Developmental plan-proposed conums. The declaration or other leenforceable and binding documust state in a reasonable mane overall development plan of the ninium, including building architectural style and the size units for those phases of the conium which are required to be Under the applicable provisions declaration or such other legally eable and binding document, the pment of the required portion of ndominium must be consistent he overall plan, except that the ant may reserve the right to e the overall plan or decide not struct planned units or improveto the common elements if the ation sets forth the conditions ed to be satisfied prior to the exof that right the time within the right may be exercised, and her limitations and criteria that be necessary or appropriate the particular circumstances. conditions, time restraints and limitations must be reasonable ht of the overall plan for the conium. In an expandable project, onal phases which are not reto be built may be described in evelopment plan in very general , or the declaration may provide the declarant makes no assurconcerning the construction, ng types, architectural style and of the units, etc. of these phases. ver, the minimum number of to be built should be that which I be adequate to reasonably supthe common elements. (See

=60(a)(6).)

oved by the Office of Management and t under control number 2900-0448)

ority: 38 U.S.C. 501, 3703(c)(1), 3710(a)(6)) R 47339, Aug. 13, 1979, as amended at 50 79, Feb. 13, 1985; 50 FR 26359, June 26,

358 Rights and restrictions.

Declarant's rights and restrictions— Disclosure and reasonableness of red rights. Any right reserved by the arant must be reasonable and set in the declaration.

Examples of reserved rights of deant, sponsor, or affiliate of declarant

which are usually unacceptable. Binding the owners' association either directly or indirectly to any of the following agreements is not acceptable unless the owner's association shall have a right of termination thereof which is exercisable without penalty at any time after transfer of control, upon not more than 90 days' notice to the other party thereto:

(i) Any management contract, employment contract or lease of recreational or parking areas or facilities; (ii) Any contract or lease, including franchises and licenses, to which a declarant is a party.

The requirements of paragraphs (a)(2)(i) and (ii) of this section do not apply to acceptable ground leases.

(3) Examples of reserved rights which are usually acceptable. The following rights in the common elements may usually be reserved by the declarant for a reasonable period of time, subject to a concomitant obligation to restore:

(i) Easement over and upon the common elements and upon lands appurtenant to the condominium for the purpose of completing improvements for which provision is made in the declaration, but only if access thereto is otherwise not reasonably available.

(ii) Easement over and upon the common elements for the purpose of making repairs required pursuant to the declaration or contracts of sale made with unit purchasers.

(iii) Right to maintain facilities in the common areas which are identified in the declaration and which are reasonably necessary to market the units. These may include sales and management offices, model units, parking areas, and advertising signs.

(Authority: 38 U.S.C. 501, 3703(c)(1), 3710(a)(6))

(b) Owners' association's rights and restrictions (1) Right of entry upon units and limited common elements. The owners' association shall be granted a right of entry upon unit premises and any limited common elements to effect emergency repairs, and a reasonable right of entry thereupon to effect other repairs, improvements, replacement or maintenance as necessary.

(2) Power to grant rights and restrictions in common elements. The owners' association should be granted other

197-135 D-22

rights, such as the right to grant utility easements under, through or over the common elements, which are reasonably necessary to the ongoing development and operation of the project.

(3) Responsibility for damage to common elements and units. A provision may be made in the declaration or bylaws for allocation of responsibility for damages resulting from the exercise of any of the above rights.

(4) Assessments-(i) Levy and collection. The declaration or its equivalent shall describe the authority of the owners' association to levy and enforce the collection of general and special assessments for common expenses and shall describe adequate remedies for failure to pay such common expenses. The common expenses assessed against any unit, with interest, late charges, costs and a reasonable attorney's fee shall be a lien upon such unit in accordance with applicable law. Each such assessment, together with interest, late charges, costs, and attorney's fee, shall also be the personal obligation of the person who was the owner of such unit at the time the assessment fell due. The personal obligation for delinquent assessments shall not pass to successors in title or interest unless assumed by them, or required by applicable law. Common expenses as used in this subdivision shall mean expenditures made or liabilities incurred by or on behalf of the owners' association, together with any assessments for the creation and maintenance of reserves.

