bycertified mail to the last known address of the addressee. (8) "Substantial remodel" means a remodel of a residence, for whichthe total cost exceeds onehalf of the assessed value of the residencefor property tax purposes at the time the contract for the remodel workwas made.Sec. RCW 64.50.020 and 2002 c 323 s 3 are each amended to readas follows: (1) In every construction defect action brought against aconstruction professional, the claimant shall, no later than fortyfivedays before ((filing)) commencing an action, serve written notice ofclaim on the construction professional. The notice of claim shallstate that the claimant asserts a construction defect claim against theconstruction professional and shall describe the claim in reasonabledetail sufficient to determine the general nature of the defect. (2) Within twentyone days after service of the notice of claim,the construction professional shall serve a written response on theclaimant by registered mail or personal service. The written responseshall: (a) Propose to inspect the residence that is the subject of theclaim and to complete the inspection within a specified time frame.The proposal shall include the statement that the constructionprofessional shall, based on the inspection, offer to remedy thedefect, compromise by payment, or dispute the claim; 21 (b) Offer to compromise and settle the claim by monetary paymentwithout inspection. A construction professional's offer under thissubsection (2)(b) to compromise and settle a homeowner's claim mayinclude, but is not limited to, an express offer to purchase theclaimant's residence that is the subject of the claim, and to pay theclaimant's reasonable relocation costs; or (c) State that the construction professional disputes the claim andwill neither remedy the construction defect nor compromise and settlethe claim. (3)(a) If the construction professional disputes the claim or doesnot respond to the claimant's notice of claim within the time stated insubsection (2) of this section, the claimant may bring an actionagainst the construction professional for the claim described in thenotice of claim without further notice. (b) If the claimant rejects the inspection proposal or thesettlement offer made by the construction professional pursuant tosubsection (2) of this section, the claimant shall serve written noticeof the claimant's rejection on the construction professional. Afterservice of the rejection, the claimant may bring an action against theconstruction professional for the construction defect claim describedin the notice of claim. If the construction professional has notreceived from the claimant, within thirty days after the claimant'sreceipt of the construction professional's response, either anacceptance or rejection of the inspection proposal or settlement offer,then at anytime thereafter the construction professional may terminatethe proposal or offer by serving written notice to the claimant, andthe claimant may thereafter bring an action against the constructionprofessional for the construction defect claim described in the noticeof claim. (4)(a) If the claimant elects to allow the constructionprofessional to inspect in accordance with the constructionprofessional's proposal pursuant to subsection (2)(a) of this section,the claimant shall provide the construction professional and itscontractors or other agents reasonable access to the claimant'sresidence during normal working hours to inspect the premises and theclaimed defect. (b) Within fourteen days following completion of the inspection,the construction professional shall serve on the claimant: 22 (i) A written offer to remedy the construction defect at no cost tothe claimant, including a report of the scope of the inspection, thefindings and results of the inspection, a description of the additionalconstruction necessary to remedy the defect described in the claim, anda timetable for the completion of such construction; (ii) A written offer to compromise and settle the claim by monetarypayment pursuant to subsection (2)(b) of this section; or (iii) A written statement that the construction professional willnot proceed further to remedy the defect. (c) If the construction professional does not proceed further toremedy the construction defect within the agreed timetable, or if theconstruction professional fails to comply with the provisions of (b) ofthis subsection, the claimant may bring an action against theconstruction professional for the claim described in the notice ofclaim without further notice. (d) If the claimant rejects the offer made by the constructionprofessional pursuant to (b)(i) or (ii) of this subsection to eitherremedy the construction defect or to compromise and settle the claim bymonetary payment, the claimant shall serve written notice of theclaimant's rejection on the construction professional. After serviceof the rejection notice, the claimant may bring an action against theconstruction professional for the construction defect claim describedin the notice of claim. If the construction professional has notreceived from the claimant, within thirty days after the claimant'sreceipt of the construction professional's response, either anacceptance or rejection of the offer made pursuant to (b)(i) or (ii) ofthis subsection, then at anytime thereafter the constructionprofessional may terminate the offer by serving written notice to theclaimant. (5)(a) Any claimant accepting the offer of a constructionprofessional to remedy the construction defect pursuant to subsection(4)(b)(i) of this section shall do so by serving the constructionprofessional with a written notice of acceptance within a reasonabletime period after receipt of the offer, and no later than thirty daysafter receipt of the offer. The claimant shall provide theconstruction professional and its contractors or other agentsreasonable access to the claimant's residence during normal workinghours to perform and complete the construction by the timetable statedin the offer. 