PRINTER'S NO. 2044
No. 1662 Session of 2001
INTRODUCED BY T. STEVENSON, LEWIS, PIPPY, McNAUGHTON, MARSICO,
YOUNGBLOOD, WATSON, WALKO, TIGUE, CALTAGIRONE, B. SMITH AND
BIRMELIN, MAY 23, 2001
REFERRED TO COMMITTEE ON URBAN AFFAIRS, MAY 23, 2001
AN ACT
1 Amending Title 68 (Real and Personal Property) of the
2 Pennsylvania Consolidated Statutes, further providing for
3 real estate cooperatives.
4 The General Assembly of the Commonwealth of Pennsylvania
5 hereby enacts as follows:
6 Section 1. Section 4102(b) of Title 68 of the Pennsylvania
7 Consolidated Statutes is amended to read:
8 § 4102. Applicability of subpart.
9 * * *
10 (b) Existing cooperatives.--Except as provided in subsection
11 (c), sections 4106, 4107, 4108 (relating to supplemental general
12 principles of law applicable), 4112 (relating to obligation of
13 good faith), 4202 (relating to unit boundaries), 4203 (relating
14 to construction and validity of declaration and bylaws), 4204
15 (relating to description of units), 4216 (relating to amendment
16 of declaration), 4217 (relating to termination of cooperative
17 ownership), 4219 (relating to master associations), 4220
18 (relating to merger or consolidation of cooperatives),
1 4302(a)(1) through (6), (8), (9) and (11) through (17) (relating
2 to powers of association), 4303 (relating to executive board
3 members and officers), 4307 (relating to upkeep of cooperative),
4 4311 (relating to tort and contract liability), 4313 (relating
5 to insurance), 4314 (relating to assessments for common
6 expenses), 4315 (relating to lien for assessments), 4317
7 (relating to association records), 4319 (relating to termination
8 of cooperative interest), 4409 (relating to resales of
9 cooperative interests) and 4415 (relating to effect of
10 violations on rights of action), and section 4103 (relating to
11 definitions) to the extent necessary in construing any of those
12 sections, apply to all cooperatives created in this Commonwealth
13 before the effective date of this subpart, but those sections
14 apply only with respect to events and circumstances occurring
15 after the effective date of this subpart and do not invalidate
16 existing provisions of the cooperative documents of those
17 cooperatives. By compliance with the requirements of section
18 4201 (relating to creation of cooperative ownership), a
19 cooperative created in this Commonwealth before the effective
20 date of this subpart may be made subject to all of the
21 provisions of this subpart, effective as of the date of
22 recordation of the document or documents specified in section
23 4201, without in any way terminating the cooperative status of
24 the property or in any way affecting any lien or encumbrance on
25 the property, if the terms of such document or documents have
26 been approved by all the persons whose actions would have been
27 required to effect the termination of the cooperative pursuant
28 to [its governing documents in effect at the time such approval
29 is given] section 4217, provided, however, that such action
30 shall not increase the obligations or responsibilities of a
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1 declarant, as such and not as a proprietary lessee, without the
2 joinder of the declarant in the document or documents required
3 by section 4201.
4 * * *
5 Section 2. Section 4203 of Title 68 is amended by adding a
6 subsection to read:
7 § 4203. Construction and validity of declaration and bylaws.
8 * * *
9 (e) Interpretation and application of declaration.--The
10 executive board shall have the powers to interpret and apply the
11 declaration and bylaws and to resolve all conflicts or disputes
12 requiring the interpretation and application of the declaration.
13 As between unit owners, the decision of the board shall be final
14 and shall be enforceable at law as a decision of an arbitrator.
15 The executive board and its members shall have no liability for
16 exercising these powers, provided they are exercised in good
17 faith and in the best interest of the association in the manner
18 set forth in section 4303 (relating to executive board members
19 and officers).
20 Section 3. Sections 4216(a) and (f), 4217(a), 4218,
21 4302(a)(4), (6), (8), (12) and (14), and 4303(a) of Title 68 are
22 amended to read:
23 § 4216. Amendment of declaration.
