Published By: Michael A. Inman, Jeanne S. Lauer, Gregory J. Montero, Robert V. Timms, Jr., Matthew J. Weinberg

            In an effort to keep you up to date on changes in the law and regulations, in this edition we want to update you on lender questionnaires for condominium communities and a new law regarding the termination of association management contracts.

Lender Questionnaires – A Call to Action

            Two entities, Fannie Mae and Freddie Mac, are the backers for, or purchasers of, most of the conventional loans in the country. These two government sponsored enterprises began developing additional guidelines for project standards after the Champlain Towers South condominium collapse in Florida in June 2021. If you haven’t seen questionnaire changes already you will likely be seeing them in the near future.  This is significant for two reasons: (1) your preparations for answering the questionnaires and (2) the implications it has for your association’s maintenance projects and financial status being properly handled.

            The additional requirements you will see include requests for insurance policies, budgets, financial reports, reserve studies with funding schedules, documentation regarding special assessments, and building inspection reports. If the association does not provide this information in sufficient detail, the project may be deemed ineligible and put on an ineligible list. In addition, based on information a community must provide it will likely be deemed ineligible for lending if the project (i) needs critical repairs, (ii) there are unfunded repairs totaling more than $10,000 per unit, (iii) the property insurance coverage is not for replacement value, (iv) the budget doesn’t have adequate funding for insurance deductibles, (v) more than 15% of owners are more than 60 days delinquent in paying their assessments, or (vi) commercial space accounts for more than 35% of the total above and below grade square footage.

            The reserve study must meet or exceed requirements set forth in state statute, and must comment favorably on the age, estimated remaining life, structural integrity, and the replacement of major components of the property. Building inspection reports and pending litigation also come into play.  

            We recommend that you notify the unit owner and the purchaser when a request for a completed questionnaire is received from a lender, and obtain written approval to provide the requested information.  A copy of the questionnaire should be provided to the unit owner and the purchaser when you request approval to proceed. This recommendation is made because there is some degree of risk of loan denial due to information you provide in response to the questionnaire. Requiring the affected unit owner acknowledge prior approval of completing the questionnaire can potentially avoid any liability to the association or its management. 

Management Contracts – Right to Cancel

            The 2023 General Assembly passed a bill which sought to provide more certainty and fairness in the relationship between associations and their managing agents with respect to terminating the relationship. Most agreements contain automatic renewal clauses. The termination clauses in management agreements vary greatly relative to the rights of each party to cancel.  This new law provides needed certainty, particularly for associations which generally do not negotiate terms with the management companies.  The new statute is very short and to the point – it provides the following: A management contract that contains an automatic renewal provision may be terminated by the association  or the common interest community manager at any time without cause upon not less than 60 days’ written notice. This new provision is found in Section 55.1-1837 of the Property Owners Association Act and Section 55.1-1940.1 of the Condominium Act.

            In the event you have questions about the content of this update please give us a call.  Please get access our website at www.vahoalaw.com for more informative articles and legal updates. 

This edition of our newsletter focuses on two topics: (1) new legislation concerning appointment of homeowner representatives for association purposes and (2) proper utilization of executive sessions by boards of directors.  We decided the best way to approach the executive session topic is to provide a script for proper navigation of this important tool for boards of directors.

Both the Condominium Act and the Property Owners Association Act contain provisions which allow for the board of directors to utilize executive sessions (sometimes called “closed sessions”) to undertake discussion of designated sensitive topics. Voting on motions is not permitted in an executive session. The Virginia Common Interest Community Ombudsman and many others have noted that associations are not getting executive session right despite its longevity.   To assist you in compliance with the statute the following “script” is offered.

Board Member #1 says: “I move to go into executive session for the purpose of (RECITE ONE OR AS MANY APPLICABLE CATEGORIES BELOW AS APPLY.  IF WHAT YOU WANT TO DISCUSS IS NOT COVERED BY THE CATEGORIES BELOW THEN YOU SHOULD NOT BE IN EXECUTIVE SESSION AS THESE ARE THE ONLY TOPICS PERMITTED BY THE APPLICABLE STATUTES.)

__ to consider personnel matters;

__ to consult with legal counsel;

__ to discuss and consider contracts;

__ to discuss and consider probable or pending litigation; and

__ to discuss and consider matters involving violations of the declaration, bylaws
     or rules and regulations for which a unit owner, his family members, tenants,
     guests, or other invitees are responsible

__ to discuss and consider the personal liability of owners to the Association

Board Member #2 says: “I second the Motion.”