23 (b) The claimant and construction professional may, by writtenmutual agreement, alter the extent of construction or the timetable forcompletion of construction stated in the offer, including, but notlimited to, repair of additional defects. (6) Any action commenced by a claimant prior to compliance with therequirements of this section shall be subject to dismissal withoutprejudice, and may not be recommenced until the claimant has compliedwith the requirements of this section. (7) Nothing in this section may be construed to prevent a claimantfrom commencing an action on the construction defect claim described inthe notice of claim if the construction professional fails to performthe construction agreed upon, fails to remedy the defect, or fails toperform by the timetable agreed upon pursuant to subsection (2)(a) or(5) of this section. (8) Prior to commencing any action alleging a construction defect,or after the dismissal of any action without prejudice pursuant tosubsection (6) of this section, the claimant may amend the notice ofclaim to include construction defects discovered after the service ofthe original notice of claim, and must otherwise comply with therequirements of this section for the additional claims. The service ofan amended notice of claim shall relate back to the original notice ofclaim for purposes of tolling statutes of limitations and repose.Claims for defects discovered after the commencement or recommencementof an action may be added to such action only after providing notice tothe construction professional of the defect and allowing for responseunder subsection (2) of this section.NEW SECTION.Sec. Sections 2, 5, and 6 of this act apply onlyto condominiums created by declarations recorded on or after July 1,2004.NEW SECTION.Sec. If any provision of this act or itsapplication to any person or circumstance is held invalid, theremainder of the act or the application of the provision to otherpersons or circumstances is not affected.NEW SECTION.Sec. Sections 1 through 15 of this act takeeffect July 1, 2004. 24 ARTICLE 1GENERAL PROVISIONSNEW SECTION.Sec. DEFINITIONS. The definitions in thissection apply throughout this chapter unless the context clearlyrequires otherwise. (1) "Affiliate" has the meaning in RCW 64.34.020. (2) "Association" has the meaning in RCW 64.34.020. (3) "Building envelope" means the assemblies, components, andmaterials of a building that are intended to separate and protect theinterior space of the building from the adverse effects of exteriorclimatic conditions. (4) "Common element" has the meaning in RCW 64.34.020. (5) "Condominium" has the meaning in RCW 64.34.020. (6) "Construction professional" has the meaning in RCW 64.50.010. (7) "Conversion condominium" has the meaning in RCW 64.34.020. (8) "Declarant" has the meaning in RCW 64.34.020. (9) "Declarant control" has the meaning in RCW 64.34.020. (10) "Defect" means any aspect of a condominium unit or commonelement which constitutes a breach of the implied warranties set forthin RCW 64.34.445. (11) "Limited common element" has the meaning in RCW 64.34.020. (12) "Material" means substantive, not simply formal; significantto a reasonable person; not trivial or insignificant. When used withrespect to a particular construction defect, "material" does notrequire that the construction defect render the unit or common elementunfit for its intended purpose or uninhabitable. (13) "Mediation" means a collaborative process in which two or moreparties meet and attempt, with the assistance of a mediator, to resolveissues in dispute between them. (14) "Mediation session" means a meeting between two or moreparties to a dispute during which they are engaged in mediation. (15) "Mediator" means a neutral and impartial facilitator with nodecisionmaking power who assists parties in negotiating a mutuallyacceptable settlement of issues in dispute between them. (16) "Person" has the meaning in RCW 64.34.020. (17) "Public offering statement" has the meaning in RCW 64.34.410. (18) "Qualified insurer" means an entity that holds a certificate 25 of authority under RCW 48.05.030, or an eligible insurer under chapter48.15 RCW. (19) "Qualified warranty" means an insurance policy issued by aqualified insurer that complies with the requirements of this chapter.A qualified warranty includes coverage for repair of physical damagecaused by the defects covered by the qualified warranty, except to theextent of any exclusions and limitations under this chapter. (20) "Resale certificate" means the statement to be delivered bythe association under RCW 64.34.425. (21) "Transition date" means the date on which the declarant isrequired to deliver to the association the property of the associationunder RCW 64.34.312. (22) "Unit" has the meaning in RCW 64.34.020. (23) "Unit owner" has the meaning in RCW 64.34.020.ARTICLE 2EXCLUSIVE REMEDY AND PROCEDUREIN CASES WHERE A QUALIFIED WARRANTY IS PROVIDEDNEW SECTION.Sec. No declarant, affiliate of a declarant, orconstruction professional is liable to a unit owner or an associationfor damages awarded for repair of construction defects and resultingphysical damage, and chapter 64.50 RCW shall not apply if: (1) Everyunit is the subject of a qualified warranty; and (2) the associationhas been issued a qualified warranty with respect to the commonelements. If a construction professional agrees on terms satisfactoryto the qualified insurer to partially or fully indemnify the qualifiedinsurer with respect to a defect caused by the constructionprofessional, the liability of the construction professional for thedefect and resulting physical damage caused by him or her shall notexceed damages recoverable under the terms of the qualified warrantyfor the defect. Any indemnity claim by the qualified insurer shall beby separate action or arbitration, and no unit owner or associationshall be joined therein. A qualified warranty may also be provided inthe case of improvements made or contracted for by a declarant as partof a conversion condominium, and in such case, declarant's liabilitywith respect to such improvements shall be limited as set forth in thissection. 