Preamble
DEFINITIONS
PROPERTY
Existing Property
Additions, Mergers and/or Reductions to Existing Property
MEMBERSHIP AND VOTING RIGHTS IN THE ASSOCIATION
Membership
Voting Rights
Voting Districts
Delegates
PROPERTY RIGHTS IN COMMON PROPERTIES
Members Obligation to Maintain Roadways
Members Easements of Enjoyment in Common Properties
Members Easements of Enjoyment in Restricted Common Properties
Title to Common Properties and Restricted Common Properties
Purchased Common Properties
Extent of Member’s Easement
Conveyance of Common Properties
COVENANTS FOR MAINTENANCE ASSESSMENTS
Creation of the Lien and Personal Obligation of Assessments
Purpose of Assessments
Basis and Maximum Annual Assessments
Special Assessments
Change in Basis and Maximum Annual Assessment
Quorum for Any Action Authorized Under this Article
Date of Commencement and Pro Ration of Annual Assessment
Duties of the Board of Directors
Effect of NonPayment of Assessment
Subordination of Lien to Mortgages
Exempt Property
Specific Assessment
FUNCTIONS OF THE ASSOCIATION
Ownership and Maintenance of Common Properties and Restricted Common Properties
Services
Obligations of the Association
Mortgage and Pledge
Additional Authority
Architectural Standards
Architectural Review Board
No Waiver of Future Approvals
Variance
Compliance with Guidelines
No Liability
INSURANCE
Property Damage
Liability Insurance
Fidelity Insurance
Workers Compensation Insurance
Directors and Officers Libility Insurance
Distribution of Proceeds Reconstruction of Building Improvements; Insurance Trustee
Estimate for Repair, Replacement or Reconstruction
Additional Provisions of the Policies
Payment of Premiums
Review of Insurance Coverage
USE OF PROPERTY
Covenants and Restrictions
Enforcement
DEVELOPERS RIGHTS
INDEMNIFICATION
Amount of Indemnification
Rights of Indemnification
DISCLAIMER
GENERAL PROVISIONS
Duration
Amendments
Notices
Enforcement
Severability
Interpretation
Authorized Action
Termination of Association
Company Unable to Perform
Neighborhood Area
Dispute Resolution
Recordation
Notary

Preamble

DEED OF AMENDED AND RESTATED DECLARATION OF RIGHTS, RESTRICTIONS, CONDITIONS AND CONSTITUTION OF RESTRICTIVE COVENANTS AND ESTABLISHMENT OF PROVISIONS FOR PALMAS DEL MAR HOMEOWNERS ASSOCIATION INCORPORATED

In the City of San Juan, Commonwealth of Puerto Rico, this twenty seven (27) day of August, Nineteen ninety seven (1997)

.BEFORE ME RAFAEL CUEVAS KUINLAM

Of legal age, married, Attorney at Law, and Notary Public in and for the Commonwealth of Puerto Rico with residence in San Juan, Puerto Rico and offices in the Hato Rey Tower Building, Suite nine, zero, three (903), two hundred sixty eight (268) Munoz Rivera Avenue, Hato Rey, Puerto Rico.

APPEARS AS THE SOLE PART: PALMAS DEL MAR HOMEOWNERS ASSOCIATION, INCORPORATED, Security Social Number XXXXXXXXXXXXX herein after referred to as the “ASSOCIATION” a nonprofit corporation organized and existing under the Laws of the Commonwealth of Puerto Rico, having its administration office in the City of Humacao, Puerto Rico, herein represented by its President Mr. Hector Lavergne Roure, with Security Social Number XXXXXXXXXXXXXX of legal age married, executive and resident of Humacao, Puerto Rico, duly authorized by said Corporation to appear herein on its behalf, which authority he will show wherever and whenever required to do so and its Secretary, Raul Rivera Ortiz, with Social Security Number XXXXXXXXXXXXX of legal age, single, Architect and resident of San Juan, Puerto Rico.

I give faith to the personal circumstances of the appearing party.

I hereby certify that I have identified the appearing party as to their names, personal circumstances and relation to Palmas del Mar Homeowners Association and their authority to execute this Deed.

The appearing party’s representatives assure me of their legal capacity and personal qualifications to execute this Deed and being, to the best of my knowledge and belief, legally competent to execute this Deed, they freely and voluntarily, herein:

SET FORTH

FIRST: Pursuant to Deed Number Thirteen (13) of Declaration of Rights, Restrictions, Conditions and Constitution of Restrictive Covenants and Establishment of Provisions of the Palmas del Mar Homeowners Associations, Inc., (hereinafter referred to as the Declaration), executed on September fourteen, nineteen hundred seventy two, before Notary Public Guillermo A. Nigaglioni, recorded at Page Sixty Five (65), Volume One Hundred Ten (110) Yabucoa Section, Property Number Four Thousand Nine Hundred Forty Six (4,946) and at Page One Hundred Twenty One (121), Volume Two Hundred Ten (210) of the Registry of the Property of Puerto Rico, Humacao Section, Property Number Six Thousand Six Hundred Two (6,602), Seventh Inscription, Palmas del Mar Company, hereinafter referred to as “The Company”, established The Declaration of Rights, Restrictions, Conditions and Constitution of Restrictive Covenants and Establishment of Provisions for the Palmas del Mar Homeowners Association Incorporated (hereinafter sometimes referred to as the Covenants and/or The Declaration) for the benefit of each and every owner of any and all parts of the above referenced real property or any additions thereto.

SECOND: In order to carry out the aforesaid, the Company caused to be incorporated under the laws of the Commonwealth of Puerto Rico, the Palmas del Mar Homeowners Association, Incorporated, a non profit corporation of which, each and every owner of Property within the Palmas del Mar Development is a member.

THIRD: Pursuant to Deed Number Sixteen (16) of Extension of Declaration of Rights, Restrictions, Conditions and Constitution of Restrictive Covenants and Establishment of Provisions for the Palmas del Mar Homeowners Association, Incorporated to Additional Real Estate Properties of Palmas del Mar Company (hereinafter referred to as the EXTENSION TO THE DECLARATION) executed on August thirty first, nineteen hundred seventy three, before Notary Public Guillermo A. Nigaglioni, the Company extended the operation and effect of the Covenants.

FOURTH: Pursuant to Deed Number Four (4) of Amendment to Declaration of Rights, Restriction, Conditions and Constitution of Restrictive Covenants and Establishments of Provisions for the Palmas del Mar Homeowners Association, Inc., executed in the city of San Juan on the thirteenth day of May, nineteen hundred and seventy six before Notary Public Guillermo Nigaglioni, the covenants set forth in the Declaration were amended and to such effect therein the Declaration was amended.

FIFTH: Pursuant to Deed Number Five of Deed of Amendment to Declaration of Rights, Restrictions, Conditions and Constitution of Restrictive Covenants and Establishment of Provisions for the Palmas del Mar Homeowners Association, Incorporated, executed in the City of Humacao on the nineteenth (19) day of February, nineteen eighty five (1985) before Notary Public Enrique Alvarado Hernandez, the covenants set forth in the Declaration were amended and to such effect therein the Declaration was amended.

SIXTH: Existing Property. The real property which is, and shall be held, transferred, sold conveyed, given, donated, leased and occupied subject to these covenants is described as follows:

“RURAL: Tract of land located at Buenavista and Candelero Abajo wards of Humacao and Playa ward of Yabucoa, Puerto Rico, comprising an area, according to its titles of TWO THOUSAND SEVEN HUNDRED SIXTY SEVEN CUERDAS AND NINE HUNDRED SIXTY NINE TEN THOUSANDTHS OF ANOTHER (2,767.0969), but according to a survey by David Lebrón López, comprising an actual area of ten million seven hundred fifty seven thousand one hundred seventy five (10,757,175) square meters and six hundred seventy two (.0672) ten thousandths of a square meter, equivalent to two thousand seven hundred thirty six (2,736) cuerdas nine thousand one hundred ninety three ten thousandths of a cuerda (.9193), equivalent to one hundred fifteen million seven hundred eighty eight thousand eight hundred and five (115,788,805) square feet and five thousand nine hundred sixteen (.5916) ten thousandths of a square foot equivalent to two thousand six hundred fifty eight (2,658) acres and one thousand four hundred fifty two (1,452) ten thousandths of an acre. Of the area above mentioned, three hundred fifty three {353) cuerdas and six thousand two hundred (6,200) ten thousandths of another cuerda lie at the municipality of Yabucoa, Puerto Rico, and two thousand three hundred eighty three (2,383) cuerdas with two thousand nine hundred ninety three (.2993) ten thousandths of a cuerda lie at the municipality of Humacao, Puerto Rico. Bounded on the North, by lands property of: Hermanos Fernandez Garzot, Jesús Ayala Carrillo, State Road Number Nine Hundred six (906), State Road Number Nine Hundred Twenty Three (923), Gregoria Gonzalez, Demetrio Cintrón, Jose Robledo, Juan Robledo, Carmen Pou, Sucesión Luis Pou, Esteban Villegas; Eduardo Rios, Sucesión Luciano Rios, Eladio Vellón Cruz, Felix Navarro Cruz, Justa Jimenez Rivera; Sucesión Pedro Lopez, Marcos Encarnación Vargas; Inocencio Carradero, Sucesión Vistorio Ortiz, Paula Pena Garcia, Francisco Bravo, Sucesión Alfonso López Valdes, Cesar Perez, Antonio López Diaz, Oscar Ortiz Martinez, Modesta Cruz Solis, Sucesión Maria Diaz Torres, Jacinta Solis Delgado, Susana Cruz Burgos, Sucesión Victor Lazú Delgado, Palmas del Mar Company, Cangrejos Rural Community; on the South, Caribbean Sea, Palmas del Mar Company, Sucesión Belen Cruz, Sucesión Modesto Correa, Sucesión Hilaria Santiago, Federico Ayala Cruz, Sucesión Carlos Ayala Cruz, Department of Agriculture of Puerto Rico, Francisco de León Cruz, Francisco Morales Rodriguez, Emeterio Sanchez Lopez, Hermanos Fernandez Garzot, Zoila Rodriguez de León, Cangrejos Rural Community and partially with Sucesión Luis Pou, Sucesión Feliciano Diaz Vellon, Eladio Vellon Cruz; on the East, Caribbean Sea, Palmas del Mar Company, Municipal Road to Buenavista ward, State Road Nine Hundred Six (906), Carmen Pou, Sucesión Luis Pou, Teresa de Thomas, Sucesión Luciano Rios, Marcos Encarnación Vargas, Susana Cruz Burgos; Sucesión Maria Diaz Torres, Modesta Cruz Solis, Cangrejos Ward Community; on the West, Juan Robledo, Jose Robledo, Eduardo Rios, Sucesión Feliciano Diaz Vellón, Juan Cruz Diaz Vellón, L. Ortiz, Eladio Vellón Cruz; Marcos Encarnación Vargas, Susana Cruz Burgos, Sucesión Victor Lazú Delgado, Sucesión Laureano Hernandez, Sucesión Laureano Hernandez, Sucesión Maria Diaz Torres, Sucesión Belen Cruz, State Road Number Nine Hundred Six (906), Ernesto Morales Rodriguez, Sucesión Maria Cruz de León, Sucesión Martin Cruz, Sucesión Petra Cruz, Sucesión Carlos Ayala Cruz, Raman Sanchez Ortiz, Zoila Rodriguez de León, Cangrejos Rural Community, State Road Number Three (3). With the above described parcel there are four (4) enclosed parcels, one of five cuerdas and four thousandths of another (5.004 cuerdas) and one of five cuerdas and sixteen thousandths of another (5.016 cuerdas) belonging to Palmas del Mar Company, one of nine cuerdas as five hundred and forty thousandths of another (9.540 cuerdas) belonging to Palmas Beach Village Company, and the fourth, one of six cuerdas eight thousand nine hundred forty nine ten thousandths of another (6.8949 cuerdas) belonging to Sucesión Patricio Russi Solis.”

This property was grouped as one independent, distinct and individual parcel pursuant to the terms of Deed Number Seventeen (17), of Consolidation of Real Property executed on August thirty one (31), nineteen hundred seventy three(1973), before Notary Public Guillermo A. Nigaglioni and recorded at page one hundred sixty five (165), volume two hundred forty (240), of Humacao, property number eight thousand seven (8777) hundred seventy seven, first inscription, as to the portion of property located in Humacao and at page one (1), volume one hundred thirty two (132) of the Registry of the Property of Puerto Rico, Yabucoa Section, property number five thousand eight hundred twenty seven (5827), first inscription, as to the portion of property located in Yabucoa.

SEVENTH: According to paragraph twelve (12), section B of said Deed Thirteen (13) of Nineteen seventy two (1972), the Association can amend said Deed.

Paragraph twelve (12) read as follows:

Section B. Amendments: This Declaration can be amended at any time provided that three fourths (3/4) of the votes cast, either by referendum or at a duly called meeting of the Association, vote in favor of the proposed amendment. In the event the amendment is requested through a duly call meeting notice shall be given at least thirty (30) days prior to the date of the meeting at which such proposed amendment is to be considered. If any proposed amendment to this Declaration is approved by the Members as set forth above, the President and Secretary of the Association shall execute a Deed of Amendment to this Declaration which shall set forth the amendment, the effective date of the amendment, the total number of votes necessary to adopt the amendment, and, if the amendment was requested through a meeting, the date of the meeting at which such amendment was adopted, the date that notice of such meeting was given the total number of votes of members of the Association, the total number of votes required to constitute a quorum at a meeting of the Association, the number of votes necessary to adopt the amendment and the total number of votes cast against the amendment. Such Deed of Amendment shall be recorded in the Registry of the Property of Puerto Rico, Humacao Section.

