Developers and Builders Beware: Tips From an Association Attorney

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In 1994, the Minnesota Legislature adopted Minnesota Statutes Chapter 515B, the Minnesota Common Interest Ownership Act (often referred to as “MCIOA” or “Chapter 515B”). Chapter 515B governs most townhome and condominium developments created after adoption of the chapter. Chapter 515B requires certain developers and/or builders of a townhome or condominium project to provide to any buyer a disclosure statement when a unit is sold to the buyer. A disclosure statement basically requires disclosure of material matters regarding the development. The disclosure statement has been required since inception of Chapter 515B and is not generally noteworthy or a change to common practice. However, it is noteworthy that due to a recent legislation error, most builders and developers are unaware that they may also be required to provide a disclosure statement even when they are not selling a unit to a buyer.

Minnesota Statute Sec. 515B.4-101, formerly stated that when certain developers or builders are not transferring title to real estate but are merely transferring rights called special declarant rights, the developer or builder does not need to provide a disclosure statement. Special declarant rights are rights that are used by developers and builders to ensure that the development can be completed without material interference from the association. However, due to a recent legislative error, the exception that certain developers and builders need not provide a disclosure statement when merely transferring special declarant rights to a new developer or builder is no longer valid and a disclosure statement is now technically required when transferring special declarant rights.

It is my understanding that this error is being raised to the legislature and that corrective legislation may be forthcoming. Unfortunately, compliance with the statute as written may not make sense from a financial or business perspective. Thus, developers and builders must determine if a disclosure statement must be provided when transferring special declarant rights. If so, the developers or builders must also determine if there are financial or other business justifications to accept the risk of noncompliance until the statute may be corrected. Until the statute is corrected, builders and developers should contact their counsel to discuss their development and whether or not compliance with the statute makes financial and business sense.

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