26 ARTICLE 3DISCLOSURENEW SECTION.Sec. (1) Every public offering statement andresale certificate shall affirmatively state whether or not the unitand/or the common elements are covered by a qualified warranty, andshall provide to the best knowledge of the person preparing the publicoffering statement or resale certificate a history of claims under thewarranty. (2) The history of claims must include, for each claim, not lessthan the following information for the unit and/or the common elements,as applicable, to the best knowledge of the person providing theinformation: (a) The type of claim that was made; (b) The resolution of the claim; (c) The type of repair performed; (d) The date of the repair; (e) The cost of the repair; and (f) The name of the person or entity who performed the repair.ARTICLE 4MINIMUM COVERAGE STANDARDS FOR QUALIFIED WARRANTIESNEW SECTION.Sec. TWOYEAR MATERIALS AND LABOR WARRANTY.(1) The minimum coverage for the twoyear materials and labor warrantyis: (a) In the first twelve months, for other than the common elements,(i) coverage for any defect in materials and labor; and (ii) subject tosubsection (2) of this section, coverage for a violation of thebuilding code; (b) In the first fifteen months, for the common elements, (i)coverage for any defect in materials and labor; and (ii) subject tosubsection (2) of this section, coverage for a violation of thebuilding code; (c) In the first twentyfour months, (i) coverage for any defect inmaterials and labor supplied for the electrical, plumbing, heating,ventilation, and air conditioning delivery and distribution systems;(ii) coverage for any defect in materials and labor supplied for theexterior cladding, caulking, windows, and doors that may lead to 27 detachment or material damage to the unit or common elements; (iii)coverage for any defect in materials and labor which renders the unitunfit to live in; and (iv) subject to subsection (2) of this section,coverage for a violation of the building code. (2) Noncompliance with the building code is considered a defectcovered by a qualified warranty if the noncompliance: (a) Constitutes an unreasonable health or safety risk; or (b) Has resulted in, or is likely to result in, material damage tothe unit or common elements.NEW SECTION.Sec. FIVEYEAR BUILDING ENVELOPE WARRANTY. Theminimum coverage for the building envelope warranty is five years fordefects in the building envelope of a condominium, including a defectwhich permits unintended water penetration so that it causes, or islikely to cause, material damage to the unit or common elements.NEW SECTION.Sec. TENYEAR STRUCTURAL DEFECTS WARRANTY. Theminimum coverage for the structural defects warranty is ten years for: (1) Any defect in materials and labor that results in the failureof a loadbearing part of the condominium; and (2) Any defect which causes structural damage that materially andadversely affects the use of the condominium for residential occupancy.NEW SECTION.Sec. BEGINNING DATES FOR WARRANTY COVERAGE.(1) For the unit, the beginning date of the qualified warranty coverageis the earlier of: (a) Actual occupancy of the unit; or (b) Transfer of legal title to the unit. (2) For the common elements, the beginning date of a qualifiedwarranty is the date a temporary or final certificate of occupancy isissued for the common elements in each separate multiunit building,comprised by the condominium.NEW SECTION.Sec. BEGINNING DATES FOR SPECIAL CASES;DECLARANT CONTROL. (1) If an unsold unit is occupied as a rental unit,the qualified warranty beginning date for such unit is the date theunit is first occupied. (2) If the declarant subsequently offers to sell a unit which is 28 rented, the declarant must disclose, in writing, to each prospectivepurchaser, the date on which the qualified warranty expires. (3) If the declarant retains any declarant control over theassociation on the date that is fourteen full calendar months followingthe month in which the beginning date for common element warrantycoverage commences, the declarant shall within thirty days thereaftercause an election to be held in which the declarant may not vote, forthe purpose of electing one or more board members who are empowered tomake warranty claims. If at such time, one or more independent boardmembers hold office, no additional election need be held, and suchindependent board members are empowered to make warranty claims. Thedeclarant shall inform all independent board members of their right tomake warranty claims at no later than sixteen full calendar monthsfollowing the beginning date of the common element warranty.NEW SECTION.Sec. LIVING EXPENSE ALLOWANCE. (1) If repairsare required under the qualified warranty and damage to the unit, orthe extent of the repairs renders the unit uninhabitable, the qualifiedwarranty must cover reasonable living expenses incurred by the owner tolive elsewhere in an amount commensurate with the nature of the unit. (2) If a qualified insurer establishes a maximum amount per day forclaims for living expenses, the limit must be the