EIGHT: Pursuant to Notice of Meeting given on or before the fifth (5) day of March of nineteen ninety seven (1997), amendments and restatement to the Covenants and Declaration of Deed number five (5) of nineteen eighty five (1985) and of Deed number four (4) of nineteen seventy six (1976), and of Deed number sixteen (16) of nineteen seventy three (1973) and of Deed number thirteen (13) of nineteen seventy two (1972) were voted upon on April five (5) nineteen ninety seven (1997) at a duly called meeting.

NINTH: The total number of eligible votes in the Association was two thousand four hundred sixty five (2,465). The total number of votes required for a quorum was one thousand four hundred seventy nine (1,479). The number of votes necessary to adopt the amendments was one thousand two hundred ninety nine (1,299).

TENTH: The total number of votes, cast in favor of the amendments was one thousand seven hundred seventy four (1774), the total number of votes cast in opposition to the amendments was thirty two (32). Present were one thousand eight hundred six (1,806) eligible votes either in person or by proxy, therefore quorum was established.

ELEVENTH: In view of the above, it is now the desire of the Association to amend by restatement the covenants set forth in the preceding paragraphs and to such effect the parties herein do amend the said Deed so that henceforth it shall read as follows:

AMENDMENT BY RESTATEMENT

DEFINITIONS

I. DEFINITIONS The following words and terms when used in this Declaration or any supplemental declaration (unless the context shall clearly indicate otherwise) shall have the following meanings:

A. “Affiliate” shall mean any corporation of which more than fifty percent (50%) of the voting stock is owned or controlled by the company and any partnership or joint venture in which the company has more than fifty percent (50%) proprietary interest.

B. “Amenities and Sport Facilities” shall mean property utilized for any recreational and/or sport facilities, with the exception of Common Properties, Restricted Common Properties and Purchased Common Properties, designated as such by the Company on its Master Plan including but not limited to golf courses, equestrian center, nurseries, botanical parks, marinas, tennis courts and the like.

C. “Association” shall mean and refer to the Palmas del Mar Homeowners Association, Inc., a Commonwealth of Puerto Rico non profit corporation, its successors and assigns.

D. “Board of Directors” or ” Board” shall mean and refer to the Board of Directors of the Association.

E. “Commercial Lot and Commercial Unit” A Commercial Lot shall mean any unimproved parcel of land within the Properties, with the exception of Common Properties, Restricted Common Properties and Purchased Common Properties, intended for a commercial use as designated on the Master Plan. A Commercial Unit shall mean an improved Commercial Lot, for which a use or occupancy permit has been issued, designed and/or, utilized for any commercial or business enterprises serving residents and guests of the Palmas d Mar Development and/or the public, including but apt limited to, business and professional and services, banks or other financial institutions, restaurants, hotels, motels, inns, theaters, lounges and gasoline stations, provided, however, that a “Commercial Lot and Commercial Unit” shall not include property upon which improvements are to be built which also qualifies as a Family Lot or Family Dwelling Unit. A Commercial Lot shall be deemed to be unimproved until the improvements being construed thereon are complete and a commercial use permit is issued for such improvements.

F. “Common Property or Properties” shall mean and refer to those tracts of land identified as such in official Company plats or which are actually deeded or leased to the Association and designated in said deed or lease as “Common Properties”. The term “Common Properties” shall also include any personal property acquired by the Association if said property is designated as “Common Property”. All Common Properties are to be. devoted to an intended for the common use and enjoyment of the Owners, their families, guests of the Owners, persons occupying dwelling places or accommodations of Owners on a guest or tenant basis, and visiting members of the general public subject to the fee schedules and operating rules adopted by the Association to the extent permitted by law, provided however, that any lands which are leased by the Association for use as Common Properties, shall lose their character as Common Properties upon the expiration of such lease. Common Properties shall not include those tracts of land falling within the definition of “Restricted Common Properties” set forth below.

G. “Community Facilities Lot and Community Facilities” A Community Facilities Lot shall mean any unimproved parcel of land within the Properties, with the exception of Common Properties, Restricted Common Properties and Purchased Common Properties, intended for Community Facilities use. Community Facilities shall mean an improved Community Facilities Lot, for which a use or occupancy permit has been issued, designated and/or utilized to serve residents and guests of Palmas del Mar Development and/or the public. Such term shall include, but not be limited to, places of worship, community, civic, social and cultural clubs and center, libraries, nursery and other schools of special instruction, medical centers, hospitals, clinics, nursing, care, rest and convalescent homes and charitable institutions. A Community Facilities Lot shall be deemed to be unimproved until the improvements being constructed thereon are complete and a use permit is issued for the particular use intended.

H. “CommunityWide Standard” shall mean the standard of conduct, maintenance, or other activity generally prevailing throughout the Properties. Such standard shall be established by the Developer and may be more specifically defined under the Design Guidelines, the rules and regulations or the Association and its Board resolutions.

I. “Delegate” shall be that person, or his alternate, appointed by the Board of Directors of a regime, condominium, association or a Neighborhood Area to represent the association or Neighborhood Area at any meeting of the Association. The use of the term Delegate shall also refer to his alternate, when, at such times, the Delegate is unable to perform his duties.

J. “Developer” or “Company” shall mean Palmas del Mar Company, its successors and such of its assigns to which all or any portion of the rights of the Developer hereunder are assigned by written instruments recorded in the Registry of Property of Puerto Rico, Humacao Section. In the event of a full assignment of all of the Developer’s rights hereunder to a successor, assignee, or pledgee, the result of which is that the Developer named herein shall no longer have any rights hereunder, such successor or assignee shall be deemed the Developer for all purposes hereunder. In the event of an assignment of less than all of the rights of the Developer, the assignee shall not be deemed the Developer, but may exercise such rights of the Developer as are specifically assigned to it. Any assignment of Developer’s rights may be on a nonexclusive basis, and any assignment described herein may be further assigned, in whole or in part, by the assignee thereunder, unless restricted or prohibited in the assignment made by the Developer or a prior assignee. Nothing contained in this Declaration shall be effective or construed to limit any of the foregoing rights of the Developer to make any or all of the assignments provided for herein.

K. “Declaration” or “Covenants” or “Covenants and Restrictions” shall mean the Declaration of Rights, Restrictions, Covenants and Constitution of Restrictive Covenants and Establishment of Provisions for the Palmas del Mar Homeowners Association, Inc.

L. “Development” shall mean Palmas del Mar, either the existing development or future development to be constructed on the Properties.

M. “Family Dwelling Unit” shall mean and refer to any improved property, for which a use or occupancy permit has been issued, intended for use as a single family detached dwelling, patio house, condominium unit, or town house unit, located within the Properties.

N. “Intended for Use” shall mean the use intended for various parcels within the Properties as designated on the Master Plan for the Properties prepared by or for the Company as the same may be revised from time to time by the company, or the use to which any particular parcel of land is restricted by Covenants expressly set forth or incorporated by reference in deeds by which the Company has conveyed the property.

O. “Master Plan” shall mean and refer to the drawing which represents the conceptual plan of the company for the development of the Palmas del Mar community. Since the concept of the future development of Palmas del Mar is subject to continuing revision and change, present and future references to the “Master Plan” shall be references to the latest revision thereof.

P. “Member” or “Membership” shall mean and refer to all those Owners who are Members of the Association as provided in Section A of Article III hereof. A Member in good standing shall be a Member who is not in violation of the provisions of these Covenants including the performance of his assessment obligations hereunder, either by payment and/or through the approval of and compliance with a payment or other plan by the Board of Directors. Notwithstanding the aforesaid or anything to the contrary in the Certificate or these Covenants, nothing herein shall be construed or interpreted as adversely affecting or in any manner or form diminishing or lessening the existing rights and privileges of the company granted in the Certificate or pursuant to these Covenants.

Q. “Mortgagee” shall mean any bank, savings and loan association, insurance company, mortgage company real estate investment trust, agency of the United States or Puerto Rican government, or a lender generally recognized in the community as an institutional lender, any of which holds a mortgage encumbering any portion of the Property, any assignee of a loan made by one of the foregoing, Palmas del Mar Company, any of its subsidiaries or affiliated companies or entities, the Developer or any other lender designated as such by the Developer in a Supplemental Declaration.

R. “Neighborhood Area” shall mean and refer to those parcels, tracts or lots of land located in close proximity to each other which are intended for, and have been subdivided for, use as sites for Family Dwelling Units, and which are approved by the Board of Directors of the Association as a “Neighborhood Area” pursuant to such rules and regulations as may be established by the Board.

S. “Owner” shall mean and refer to the Owner as shown by the records in the Registry of the Property of Puerto Rico, Humacao Section whether it be one or more persons, firms, associations, corporations, or other legal entities, of fee simple title to any Residential Lot, Family Dwelling Unit, Community Facilities Lot, Commercial Lot, Community Facilities, Commercial Unit or Rural Tract situated upon the Properties but, notwithstanding any applicable theory of a mortgage shall not mean or refer to the mortgagee, its successors and assigns, unless and until such mortgagee has acquired title pursuant to foreclosure or a proceeding of deed in lieu of foreclosure.

The term “Owner” shall not mean or refer to any lessee or tenant of an Owner.

In the event that there is a recorded in the office of the Registry of the Property of Puerto Rico, Humacao Section, a longterm contract of sale covering any lot or parcel of land within the Properties, the Owner of such lot or parcel of land shall be the purchaser under said c tract and not the fee simple title holder. A longterm contract of sale shall be one where the purchaser is required to make payment of the property for a period extending beyond nine months from the date of the contract and where the purchaser does not receive title to the property until such payments are made although the purchaser is given the use of said property.

T. “Properties” shall mean and refer to the Existing Property described in Article III, Section A thereof, and additions thereto, as are subjected to this Declaration or any supplemental declaration under the provisions of Article III, Section B.

U. ‘Purchased Common Properties” shall mean and refer to those tracts of land with any improvements thereon, acquired by the Association, to be operated as a Membership recreational facility with Membership criteria to be selected and determined by mutual agreement between the Association’s Board and the Company or other owner of such facilities and user costs and operating rules for such facilities to be determined by the Board of Directors of the Association.

V. “Referendum” shall mean and refer to power of all or some specific portion of the Members to vote by mailed ballots on certain actions by the Board of Directors of the Association as provided in this Deed or the Bylaws.

W. “Residential Assessment” shall mean that assessment charged to any Residential Unit within Palmas del Mar. A unit shall become a Residential Unit at such time that a Use Permit is issued on the unit.

X. “Residential Lot’ shall mean any unimproved parcel of land located within the properties, with the exception of the Common Properties, Restricted Common Properties and Purchased Common Properties, which is intended for use as a site for a single family detached dwelling or patio dwelling, duly recorded or presented for recordation in the Registry of Property of Puerto Rico, Humacao Section as a separate, distinct and individual parcel pursuant to the execution of a deed of segregation to such effect. A Residential Lot shall be deemed to be unimproved until the improvements being constructed thereon are completed and a use or occupancy permit is issued for such improvements.

Y. “Residential Unit” shall mean any Family Dwelling Unit for which a Use Permit has been issued,

Z. “Resort Area” shall mean and refer to all those parcels or tracts of land included within the Palmas del Mar community designated as such by the Company and so identified in official Company plate.

AA. “Restricted Common Properties” shall mean and refer to those tracts of land with any improvements thereon which are actually deeded or leased to the Association and designated in such deed or lease as “Restricted Common Properties.” All Restricted Common Properties are to be devoted to and intended for the common use and enjoyment of Owners of Residential Lots and Family Dwelling Units, their immediate families, guests accompanying such Owners tenants of such Owners holding leases of six (6) months duration or longer, and the Company, and to be closed to use of: (a) tenants of such Owners holding leases less than six (6) months duration; (b) resort accommodation “paying guests,” (c) visiting members of the general public, with all use of Restricted Common Properties to be subject to the fee schedules and operating rules adopted by the Association. Any lands which are leased by the Association for use as Restricted Common Properties shall lose their character as Restricted Common Properties upon the expiration of such lease.

BB. ‘Rural Tract’ shall mean and include all property within the Properties not classified as other types on land or building under (E, F, G, M, U, X and AA) above and (U and Y) infra, including undeveloped lands owned by the Company.

CC. “Security” shall not mean protection by the Association from bodily harm or personal injury to any person within the Palmas del Mar Properties or protection of property of any Owner or Member of the Association. Protection from bodily harm, or theft or destruction of property, is the responsibility of the local municipality.

DD. ‘Support Facilities” shall mean property utilized in the maintenance and service of the Palmas del Mar Community designated as such by the Company on its Master Plan including but not limited to airport facilities, warehouses, utilities (including the property of PDM Utility Corporation), transportation systems, automobile parking facilities and the like.

EE. “Voting Certificate” shall be a document signed by the board of directors of a regime, condominium or other association, or by the Neighborhood Area chairman, authorizing the Delegate from the regime, condominium or other association, or Neighborhood Area, to cast the votes of that regime, condominium or other association or Neighborhood Area at a Membership meeting of the Association in the manner reflecting the results of the votes cast by the Owners in that regime, condominium or other association or Neighborhood Area.

FF. “Voting Districts” shall mean a geographic area designated by the Board, which area shall be entitled to elect one (1) Directors to the Association Board of Directors.

PROPERTY

Existing Property

Section A Existing Property. The real property which is, and shall be held, transferred, sold, conveyed, given, donated, leased and occupied subject to these covenants is described as follows:

(PROPERTY DESCRIPTIONS DELETED SEE LEGAL TEXT)

All of the real property herein above described shall sometimes be referred to herein as the “Existing Property.”

