New 2015 HOA Laws – Open Meetings

July 1, 2015

By Curtis G. Kimble.

Continuing our summary of the new laws affecting HOAs in 2015, effective July 1, 2015, both the Utah Condominium Ownership Act and the Utah Community Association Act require board meetings to be open to each homeowner (or homeowner’s designated representative).

Open Meetings; Exception.

Utah Code 57-8-57 (for condos) and 57-8a-226 (for non-condo HOAs) require open board meetings, with the exception that executive sessions may be closed to the owners for the following purposes: to consult with an attorney or to discuss ongoing litigation, personnel matters, contract negotiations, delinquencies, and matters involving an individual if privacy is required.

Comment Period at Meetings.

Additionally, at each board meeting, the board must provide each owner a reasonable opportunity to offer comments, but the board may limit the comments to one specific time period during the meeting and may limit the time allotted to each owner to comment.

Notice of Meetings.

If an owner has requested notice of a board meeting, the association must give written notice of a board meeting at least 48 hours before a meeting to the owner who requested it, unless notice of the meeting is included in a meeting schedule that was previously provided to that owner, or the meeting is to address an emergency and each board member receives notice of the meeting less than 48 hours before the meeting.

The notice to the owner must (i) be delivered to the owner by email, to the email address that the owner provides to the board or the association; (ii) state the time and date of the meeting; (iii) state the location of the meeting; and (iv) if a board member may participate by means of electronic communication, provide the information necessary to allow the owner to participate by the available means of electronic communication.

Exactly what constitutes a board meeting?

A board “meeting” means “a gathering of a board, whether in person or by means of electronic communication, at which the board can take binding action.”  (Utah Code 57-8a-102(16), 57-8-3(27)).  “Means of electronic communication” means an electronic system that allows individuals to communicate orally in real time, including web conferencing, video conferencing, and telephone conferencing (Utah Code 57-8a-102(15), 57-8-3(26)).

Action/decisions without a Meeting.

A meeting requires a gathering of the board in a way that they are communicating live and in real time.  It does not include actions or decisions taken without a meeting, as is commonly done by boards (most commonly through email).  However, specific requirements must be followed by a board in taking an action or making a decision without a meeting.  These requirements are spelled out (for associations that are nonprofit corporations) in Utah Code Section 16-6a-813, which, significantly, was also changed this year.

Under the prior law, a board could make decisions or take an action without a meeting if each member of the board either: (1) voted for the action, or (2) waived the right to demand that the decision/action be made or taken at a meeting and either voted against the action or abstained from voting.  Now, unanimous consent of the members of the board is needed for the action or decision being made or taken without a meeting, unless an association’s bylaws specifically provide that an action or decision may be taken without a meeting without the board unanimously consenting to the action or decision being made.

If the bylaws do authorize it, the statute sets out the required procedure for a board to make a decision or take an action without a meeting without the board unanimously consenting to the action or decision being made (regardless of any contrary procedure in your bylaws).  The statute requires notice to be sent to each member of the board containing certain items listed in the statute.   Then each member of the board has to either (1) sign a writing in favor of the action/decision, or (2) sign a writing against the action/decision, abstain in writing from voting, or fail to respond or vote or demand in writing that the action or decision be made at a meeting.  All of these “writings” and communications can be delivered electronically (e.g., as an email), in which case, the date on which such an electronic transmission is transmitted is considered the date on which the vote, abstention, demand, or revocation is signed.

Declarant/developer Controlled Associations.

The open meetings laws do not apply to associations that are still under “declarant” (developer) control (where the declarant appoints the board).

Penalty.

The law stipulates certain penalties and procedures if an association does not comply.  Essentially, an owner can make demand for compliance on the association stating which requirements the association has failed to comply with.  Then, if 90 days elapses without compliance after a proper demand, the owner may file an action in court for a court order requiring the association to comply and to pay a $500 penalty.  The court may also require that the prevailing party be reimbursed its costs and attorney fees by the non-prevailing party.


5 Ways to Reduce Assessment Delinquencies

January 7, 2013

By Curtis G. Kimble.

