How the New Laws Affect You: Non-Condos

June 2, 2011

For non-condo HOAs (all HOAs except condominiums), here’s a summary of how the new Utah HOA laws that went into effect on May 10, 2011, affect you most, as well as some recommended “action items.”  Contact us for help with any action item.  Also, see the other posts on this blog for more detail on the new laws.  This blog does not contain a comprehensive list of the new laws, just those that affect your daily operations the most.

1.  Register or No Lien.  Register as an HOA (separate and apart from registering as a nonprofit corporation) with the State of Utah and keep it updated when directors change, or else you can’t enforce any liens against delinquent owners.  *Action item:  subscribe to this blog (on the right side of this page under “Email Subscription”) and we’ll post the info on how to register as soon as we know about it.

2.  Insurance.  All HOAs in Utah must have property and liability insurance coverage for their common areas (this was not required before in non-condominium HOAs).

Unless the CC&Rs require each homeowner to insure the homeowner’s dwelling, all HOAs with attached housing (such as townhomes) are required to have 100% replacement cost coverage for all permanent improvements, including fixtures and betterments to an attached dwelling made by a homeowner.  The association must set aside an amount equal to the amount of the deductible (or $10,000, whichever is less).  The master policy must be primary, even for unit related losses.   However, the law gives the HOA a method to allocate or transfer risk to the homeowner or homeowner’s policy.  For claims against the association’s master policy which are associated with a particular home, the association can require that homeowner to pay the deductible if a notice had already been sent to all homeowners stating they will be responsible for the deductible on the association’s master policy.  *Action item: send notice to all owners regarding payment of the deductible, and make sure your deductible is somewhere in the $2,500 to $10,000 range to reduce minor or frivolous claims against the master policy by homeowners that drive up the premiums.

3.  Rules.  As of May 10th, rules can no longer be changed or adopted without giving notice to all homeowners 15 days in advance of the board meeting where the rule change will be considered and allowing homeowners an opportunity to be heard at that meeting.  The new or changed rule must then be sent out to all homeowners within 15 days of being adopted.  The homeowners can call a special meeting and disapprove a new rule within 60 days from the date it was adopted, if 51% of the total votes in the association vote to disapprove at the special meeting.

4.  Payoff Info.  An association is now prohibited from charging a fee for providing payoff information needed for closing on a unit, unless the fee is authorized by the CC&Rs, bylaws or rules, and, no matter what, the fee can’t exceed $50.  Payoff information must be provided by the HOA within five business days from when a closing agent makes a proper request for it (has to be in writing, signed and dated by the owner, etc.), or the lien is not enforceable at closing.

When a unit owner is closing on a unit and the owner needs payoff information because he or she has not been paying their share of the common expenses, providing that payoff information is an administrative burden on the HOA that is appropriately paid for by the offending/delinquent owner, not by the other paying owners.   *Action item:  adopt a rule authorizing a fee for providing payoff information.

5.  Reserves.  Every five years, a homeowner-elected board must perform, or hire someone to perform, a reserve analysis by (1) determining which improvements have a useful life of 3 years or more, then (2) determining what the cost is for maintaining those improvements over the next several years, and (3) then determining what they think the appropriate amount of the reserve fund should be.

The reserve analysis has to be reviewed and, if needed, updated every two years.  The reserve analysis has to be presented to the homeowners at the annual meeting each year where the homeowners at the meeting vote on whether to fund a reserve account and, if so, how to fund it and in what amount.  The results of that vote have to be reflected in the minutes.

The money in the reserve fund has to be kept separate from other funds and may not be used for daily maintenance expenses, unless approved by the owners, or for any other purpose other than the purpose for which the reserve fund was established.  *Action Item: for those who haven’t conducted a reserve analysis since March 1, 2008,  the law requires you to do one by July 1, 2012.

6.  Budgets.  A new law requires a homeowner-elected board to adopt a budget annually and to then present that budget to the homeowners at a meeting.  Since the budget will have already been adopted by the board, there is no requirement that the homeowners vote to approve the budget at the meeting.   The homeowners can, however, call a special meeting within 45 days of the first meeting and vote to disapprove the budget.  The budget will be disapproved if 51% of the total votes in the association vote to disapprove it “at a special meeting specifically called for that purpose by the lot owners.”

7.  Electronic Notice.  A new law states that you can provide notice to homeowners solely by electronic means (e.g., email, website) if authorized by your CC&Rs, bylaws, or rules (unless a homeowner opts out in writing).  *Action Item: adopt a rule authorizing electronic notice instead of notice by mail, at least for certain things.

Curtis G. Kimble

New Law on Budgets

May 19, 2011

Because of a new Utah law that went into effect on May 10, each homeowner-elected board in a non-condo HOA is required to adopt a budget annually and to then present that budget to the homeowners at a meeting.

Since the budget will have already been adopted by the board, there is no need or requirement for the board to hear input or objections or to conduct a vote of the homeowners on the issue at the meeting.   The homeowners can, however, call a special meeting within 45 days of the first meeting and vote to disapprove the budget.  The budget will be disapproved if 51% of the total votes in the association vote to disapprove it “at a special meeting specifically called for that purpose by the lot owners.”

