A. Except as provided in Subsection B of this section, a disclosure statement must contain or fully and accurately disclose:
(1) the name and principal address of the declarant and of the condominium;
(2) a general description of the condominium, including to the extent possible the types, number and declarant's schedule of commencement and completion of construction of buildings and amenities that the declarant anticipates including in the condominium;
(3) the number of units in the condominium;
(4) copies of the declaration, other than the plats and plans, and any other recorded covenants, conditions, restrictions and reservations affecting the condominium; the bylaws and any rules or regulations of the association; copies of any contracts and leases to be signed by purchasers at closing; and a brief narrative description of any contracts or leases that will or may be subject to cancellation by the association under Section 38 [47-7C-5 NMSA 1978] of the Condominium Act;
(5) any current balance sheet and a projected budget for the association, either within or as an exhibit to the disclosure statement, for one year after the date of the first conveyance to a purchaser, and thereafter the current budget of the association, a statement of who prepared the budget and a statement of the budget's assumptions concerning occupancy and inflation factors. The budget shall include without limitation:
(a) a statement of the amount or a statement that there is no amount included in the budget as a reserve for repairs and replacement;
(b) a statement of any other reserves;
(c) the projected common expense assessment by category of expenditures for the association; and
(d) the projected monthly common expense assessment for each type of unit;
(6) any services not reflected in the budget that the declarant provides, or expenses that he pays, and that he expects may become at any subsequent time a common expense of the association and the projected common expense assessment attributable to each of those services or expenses for the association and for each type of unit;
(7) any initial or special fee due from the purchaser at closing, together with a description of the purpose and method of calculating the fee;
(8) a description of any liens, defects or encumbrances on or affecting the title to the condominium;
(9) a description of any financing offered or arranged by the declarant;
(10) the terms and significant limitations of any warranties provided by the declarant and limitations on the enforcement thereof or on damages;
(11) a statement that:
(a) within seven days after receipt of a disclosure statement a purchaser, before conveyance, may cancel any contract for purchase of a unit from a declarant;
(b) if a declarant fails to provide a disclosure statement to a purchaser before conveying a unit, that purchaser may rescind the purchase within six months from the date of conveyance;
(c) shall set forth the procedures set forth in Subsection C of Section 60 [47-7D-8 NMSA 1978] of the Condominium Act; and
(d) if a purchaser receives the disclosure statement more than seven days before signing a contract to purchase a unit, he cannot cancel the contract;
(12) a statement of any unsatisfied judgments or pending suits against the association and the status of any pending suits material to the condominium of which a declarant has actual knowledge;
(13) a statement that any deposit made in connection with the purchase of a unit shall be held in an escrow account until closing and shall be returned to the purchaser if the purchaser cancels the contract pursuant to Section 60 [47-7D-8 NMSA 1978] of the Condominium Act, together with the name and address of the escrow agent;
(14) any restraints on alienation of any portion of the condominium;
(15) a description of the insurance coverage provided for the benefit of unit owners;
(16) any current or expected fees or charges to be paid by unit owners for the use of the common elements and other facilities related to the condominium; and
(17) the extent to which financial arrangements have been provided for completion of all improvements labeled "MUST BE BUILT" pursuant to Section 21 [47-7B-9 NMSA 1978] of the Condominium Act.
B. If a condominium composed of not more than twenty-five units is not subject to any development rights and no power is reserved to a declarant to make the condominium part of a larger condominium, group of condominiums or other real estate, a public offering statement may but need not include the information otherwise required by Paragraphs (9), (10) and (15) through (17) of Subsection A of this section.
C. A declarant promptly shall amend the disclosure statement to report any material change in the information required by this section.
History: Laws 1982, ch. 27, § 55.
