HOAs have not come out unscathed by the 2017 Utah general legislative session, which ended yesterday, March 9. A new law was passed that requires an HOA to comply with rather onerous requirements before it may go after the developer for problems created by the developer.
House Bill 157 (HB 157 3rd Substitute) was passed stating that: (1) an HOA must comply with certain requirements before suing a declarant (the developer of the HOA) or a board related to a period of declarant control, and (2) certain provisions regarding open board meetings apply during the period of declarant control.
Requirements Before Association Can Sue Developer
The new laws enacted by HB 157 (Utah Code section 57-8-58 in the Condo Act and 57-8a-229 in the Community Association Act) require that an HOA may not, after the period of declarant control, sue a declarant (or a board of directors, or an employee, an independent contractor, or the agent of the declarant or the previous board of directors related to the period of declarant control), unless:
(1) the lawsuit is approved in advance at a meeting where owners of at least 51% of the allocated voting interests of the owners in the association are represented (i.e., a quorum of 51% of the voting interests);
(2) the lawsuit is approved either by (i) more than 75% of the voting interests of the owners who are represented (in person or by proxy) at the meeting; or by (ii) more than 51% of the total voting interests of the owners in the association; and
(3) the association first notifies the declarant (or person to be sued) and gives them an opportunity to cure the problem.
Additionally, before owners may vote to approve the lawsuit, the association must provide each owner:
(1) a written notice that the association is contemplating legal action; and
(2) after the association consults with an attorney, a written assessment of: (i) the likelihood that the legal action will succeed; (ii) the likely amount in controversy in the legal action; (iii) the likely cost of resolving the legal action to the association’s satisfaction; and (iv) the likely effect the legal action will have on an owner’s or prospective buyer’s ability to obtain financing for a lot or unit while the legal action is pending.
Finally, before the association commences the lawsuit, the association must allocate an amount equal to 10% of the cost estimated to resolve the lawsuit, not including attorney fees, and place it in a trust that the association may only use to pay the costs to resolve the lawsuit.
The statute does not apply to lawsuits where the amount being sued for is less than $75,000.
Open Board Meetings During Declarant Control
HB 157 also modifies Utah Code Section 57-8a-226 “Board meetings – Open meetings” which applies to community associations (inexplicably, the statute that applies to condominiums was not changed).
This statute requires every association except declarant-controlled associations to give 48 hours’ notice of board meetings to each owner who requests it, unless the meeting was provided for in a meeting schedule previously provided to the owner, or unless the meeting is to address an emergency. The board meeting must be open to each owner, except for specific reasons (such as to discuss ongoing litigation or delinquent assessments). The board must provide each owner an opportunity to offer comments at the board meeting.
The existing statute does not apply to an association during the period of declarant control, but the new statute requires that, during the period of declarant control, the association must hold at least one such board meeting a year as well as each time the association increases a fee or raises an assessment. The requirements of Section 57-8a-226, subsections (1) through (3) (summarized above) will apply to such a board meeting.
Other laws were also passed which will be discussed in a different blog post. Stay tuned.
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