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Wednesday, December 7, 2016
December 2016 View Previous Magazine Features
 

Everything Changes
By: Nena Groskind

Everything changes. There is certainly nothing revelatory about that observation, but it has particular meaning for condominium associations. Changes in state laws, judicial precedents and evolving notions of industry "best practices" can make some provisions in association governing documents irrelevant or outdated, create conflicts between the documents and the laws, or introduce uncertainty and ambiguity that can increase liability risks.
For those reasons, industry executives advise associations to have their attorneys review their governing documents - the declaration, the bylaws, and the rules and regulations - periodically, to amend or eliminate existing provisions and add new ones, as needed.
For purposes of this discussion, we're focusing on the bylaws and declaration, which owners must vote to amend, rather than the rules and regulations, which boards have the authority to amend. (See related sidebar on page 30).
How much revision the governing documents will need depends partly on their age and partly on "the skill of the drafters" Henry Goodman, a partner in Goodman, Shapiro & Lombardi, LLC, observes. "Some documents are fine,"Goodman says. "Others aren't fine at all."
As a general rule, the older the documents, the more updating they are likely to require. But if the drafters relied heavily on older documents ("Sometimes they are copied word for word," Gary Daddario, a partner in Winer & Bennett, LLP, observes), then relatively new documents may be as outdated as much older ones.

Focus on Insurance
When he reviews documents, Goodman looks first at the insurance provisions. Some documents specify the types and amounts of insurance required, but those requirements may fall short of the coverage a community needs.
"You need to be sure the method of valuation specified in the documents gives you 100 percent full replacement coverage," Goodman says. He also recommends adding language making some coverage mandatory - ordinance or law (covering the cost of meeting building code requirements that have changed since the condominium was built), earthquake and flood insurance top his list. If the bylaws mandate the coverage, Goodman notes, boards looking for ways to reduce expenses, won't be able to eliminate it.
Insurance deductibles have become another prime target for document revisions. "By far the most amendments I have drafted recently have sought to shift responsibility for paying the master policy deductible from the association to unit owners," Joseph Carleton, who represents condominium associations in Maine, reports.
Gary Daddario, a partner in Winer & Bennett, LLP, has noticed the same trend, and he isn・t surprised by it. When deductibles were $500 or less, no one worried much about who paid them, he says. But as condominium associations have been increasing their deductibles to reduce their premium costs, deductibles have soared. Deductibles of $10,000, $20,000 or more aren't uncommon, Daddario says. So many associations are amending their documents to specify that the owners filing a claim under the association's master policy must pay the deductible, unless the association was responsible for the loss.

Mandating an HO6
More associations are also requiring owners to obtain individual HO6 policies, to insure their personal belongings and to cover their share of the association deductible. And most association attorneys think that・s a good idea.
Carl Lisman, a partner in the Vermont law firm Lisman Leckerling, P.C, doesn・t insert an HO6 requirement in documents he drafts or amends, but he does specify that owners will be responsible for losses related to their unit, which, he notes, "is a strong incentive" to obtain the necessary coverage.
Insurance isn't the only area in which associations are looking to shift more liability from the association to individual owners. Lisman has seen more communities looking to amend their documents to shift common area expenses to owners, too.
"You tell owners that they're responsible for replacing the roof on their home, or shoveling their own walk or repairing their own walkway," Lisman says. "You can't do that in a high rise," he agrees. But where you can separate maintenance obligations, "you reduce the size of the association・s budget," and you reduce the risks that the inability of a few owners to pay their share of expenses will weaken the association's finances and undermine its ability to properly maintain the community.

Targets for Revision
Industry attorneys note many other areas in which changes in governing documents might be necessary or advisable. The most common:
To comply with changes in local, state or federal laws. The recent overhaul of New Hampshire's condominium statute is an example of a statutory change that may require sweeping revisions in the governing documents of condominiums in that state. Less dramatic, but no less necessary:

Declarations and bylaws typically specify that units can be used only for single-family occupancy. But some older documents define families narrowly as individuals related by blood or marriage " language that could run afoul of Fair Housing laws prohibiting discrimination based on sexual orientation. Daddario recommends broad language - "single occupancy as defined by law," to avoid current problems and to anticipate the possibility that the statutory definitions may change over time.

Some associations need to revise their collection policies to ensure that the timing of notices and lien enforcement actions protect their rights under state priority lien laws. Some documents also direct boards to include the names of delinquent owners in financial reports shared with residents " raising privacy concerns and creating significant liability risks.

Some bylaws contain language barring the installation of communications equipment, conflicting with federal rules prohibiting those bans.

State laws often specify that they will override any contrary provisions in a community's governing documents. So why should a community go to the trouble (and it is troublesome - see related sidebar on page 30) to amend their documents, if it is clear that state law will prevail? The short answer: To reduce litigation risks.

Lisman offers this example: A new provision in Vermont's condominium statute now specifies that a board must send notice of an annual meeting at least 30 days, in advance. Some bylaws require notice 15 days before the meeting. A notice sent 30 days in advance complies with the state law, but may still be challenged by an owner who says it doesn't comply with the association's bylaws. The association may win that legal battle, Lisman notes, but amending the documents to be consistent with the state law would eliminate the litigation risk.