(ii) Reserves and working capital. There shall be in new or proposed condominium projects (including conversions) a provision for an adequate reserve fund for the periodic maintenance, repair and replacement of the common elements, which fund shall be maintained out of regular assessments for common expenses. Additionally, a working capital fund must be established for the initial months of the project operations equal to at least a 2 months' estimated common area charge for each unit.

(iii) Priority of lien. Any assessment lien must be subordinate to any Department of Veterans Affairs guaranteed mortgage except as provided in § 36.4352. A lien for common expense charges and assessments shall not be

affected by any sale or transfer of a unit except that a sale or transfer pur suant to a foreclosure of a first mort gage shall extinguish a subordinate lien for common expense charges and assessments which became payable prior to such sale or transfer. Any such sale or transfer pursuant to a fore closure shall not relieve the purchasere di or transferee of a unit from liability for, nor the unit so sold or transferre from the lien of, any common expens charges thereafter becoming due.

(Authority: 38 U.S.C. 501, 3703(c)(1), (d)(3). 3710(a)(6))

(c) Unit owners' rights and restric tions (1) Obligation to pay expenses. The declaration or equivalent documen shall establish a duty on each uni owner, including the declarant, to pay a proportionate share of common ex penses upon being assessed therefor by the owners' association. Such shar may be allocated equally to each unit. may be proportionate to that unit') common element interest, relative siz or value, or may be allocated according to any other specified criteria provided that the method chosen is equitable and reasonable for that condominium.

(2) Voting rights. The declaration o equivalent document shall allocate a portion of the votes in the association to each unit. Such portion may be allo cated equally to each unit, may be proportionate to that unit's common expense liability, common element interest, relative size or value, or may be allocated according to any other speci-s fied criteria provided that the method is equitable and reasonable for that condominium. The declaration may provide different criteria for allocations of votes to the units on particular specified matters and may also provide different percentages of required unit owner approvals for such particular specified matters.

(3) Ingress and egress of unit owners. F There may not be any restriction upon any unit owner's right of ingress and egress to his or her unit.

(4) Encroachments-units and common elements (i) Easements for encroach-` ments. In the event any portion of the common elements encroaches upon any unit or any unit encroaches upon the common elements or another unit as a

३

of the construction, reconstrucrepair, shifting, settlement, or nent of any portion of the imnents, a valid easement for the ichment and for the maintenance same shall exist so long as the achment exists. The declaration rovide, however, reasonable limthe extent of any easement creby the overlap of units, common nts, and limited common eles resulting from such encroach1; or

Monuments as boundaries. If perd by the governing law within the iction where the project is lothe existing physical boundaries nit or a common element or the cal boundaries of a unit or a comelement reconstructed in substanccordance with the original plats plans thereof become its boundrather than the metes and bounds ssed in the deed, plat or plan, reess of settling or lateral moveof the building, or minor variance en boundaries shown on the plats, or in the deed and those of the ing. The declaration should proreasonable limits on the extent of such revised boundary(ies) created he overlap of units, common eles, and limited common elements ting from such encroachments. Right of first refusal. The right of a owner to sell, transfer, or otherconvey his or her unit in a condoum shall not be subject to any of first refusal or similar restricif the declaration or similar docut is recorded on or after December 76. If the declaration was recorded r to December 1, 1976, the right of refusal must comply with 1350(b)(5)(ii); Provided, however, rections on the basis of age or restrics established by a State, Terrial, or local government agency as = of a program for providing assistto low- and moderate-income pursers shall be governed 4350(b)(5)(iv).

thority: 38 U.S.C. 3703(c))

by

5) Leasing restrictions. Except as proed in this paragraph, there shall be prohibition or restriction on a conminium unit owner's right to lease

his or her unit. The following restrictions are acceptable:

(i) A requirement that leases have a minimum initial term of up to 1 year,

or

(ii) Age restrictions or restrictions imposed by State or local housing authorities which are allowable under §36.4308(e) or § 36.4350(b)(5)(iv).

