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

New Utah Law Requires Registration by HOA’s

April 28, 2011

A new Utah law for HOA’s  goes into effect shortly that requires both condo and non-condo  homeowners associations to register as an HOA with the State of Utah by July 1st, 2011, and to keep info updated when directors change over time.  This is completely separate from registering as a nonprofit corporation with the Division of Corporations. Now HOAs that are nonprofit corporations will need to do both (the law doesn’t require an HOA to be a nonprofit corporation, but it is recommended and is typical).

The consequence for not registering an HOA and keeping the information updated is that the HOA will not be able to enforce its liens against delinquent homeowners.  This is a huge (and harsh) consequence, obviously.  So, it is imperative that HOA’s register and keep their info current with the state, or they will lose their lien rights when collecting past-due assessments.

Along with a registration fee not to exceed $37.00, each HOA has to provide the following to the state and kept it updated whenever the information changes :

  • The name and address of the homeowner association
  • The name, address, and telephone number and, if applicable, email address of the president of the association
  • The name and address of each management committee member and contact information for the manager, if applicable
  • The name, address, telephone number, and, if the contact wishes to use email or fax for communicating information, the email address or fax number of a primary contact person who has the lien payoff information a closing agent needs in connection with the closing of the sale or refinance of a lot/unit

Another new law states that lien payoff information must be provided by the HOA within five (5) business days from when a closing agent makes a proper request for it (has to be in writing, be accompanied by a written consent for the release of the payoff information signed and dated by the owner, etc.), or the lien is not enforceable at closing.  Also, the association is now prohibited from charging a fee for providing payoff information needed for closing on a unit, unless the fee is specifically authorized by the CC&Rs, bylaws or rules, and the fee can’t exceed $50.  Ascertaining payoff information for a delinquent owner is an administrative burden on the HOA that is appropriately paid for by the offending owner, not shared by the other innocent, paying owners.  So, the board should adopt a rule right away authorizing a fee for providing payoff information.

It’s important to note that assessments are both a lien on a unit and a personal debt of the owner.  So, while the lien may become unenforceable by failing to adhere to this new law, the past-due assessments will still remain the personal debt of that owner, even after they sell their unit and move on.  So, an action in court could still be pursued by the HOA.

The state has not set up a way to register yet, but we’ll provide updates on this issue and more information on how to register as it becomes available.

UPDATE: The registry is up and running. Read about it in this post.

Curtis G. Kimble

April 2011 HOA University – New Insurance Requirements

April 20, 2011

We had a great discussion at our HOA University in April.  We discussed the new Utah laws governing insurance requirements and reserves.  The new laws are summarized in the handout here:  HOA University – April 2011 Handout, but the highlights of our discussion were:

1. condominium owners associations are required by a new law to insure all permanent improvements, including those that are within a unit,

2.  for claims against the association’s master policy which are associated with a particular unit, the association can require that unit owner to pay the deductible if a notice is first sent to all unit owners stating they will be responsible for the deductible on the association’s master policy.  Note that the unit owner can generally obtain insurance which will pay the association’s master policy deductible.

3. Utah now requires all homeowners associations to have property and liability insurance coverage for their common areas, (this was not required before in non-condominium HOAs, like single family home PUDs, or non-condo townhomes, but is now by this law),

4. all HOAs with attached housing (usually called townhomes) have the same requirements for insurance as condominiums (as mentioned above), unless the HOA was established before January 1, 2012, and the CC&Rs already require each lot owner to insure their own dwelling unit.

Curtis G. Kimble

New Utah Law Versus Fiduciary Duty

March 28, 2011

Because association reserves perhaps play a more important role than any other issue, with the exception of insurance, in the long term viability of a homeowners association, I’m hard pressed to find an issue that triggers the concept of fiduciary duty more than the decision of whether or not to fund an association reserve account and in what amount to fund it.

Every board member is legally bound by a fiduciary duty to his or her association.  It is the duty to act in good faith and in the best interests of the association.  This means a board member cannot put his or her own interests before those of the association.  This duty imposed by law is a very powerful tool.  It is not taken lightly by the courts and breaching this duty subjects a board member to personal liability.

A new law was passed in Utah that is a little disconcerting to me.  It completely circumvents the tool and safeguard of fiduciary duty when it comes to association reserves.  It requires the board to present a reserve study to the homeowners at the annual meeting each year and that a simple majority of those homeowners that show up at the meeting will determine whether to fund a reserve account and the amount of the reserve account, thereby taking the decision completely out of the hands of the board.

If there’s one thing I’ve learned in my years of practice in HOA law, it’s that the individual owners don’t always have the best interests of the association in mind. It’s usually the other way around, they are concerned with their own best interests.  There’s nothing wrong with that, it’s human nature – something the folks on Capitol Hill don’t get, apparently.

As an owner of a home within an HOA myself, I personally have no interest in what the other homeowners in my HOA think about whether to fund a reserve account and in what amount to fund it.  The only individuals who are legally obligated to put the association’s best interests before their own are the members of the board.  The individual homeowners are free to put their own interests first, to be selfish and short sighted, to take the attitude that they may not live here in a few years, so why should they fund expenses ten or fifteen years down the road.  Board members are not.  They are bound by fiduciary duties to the association as a whole.  If board members breach this duty, that’s a different issue and there are remedies for that.  But, as a homeowner, I want that duty to be attached to decisions regarding funding of reserves.

As an attorney who has had to repeatedly deal with the fallout and consequences of inadequate or nonexistent reserve accounts, I hope the collective wisdom of a majority of homeowners at a meeting will allay my above concerns as this new law goes into effect.

Curtis G. Kimble

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