DUCIOA Protections and Disclosures
The Delaware Uniform Common Interest Ownership Act (“DUCIOA”), codified in Chapter 81 of Title 25 of the Delaware Code, governs all common interest communities with more than 20 units created after September 30, 2009.
Delaware is a “Disclosure State” requiring a seller of residential property to provide the buyer with the Seller’s Disclosure of Real Property Condition Report which includes information about Deed Restrictions and Homeowners Associations.
The agent, subagent or seller, as applicable, shall give a copy of the Seller’s Disclosure of Real Property Condition Report to all prospective buyers or prospective buyer’s agent prior to the time the buyer makes an offer to purchase. This written disclosure form, signed by buyer and seller, shall become a part of the purchase agreement.
In November 2021, six residents of the Canal District formed a “Fort DuPont Homeowners Committee” and submitted a memorandum to the DOJ Ombudsman titled, “Assistance with Applicable Rights and Protections Under DUCIOA.” This memorandum stated: “We received none of these protections and received no disclosures in any form”.
A communication from Jeff Randol’s attorney does not dispute that Fort DuPont buyers did not receive state required disclosure documents. Instead, Mr. Randol now claims that FDRPC had no responsibility to provide these documents because the Corporation was not the “developer”. This statement is an attempt to implicate Rockwell.
Is a Home Owners’ Association (HOA) Required for Fort DuPont Buyers?
DUCIOA provides buyers the right to form an HOA. FDRPC went to great lengths to claim exemption from DUCIOA and avoid the formation of an HOA which was perceived as weakening the powers of the Corporation.
The first mention of an HOA is at the May 10, 2017 board meeting discussing the Rockwell Agreement. The minutes state, “Discussions are ongoing on the HOA structure”.
However, the July 12, 2017 minutes report:
The Corporation sought exemption from DUCIOA (25 Del. C. §§81-101 to 421) through the Bond Bill epilogue language, however, the exemption did not get included in the Bond Bill, therefore, the HOA requirement remains unchanged.
At the October 11, 2017 meeting, FDRPC Counsel, Max Walton states:
Counsel has been working to resolve issues related to the creation of an HOA as required by DUCOIA and it looks as though we are very close to a solution.
This was followed by the following announcement by Mr. Walton at the December 12, 2017 meeting:
As has been reported to the Board in the past, the traditional DUCIOA (Delaware Uniform Common Interest Ownership Act) doesn’t fit within the framework of what we are doing at Fort DuPont. Mr. Walton noted that an ordinance will be introduced for a first reading before Delaware City Council and if approved, the amendment allows the Corporation as an entity of the state to own and operate subdivision amenities (open space, storm water facilities, roads and common areas) in individual subdivisions.
Max Walton presented Ordinance No 17-1218-01 to the Delaware City Council at the January 22 Council meeting and it passed. Mr. Walton’s strategy was that a local ordinance empowering FDRPC to own and operate subdivision amenities could be interpreted as some form of exemption from DUCIOA.
At the June 13, 2018 board meeting Max Walton announced:
With respect to Common Area Maintenance expenses, the Canal District will be exempt from the provisions of the DUCIOA by drafting a “Declaration of Covenants, Conditions, Agreements, Restrictions and Licenses” for the whole complex.
In July 2020, Mr. Walton issued a 57 page “Amended and reinstated Declaration of Covenants, conditions, Agreements, Restrictions and Licenses”. These restrictions are stricter than the Delaware City Code. For example, children’s toys are banned from driveways.
This purported DUCIOA exemption had serious consequences for buyers at Fort DuPont. They were denied the right to form an HOA. Instead, they are governed by FDRPC where they have minimal representation. FDRPC arbitrarily bills them $500 annually for services which are not clearly specified. They also pay Delaware City taxes for municipal services.
The HOA issue continues to be a matter of dispute for FDRPC. At the April 14, 2021 board meeting the Chair, Bryon Short, stated:
“Mr. Short began the discussion by stating we need to be consistent with the wording, and what Fort DuPont has is not an HOA.” However, in the latest version of the FDRPC Enabling Act as amended by HB 355 § 4738. (3) refers to “homeowners association fees…”
Rockwell Demands Indemnification
In a December 6, 2018 “Privileged and Confidential Memorandum” Max Walton informs FDRPC board members that Rockwell is demanding indemnification, “in the event that a third party brings a challenge that the Corporation acted improperly by not transferring the community open space to a homeowners association pursuant to the statutory provisions of the Delaware Uniform Common Interest Ownership Act, commonly known as DUCIOA.”
This memorandum expresses significant reservations about the legal and financial risks of continuing to maintain the claimed exemption from DUCIOA:
Although we believe that we are acting in a manner permitted by DUCIOA’s exemptions, we cannot say with absolute certainty that a reviewing Court would rule in our favor… we might not prevail… and that could result in damages and indemnification funds being owed to Rockwell. While we do not believe such a challenge will be successful, because our approach has not been tested in Delaware, the Board needs to be aware of this potential risk.
The First Amendment to Agreement of Sale was executed on October 22, 2018. Rockwell obviously demanded this Amendment because they suspected that FDRPC was operating illegally. With this Amendment, FDRPC “covenants and agrees, at its sole cost and expense, to indemnify, defend, protect, save and hold harmless Buyer” (Rockwell) from a claim that FDRPC is not exempt from DUCIOA.
DUCIOA is not mentioned in the ordinance which Mr. Walton got passed by the Delaware City Council and this ordinance would only be connected to DUCIOA through a convoluted legal argument which Mr. Walton apparently planned to make. In fairness, in this secret memo, Mr. Walton was open with the board in acknowledging the frailty of his legal arguments.
It’s very unusual for the Delaware City Solicitor to author, present, lobby for and sign an ordinance. Past Delaware City Solicitors allowed elected officials to do the legislating.
Assigning Legal Responsibility
For years FDRPC has avoided compliance with DUCIOA and with state disclosure requirements. Jeff Randol’s attorney is now putting the blame on Rockwell. However, by signing the First Amendment to Agreement of Sale indemnifying Rockwell, Mr. Randol has accepted full legal responsibility for FDRPC.
The Grassdale sale also included a side Indemnification Agreement. These agreements seek to reassure business partners, who question FDRPC business practices, that funds provided by Delaware taxpayers will be available to address any legal issues which might arise.