greater of onehundred dollars per day or a reasonable amount commensurate with thenature of the unit for the complete reimbursement of the actualaccommodation expenses incurred by the owner at a hotel, motel, orother rental accommodation up to the day the unit is ready foroccupancy, subject to the owner receiving twentyfour hours' advancenotice.NEW SECTION.Sec. WARRANTY ON REPAIRS AND REPLACEMENTS. (1)All repairs and replacements made under a qualified warranty must bewarranted by the qualified warranty against defects in materials andlabor until the later of: (a) The first anniversary of the date of completion of the repairor replacement; or (b) The expiration of the applicable qualified warranty coverage. (2) All repairs and replacements made under a qualified warrantymust be completed in a reasonable manner using materials and laborconforming to the building code and industry standards. 29 ARTICLE 5PERMITTED TERMS FOR QUALIFIED WARRANTIESNEW SECTION.Sec. A qualified insurer may include any of thefollowing provisions in a qualified warranty: (1) If the qualified insurer makes a payment or assumes liabilityfor any payment or repair under a qualified warranty, the owner andassociation must fully support and assist the qualified insurer inpursuing any rights that the qualified insurer may have against thedeclarant, and any construction professional that has contractual orcommon law obligations to the declarant, whether such rights arose bycontract, subrogation, or otherwise. (2) Warranties or representations made by a declarant which are inaddition to the warranties set forth in this chapter are not binding onthe qualified insurer unless and to the extent specifically provided inthe text of the warranty; and disclaimers of specific defects made byagreement between the declarant and the unit purchaser under RCW64.34.450 act as an exclusion of the specified defect from the warrantycoverage. (3) An owner and the association must permit the qualified insureror declarant, or both, to enter the unit at reasonable times, afterreasonable notice to the owner and the association: (a) To monitor the unit or its components; (b) To inspect for required maintenance; (c) To investigate complaints or claims; or (d) To undertake repairs under the qualified warranty. If any reports are produced as a result of any of the activitiesreferred to in (a) through (d) of this subsection, the reports must beprovided to the owner and the association. (4) An owner and the association must provide to the qualifiedinsurer all information and documentation that the owner and theassociation have available, as reasonably required by the qualifiedinsurer to investigate a claim or maintenance requirement, or toundertake repairs under the qualified warranty. (5) To the extent any damage to a unit is caused or made worse bythe unreasonable refusal of the association, or an owner or occupant topermit the qualified insurer or declarant access to the unit for thereasons in subsection (3) of this section, or to provide the 30 information required by subsection (4) of this section, that damage isexcluded from the qualified warranty. (6) In any claim under a qualified warranty issued to theassociation, the association shall have the sole right to prosecute andsettle any claim with respect to the common elements.ARTICLE 6PERMITTED EXCLUSIONS FROM QUALIFIED WARRANTIES-GENERALNEW SECTION.Sec. (1) A qualified insurer may exclude froma qualified warranty: (a) Landscaping, both hard and soft, including plants, fencing,detached patios, planters not forming a part of the building envelope,gazebos, and similar structures; (b) Any commercial use area and any construction associated with acommercial use area; (c) Roads, curbs, and lanes; (d) Subject to subsection (2) of this section, site grading andsurface drainage except as required by the building code; (e) Municipal services operation, including sanitary and stormsewer; (f) Septic tanks or septic fields; (g) The quality or quantity of water, from either a piped municipalwater supply or a well; (h) A water well, but excluding equipment installed for theoperation of a water well used exclusively for a unit, which equipmentis part of the plumbing system for that unit for the purposes of thequalified warranty. (2) The exclusions permitted by subsection (1) of this section donot include any of the following: (a) A driveway or walkway; (b) Recreational and amenity facilities situated in, or included asthe common property of, a unit; (c) A parking structure in a multiunit building; (d) A retaining wall that: (i) An authority with jurisdiction requires to be designed by aprofessional engineer; or (ii) Is reasonably required for the direct support of, or retainingsoil away from, a unit, driveway, or walkway. 31 ARTICLE 7PERMITTED EXCLUSIONS-DEFECTSNEW SECTION.Sec. A qualified insurer may exclude any or allof the following items from a qualified warranty: (1) Weathering, normal wear and tear, deterioration, or deflectionconsistent with normal industry standards; (2) Normal shrinkage of materials caused by drying afterconstruction; (3) Any loss or damage which arises while a unit is being usedprimarily or substantially for nonresidential purposes; (4) Materials, labor, or design supplied by an owner; (5) Any damage to the extent caused or made worse by an owner orthird party, including: (a) Negligent or improper maintenance or improper operation byanyone other than the declarant or its employees, agents, orsubcontractors; (b) Failure of anyone, other than the declarant or its employees,agents, or subcontractors, to comply with the warranty requirements ofthe manufacturers of appliances, equipment, or fixtures; (c) Alterations to the unit, including converting