BILL REQ. #: H-0827.1
| State of Washington | 62nd Legislature | 2011 Regular Session |
Read first time 01/18/11. Referred to Committee on Judiciary.
AN ACT Relating to reserve accounts and studies for condominium and homeowners' associations; amending RCW 64.34.020, 64.34.308, 64.34.380, 64.34.382, 64.34.384, 64.38.010, and 64.38.025; reenacting and amending RCW 64.34.010; and adding new sections to chapter 64.38 RCW.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec. 1 RCW 64.34.020 and 2008 c 115 s 8 are each amended to read
as follows:
In the declaration and bylaws, unless specifically provided
otherwise or the context requires otherwise, and in this chapter:
(1) "Affiliate" means any person who controls, is controlled by, or
is under common control with the referenced person. A person
"controls" another person if the person: (a) Is a general partner,
officer, director, or employer of the referenced person; (b) directly
or indirectly or acting in concert with one or more other persons, or
through one or more subsidiaries, owns, controls, holds with power to
vote, or holds proxies representing, more than twenty percent of the
voting interest in the referenced person; (c) controls in any manner
the election of a majority of the directors of the referenced person;
or (d) has contributed more than twenty percent of the capital of the
referenced person. A person "is controlled by" another person if the
other person: (i) Is a general partner, officer, director, or employer
of the person; (ii) directly or indirectly or acting in concert with
one or more other persons, or through one or more subsidiaries, owns,
controls, holds with power to vote, or holds proxies representing, more
than twenty percent of the voting interest in the person; (iii)
controls in any manner the election of a majority of the directors of
the person; or (iv) has contributed more than twenty percent of the
capital of the person. Control does not exist if the powers described
in this subsection are held solely as security for an obligation and
are not exercised.
(2) "Allocated interests" means the undivided interest in the
common elements, the common expense liability, and votes in the
association allocated to each unit.
(3) "Assessment" means all sums chargeable by the association
against a unit including, without limitation: (a) Regular and special
assessments for common expenses, charges, and fines imposed by the
association; (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 a
delinquent owner's account.
(4) "Association" or "unit owners' association" means the unit
owners' association organized under RCW 64.34.300.
(5) "Board of directors" means the body, regardless of name, with
primary authority to manage the affairs of the association.
(6) "Common elements" means all portions of a condominium other
than the units.
(7) "Common expenses" means expenditures made by or financial
liabilities of the association, together with any allocations to
reserves.
(8) "Common expense liability" means the liability for common
expenses allocated to each unit pursuant to RCW 64.34.224.
(9) "Condominium" means real property, portions of which are
designated for separate ownership and the remainder of which is
designated for common ownership solely by the owners of those portions.
Real property is not a condominium unless the undivided interests in
the common elements are vested in the unit owners, and unless a
declaration and a survey map and plans have been recorded pursuant to
this chapter.
(10) "Contribution rate" means, in a reserve study as described in
RCW 64.34.380, the amount contributed to the reserve account so that
the association will have cash reserves to pay major maintenance,
repair, or replacement costs without the need of a special assessment.
(11) "Conversion condominium" means a condominium (a) that at any
time before creation of the condominium was lawfully occupied wholly or
partially by a tenant or subtenant for residential purposes pursuant to
a rental agreement, oral or written, express or implied, for which the
tenant or subtenant had not received the notice described in (b) of
this subsection; or (b) that, at any time within twelve months before
the conveyance of, or acceptance of an agreement to convey, any unit
therein other than to a declarant or any affiliate of a declarant, was
lawfully occupied wholly or partially by a residential tenant of a
declarant or an affiliate of a declarant and such tenant was not
notified in writing, prior to lawfully occupying a unit or executing a
rental agreement, whichever event first occurs, that the unit was part
of a condominium and subject to sale. "Conversion condominium" shall
not include a condominium in which, before July 1, 1990, any unit
therein had been conveyed or been made subject to an agreement to
convey to any transferee other than a declarant or an affiliate of a
declarant.
(12) "Conveyance" means any transfer of the ownership of a unit,
including a transfer by deed or by real estate contract and, with
respect to a unit in a leasehold condominium, a transfer by lease or
assignment thereof, but shall not include a transfer solely for
security.