The Company intends to develop the Existing Property in accordance with the Master Plan prepared by or for the Company and placed on display in its reception and sales office and other areas. The Company reserves the right to review and modify the Master Plan at it’s sole option from time to time based upon its continuing research and design program. The Master Plan shall not bind the Company, its successors and assigns to adhere to the Master Plan in the development of the land shown thereon. Subject to its right to modify and convey to the Association properties designated for such use on official Company plats, and in addition, may at its option convey, to the Association, as provided in Article III, those parcels of land designated as properties which may be transferred to the Association on the Master Plan, as in the reasonable exercise of its discretion, it so chooses without regard to the relative location of such portions or sections within the overall plan. The, Company shall not be required to follow any predetermined sequence or order of improvements and developments and it may bring within the plan of these covenants additional lands, and develop the same before completing the development of the Existing Property. The Company shall have full power to add to, subtract from, or make changes in, the Master Plan regardless of the fact that such actions may alter the relative voting strength of the various types of Membership of the Association.

Additions, Mergers and/or Reductions to Existing Property

Section B Additions, Mergers and/or Reductions to Existing Property. Lands may become subject to, or released from this Declaration in the following manner: (a) Additions The Company, its successors and assigns shall have the right, but not the obligation, without further consent of the Association, to bring within the plan and operation of this Declaration, additional Properties in future stages of the Development. The additions authorized under this and the succeeding subsection, shall be made by filing at the Registry of the Property of Puerto Rico, Humacao Section, a Public Deed with respect to the additional Property which shall extend the operation and effect of the Covenants and Restrictions of the Declaration to such additional Property.

The aforesaid Public Deed may contain such complementary additions and modifications of the Covenants and Restrictions contained in this Declaration as may be necessary or convenient, in the judgment of the Company, to reflect the different character, if any, of the added Properties and as are not inconsistent with the plan of this Declaration, but such modifications shall have no effect on the property described in Section A, Article II above.

(b) Other Additions Upon approval in writing of the Association, pursuant to threefourths (75%) of the total votes of the Association as represented by their Delegates, at a duty called meeting, the Association, with the consent of the owner of the property, may subject additional property to these Covenants and Restrictions by filing a Public Deed at the Registry of the Property of Puerto Rico, Humacao Section, with respect to his property which shall extend the operation and effect of the Covenants and restrictions of the Declaration to such property.

The aforesaid Public Deed may contain such complementary additions and modifications of the covenants and Restrictions contained in this Declaration as may be necessary or convenient, in the judgment of the Association, to reflect the different character, if any, of the added Properties and as are not inconsistent with the plan of this Declaration.

(c) Mergers Upon a merger or consolidation of the Association with another association as provided for in the Bylaws of the Association, its Properties, rights and obligations may, by operation of law, be transferred to another surviving or consolidated association, or, in the alternative, the properties, rights and obligations of another association may, by operation of law, be added to the properties of the Association as a surviving corporation pursuant to a merger. The surviving or consolidated association may administer the Covenants and Restrictions established by this Declaration within the Existing Property, together with the covenants and restrictions established upon other properties

(d) Reductions The Company, its successors and assigns, shall have the right, without further consent of the Association, to release from the plan and operation of this Declaration certain undeveloped parcels. The reductions authorized under this subsection shall be made by filing at the Registry of the Property of Puerto Rico, Humacao Section, a Public Deed with respect to such undeveloped parcel(s) releasing same from the operation and effect of the Covenants and Restrictions of the Declarations.

MEMBERSHIP AND VOTING RIGHTS IN THE ASSOCIATION

Membership

Section A. Membership:

Every Owner shall be a Member of the Association. The Company shall be a Member of the Association.

Voting Rights

Section B. Voting Rights:

The Association shall have four (4) types of voting Membership. No Member shall have the right to vote at any regular or special meeting, or in any referendum, unless all such Member’s assessments and any interest, late charges, administrative fees, attorney’s fees or other charges, due thereon are paid and/or the compliance with a payment or other plan that has been secured from the Board of Directors as of the record date for such meeting or Referendum. Notwithstanding the aforesaid or anything to the contrary in the Certificate or these Covenants, nothing herein shall be construed or interpreted as adversely affecting or in any manner, or form diminishing or lessening the existing rigs and privileges of the Company granted the Certificate or pursuant to these Covenant

Type ‘A’ Type ‘A” Members shall be all those Owners of Residential Lots and Family Dwelling Units recorded in the Property Registry as individual properties. A Type “A” Member shall be entitled to one (1) vote for each Family Dwelling Unit and/or Residential Lot which he owns.

Type “B” Type “B” Member shall be all those Owners of Commercial Lots shown on recorded plats for which a construction permit has been issued to develop same. A Type “B” Member shall be entitled to one (1) vote for each one (1) acre, or fraction thereof, contained in the commercial Lot which such Type “B” Member owns.

Type “C” Type “C” Members shall be all those Owners of Commercial Units. A Type “C” Member shall be entitled to one (1) vote for each one thousand (1000) square feet, or fraction thereof, contained in the Commercial Unit which he owns.

Type “D” Type “D” Members shall be the Owners of Rural Tracts within the Palmas del Mar boundaries. A Type “D” Member shall be entitled to one (1) vote for each five (5) acres of rural land owned, including that owned by the Company. When any property entitling the Owner to Membership as Type “A”, “8”, “C” or “D” Member of the Association is owned of record in the name of two (2) or more persons or entities, whether fiduciaries, joint tenants in common, joint or common ownership, or if two (2) or more persons or entities have the same fiduciary relationship respecting the same property, the vote for such Membership shall be exercised as the parties decide among themselves and advise the Secretary of the Association, in writing, at least thirty (3) days prior to the meeting. In the absence of such advice, if more than one Owner wishes to vote, then the vote for that Membership shall be void.

Voting Districts

Section C: Voting Districts As the Palmas del Mar community develops, the Owners of the Properties will be designated Type “A”, “B”, “C” or D” Members. In order to guarantee all Owners representation on the Board of Directors, the Board shall establish Voting Districts. A Voting District shall be a geographic area that contains any or all of the following: Residential Units, Residential Lots, Commercial Units, Commercial Lots or Rural Tract Acreage. Each Voting District shall be represented on the Board of Directors by at least one (1) Director. At large Directors may be elected by all of the voting Members of the Association, provided that at no time shall there be more than thirteen (13) Directors. Each director shall have one (1) vote on the Board of Directors. For example, if one (1) Voting District is established by the Board, that Voting District shall be represented by one (1) Director. The balance of the Directors will be elected at large, by all of the Members of the Association, with the exception of the Company. Notwithstanding anything to the contrary above, the Company shall not be entitled to appoint more than five (5) Directors to the Board of Directors without the approval of the Directors elected by the Membership.

After the date of recordation of the amendments to this Declaration, representation on the Board shall be reduced as follows:

After the closing of the next one thousand (1,000) residential units in Palmas del Mar, the Company shall be entitled to appoint four (4) Directors;

After the closing of the next two thousand (2,000) residential units in Palmas del Mar, the Company shall be entitled to appoint three (3) Directors;

After the closing of the next three thousand (3,000) residential units in Palmas del Mar, the Company shall be entitled to appoint two (2) Directors.

Until the last residential unit in Palmas del Mar is ,closed, the Developer shall be entitled to appoint two (2) Directors to the Board.

Directors from Voting Districts shall be elected by the President or his appointed representative, of each regime, condominium or other association, or the Chairman of the Neighborhood Areas within the Voting District.

The President, or his appointed representative, of each regime, condominium or other association, or the chairman of the Neighborhood Area, shall each have one (1) vote in the election of the one (1) Director to represent their Voting District, regardless of the number of units or homes within the respective association or Neighborhood Areas. (This voting procedure is designed to limit high density areas within a Voting District from controlling the election of the Director from that Voting District.)

At the first election of Directors from a Voting District, the one (1) Director shall be elected for a period of three (3) years. Thereafter, the one (1) Director from each Voting District shall be elected at such time as the Director’s term expires or the Directorship becomes vacant due to resignation, death or any other reason.

 

Until the establishment of Voting Districts by the Board, all Directors representing the Class B Membership shall be elected by the Membership atlarge.

Delegates

Section D: Delegates The Board of Directors of each regime, condominium or other association, or Neighborhood Area, shall appoint a Delegate, and an alternate, who shall act in the absence of the Delegate, to represent the regime, condominium or other association, or Neighborhood Area at meetings of the Membership. The Delegates shall represent all of the Owners in the regime, condominium or other association, or Neighborhood Area, with regards to the establishment of a quorum as Membership meetings. (i.e. If a Delegate lives in a condominium that .has 100 units, attendance at a meeting of the Membership by the Delegate shall constitute attendance by all 100 Owners with regards to establishing a quorum,)

Votes to be cast at a meeting of the Membership shall be cast by the Delegate in the following manner. The Delegate shall inform the Board of Directors of the regime, condominium or other association, or the chairman of the Neighborhood Area, that a vote on a particular item is required by all Owners within the condominium or other association, or Neighborhood Area. After the voting by the Owners is completed, the Board of Directors shall sign a Voting Certificate indicating the results of the vote. (i.e. If a condominium has 100 units, and 50 owners vote yes, 20 owners vote no and 30 owners do not vote, the Board shall authorize the Delegate to cast 50 votes yes, 20 votes no with 30 Owners not voting.) The Voting Certificate, signed by the Board, shall be presented by the Delegate to the Association Board of Directors. The Association Board of Directors shall tally all of the Voting Certificates from the regimes, condominiums or other associations, or Neighborhood Areas, to determine the results of the vote.

PROPERTY RIGHTS IN COMMON PROPERTIES

Members Obligation to Maintain Roadways

Section A. Members Obligation to Maintain Roadways: The Association, in the best interest of all its Members, shall be authorized to repair, rehabilitate, resurface and otherwise maintain the roadways and streets (except those found within a condominium regime or other private property) and to provide for the maintenance and cleanup of rightofway; to provide drainage along said roadways, and to provide for motorized security patrols. The Board of Directors of the Association shall request from the concerned governmental entities the power to place any reasonable restrictions upon the use of roadways and streets within Palmas del Mar including, but not limited to, the types and sizes of vehicles permitted to use said roads, the maximum and minimum speeds of vehicles using said roads, all other necessary traffic and parking regulations, and the fact that maximum noise levels of vehicles using the roads shall be more restrictive than the laws of Puerto Rico shall not make such restrictions unreasonable.

Members Easements of Enjoyment in Common Properties

Section B. Member’s Easements of Enjoyment in Common Properties: Subject to the provisions of these Covenants, the rules and regulations of the Association, and any fees or charges established by the Association, every Member and every tenant and guest of such Member shall have a right and easement of enjoyment in and to the Common Properties. Such easement shall be appurtenant to, and shall pass with, the title of every Property within Palmas del Mar. The privilege granted to guests and tenants of six (6) months or less of Members to use and enjoy the Common Properties may be denied to or withdrawn from such guests or tenants of six (6) months or less by an affirmative vote of ninety percent (90%) of the votes cast by Referendum called for the purpose of voting on such denial or withdrawal

Members Easements of Enjoyment in Restricted Common Properties

Section C. Members Easements of Enjoyment in Restricted Common Properties: Subject the provisions of these Covenants, the rules and regulations of then Association, and any fees or charges established by the Association, all Type

“A” and “D” Members, shall have a right and easement of enjoyment in and to the Restricted Common Properties and such easement shall be appurtenant to, and shall pass with, the title of every Residential Lot and Family Dwelling Unit. By an affirmative vote of ninety percent (90%) of the votes cast by Referendum called for the purpose of voting on such proposal, a “Restricted Common Property” may be changed into an unrestricted Common Property.

Title to Common Properties and Restricted Common Properties

Section D. Title to Common Properties and Restricted Common Properties From time to time, the Developer shall have the right, but not the obligation, to convey to the Association, title to the Common Properties or Restricted Common Properties subject to such additional Covenants and restrictions as the Developer deems appropriate. All said parcels of land for Common Properties may be conveyed to the Association subject to all Restrictive Covenants of record at the time of the conveyance and subject to any existing mortgages. All Common Properties or Restricted Common Properties, either improved or unimproved, may be conveyed to the Association subject to: (1) all Restrictive Covenants of record at the time of the conveyance; and (2) all existing mortgages. The obligation to make payments of principal and interest in accordance with their due dates on all mortgages affecting property conveyed to the Association, except mortgages on Purchased Common Properties (as described herein below in Section E of this Article IV) shall continue to be the sole obligation of the Company or any affiliate of the Company as the case may be. Notwithstanding anything in the foregoing to the contrary, the Company shall not be required to convey the above referred to parcels where such conveyance would be prohibited under agreements ‘existing on the date hereof but, in such case, shall be allowed to postpone such conveyance, without penalty, until such time as said prohibition may be nullified.

Purchased Common Properties

Section E. Purchased Common Properties Subject to the provisions of these Covenants, the rules and regulations of the Association, and any charges established by the Association, every Type “A” Member shall have a right and easement of enjoyment in an to any property now or hereafter designated “Purchased Common Properties” pursuant to this Declaration. “Purchased Common Properties” may not be acquired by the Association unless approved by Referendum of Type “A” Members. In the event such approval is obtained, the company may elect to receive in lieu of a cash payment, a first mortgage and the Association’s promissory note for the purchase of such properties at the then prevailing interest rates for loans of that type of property from commercial lending institutions. Except for such Purchased Common Properties the Company may not require the Association to pay for the type of property to be conveyed to the Association such as those described in section G of this Article.