nonliving spaceinto living space or converting a unit into two or more units, byanyone other than the declarant or its employees, agents, orsubcontractors while undertaking their obligations under the salescontract; and (d) Changes to the grading of the ground by anyone other than thedeclarant or its employees, agents, or subcontractors; (6) An owner failing to take timely action to prevent or minimizeloss or damage, including failing to give prompt notice to thequalified insurer of a defect or discovered loss, or a potential defector loss; (7) Any damage caused by insects, rodents, or other animals, unlessthe damage results from noncompliance with the building code by thedeclarant or its employees, agents, or subcontractors; (8) Accidental loss or damage from acts of nature including, butnot limited to, fire, explosion, smoke, water escape, glass breakage,windstorm, hail, lightning, falling trees, aircraft, vehicles, flood,earthquake, avalanche, landslide, and changes in the level of the 32 underground water table which are not reasonably foreseeable by thedeclarant; (9) Bodily injury or damage to personal property or real propertywhich is not part of a unit; (10) Any defect in, or caused by, materials or work supplied byanyone other than the declarant, an affiliate of a declarant, or theirrespective contractors, employees, agents, or subcontractors; (11) Changes, alterations, or additions made to a unit by anyoneafter initial occupancy, except those performed by the declarant or itsemployees, agents, or subcontractors as required by the qualifiedwarranty or under the construction contract or sales agreement; (12) Contaminated soil; (13) Subsidence of the land around a unit or along utility lines,other than subsidence beneath footings of a unit or under driveways orwalkways; (14) Diminution in the value of the unit.ARTICLE 8MONETARY LIMITS ON QUALIFIED WARRANTY COVERAGENEW SECTION.Sec. (1) A qualified insurer may establish amonetary limit on the amount of the warranty. Any limit must not beless than: (a) For a unit, the lesser of (i) the original purchase price paidby the owner, or (ii) one hundred thousand dollars; (b) For common elements, the lesser of (i) the total originalpurchase price for all components of the multiunit building, or (ii)one hundred fifty thousand dollars times the number of units of thecondominium. (2) When calculating the cost of warranty claims under the standardlimits under a qualified warranty, a qualified insurer may include: (a) The cost of repairs; (b) The cost of any investigation, engineering, and design requiredfor the repairs; and (c) The cost of supervision of repairs, including professionalreview, but excluding legal costs. (3) The minimum amounts in subsections (1) and (2) of this sectionshall be adjusted at the end of each calendar year after the effectivedate by an amount equal to the percentage change in the consumer price 33 index for all urban consumers, all items, as published from time totime by the United States department of labor. The adjustment does notaffect any qualified warranty issued before the adjustment date.ARTICLE 9PROHIBITED POLICY PROVISIONSNEW SECTION.Sec. (1) A qualified insurer must not includein a qualified warranty any provision that requires an owner or theassociation: (a) To sign a release before repairs are performed under thequalified warranty; or (b) To pay a deductible in excess of five hundred dollars for therepair of any defect in a unit covered by the qualified warranty, or inexcess of the lesser of five hundred dollars per unit or ten thousanddollars in the aggregate for any defect in the common elements. (2) All exclusions must be permitted by this chapter and stated inthe qualified warranty.ARTICLE 10CONSEQUENCES OF NOT PROVIDING INFORMATIONNEW SECTION.Sec. (1) If coverage under a qualifiedwarranty is conditional on an owner undertaking proper maintenance, orif coverage is excluded for damage caused by negligence by the owner orassociation with respect to maintenance or repair by the owner orassociation, the conditions or exclusions apply only to maintenancerequirements or procedures: (a) Provided to the original owner in thecase of the unit warranty, and to the association for the commonelement warranty with an estimation of the required cost thereof forthe common element warranty provided in the budget prepared by thedeclarant; or (b) that would be obvious to a reasonable and prudentlayperson. Recommended maintenance requirements and procedures aresufficient for purposes of this subsection if consistent with knowledgegenerally available in the construction industry at the time thequalified warranty is issued. (2) If an original owner or the association has not been providedwith the manufacturer's documentation or warranty information, or both,or with recommended maintenance and repair procedures for any component 34 of a unit, the relevant exclusion does not apply. The common elementwarranty is included in the written warranty to be provided to theassociation under RCW 64.34.312.ARTICLE 11MANDATORY NOTICE OF EXPIRATION OF WARRANTYNEW SECTION.Sec. (1) A qualified insurer must, as soon asreasonably possible after the beginning date for the qualifiedwarranty, provide an owner and association with a schedule of theexpiration dates for coverages under the qualified warranty asapplicable to the unit and the common elements, respectively. (2) The expiration date schedule for a unit must set out all therequired dates on an adhesive label that is a minimum size of fourinches by four inches and is suitable for affixing by the owner in aconspicuous location in the unit.ARTICLE 12DUTY TO MITIGATENEW SECTION.Sec. (1) The qualified insurer may require anowner or association to mitigate