(13) "Dealer" means a person who, together with such person's
affiliates, owns or has a right to acquire either six or more units in
a condominium or fifty percent or more of the units in a condominium
containing more than two units.
(14) "Declarant" means:
(a) Any person who executes as declarant a declaration as defined
in subsection (16) of this section; or
(b) Any person who reserves any special declarant right in the
declaration; or
(c) Any person who exercises special declarant rights or to whom
special declarant rights are transferred; or
(d) Any person who is the owner of a fee interest in the real
property which is subjected to the declaration at the time of the
recording of an instrument pursuant to RCW 64.34.316 and who directly
or through one or more affiliates is materially involved in the
construction, marketing, or sale of units in the condominium created by
the recording of the instrument.
(15) "Declarant control" means the right of the declarant or
persons designated by the declarant to appoint and remove officers and
members of the board of directors, or to veto or approve a proposed
action of the board or association, pursuant to RCW 64.34.308 (((4)
or)) (5) or (6).
(16) "Declaration" means the document, however denominated, that
creates a condominium by setting forth the information required by RCW
64.34.216 and any amendments to that document.
(17) "Development rights" means any right or combination of rights
reserved by a declarant in the declaration to: (a) Add real property
or improvements to a condominium; (b) create units, common elements, or
limited common elements within real property included or added to a
condominium; (c) subdivide units or convert units into common elements;
(d) withdraw real property from a condominium; or (e) reallocate
limited common elements with respect to units that have not been
conveyed by the declarant.
(18) "Dispose" or "disposition" means a voluntary transfer or
conveyance to a purchaser or lessee of any legal or equitable interest
in a unit, but does not include the transfer or release of a security
interest.
(19) "Effective age" means the difference between the estimated
useful life and remaining useful life.
(20) "Eligible mortgagee" means the holder of a mortgage on a unit
that has filed with the secretary of the association a written request
that it be given copies of notices of any action by the association
that requires the consent of mortgagees.
(21) "Foreclosure" means a forfeiture or judicial or nonjudicial
foreclosure of a mortgage or a deed in lieu thereof.
(22) "Fully funded balance" means the current value of the
deteriorated portion, not the total replacement value, of all the
reserve components. The fully funded balance for each reserve
component is calculated by multiplying the current replacement cost of
that reserve component by its effective age, then dividing the result
by that reserve component's useful life. The sum total of all reserve
components' fully funded balances is the association's fully funded
balance.
(23) "Identifying number" means the designation of each unit in a
condominium.
(24) "Leasehold condominium" means a condominium in which all or a
portion of the real property is subject to a lease, the expiration or
termination of which will terminate the condominium or reduce its size.
(25) "Limited common element" means a portion of the common
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 of
the units.
(26) "Master association" means an organization described in RCW
64.34.276, whether or not it is also an association described in RCW
64.34.300.
(27) "Mortgage" means a mortgage, deed of trust or real estate
contract.
(28) "Person" means a natural person, corporation, partnership,
limited partnership, trust, governmental subdivision or agency, or
other legal entity.
(29) "Purchaser" means any person, other than a declarant or a
dealer, who by means of a disposition acquires a legal or equitable
interest in a unit other than (a) a leasehold interest, including
renewal options, of less than twenty years at the time of creation of
the unit, or (b) as security for an obligation.
(30) "Real property" means any fee, leasehold or other estate or
interest in, over, or under land, including structures, fixtures, and
other improvements thereon and easements, rights and interests
appurtenant thereto which by custom, usage, or law pass with a
conveyance of land although not described in the contract of sale or
instrument of conveyance. "Real property" includes parcels, with or
without upper or lower boundaries, and spaces that may be filled with
air or water.
(31) "Remaining useful life" means the estimated time, in years,
((that a reserve component can be expected to continue to serve))
before a reserve component will require major maintenance, repair, or
replacement to perform its intended function.
(32) "Replacement cost" means the current cost of replacing,
repairing, or restoring a reserve component to its original functional
condition.
(33) "Residential purposes" means use for dwelling or recreational
purposes, or both.
(34) "Reserve component((s))" means a common element((s)) whose
cost of maintenance, repair, or replacement is infrequent, significant,
and impractical to include in an annual budget.
(35) "Reserve study professional" means an independent person who
is suitably qualified by knowledge, skill, experience, training, or
education to prepare a reserve study in accordance with RCW 64.34.380
and 64.34.382.