Our law firm helps many HOA boards and managers collect past-due assessments (dues) from members.  Collecting on delinquencies is not easy work in any event, but it can inadvertently be made even more difficult than necessary by a manager or board.  Here are 5 ways to help ensure delinquencies can be collected in a timely manner.

1.  Have a collection policy in place and let your owners know about it.  A collection policy should explain due dates, when late charges are incurred, the interest rate on late amounts, returned check charges, and what actions will be taken on delinquent accounts and when.  At the same time, a collection policy should be somewhat flexible, rather than taking a hardline approach requiring a series of actions taken at set-in-stone dates.  Seek the advice of the association’s attorney because many laws and the association’s governing documents must be taken into consideration.  Finally, follow all the steps in the policy.

2.  Ensure the names and addresses of owners are accurate and up to date.  Sure, it’s generally the job of the owner to ensure the association has an accurate mailing address.  But, a board can avoid some headache by doing what they can to ensure accurate contact information.  Try to ensure actual contact with an owner is made before sending their account to collection.  Be aware of returned mail and vacant properties.  The primary complaints we see from owners are, “I’ve never heard anything from the association” and “if they had just knocked on my door and talked to me about it.”

It’s not a volunteer board member’s job to go knocking on doors to collect money, rather, it’s the individual owner’s duty to make sure their debts are paid.  Additionally, casual collection procedures that embarrass owners should be avoided.  But, communication is key, and communication can’t occur without accurate owner information.

3.  Implement effective procedures that will identify accounting errors.  Every HOA must use good, basic accounting practices.  I’m not saying every small association must strictly use GAAP (Generally Accepted Accounting Principles), which is a codification of how CPA firms and large corporations prepare and present their business income and expense, assets and liabilities on their financial statements.  But using a homemade accounting system on a spreadsheet or hand-written ledger can be a recipe for a mess and can significantly delay proper collection remedies.

Ideally, use bookkeeping software that will give you reasonable reports of every individual property account with a history of charges, payments, and a running balance.  Make notes that identify payments by check numbers and sender’s identity.  Identify charges to the individual’s account by item or purpose.  Be able to provide an accounting that will clarify the what and why of an individual’s balance at any given time.  When switching accounting systems or switching property managers, make sure to have a means or require a means of providing the history for any balance forward carried into the new system.

4.  Take action when assessments remain unpaid.  The association has rights that should be preserved early on with a delinquent account.  Follow the association’s collection policy.  Ensure letters are sent to the owner, a lien is filed against the property, and additional remedies are being pursued, as appropriate.  The more time passes, the harder it will be to collect.

5.  Take collection action uniformly and consistently with all owners who are delinquent.  Do not let personality conflicts or personal relationships factor into the actions taken on a delinquent account.  Treat all owners equally and fairly.

Associations that consistently follow good and effective practices, such as the ones listed above, have more success obtaining the cooperation of the owners and collecting delinquent assessments without having to resort to extreme legal measures.  Contact us if you’d like assistance implementing any of these practices or to help your association collect on delinquencies.


Let it Snow? Who Should Remove Snow and Ice?

December 11, 2012

By:  John Richards

Most Property Managers dread the “snow days.”  It takes a lot of effort to coordinate your snow removal vendors, especially if there is a continual downpour of the white stuff and it keeps accumulating.  Questions arise such as “how often during a storm should the snow plow go out?”  If a lot of snow is expected, is it reasonable to wait between “pushes” before they are sent back out, and what liability is there is someone slips on snow or ice that was the Association’s obligation to remove?  What about Associations that provide ice melt to their members and asks them to put it on the common area walkways that lead to their door?  Does this create any legal concerns? 

These exact same questions apply to self-managed Associations with the additional circumstance that many smaller, self-managed Associations use “volunteer” homeowners to remove the snow.  The article will address these questions.

When considering the HOA’s obligation to remove snow, first and foremost make sure that you are absolutely certain which portions of the property are either:  (1) general common area; (2) limited common area; and/or (3) part of the owner’s lot.