If a majority of the Board agrees then executive session begins and everyone not needed to be part of the session is required to leave.

WE RECOMMEND YOU STOP TAKING MINUTES AT THIS POINT TO
INSURE THE CONFIDENTIALITY OF THE DISCUSSION.

When discussions in executive session have concluded, the Chair of the meeting announces that executive session is completed and the open portion of the meeting has resumed.  At this point it is appropriate for a motion to be made relative to the topic discussed in the executive session; however, no motion is required.

Your Minutes should look like this whenever the Board engages in an executive session:

Board Member #1 moved to go into executive session to (for example consult with legal counsel).  The Motion was seconded by Board Member #2 and a majority agreed to proceed to executive session.  At the conclusion of executive session, the Board resumed open session and [NO MOTION WAS MADE RELATIVE TO THE TOPIC DISCUSSED] OR  [THE FOLLOWING MOTION WAS MADE RELATIVE TO THE TOPIC DISCUSSED: ______.  The minutes would then describe what occurred after the motion was made.

Executive sessions are addressed in both the Virginia Condominium Act (Section 55.1-1949) and the Virginia Property Owners Association Act (Section 55.1-1816)

2022 STATUTE AMENDMENT REGARDING OWNER REPRESENTATIVES

We want to bring to your attention legislation which clarifies that associations must recognize persons who are designated in writing by a property owner of a home in an association as the owner’s authorized representative. A power of attorney is specifically not required for this purpose. The bill also in expanded the list of authorized persons to whom a seller or the seller’s authorized agent may provide a written request for the delivery of the association disclosure packet or resale certificate. These new provisions are found in sections 55.1-1823 (POA Act), 55.1-1962 (Condo Act) 55.1-1806 (regarding rental of lots), 55.1-1809 (regarding resale documents) and section 55.1-1973 (regarding rental of units).
Please let us know if you have questions concerning the content of this update.  The CA Team stands ready to assist you in taking good care of your associations. 

We have observed that there are some association boards which are not aware of a distinction between state law requirements and necessary internal procedures for complaints. In this article we distinguish between the process to be followed for a complaint concerning a violation of state law or regulations vs. a complaint about the actions of a unit owner or other resident of the association which violates the declaration, bylaws or rules and regulations. 

There is a state statute that requires that all associations have a procedure for filing complaints about state law issues, such as failure of the board to have a reserve study or otherwise not following Virginia law. If there is no resolution of the complaint at the association board level to the satisfaction of the complaining party the “adverse decision” of the board can be appealed to the Ombudsman who is an attorney employed by the State agency that oversees compliance with the law by associations.    

Separate from the procedure mandated by the State every association should have Process Procedures for the filing of a complaint by a unit owner concerning violations of the requirements of the association’s governing documents, such as a vehicle regularly parked in an incorrect locations, chronic smoking in a prohibited area by a resident, or frequent improper use of common areas by a unit owner.  These are not matters that can be or should be a subject of the state law complaint because there is no state law governing such actions. 

Every association should create a due process procedure which provides the steps to be taken in making a formal complaint and having that complaint processed in an orderly and timely manner.  Some complaints may be made verbally to officers of the association who can possibly resolve the matter before there is a need for a written complaint.  In the event such a resolution is not achieved then the next step is to complete the Complaint Form that is part of the Due Process Procedures.  The Procedures document gives structure to the complaint resolution process.  The process involves a hearing on the matter before the board of directors in which the parties involved will present their positions and provide documents and witnesses as needed. At the conclusion of the process the board has the authority to impose monetary penalties and require corrective action depending on the subject matter of the complaint. Such penalties and corrective actions are governed by statute. 

In the event you need assistance with creating the documents required to satisfy these needed procedures we would be pleased to assist.

We take this opportunity to express our gratitude for having the opportunity to provide counsel to many Virginia associations and to wish you an enjoyable holiday season and a happy New Year.  Please visit us at www.vahoalaw.com.

As the popularity of electric vehicles increases the time is here for associations to focus on charging stations and individual charging at the owner’s residence.  Virginia statutes require associations to permit electric vehicle charging unless their documents prohibit it.  Of course, most documents don’t deal with the topic at all although newer documents certainly will. There are various issues to consider relative to electric vehicle charging.

First, it requires a significant amount of electricity.  Consequently, in condominiums it is desirable to have the power used for charging to be supplied from the owner’s residence or via a separate meter. This could be challenging in a mid-rise or high-rise with parking garage but it can be done. In an HOA it is more a matter of aesthetics, especially in a townhouse community.