(36) "Special declarant rights" means rights reserved for the
benefit of a declarant to: (a) Complete improvements indicated on
survey maps and plans filed with the declaration under RCW 64.34.232;
(b) exercise any development right under RCW 64.34.236; (c) maintain
sales offices, management offices, signs advertising the condominium,
and models under RCW 64.34.256; (d) use easements through the common
elements for the purpose of making improvements within the condominium
or within real property which may be added to the condominium under RCW
64.34.260; (e) make the condominium part of a larger condominium or a
development under RCW 64.34.280; (f) make the condominium subject to a
master association under RCW 64.34.276; or (g) appoint or remove any
officer of the association or any master association or any member of
the board of directors, or to veto or approve a proposed action of the
board or association, during any period of declarant control under RCW
64.34.308(((4))) (5).
(37) "Timeshare" shall have the meaning specified in the timeshare
act, RCW 64.36.010(11).
(38) "Unit" means a physical portion of the condominium designated
for separate ownership, the boundaries of which are described pursuant
to RCW 64.34.216(1)(d). "Separate ownership" includes leasing a unit
in a leasehold condominium under a lease that expires contemporaneously
with any lease, the expiration or termination of which will remove the
unit from the condominium.
(39) "Unit owner" means a declarant or other person who owns a unit
or leases a unit in a leasehold condominium under a lease that expires
simultaneously with any lease, the expiration or termination of which
will remove the unit from the condominium, but does not include a
person who has an interest in a unit solely as security for an
obligation. "Unit owner" means the vendee, not the vendor, of a unit
under a real estate contract.
(40) "Useful life" means the estimated time, ((in)) between years,
that ((a reserve component can be expected to serve its intended
function)) major maintenance, repair, or replacement is estimated to
occur.
Sec. 2 RCW 64.34.308 and 1992 c 220 s 15 are each amended to read
as follows:
(1) Except as provided in the declaration, the bylaws, subsection
(2) of this section, or other provisions of this chapter, the board of
directors shall act in all instances on behalf of the association. In
the performance of their duties, the officers and members of the board
of directors are required to exercise: (a) If appointed by the
declarant, the care required of fiduciaries of the unit owners; or (b)
if elected by the unit owners, ordinary and reasonable care.
(2) The board of directors shall not act on behalf of the
association to amend the declaration in any manner that requires the
vote or approval of the unit owners pursuant to RCW 64.34.264, to
terminate the condominium pursuant to RCW 64.34.268, or to elect
members of the board of directors or determine the qualifications,
powers, and duties, or terms of office of members of the board of
directors pursuant to subsection (((6))) (7) of this section; but the
board of directors may fill vacancies in its membership for the
unexpired portion of any term.
(3) Within thirty days after adoption of any proposed budget for
the condominium, the board of directors shall provide a summary of the
budget to all the unit owners and shall set a date for a meeting of the
unit owners to consider ratification of the budget not less than
fourteen nor more than sixty days after mailing of the summary. Unless
at that meeting the owners of units to which a majority of the votes in
the association are allocated or any larger percentage specified in the
declaration reject the budget, the budget is ratified, whether or not
a quorum is present. In the event the proposed budget is rejected or
the required notice is not given, the periodic budget last ratified by
the unit owners shall be continued until such time as the unit owners
ratify a subsequent budget proposed by the board of directors.
(4) As part of the summary of the budget provided to all unit
owners, the board of directors shall disclose to the unit owners:
(a) The current amount of regular assessments budgeted for
contribution to the reserve account, the recommended contribution rate
from the reserve study, and the funding plan upon which the recommended
contribution rate is based;
(b) If additional regular or special assessments are scheduled to
be imposed, the date the assessments are due, the amount of the
assessments per each unit per month or year, and the purpose of the
assessments;
(c) Based upon the most recent reserve study and other information,
whether currently projected reserve account balances will be sufficient
at the end of each year to meet the association's obligation for major
maintenance, repair, or replacement of reserve components during the
next thirty years;
(d) If reserve account balances are not projected to be sufficient,
what additional assessments may be necessary to ensure that sufficient
reserve account funds will be available each year during the next
thirty years, the approximate dates assessments may be due, and the
amount of the assessments per unit per month or year;
(e) The estimated amount recommended in the reserve account at the
end of the current fiscal year based on the most recent reserve study,
the projected reserve account cash balance at the end of the current
fiscal year, and the percent funded at the date of the latest reserve
study;
(f) The estimated amount recommended in the reserve account based
upon the most recent reserve study at the end of each of the next five
budget years, the projected reserve account cash balance in each of
those years, and the projected percent funded for each of those years;
and
(g) If the funding plan approved by the association is implemented,
the projected reserve account cash balance in each of the next five
budget years and the percent funded for each of those years.