Next, be clear as to whether the owner or the Association is assigned to remove snow from each of these three (3) different types of areas (Note:  not all Associations will have all three (3) types of property).  Remember, this “assignment” will be set forth in your CC&Rs.  If there is any uncertainty whatsoever in your governing documents, have your attorney draft a snow removal obligation chart that shows clearly “who clears which areas” based upon the CC&Rs.  This chart is then distributed to the owners.

If an Association member (or their guests) slips and falls and is injured due to snow or ice on the common areas, the Association may be liable, but not in all cases.  An Association’s liability is governed by the following concepts:  (1) If the owner had the obligation to remove the snow or ice under the CC&Rs, then the Association will not be liable for an injury that occurred in such an area; (2) If an injury occurs in an area over which the Association has maintenance obligations (i.e., snow and ice removal) then the injured owner/guest may have a good case if (a) the Association had actual or constructive notice of the snowy/icy condition (that is, they should have known); and (b) the Association failed within a reasonable time to reasonably remove the ice or snow. 

Of course, the term “reasonable” is subject to a lot of interpretations and varies with each situation.  However, at a minimum, it is likely to be deemed “reasonable” by a court that an Association has a legal obligation to inspect and remove snow and ice (whether from a single snow fall event or during a continuous snow fall during a storm) on a regular basis for so long as the threat of dangerous snow and/or ice is present.  This could create an extreme burden on those Associations that remove snow “up to the door” of a member but this obligation simply cannot be ignored.  I believe the legal standard in Utah for an Association to remove snow and ice will be the same as found in the Restatement of Torts which implies that the Association will be liable for an injury if it “fails to exercise reasonable care to protect the members or guests against danger….”

As for giving your members ‘ice melt’ and a shovel to take care of the common area in front of their own doors, I do not believe that this a bad idea at all, however, be cautious of the unintended consequence of the Board believing that members are taking care of potentially slippery and hazardous areas when, in fact, this will remain an Association obligation.  One tip, besides those mentioned above, is to hire a reputable and insured snow removal company who will take care of the snow and ice in the parking lot and walkways in a timely manner.  As I typed this entry, snow is lightly falling which is something that I presonally thoroughly enjoy. Consequently, let’s not diminish the beauty of the winter season by unnecessarily exposing our Associations to legal liability for failing to keep the common areas reasonably safe and clear from snow and ice.

 


Exposing Common Myths in HOA Operations

October 25, 2012

By Curtis G. Kimble.

We frequently hear about and see associations acting on myths that seem to persist despite being clearly incorrect. Here are some of those myths and misunderstandings and the truth behind them:

1. An association can deny a request of a members to view the records of the association.

False.  An association member is generally entitled to view and inspect the records of the association upon making a proper request (with limited exceptions, such as for confidential or privileged records).  An association must either maintain its records in written form or in another form capable of conversion into written form within a reasonable time.  Every association should have a records retention policy to ensure the association keeps records for the proper period of time, to provide for the proper disposal of records, and to assist in making and complying with records requests.

2.  An association can require pre-approval for, or prohibit, small satellite dishes installed on owners’ porches, balconies and patios.

False, except  an owner (or installer) cannot drill through an exterior wall to install the dish.

The FCC has adopted a rule applicable to “Over-the-Air-Reception Devices” (“OTARD”).  OTARD prohibits HOA restrictions that impair the installation, maintenance or use of small satellite dishes in areas that are within the exclusive use or control of the dish user (such as limited common area).

The rule prohibits restrictions as to such areas that:  (1) unreasonably delay or prevent installation, maintenance or use;  (2) unreasonably increase the cost of installation, maintenance or use; or (3) preclude reception of an acceptable quality signal.

The rule does not apply to common areas (such as the roofs and exterior walls of a condominium building).  It only applies to areas within the exclusive use or control of the dish user.  So, an association can certainly restrict or prohibit satellite dishes from being installed on common area roofs and walls.  Additionally, the association can regulate dishes on limited common area to some degree.

Contact us for assistance adopting a satellite dish and antenna installation policy if you don’t already have one in place.