Extent of Member’s Easement

Section F. Extent of Member’s Easement The rights and easements of enjoyment created hereby shall be subject to the following:

(a) The right of the Company and of the Association, in accordance with its Bylaws, to borrow money from the Company or any other lender for the purpose of improving and/or maintaining the Common Properties and Restricted Common Properties; the right of the Association to assume and pay any liens or encumbrances against the property at the time of conveyance; and (b) The right of the Association to take such steps as are reasonably necessary to protect the above described Properties against foreclosures; and (c) The right of the Association, as provided in its ByLaws, to suspend the rights and easements of enjoyment of any Member, or guest or tenant of any Member, for any period during which any assessment remains unpaid for a period of thirty (3) days, and for any period not to exceed sixty (6) days for any infraction of its published rules and regulations, it being understood that any suspension for either nonpayment of any assessment or a breach of the said rules and regulations of the Association shall not constitute a waiver or discharge of the Member’s obligation to pay the assessment; and

(d) The right of the Association to charge reasonable admission and other fees for the use of the Common Properties, Restricted Common Properties and Purchased Common Properties and/or facilities therein to the extent permitted by law; and

(e) The right of the Company or the Association, by its Board of Directors to dedicate or transfer to any public or private utility, utility easements on any part of the Common Properties, Restricted Common Properties’ and Purchased Common Properties; and (f) The right of the Association to give or sell all or any part of the Common Properties and Restricted Common Properties including leasehold interest to any public agency, authority, or utility or private concern for such purposes and subject to such conditions as may be agreed to by the Members, provided that no such gift or sale or determination as to the purposes or as to the conditions thereof shall be effective unless such dedication, transfers and determinations as to purposes and conditions shall be authorized by the affirmative vote of twothirds (2/3) of the total votes of the Association cast by Referendum or at a duly called meeting of the Association for this purpose. For the purpose of this Section only, Members not in good standing will be permitted to vote. A true copy of such resolution together with a certificate of the results of the vote taken thereon shall be made and acknowledged by the President or Vice President and Secretary or Assistant Secretary of the Association and such certificate shall be annexed to any instrument of dedication or transfer affecting the Common Properties or Restricted Common Properties or Purchased Common Properties, prior the recording thereof

Such certificate shall be conclusive evidence of authorization by the Membership; and The rights of reversion of the lessor of any Common Properties, Restricted Common Properties or Purchased Common Properties leased by the Association upon expiration of the lease; and (g) The right of the Developer and/or the Association, as to property owned by either of them, to grant and reserve easements and rights of way in, through, under, over and across the Properties for the installation, maintenance and inspection of transmission lines and appurtenances for public or private electric, telephone, water, sewer, drainage, cable television, monitoring systems, structures and facilities and other utilities in connection with the Developer’s development of the Property, the construction of buildings and units, and the Association’s performance of its duties and obligations.

(h) The right of the Developer to establish, grant and create in favor of the Association, and all Owners easements, licenses, rights and privileges;

(i) for ingress and egress by vehicles and pedestrians, in, through, over, under and across the streets, roads and walks within the Common Properties, Restricted Common Properties and Purchased Common Properties;

(j) to connect with, maintain and make use of utility lines, wires, pipes, conduits, cable television lines, monitoring systems, electric and telephone lines and equipment, water, sewer and drainage lines which may from time to time be in or along the streets and roads or other areas of the Common Properties, Restricted Common Properties or Purchased Common properties; and (iii) to the Owner (s) of a Commercial Lot or Commercial Unit, and its guests, invitees and agents, a nonexclusive easement for pedestrian and nonvehicular ingress and egress over, through and across the Common Properties and all other portions of the Property for the purpose of access to and from a Commercial Lot or Commercial Unit, and the right to make such corrections to utilities to serve the Commercial Lot or Commercial Unit and improvements now or hereafter constructed therein. Such easements and utility constructions shall be over, through and across such property as shall be designated by the Developer.

Conveyance of Common Properties

Section G. Conveyance of Common Properties The Company shall convey to the Association, and the Association shall accept such conveyance, upon the closing of ninety (90%) percent of the units as defined in the Master Plan, subject to any existing mortgages and to all the restrictions and limitations of the various Articles o this Declaration, the following properties:

As Common Properties: (1) all walkways and roadway easements and rightsofway within the Properties connecting all Residential Lots, Family Dwelling Units, and Community Facilities and Commercial Units; (2) the beach area owned by the Company (not included in any parcel conveyed to others) lying within twenty (20) meters of the high water mark, other than those areas used for decks, swimming pools, and other ocean side improvements of Family Dwelling Units, Community Facilities and Commercial Units, and the immediate surrounding area; (3) all bike trails, lakes, watercourses and lagoons not contained within Community Facilities Lots, or Commercial Lots; (4) all ball fields, playgrounds, community common parks and the like, not contained within Community Facilities Lots, or Commercial Lots within one (1) or more condominium regimes; (5) all nature preserves and historic sites set aside for permanent protection on the Company’s Master Plan; (6) all boardwalks and other trails providing common use trails to the beach; (7) the security gate house(s) and emergency rescue facilities; if any. At its discretion, the Company may convey its interest in any utility system within the Properties, or offsite connections thereto, including water, sewage, electrical and telephone facilities. Of these Common Properties, the company expects to deed to the Homeowners Association, over a period of years, certain areas committed to green space, lakes, water courses, parks, passive recreation uses and conservancies. In addition, the Company expects to be in compliance with Puerto Rican statutes, deed or transfer, over a period of years, to the Government of Puerto Rico roads, circles and accompanying rightsofway within the Properties.

(b) As Restricted Common Properties There shall be conveyed to the Association the site for Golf Members Clubhouse but not the Pro Shop, bag storage rooms, cart storage area, golf maintenance area, parking lots, driving range and. the entire golf course, all of which will be retained by the Company and operated as a Sport Facility.

COVENANTS FOR MAINTENANCE ASSESSMENTS

Creation of the Lien and Personal Obligation of Assessments

Section A. Creation of the Lien and Personal Obligations of Assessments. The Company and each Owner by acceptance of a deed, whether or not it shall be so expressed in any such deed or other conveyance, shall be deemed to covenant and agree to all the terms and provisions of this Declaration and to pay to the Association:

(1) Annual assessments or charges and (2) special assessments or charges for the purposes set forth in Section D of this Article, such assessments to be fixed, established and collected from time to time as hereinafter provided. The annual and special assessments together with such interest, late charges, administrative fees, attorney’s fees and other charges thereon, and costs of collection thereof as hereinafter provided, shall be a charge and continuing lien on the real property and improvements thereon against which each such assessment is made. Each such assessment, together with such interest, late charges, administrative fees, attorney’s fees and other charges thereon, and cost of collection thereof as hereinafter provided, shall also be the personal obligation of the person(s) or entity(ies) who was the Owner of such real property at the time when the assessment first became due and payable. In the case of coownership all of such coowners shall be jointly and severally liable for the entire amount of the assessment.

Purpose of Assessments

Section B. Purpose of Assessments The annual assessments levied by the Association shall be used exclusively to carry out the functions of the Association as described in Article VI of this Declaration entitled “Functions of the Association.” In addition, such assessments may be used to make payments of principal and interest as consideration for the conveyance by the Company to the Association of Purchased Common Properties, if any such conveyance shall be offered by the Company and approved by Member Referendum as herein provided, such payments being made both at the, time of conveyance to the Association and subsequently in payment of promissory note(s) secured by mortgages on such Purchased Common Properties in amounts sufficient to amortize the debt for any such conveyance over a twenty (20) year term. In the case of annual operation of Purchased Common Properties, all funds necessary for such operation shall not be derived from the assessments levied by the Association but rather from user charges and annual user dues for the particular facility. Such user charges and used rues shall be in addition to, and not in lieu of, any other assessments herein provided for. No initiation fee may be charged to Members as a precondition to use of such Purchased Common Properties facilities, and distinguished from the annual and daily user charges hereinafter referred to, and all Members shall be entitled to identical levels of charges at all times. The special assessments shall be used for the purposes set forth in Section D of this Article.

Basis and Maximum Annual Assessments

Section C. Basis and Maximum Annual Assessments At least sixty (6) days prior to the start of the Association’s fiscal year, the Board of Directors shall prepare an annual budget representing the sums necessary for the operation of the Association. The Board shall send a copy of the final budget along with the notice of the amount of the annual assessment to be levied pursuant to such budget to each Owner at least thirty (30) days prior to the effective date of such budget. The budget shall automatically become effective unless disapproved at a meeting of the Members by a vote of at least seventy five (75%) percent of the total vote of the Membership of the Association. There shall be no obligation to call a meeting to consider the budget except on petition of the Members to call a Special Meeting as set forth in the By Laws. At such time as Delegates are elected to represent the Owners, a vote of those Delegates representing seventy five (75%) percent of the Members will be required to reconsider the budget.

The total annual assessments, and any supplemental assessments, shall be allocated between, assessed to and paid by, the Members based on the formula shown below.

Residential Assessment Unit A Residential

Assessment Unit shall be that assessment charged to a Residential Unit, regardless of the size or status of the Residential Unit.

Residential Unit All Residential Units shall be assessed equally regardless of the size or status of the Residential Unit. Units shall be assessed as Residential Units at the time a Use Permit is issued for the unit by the appropriate governmental agency. Each Residential Unit shall be assessed one (1) Residential Assessment Unit.

Residential Lots Any lot segregated and/or platted for residential use shall be considered a Residential Lot for assessment purposes. All Residential Lots shall be assessed equally regardless of the size or status of the Residential Lot. Residential Lots shall be assessed at an amount equal to eighty (80%) percent of one (1) Residential Assessment Unit.

Commercial Lots Commercial Lots shall be assessed at the rate of one (1) Residential Assessment Unit for each acre or fraction thereof. (i.e. If a Commercial Lot is 1.3 acres, it will be assessed based on two <2> acres).

Commercial Units Commercial Units shall be assessed at the rate of one (1) Residential Assessment Unit per one thousand (1,000) square feet or fraction thereof (i.e. If a Commercial Unit is 875 square feet, it will be assessed based on one (1) Residential Assessment Unit).

Rural Tract Acreage Rural Tract Acreage shall be assessed at the rate of one (1) Residential Assessment Unit for each seventeen (17) acres or fraction thereof (i.e. If an Owner owns forty five <45> Rural Tract Acres, he will be assessed at the rate of three <3> Residential Assessment Units). In no event shall any individual rural tract Owner pay an annual assessment of less than one (1) Residential Assessment Unit for each rural tract parcel owned.

All acreage within the Properties, not divided into single lots duly recorded or presented for recordation in the Property Registry of Puerto Rico as separated, distinct and individual lots pursuant to the execution of the corresponding deeds of segregation of such effect, shall be classified as Rural Tracts. After the date of such recording or presenting for such recordation, the aforesaid property shall be assessed on the basis of whatever category of assessable property it falls into. In calculating the amount of acreage owned by the Company, the following types of land shall not be included; lakes, rivers, land located below the high water mark of any body of water adjacent to the Properties, land intended for use as the site of roads, parks, greenbelts or conservancy areas, trails, walks, tropical conservancies, Common Properties or Restricted Common Properties.

The Association may establish reserve fund ‘equal to ten percent (10%) of its regular annual assessments to be held in reserve in an interest drawing account or investments as a reserve for (a) major rehabilitation or major repairs and (b) for emergency and other repairs required as a result of storm, fire, natural disaster or other casualty loss.

 

Special Assessments

Section D. Special Assessments The Association may levy special assessments not to exceed a sum equal to twenty five percent (25%) the current fiscal year’s annual assessment of the Association, except for emergency and other repairs required as a result of storm, fire, natural disaster or other casualty loss. Any such nonemergency special assessment in excess of twenty five percent (25%) must receive approval of a majority of the total votes of the Association, as represented by their Delegates, if levied against the entire Membership, or a majority of the total number of votes in a Neighborhood Area, as represented by their Delegates, if levied against the Owners in a Neighborhood Area. Any special assessment must be in the same proportion as the regular annual assessment. Special assessments shall be payable in such manner and at such times as determined by the Board of Directors. At such time as Delegates are elected to represent condominium or other associations, or Neighborhood Areas, a vote of a majority of the Owners, as represented by their Delegates, shall be required to approve a nonemergency special assessment levied against the entire Membership.

On petition of sixty percent (60%) of all Owners, as represented by their Delegates, within the Resort Area, as such is identified in official Company plats, the Board of Directors of the Association may levy a special assessment applicable only to the Owners within the Resort Area, to be used for the purpose of establishing Resort Community transportation facilities including, without limitation; buses, electric vehicles, etc., within the Resort Area, and transportation systems to and from area airports and other major public convenience centers outside of the Palmas del Mar Development. If such special assessment is proposed by the Board of Directors of the Association rather than by petition as provided for herein above, then such proposal shall require the approval of seventy five (75%) percent of all Owners, as represented by their Delegates, within the Resort Area.

In the event of approval by a Neighborhood Area, or the Resort Area, to be assessed by the Association for special improvements, construction, or maintenance within those Areas, the Association shall be authorized to borrow money to fund such special improvements, construction, or maintenance and to repay any such loan with the receipts from the special assessment authorized therefor.

Change in Basis and Maximum Annual Assessment

Section E. Change in Basis and Maximum Annual Assessments Upon Merger or Consolidation Section C shall apply to any merger or consolidation in which the Association is authorized to participate under Article II, Section B hereof, and under the ByLaws of the Association.