(5)(a) Subject to subsection (((5))) (6) of this section, the
declaration may provide for a period of declarant control of the
association, during which period a declarant, or persons designated by
the declarant, may: (i) Appoint and remove the officers and members of
the board of directors; or (ii) veto or approve a proposed action of
the board or association. A declarant's failure to veto or approve
such proposed action in writing within thirty days after receipt of
written notice of the proposed action shall be deemed approval by the
declarant.
(b) Regardless of the period provided in the declaration, a period
of declarant control terminates no later than the earlier of: (i)
Sixty days after conveyance of seventy-five percent of the units which
may be created to unit owners other than a declarant; (ii) two years
after the last conveyance or transfer of record of a unit except as
security for a debt; (iii) two years after any development right to add
new units was last exercised; or (iv) the date on which the declarant
records an amendment to the declaration pursuant to which the declarant
voluntarily surrenders the right to further appoint and remove officers
and members of the board of directors. A declarant may voluntarily
surrender the right to appoint and remove officers and members of the
board of directors before termination of that period pursuant to (i),
(ii), and (iii) of this subsection (((4))) (5)(b), but in that event
the declarant may require, for the duration of the period of declarant
control, that specified actions of the association or board of
directors, as described in a recorded instrument executed by the
declarant, be approved by the declarant before they become effective.
(((5))) (6) Not later than sixty days after conveyance of twenty-five percent of the units which may be created to unit owners other
than a declarant, at least one member and not less than twenty-five
percent of the members of the board of directors must be elected by
unit owners other than the declarant. Not later than sixty days after
conveyance of fifty percent of the units which may be created to unit
owners other than a declarant, not less than thirty-three and one-third
percent of the members of the board of directors must be elected by
unit owners other than the declarant.
(((6))) (7) Within thirty days after the termination of any period
of declarant control, the unit owners shall elect a board of directors
of at least three members, at least a majority of whom must be unit
owners. The number of directors need not exceed the number of units
then in the condominium. The board of directors shall elect the
officers. Such members of the board of directors and officers shall
take office upon election.
(((7))) (8) Notwithstanding any provision of the declaration or
bylaws to the contrary, the unit owners, by a two-thirds vote of the
voting power in the association present and entitled to vote at any
meeting of the unit owners at which a quorum is present, may remove any
member of the board of directors with or without cause, other than a
member appointed by the declarant. The declarant may not remove any
member of the board of directors elected by the unit owners. Prior to
the termination of the period of declarant control, the unit owners,
other than the declarant, may remove by a two-thirds vote, any director
elected by the unit owners.
Sec. 3 RCW 64.34.380 and 2008 c 115 s 1 are each amended to read
as follows:
(1) An association is encouraged to establish a reserve account
with a financial institution to fund major maintenance, repair, and
replacement of common elements, including limited common elements that
will require major maintenance, repair, or replacement within thirty
years. ((A reserve account shall be established in the name of the
association.)) If the association establishes a reserve account, the
account must be in the name of the association. The board of directors
is responsible for administering the reserve account.
(2) Unless doing so would impose an unreasonable hardship, an
association shall prepare and update a reserve study, in accordance
with the association's governing documents and RCW 64.34.224(1). The
initial reserve study must be based upon a visual site inspection
conducted by a reserve study professional.
(3) Unless doing so would impose an unreasonable hardship, the
association shall update the reserve study annually. At least every
three years, an updated reserve study must be prepared and based upon
a visual site inspection conducted by a reserve study professional.
(4) This section and RCW 64.34.382 through ((64.34.390)) 64.34.392
apply to condominiums governed by chapter 64.32 RCW or this chapter and
intended in whole or in part for residential purposes. These sections
do not apply to condominiums consisting solely of units that are
restricted in the declaration to nonresidential use. An association's
governing documents may contain stricter requirements.
