Legislative Affairs

(Provided by Legislative Committee July 18, 2011)

This is the third part of a series of legislative articles that were signed by the Governor. Last week’s article started to highlight some of the major changes to NRS 116 with the passage of SB 204. Today’s article will conclude SB204 which was a significant piece of legislation.

There had been a few bills that were introduced which pertained to vacated board seats. This bill allows the board to appoint a director to fill the vacancy for the unexpired portion of any term or until the next scheduled election whichever is earlier, unless the association’s governing documents require an election by the homeowners. 

The law clarifies the procedure for the removal of a director by incorporating the language found in NRS 116.3108 pertaining to petitions. A recall election may be called by the unit owners constituting at least 10% of the voting members or any lower percentage allowed by the association’s covenants. The written petition is to be signed by the homeowners and delivered by mail, return receipt requested, served by a process server to the board or community manager. The secret ballots must be sent not less than 15 days and no more than 60 days. The board shall set the meeting date for the opening and counting of the ballots not more than 15 days after the deadline for the returning of the ballot and not later than 90 days after the date on which the petition was received. 

NRS 116.3109 pertaining to quorums of the board was changed to state that in order for a motion or an action item taken by the board to be valid, there must be a quorum at the time of that vote. The previous law stated that a quorum existed throughout the meeting as long as there was a quorum at the beginning of the meeting. The bill also added that the association is to conduct its meeting per the latest edition of Robert’s Rules of Order Newly Revised unless the bylaws or a resolution of the board adopted before the meeting provides otherwise.

NRS 116.311 was revised which would allow unit owners to vote at a meeting in person, by absentee ballot or by proxy or when a vote is conducted without a meeting by electronic or paper ballot subject to the association’s governing documents and requirements under this section of the law. First, at a meeting of the unit owners, voting by voice, show of hands, standing or any other method to determine the votes as designated by the person presiding at the meeting will be valid. Unless otherwise stated in the covenants or by state law, a majority of the votes cast determines the outcome of the election (note it did not state a majority of the unit owners). The association shall promptly deliver an absentee ballot to an owner who requests one as long as the request is made at least 3 days before the scheduled meeting. Votes cast by absentee ballot must be included in the tally of the vote taken at that meeting. When a vote is being made by absentee ballot, the association must be able to verify that the ballot is cast by the unit owner having the right to do so. One change was made to the proxies which stated that the proxy must designate the meeting for which it is executed and such designation includes any recessed session of that meeting. (if the meeting had to be adjourned and continued to another day or time, the original proxy would still be valid).

Unless restricted or prohibited by the governing documents of the association, an association may conduct a vote without a meeting if the following requirements are met: the unit owners are notified that the vote will be taken by ballot, the association shall deliver a paper or electronic ballot to every unit owner entitled to vote on that matter, the ballot must set forth each proposed action and provide a vote for that specific action for or against, indicate the number of votes needed to meet the quorum requirements, state the percentage of votes needed to approve each matter other than election of directors, specify the time and date by which a ballot must be delivered to the association to be counted, which may not be fewer than 3 days after the date the association first delivered the ballot, and describe the time, date and manner by which a unit owner may wish to deliver information to all unit owners regarding the subject of the vote. Unless stated otherwise in the association’s governing documents a ballot is not revoked after delivery to the association by death, disability or attempted revocation by the person who cast that vote . Approval of an action item by ballot is only valid if the number of votes cast by ballot equals or exceeds the required quorum to be present at a meeting authorizing the action. 

Section 45 pertains to required insurance coverage, including property insurance of not less than 80% of the actual cash value of the insured property, commercial general liability insurance crime insurance. It is imperative that board members and community managers contact their insurance agents to review the new law as well as reviewing the covenants. The insurance sections are 45- 48. For community managers, the bond law requirement for licensing has been eliminated. The association is to obtain crime insurance for all members of the board, officers, employees, agents, volunteers and which extends coverage to any business entity that acts as a community manager of the association and that business entity’s employees. The insurance must be at least 3 months of aggregate assessments plus reserve funds or $ 5,000,000 maximum whichever is less. The crime insurance section becomes effective January 1, 2012. 

The bill added one more requirement for the production of records to a unit owner or to the Ombudsman that if the board failed to provide a copy of the records within 21 days of receipt of a written request, the board must pay a penalty of $ 25/day for each day the board fails to provide a copy (I am assuming the penalty is paid to the Ombudsman Office). Once again, the legislature has passed two conflicting bills. SB30 states that the time period is 14 days and not 21 days.

SB 204 was very much a “house-cleaning” bill. Many sections were deleted, reworded or shifted to other sections of NRS 116, too many to describe for my column. Watch for news items of seminars that will be held during the year that you may want to attend which will review SB 204 and other laws that were passed. 

(Provided by Legislative Committee July 11, 2011)

One of the major bills that was passed in the 2011 legislative session was SB 204, as a result many changes were made to NRS 116.  The first change allows a unit owner to inform the association as to whether the unit owner would like to receive association notices either by mailing or by electronic mailing.  If a unit owner does not designate how notices should be delivered, the association has the choices of sending notices by hand delivery, by U.S. mail, electronic mail and any other reasonable method.  What makes this section of the law more significant is the inclusion of the following which states “the ineffectiveness of a good faith effort to deliver notice by an authorized means does not invalidate action taken at or without a meeting.  The provision of this section of the law does not apply to sections NRS 116.3116 to NRS 116.31168 which pertains to liens and foreclosure actions by the association.

