Spring 2003-01 New condominium law enacted

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Number 51
Spring 2003

New condominium law enacted

The long awaited changes to the Horizontal Property Law have finally arrived. Pursuant to Puerto Rico Law Number 103 of April 5, 2003, effective July 2, 2003, the law will be referred to as the "Condominium Law."

The new law includes various changes that strive to facilitate the management and administration of condominiums, imposes certain new obligation on developers, strengthens and increases enforcement provisions, and, in general, seeks to improve living conditions within condominium properties.

Of interest to developers

The amendments to the law include a number of provisions which will be of interest to developers, who will have to comply with the same. These new obligations are:

The developer must obtain a bond in a minimum amount of $25,000, to cover any wrongful or negligent acts which may occur while the developer is responsible for the interim administration of the newly-constructed building.

The developer must, at the closing of each condominium unit, charge the purchaser three months of maintenance expense, which correspond to one month's quota in advance and two additional months. These will be a special contribution to the reserve fund to be established.

With respect to the obligation for payment of the maintenance expenses, the developer is given the following two options:

m the developer may assume the expenses of maintaining the property until such time as 51% of the units are sold; or

m the developer may, starting from the very first sale, charge each new purchaser his or her respective share of the common expenses, while at the same time contributing the proportionate share corresponding to the unsold units.

4 Note:

While at first sight the second option appears to be more advantageous for a developer, due to the fact that purchasers begin contributing to the common expenses as soon as possible, the first option seems to provide more flexibility to the developer, in that, as long as it is carrying the costs of the maintenance of the building, the developer does not have to render audited reports of income and expenses. Under the second option, in order to charge the purchasers their proportionate share, the developer has to prepare an annual budget and stick to the same.

Important to note is that with respect to the definition of what constitutes "unsold units" for purposes of the developer having to contribute a portion of the maintenance expenses, the Puerto Rico Supreme Court in the case of Asociación de Condóminos Condominio Balcones de Santa María v. Los Frailes, 2001 JTS 120 (decided under the current law), concluded that the developer has the obligation to pay for all units that have not yet been sold, even if said units have not been individualized or even constructed, as long as their boundaries and measurements appear clearly from the corresponding plans and permits.

Enforcement mechanisms

Other provisions of the new law seek to add teeth to the enforcement mechanisms available to the administration of the condominium. For instance, the current law provides for the right of the administration to suspend utility and other services that reach the units through common elements, such as pipes and electrical conduits, after an owner fails to pay the maintenance quota for three or more months. The new law provides that such services may be suspended after only two months of lack of payment, or after two months have expired from the date established for a special levy ("derrama"). Also, the new law provides that such services need not be reestablished until full payment of the debt is made. This change seeks to combat habitual violators who have gotten around the current law's provision by always keeping a running balance which is close to, but not quite, three months' quota, always paying only one month, so as to outrun the grasp of the law.

Furthermore, the law now provides a harsh penalty for those who take corrective measures into their own hands, or use others to reinstall the utility services prior to bringing their account current. These persons may be subject to a penalty equal to three times the amount they are owing (principal and interest) at the time.

The new law also grants the Board of Directors the authority to impose a fine of up to $100.00 (for each violation) on any resident that breaches the Condominium Law, any applicable regulations, the deed constituting the condominium, or the by-laws of the condominium.

Preserve the peace

Other amendment provisions are directed at facilitating resolution of disputes amongst or by residents. These changes include:

A requirement that prior to resorting to a claim before the Department of Consumer Affairs or the courts, a dispute by a resident needs be dealt with internally; specifically, by a reconciliation committee to be appointed by the council of owners.

The establishment of a maximum period of two years for an owner's right to contest decisions or actions taken-or omissions-by the administration or the Board of Directors.

The creation of a new special division within the Department of Consumer Affairs to attend exclusively to condominium matters.

Improve functioning

Some of the amendments consist of various changes to allow for the proper administration of the condominium, as well as to facilitate decision making within the condominium structure. These changes include the following:

The appointment (by the Department of Consumer Affairs or by the courts) of a trustee to act in lieu of a missing Board of Directors, for up to a period of six months.

Voting proxies may only be given to another condominium unit owner or lessee, or to a close family member. Some proxies must have the form of a notarized power of attorney.

Five percent of the monthly maintenance quotas received must be placed in the reserve account, to provide a source of payment for unforeseen, extraordinary expenses, as well as to diminish the need for large special levies on condominium owners.

Common areas

The new law divides "common areas" into two categories:

those that are "general necessary common elements," which are not susceptible to be dedicated to the use of particular owners, but rather considered as undivided common ownership areas; and

those that are "general common areas," the use of which may be adjudicated to particular unit owners by way of the condominium deed, or by unanimous decision of the owners.

Parking

Parking spaces are also contemplated, such as the ability to allow the use of parking in the entrance areas, as long as the right to use these is distributed amongst the owners in a fair manner, such as by lottery; and the ability to use other common areas for parking, as long as the green areas of the condominium are not substantially affected and the necessary permits are obtained.

4 Note:

All in all, it seems that the legislature did its best to address the most prevalent and difficult problems confronting condominium life, while at the same time balancing the sometimes conflicting interests of the developer, the unit owners and building management. However, as is usually the case when many people are living relatively close together, disputes will invariably arise. Therefore, perhaps one of the more important aspects of the new legislation is the regular and effective use of the conciliatory committees within the individual condominiums. One thing is certain: the SAGA shall continue! n


© 2003 Goldman Antonetti