any damage to a unit or the commonelements, including damage caused by defects or water penetration, asset out in the qualified warranty. (2) Subject to subsection (3) of this section, for defects coveredby the qualified warranty, the duty to mitigate is met through timelynotice in writing to the qualified insurer. (3) The owner must take all reasonable steps to restrict damage tothe unit if the defect requires immediate attention. (4) The owner's duty to mitigate survives even if: (a) The unit is unoccupied; (b) The unit is occupied by someone other than the owner; (c) Water penetration does not appear to be causing damage; or (d) The owner advises the homeowners' association corporation aboutthe defect. (5) If damage to a unit is caused or made worse by the failure ofan owner to take reasonable steps to mitigate as set out in thissection, the damage may, at the option of the qualified insurer, beexcluded from qualified warranty coverage. 35 ARTICLE 13NOTICE OF CLAIMNEW SECTION.Sec. (1) Within a reasonable time after thediscovery of a defect and before the expiration of the applicablequalified warranty coverage, a claimant must give to the qualifiedinsurer and the declarant written notice in reasonable detail thatprovides particulars of any specific defects covered by the qualifiedwarranty. (2) The qualified insurer may require the notice under subsection(1) of this section to include: (a) The qualified warranty number; and (b) Copies of any relevant documentation and correspondence betweenthe claimant and the declarant, to the extent any such documentationand correspondence is in the control or possession of the claimant.ARTICLE 14HANDLING OF CLAIMSNEW SECTION.Sec. A qualified insurer must, on receipt ofa notice of a claim under a qualified warranty, promptly makereasonable attempts to contact the claimant to arrange an evaluation ofthe claim. Claims shall be handled in accordance with the claimsprocedures set forth in rules by the insurance commissioner, and asfollows: (1) The qualified insurer must make all reasonable efforts to avoiddelays in responding to a claim under a qualified warranty, evaluatingthe claim, and scheduling any required repairs. (2) If, after evaluating a claim under a qualified warranty, thequalified insurer determines that the claim is not valid, or notcovered under the qualified warranty, the qualified insurer must: (a)Notify the claimant of the decision in writing; (b) set out the reasonsfor the decision; and (c) set out the rights of the parties under thethirdparty dispute resolution process for the warranty. (3) Repairs must be undertaken in a timely manner, with reasonableconsideration given to weather conditions and the availability ofmaterials and labor. (4) On completing any repairs, the qualified insurer must deliver 36 a copy of the repair specifications to the claimant along with a letterconfirming the date the repairs were completed and referencing therepair warranty provided for in section 407 of this act.ARTICLE 15MEDIATION OF DISPUTED CLAIMSNEW SECTION.Sec. (1) If a dispute between a qualifiedinsurer and a claimant arising under a qualified warranty cannot beresolved by informal negotiation within a reasonable time, the claimantor qualified insurer may require that the dispute be referred tomediation by delivering written notice to the other to mediate. (2) If a party delivers a request to mediate under subsection (1)of this section, the qualified insurer and the party must attend amediation session in relation to the dispute and may invite toparticipate in the mediation any other party to the dispute who may beliable. (3) Within twentyone days after the party has delivered a requestto mediate under subsection (1) of this section, the parties must,directly or with the assistance of an independent, neutral person ororganization, jointly appoint a mutually acceptable mediator. (4) If the parties do not jointly appoint a mutually acceptablemediator within the time required by subsection (3) of this section,the party may apply to the superior court of the county where theproject is located, which must appoint a mediator taking into account: (a) The need for the mediator to be neutral and independent; (b) The qualifications of the mediator; (c) The mediator's fees; (d) The mediator's availability; and (e) Any other consideration likely to result in the selection of animpartial, competent, and effective mediator. (5) After selecting the mediator under subsection (4) of thissection, the superior court must promptly notify the parties in writingof that selection. (6) The mediator selected by the superior court is deemed to beappointed by the parties effective the date of the notice sent undersubsection (5) of this section. (7) The first mediation session must occur within twentyone days 37 of the appointment of the mediator at the date, time, and placeselected by the mediator. (8) A party may attend a mediation session by representative if: (a) The party is under a legal disability and the representative isthat party's guardian ad litem; (b) The party is not an individual; or (c) The party is a resident of a jurisdiction other than Washingtonand will not be in Washington at the time of the mediation session. (9) A representative who attends a mediation session in the placeof a party as permitted by subsection (8) of this section: (a) Must be familiar with all relevant facts on which the party, onwhose behalf the representative attends, intends to rely; and (b) Must have full authority to settle, or have immediate access toa person who has full authority to settle, on behalf of the party onwhose behalf the representative attends. (10) A party or a representative who attends the mediation sessionmay be accompanied by