(d) Rights of action. The owners' association and any aggrieved unit owner should be granted a right of action against unit owners for failure to comply with the provisions of the declaration, bylaws, or equivalent documents, or with decisions of the owners' association which are made pursuant to authority granted the owners' association in such documents. Unit owners should have similar rights of action against the owners' association.

(Authority: 38 U.S.C. 501, 3703(c)(1), 3710(a)(6)) [44 FR 47339, Aug. 13, 1979, as amended at 47 FR 49394, Nov. 1, 1982; 50 FR 5979, Feb. 13, 1985]

§ 36.4359 Miscellaneous legal require

ments.

(a) Declarant transfer of control of owners' association—(1) Standards for transfer of control. The declarant shall relinquish all special rights, expressed or implied, through which the declarant may directly or indirectly control, direct, modify, or veto any action of the owners' association, its executive board, or a majority of unit owners, and control of the owners' association shall pass to the owners of units within the project, not later than the earlier of the following:

(i) 120 days after the date by which 75 percent of the units have been conveyed to unit purchasers, or

(ii) The last date of a specified period of time following the first conveyance to a unit purchaser; such period of time is to be reasonable for the particular project. The maximum acceptable period usually will be from 3 to 5 years for single-phased condominium regimes and 5 to 7 years for expandable condominiums.

(iii) On a case basis, modifications or variations of the requirements of paragraphs (a)(1)(i) and (ii) of this section

will be acceptable, particularly in circumstances involving very large condominium developments.

(2) Declarant's unit votes after transfer of control. The requirements of paragraph (a)(1) of this section shall not affect the declarant's rights, as a unit owner, to exercise the votes allocated to units which declarant owns.

(3) Unit owners' participation in management. Declarants should provide for and foster early participation of unit Owners in the management of the project.

(b) Taxes. Unless otherwise provided by State law, real estate taxes must be assessed and be lienable only against the individual units, together with their undivided interests in the common elements, and not against the multifamily structure. The owners' association usually owns no real estate, so it has no obligation concerning ad valorem taxes. Unless taxes are assessed only against the individual units, a tax lien could amount to more than the value of any particular unit in the structure.

(c) [Reserved]

(d) Policies for bylaws. The bylaws of the condominium should be sufficiently detailed for the successful governance of the condominium by unit owners. Among other things, such documents should contain adequate provisions for the election and removal of directors and officers.

(e) Insurance and related requirements (1) Insurance. The holder shall require hazard and flood insurance policies to be procured and maintained in accordance with §36.4326. Because of the nature of condominiums, additional types of insurance coveragessuch as tort liability insurance for injuries sustained on the premises, personal liability insurance for directors and officers managing association affairs, boiler insurance, etc.-should be considered in appropriate circumstances.

(2) Fidelity bond coverage. The securing of appropriate fidelity bond coverage is recommended but not required, for any person or entity handling funds of the owners' association, including, but not limited to, employees of the professional managers. Such fidelity bonds should name the association as

an obligee, and be written in an amount equal to at least the estimated maximum of funds, including reserve funds, in the custody of the owners' association or the management agent at any given time during the term of the fidelity bond. However, the bond should not be less than a sum equal to 3 months' aggregate assessments on all units plus reserve funds.

(Authority: 38 U.S.C. 501, 3703(c)(1), 3710(a)(6)) [44 FR 47340, Aug. 13, 1979, as amended at 50 FR 5979, Feb. 13, 1985]

$36.4360 Documentation and related requirements-flexible condomin iums and condominiums with off. site facilities.