Sec. 4 RCW 64.34.382 and 2008 c 115 s 2 are each amended to read
as follows:
(1) A reserve study as described in RCW 64.34.380 is supplemental
to the association's operating and maintenance budget. In preparing a
reserve study, the association shall estimate the anticipated major
maintenance, repair, and replacement costs, whose infrequent and
significant nature make them impractical to be included in an annual
budget.
(2) A reserve study ((shall)) must include:
(a) A reserve component list, including roofing, painting, paving,
decks, siding, plumbing, windows, and any other building component that
would cost more than one percent of the annual budget for major
maintenance, repair, or replacement. If one of these reserve
components is not included in the reserve study, the study should
provide commentary explaining the basis for its exclusion. The study
must also include quantities and estimates for the useful life of each
reserve component, remaining useful life of each reserve component, and
current repair and replacement cost for each component;
(b) The date of the study and a statement that the study meets the
requirements of this section;
(c) The following level of reserve study performed:
(i) Level I: Full reserve study funding analysis and plan;
(ii) Level II: Update with visual site inspection; or
(iii) Level III: Update with no visual site inspection;
(d) The association's reserve account balance;
(e) The percentage of the fully funded balance that the reserve
account is funded;
(f) Special assessments already implemented or planned;
(g) Interest and inflation assumptions;
(h) Current reserve account contribution rate;
(i) A recommended reserve account contribution rate, a contribution
rate for a full funding plan to achieve one hundred percent fully
funded reserves by the end of the thirty-year study period, a baseline
funding plan to maintain the reserve balance above zero throughout the
thirty-year study period without special assessments, and a
contribution rate recommended by a reserve study professional;
(j) A projected reserve account balance for thirty years and a
funding plan to pay for projected costs from those reserves without
reliance on future unplanned special assessments; and
(k) A statement on whether the reserve study was prepared with the
assistance of a reserve study professional.
(3) A reserve study shall include the following disclosure:
"This reserve study should be reviewed carefully. It may not include all common and limited common element components that will require major maintenance, repair, or replacement in future years, and may not include regular contributions to a reserve account for the cost of such maintenance, repair, or replacement. The failure to include a component in a reserve study, or to provide contributions to a reserve account for a component, may, under some circumstances, require you to pay on demand as a special assessment your share of common expenses for the cost of major maintenance, repair, or replacement of a reserve component."
Sec. 5 RCW 64.34.384 and 2008 c 115 s 3 are each amended to read
as follows:
An association may withdraw funds from its reserve account to pay
for unforeseen or unbudgeted costs that are unrelated to maintenance,
repair, or replacement of the building components. The board of
directors shall record any such withdrawal in the minute books of the
association, cause notice of any such withdrawal to be hand delivered
or sent prepaid by first-class United States mail to the mailing
address of each unit or to any other mailing address designated in
writing by the unit owner, and adopt a repayment schedule not to exceed
twenty-four months unless it determines that repayment within twenty-four months would impose an unreasonable burden on the unit owners.
Payment for major maintenance, repair, or replacement of the building
components out of cycle with the reserve study projections or not
included in the reserve study may be made from the reserve account
without meeting the notification or repayment requirements under this
section.
Sec. 6 RCW 64.34.010 and 2008 c 115 s 7 and 2008 c 114 s 1 are
each reenacted and amended to read as follows:
(1) This chapter applies to all condominiums created within this
state after July 1, 1990. RCW 64.34.040 (separate titles and
taxation), RCW 64.34.050 (applicability of local ordinances,
regulations, and building codes), RCW 64.34.060 (condemnation), RCW
64.34.208 (construction and validity of declaration and bylaws), RCW
64.34.268 (1) through (7) and (10) (termination of condominium), RCW
64.34.212 (description of units), RCW 64.34.304(1) (a) through (f) and
(k) through (((r))) (t) (powers of unit owners' association), RCW
64.34.308(1) (board of directors and officers), RCW 64.34.340
(voting—34.34.390)) 64.34.392 (reserve studies and
accounts), and RCW 64.34.020 (definitions) to the extent necessary in
construing any of those sections, apply to all condominiums created in
this state before July 1, 1990; but those sections apply only with
respect to events and circumstances occurring after July 1, 1990, and
do not invalidate or supersede existing, inconsistent provisions of the
declaration, bylaws, or survey maps or plans of those condominiums.