counsel. (11) Any other person may attend a mediation session on consent ofall parties or their representatives. (12) At least seven days before the first mediation session is tobe held, each party must deliver to the mediator a statement brieflysetting out: (a) The facts on which the party intends to rely; and (b) The matters in dispute. (13) The mediator must promptly send each party's statement to eachof the other parties. (14) Before the first mediation session, the parties must enterinto a retainer agreement with the mediator which must: (a) Disclose the cost of the mediation services; and (b) Provide that the cost of the mediation will be paid: (i) Equally by the parties; or (ii) On any other specified basis agreed by the parties. (15) The mediator may conduct the mediation in any manner he or sheconsiders appropriate to assist the parties to reach a resolution thatis timely, fair, and cost-effective. (16) A person may not disclose, or be compelled to disclose, in anyproceeding, oral or written information acquired or an opinion formed,including, without limitation, any offer or admission made inanticipation of or during a mediation session. 38 (17) Nothing in subsection (16) of this section precludes a partyfrom introducing into evidence in a proceeding any information orrecords produced in the course of the mediation that are otherwiseproducible or compellable in those proceedings. (18) A mediation session is concluded when: (a) All issues are resolved; (b) The mediator determines that the process will not be productiveand so advises the parties or their representatives; or (c) The mediation session is completed and there is no agreement tocontinue. (19) If the mediation resolves some but not all issues, themediator may, at the request of all parties, complete a report settingout any agreements made as a result of the mediation, including,without limitation, any agreements made by the parties on any of thefollowing: (a) Facts; (b) Issues; and (c) Future procedural steps.ARTICLE 16ARBITRATIONNEW SECTION.Sec. A qualified warranty may includemandatory binding arbitration of all disputes arising out of or inconnection with a qualified warranty. The provision may provide thatall claims for a single condominium be heard by the same arbitrator,but shall not permit the joinder or consolidation of any other personor entity. The arbitration shall comply with the following minimumprocedural standards: (1) Any demand for arbitration shall be delivered by certified mailreturn receipt requested, and by ordinary first class mail. The partyinitiating the arbitration shall address the notice to the address lastknown to the initiating party in the exercise of reasonable diligence,and also, for any entity which is required to have a registered agentin the state of Washington, to the address of the registered agent.Demand for arbitration is deemed effective three days after the datedeposited in the mail; (2) All disputes shall be heard by one qualified arbitrator, unlessthe parties agree to use three arbitrators. If three arbitrators are 39 used, one shall be appointed by each of the disputing parties and thefirst two arbitrators shall appoint the third, who will chair thepanel. The parties shall select the identity and number of thearbitrator or arbitrators after the demand for arbitration is made.If, within thirty days after the effective date of the demand forarbitration, the parties fail to agree on an arbitrator or the agreednumber of arbitrators fail to be appointed, then an arbitrator orarbitrators shall be appointed under RCW 7.04.050 by the presidingjudge of the superior court of the county in which the condominium islocated; (3) In any arbitration, at least one arbitrator must be a lawyer orretired judge. Any additional arbitrator must be either a lawyer orretired judge or a person who has experience with construction andengineering standards and practices, written construction warranties,or construction dispute resolution. No person may serve as anarbitrator in any arbitration in which that person has any past orpresent financial or personal interest; (4) The arbitration hearing must be conducted in a manner thatpermits full, fair, and expeditious presentation of the case by bothparties. The arbitrator is bound by the law of Washington state.Parties may be, but are not required to be, represented by attorneys.The arbitrator may permit discovery to ensure a fair hearing, but maylimit the scope or manner of discovery for good cause to avoidexcessive delay and costs to the parties. The parties and thearbitrator shall use all reasonable efforts to complete the arbitrationwithin six months of the effective date of the demand for arbitrationor, when applicable, the service of the list of defects in accordancewith RCW 64.50.030; (5) Except as otherwise set forth in this section, arbitrationshall be conducted under chapter 7.04 RCW, unless the parties elect touse the construction industry arbitration rules of the Americanarbitration association, which are permitted to the extent notinconsistent with this section. The expenses of witnesses includingexpert witnesses shall be paid by the party producing the witnesses.All other expenses of arbitration shall be borne equally by theparties, unless all parties agree otherwise or unless the arbitratorawards expenses or any part thereof to any specified party or parties.The parties shall pay the fees of the arbitrator as and when specifiedby the arbitrator; 40 (6) Demand for arbitration given pursuant to subsection (1) of thissection commences an arbitration for purposes of RCW 64.34.452; (7) The arbitration decision shall be in writing and must set forthfindings of fact and conclusions of law that support the