2.05 Other Provisions for the Master Deed

• Library: South Carolina Community Association Law: Condominiums and Homeowners Associations (SCBar) (2019 Ed.)

2.05 Other Provisions for the Master Deed

There are many other issues that the master deed or lease might address. Some of those are discussed here although the list is not exhaustive. Additionally, because every project is different and every developer has particular needs or requirements, the contents of the master deed or lease need to be carefully tailored to reflect the unique aspects of the project.

A. Maintenance of the Property

A maintenance provision should outline the responsibilities of the apartment owners, both as individuals and as co-owners, for maintenance, repair, and replacement of the condominium property. Individual owners should be required to keep their units in good repair and to make repairs or replacements to their units that if neglected might result in damage to other units or the common elements. However, it appears that if an apartment owner agrees to make repairs or provide maintenance that might be the responsibility of the council of co-owners, he or she will be bound by that agreement regardless of the language of a maintenance provision.¹⁰⁹

The SCHPA, unlike other statutes, does not specifically require or empower the council of co-owners to maintain and repair the common elements. It does require that the bylaws provide for the "[c]are, upkeep and surveillance of the property and its general or limited common elements or services."¹¹⁰ This general language would allow flexibility in allocating responsibility for maintenance of the common elements. In Casita De Castilian, Inc. v. Kamrath,¹¹¹ an Arizona court examined a statute requiring the council to "make provisions" for the maintenance of the common elements. The council amended its bylaws to shift maintenance responsibility for the roof over a unit, a common element, from the council to the owner of that unit. When some roofs required repair, the affected unit owners argued that as they were obligated by the declaration to pay assessments for maintenance of the common elements, the council was required to perform the maintenance of all common elements. The court disagreed, noting that the bylaw amendment met the statute's requirement that the council "make provision" for maintenance of the common elements. The court further concluded, "[t]hat our statute does not say that the council of co-owners is responsible for the maintenance of the common elements is important."¹¹² The court compared the Arizona Condominium Act with the 1962 FHA Model Act. The latter is similar to the SCHPA in that it states that the bylaws may provide for the maintenance and repair of common elements but does not fix any specific responsibility. The Arizona court found this statutory language distinguishable from that found in other state legislation requiring the council to be responsible for maintenance of the common elements. If South Carolina courts were to follow the approach of Kamrath, there is considerable flexibility for the council in fixing the maintenance responsibilities. This would allow the council to retain control over limited common elements while requiring unit owners who have exclusive use of the limited common element to shoulder the expenses of maintenance, repair and possibly, replacement. It would also allow general common elements to be treated in the same fashion.

While the SCHPA permits maintenance responsibilities to be established in the bylaws, given the importance of the issue, it might be wise to address it in the master deed or lease.

B. Insurance

The SCHPA provides that:

The council of co-owners shall insure the property against risks, without prejudice to the right of each co-owner to insure his apartment on his own account and for his own benefit.¹¹³

Because of the hybrid nature of condominium ownership, insurance can become a complex matter.¹¹⁴ The statute quoted above is inadequate guidance for the council. The statute says, for instance, that the council shall insure the property against risks. Property is defined to include the land, building, all improvements and structures, all easements, rights and appurtenances.¹¹⁵ Individual units are part of the property.¹¹⁶ Thus, the SCHPA suggests the council must insure the property including apartments against risks, though it is doubtful the legislature intended the council to insure the contents of apartments. The statute does not suggest which risks should be insured against, or to what extent. Because there are open questions about insurance, the master deed or lease should contain a clause on insurance. A useful guide in considering condominium insurance issues is the Uniform Condominium Act.¹¹⁷ Among the policies to be considered are: a master casualty policy affording fire and extended coverage¹¹⁸ and a master liability policy.¹¹⁹ Other policies that might be required by the master deed or lease would include: coverage for officers and directors, workers' compensation; liability insurance on vehicles owned by the association; and, policies covering land or improvements in which the association has or shares ownership or other rights.

