2018 Utah Legislative Session

May 8, 2018

Happy Laws Go Into Effect Day! (okay, I’m sure there’s a better name for that).  Today, May 8, the HOA laws that were enacted this year go into effect.  Specifically, those laws:

  • include an amendment to the law regarding HOA records,
  • include an amendment to the law regarding HOA reserve fund money,
  • regulate how HOAs keep association funds,
  • clean up a couple of the required exceptions to certain rental restrictions,
  • codify that a management committee acts for an association, and
  • enacts provisions regarding a management committee that imposes sanctions or pursues legal action.

HOA Records

A change to the law this year requires an HOA to make certain documents available to homeowners free of charge, via the association’s website or at the association’s address, requires a homeowner to include certain information in a written request for records, establishes a penalty for the failure of an association to fulfill a request,  and provides that an association is not liable for erroneous documents identified or produced in good faith.

The law already required associations to keep certain records and make them available to homeowners who request them.  Now, the law also requires all associations to keep and make available to homeowners a copy of the association’s: (1) declaration and bylaws, (2) most recent approved minutes, and (3) most recent budget and financial statement.  Associations are required to make those documents available to owners, free of charge, through the association website, or, if the association does not have an active website, it must make physical copies of the documents available to owners during regular business hours at the association’s address registered with the Department of Commerce’s Utah HOA Registry.

If a homeowner wishes to view or copy other association records, then in a written request to the association, the homeowner must include certain information, including how the owner wishes to inspect or to copy the documents.  The owner may elect: (1) that the association or a third party duplicating service make the copies or electronic scans of the requested documents, or (2) that the owner be allowed to bring any necessary imaging equipment to the place of inspection and make copies or electronic scans of the documents while inspecting the documents, or (3) that the association email the requested documents to an email address provided in the request.

If an association produces the copies or electronic scans, the owner must pay the association the reasonable cost of the copies or electronic scans and for time spent meeting with the owner, which may not exceed the actual cost that the association paid to a recognized third party duplicating service to make the copies or electronic scans, or 10 cents per page and $15 per hour for the association employee’s, manager’s, or other agent’s time.

In addition to the penalties already in place for failure by an association to comply with this law, the new law imposes the additional penalty that an association must pay $25 per day for as long as the owner’s records request continues unfulfilled, beginning on the sixth day after a proper written request was made.

Finally, the new law states that an association is not liable for identifying or providing a document in error, if the association identified or provided the erroneous document in good faith.

See Utah Code Section 57-8-17 (condominiums) and Utah Code Section 57-8a-227 (non-condo HOAs).

Reserve Fund Money

A change goes into effect today to the law that prohibited an association from using money in a reserve fund for a purpose other than the purpose for which the reserve fund was established.  Effective today, an association may use money in a reserve fund for a purpose other than the purpose for which the reserve fund was established if a majority of association members vote to approve the use of reserve fund money for that purpose.

See Utah Code Section 57-8-60 (condominiums) and Utah Code Section 57-8a-211 (non-condo HOAs).

Association Funds

Starting today, associations are required to keep all of the association’s funds in an account in the name of the association, and an association may not commingle the association’s funds with the funds of any other person or entity.

See Utah Code Section 57-8-7.5 (condominiums) and Utah Code Section 57-8a-230 (non-condo HOAs).

Exceptions to Certain Rental Restrictions

Utah law requires certain exceptions when an association prohibits rentals or restricts the number and term of rentals in the association.  See Utah Code Section 57-8-10.1 (condominiums) and Utah Code Section 57-8a-209 (non-condo HOAs).

A couple of those exceptions were clarified this year.  The law use to say an owner “whose employer has relocated the owner for no less than two years” is exempt from the prohibition or restriction on the number and term of rentals.  This made little sense as a hardship-type exception.  A temporary, short-term job relocation is more likely to cause a hardship.  Long-term relocations are less in need of a hardship-exception because it’s less of a hardship to have to sell a home for a long-term relocation than a short-term relocation.  So, the statute now states an owner “whose employer has relocated the lot owner for two years or less” is exempt from the prohibition or restriction on the number and term of rentals.

Additionally, the new law clarifies that the exemption for owners who have a rental before a prohibition or restriction on the number and term of rentals is adopted terminates when the home is sold or otherwise conveyed (and defines what constitutes such a conveyance).

Miscellaneous

A couple of minor changes were passed that simply codify what was basically already true, at common law or otherwise.  Utah Code Section 57-8-59 states that a management committee acts in all instances on behalf of the association (except as otherwise stated in the association’s governing documents).  And Utah Code Section 57-8-10.7, in the Condo Act, was adopted to match a parallel section in the Community Association Act.  It states that a management committee must use its reasonable judgment to determine whether to exercise the association’s powers to impose sanctions or pursue legal action for a violation of the governing documents, and it specifies certain circumstances under which an association may not be required to take enforcement action.  And, finally, Utah Code Section 57-8a-212.5, in the Community Association Act, was adopted to match a parallel section in the Condo Act.  It states that owners must comply with the governing documents and enforcement may be sought by an association or an aggrieved owner through an action to recover money for damages, or injunctive relief, or both.