24 (a) Number of votes required.--Except in cases of amendments
25 that may be executed by a declarant under section 4209 (relating
26 to exercise of development rights), the association under
27 section 4107 (relating to eminent domain), 4206(c) (relating to
28 leasehold cooperatives), 4208(c) (relating to limited common
29 elements), 4211(a) (relating to relocation of boundaries between
30 adjoining units) or 4212 (relating to subdivision of units), the
20010H1662B2044 - 3 -
1 executive board of the association under subsection (f) or
2 certain proprietary lessees under section 4208(b), 4211(a),
3 4212(b) or 4217(b) (relating to termination of cooperative
4 ownership), and except as limited by subsection (d), the
5 declaration, including the plats and plans, may be amended only
6 by vote or written agreement of proprietary lessees of
7 cooperative interests to which at least 67% of the votes in the
8 association are allocated [or any larger majority the
9 declaration specifies.], without regard for any larger majority
10 the declaration may specify or the absence of any amendment
11 provisions in the declaration. The declaration may specify a
12 smaller number only if all of the units are restricted
13 exclusively to nonresidential use.
14 * * *
15 (f) Corrective amendments.--Except as otherwise provided in
16 the declaration, if any amendment to the declaration is
17 necessary in the judgment of the executive board to cure any
18 ambiguity or to correct or supplement any provision of the
19 declaration that is defective, missing or inconsistent with any
20 other provision thereof or with this subpart or if an amendment
21 is necessary in the judgment of the executive board to conform
22 to the requirements of any agency or entity that has established
23 national or regional standards with respect to loans secured by
24 mortgages or deeds of trust on units in condominium projects
25 (such as the Federal National Mortgage Association and the
26 Federal Home Loan Mortgage Corporation), to comply with any
27 statute, regulation, code or ordinance applicable to the
28 cooperative or association, or to make a reasonable
29 accommodation or permit a reasonable modification in favor of
30 handicapped, as may be defined by prevailing Federal or State
20010H1662B2044 - 4 -
1 laws or regulations applicable to the association, unit owners,
2 residents or employees, then, at any time and from time to time,
3 the executive board may at its discretion effect an appropriate
4 corrective amendment without the approval of the proprietary
5 lessees or the holders of any liens on all or any part of the
6 cooperative, upon receipt by the executive board of an opinion
7 from independent legal counsel to the effect that the proposed
8 amendment is permitted by the terms of this subsection.
9 § 4217. Termination of cooperative ownership.
10 (a) Number of votes required.--[Except:] Without regard for
11 the provisions of any declaration purporting to establish any
12 self-executing deadline or termination date for any cooperative
13 existing under this subpart, except:
14 (1) in the case of the taking of all of the units by
15 eminent domain (section 4107);
16 (2) in the case of foreclosure of a security interest
17 against the entire cooperative which has priority over the
18 declaration or which is subordinate to a declaration that
19 expressly provides that the holder of the security interest
20 has the right to terminate the cooperative when the
21 foreclosure of the security interest has been consummated; or
22 (3) in the case of the expiration or termination of a
23 lease which has priority over the declaration (unless a
24 contrary intent is expressly stated in the lease);
25 no cooperative ownership may be terminated [only at a meeting of
26 the association and] except by the vote, in person or by proxy,
27 or by the written agreement of proprietary lessees of
28 cooperative interests to which at least 80% of the votes in the
29 association are allocated or any larger percentage the
30 declaration specifies. The declaration may specify a smaller
20010H1662B2044 - 5 -
1 percentage only if all of the units in the cooperative are
2 restricted exclusively to nonresidential uses.
3 * * *
4 § 4218. Rights of secured lenders and secured creditors.
5 (a) Secured lender approval.--The declaration may provide
6 that all or a specified number or percentage of secured
7 creditors of the association or lenders holding security
8 interests encumbering the cooperative interests approve
9 specified actions of the proprietary lessees of the association
10 as a condition to the effectiveness of those actions, and the
11 declaration may provide for procedures that will enable such
12 lenders to have their approval rights recognized by the
13 executive board, but no requirement for approval may operate to:
14 (1) Deny or delegate control over the general
15 administrative affairs of the association by the proprietary
16 lessees or the executive board.
17 (2) Prevent the association or the executive board from
18 commencing, intervening in or settling any litigation or
19 proceeding.
20 (3) Receive and distribute any insurance proceeds except
21 pursuant to section 4313 (relating to insurance).