3. A director must abstain from voting on matters that the director has a conflict of interest in.

False.  As long as the underlying transaction being voted on is fair to the association, a director can have a conflict and still vote.  (Utah Code Sec. 16-6a-825).  However, it is highly discouraged that the director vote for several reasons, not the least of which is the difficulty in establishing that a transaction is fair and defining exactly what fair is.  If the conflicted director simply abstains from voting after fully disclosing to the board the material facts as to the conflicting interest transaction, then most conflict of interest problems will be cured.

4.  The association president has authority to make decisions and take actions on behalf of the association.

False, except to the extent the president is authorized by the board or by the bylaws to make decisions and take actions.  All powers of an association must be exercised by or under the authority of the the board and the business and affairs of the association must be managed under the direction of the board.  (Utah Code Sec. 16-6a-801).  The president has no independent authority to exercise the powers of the association or manage the business and affairs of the association.

The bylaws may authorize a person to exercise some or all of the powers that would otherwise be exercised by the board.  (Utah Code Sec. 16-6a-801).  And, the board can delegate certain authority of the board to a person (including the president).  (Utah Code Sec. 16-6a-819).  But, otherwise, the president and any other officer have no more authority than any member of the association.  It’s very important a board clearly authorize a president to perform the actions and make the decisions they expect him or her to carry out.  This authorization should be in a board resolution or reflected in the minutes of a board meeting.

5.  A board can adopt a rule about any issue they deem necessary.

False.  The board must have authority to restrict or regulate the specific subject of the rule.  This authority usually comes from the law or from the CC&Rs.  A general provision in the CC&Rs granting the right to adopt rules does not give a board the unfettered authority to restrict rights of individual owners, especially as to units or lots.  On the other hand, a board will usually have authority to adopt reasonable rules to govern use of the common property, to govern the use of individually owned property to protect the common property, and to protect the members’ use and enjoyment of their own property and the common property from interference caused by use of other individually owned lots or units.

An association should have a qualified attorney review a proposed rule before it is adopted, and have the attorney review existing rules periodically to ensure the rules are authorized under the governing documents and the law and that they don’t open the association to discrimination claims or present other problems.

6. The law regarding rental restrictions in the Condo Act applies to all condo projects, or the  law regarding rental restrictions in the Community Association Act applies to all community associations.

False.   Those laws don’t apply to the vast majority of associations out there.  Each of those laws only apply to associations where the original declaration is recorded after May 12, 2009.  So, if the community is older than 2009 (if the original CC&Rs were recorded before May 12, 2009), the rental restriction requirements in those two statutes do not apply to that association.

UPDATE 2015:  The two referenced laws (Utah Code 57-8-10.1 for condos, and 57-8a-209 for non-condos) apply to all HOAs who, on or after May 12, 2015, (1) adopt a rental restriction or prohibition, or (2) amend an existing rental restriction or prohibition.

7. The Utah reserve analysis law requires an association to have reserves.

False.  There is no state or federal law requiring a Utah homeowners association to have a reserve fund.  In fact, the law specifically requires an association to provide an opportunity for homeowners to vote on whether to fund a reserve fund.  Of course, many lenders, as well as FHA, require reserves.


A Tip for Free Association Governance Resources

July 13, 2012

By Curtis G. Kimble.

For those that might not be aware, Community Associations Institute (CAI) is a national organization that provides information and education to community associations and the professionals who support them.  Their mission is “to inspire professionalism, effective leadership and responsible citizenship.”  CAI offers a variety of resources to HOAs, including boards, property managers, and people who own, rent or are considering a home in a community association.

CAI has recently published a document called From Good to Great.  It includes the full text from three CAI initiatives—Rights and Responsibilities for Better Communities, Community Association Governance Guidelines and the Model Code of Ethics for Community Association Board Members.   Those who want to see industry standards on homeowner rights and responsibilities, community association governance principles and ethics for association board members can now find it all in this free brochure called From Good to Great.  Click here to see it.

Also, visit this link  for information that can help you better understand the nature, benefits and obligations of living in an association and for additional links to free information and resources from government agencies and nonprofit organizations.  There’s a particularly helpful tip sheet on “Preventing Fraud and Embezzlement” in an association available at that site, as well.