Contact Kimble Law for assistance with any of the issues addressed in these new laws, or for any association issues.

2 Comments | Enforcement, HOA Finances, New Condo Laws, New HOA Laws, New Non-Condo HOA Laws, Reserves | Tagged: , , | Permalink
Posted by Curtis G. Kimble

Utah LAC Issues Statement on SB 64 (Reserves)

February 22, 2013

By Curtis G. Kimble.

As many of you may know, the 2013 General Session of the Utah Legislature is in full swing on Capitol Hill.  A few bills enacting or amending HOA laws are in the works and I’ll be summarizing and commenting on those over the next couple of weeks.

As to one such bill, SB 64, CAI’s Utah Legislative Action Committee issued a position statement today coming down quite aggressively against it.  SB 64 amends the reserve funding requirements of Utah Code Sections 57-8-7.5 and 57-8a-211 and, if passed, will require an association to begin funding the reserve fund in the manner and amount determined by the vote of the owners within 90 days after the vote, and to file a certificate of compliance with the Department of Commerce within 30 days of starting to fund a reserve fund.  It also requires that if an association does not file a certificate of compliance within the required 30 days, the association may not levy a special assessment until it files a certificate of compliance.  View SB 64 here.  View the position statement here (I am not a member of ULAC and their position is not necessarily mine, nor mine theirs).

UPDATE March 1: view the substitute bill SB 64 here and a comparison of the changes to the original SB 64 here.

The original requirement of this law requiring the decision of whether to fund a reserve account to be made by a majority of those owners who happen to show up at the annual meeting, is one that I’ve always been opposed to for various reasons, not the least of which is that it unconstitutionally interferes with the obligation contained almost universally in preexisting HOA contracts (CC&Rs) that the board establish a reasonable reserve.  For reasons similar to those contained in the ULAC position statement, I am opposed to SB 64, as well.

If you have an opinion one way or the other on pending legislation, don’t be afraid to voice it to your representatives in the Legislature.  Follow this link to identify who they are and contact them: Utah State District Maps

2 Comments | HOA Finances, New HOA Laws, Reserves | Tagged: , , | Permalink
Posted by Curtis G. Kimble

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.

5 Comments | Governance, HOA Finances, New Condo Laws, New Non-Condo HOA Laws, Reserves, Uncategorized | Tagged: , , , | Permalink
Posted by Curtis G. Kimble

When the Taxman Cometh, Will You be Prepared?

August 5, 2011

Today, a couple of great presenters spoke to those of us at the HOA Luncheon which is put on by the Utah Chapter of Community Associations Institute each month at the Cottonwood Country Club (these are not exclusive events, all are invited).  Chuck Balacy of Mutual of Omaha Bank / Community Association Banc, and TD Croshaw of Huber, Erickson & Bowman (HEB) presented some good information.  Chuck talked about reserve investment options, maximizing interest rates and HOA loans.  TD talked about HOA tax filing options and options to lower HOA taxes.

The high points were:

Reserve Investment Options and HOA Loans:  1.  Bank loans are a good option for obtaining funding for an association in certain circumstances and the bank doesn’t even lien the property; the bank’s security is the future assessment payments received from the owners.  2.  However, always use a bank specializing in HOA loans, as it is a unique area of lending.  3.  A good bank with an HOA focus will have a representative (such as Chuck Balacy) come out to a board meeting and discuss investment and banking options at no charge so the board can maximize the return on their investment of reserves with the absolute minimum of risk (we’re not talking about investing in technology company IPOs or even the stock market in general).

Taxes:  1.  HOAs can choose to file under either Section 528 or Section 277 of the tax code, with potentially very different ramifications.

2.  Section 528 was set up specifically for HOAs and Form 1120H is a simple one page form and all income is taxed at a flat 32%.  The HOA must meet the 60% exempt function revenue test, the 90% exempt function expense test, and 85% of the sq footage of all the units must be for residential use.   Taxable income is calculated from “nonexempt function income.”  All “exempt function income” is non-taxable. Under 528, HOAs are not entitled to net operating loss deductions and there is a possibility of more income being taxed compared to electing 277.

3.  Under Section 277, the HOA is taxed like a regular corporation and Form 1120 is more complex and has a tiered tax rate.  Additionally, compliance risks are much higher.  Risks include reserves being taxed, excess member income being taxed, and prepaids are income in the year paid and therefore contribute to the excess member income.  Taxable income is calculated from nonmember income, all member income is considered non-taxable.

4.  Neither method is a “one size fits all” and the best option may change from year to year.  A good HOA specialist tax accountant, like HEB, will compute the taxable income under both options and consider the risks versus the value of filing under each option to ensure the HOA pays the least amount of taxes while avoiding the risk of audit, penalties and back taxes.

5.  Are HOAs audited by the IRS?  Yes.  I don’t have any official figures, but TD Croshaw of HEB has personally seen three HOA audits recently.

(This is not an advertisement or endorsement for HEB or Mutual of Omaha Bank, my only intent is to provide simple, straightforward value to HOA boards, and that includes pointing out specialists in given areas from time to time without bias).

Curtis G. Kimble

1 Comment | HOA Finances, Reserves | Tagged: , , , | Permalink
Posted by Curtis G. Kimble