Most associations will want to have some control over the installation. The relatively new statutes – one for Condos and one for HOAs – provide that the association can control the placement, size and location and number of stations for any one owner with reasonable rules. The statutes take a relatively thorough and conservative approach to electric vehicle charging primarily because of the newness of the technology and the potency of the batteries. Under some unusual circumstances the batteries can become dangerous and be a cause of fire. It is also important to know that in the case of the charging station equipment “one size does not fit all.”  Consequently, the statutes allow for a rule requiring detailed plans prepared by a licensed electrical contractor or engineer.

The topic of insurance is also included in the statutes – allowing the association to require insurance “covering claims and defenses of claims related to the installation, maintenance, operation and use” of a charging station and provide a certificate of insurance to the association. Actually, the master policy in a condominium will come into play if there is damage to the common elements caused by a charging station. Both statutes provide that “the unit owner shall indemnify and hold the association harmless from all liability, including reasonable attorney fees incurred by the association, resulting from a claim arising out of the installation, maintenance, operation or use of the charging station.”

We recommend that the board of directors take a close look at the well written and thorough statute applicable to their type of community in order to come up with rules and regulations regarding this type of equipment. The Code sections are: 55.1-1962.1 and 55.1-1823.1.  Please let us know if our CA Team can assist you in preparing rules appropriate for your community.

Occasionally we have inquiries regarding the authority of an Association exercised by the Board of Directors to assign parking spaces located in the common areas for the exclusive use of particular unit or lot owners.

The Supreme Court of Virginia issued a very important opinion in 2006 that illustrates that the authority of a property owners’ association, although generally including the power to regulate the use of the common areas, may not include the right to assign parking spaces unless such authority is specifically set forth in the declaration.

White v. Boundary Association, Inc. involved an Association in Williamsburg that contained nine lots and 18 common-area parking spaces.  The Board of Directors issued parking regulations that seemed even-handed on their face.  Each lot was assigned two parking spaces, and each owner was given the power to cause any vehicles improperly parked in his or her space to be towed.  The plaintiff homeowners immediately filed suit challenging these regulations and claiming that the Board exceeded the Association’s authority and violated explicit terms of the Declaration.

The Association argued that the bylaws permitted it to adopt rules and regulations for the management of the Association as its deemed proper, and the regulations were a proper exercise of the Board’s authority to establish rules regarding the common area.

The Supreme Court of Virginia sided with the plaintiffs.  The Court observed that the Declaration contained a provision, which is a fairly typical provision found in many Declarations, which gave every owner “a right and easement of enjoyment in and to the Common Area,” subject to three stated limitations, none of which gave the board the authority to assign parking spaces.  The Court determined that the parking assignments and towing rights were invalid because they improperly divested the owners of a property right that was granted in the Declaration.  Additionally, the Court observed that the Declaration did not give the Association authority to license portions of the common area.

This ruling does not mean that a board cannot create rules regarding the use of the parking areas such as the board’s policy to remove any vehicle which is inoperable for a significant period or a vehicle that is simply being stored and not used by an owner.

On June 14, 2022 from 8 a.m. to 3 p.m. the local Community Associations Institute Chapter is putting on the Annual Legislative and Legal Update. It will be held at the Holiday Inn in Newport News just off of I-64 at J. Clyde Morris Blvd. Our firm’s CA Team members, Jeanne Lauer and Matt Weinberg will be speakers at the event.  Jeanne serves on the Statewide Legislative Action Committee for CAI and will be providing the latest news from the General Assembly session. Matt will be speaking on methods of dealing with difficult owner situations which have legal implications. Please take a look at the event info on the sevacai.org web site or call the CAI office at 757-558-8128.

A Guide to Successful Transition

If you live in an association which is still under developer control there are often changes desired by the community but the members are not yet in control of the association and no easy method to call meetings. So, what can you do?  Most HOA documents allow the developer to transition control when it suits until a certain higher percentage of the units are sold — then transition is mandatory.  Some developers will still want to stick around and maintain control over the community in which they continue to have a large investment and a desire to insure a quality level is maintained.

Having a successful transition from developer control to owner control in a homeowners association or a condominium association is not necessarily a difficult process.  It does requires open lines of communication and information, common sense, perseverance, and some smart, energetic people who aren’t afraid of making a commitment to their community for a couple of years.

When an association is first started, the developer is investing large amounts of time and dollars to construction of the project, its infrastructure and amenities. In order to protect the developer’s investment, the legal documents have provisions built in that allow the developer to exercise control over the direction and processes of the community until a time certain, either a firm date several years in the future or when a certain percentage of units have been sold to homeowners. This means that the developer control period can last a couple of years and sometimes more depending on the rate of sale of the homes and size of the community. During that time, the developer’s appointees serve as members of the Board of Directors and they have a fine line to walk, since some decisions which are right for the community may result in extra expenses for the developer.