ANNOTATIONSCompiler's notes. — This section is similar to § 4-103 of the Uniform Condominium Act, with the following main exceptions: "disclosure" is substituted for "public offering" throughout Subsections A and C of this section of the state Condominium Act; "and a brief narrative description of the significant features" is deleted following "copies" near the beginning of Subsection A(4) of this section of the state Condominium Act; "seven" is substituted for "15" in Paragraphs (11)(a) and (11)(d) of Subsection A of this section of the state Condominium Act; Paragraph (11)(b) of Subsection A of this section of the state Condominium Act substitutes "rescind the purchase within six months from the date of conveyance" for "recover from the declarant (10) percent of the sales price of the unit," as it appears in paragraph (11)(ii) of subsection (a) of § 4-103 of the Uniform Condominium Act; Paragraph (11)(c) of Subsection A of this section of the state Condominium Act is inserted; Paragraph (17) of that same subsection refers to "Section 21 [47-7B-9 NMSA 1978] of the Condominium Act," which is comparable to § 2-109 of the Uniform Condominium Act, while paragraph (17) of subsection (a) of § 4-103 of the Uniform Condominium Act refers to "Section 4-119" of that act; paragraphs (18) and (19) of subsection (a) of § 4-103 of the Uniform Condominium Act, relating to zoning descriptions and other material circumstances, respectively, are deleted, as are references thereto in subsection (b) of § 4-103 of that act; "twenty-five" is substituted for "12" in Subsection B of this section of the state Condominium Act; and "and the narrative descriptions of documents required by paragraph (a)(4)" is deleted at the end of Subsection B of this section of the state Condominium Act.
COMMISSIONERS' COMMENT
1. The best "consumer protection" that the law can provide to any purchaser is to insure that he has an opportunity to acquire an understanding of the nature of the products which he is purchasing. Such a result is difficult to achieve, however, in the case of the condominium purchaser because of the complex nature of the bundle of rights and obligations which each unit owner obtains. For this reason, the act, adopting the approach of many so-called "second generation" condominium statutes, sets forth a lengthy list of information which must be provided to each purchaser before he contracts for a unit. This list includes a number of important matters not typically required in public offering statements under existing law. The requirement for providing the public offering statement appears in § 4-102(c) [47-7D-2C NMSA 1978], and § 4-108 [47-7D-8 NMSA 1978] provides purchasers with cancellation rights and imposes civil penalties upon declarants not complying with the public offering statement requirements of the act.
2. Paragraph (a)(2) [Subsection A(2)] requires a general description of the condominium and, to the extent possible, the declarant's schedule for commencement and completion of construction for all building amenities that will comprise portions of the condominium. Under § 2-109 [47-7B-9 NMSA 1978], the declarant is obligated to label all improvements which may be made in the condominium as either "MUST BE BUILT" or "NEED NOT BE BUILT." Under § 4-119 [47-7D-19 NMSA 1978], the declarant is obligated to complete all improvements labeled "MUST BE BUILT." The estimated schedule of commencement and completion of construction dates provides a standard for judging whether a declarant has complied with the requirements of § 4-119 [47-7D-19 NMSA 1978].
3. Paragraph [(a)] (4) [Subsection A(4)] requires the public offering statement to include copies of the declaration, bylaws and any rules and regulations of the condominium, as well as copies of any contracts or leases to be executed by the purchaser. In addition, the paragraph requires the public offering statement to include a brief narrative description of the significant features of those documents, as well as of any management contract, leases of recreational facilities and other sorts of contracts which may be subject to cancellation by the association after the period of declarant control expires, as provided in § 3-105 [47-7C-5 NMSA 1978]. This latter requirement is intended to encourage the preparation of brief summaries of all condominium documents in laymen's terms, i.e., the "brief narrative description" should be more than a simple explanation of what a declaration (or other document) is, but less than an extended legal analysis duplicating the contents of the documents themselves. The summary requirement is intended to alleviate the common problem of public offering statements being drafted in lawyers' terms and being no more comprehensible to laymen than the documents themselves.
4. The disclosure requirement of paragraph [(a)] (6) [Subsection A(6)] is intended to eliminate the common deceptive sales practice known as "lowballing," a practice by which a declarant intentionally underestimates the budget for the association by providing many of the services himself during the initial sales period. In such a circumstance, the declarant commonly intends that, after a certain time, these services (which might include lawn maintenance, painting, security, bookkeeping or other services) will become expenses of the association, thereby substantially increasing the periodic common expense assessments which association members must ultimately bear. By requiring the disclosure of these services (including the projected common expense assessment attributable to each) in paragraph [(a)] (6) [Subsection A(6)], the act seeks to minimize "lowballing". In order to comply fully with the provisions of paragraph [(a)] (5) [Subsection A(5)], the declarant must calculate the budget on the basis of his best estimate of the number of units which will be part of the condominium during that budget year. This requirement as well operates to negate the effects of any attempted "lowballing."