An additional issue for the master deed or lease to address is the use of proceeds of a settlement of a claim, particularly in the case of total destruction. The SCHPA¹²⁰ requires that if a portion of the property that is required to be insured is damaged or destroyed, the council of co-owners must promptly repair or replace it unless: "(1) repair or replacement is illegal under a state statute or local health ordinance; or (2) eighty percent of the co-owners, including the owner of an apartment which is not to be rebuilt, vote not to rebuild... ."¹²¹ The Act also sets out the distribution of insurance proceeds. If the entire property is not repaired or replaced, the proceeds attributable to damaged common elements have to be used to restore the damaged area "to a condition compatible with the remainder" of the property.¹²² Proceeds that are attributable to apartments and limited common elements that are not rebuilt have to be distributed to the owners of those apartments and to the owners of apartments to which limited common elements were allocated, or to lienholders, as their interests may appear.¹²³ Any proceeds that remain have to be distributed to all of co-owners or lienholders, as their interests may appear, in proportion to the percentage set out in the SCHPA.¹²⁴ If the co-owners vote not to rebuild an apartment, the allocated interest of that apartment has to be reallocated automatically on the vote and the council of co-owners promptly must prepare, execute, and record an amendment to the master deed reflecting the reallocation.¹²⁵

C. Developer Rights¹²⁶

While some state condominium acts set forth rights reserved to the developer, the SCHPA does not, leaving the matter to the developer's counsel. The Act does state that the master deed or lease must contain "[a] description of the full legal rights and obligations of ...the person establishing the regime."¹²⁷ In Heritage Federal Savings and Loan Ass'n v. Eagle Lake and Golf Condominiums ,¹²⁸ the South Carolina Court of Appeals said a developer is permitted under the statute to ".reserve certain rights provided he states those rights with specificity in the master deed."¹²⁹ If, for example, there is adjacent property to be developed, the master deed or lease needs to reserve easements for access.¹³⁰ The right of the developer to market units (e.g., posting advertising signs or maintaining a sales office on common property),¹³¹ or to lease them if a market downturn occurs needs to be protected.¹³² Both marketing and leasing have been impinged upon by owner controlled associations. The rights the developer needs to protect will obviously be unique to the project, but when identifying them it is important to state that the developer's rights are not limited to those enumerated.

The right reserved in Eagle Lake,¹³³ was found in a clause regarding amendments to the master deed that provided that "until all apartment units are sold, [developer] reserves the right to make changes in the master deed, upon advice of counsel, and as may be required by law ... ."¹³⁴ This was, said the court "...designed to permit changes to the master deed necessary to carry out the intentions of the developer in establishing the regime and to ensure the recorded documents comply with the requirements of the ... " SCHPA.¹³⁵ In general, developers may reserve the right to amend restrictive covenants in their sole discretion without the consent of the grantee, but must exercise that right in a reasonable manner.¹³⁶ If, however, a developer fails to expressly reserve the right to amend covenants, amendments are not allowed.¹³⁷

D. Compliance with Master Deed or Lease, Bylaws and Rules

Despite the fact that condominium legislation ordinarily includes language requiring the owners to comply with the master deed or lease, bylaws and rules of the association, a compliance clause is frequently included in the master deed or lease. The SCHPA contains a compliance provision that reads:

Each co-owner shall comply strictly with the bylaws and with the administrative rules and regulations adopted pursuant thereto, as either of the same may be lawfully amended from time to time, and with the covenants, conditions and restrictions set forth in the master deed or lease to his apartment. Failure to comply with any of the same shall be grounds for a civil action to recover sums due for damages or injunctive relief, or both, maintainable by the administrator or the board of administration, or other form of administration specified in the bylaws, on behalf of the council of co-owners, or in a proper case, by an aggrieved co-owner.¹³⁸

This is a fairly broad provision as it refers not only to the master deed and bylaw restrictions but administrative rules as well. It provides for one of several techniques available for compliance with the condominium documents, a legal action to compel compliance. The master deed or...