22 (b) Secured lender approval procedures.--If the declaration
23 requires mortgagees or beneficiaries of deeds of trust
24 encumbering the units to approve specified actions of the
25 proprietary lessees or the association as a condition to the
26 effectiveness of those actions, then the executive board shall
27 provide the lender with written notice of the specified action
28 proposed to be taken, together with a request for the secured
29 lender to approve or disapprove the actions specified. If the
30 notice to the secured lender states that the secured lender will
20010H1662B2044 - 6 -
1 be deemed to have approved the actions specified in the written
2 notice if it does not respond to the request within 30 days, and
3 the secured lender does not respond in writing within 30 days,
4 then the secured lender will be deemed for all purposes to have
5 approved the action specified in the notice. Written notice to
6 the secured lender must be given by first-class mail, postage
7 prepaid, at the address provided by the secured lender, or in
8 the absence thereof, at the address of the secured lender
9 endorsed on any mortgage or deed of trust of record or the
10 address to which the unit owner mails any periodic payment paid
11 to the secured lender; the notice to the secured lender must
12 include a statement of the specified action, a copy of the full
13 text of any proposed amendment and a form prepared by the
14 association upon which the secured lender may indicate its
15 approval or rejection of the specified action or amendment.
16 § 4302. Powers of association.
17 (a) General rule.--Except as provided in subsection (b) and
18 subject to the provisions of the declaration, the association
19 may:
20 * * *
21 (4) Institute, defend or intervene in litigation or
22 administrative proceedings, or engage in arbitrations or
23 mediations, in its own name on behalf of itself or two or
24 more proprietary lessees on matters affecting the
25 cooperative.
26 * * *
27 (6) Regulate the use, maintenance, repair, replacement
28 and modification of common elements[.] and make reasonable
29 accommodation, or permit reasonable modifications to be made
30 to units or the common elements, to accommodate handicapped
20010H1662B2044 - 7 -
1 as defined by prevailing Federal, State or local statute,
2 regulation, code or ordinance, proprietary lessees,
3 residents, tenants or employees.
4 * * *
5 (8) Acquire, hold, encumber and convey in its own name
6 any right, title or interest to real or personal property,
7 and pledge or assign assessment income necessary to create
8 amortization reserves to retire debts, but part of the
9 cooperative may be conveyed or all or part of the cooperative
10 may be subjected to a security interest only pursuant to
11 section 4312 (relating to conveyance or encumbrance of
12 cooperative). Reserve funds held for future major repairs and
13 replacements of the common elements may not be assigned or
14 pledged.
15 * * *
16 (12) Impose reasonable charges for the preparation and
17 recordation of amendments to the declaration, resale
18 certificates required by section 4409 (relating to resales of
19 cooperative interests) or statements of unpaid assessments.
20 In addition, an association may impose a capital improvement
21 fee on the resale or transfer the leasehold interest in units
22 in accordance with the following:
23 (i) The capital improvement fee for any unit may not
24 exceed the annual assessments for general common expense
25 charged to such unit during the most recently completed
26 fiscal year of the association, provided that:
27 (A) in the case of resale or transfer of the
28 leasehold interest in a unit consisting of unimproved
29 real estate, the capital improvement fee may not
30 exceed one-half of the annual assessments for general
20010H1662B2044 - 8 -
1 common expenses charged to such unit during the most
2 recently completed fiscal year of the association;
3 (B) in the case of resale or transfer of the
4 leasehold interest in a unit which was created or
5 added to the cooperative in accordance with section
6 4209 (relating to exercise of development rights) at
7 some time during the most recently completed fiscal
8 year of the association but was not in existence for
9 the entire fiscal year, the capital improvement fee
10 may not exceed one-half of the annual assessments for
11 general common expenses charged to a unit comparable
12 to such unit during the most recently completed
13 fiscal year of the association; and
14 (C) capital improvement fees are not refundable
15 upon any sale, conveyance or other transfer of the
16 proprietary lease to a unit.
17 (ii) Capital improvement fees allocated by an
18 association must be maintained in a separate capital
19 account, may be expended only for new capital
20 improvements or replacement of existing common elements
21 and improvements on the common elements and may not be
22 expended for operation, maintenance or other purposes.
23 (iii) No capital improvement fee may be imposed on
24 any gratuitous transfer of a proprietary interest in a
25 unit between any of the following family members:
26 spouses, parent and child, siblings, grandparent and
27 grandchild.
28 (iv) No fees may be imposed upon any person who:
29 (A) acquires a proprietary interest in a unit
30 consisting of unimproved real estate and signs and
20010H1662B2044 - 9 -
1 delivers to the association at the time of such
2 person's acquisition a sworn affidavit declaring the
3 person's intention to reconvey such unit within 18
4 months of its acquisition; and
5 (B) completes such reconveyance within 18
6 months.