Don’t Forget to Conduct a Reserve Analysis by July 1!

June 12, 2012

By Curtis G. Kimble.

The deadline for all HOA and condominium boards in Utah to conduct a “reserve analysis” is fast approaching.  By July 1, every  board (except developer-controlled boards) needs to obtain or perform a reserve analysis if no reserve analysis has been conducted since March 1, 2008.

A reserve analysis is an analysis to determine:

(a)     the need for a reserve fund to accumulate money to cover the cost of repairing, replacing, and restoring common areas and facilities that have a useful life of three years or more, but excluding any cost that can reasonably be funded from the general budget or other funds of the association; and

(b)     the appropriate amount of any reserve fund.

So, each board must:

  1. determine which improvements have a useful life of 3 years or more, then
  2. determine what the cost is for maintaining those improvements over the next several years, and then
  3. determine what they think the appropriate amount of the reserve fund should be.

There are no requirements in the law as to who has to perform the reserve analysis.  So, a board can perform the analysis or it can engage a professional to perform it.  There are several competent reserve study professionals serving the state of Utah.  There are also websites that will create your reserve study for you based on your input, and some will allow users to run “what if” scenarios with their components and funding plans.  A simple Google search will lead to those sites (I cannot vouch for the quality or value of such online services since I’ve never personally used them or analyzed their results).

There are many options when it comes to fulfilling the requirements of this law.  Each association should find the option that works best for them.

Don’t forget the law also requires each board to, annually, present the reserve study to the homeowners at the annual homeowner meeting or at a special meeting of the homeowners, and provide an opportunity for homeowners to discuss reserves and to vote on whether to fund a reserve fund and, if so, how to fund it and in what amount.  The association must also prepare and keep minutes of the meeting and indicate in the minutes any decision relating to funding a reserve fund.


Can a Board Use “Self Help” to Enforce the Covenants?

December 20, 2011

By Curtis G. Kimble.

How to obtain compliance when enforcing a violation of the governing documents can be one of the most vexing problems in a homeowners association.  One of the chief functions of a homeowners association is enforcement of the covenants and rules governing the community.  Even though the individual property owners ordinarily have the power to enforce the covenants, collective enforcement by the community is one of the main benefits of owning property in a common interest community.  However, every board must act reasonably in exercising enforcement powers and must pay careful attention to the law and the association governing documents.  The duty to enforce should not be confused with a requirement for maximum enforcement in all cases.

An association has the duty to use ordinary care and prudence in managing the property and financial affairs of the community, as well as the duty to act reasonably in the exercise of its discretionary powers, including rulemaking, enforcement, and design-control powers.  One aspect of these duties is the duty to avoid creating unreasonable risks of harm to property values by failure to provide for the long term protection and preservation of the property.  On the other hand, overzealous enforcement can create serious problems, including protracted litigation, divisiveness, and disaffection with the community, among other things.

Accordingly, a board must make an informed decision and exercise careful judgment in decisions regarding enforcement.  This fact was completely lost on a board in a Florida homeowners association in a case called Parton v. Palomino Lakes Property Owners Association, Inc.

The governing documents of the Florida association prohibited mobile homes.  A lot owner decided to install a modular home and attempted to have it delivered to the lot.  Three board members literally blocked the delivery of the home by blockading the entrance to the subdivision. This happened on three different occasions.

The lot owner sued the association and the board members individually and won.  The owner was awarded punitive damages of $40,000 against one board member, $50,000 against another and $60,000 against the other.  The owner was also awarded compensatory damages and their attorney fees.

Sometimes “self-help” by the board (correcting a violation directly) is allowed by an association’s governing documents.  For instance, it’s possible that a board may be able to have a professional come in and remove the three feet tall weeds on a lot and charge the cost back to the lot owner.

But how far is a board allowed to go?  Can a board prevent a non-compliant or delinquent homeowner from access to and from the owner’s lot or unit?  Generally, the answer is absolutely not and the failure of this Florida board to make an informed decision and exercise careful judgment before they acted had drastic consequences.  Such extreme personal liability could have been easily avoided if the board had consulted with a qualified attorney beforehand.


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