5. Paragraph [(a)] (9) [Subsection A(9)] requires disclosure of any financing "offered" by the declarant. The paragraph contemplates that a declarant disclose any arrangements for financing that may have been made, including arrangements with any unaffiliated lender to provide mortgages to qualified purchasers.
6. Under paragraph [(a)] (10) [Subsection A(10)], the declarant is required to disclose the terms of all warranties provided by the declarant (including the statutory warranties set forth in § 4-114 [not adopted]) and to describe any significant limitations on such warranties, the enforcement thereof or damages which may be collectible as a result of a breach thereof. This latter requirement would necessitate a description by the declarant of any exclusions or modifications of statutory warranties undertaken pursuant to § 4-115 [not adopted]. The statute of limitations for warranties set forth in § 4-116 [not adopted], together with any separate written agreement (as required by § 4-116 [not adopted]) providing for reduction of the period of such statute of limitations, must also be disclosed.
7. Paragraph [(a)] (14) [Subsection A(14)] requires that the declarant disclose the existence of any right of first refusal or other restrictions on the uses for which or classes of persons to whom units may be sold.
8. Paragraph [(a)] (15) [Subsection A(15)] corrects a defect common to many condominium statutes by requiring the declarant to describe the insurance coverage provided for the benefit of unit owners. See § 3-113 [47-7C-13 NMSA 1978].
9. Under paragraph [(a)] (16) [Subsection A(16)], the declarant is obligated to disclose any current or expected fees or charges which unit owners may be required to pay for the use of the common elements and other facilities related to the condominium. Such fees or charges might include swimming pool fees, golf course fees or required membership fees for recreation associations. Such fees are often not disclosed to condominium purchasers and can represent a substantial addition to their monthly assessments.
10. The "financial arrangements" required to be disclosed pursuant to paragraph [(a)] (17) [Subsection A(17)] may vary substantially from one condominium development to another. It is the intent of the paragraph to give purchasers as much information as possible with which to assess the declarant's ability to carry out his obligations to complete the improvements. For example, if a declarant has a commitment from a bank to provide construction financing for a swimming pool when 50% of the units in the condominium are completed, that fact should be disclosed to potential purchasers.
11. In addition to the information required to be disclosed by paragraphs [(a)] (1) through (18) [Subsections A(1) to A(17)], paragraph [(a)] (19) requires that the declarant disclose all other "unusual and material circumstances, features, and characteristics" of the condominium and all units therein. This requires only information which is both "unusual and material." Thus, the provision does not require the disclosure of "material" factors which are commonly understood to be part of the condominium, e.g., the fact that a condominium has a roof, walls, doors and windows. Similarly, the provision does not require the disclosure of "unusual" information about the condominium which is not also "material," e.g., the fact that a condominium is the first condominium in a particular community. Information which would normally be required to be disclosed pursuant to paragraph [(a)] (19) might include, to the extent that they are unusual and material, environmental conditions affecting the use or enjoyment of the condominium, features of the location of the condominium, e.g., near the end of an airport runway or a planned rendering plant and the like.
12. The cost of preparing a public offering statement can be substantial and may, particularly in the case of small condominiums, represent a significant portion of the cost of a unit. For that reason, subsection (b) [Subsection B] permits a declarant to exclude from a public offering statement certain information in the case of a small condominium (i.e., less than 12 units) which is not subject to development rights and which is not potentially part of a larger condominium or group of condominiums. Essentially, subsection (b) [Subsection B] permits a declarant to exclude from a public offering statement those materials which, as a practical matter, require extended preparation effort by an attorney or engineer in addition to the normal effort which must be exerted to provide the declaration, bylaws, plats and plans or other documents required by the act.
Am. Jur. 2d, A.L.R. and C.J.S. references. — 15A Am. Jur. 2d Condominiums and Cooperative Apartments §§ 14, 16, 22, 26.
31 C.J.S. Estates § 153 et seq.