Legislative Update - Part II

“We may not imagine how our lives could be more frustrating and complex, but Congress can.”

- Cullen Hightower

For those who missed, or fell asleep before finishing, the last column, this one is Part II of legislative changes to the Condominium Act that went into effect August 1, 2016. The caveat is many of the actions Boards and Associations have been taking now have to be explicitly in the Bylaws (not even in the Declaration) or any actions taken, such as elections, assessments and approval of projects, can be successfully challenged leading to chaos at associations. Here goes.

All proxies must now be issued by the Board and must contain a control number. Any other proxies are specifically disallowed. It then has to be matched to a control list that identifies which number goes to which Unit. This is to prevent proxies from being forged and someone using proxies for those who never appear at meetings. However, proxies can still be easily forged as it is not usually very hard to figure out the control number, e.g. VNCA-1 = Very Nice Condominium Association, Unit 1. So I think it best, for security reasons, to authorize a one time expense and purchase (for $50.00 or less?) a seal and put a raised seal of the Association on the control numbered proxy. That will take care of all future challenges of allegedly forged proxies.

For associations, usually smaller ones, that vote and assess by percentage of square footage of ownership rather than equally, and where 50% or more of the votes are linked to 25% or less of the Units, when a majority vote is required, the majority shall also include a majority vote of the number of Units, not just the percentage of ownership. Be careful about this. If an Association just counts the percentages for something like a special assessment or approval of an expensive project, it can be ground to a halt.

Further, if one owner controls 50% or more of the votes (after developer control has ended) then it will take a two-thirds vote to change budgets and any property management company. I'm not sure why this is limited to just budgets and changing property management companies and not such things as voting for Directors, but there you are.

Associations can now vote without a meeting via ballot. In order to do so, several provisions apply and must appear in the ballot, but only after the Bylaws are amended accordingly. You should check with association counsel on these provisions before using ballots as they are too numerous to list here. If done properly, however, voting by ballot can be very helpful as ballots can save a lot of time, notices, quorum requirements, sending of proxies, etc.

There is particular language that bars the Board from determining the qualifications, power, duties or terms of office of Board members. This is usually not a problem as such duties are most likely already contained in the Bylaws. But some associations with older documents may not have such descriptions and will now require them. Further, those that do have language may have been tempted in the past to further define powers and duties such as determining who can sign checks or appear on bank accounts by rule or policy. These such methods are now specifically prohibited and the noted items must appear in the Bylaws.

Officers, not Board members, are specifically barred from receiving a salary or compensation in any form. This can be waived, but only by a 2/3rd majority of the voting interests present at a properly called meeting of the Association.

Boards now adopt budgets, not the Association. However, no later than 30 days after its adoption the Board has to provide to the Owners a “summary” of the budget, including any reserves, and a statement of the basis on which any reserves are calculated and funded. This means Associations, if they have not done so already, will need to adopt a capital reserve plan, which would form the basis for which the reserves are calculated and funded.

At the same time as the Board provides the budget summary, the Board has to set a date between 10 and 60 days thereafter to consider ratification of the budget. At that meeting, which can be an annual meeting, unless 2/3rds of the Owners (not those who hold units comprising two-thirds of the voting interest in the association) reject the budget, it is approved. This holds true even if there is an insufficient number of owners to establish a quorum. As you can see, what was once simple has now become a bit more complex.

Similar language applies with regard to special assessments, so be careful and check with association counsel, or special assessments, usually needed to pay an immediate bill for a project, can be called into question, leading to payment problems.

Strangely, if an Officer is required to be a Unit Owner, and s/he sells his/her Unit(s) the Officer does not have to resign or be removed as an Officer for a year. This is, of course, potentially dangerous since a Treasurer or President who is still on the bank account may have access to it even if s/he moves across country. Your Bylaws should contain language that gives the power to the Board to elect and remove Officers and removal should be done as soon as someone sells their Unit.

With regard to property managers and other contractors the new law requires the manager to disclose any referral fees received from contract work performed on behalf of the Association prior to the next scheduled Board meeting. This does not apply if the referral fees are disclosed in the management contract.

Similarly a management company has to disclose to the Board any fees collected from owners other than the condominium fees, unless the notice of the fees is in the management contract. The Act specifically says the management company has to disclose the amount and purpose of the fees, so broad or vague language such as, “Management will assess a fee for sending collection letters” is no longer valid.

Finally, the Board, through the designated Officer, must provide written notice to each Owner of any new insurance policies acquired on behalf of the Association. This includes any changes in existing policies, such as changing the deductible from one year to the next. In turn, this would allow Owners to ensure their HO-6 policy covers the deductible.

Believe it or not, this is the short version. There is much to like about the new laws, but some have to be instituted immediately, and some can only be done, even if being done now, only if there is language in the Bylaws that allows the actions. So, it's going to take a bit of time for Boards to come up to speed with the new policies and it will certainly take amendments to Bylaws to prevent successful legal challenges in the future to Board actions.

What's the danger if the new provisions of the Act are not followed? Case law in New Hampshire and around the nation is filled with cases where people have successfully challenged Board actions that were not done properly, such as voting, notice of meetings and more. So if you want to protect the actions of your association you are going to have to undertake a review of your documents, likely draft amendments to come in line with the new laws, and certainly change how your Board has conducted business in the past.

Don't blame the messenger.