Quorum for Any Action Authorized Under this Article

Section F. Quorum for Any Action Authorized Under this Article The quorum required for any action authorized to be taken by the Association Members under this Article, other than by Referendum, shall be the presence at the meeting of Members, as represented by their delegates, entitled to cast at least fifty one percent (51%) of the total vote of Membership.

Date of Commencement and Pro Ration of Annual Assessment

Section G. Date of Commencement and Pro Ration of Annual Assessments. Due Date The assessments for any year shall become due and payable on first day of the fiscal year. The Board of Directors of the Association shall have the power to change the date upon which annual assessments become due and payable and also to determine the manner of payment of annual assessments, such as for instance lump sum, monthly installments and the like, provided, however, that the annual assessments shall be due and payable at least annually. Annual assessments as well as any special assessments that may be levied shall be considered past due (in arrears) if not paid within thirty (30) days of the effective date for such assessments, or, if on a payment plan within thirty (30) days of the date each portion of the assessment is due.

Notwithstanding the above or anything to the contrary in the Certificate or in these Covenants, the company shall have the right to determine the manner and mode of payment of its assessment obligations under the terms of this Declaration. The due date of any special assessment under Section D hereof shall be fixed in the resolution authorizing such assessment.

All assessments shall be based on the status and classification of property on first day of the fiscal year, however, should the status or classification change any time during the year, assessment(s) of the affected property shall be adjusted, prorated by the Association, for the balance of the year, based on the new. status and classification. Persons who develop property, not for their private use, but for sale to others, shall be exempt from this reclassification clause until the next annual assessments are approved. However, as the purchased takes title from the Developer, the change of status and classification will be reflected in the assessment(s) as described above.

Duties of the Board of Directors

Section H. Duties of the Board of Directors The Board of Directors shall prepare a roster of Properties and assessments applicable thereto which shall be kept in the office of the Association and shall be open to inspection by any Owner during the regular office hours of the Association. Written notice of the assessment(s) shall thereupon be sent to every Owner subject thereto. The Association, shall upon demand at any time, furnish to any Owner liable for said assessment(s) a certificate in writing signed by an Officer of the Association, setting forth whether said assessment(s) has been paid. Such certificate shall be conclusive evidence against all but the Owner of payment of any assessment(s) therein stated to have been paid.

Effect of NonPayment of Assessment

Section I. Effect of NonPayment of Assessment The Personal Obligation of the Owner; the Lien, Remedies of Association If any assessment is not paid on or before the due date specified in Section G hereof, such assessment shall become delinquent and shall, together with interest at the maximum annual interest rate permitted by law, or the rate to be set by the Board of Directors on or before January thirtyfirst (31) of each year, from the due date, late charges, administrative fees, attorney’s fees and other charges, become a charge and continuing lien on the land and all improvements thereon, and against the Owner, his heirs, devisees, personal representatives, successors and assigns. The personal obligation of the Owner at the time when the assessment first became due and payable shall remain his personal obligation and shall not pass as a personal obligation to his successors in title unless expressly assumed by them.

If an assessment payment is past due (as described on Section G above), the Association may bring an action at law against the Owner personally obligated to pay the same or initiate judicial proceedings and foreclose the lien against the property. There shall be added to the amount of such assessment the cost of preparing and filing the complaint in such action. In the event a judgment is obtained, such judgment shall include interest on the assessment as described above and a reasonable attorney’s fee to be fixed by the Court together with the costs of the action.

Subordination of Lien to Mortgages

Section J. Subordination of the Lien to Mortgages The lien for the assessments provided for herein shall be subordinated to the lien of any mortgage or mortgages now or hereafter placed upon the Properties subject to assessment. Such subordination shall apply only to the assessments which have become due and payable prior to the sale or transfer of such property pursuant to a decree of foreclosure, or any other proceeding or deed in lieu of foreclosure. Such sale or transfer shall not relieve such Property from liability for any assessments accruing after conveyance to a mortgagee.

Exempt Property

Section K. Exempt Property The following property, individuals, partnerships or corporations, subject to this Declaration shall be exempted from the assessment, charge and lien created herein; (a) the grantee in conveyances made for the purpose of granting utility easements; (b) all Common Properties and Restricted Common Properties as defined in Article II hereof; (c) property owned by the Company or an affiliate of the company which is used for any of the following purposes:

(1) in the maintenance and service of facilities within the properties; (2) utilities, community halls, community facilities, community lots, operating farms and/or animal pastures, swamp conservancies, nonprofit educational facilities, nonprofit medical centers, facilities of nonprofit associations and/or corporations and charitable institutions.

Specific Assessment

Section L. Specific Assessments The Association shall have the right to levy specific Assessments against a particular property subject to the Declaration to (1) cover costs of providing service to that property upon request of the Owner; or (2) cover costs incurred by the Association in bringing the property into compliance with the Declaration or costs incurred by the Association as a consequence of the conduct of the Owner or occupants, their agents, contractors, employees, licensees, invitees or guests.

FUNCTIONS OF THE ASSOCIATION

Ownership and Maintenance of Common Properties and Restricted Common Properties

Section A. Ownership and Maintenance of Common Properties and Restricted Common Properties The Association shall be authorized to own or lease and maintain, in accordance with Community Wide Standards, Common Properties and Restricted Common Properties, any an all equipment, furnishings, and improvements located thereon devoted to the following uses:

(a) for roads or roadways, parkways and along said roads or roadways and land adjacent to public roads throughout the Properties; (b) for sidewalks, walking paths or trails, bicycle paths and bridle paths throughout the Properties; (c) for security and fire protection including security stations and/or guardhouses, security equipment and fire stations and fire fighting equipment;

(d) for emergency health care including ambulances and emergency care medical facilities and the equipment necessary to operate such facilities;

(e) for utility services health care including water and sewage installations as may be permitted by applicable laws and government regulations;

(f) for providing any of the services which the Association is authorized to offer under Section B of this Article;

(g) for purposes set out in deeds or longterm leases by which Common Properties and Restricted Common Properties are conveyed or leased to the Association, provided that such purposes shall be approved by the Members of the Association as set forth in Section C of this Article;

(h) for swimming pools, beach shelters, fishing decks and other recreational facilities of any nature, community meeting facilities and commercial or service centers serving the Properties;

(i) The Association is likewise authorized to own and manage Purchased Common Properties; provided, however, that the said Properties shall be maintained in the manner set forth in Article V, Section B of this Declaration.

The Association may maintain other property that it does not own including, without limitation, property dedicated to the public, if the Board of Directors determines that such maintenance is necessary or desirable to maintain the Community Wide Standard.

The Association shall not be liable for any damage or injury occurring on, or arising out of the condition of, property which it does not own except to the extent that it has been negligent in the performance of its maintenance responsibilities.

Services

Section B. Services The Association shall be authorized, but not obligated to provide the following services:

(a) cleanup and maintenance of all beaches, roads, roadways, parkways, and lands adjacent to roads and other Common Properties or Restricted Common Properties within the Properties and all public properties which are located within or in a reasonable proximity to the Properties such the their deterioration would affect the appearance of the Properties as a whole;

(b) landscaping and reforestation of roads and parkways, sidewalks and walking paths and any Common Properties or Restricted Common Properties;

(c) operation of community transportation systems within the Properties, parking lots, and all associated services connected with such transportation;

(d) lighting of roads, sidewalks, and walking paths throughout the Properties;

(e) security, including but not limited to the employment of security personnel, maintenance of electronic and other security devices and control centers;

(f) fire protection and prevention;

(g) beach maintenance, which shall include beach preservation and cleanup, on beaches immediately adjacent to the Properties as well as lifeguard services along beach areas designated by the Board of Directors;

(h) garbage and trash collection and disposal;

(i) insect and pest control to the extent that it may be desirable to supplement the service provided by the state and local governments;

(j) the services necessary to carry out the Association’s obligations and business under the terms of this document;

(k) maintenance of all rivers, lakes, ponds, and lagoons located within the Properties including the stocking of such rivers, lakes, ponds or lagoons;

(1) to take any and all actions necessary to enforce all Covenants and Restrictions affecting the Properties and to perform any other functions or services or restrictions applicable to the Properties;

(m) to set up and operate an Architectural Review Board in the event that the Association is designated by the company as the agent of the Company for such purposes;

(n) improvement of fresh and salt water fishing available to Members within the Properties and waters adjacent thereto;

(o) to conduct recreation, sport, craft and cultural programs of interest to Members, their children and guests;

(p) to provide legal and scientific resources for the improvement of air and water, quality within and adjacent to the Properties;

(q) to maintain a general library and collection of historical objects and documents pertaining to the Properties, Puerto Rico and the Caribbean;

(r) to support the operation of transportation services between key points within the Properties, between the Properties and the airports, other public transportation terminals and public centers serving the area surrounding the Properties which shall include, but not be limited to, Humacao and Yabucoa, Puerto Rico;

(s) to provide special entertainment and festivals;

(t) to construct improvements on Common Properties or Restricted common Properties for use for any of the purposes authorized in Section A of this Article, or as may be required to provide the services as authorized in this Section B of this Article;

(u) to provide telephone, water and sewer service to all portions of the Properties;

(v) to provide general preventive maintenance, implement flood control programs within the Properties and in general attend to the upkeep of Common Properties and Restricted Common Properties.

Obligations of the Association

Section C. Obligation of the Association – The Association shall not be obligated to carry out or offer any of the functions and services specified in Section A and B of this Article. The functions and services to be carried out or offered by the Association at any particular time shall be determined by the Board of Directors of the Association taking into consideration the funds available to the Association and the needs of Members of the Association. The functions and services which the Association is authorized to carry out or provide, may be added to or reduced at any time upon the affirmative vote of a majority of the Board of Directors provided, however, that the functions and services authorized may also be changed by merger or consolidation of the Association pursuant to Article II; Section B, hereof and by the Bylaws of the Association.

Mortgage and Pledge

Section D. Mortgage and Pledge – Subject to the approval of the delegates representing a majority of its Members as expressed at a regular or special meeting of Members or in a Referendum, the Board of Directors of the Association shall have the power and authority to mortgage the property of the Association and to pledge the revenues of the Association as security for loans made to the Association. Said loans shall be used by the Association in performing its authorized functions; provided, however, that such prior approval of Members for the aforesaid actions shall not be required in the event of emergencies such as those due to acts of God, equipment and installation repairs and the like.

Additional Authority

Section E. Additional Authority – In connection with all of the foregoing functions, the Association may improve, maintain, and operate the Common Properties and Restricted Common Properties, (and the Purchased Common Properties in the manner set forth in this Declaration pay taxes and insurance thereon, construct improvements, repair, replace, and make a additions to the common Properties and Restricted Common Properties, make payments for the cost of labor, equipment, materials, management and supervision necessary to carry out its authorized functions, and for the payment of principal, interest and other charges connected with loans made to, or assumed by, the Association including mortgages covering Common Properties or Restricted Common Properties, at the time of conveyance to the Association.

Architectural Standards

VII. ARCHITECTURAL STANDARDS

The Association shall have the right, but not the obligation, to appoint an agent to perform the duties contained in this Article. The agent may be the Palmas del Mar Architectural Review Board, Inc., its successors or assigns, or any other agent the Association deems proper to perform the architectural review functions. Reference to the Architectural Review Board (“ARB”) in this Article shall include, if applicable, any agent appointed by the Association to perform the duties of the ARB.

Architectural Standards

Section A. Architectural Standards No structure or thing shall be placed, erected, installed or posted on the Properties and no improvement or work (which term shall include, without limitation, clearing, excavation, grading, staking and other site work, exterior alterations of existing improvements or planting or removal of landscaping), shall take place except in strict compliance with this Article, other provisions of this Declaration and the Design Guidelines. Notwithstanding the above the Architectural Review Board may permit clearing of underbrush as necessary to survey the property prior to the approval of plans and specifications as required herein, provided a written request for such authorization is submitted to the ARB prior to commencing such clearing. The Board of Directors or the ARB may establish reasonable fees to be charged by the committees for review of applications hereunder and may require such fees to be paid in full prior to review of any application.

All construction on any portion of the Properties shall be designed and built in accordance with the plans and specifications of a licensed architect.

The Board of Directors or the ARB shall have the authority and standing, on behalf of the Association, to enforce in the courts of competent jurisdiction, any decisions of the committees established in this Article VII. The Association, in any such action, shall have the right to seek any and all remedies available, at law or in equity, including, without limitation, specific performance of any obligation under this Article VII, and injunctive relief, whether temporary or permanent. This Article VII may not be amended without the Developer’s prior written consent so long as the Developer owns any portion of the Properties.

Nothing contained herein shall be construed to limit the right of an Owner to remodel the interior of his Family Dwelling Unit, or to paint the interior of his Family Dwelling Unit any color desired. Modifications or alterations to the interior of screened porches, patios and similar portions of a Family Dwelling Unit visible from the outside of the Family Dwelling Unit shall be subject to approval hereunder.

Architectural Review Board

Section B. Architectural Review Board The Architectural Review Board shall have the jurisdiction to review and approve all original construction on any portion of the Properties. The Developer retains the right, as long as it owns any portion of the Properties, to nominate all Members of the ARB, which shall consist of at least three (3), but no more than five (5) persons, one of whom shall be a homeowner in Palmas del Mar who is not employed by the Company. There shall be no surrender of this right prior to that time except in a written instrument, in recordable form, executed by the Developer. Upon the expiration of such right, the Board of Directors shall appoint the Members of the ARB. Notwithstanding anything to the contrary above, said homeowner member of the ARB shall be nominated by the Association Board of Directors.