7 * * *
8 (14) Assign its right to future income, including the
9 right to receive the payments made on account of common
10 expense assessments[, but only to the extent the declaration
11 expressly so provides].
12 * * *
13 § 4303. Executive board members and officers.
14 (a) Fiduciary status and exercise of duties.--Except as
15 provided in the declaration, the bylaws in subsection (b) or in
16 other provisions of this subpart, the executive board may act in
17 all instances on behalf of the association. In the performance
18 of their duties, the officers and members of the executive board
19 shall stand in a fiduciary relation to the association and shall
20 perform their duties, including duties as members of any
21 committee of the board upon which they may serve, in good faith,
22 in a manner they reasonably believe to be in the best interests
23 of the association and with such care, including reasonable
24 inquiry, skill and diligence, as a person of ordinary prudence
25 would use under similar circumstances. In managing the
26 association's reserve funds, the officers and members of the
27 executive board shall have the power to invest the association's
28 reserve funds in investments permissible by law for the
29 investment of trust funds and shall be governed in the
30 management of the association's reserve funds by the Prudent
20010H1662B2044 - 10 -
1 Investor Rule. In performing his duties, an officer or executive
2 board member shall be entitled to rely in good faith on
3 information, opinions, reports or statements, including
4 financial statements and other financial data, in each case
5 prepared or presented by any of the following:
6 (1) One or more other officers or employees of the
7 association whom the officer or executive board member
8 reasonably believes to be reliable and competent in the
9 matters presented.
10 (2) Counsel, public accountants or other persons as to
11 matters which the officer or executive board member
12 reasonably believes to be within the professional or expert
13 competence of such person.
14 (3) A committee of the executive board upon which he
15 does not serve, duly designated in accordance with law, as to
16 matters within its designated authority, which committee the
17 officer or executive board member reasonably believes to
18 merit confidence.
19 An officer or executive board member shall not be considered to
20 be acting in good faith if he has knowledge concerning the
21 matter in question that would cause his reliance to be
22 unwarranted.
23 * * *
24 Section 4. Sections 4313(a), (b), (e) and (g), and
25 4315(b)(2) of Title 68 are amended and the sections are amended
26 by adding subsections to read:
27 § 4313. Insurance.
28 (a) Insurance to be carried by association.--Commencing not
29 later than the time of the first conveyance of a cooperative
30 interest to a person other than a declarant, the association
20010H1662B2044 - 11 -
1 shall maintain, to the extent reasonably available:
2 (1) Property insurance on the common elements and units
3 insuring against all risks of direct physical loss commonly
4 insured against or, in the case of a conversion building,
5 against fire and extended coverage perils. The total amount
6 of insurance after application of any deductibles shall be
7 not less than 80% of the actual cash value of the insured
8 property at the time the insurance is purchased and at each
9 renewal date, exclusive of land, excavations, foundations and
10 other items normally excluded from property policies.
11 (2) Liability insurance, including medical payments
12 insurance, in an amount determined by the executive board but
13 not less than any amount specified in the declaration,
14 covering all occurrences commonly insured against for death,
15 bodily injury and property damage arising out of or in
16 connection with the use, ownership or maintenance of the
17 common elements and units.
18 (3) Any property or comprehensive general liability
19 insurance carried by the association may contain a deductible
20 provision.
21 (b) Other insurance carried by association.--If the
22 insurance described in subsection (a) is not reasonably
23 available, the association promptly shall cause notice of that
24 fact to be hand delivered or sent prepaid by the United States
25 mail to all proprietary lessees. The declaration may require the
26 association to carry any other insurance, and the association in
27 any event may carry any other insurance [it deems] in such
28 reasonable amounts and with such reasonable deductibles as it
29 may deem appropriate to protect the association or the
30 proprietary lessees.
20010H1662B2044 - 12 -
1 * * *
2 (e) Unit owner may obtain insurance.--A proprietary lessee
3 may insure the lessee's unit for all losses to his unit,
4 including losses not covered by the insurance maintained by the
5 association, due to a deductible provision or otherwise. An
6 insurance policy issued to the association [does] shall not
7 prevent a proprietary lessee from obtaining insurance for his
8 own benefit[.], including insurance to cover any deductibles or
9 losses not covered by the association's property or
10 comprehensive general liability insurance.