To update outdated provisions. Fines and fees top this list. "A $5 fine that seemed punitive 25 years ago is relatively meaningless now," Daddario notes. He recommends relatively open-ended language that affirms the authority of boards to impose fines and late fees, but gives them the discretion to set the amounts. He also suggests setting a dollar amount for late payment fees rather than charging interest on the amount past due. "Everyone understands $25/month," he notes. "The interest rate requires a mathematical calculation and some documents use rate benchmarks that don't exist anymore."
To address hot button issues. The obvious examples: Smoking, leasing restrictions (including short-term rentals, that have been much in the news) and drones, which have also been getting a lot of attention. State initiatives to legalize recreational use of marijuana may require associations that have adopted bylaw amendments barring smoking to specify that the ban applies to marijuana as well as tobacco. Drones raise a host of complicated questions (privacy and safety among them) with which associations are just beginning to grapple.
In the rental area, many communities have amended their bylaws, or considered amending them, to reflect secondary market caps on the percentage of units in a community that must be owner-occupied. Industry attorneys advise communities to build flexibility into these rental restrictions, recognizing that the secondary market rules could change in the future. "We add transition provisions, safe harbor provisions, and emergency provisions," Lisman says. Instead of specifying a maximum number or percentage of units that can be rented, he suggests language stating that "units may be rented as long as the total does not violate the [secondary market] standards in place from time to time." Associations can decide which secondary market standards they want to use, Lisman suggests, based on the mortgage financing profile in their community.
Lisman also recommends a grandfather provision, to deal with owners who might get caught by a rule change ("If Fannie reduces the rental cap, how do you decide who gets to continue renting and who doesn't"), and language giving boards some discretion to deal with emergency situations - for example, the owner who loses his job and has to move out of state, but can't sell his unit immediately.
To regulate pets and parking. These are two of the "three P's" (the other is pools) that are responsible for many, if not most, of the enforcement headaches in condominium communities. Some communities amend their bylaws to permit pets; others amend in the opposite direction, to prohibit them. Pet bans may be limited by Fair Housing laws that require "special accommodations," which may include pets for individuals suffering from physical or emotional disabilities. Daddario advises boards to word a pet ban generally, specifying that pets are allowed "only at the discretion of the trustees." This acknowledges that the board may have to make accommodations for some owners, but it doesn't promise that any owner who wants a pet will be allowed to have one, Daddario explains. He also suggests that pet provisions, should require residents who own pets as accommodations, or as a privilege available to all, to sign an agreement detailing terms and conditions for ownership, specifying, for example, that owners must walk pets only in designated areas and clean up after them.
Revisions to the parking provisions in association bylaws are usually designed to add detail the existing language lacks. For example, some documents simply indicate that a specified number of spaces are available for guests but don・t say anything more than that. The result: Owners often use the spaces to provide additional parking for themselves. Daddario's suggestion: Specify that guest parking means what is says - for guests only - and can't be used at all by owners or permanent residents or by guests for more than a specified number of consecutive days.
Lisman recommends eliminating assigned parking spaces entirely, and substituting language stating that "each unit has the right to park in a specified number of spaces in a convenient location, to be determined from time to time by the board." Among other things, he says, this language makes it much easier for the board to assign a close-in parking space to an owner who needs an accommodation for a physical disability "without going to war."
To conform to existing practices. Documents often specify the date for the association's annual meeting. Carleton, the Maine attorney quoted earlier, suggests revising the language to give boards the flexibility to schedule the meeting within a reasonable range of dates to accommodate vacations, illnesses and other factors. He also suggests language giving boards the option (allowed by state law) of having the association・s books reviewed annually by an accountant, instead of commissioning a more expensive formal "audit" by a CPA.
To address issues the documents don't cover. Some omissions are simply odd, Goodman says. The governing documents in an association he represented said nothing at all about architectural changes. "That meant owners could do almost anything they wanted." Most omissions involve issues that weren・t on the radar screen, or simply didn't exist, when the documents were drafted. E-mail is an obvious example. Carleton says Maine condominium documents often mandate the use of U.S. mail "or even worse" certified mail, return receipt requested, for all notices. The state condominium statute allows e-mail notifications, and he advises associations to amend their documents to take advantage of that flexibility.
To clarify ambiguous language. Ambiguities can be as problematic as oversights. The documents for an association Goodman represented said owners could have air conditioning equipment either in their own units or in the common area adjacent to them. That language referred to adjacent closets in which the condensers were located. But when one owner obtained a larger condenser that didn't fit in the closet, he interpreted the provision literally and installed the equipment on the lawn outside his unit, arguing that it met the definition of "adjacent" common area. "We eventually won that case," Goodman says, but it illustrates the need for clarity and precision in describing what owners can do and where they can do it.
One of Daddario・s pet peeves, and a favorite candidate for revision, is language defining the maintenance responsibilities of owners and the association. "Sometimes the divisions are clear," he says, "but sometimes you can't tell what [the document's drafters] were thinking." It isn't uncommon for documents to divide the responsibility for doors and windows - assigning the interior to unit owners and the exterior to the association. "If the association says the windows need to be replaced and the owner says, "they look fine to me," you have a stalemate," Daddario says. "Doors and windows need to belong to one or the other, but not to both."
Carleton says he・s been getting more inquiries from condominium boards that want to revise their documents not just to update them, but to make them "more understandable." Their documents may have been amended several times already, don't have a table of contents and are written in "dense legalese" that makes them difficult to read. Some boards are requesting "complete rewrites" to make their documents more user-friendly, even though, Carleton says, that effort is time consuming, labor-intensive "and can be quite expensive."

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