The ARB shall, on behalf of the Association, prepare and promulgate design and development guidelines and application and review procedures (“Design Guidelines”). The Design Guidelines shall be those of the Association, and the ARB shall have sole and full authority to prepare and amend them. It shall make the Design Guidelines available to Owners, builders and developers who seek to engage in development of, or construction upon, all or any portion of the Properties. Such Owners, builders and developers shall conduct their operations strictly in accordance with the Design Guidelines. In the event that the ARB fails to approve or disapprove plans submitted to it, or to request additional information reasonably required within forty five (45) days after submission thereof, the plans shall be deemed approved.

No Waiver of Future Approvals

Section C. No Waiver of Future Approvals The approval by the ARB of any proposals or plans and specifications or drawings for any work done or proposed, or in connection with any other matter requiring the approval and consent of such committee, shall not be deemed to constitute a waiver of any right to withhold approval or consent as to any similar proposals, plans and specifications, drawings or matters whenever subsequently or additionally submitted for approval or consent.

Variance

Section D. Variance The ARB may authorize variances from compliance with any of its guidelines and procedures when circumstances such as topography, natural obstructions, hardship, or aesthetic or environmental considerations require, but only in accordance with duly adopted rules and regulations. Such variances may only be granted, however, when unique circumstances dictate and no variance shall (i) be effective unless in writing; (ii) be contrary to the restrictions set forth in this Declaration; or (iii) estop the committee from denying a variance in other circumstances. For the purposes of this subsection, the inability to obtain approval from any governmental agency, the issuance of any permit, or the terms of any financing shall not be considered a hardship warranting a variance. Economic hardship in an of itself shall not be sufficient grounds for granting of a variance.

Compliance with Guidelines

Section E. Compliance with Guidelines Any contractor, subcontractor, agent, employee or other invitee of an Owner who fails to comply with the terms and conditions of the guidelines and procedures promulgated by the ARB, may be excluded by the Board from the Properties without liability to any person, subject to appropriate notice and hearing procedures that may be established by the Board or the ARB.

No Liability

Section F. No Liability No review or approval by the ARB, or its agent, shall imply or be deemed to constitute an opinion by the ARB, nor impose upon the ARB, Association, Developer, committee members or any other party, any liability for the design or construction of building elements, including, but not limited to, structural integrity or life or safety requirements. The scope of any such review or approval by the ARB, or its agent, is limited solely to whether the respective plans or work meet certain requirements, standards and guidelines relating to aesthetics and the harmony and compatibility of proposed improvements at Palmas del Mar. No review or approval will be for any other person or purpose, and no person other than the ARB shall have any right to rely thereon, and any review or approval by the ARB will create no liability whatsoever of the ARB, Developer, Association, committee member or any other person or party whatsoever.

INSURANCE

VIII. INSURANCE

Property Damage

Section A. Property Damage The Association shall purchase and maintain at al times a policy of property insurance, naming the Association and the Developer (so long as it owns any portion of the Properties) as insurers. Said insurance shall cover the Common Properties, Restricted Common Properties and Purchased Common Properties and any improvements, buildings, fixtures, personal property and equipment, supplies, and materials located on and used in connection with the operation of the Common Properties, Restricted Common Properties and Purchased Common Properties. The amount of insurance shall not be less than the maximum insurable replacement value thereof, excluding land, foundation, excavation and other items normally excluded from such coverage. Such coverage shall afford protection against loss, damage or destruction by fire, and other hazard or casualty as may be covered by a standard extended coverage endorsement. Included shall be all other such risks as may be covered with respect to buildings, improvements and other items similar in nature, construction, location or use, including, but not limited to, theft, vandalism, malicious mischief and windstorm, if reasonably available In the event that the Common Properties Restricted Common Properties and Purchased Common Properties or any other property owned by the Association are damaged by reason of omission of any Owner including his guests, invitees, tenants or agents) such Owners shall be fully responsible for paying the costs of any repair or replacement of such damage, but nothing in this Article is intended to relieve any insurance company from its duties and obligations under any policy issued by it.

Liability Insurance

Section B. Liability Insurance The Association shall purchase and maintain a policy of comprehensive general liability insurance, naming the Association and the Developer (so long as it owns any portion of the Properties) as insurers. The insurance shall be in an amount of not less than three million dollars ($3,000,000) for bodily injury, death and property damage arising out of a single occurrence. Coverage shall include liability of the Association for bodily injury, death and property damage.

Fidelity Insurance

Section C. Fidelity Insurance The Association shall purchase and maintain a policy of insurance or fidelity bond, naming the Association as the insured or as the obligee, to protect the Association against the wrongful acts or omission of any officer, director, trustee, agent or employee of the Association and all other persons who handle or are responsible for handling funds of, or funds administered by, the Association. Any such policy or bond shall be in an amount determined by the Board of Directors, in their best business judgment, but in no event shall the amount of any such policy or bond be less than six (6) months’ portion of the Annual Assessments plus reserves on hand at any time for the current year during the term of each such policy or bond. The policy or bond shall contain waivers by the issuer of all defenses based upon the exclusion of persons serving without compensation from the definition of “employees”, or similar terms or expressions. Where the management agent has the responsibility for handling or administering funds of the Association, the management agent shall be required to maintain fidelity bond coverage for its officers, employees and agents handling, or responsible for the funds of, or administered on behalf of, the Association.

Workers Compensation Insurance

Section D. Workers’ Compensation Insurance If applicable, the Association shall purchase and maintain Workers’ Compensation insurance and other mandatory insurance, if and to the extent, required by law.

Directors and Officers Libility Insurance

Section E. Directors’ and Officers’ Liability Insurance The Association shall purchase and maintain Directors’ and Officers’ Liability Insurance in an to be amount established by the Board.

Distribution of Proceeds Reconstruction of Building Improvements; Insurance Trustee

Section F. Distribution of Proceeds; Reconstruction of Buildings and Improvements; Insurance Trustee All insurance policies purchased by the Association shall provide that all proceeds covering property losses shall be paid to an Insurance Trustee and distributed in the manner set forth in this Section F. The Insurance Trustee shall be the Board of Directors or its designee.

(1) Distribution of Proceeds Received by the association. All proceeds received by the Association for any loss, damage or destruction of any building, improvement, landscaping, equipment, supplies or materials located on and used in connection with the Common Properties, Restricted Common Properties and Purchased Common Properties, shall be utilized to repair, replace or reconstruct any such building, improvement, landscaping, equipment, supplies or materials. Any difference between the amount of insurance proceeds received and the amount required to repair, replace or reconstruct shall be an expense of the Association. The Association may levy a special assessment against all Owners to cover such deficiency. Any repair, replacement or reconstruction that is the responsibility of the Association as provided in this Declaration shall be substantially made in accordance with the plans and specifications of the original building or improvement, or as the building or improvement was last repaired or reconstructed, and shall be of similar quality and value in the case of equipment, personal property, landscaping, supplies or materials as that previously purchased and maintained by the Association. Such repair, replacement or construction shall be modified when necessary to conform with the then current restrictions, ordinances and codes of any government entity that has jurisdiction over the use and occupancy of the Properties.

(2) Association as Agent. The Association, through its Board of Directors, is hereby irrevocably appointed agent, with the full power of substitution, for each Owner, to adjust all claims arising under insurance policies purchased by the Association, to bring suit thereon in its name, deliver releases upon payment of claims, to compromise and settle such claims and otherwise to exercise all of the rights, powers and privileges of the Association and each Owner or other holder of an insured interest in the Properties under such insurance policies.

Estimate for Repair, Replacement or Reconstruction

Section G. Estimate for Repair, Replacement or Reconstruction In the event any loss, damage or destruction occurs that is covered by an insurance policy that is purchased and maintained by the Association pursuant to the terms of this Declaration, the Association shall, immediately after the occurrence of such loss, damage or destruction, obtain a reliable, detailed estimate of the cost to replace the damaged property in as good a condition as that which existed immediately prior to the loss, damage or destruction. The Association shall establish a separate bank account and shall deposit into such account all insurance proceeds and special assessments collected by the Association by virtue of the occurrence of any loss, damage or destruction as provided in this Declaration. Disbursement from such account shall be made in the manner provided in this Article VIII as the required repair, replacement and reconstruction progresses.

(1) Fund Disbursement. The Association shall make payments for such repair, replacements or reconstruction upon a written request for a disbursement by the person or entity responsible reconstruction disbursement by which in the case of the repair, replacement or construction of a building or other improvement, shall be accompanied by an appropriate certificate signed by the architect, engineer or contractor in charge of such repair, replacement or reconstruction stating (a) that the requested payment has either been made or is justly due, and certifying that the payment requested does not exceed the value of the services and materials already in place pursuant to such repair, replacement or reconstruction; (b) that, except for the payment requested, there are no outstanding payments for the repair, replacement or reconstruction being performed which may provide a basis for a vendor’s or mechanic’s lien; and (c) that the cost of repair, replacement or reconstruction to be done subsequent to the date of such certificate does not exceed the amount of funds remaining in the repair, replacement and reconstruction fund after the requested payment is made.

(2) Balance Remaining in Fund. If there is a balance in the repair, replacement and reconstruction fund after the Association has made all payments for such repair, replacement or reconstruction pursuant to the terms of this Declaration, the Association shall be entitled to retain such balance and add it to the Association’s reserves. In the event special assessments were collected and utilized for such repair, replacement or reconstruction, then by a majority vote of the Board of Directors, at a special meeting called for that purpose, and held in accordance with the terms and provisions of the Bylaws, shall determine whether the balance shall be retained by the Association and added to the Association’s reserves, or shall be returned pro rata to the Owners that paid such special assessments.

(3) Deductibles. Any policy may contain a deductible, which, in the best business judgment of the Board, is reasonable in amount, taking into account, among other factors the amount of the premium. Provided, however, unless not reasonably available in the marketplace, that the deductible for the loss from property damage to the Common Properties, Restricted Common Properties and Purchased Common Properties shall not exceed the lesser of ten thousand dollars ($10,000.00) or one percent (1%) of the applicable amount of coverage. Funds for the deductible described in the preceding sentence, may, at the discretion of the Board, be included in the reserves of the Association.

Additional Provisions of the Policies

Section H. Additional Provisions of the Policies.

(1) The Board of Directors shall use every reasonable effort to secure policies that will provide the following:

(a) In no event shall such insurance be brought into contribution with insurance purchased by the Owners or their mortgagees; and

(b) Coverage shall not be prejudiced by any act or neglect of any Owner when such act or neglect is not within the control of the Association, or the failure of the Association to comply with any warranty or condition with regard to any portion of the premises over which the Association has control; and

(c) Coverage may not be canceled, renewed or substantially modified (including cancellation for nonpayment of premium) without at least thirty (30) days prior written notice to any and all insurers therein and, if requested in writing, to all institutional mortgagees; and

(d) A waiver of subrogation by the insurer as to any and all claims against Owners, the Association, and their respective agents, representatives, employees, licensees, family members, invitees, tenants and guests and a waiver of all defenses based upon coinsurance or upon invalidity arising from the acts of the insured; and

(e) include as an endorsement that the policy cannot be canceled, invalidated or suspended on account of the conduct of any officer, Director, employee or committee member of the Association, or the managing agent without a prior demand in writing delivered to the Association; and

(f) A waiver by the insurer of its right to repair, and reconstruct, instead of paying cash; and

(g) An inflation guard endorsement, if reasonably available; and

(h) Be written with a company licensed to do business in Puerto Rico.

(2) All policies of property insurance shall provide that notwithstanding any provisions thereof which gives the insurer the right to restore the damage in lieu of making a cash settlement, such election shall not be exercised without the prior written consent of the Association or the Insurance Trustee, whichever of them is entitled to receive the proceeds of the insurance, or when such election would be in conflict with any requirement of law. Such policies shall insure all of the Common Properties, Restricted Common Properties and Purchased Common Properties, including, where practicable, all fixtures, installations or additions comprising that part of the improvements initially installed or replacement thereof. Such policies and endorsements shall be deposited with the Insurance Trustee or the Association.

(3) All property insurance policies, to the extent available, at a reasonable cost, shall include an “Agreed Amount Endorsement” or its equivalent, and a “Demolition Endorsement”, or its equivalent, allowing for the coverage of the cost of demolition in the event of destruction and the decision not to rebuild. The policy shall also include an “Increased Cost of Construct ton Endorsement.” The policies may reasonable deductibles, and the amount thereof shall be added to the face amount of the policies in determining whether the insurance equals the full replacement cost. The coverage of these policies shall afford protection against:

(a) Loss or damage by fire or other hazards covered by a standard extended coverage endorsement and cost of demolition, vandalism, malicious mischief, windstorm and water damage; and

(b) Such other risks as from time to time shall be customarily covered with respect to buildings similar in construction, location and use as the Common Properties, Restricted Common Properties and Purchased Common Properties.

Payment of Premiums

Section I. Payment of Premiums All premiums for insurance coverage obtained by the Association shall be part of the annual assessments of the Association.

Review of Insurance Coverage

Section J. Review of Insurance Coverage The Association shall, at least annually, review the adequacy of the insurance coverage’s required pursuant to this Declaration and shall make a determination as to the adequacy of the amounts and types of coverage then in effect.

USE OF PROPERTY

IX. USE OF PROPERTY

Covenants and Restrictions

Section A. Covenants and Restrictions The use of a Family Dwelling Unit or Commercial Unit by any person shall be subject to the provisions of this Declaration, the, Certificate of Incorporation, Bylaws and rules and regulations of the Association and the following covenants and restrictions:

1. Each Owner shall maintain his or her Family Dwelling Unit, Residential Lot, Commercial Unit and Commercial Lot including all landscaping and improvements in a manner consistent with the Community Wide Standard and all applicable Covenants, unless such maintenance responsibility is otherwise assumed by, or assigned to, the Association pursuant to any supplemental declaration or other applicable Covenants.

