Leasing & Opccupancy

Changing the Governing Documents

One of the most difficult actions to take by an association is to change the governing documents. The declaration, bylaws, or CC&R’s (Covenants, Conditions, and Restrictions) typically have been created by the developer after the plat was drafted. They are the legal essence of how the association is to look, be governed, and protection for the owners.

 

How to change the governing documents is usually quite clear. Somewhere in the pages is a threshold percentage. This determines how many owners have to vote in order to make changes. Normally it is a supermajority which is over 50%. Many designations are 66 2/3% of the ownership, but in some cases, it may even go as high as 90%. Another hurdle is developers who do not want changes may have inserted a short-term provision for changing, such as any votes have to be gathered in 20 days.

 

If this is so daunting then why even consider it? There are many reasons. Among them are:

 

  • To set a rental cap for condominiums in order to maintain FHA approval for new mortgage loans (currently at 50% or 35% depending on certain conditions).
  • Clean up the developer written governing documents. These often have many sections to protect the developer which become moot when the transition to owner control takes place.
  • Incorporate changes to correct the original documents which have errors based on new laws. For example, some verbiage is contrary to FHA laws, there may be satellite dish restrictions which are not in accord with FCC rulings, and some very old documents have restrictions not tolerable today.
  • Changes to cover new items not considered when the documents were written such as Airbnb, solar panels, wi-fi, or changes in the association physical makeup.

 

When deciding to make changes, many associations form an ad hoc or governance committee. This is valuable as owner involvement is important in knowing the specifics of the association. Albeit, all too often the committee goes off and tries to re-write the documents themselves, which is time-consuming and unnecessary. Dean Martin ESQ, Partner and Founder of Barker Martin PS, recommends to “let the attorney draft the new governing documents from the start.” There are too many legal issues which only a good association attorney is aware of and can include in the new governing documents.


It may seem that getting a new draft finished is half the battle. However, it is just the beginning.

 

Most of the work will come after the documents are completed. The community has to be sold on what is being changed, the reasons why, and the benefit to each owner. This is the hard part as every owner has their opinion. Some just on principle don’t want any change. Others such as landlord owners may feel the changes are contrary to their economic interest. Finally, many owners may feel there is an uncommunicated reason as to why the changes are being suggested.

 

This is where a dedicated small group of volunteers is crucial. They have to convince the supermajority that a vote for the change is good for everyone. The benefit has to be sold from the standpoint of why it is good for the individual, not just a generic group. The full support of the board is crucial as certainly, they represent the ownership. If the majority can be convinced then the rest is easy. Any singular change will not please everyone but knowing what the important factors for the majority ownership are and addressing them, will get a large portion on the side of change.

 

Approval is usually a matter of obtaining the votes of the ownership. This can be electronic, as is done for an annual meeting, or signatures on physical documents. Getting the votes is hard work. Sending out a letter to everyone is easy as are messages on the community communications method such as email, association website, BuildingLink, etc. Obtaining the desired results is the hard part. It is well known that only about 5% of the members of any significant sized association are intimately aware of what is going on. Somehow this larger portion of owners has to be touched.  There may also be mortgage issuers who also have an interest and may have to be communicated with as well.

 

The ad hoc or governance committee can make a world of difference. Town hall meetings are a good way to answer interested owner questions. Setting up a voting box at a location where everyone passes, such as a front desk or guard house gets the word out. Door to door canvassing is not out of the question, especially for smaller associations. One committee had a baking event and gave out cookies to everyone who voted. Phone calling is good, but it has to be followed up by capturing the physical ballot. Every association is different, so the method to get the vote for governance changes has to be tailored.

 

Once all the votes are in and there is a supermajority, getting the changes into effect requires several more steps. A special meeting of the association has to be called with one item on the agenda: changes in governing documents. The votes for change are then officially recognized. Here again, the attorney plays a key role in getting the changes effected properly. Martin states that “the attorney will write a resolution for the board to pass at the special meeting and then records the new documents.” This ensures the document will be legally binding.

 

The final step is to let every owner know of the new document. Copies can be sent electronically, however, something as important as this, a paper copy or booklet should also be sent. There may be other interested parties or locations which should be informed as well: the agent sending out resale packages, a master association if one exists, the loan provider if there is one for the association, possibly the association’s bank, mortgage companies, etc. Of course, the communications site should be updated so everyone can download or search the new documents.

 

Is it worth the cost, energy, and aggravation to change governing documents? Yes, it certainly is. New documents provide current governance, reflect the association as it is today, and send a message to new buyers of proactivity. Go for it!

 

By Richard Kuziomko MBA, CMCA, AMS, PCAM
Richard is the general manager of The Kenwood Condominium in Bethesda, Maryland. He has been an active speaker and lecturer at various WMCCAI forums and member of both the Education and Quorum Committees.

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