(2) The provisions of chapter 64.32 RCW do not apply to
condominiums created after July 1, 1990, and do not invalidate any
amendment to the declaration, bylaws, and survey maps and plans of any
condominium created before July 1, 1990, if the amendment would be
permitted by this chapter. The amendment must be adopted in conformity
with the procedures and requirements specified by those instruments and
by chapter 64.32 RCW. If the amendment grants to any person any
rights, powers, or privileges permitted by this chapter which are not
otherwise provided for in the declaration or chapter 64.32 RCW, all
correlative obligations, liabilities, and restrictions in this chapter
also apply to that person.
(3) This chapter does not apply to condominiums or units located
outside this state.
(4) RCW 64.34.400 (applicability—[-relocation assistance]))-relocation
assistance), and RCW 64.34.455 (effect of violations on rights of
action—
Sec. 7 RCW 64.38.010 and 1995 c 283 s 2 are each amended to read
as follows:
For purposes of this chapter:
(1) "Homeowners' association" or "association" means a corporation,
unincorporated association, or other legal entity, each member of which
is an owner of residential real property located within the
association's jurisdiction, as described in the governing documents,
and by virtue of membership or ownership of property is obligated to
pay real property taxes, insurance premiums, maintenance costs, or for
improvement of real property other than that which is owned by the
member. "Homeowners' association" does not mean an association created
under chapter 64.32 or 64.34 RCW.
(2) "Governing documents" means the articles of incorporation,
bylaws, plat, declaration of covenants, conditions, and restrictions,
rules and regulations of the association, or other written instrument
by which the association has the authority to exercise any of the
powers provided for in this chapter or to manage, maintain, or
otherwise affect the property under its jurisdiction.
(3) "Board of directors" or "board" means the body, regardless of
name, with primary authority to manage the affairs of the association.
(4) "Common areas" means property owned, or otherwise maintained,
repaired or administered by the association.
(5) "Common expense" means the costs incurred by the association to
exercise any of the powers provided for in this chapter.
(6) "Residential real property" means any real property, the use of
which is limited by law, covenant or otherwise to primarily residential
or recreational purposes.
(7) "Contribution rate" means, in a reserve study as described in
RCW 64.34.380, the amount contributed to the reserve account so that
the association will have cash reserves to pay major maintenance,
repair, or replacement costs without the need of a special assessment.
(8) "Effective age" means the difference between the estimated
useful life and remaining useful life.
(9) "Fully funded balance" means the current value of the
deteriorated portion, not the total replacement value, of all the
reserve components. The fully funded balance for each reserve
component is calculated by multiplying the current replacement cost of
the reserve component by its effective age, then dividing the result by
the reserve component's useful life. The sum total of all reserve
components' fully funded balances is the association's fully funded
balance.
(10) "Remaining useful life" means the estimated time, in years,
before a reserve component will require major maintenance, repair, or
replacement to perform its intended function.
(11) "Replacement cost" means the current cost of replacing,
repairing, or restoring a reserve component to its original functional
condition.
(12) "Reserve component" means a common element whose cost of
maintenance, repair, or replacement is infrequent, significant, and
impractical to include in an annual budget.
(13) "Reserve study professional" means an independent person who
is suitably qualified by knowledge, skill, experience, training, or
education to prepare a reserve study in accordance with RCW 64.34.380
and 64.34.382.
(14) "Significant assets" means that the current replacement value
of the major reserve components is fifty percent or more of the gross
budget of the association, excluding the association's reserve account
funds.
(15) "Useful life" means the estimated time, between years, that
major maintenance, repair, or replacement is estimated to occur.
Sec. 8 RCW 64.38.025 and 1995 c 283 s 5 are each amended to read
as follows:
(1) Except as provided in the association's governing documents or
this chapter, the board of directors shall act in all instances on
behalf of the association. In the performance of their duties, the
officers and members of the board of directors shall exercise the
degree of care and loyalty required of an officer or director of a
corporation organized under chapter 24.03 RCW.
(2) The board of directors shall not act on behalf of the
association to amend the articles of incorporation, to take any action
that requires the vote or approval of the owners, to terminate the
association, to elect members of the board of directors, or to
determine the qualifications, powers, and duties, or terms of office of
members of the board of directors; but the board of directors may fill
vacancies in its membership of the unexpired portion of any term.