2. No nuisances shall be allowed on the Properties nor shall any .use or practice be allowed which is a source of annoyance to residents or which interferes with the peaceful possession and proper use of the Properties by the residents.

3. No improper, offensive or unlawful use shall be made of the Properties, and all valid laws, zoning ordinances and regulations of all governmental agencies having jurisdiction thereof shall be observed. The discharge of firearms including, but not limited to, guns and rifles of all kinds and descriptions, BB guns, pellet guns, and other such weapons shall not be permitted except in defense of one’s life or property in the manner and under the circumstances permitted by law.

4. All dogs and cats must be leashed or carried by hand when on the Common Property, Restricted Common Property or Purchased Common Property and shall not be permitted to run loose, and their Owners shall be responsible for cleaning up after their pets. Only common domestic pets shall be permitted in the Development. No pet may be kept, bred or maintained for any commercial purpose whatsoever or become a nuisance or annoyance to other Owners.

5. No resident shall post a sign, advertisement or poster of any kind in or on the Properties, specifically including, but not limited to, “For Sale” and For Rent” signs of any type, without prior written approval of the Board.

6. No garment, rugs or other items of any type shall be hung from any portion of the Properties.

7. No person shall park any vehicle in any location except such locations designated for the parking of vehicles. No parking is permitted on roadways, landscaped or grassed areas within the Properties. The overnight parking of any vehicles on the Common Property, Restricted Common Property or Purchased Common Property is prohibited.

8. No repair of motor vehicles shall be made on any of the roadways, driveways, landscaped, grassed or parking areas of the Properties, nor shall any areas within the Development, unless designated for such use, be used for storage or parking of any boat, boat trailer, trailer, camper, truck or commercial vehicle.

9. Only automobiles, vans constructed as private passenger vehicles with side windows and permanent rear seats, and other vehicles manufactured and used as private passenger vehicles (specifically excluding commercial vehicles bearing signs or equipment) shall be permitted upon any portion of the Common Property, Restricted Common Property or Purchased Common Property.’ Vehicles used for construction, repairs and maintenance will be permitted only during daylight hours except in the case of emergency.

10. No person shall make or permit any disturbing noises on the Common Property, Restricted Common Property or Purchased Common Property. No person shall do or permit anything to be done which will interfere with the rights, comforts or conveniences of any other person.

11. No Owner shall make any exterior alteration, decoration, repair replacement, nor place any screens, jealousies or other enclosures on patios or other parts of a Family Dwelling Unit except in accordance with this Declaration or Design Guidelines.

12. Drainage areas and easements established on any plat or Master Plan or otherwise constructed by the Developer are for. the purpose of the natural flow of storm water, and no person shall take any action or construct any improvements which obstruct, impeded or rechannel such flow. The Developer hereby reserves a perpetual easement on, across and over all portions of the for the purpose of maintaining, construction and altering drainage facilities and water flow.

13. Owners shall be responsible for any damage used by their family members, guests, invitees and tenants to the Common Properties, Restricted Common Properties and Purchased Common Properties.

14. Rules and regulations promulgated by the Board of Directors, or any committee established by the Board, concerning the use of the Common Properties, Restricted Common Properties or Purchased Common Properties shall be observed by the Owners, guests, invitees and tenants, provided, however, the copies of such rules and regulations shall be furnished to each Member prior to the time said rules and regulations become effective.

Enforcement

Section B. Enforcement Every Owner and other user of the Common Properties, Restricted Common Properties or Purchased Common Properties, shall comply with the restrictions and covenants set forth herein and any and all rules and regulations which from time to time may be adopted by the Board of Directors.

Failure of an Owner or other user described in this Declaration to comply with such restriction, covenants or rules and regulations shall be grounds for immediate action. This action may include, but not be limited to, recovery of amounts due for damages, injunctive relief, or any combination thereof. The Association shall have the right to suspend the rights of the violating Owner, his family, guests, invitees or tenants to use the Common Properties, Restricted Common Properties or Purchased Common Properties. The offending Owner shall be responsible for all costs of enforcement including, but not limited to, attorney’s fees and court costs, whether or not litigation is instituted.

In addition to all other remedies, the Board of Directors may, in its sole discretion, adopt a system of imposing and collecting fines for the violation of provisions of this Declaration. Such system of fines shall not be applied retroactively and shall afford the Owner the opportunity to be represented by counsel, crossexamine witnesses and present evidence as to why a fine should not be imposed. Any fine levied in accordance with a duly adopted system shall be deemed a Specific Assessment hereunder and be payable, enforceable and secured in the same manner as other assessments.

All Owners shall be liable for the expenses of any maintenance, repair or replacement rendered necessary by his act, neglect or carelessness, or by the negligence of any Member of his family, guests, pets, employees, agents, licensees or lessees. Such liability shall include any increase in insurance rates as a result of use, misuse, occupancy or abandonment of any of the Properties owned by the Owner.

The failure of the Association to enforce any rights, provisions, covenant or condition which may be granted by this Declaration not constitute a waiver of the right the Association to enforce such right, covenant or condition in the future.

 

DEVELOPERS RIGHTS

X. DEVELOPER RIGHTS

Section A: Right of the Developer to Disapprove Actions

1. Until the Developer declares in a written instrument its desire to give up such right, but not to exceed ten (10) years from the date of recordation of this amendment, the Developer has the right to disapprove any action, policy, or program that would tend to impair or interfere with the development or construction of its Properties, or diminish the level of services being provided by the Association.

This right may be used to block proposed action but shall not include a right to require any action or counteraction on behalf of any committee, or the Board, except to require an action or counteraction to reverse the disapproved action.

2. Until the Developer declares in a written instrument its desire to give up such right, but not to exceed fifteen (15) years from the date of recordation of this amendment, the Developer has the right to disapprove any action, policy or program pertaining to transportation, security or access control in the Properties, as well as any capital expenditure which exceeds $150,000.

The Developer shall not exercise its right to disapprove as stated in 1 and 2 above, until it is given the opportunity to meet with the Board and to have its representatives or agents join in a discussion for purposes of reaching an agreement among all Board Members regarding any prospective action, policy or program which would be subject to the right of disapproval set forth herein.

Therefore, no action, policy or program subject to the right of disapproval set forth herein shall become effective or be implemented until and unless:

(a) The Developer is given written notice of the proposed action and any and all meetings at which the proposed action is to be considered. Such notice shall be given by certified mail, return receipt requested or by personal delivery at the address it has registered with the Secretary of the Association, and shall comply with the notice requirements of the Association. Except in the case of the regular meetings held pursuant to the Bylaws, such notice shall set forth, with reasonable particularity, the agenda to be followed at such meeting; and

(b) The Developer, its representatives or agents shall make it concerns, thoughts and suggestions known to the Board. The Developer, acting through any officer or director, agent or authorized representative, any exercise its right to disapprove at any time within ten (10) days following the meeting at which such action was proposed or, in the case of any act lee taken by written consent in lieu of a meeting at any time within ten (10) days following receipt of written notice of the proposed action.

The Developer shall not use its right to disapprove to reduce level of services which the Association is obligated to provide or to prevent capital repairs or any expenditure required to comply with applicable laws and regulations.

INDEMNIFICATION

XI. INDEMNIFICATION

Section A. Indemnification The Association hereby indemnifies any director, officer or ,committee member made a party, or threatened to be made a party to any threatened, pending or contemplated action, suite or proceeding:

1. Whether civil, criminal, administrative or investigative, other than the right of the Association to procure a judgment in its favor, brought to impose a liability or penalty on such person for an act alleged to have been committed by such person in his capacity as director, officer or committee member of the Association, or in his capacity as director, officer, committee member, employee or agent of any other corporation, partnership, joint venture, trust or other enterprise which he served at the request of the Association, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorney’s fees, actually and necessarily incurred as a result of such action, suite or proceeding or any appeal therein, if such person acted in good faith in the reasonable belief that such action was in the best interests of the Association, and in criminal actions or proceedings, without reasonable ground for belief that such action was unlawful. The termination of any such action, suit or proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent shall not in itself create a presumption that any such director, officer or committee member did not act in good faith in the reasonable belief that such action was in the best interest of the Association or that he had reasonable grounds for belief that such action was unlawful.

2. By or in the right of the Association to procure a judgment in its favor by reason of his being, or having been, a director, officer or committee member of the Association, or by reason of his being or having been a director, officer, committee member, employee or agent of any other corporation, partnership, joint venture, trust or other enterprise which he served at the request of the Association, against the reasonable expenses, including attorney’s fees, actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein, if such person acted in good faith in the reasonable belief, that such action was in the best interest the Association. Such person shall not be entitled to indemnification in relation to matters as to which such person has been adjudged to have been guilty of negligence or misconduct in the performance of his duty to the Association unless and only to the extent that the court, administrative agency, or investigative body before which such action, suit or proceeding is held shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonable entitled to indemnification for such expenses which such tribunal shall deem proper.

Amount of Indemnification

Section B. Amount of Indemnification The Board of Directors shall determine whether amounts for which a director, officer or committee member seeks indemnification were properly incurred and whether such director, officer or committee member acted in good faith and in a manner he reasonably believed to be in the best interests of the Association, and, whether with respect to any criminal action or proceeding, he had no reasonable ground for belief that such action was unlawful. Such determination shall be made by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action.

Rights of Indemnification

Section C. Rights of Indemnification The foregoing rights of indemnification shall not be deemed to limit in any way the powers of the Association to indemnify under applicable law.

DISCLAIMER

XII. DISCLAIMER

NEITHER THE DEVELOPER NOR THE ASSOCIATION SHALL IN ANY WAY OR MANNER BE HELD LIABLE OR RESPONSIBLE FOR ANY VIOLATION OF THIS DECLARATION BY ANY PERSON. ADDITIONALLY, NEITHER DEVELOPER NOR ASSOCIATION MAKE ANY REPRESENTATION WHATSOEVER AS TO THE SECURITY OF THE PREMISES OR THE EFFECTIVENESS OF ANY ACCESS CONTROL OR SECURITY SERVICE. ALL MEMBERS AGREE TO HOLD DEVELOPER AND ASSOCIATION HARMLESS FROM ANY LOSS OR CLAIM ARISING FROM THE OCCURRENCE OF ANY CRIME OR OTHER ACT. NEITHER THE ASSOCIATION NOR THE DEVELOPER, SHALL IN ANY WAY BE CONSIDERED INSURERS OR GUARANTORS OF SECURITY WITHIN PALMAS DEL MAR. NEITHER THE ASSOCIATION NOR THE DEVELOPER SHALL BE HELD LIABLE FOR ANY LOSS OR DAMAGE BY REASON OF FAILURE TO PROVIDE ADEQUATE SECURITY OR INEFFECTIVENESS OF SECURITY MEASURES UNDERTAKEN. ALL OWNERS AND OCCUPANTS OF ANY UNIT, TENANT, GUESTS AND INVITEES OF ANY OWNER, AS APPLICABLE, ACKNOWLEDGE THAT THE ASSOCIATION, ITS BOARD OF DIRECTORS, DEVELOPER OR ANY SUCCESSOR DEVELOPER AND THE ARCHITECTURAL REVIEW BOARD, DO NOT REPRESENT OR WARRANT THAT, IF APPLICABLE, ANY FIRE PROTECTION SYSTEM, BURGLAR ALARM SYSTEM OR ANY OTHER SECURITY SYSTEM DESIGNED BY, OR INSTALLED ACCORDING TO GUIDELINES ESTABLISHED BY THE DEVELOPER OR THE ARCHITECTURAL REVIEW BOARD MAY NOT BE COMPROMISED OR CIRCUMVENTED. EACH OWNER AND OCCUPANT OF ANY UNIT, AND EACH TENANT, GUEST AND INVITEE OF AN OWNER, AS APPLICABLE, ACKNOWLEDGES AND UNDERSTANDS THAT THE ASSOCIATION, ITS BOARD OF DIRECTORS AND COMMITTEES, DEVELOPER OR ANY SUCCESSOR DEVELOPER ARE NOT INSURERS AND THAT EACH OWNER AND OCCUPANT OF ANY UNIT AND EACH TENANT, GUEST AND INVITEE OF ANY OWNER RISKS FOR LOSS OR DAMAGE TO PERSONS, TO THEIR PROPERTY AND TO THE CONTENTS OF THEIR PROPERTY AND FURTHER ACKNOWLEDGES THAT THE ASSOCIATION, ITS BOARD OF DIRECTORS AND COMMITTEES, DEVELOPER, OR ANY SUCCESSOR DEVELOPER, HAVE MADE NO REPRESENTATIONS OR WARRANTIES NOR HAS ANY OWNER, OCCUPANT, TENANT, GUEST OR INVITEE RELIED UPON ANY REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, RELATIVE TO ANY SECURITY SYSTEM.

