“BE PREPARED” – The Scout Motto
Growing up scouting was an important part of my life and development as a young person. The Scout Motto is one of the things, in particular, that has stuck with me and carried over into my adult life. Being prepared has been important personally as well as professionally, to me and my clients. Being prepared for any potential eventuality in a particular situation has often been the difference between success or failure. Accordingly, I always endeavor to “be as best prepared” in any given situation I find myself in.
Similarly, members of any board of directors of a Common Interest Community Association should always be in a ready state of preparedness. Expected as well as unexpected situations arise, oftentimes on a daily basis, as directors endeavor to lead, operate, and administer their community associations. Accordingly, it is best for boards of directors not to procrastinate and to know or anticipate the status of certain corporate requirements or association necessities so as not to have to worry about them, after the fact, when it might be too late! Set forth below are my top five (5) annual considerations that Boards of Directors should check-off as they start off each new calendar or fiscal year:
- Current Corporate Status/CICB or Status of Other Mandatory Registrations.
If an association is incorporated, someone on the Board should check on and verify the status of the incorporated entity with the jurisdiction in which it is incorporated. Alternatively, the board can ask its legal counsel to confirm and verify the corporation’s status with that jurisdiction. This is an important to protect the member’s and insulate them from needless personal liability which might arise in the event the corporate status is lost. Remember, the “corporate shield” can only protect against liability if there is one in place.
Additionally, in some jurisdictions there are other mandatory registrations which associations need to keep up to date. For instance, in the Commonwealth of Virginia, each common interest community association is required to be registered with the Common Interest Community Board. The valid “filing number” received from the CICB is required to be set forth on the resale certificate of a condominium association or a resale disclosure packet for a registered property owners association. Check with your association attorney for any statutory or regulatory requirements for registration in your particular jurisdiction.
- Resale Disclosure Certificates/Resale Disclosure Packets.
A “rose by any other name” regardless of what you call them, each jurisdiction in the DMV has requirements for sellers to provide a resale disclosure of some sort for condominiums and in MV for non-condominium homeowner or property owners associations. Usually and appropriately these “packets” are prepared for and issued directly by the association’s management agent, firm or company. But when was the last time that the board reviewed the “packet” prepared on behalf of the association (principle) by the management agent? Please note that, regardless, the association as principle is more than likely responsible for the documentation issued by the “agent” on its behalf to any third party. What if the information contained in that packet is inaccurate, “stale”, or incomplete? To prevent packets not in compliance with the statutory requirements, it is my opinion that the association should periodically review and evaluate the packets that are being sent out on its behalf. Alternatively, it might be wise and appropriate to have the Association’s legal counsel periodically review these packets for compliance with the local state requirements.
- Maintenance and Reserves.
Think of the concerns raised by “Surfside.” What is the current, objective professional evaluation of the maintenance of the existing buildings, facilities, infrastructure? Do we have an evaluation and when was it performed? What maintenance has the association performed since the study was done and what maintenance has been deferred? Is there a reserve study? Have all of the capital components of the existing buildings, facilities and infrastructure been accounted for in the reserve study? How long has it been since the last reserve study was performed and is the association in compliance with any statutory requirements. What is the status of the actual existing reserve funds when compared to what is supposed to be on-hand as predicated by the reserve study? Where and how are the funds invested. Who has signatory authority over the reserve funds and why? Is there a reserve study?
Dependent upon in which jurisdiction you reside, the association may have specific requirements with which the association will need to comply. In Virginia, by way of example, the board of directors of a property owners association, annually, is to review the results of the reserve study and determine if reserves are sufficient as well as make any adjustments the board of directors deems necessary to maintain reserves, as appropriate. A rather lofty, nebulous standard to which any volunteer group can be asked to adhere.
In addition, if the reserve study indicates a need to budget for reserves, the annual budget of a property owners association is required to include: 1) the current estimated replacement cost, estimated remaining life, and estimated useful life of the capital components as defined by statute; 2) the current amount of accumulated cash reserves set aside; and 3) the amount of the expected contribution to the reserve to be made that year. The annual budget is also required to describe the procedures used for estimation and accumulation of cash reserves and a statement of the amount of reserves recommended in the study and the actual amount of current cash for the replacement reserves. Check your state’s statutes for particular requirements related to Reserves and the budgetary process related to your association.
When was the last time the board of your association reviewed its existing board-adopted resolutions? When was the last time you determined which was you still needed versus which ones you did not? What about otherwise revised or updated them?
Some resolutions may be required by statute if the association wishes to take advantage of certain authorities or powers. Check carefully to determine if you have the resolutions you want. Dependent upon your association’s jurisdiction, set forth below is a non-exhaustive list of resolutions for your consideration:
- CICB-Complaint Procedure (required in VA);
- Copy Cost Schedules (required in VA to charge for copies obtained through access to records);
- Virtual Meeting and Electronic Voting (required in VA if you want to take advantage of this ability);
- Collection Policy;
- Administrative In-House Due Process Enforcement Policy;
- Parking/Vehicle Policy;
- Insurance Deductible Policy (Virginia Condominiums);
- Satellite Dish/Antenna Policy;
- Committee Charters (Scope of Authority);
- Record Retention Policy.
- Annual Board Meeting with Legal Counsel and Legal Review.
The board, especially any board that has new directors, should avail itself of the opportunity to meet with the association’s legal counsel once a year to: 1) develop a personal trust relationship with that legal counsel; 2) to learn about, understand and appreciate their role and responsibilities as a member of a board of directors of a common interest community association under their specific condominium instruments or governing documents, and 3) to be updated regarding recent changes in statutory and case law. The meeting should be held separate and apart from a regular board of directors meeting, preferably in executive session to allow the board the opportunity to interact with the association’s legal counsel in a relaxed atmosphere and be able to ask unguarded, direct questions. Such a meeting provides the opportunity for board members to ask questions to help them understand their scope of authority and better appreciate their relationship with and to the association and its members. It also allows the Association’s counsel to become familiar with the individual board members and develop a more meaningful trust relationship with the individuals comprising the board.
Obviously, these five (5) “considerations” are not intended to be exhaustive; rather, they are designed to prompt the board of directors to think outside of the regular board meeting agenda items and understand the necessity of knowing the association’s past, as well as its present, and future. These associations are more organic than perhaps we realize and are designed to promote an on-going “congregate living” environment. How we respond, communicate, and respect each other in these situations will go a long way to determining whether or not the experience of the individual is positive or negative. The board’s preparedness, leadership, and effectiveness in working collectively will also play a significant role in the on-going development of that experience.
By Kenneth E. Chadwick, ESQ.
Kenneth is a shareholder and founding member of the firm. His practice areas include community association law, small business law and litigation. Ken provides counsel and advice to the firm’s community association clients regarding general community association issues, Fair Housing issues, insurance matters and legislation. He is a Past President of the CAI-Research Foundation and a Board Member from 1993-1999. He is a past Board Member and Past President of the Central Virginia Chapter of CAI and is a past Board Member and a past President of the Washington Metropolitan Chapter of CAI. A member of the of the American Bar Association, Ken also has served and continues to serve in an advisory capacity for the Virginia Legislative Coalition, now the VALAC, a cooperative joint effort between the four Community Associations Institute chapters in Virginia, coordinating CAI’s legislative efforts before the Virginia Assembly. Ken is a Charter member of the Community Associations Institute’s National College of Community Association Lawyers (“CCAL”).