decision.ARTICLE 17ATTORNEYS' FEESNEW SECTION.Sec. In any judicial proceeding or arbitrationbrought to enforce the terms of a qualified warranty, the court orarbitrator may award reasonable attorneys' fees to the substantiallyprevailing party. In no event may such fees exceed the reasonablehourly value of the attorney's work.ARTICLE 18TRANSFERNEW SECTION.Sec. (1) A qualified warranty pertains solelyto the unit and common elements for which it provides coverage and nonotice to the qualified insurer is required on a change of ownership. (2) All of the applicable unused benefits under a qualifiedwarranty with respect to a unit are automatically transferred to anysubsequent owner on a change of ownership.ARTICLE 19ACCEPTANCE OF DECLARANT FOR QUALIFIED WARRANTYNEW SECTION.Sec. (1) No insurer is bound to offer aqualified warranty to any person. Except as specifically set forth inthis section, the terms of any qualified warranty are set in the solediscretion of the qualified insurer. Without limiting the generalityof this subsection, a qualified insurer may make inquiries about theapplicant as follows: (a) Does the applicant have the financial resources to undertakethe construction of the number of units being proposed by theapplicant's business plan for the following twelve months; (b) Does the applicant and its directors, officers, employees, andconsultants possess the necessary technical expertise to adequately 41 perform their individual functions with respect to their proposed rolein the construction and sale of units; (c) Does the applicant and its directors and officers havesufficient experience in business management to properly manage theunit construction process; (d) Does the applicant and its directors, officers, and employeeshave sufficient practical experience to undertake the proposed unitconstruction; (e) Does the past conduct of the applicant and its directors,officers, employees, and consultants provide a reasonable indication ofgood business practices, and reasonable grounds for belief that itsundertakings will be carried on in accordance with all legalrequirements; and (f) Is the applicant reasonably able to provide, or to cause to beprovided, after-sale customer service for the units to be constructed. (2) A qualified insurer may charge a fee to make the inquiriespermitted by subsection (1) of this section. (3) Before approving a qualified warranty for a condominium, aqualified insurer may make such inquiries and impose such conditions asit deems appropriate in its sole discretion, including withoutlimitation the following: (a) To determine if the applicant has the necessary capitalizationor financing in place, including any reasonable contingency reserves,to undertake construction of the proposed unit; (b) To determine if the applicant or, in the case of a corporation,its directors, officers, employees, and consultants possess reasonabletechnical expertise to construct the proposed unit, including specifictechnical knowledge or expertise in any building systems, constructionmethods, products, treatments, technologies, and testing and inspectionmethods proposed to be employed; (c) To determine if the applicant or, in the case of a corporation,its directors, officers, employees, and consultants have sufficientpractical experience in the specific types of construction to undertakeconstruction of the proposed unit; (d) To determine if the applicant has sufficient personnel andother resources to adequately undertake the construction of theproposed unit in addition to other units which the applicant may haveunder construction or is currently marketing; (e) To determine if: 42 (i) The applicant is proposing to engage a general contractor toundertake all or a significant portion of the construction of theproposed unit; and (ii) The general contractor meets the criteria set out in thissection; (f) Requiring that a declarant provide security in a form suitableto the qualified insurer; (g) Establishing or requiring compliance with specific constructionstandards for the unit; (h) Restricting the applicant from constructing some types of unitsor using some types of construction or systems; (i) Requiring the use of specific types of systems, consultants, orpersonnel for the construction; (j) Requiring an independent review of the unit building plans orconsultants' reports or any part thereof; (k) Requiring third-party verification or certification of theconstruction of the unit or any part thereof; (l) Providing for inspection of the unit or any part thereof duringconstruction; (m) Requiring ongoing monitoring of the unit, or one or more of itscomponents, following completion of construction; (n) Requiring that the declarant or any of the designprofessionals, engineering professionals, consultants, generalcontractors, or subcontractors maintain minimum levels of insurance,bonding, or other security naming the potential owners and qualifiedinsurer as loss payees or beneficiaries of the insurance, bonding, orsecurity to the extent possible; (o) Requiring that the declarant provide a list of all designprofessionals and other consultants who are involved in the design orconstruction inspection, or both, of the unit; (p) Requiring that the declarant provide a list of trades employedin the construction of the unit, and requiring evidence of theircurrent trade's certification, if applicable.ARTICLE 20MISCELLANEOUSNEW SECTION.Sec. All qualified warrantees shall be deemed 43 to be "insurance" for purposes of RCW 48.01.040, and shall be regulatedas such.NEW SECTION.Sec. Captions and part headings used in thisact are not any part of the law.NEW SECTION.Sec. Sections 101 through 2002 of this actconstitute a new chapter in Title 64 RCW. Correct the title.--- END --- 44