We recommend that during the period of declarant control, the developer should give the homeowners some exposure to, and limited participation in, the affairs of the association. These steps can include formation of an advisory committee to make recommendations to the Board, and/or phased-in appointment of homeowners to the Board of Directors, or the day to day operating of certain committees, such as the Architectural Standards Committee.

Many types of issues tend to arise during this period. Is the developer going to put in the pool that was promised? Why are some of the landscaped areas in an unkept state? Are all assessments owed by the developer up to date? One of the most frequent is the issue of warranty repairs. When do they begin and when do they end? That is one question that can only be answered by the applicable state or local law and the board should seek legal counsel on this topic.  But having homeowner involvement early in the association can provide those answers and ease the concerns of the owners.  Many developers encourage homeowner involvement and training along the way so that the owners are well prepared to assume the responsibility of directing association operations.

Transition is usually accomplished at a special meeting held for the purpose of electing homeowners to serve on the Board of Directors. Once the owners are in control, the real work begins! The only thing that ends at that meeting is the developer’s control over the association operations, not his responsibility to it and its members and not his involvement and interest in it. He may still be selling homes and may retain a seat on the Board.

The newly elected owner board members now have several responsibilities relative to the transition. They must insure that (1) the developer provides the association with any and all pertinent information; (2) the association reviews that information and questions the developer on any vague or ambiguous issues; and (3) the Board develops a strategic plan to go forward from that point.  Make sure when electing the Board that you select those individuals who are clearly committed to the entire community and not just a single issue.  If you have had an advisory committee during the developer control period, then the members of that committee can bring a great deal of experience and knowledge to the new board.

One of the first steps a new Board should take is an examination of the association’s financial situation. It is important for members of the Board, as well as all the owners, to satisfy themselves that while the developer was in control, all income and expenses were properly accounted for. That includes, but isn’t limited to, the financial obligation of the developer himself, if any, and aggressive pursuit of delinquent accounts.

All association boards, but especially condominiums, should consider hiring a professional engineer or architect to perform a comprehensive inspection of the property and its physical plant. This will serve two purposes: (1) it will determine if there are any warranty defects that may be the responsibility of the developer; and (2) it will serve as the basis for a repair and replacement reserve analysis. Such an analysis will estimate the useful life of a component, such as a building roof, the projected cost to replace it, and how much money needs to be set aside to ensure that special assessments are not necessary to maintain the association’s assets into the future.  This study is required every five years under state statutes in both the Condominium Act and the Property Owners Association Act.

Good legal advice can also be important to the community. The association should retain independent counsel who is well versed in community association law and who can ensure that the new board and the developer abide by their respective legal obligations and commitments.

The following are documents an association management should obtain during the transition.  This list is by no means exhaustive, but can serve as a checklist to guide you. Keep in mind that jurisdictional requirements may vary in terms of time frames for developer responsibility and specific transition documents.  If your developer utilized professional management during the development period, you may find that your management has most or all of the following items in its files.  The following are required to be provided by statute in Virginia:

1- All association books or records, financial and otherwise, held by or controlled by the developer (or its association management company) along with a statement of receipts and disbursements during the declarant control period.

2- Any and all contracts in which the association is a contracting party.

3- Complete set of site plans and as-built drawings, including detailed measurements and dimensions for any common buildings or amenities

4- Written warranties of the contractors, subcontractors, suppliers, and manufacturers, if any, involved in the construction and/or maintenance of the association’s facilities.

5- List of manufacturers of products and specifications used in the maintenance, repair or replacements in or on common areas or common elements.

Copies of any bonds or letters of credit posted with any state or local agency should also be requested.

Throughout the transition process described above, professional management can and should serve as an advisor to the Board, custodian of the association’s books and records and the entity to which the Board turns to assist in the development of long-term plans and goals to make sure that a community’s early due diligence translates into future continued success and financial stability for the owners. If that happens, all parties involved including the developer, transition board members, future board members, owners, and management will gain great satisfaction in a job well-done.

Please let us know if you have any questions about this topic.  We wish you well in all of your endeavors but especially at the critical period of transition.  We can be reached via email at the addresses shown on our website: www.vahoalaw.com. or by phone at 757-486-7055.