GENERAL PROVISIONS

XIII. GENERAL PROVISIONS

Duration

Section A. Duration The Covenants and Restrictions of this Declaration shall run with and bind the land, and shall inure to the benefit of and be enforceable by the Association, the Company or the Owner of any land subject to this Declaration, their respective legal representatives, heirs, successors, and assigns, for a period of thirty (30) years from the date this Declaration is recorded. Upon the expiration of said thirty (30) year period this Declaration shall be automatically renewed and extended for successive ten (10) year periods. The number of ten (10) year renewal periods hereunder shall be unlimited, with this Declaration being automatically renewed and extended upon expiration of each ten (10) year renewal period for an additional ten (10) year period; provided, however, that there shall be no renewal or extension of this Declaration if during the last year of the initial thirty (30) year period, or during the last year of any subsequent ten (10) year renewal period, threefourths (3/4) of the total votes of the Membership, as represented by their Delegates, cast at a duly held meeting of the Association vote in favor of terminating this Declaration at the end of its then current term. It shall be required that written notice of any meeting at which such a proposal to terminate Declaration is to be considered, setting forth the fact that such a proposal will be considered, shall be given at least thirty (30) days in advance of said meeting. In the event that the Association votes to terminate this Declaration, the President and Secretary of the Association shall execute a Public Deed which shall set forth the resolution of termination adopted by the Association, the date of the meeting of the association at which such resolution was adopted, the date that notice of such meeting was given, the total number of votes of Members of the Association, the total number of votes required to constitute a quorum at a meeting of the Association, the number of votes necessary to adopt a resolution terminating this Declaration, the total number of votes cast in favor of such resolution and the total number of votes cast against such resolution, Said Public Deed shall be recorded in the Registry of the Property of Puerto Rico, Humacao Section, and may be relied upon for the correctness of the facts contained therein as they relate to the termination of this Declaration.

Amendments

Section B. Amendments This Declaration can be amended at any time provided that threefourths (3/4) of the total votes of Membership cast by the Delegates, either by Referendum or at a duly called meeting of the Association, vote in favor of the proposed amendment. In the event the amendment is requested through a duly called meeting, notice shall be given at least thirty (30) days prior to the date of the meeting at which such proposed amendment is to be considered. If any proposed amendment to this Declaration is approved by the Members as set forth above, the President and Secretary of the Association shall execute a Deed of Amendment to this Declaration which shall set forth the amendment, the effective dates of the amendment, the total number of votes necessary to adopt the amendment, and, if the amendment was requested through a meeting, the date of the meeting at which such amendment was adopted, the date that notice of such meeting was given, the total number of votes of Members of the Association, the total number of votes required to constitute a quorum at a meeting of the Association, the number of votes necessary to adopt the amendment and the total number of votes cast against the amendment. Such Deed of Amendment shall be recorded in the Registry of the Property of Puerto Rico, Humacao Section. The Company may amend this Declaration without the consent of the Membership for the following purposed only:

(a) to lessen the number of votes which the Company Member shall have in proportion to the number of votes of all other Members of the Association;

(b) to provide that the Company Member shall not vote for certain seats on the Board of Directors and that these seats shall be filled exclusively by the vote of Type “A”, “B” “C” and “D” Members;

(c) to increase the amount of the annual assessment due by the Company to the Association;

(d) to incorporate in this Declaration a specific list of amenities to be conveyed by the Company to the Association, which list shall include all of the items previously set forth herein, and which list may include the specific dates before which said items shall be transferred to the Association and any conditions upon which they will be transferred; and

(e) to take the action referenced in Article II, Section B of this Declaration pertaining to Existing Properties;

(f) for any other purpose which requires a greater contribution by the Company to the Association or which lessens the role of the Company in the operation of the Association and increases the role of the other Members.

Notices

Section C. Notices – Any notice required to be sent to any Member or Owner under the provisions of this Declaration shall be deemed to have been properly sent, and notice thereby given, when mailed, with the proper postage affixed, to the last known address of the person or entity who appears as Owner in the public records of the Registry of the Property of Puerto Rico, Humacao Section, as of the first day of the calendar month in which said notice is mailed two or more co-Owners of a Residential lot, family Dwelling Unit, Commercial Lot or Commercial Unit shall constitute notice to all coOwners. It shall be the obligation of every Member to immediately notify the Secretary of the Association in writing of any change of address. Any person who becomes an Owner and Member following the first day in the calendar month in which said notice is mailed shall be deemed to have been given notice if notice was given to his predecessor in title.

Enforcement

Section D. Enforcement – Enforcement of these Covenants and Restrictions shall be by the Association, any Owner, or the Company against any person and/or entity violating or attempting to violate or circumvent any Covenant or Restriction. The aforesaid enforcement may take the form of legal and/or equitable action to restrain violation, and action to recover damages, an action against the land to enforce any lien created by these Covenants and any other legal or equitable action deemed appropriate by the Board of Directors. Failure by the Association or any Owner or the Company to enforce any Covenant or Restriction herein contained for any period of time shall in no event be deemed a waiver of estoppel of the right to enforce same thereafter.

Severability

Section E. Severability – Should any Covenant or Restriction herein contained, or any Article, Section, Subsection, sentence, clause, phrase or term of this Declaration be declared to be void, invalid, illegal, or unenforceable, for any reason, by the adjudication of any court or other tribunal having jurisdiction over the parties hereto and the subject matter hereof, such judgment shall in no way affect the other provisions hereof which are hereby declared to be severable and which shall remain in full force and effect.

Interpretation

Section F. Interpretation – The Board of Directors of the Association shall have the right to determine all questions arising in connection with this Declaration of Covenants and Restrictions and to construe and interpret its provisions, and its good faith determination, construction, or interpretation, shall be final and binding. In all cases, the provisions of this Declaration of Covenants and Restrictions shall be given that interpretation or construction that will best tend toward the consummation of the general plan of improvements.

Authorized Action

Section G. Authorized Action – All actions which the Association is allowed to take under this instrument shall be authorized actions of the Association if approved by the Board of Directors of the Association in the manner provided for in the Bylaws of the Association, unless the terms of this instrument provide otherwise.

Termination of Association

Section H. Termination of Association – In the event that this Declaration be declared to be void, invalid, illegal, or unenforceable in its entirety, or in such significant manner ,that the Association is no able to function substantially as contemplated by the terms hereof, f any reason, by the adjudication of any court or other tribunal having jurisdiction over the parties hereto and the subject matter hereof, or if the Members of the Association, as represented by their Delegates, should vote not to renew and extend this Declaration a provided for in Article XII, Section A, all Common Properties, Restricted Common Properties and Purchased Common Properties owned by the Association at such time shall be transferred to a Trustee appointed by the Superior Court of Puerto Rico, Humacao Section, which Trustee shall own and operate said Common Properties and Restricted Common Properties for the use and benefit of the Owners within the Properties as set forth below:

(a) Each lot or parcel of land and improved property located within the Properties shall be subject to an annual assessment which shall be paid by the Owner of each lot or parcel of improved property to the Trustee. The amount of such annual assessment and its due date shall be determined solely by the Trustee, but the amount of such annual assessment on any particular lot or parcel shall not exceed the amount actually assessed against that lot or parcel in the last year the assessments were levied by the Association subject to the adjustments set forth in SubArticle (b) immediately below.

(b) The amount of the maximum annual assessment which may be charged by the Trustee hereunder on any particular lot or parcel or improved property may be increased each year by an amount not to exceed ten percent (10%) of the prior year’s budget.

(c) Any past due annual assessment together with interest thereon at the maximum interest rate permitted by statute from the due date and all cost of collection, including late fees, administrative charges and reasonable attorney’s fees, shall be a personal obligation of the Owner, his heirs, devisees, personal representatives and assigns at the time the annual assessment became past due, and it shall also constitute and become a charge and continuing lien on the lot or parcel of land and all improvements thereon, against which the assessment has been made.

(d) The Trustee shall be required to use the funds collected as annual assessments for the operation, maintenance, repair and upkeep of the Common Properties, Restricted Common Properties and Purchased Common Properties. The Trustee may charge, as part of the coat of such functions, the reasonable value of its services in carrying out the duties herein provided for. The Trustee shall not have the obligation to provide for operation, maintenance, repair and upkeep of the Common Properties, Restricted Common Properties or Purchased Common Properties once the funds provided by the annual assessment have been exhausted.

(e) The Company shall have to convey title to the Common Properties or Purchased Common Properties once the funds provided by the annual announcement have been exhausted

(e) The Company shall have the right to convey title to the Common Properties and Restricted Common Properties and to assign its rights and duties hereunder provided that the transferee accepts such Properties subject to the limitations and used imposed hereby and affirmatively acknowledges its acceptance of the duties imposed hereby.

(f) The trustee shall have the power to dispose of the Common Properties, Restricted Common Properties and Purchased Common Properties free and clear of the limitations imposed hereby; provided, however, that such disposition shall first be approved in writing by fifty one percent (51%) of the Owners of property within the Properties or in the alternative shall be found to be in the best interest of the Owners of property within the Properties by the Superior Court of Puerto Rico, Humacao Section. The proceeds of such a sale shall first be used for the payment of any debt or obligations constituting a lien on the Common Properties, Restricted Common Properties, and/or Purchased Common Properties, then for the payment of any obligations incurred by the Trustees in the operation, maintenance, repair and upkeep of the Common Properties, Restricted Common Properties and Purchased Common Properties, and the excess, if any, shall be distributed among the Owners of property within the Properties, exclusive of the Trustee, in a proportion equal to the portion that the maximum annual assessment on property owned by a particular Owner bears to the total maximum annual assessment for all property located within the Properties.

Company Unable to Perform

Section I: Company Unable to Perform – The Company, its successors and assignees, shall not, in any manner or form, be held legally responsible to Members, their successors and assigns, or third parties if due to governmental action, be it Federal or Commonwealth or any political subdivision thereof, whether such action is direct or indirect, the Company is unable to perform as provided in this Deed of Declaration of Covenants and Restrictions.

Neighborhood Area

Section J: Neighborhood Area – Neighborhood Area may be formed upon petition of any five (5) Members to the Board of Directors. The purpose of the Neighborhood Area is to perform special functions which the Board deems inappropriate for the Association to support. Funds for these special functions shall be raised by special assessment of those owning Property within the Neighborhood Area. Such petition shall state the purpose for which the proposed Neighborhood Area is to be formed, the specific Properties and Property Owners that shall be considered within the Neighborhood Area, the amount and term of any special assessments to be charges to such Owners and a proposal for administering the requested activity (whether by the Association Board or by a subordinate committee of Members). Within 30 days of receipt of such petition, the Boar shall either approve or deny the petition by a simple majority vote. If approved, the Board shall notify the specific Owners on both the issue of the establishment of the Neighborhood Area and the issue of acceptance of the special assessment, if any. In the event that eighty percent (80%) of the votes actually returned to the Board within thirty (30) days of personal delivery or mailing of the ballots shall be in favor of the establishment of the Neighborhood Area, then such Neighborhood Area shall be deemed established for the purposes and under the conditions stated in the notice. The requirements for affirmation of the special assessments are established in Article ,V, Section D above, and shall be accomplished either concurrent with the establishment of the Neighborhood Area or within 30 days subsequent thereto.

Dispute Resolution

Section K. Dispute Resolution – The Association, Developer, Owners, all Persons subject to this Declaration, and any person not otherwise subject to this Declaration who agrees to submit to this Article (collectively, “Bound Parties “) agree to encourage the amicable resolution of disputes involving the Properties and to avoid the emotional and financial costs of litigation if at all possible. Accordingly, each Bound Party Covenants and agrees that it shall attempt to resolve all claims, grievances or disputes, between such Bound Party and any other Bound Party involving the Properties, including, without limitation, claims, grievances or disputes arising out of, or relating to, the interpretation, application or enforcement of this Declaration, Bylaws, the Association rules, or the Certificate of Incorporation (collectively, “Claim”) through alternative dispute resolution methods, such as mediation and arbitration. Bound Parties may pursue any lawful means, including alternative dispute resolution methods, to resolve (a) any suit by the Association against any Bound Party to enforce the provisions of Article V; or (b) any suit by the Association to obtain a temporary restraining order (or equivalent emergency equitable relief) and such other ancillary relief as the court may deem necessary in order to maintain the status quo and preserve the Association’s ability to enforce the provisions of Article VII and Article IX; or (c) any suit between Owners (other than the Developer) seeking redress on the basis of a Claim which would constitute a cause of action under the laws of the Commonwealth of Puerto Rico in the absence of a claim based on the Declaration, Bylaws, Articles or rules of the Association, if the amount in controversy exceeds $5,000.00. Any Bound Party may submit such Claims to alternative dispute resolution methods, but there shall be no obligation to do so.

To foster the amicable resolution of disputes, the Board may adopt alternative dispute resolution procedures applicable to all Bound Parties.

Recordation

Section L: Recordation – The part lee ‘I hereby request the Register of the Humacao Section, to record this Deed Amendment by Restatement of the Declaration so that henceforth proper notice thereof shall be available to third parties. Same shall become effective sixty (60) days from the date it is filed.

TWELFTH: It is respectfully requested to the Honorable Registrar of the Property to acknowledge these amendments and, to that effect, record the present Deed.

Notary

ACCEPTANCE

I, the Notary, do hereby certify that I advise the appearing party of the legal effect of the present deed, who waived their right to have attesting witnesses in the instrument, after having duly advised them of such right.

I, the Notary, also certify and attest that this document was read by the appearing party and having found it in accordance with their wishes and instructions they approve and ratify the content there of and sign before me placing their initials on each and every page of the original of this deed.

I further certify and attest that the appearing party and I know and fully understand the English language; and also attest as to my personal acquaintance to the appearing party and to their personal qualifications.

To all of which, under my Signature and seal, signing and sealing the same according to law, I the Undersigned Notary, GIVE FAITH.

Palmas del Mar Homeowners Association, Inc.

Deed of Amended and Restated Declaration of

Rights, Restrictions, Conditions and Constitution of

Restrictive Covenants and Establishment of Provisions for

Palmas del Mar Homeowners Association

Deed No. 2

As Amended April 5, 1997 and Recorded August 27, 1997

Contact PHA – P.O. Box 9027, Humacao, PR 00792-9027 > Telephone: 787-285-6425 > Fax: 787 850-7298