(3) Within thirty days after adoption by the board of directors of
any proposed regular or special budget of the association, the board
shall set a date for a meeting of the owners to consider ratification
of the budget not less than fourteen nor more than sixty days after
mailing of the summary. Unless at that meeting the owners of a
majority of the votes in the association are allocated or any larger
percentage specified in the governing documents reject the budget, in
person or by proxy, the budget is ratified, whether or not a quorum is
present. In the event the proposed budget is rejected or the required
notice is not given, the periodic budget last ratified by the owners
shall be continued until such time as the owners ratify a subsequent
budget proposed by the board of directors.
(4) As part of the summary of the budget provided to all owners,
the board of directors shall disclose to the owners:
(a) The current amount of regular assessments budgeted for
contribution to the reserve account, the recommended contribution rate
from the reserve study, and the funding plan upon which the recommended
contribution rate is based;
(b) If additional regular or special assessments are scheduled to
be imposed, the date the assessments are due, the amount of the
assessments per each owner per month or year, and the purpose of the
assessments;
(c) Based upon the most recent reserve study and other information,
whether currently projected reserve account balances will be sufficient
at the end of each year to meet the association's obligation for major
maintenance, repair, or replacement of reserve components during the
next thirty years;
(d) If reserve account balances are not projected to be sufficient,
what additional assessments may be necessary to ensure that sufficient
reserve account funds will be available each year during the next
thirty years, the approximate dates assessments may be due, and the
amount of the assessments per owner per month or year;
(e) The estimated amount recommended in the reserve account at the
end of the current fiscal year based on the most recent reserve study,
the projected reserve account cash balance at the end of the current
fiscal year, and the percent funded at the date of the latest reserve
study;
(f) The estimated amount recommended in the reserve account based
upon the most recent reserve study at the end of each of the next five
budget years, the projected reserve account cash balance in each of
those years, and the projected percent funded for each of those years;
and
(g) If the funding plan approved by the association is implemented,
the projected reserve account cash balance in each of the next five
budget years and the percent funded for each of those years.
(5) The owners by a majority vote of the voting power in the
association present, in person or by proxy, and entitled to vote at any
meeting of the owners at which a quorum is present, may remove any
member of the board of directors with or without cause.
NEW SECTION. Sec. 9 A new section is added to chapter 64.38 RCW
to read as follows:
(1) An association is encouraged to establish a reserve account
with a financial institution to fund major maintenance, repair, and
replacement of common elements, including limited common elements that
will require major maintenance, repair, or replacement within thirty
years. If the association establishes a reserve account, the account
must be in the name of the association. The board of directors is
responsible for administering the reserve account.
(2) Unless doing so would impose an unreasonable hardship, an
association with significant assets shall prepare and update a reserve
study, in accordance with the association's governing documents and
this chapter. The initial reserve study must be based upon a visual
site inspection conducted by a reserve study professional.
(3) Unless doing so would impose an unreasonable hardship, the
association shall update the reserve study annually. At least every
three years, an updated reserve study must be prepared and based upon
a visual site inspection conducted by a reserve study professional.
(4) The decisions relating to the preparation and updating of a
reserve study must be made by the board of directors in the exercise of
the reasonable discretion of the board. The decisions must include
whether a reserve study will be prepared or updated, and whether the
assistance of a reserve study professional will be utilized.
NEW SECTION. Sec. 10 A new section is added to chapter 64.38 RCW
to read as follows:
(1) A reserve study as described in section 9 of this act is
supplemental to the association's operating and maintenance budget. In
preparing a reserve study, the association shall estimate the
anticipated major maintenance, repair, and replacement costs, whose
infrequent and significant nature make them impractical to be included
in an annual budget.