CA DAY is approaching. After being called off for the last two years it will be held on March 12 all day at the Virginia Beach Convention Center.  You can read all about it on www.sevacai.org.  An excellent day of information and interaction is planned. Mike Inman and Jeanne Lauer are presenters in two of the morning sessions. Mike is teamed up with Peter Miller and Kellie Dickerson to discuss various issues and new board responsibilities arising from the disastrous condominium collapse in Surfside, Florida last year. Jeanne will be teamed up with other attorneys to engage with the audience about a variety of legal topics.  Over 50 business partners will be in booths to discuss their offerings to association boards and members.

Now let’s talk risk management and security. About a year ago an Arlington mid-rise condo had an unwelcome visitor.  The problem is no one did anything about it.  A man found his way past security measures and gained access to the building. He knocked on a couple doors posing a maintenance man who they did not recognize.  He was turned away and 2 unit owners notified the front desk personnel.  They did not take any action. Upon trying a third time he was successful in being admitted to the unit and severely injured the resident.  The family of the injured owner made a claim against the Association. A law suit was filed and the Association tried to get the case dismissed arguing there was no duty breached.  The judge disagreed and ruled that the security measures provided by the Association created an expectation of a certain level of scrutiny of unauthorized persons being on the property, especially after being alerted to the situation. The judge said the staff should have taken action to attempt to locate and remove the apparently unauthorized individual.

This court case and the collapse of the building in Florida raises the issue of risk management for associations. This is a significant concern of  any board of directors. In order to take it seriously a formal committee within any association of significant size needs to be appointed to formulate the areas of risk responsibility, such as safety of persons and  property as well as the association common elements.  This should involve meeting with the association’s insurance advisor periodically. Initially the committee’s areas of responsibility need to be defined – they should include risk control, risk financing (insurance or other means), claims management, and evaluation of new proposals for insurance coverage.

We hope to see  you on CA Day to discuss this topic and many others.

The Community Associations Law Team

Michael A. Inman

Jeanne S. Lauer

Gregory J. Montero

Robert V. Timms, Jr.

Matthew J. Weinberg

Under the Fair Housing Act, there are requirements with respect to “accommodations” and “modifications.” “Accommodations” are requests to be exempt from certain rules or policies such as a request to have a service animal when there are pet rules that would exclude that particular type or breed of animal. “Modifications” are physical changes to the property to enable a disabled person to use the property in the same manner as others.  As an example, a modification is often requested for an alteration to the exterior of a building to allow the construction of a wheelchair ramp or addition of a sidewalk for ease of access to the dwelling or building entrance from a parking area.  The distinction is important because reasonable accommodations are undertaken at association expense, while modifications are done at the expense of the party requesting the modification. It is wise for management or association officers to discuss with their counsel any owner request which appears to implicate the Fair Housing Act.  Complaints alleging violations of the Fair Housing Act are investigated by the Virginia Fair Housing Office which has the authority to impose substantial financial and other penalties.  It is considerably less expensive for counsel to help you avoid legal minefields and thereby avoid substantial financial penalties permitted under the Act.  We have substantial experience in advising associations on Fair Housing Issues as well as the Americans with Disabilities Act.

This is an important task that generally does not get accomplished as often as it should. There are three primary reasons for a review of your rules every couple of years: (i) laws and regulations change, (ii) “best practices” change and (iii) desires of the community change.  When you do undertake this task consider the following steps.

STEP 1 – The board of directors should establish an ad hoc committee on rules to periodically review and suggest changes (not make changes!).

STEP 2 – Those suggestions would be reviewed by the association manager with comments being given to the committee and the board of directors.

STEP 3 – The board finalizes the desired changes subject to review by counsel.

STEP 4 – The proposed changes are sent to the association’s attorney to review them for clarity, appropriateness and enforceability.  There could be issues due to a proposed rule (1) having inartful or vague language or (2) having a provision that is not permitted by statute or (3) having a conflict with a provision in the declaration or bylaws.

STEP 5 – Suggested revisions will be made by the attorney either in a meeting with the board or committee followed by a written report.  We often see association rules created by boards that include provisions that Virginia statutes require to be included in a recorded Declaration or Bylaws including, but not limited to: (1) charges for violations of governing documents; (2) late fees and suspension of services for delinquent assessments; (3) restrictions on for sale signs, (4) restrictions regarding rental of units and association charges connected with rentals, and (5) certain provisions regarding special assessments.  Attorney review is critical to ensure that rules do not violate statutory requirements and are not ambiguous either of which could cause the rule to be unenforceable.

STEP 6 – The Board reviews and, if satisfied with the version provided to them, approves the new rules and publishes them to the members indicating the effective date.