Comprehensive Changes to Ohio’s Condominium Law

Ohio's new condominium law becomes effective on July 20, 2004. In many ways, the new law reflects the current real estate development trends by re-defining terms to better reflect their respective definitions. The new law also reflects current trends by adding flexibility to the administration of unit owner's associations and adding requirements to better protect the unit owners. Finally, the new condominium law adds flexibility for mixed-use developments, and it increases the developer's disclosure requirements in connection with sales to prospective residential owners.

Definitional Changes. The new law redefines terms used in the industry. No longer will we refer to the "common areas and facilities" because now the term used is "common elements." Although the terminology has changed, the definition of "common elements" is the same as the definition for common areas. Likewise, what was "limited common areas" are now referred to as "limited common elements." A new term added to the law, which is similar in definition to limited common elements, is "exclusive use area," which means the common elements that the declaration reserves for delegation by the board of directors to the use of a certain unit or units, to the exclusion of other units. An owner's interest in the common elements will be referred to as an "undivided interest," instead of the previous definition of a "percentage interest." And, finally, the new law replaces the term "board of managers" of a unit owner's association with the term "board of directors" of a unit owner's association as that term more accurately reflects the corporate governance.

Association's Initial Organization. The new law extends the time for the first meeting of a unit owner's association to elect 1/3 of the members of the board of directors to 60 days after the developer has sold or conveyed condominium ownership interests appertaining to 25% of the undivided interests in the common elements. The new law also precludes the extension of the authorization for developer control of a unit owner's association more than five years after the association is established if the declaration includes expandable condominium property or more than three years otherwise.

Additionally, the new law requires a declarant or developer to provide complete and correct copies of records, minutes, and condominium documents to the board of directors upon the board taking control of the unit owner's association and permits members of the association to examine and copy the records and documents except certain information from them. This change attempts to better equip the newly organized board of directors when taking over the association's administration from the the declarant or the developer.

Association Management. The new law modifies a unit owner's association's administration of condominium property to specify, among others, that generally all its meetings are open to the unit owners, that those present in person or by proxy when action is taken at a meeting constitute a sufficient quorum, and that meetings may be held by any method of communication, including electronic or telephonic communication, subject to certain conditions. The quorum requirement modification is an enormous attempt to eliminate the dilemma that the board of directors often face when unit owners are unwilling to attend the association's meetings. Also, by specifically authorizing electronic communication, the new law makes it easier for the board of directors to hold meetings and meet the newly-relaxed quorum requirements. This up-dated law also adds clarity of what is legally permissible when preparing and scheduling for an owner's meeting.

Also with respect to corporate governance of the owner's association, the new law attempts to up-date the association's regulations by modifying the required contents of bylaws governing the condominium property and additionally adds flexibility in the administration by specifying that administrative rules may govern any aspect of that property not required to be governed by the bylaws. Also with respect to corporate governance, the new law generally requires a unit owner's association to adopt and amend budgets and to collect assessments for common expenses from unit owners, whereas previously, such actions were usually permissible, but not mandatory. Specifically, the new laws provides that unless otherwise provided in the declaration or bylaws, the unit owner's association, through the board of directors, must do both of the following:* (1) adopt and amend budgets for revenues, expenditures, and reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments, provided that the amount set aside annually for reserves must not be less than 10% of the budget for that year unless the reserve requirement is waived annually by the unit owners exercising not less than a majority of the voting power of the unit owner's association; and (2) collect assessments for common expenses from unit owners. Now, the board of directors has the mandate and framework to keep the association operating.

The new law further establishes procedures, including providing written notice and an opportunity for a hearing, prior to a board of directors imposing a charge on a unit owner for damages or an enforcement assessment for a violation of the declaration, bylaws, or rules. This change is a public policy decision to build in checks and balances in the corporate governance. While giving the unit owner additional protection, the new law also requires the unit owner to provide specified information regarding his/her home and business addresses to the unit owner's association.

Condominiumizing Mixed-Use Developments. The new condominium law contemplates a mixed-use development as seen by the commercial, retail and residential specifically defined rights, as well as the concept that the air rights above a specific unit may be a separate parcel for taxing purposes. This inclusion in the statute of an "air rights" parcel as separate from the land opens up the opportunity for various financing options, which in turn creates a variety of opportunities to develop the separate air-rights parcel to better suit the needs of the over-all condominium design.

Developer's Disclosure Requirements. Newly amended O.R.C. Section 5311.26 prohibits any developer (or his agent) from selling an interest in residential condominium property unless certain disclosures are made to the prospective purchaser of a disclosure statement that discloses fully and accurately all material circumstances or features affecting the development in a readable and understandable written statement. Newly revised Section 5311.26 states that the disclosure statement shall not intentionally omit any material fact or contain any untrue statement of a material fact. Additionally, to comply with the statute, the disclosure statement must contain certain information set out in the statute, which now includes the following: whether the developer is required to construct recreational facilities or other common elements; a two-year projection, revised and updated within the past year if changed, unless the developer no longer controls the association, of annual expenditures necessary to operate and maintain the common elements of the condominium development and the cost of any mandatory dues and membership in a not-for-profit organization described in O.R.C. Section 5311.05(B)(9),** and the projection is to be prepared by the developer, specifically state the assumptions and bases of the projection, and include a complete statement of the estimated monthly cost per unit for the two-year period, including all of the items listed in Section 5311.26(F)(1) through (5)***; for a conversion condominium development, the offering price of each unsold unit or type of unsold unit; and a statement of the requirement for escrow of deposits and the right of the developer to use all or any part of these.

Conclusion. Ohio's newly enacted condominium law provides a better framework for developing land with shared ownership interest from the beginning of the process, by requiring the developer to make certain disclosures, to the initial organization of the unit owner's association, to the administration of the board of directors by requiring management standards.

For more information concerning Ohio's Condominium Law, please contact Jennifer L. Stueber: jlstue@climacolaw.com