(a) Expandable condominiums. The following policies apply to condominium regimes which may be increased in size by the declarant:

(1) The declarant's right to expand the regime must be fully described in the declaration. The declaration must contain provisions adequate to ensure that future improvements to the condominium will be consistent with initial improvements in terms of quality of construction. The declarant must build each phase in accordance with an approved general plan for the total development (§ 36.4357(d)(2)) supported by detailed plats and plans of each phase prior to the construction of the particular phase.

(2) The reservation of a right to expand the condominium regime, the method of expansion and the result of an expansion must not affect the statutory validity of the condominium regime or the validity of title to the units.

(3) The declaration or equivalent document must contain a convenant that the condominium regime may not be amended or merged with a successor condominium regime without prior written approval of the Secretary. The declarant may have the proposed legal documentation to accomplish the merger reviewed prior to recordation. However, the Secretary's final approval of the merger will not be granted until the successor condominium has been legally established and construction completed. The declarant may add phases to an expandable condominium regime without the prior approval of

the Secretary if the phasing implements a previously approved general plan for the total development. A copy of the amendment to the declaration or other annexation document which adds each phase must be submitted to the Secretary in accordance with §36.4360a(b)(6).

(4) Liens arising in connection with the declarant's ownership of, and construction of improvements upon, the property to be added must not adversely affect the rights of existing unit owners, or the priority of first mortgages on units in the existing condominium property. All taxes, assessments, mechanic's liens, and other charges affecting such property, covering any period prior to the addition of the property, must be paid or otherwise satisfactorily provided for by the declarant.

(5) The declarant must purchase (at declarant's own expense) a general liability insurance policy in an amount not less than $1 million for each occurrence, to cover any liability which owners of previously sold units are exposed to as a result of further condominium project development.

(6) Each expandable project shall have a specified maximum number of units which will give each unit owner a minimum percentage of interest in the common elements. Each project shall also have a specified minimum number of units which will give each unit owner a maximum percentage of interest in the common elements. The min¡imum number of units to be built should be that which would be adequate to reasonably support the common elements. The maximum number of units to be built should be that which would not overload the capacity of the common facilities. The maximum possible percentage(s) and the minimum possible percentage(s) of undivided interest in the common elements for each type of unit must be stated in the declaration or equivalent document.

(7) The declaration or equivalent document shall set forth clearly the basis for reallocation of unit owner's ownership interests, common expense liabilities and voting rights in the event the number of units in the condominium is increased. Such reallocation shall be

according to the applicable criteria set forth in §§ 36.4357(b) and 36.4358(c)(1) and (2).

(8) The declarant's right to expand the condominium must be for a reasonable period of time with a specific ending date. The maximum acceptable period will usually be from 5 to 7 years after the date of recording the declaration. On a case basic, longer periods of expansion rights will be acceptable, particularly in circumstances involving sizable condominium developments.

(b) Series projects. (1) Each phase in the series approach is to be considered as a separate project. A separate set of legal documents must be filed for each phase or project that relates to the condominium within its own boundary. The declaration for each phase must describe the particular project as a part of the whole development area, but subject only the one phase to the condominium regime. A separate unit ratio must be established that would relate each unit to all units of the particular condominium for purposes of ownership in the common areas, voting rights and assessment liability. A separate association may be created to govern the affairs of each condominium. Each phase is subject to a separate presale requirement.

(2) In the case of proposed projects, or projects under construction, the declaration should state the number of total units that the developer intends to build on other sections of the development area.

(c) Other flexible condominiums. Condominiums containing withdrawable real estate (contractable condominiums) and condominiums containing convertible real estate (portions of the condominium within which additional units or limited common elements, or both, may be created) will be considered acceptable provided the flexible complies with the

condominium §36.4300 series.

(Authority: 38 U.S.C. 501, 3703(c)(1), 3710(a)(6)) (Approved by the Office of Management and Budget under control number 2900-0448)

[44 FR 47341, Aug. 13, 1979, as amended at 50 FR 5980, Feb. 13, 1985; 50 FR 26359, June 26, 1985]