If a budget is disapproved, the budget that the board last adopted that was not disapproved by members continues as the budget until and unless the board presents another budget to members and that budget is not disapproved.

Note that the vote to disapprove the budget can only take place “at a meeting specifically called for that purpose by the lot owners,” which would not normally be the meeting where the budget is first presented by the board because that first meeting would not normally be called by the lot owners or be called for the specific purpose of having a vote to disapprove the budget.  The reason for requiring a separate subsequent meeting is unclear, but it may be to ensure that adequate notice to all lot owners is provided regarding the purpose of the vote, and also possibly because there should be a degree of difficulty in the process of overturning the decision of the board on this issue, since the board is in the best position to determine the budgetary requirements of the association, rather than the homeowners.

Curtis Kimble

Important Follow Up – Electronic Notice Law

May 4, 2011

As a quick follow up to my post below, I want to point out that another law goes into effect on May 10 allowing both condo and non-condo HOAs to stop mailing out notices to homeowners and to instead provide notice by electronic means, such as by email or by posting on the association’s website (or even by text message), if it’s authorized by the CC&Rs, bylaws or rules, and if, considering all the circumstances, the notice is fair and reasonable.  The new law will be in the Condo Act at § 57-8-42, and in the Community Association Act at § 57-8a-214.

The reason I’m mentioning this as a follow up to my post below is that, because of the new requirements for adopting new rules in non-condo HOAs which I explain below and that go into effect on May 10, a board may want to quickly meet (or take action by written consent without a meeting) before then and adopt a rule authorizing notice by electronic means.  Even if it’s too late for that, every board should definitely consider this important tool, at the very least for certain types of notice.

Curtis G. Kimble

New Laws on Rule-Making Procedures & Authority

May 2, 2011

Two new laws that go into effect on May 10, 2011, deal with rule-making authority and procedures in non-condo HOA’s.  These two new laws will become part of the Utah Community Association Act (but not part of the Utah Condo Act, so you condominiums can ignore them).

Utah Code § 57-8a-217.  From now on, before a board can adopt or change a rule (including architectural guidelines or design criteria), they have to provide an open forum at a board meeting giving lot owners an opportunity to be heard.  The board has to send out notice at least 15 days before that board meeting to every owner stating that the board is considering a change to a rule.  The board also has to send out notice within 15 days after a new rule is adopted.

This means a board has to listen to homeowner concerns before it makes a final decision.  The board does not need to conduct a vote of the homeowners to adopt a rule.  The decision to initially adopt a new rule is still entirely up to the board.

However,  the homeowners can disapprove a new rule by calling a special meeting within 60 days from the date it was adopted.  If 51% of the total votes in the association vote to disapprove the rule at the special meeting, then the rule will be nullified.  The procedure for lot owners to call a special meeting is usually set forth in the bylaws or CC&Rs.  The board has no obligation to call a meeting of the lot owners to consider disapproval unless lot owners submit a petition in accordance with the procedures in the bylaws or CC&Rs.

This is a big change, and an unfortunate one at that.  While it has value as a “checks and balances” type recourse for homeowners faced with unfair or inappropriate rules, it simply goes too far and is much too burdensome, especially for larger HOAs.  The law doesn’t go into effect until May 10, so it doesn’t apply to any rules a board adopts before then (so you’ve still got a few days to adopt that rule you’ve been putting off adopting without having to go through these new steps).

Utah Code § 57-8a-218.  This law mostly just restates common sense and common law principles regarding rules that I and other HOA attorneys have long been preaching (e.g., a rule must be reasonable, an association can adopt generally applicable rules for the use of common areas, and a rule can’t be contrary to the CC&Rs).

However, a couple of new things do come out of it.  For one, it states that an association may require a minimum lease term by rule alone (as long as it wouldn’t be contrary to the CC&Rs).  So, if you don’t have such a rental restriction in your CC&Rs already, the board can simply adopt a rule prohibiting rentals of less than X amount of time (e.g., 30 days, 6 months, 1 year).

Another thing that’s helpful in this law is that, even if not authorized in the CC&Rs, now an association may by rule:

  • impose a fee or charge 1. for the use, rental, or operation of the common areas, and 2. for a service provided to a lot owner, or
  • impose a late fee for late payments.

Finally, the law states that a rule may prohibit smoking inside attached dwellings (e.g., townhomes) if such smoking “creates the potential for smoke to enter a neighboring unit, the common areas, or limited common areas.”  So, for instance, without amending the CC&Rs, an association could adopt a policy stating that smoking is prohibited anywhere, including inside a unit, if it is possible that smoke will drift into another unit or into the common area or limited common area.

This new law parallels the existing law in the Utah Condo Act and it underscores the Utah Legislature’s position that smoking is a health and safety issue first and foremost.  Smoking is not a right, but rather it is every homeowner’s right to enjoy their dwelling free from the carcinogens and health hazards forced upon them at the whim of their smoking neighbors.  That is why the law provides that this is not an issue that needs to be voted on by the homeowners, a board can simply adopt a rule protecting the health of the residents and the livability of the units.

Curtis G. Kimble

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