11 * * *
12 (g) Disposition of insurance proceeds.--
13 (1) Any portion of the cooperative for which insurance
14 is required under this section which is damaged or destroyed
15 shall be repaired or replaced promptly by the association
16 unless:
17 (i) the cooperative is terminated;
18 (ii) repair or replacement would be illegal under
19 any State or local health or safety statute or ordinance;
20 or
21 (iii) 80% of the proprietary lessees, including
22 every proprietary lessee of a unit or assigned limited
23 common element which will not be rebuilt, vote not to
24 rebuild.
25 [The cost of repair or replacement in excess of insurance
26 proceeds and reserves is a common expense.]
27 (2) If the entire cooperative is not repaired or
28 replaced:
29 (i) the insurance proceeds attributed to the damaged
30 common elements must be used to restore the damaged area
20010H1662B2044 - 13 -
1 to a condition compatible with the remainder of the
2 cooperative; and
3 (ii) except to the extent that other persons will be
4 distributees and except as is otherwise provided in
5 section 4321(i) (relating to limited equity
6 cooperatives):
7 (A) the insurance proceeds attributable to units
8 and limited common elements which are not rebuilt
9 must be distributed to the proprietary lessees of
10 those units and the proprietary lessees of the units
11 to which those limited common elements were located
12 or to lienholders, as their interests may appear; and
13 (B) the remainder of the proceeds must be
14 distributed to all the proprietary lessees or
15 lienholders, as their interests may appear, in
16 proportion to the common expense liabilities of all
17 the cooperative interests.
18 If the proprietary lessees vote not to rebuild any unit, the
19 allocated interests of the cooperative interest of which that
20 unit is a part are automatically reallocated upon the vote as
21 if the unit had been condemned under section 4107(a)
22 (relating to eminent domain), and the association promptly
23 shall prepare, execute and record an amendment to the
24 declaration reflecting the reallocations.
25 (3) Notwithstanding the provisions of this subsection,
26 section 4217 (relating to termination of cooperative
27 ownership) governs the distribution of insurance proceeds if
28 the cooperative is terminated.
29 * * *
30 (i) Recovery of deductibles.--If an insurance policy
20010H1662B2044 - 14 -
1 maintained by the association contains a deductible, then that
2 portion of any loss or claim which is not covered by insurance
3 due to the application of a deductible, as well as any claim or
4 loss for which the association is self-insured, shall be levied
5 by the executive board in accordance with section 4314(c)
6 (relating to assessments for common expenses) to the extent
7 applicable or, in the absence of the application of section
8 4314(c), as a common expense assessment against all of the
9 units.
10 § 4315. Lien for assessments.
11 * * *
12 (b) Priority of lien.--
13 * * *
14 (2) The association's lien for common expenses shall be
15 divested by a judicial sale in foreclosure of the first
16 mortgage of the cooperative interest:
17 (i) [As to unpaid common expense assessments made
18 under section 4314(b)] Except as to unpaid assessments
19 for which the association has a lien under this section
20 that come due during the six months immediately preceding
21 [institution of] a judicial sale of a cooperative
22 interest in an action to enforce collection of a lien
23 against a cooperative interest [by a judicial sale, only
24 to the extent that the six months unpaid assessments are
25 paid out of the proceeds of the sale].
26 (ii) As to unpaid [common expense] assessments [made
27 under section 4314(b)] for which the association has a
28 lien under this section other than the six months
29 assessment referred to in subparagraph (i), in the full
30 amount of these unpaid assessments[, whether or not the
20010H1662B2044 - 15 -
1 proceeds of the judicial sale are adequate to pay these
2 assessments].
3 To the extent the proceeds of the sale are sufficient to pay
4 some or all of [these] the additional unpaid assessments,
5 after satisfaction in full of the costs of the judicial sale,
6 and the liens and encumbrances of the types described in
7 paragraph (1) and the unpaid common expense assessments that
8 come due during the six-month period described in
9 subparagraph (i), they shall be paid before any remaining
10 proceeds may be paid to any other claimant, including the
11 prior owner of the cooperative interest.
12 * * *
13 (i) Application of payments.--
14 (1) Unless the declaration otherwise provides, any
15 payment received by an association in connection with the
16 lien under this section shall be applied:
17 (i) First to any interest accrued by the
18 association.
19 (ii) Second to any late fee.
20 (iii) Third to any costs and reasonable attorney
21 fees incurred by the association in collection or
22 enforcement.
23 (iv) Last to the delinquent assessment.
24 (2) Paragraph (1) shall apply notwithstanding any
25 restrictive endorsement, designation or instructions placed
26 on or accompanying a payment.
27 Section 5. This act shall take effect in 60 days.
D9L68JS/20010H1662B2044 - 16 -