(2) A reserve study must include:
(a) A reserve component list, including roofing, painting, paving,
decks, siding, plumbing, windows, and any other building component that
would cost more than one percent of the annual budget for major
maintenance, repair, or replacement. If one of these reserve
components is not included in the reserve study, the study should
provide commentary explaining the basis for its exclusion. The study
must also include quantities and estimates for the useful life of each
reserve component, remaining useful life of each reserve component, and
current major maintenance, repair, or replacement cost for each reserve
component;
(b) The date of the study, and a statement that the study meets the
requirements of this section;
(c) The following level of reserve study performed:
(i) Level I: Full reserve study funding analysis and plan;
(ii) Level II: Update with visual site inspection; or
(iii) Level III: Update with no visual site inspection;
(d) The association's reserve account balance;
(e) The percentage of the fully funded balance that the reserve
account is funded;
(f) Special assessments already implemented or planned;
(g) Interest and inflation assumptions;
(h) Current reserve account contribution rates for a full funding
plan, threshold funding plan, and baseline funding plan;
(i) A recommended reserve account contribution rate, a contribution
rate for a full funding plan to achieve one hundred percent fully
funded reserves by the end of the thirty-year study period, a baseline
funding plan to maintain the reserve balance above zero throughout the
thirty-year study period without special assessments, and a
contribution rate recommended by the reserve study professional;
(j) A projected reserve account balance for thirty years and a
funding plan to pay for projected costs from that reserve account
balance without reliance on future unplanned special assessments; and
(k) A statement on whether the reserve study was prepared with the
assistance of a reserve study professional.
(3) A reserve study must also include the following disclosure:
"This reserve study should be reviewed carefully. It may not include
all common and limited common element components that will require
major maintenance, repair, or replacement in future years, and may not
include regular contributions to a reserve account for the cost of such
maintenance, repair, or replacement. The failure to include a
component in a reserve study, or to provide contributions to a reserve
account for a component, may, under some circumstances, require you to
pay on demand as a special assessment your share of common expenses for
the cost of major maintenance, repair, or replacement of a reserve
component."
NEW SECTION. Sec. 11 A new section is added to chapter 64.38 RCW
to read as follows:
An association may withdraw funds from its reserve account to pay
for unforeseen or unbudgeted costs that are unrelated to maintenance,
repair, or replacement of the building components. The board of
directors shall record any such withdrawal in the minute books of the
association, cause notice of any such withdrawal to be hand delivered
or sent prepaid by first-class United States mail to the mailing
address of each unit or to any other mailing address designated in
writing by the unit owner, and adopt a repayment schedule not to exceed
twenty-four months unless it determines that repayment within twenty-four months would impose an unreasonable burden on the unit owners.
Payment for major maintenance, repair, or replacement of the building
components out of cycle with the reserve study projections or not
included in the reserve study may be made from the reserve account
without meeting the notification or repayment requirements under this
section.
NEW SECTION. Sec. 12 A new section is added to chapter 64.38 RCW
to read as follows:
(1) When more than three years have passed since the date of the
last reserve study prepared by a reserve study professional, the owners
of the units to which at least twenty percent of the votes are
allocated may demand, in writing, to the association that the cost of
a reserve study be included in the next budget and that the study be
prepared by the end of that budget year. The written demand must refer
to this section. The board of directors shall, upon receipt of the
written demand, provide the owners who make the demand reasonable
assurance that the board will include a reserve study in the next
budget and, if the budget is not rejected by the owners, will arrange
for the completion of a reserve study.
(2) If a written demand under this section is made and a reserve
study is not timely prepared, a court may order specific performance
and award reasonable attorneys' fees to the prevailing party in any
legal action brought to enforce this section. An association may
assert unreasonable hardship as an affirmative defense in any action
brought against it under this section. Without limiting this
affirmative defense, an unreasonable hardship exists where the cost of
preparing a reserve study would exceed ten percent of the association's
annual budget.
(3) An owner's duty to pay for common expenses is not excused
because of the association's failure to comply with this section or
this chapter. A budget ratified by the owners is not invalidated
because of the association's failure to comply with this section or
this chapter.
NEW SECTION. Sec. 13 A new section is added to chapter 64.38 RCW
to read as follows:
Monetary damages or any other liability may not be awarded against
or imposed upon the association, the officers or board of directors of
the association, or those persons who may have provided advice or
assistance to the association or its officers or directors, for failure
to: Establish a reserve account; have a current reserve study prepared
or updated in accordance with the requirements of this chapter; or make
the reserve disclosures in accordance with this chapter.
NEW SECTION. Sec. 14 A new section is added to chapter 64.38 RCW
to read as follows:
An association is not required to follow the requirements under RCW
64.38.025 and sections 9 through 13 of this act if the cost of the
reserve study exceeds ten percent of the association's annual budget.