Another important section pertains to associations where substantially all the units within the association have been destroyed or are uninhabitable and the available methods for giving notice of a meeting of the unit owners to consider termination under NRS 116.2118 will not likely result in receipt of notice, the board or any other person holding an interest in the association may commence an action in District Court to terminate the association.  The Court may take any action including the appointment of a receiver or after a hearing the Court may terminate the association, or reduce its size or any other order that the Court considers to be in the best interest of the unit owners or persons holding interests in the association.

Section 5 of the bill provides for indemnification of a board member.  It is basically word for word of an existing section of NRS 116.31036 subsection 3.

Section 6 of the bill requires equal time if an official association publication contains any mention of a candidate or ballot question.  The official publication must upon request and under the same terms and conditions provide equal space to opposing views and opinions.  Again, this part of the new law is exactly the language already found in NRS 116.31175 subsections 6, 7, 8 and 9.  What is new to this section is that if an association has a closed-circuit television station and the station interviews or provides time to a candidate or a representative of the association which supports the passage or defeat of a ballot question, the closed-circuit television station must under the same terms and conditions allow equal time for all candidates or a representative of an opposing view to the ballot question.  

Section 30 subsection 6 was a significant change to NRS 116.  It states that an amendment to the declaration which prohibits or materially restricts the permitted uses of a unit or the number or other qualifications of persons who may occupy units may not be enforced against a unit’s owner who was the owner of the unit on the date of the recordation of the amendment as long as the unit’s owner remains the owner of that unit.  As an example if the association were to pass an amendment to the covenants that would prohibit pets, the amendment would not apply to those owners who owned their units at the time that the amendment was recorded.  

Subsection 8 states that if consent is needed by the lender pertaining to an amendment to the declaration, consent is deemed to be granted if the lender has not requested in writing notice of the proposed amendment or if a written refusal to consent is not received by the association within 60 days after notice has been sent to the lender by certified mail, return receipt requested to the address for notice provided by the lender in a prior written request for notice.  This will greatly help associations that were passing amendments that required the lenders to vote upon those amendments.

Previous to the passage of this bill, associations were required to equally enforce the rules and regulations.  Section 33 of this new law changes the equal enforcement of the association’s governing documents.  Whether this section will turn out to be a nightmare or not will remain to be seen over the next two years.  The law states that a board may determine if the board wants to take enforcement action against a homeowner either for unpaid assessments or for violations.  The board does not have a duty to take enforcement action if it determines that under the facts and circumstances presented that the association’s legal position does not justify taking any action or further action,  or that  the covenant, restriction or rule is or likely to be construed as inconsistent with current law.  The board does not have to take action if the board determines that the violation, which may exist or may have occurred, is not so material as to be objectionable to a reasonable person or to justify the expending of the association’s resources or is not in the association’s best interests to pursue an enforcement action.  Finally the fact that the board may not pursue enforcement of one set of circumstances does not prevent the board from taking enforcement action under another set of circumstances but the board may not be arbitrary or capricious in taking enforcement action.

This section of the law could turn out to become the “full-employment act” for attorneys.  It turns the clock back.  The equal enforcement provision was passed because of complaints by homeowners to the legislature that boards were acting subjectively and not objectively in dealing with homeowner issues.  As a manager of associations, this change in the law can be a positive one as it allows for flexibility in the decision-making process by the boards but at the time, it calls for caution and objective thinking.  The board will need to be able to rationally explain why an action was or was not taken if challenged by a homeowner.    

Section 34 adds to the fiduciary responsibility of officers and members of the board to include the conflict of interest rules governing nonprofit organizations under the laws of this State.  The law already states that board members are to exercise the ordinary and reasonable care of a nonprofit corporation, subject to the business-judgment rule.   

There had been some issues pertaining to the construction penalty which was addressed with the passage of this bill.  The association has to include a notice of the maximum amount of the construction penalty and schedule as part of any public offering statement or resale package.  Consistent with the notification laws, the new law states that if the association adopts a policy imposing fines for any violations that the homeowners are to be sent a copy of the fine schedule.  

(Provided by Legislative Committee July 4, 2011)

The legislative session has come to an end, finally.  There were the “winners” and the “losers”.  This article presents a summary of some of the bills that were passed and signed by the governor.  These laws became effective July 1, 2011.     
The superfluous bills- waste of tax payers money- time that should have been spent on more important issues as our economy, the budget, education, redistricting of the State, etc. 
AB 246 authorizes a candidate who has submitted a nomination form for election as a member of the board to request that the association or its agent either sends the candidate informational statement or provides to the candidate a list of the addresses of each unit in the association so that the candidate may send campaign materials directly to the unit owners.  This bill further provides that if the candidate requests a lists of addresses to send his or her campaign materials directly to the unit owners that the list must not include the names of the unit owners or the names of any tenants of the unit owners and that the candidate must provide a written statement that the candidate is requesting this list for the sole purpose of distributing their campaign materials and that the candidate will not make any other use of the information.  The new law allows the association to charge $.25 per page for the first 10 pages and $ .10 per page thereafter or in the form of a compact disk at a cost of no more than $ 5.00 or by electronic at no cost.  Under the previous law, associations were already required to distribute the candidate informational statement to the homeowners.  The additional verbiage is just a waste of space and probably will never be implemented by any association. 
SB30 made two changes to NRS 116.  The first pertained to the expansion of electronic payments (see below) and the second pertained to a homeowner’s written request for records which include the financial statements, budgets and reserve study.  Within 14 days of a written request, the association is to provide a copy of the records in an electronic format at no cost, or if unable in paper format at a cost not to exceed $.25 for the first ten pages and $ .10 per page thereafter.  The legislature repealed section 116.31177 which actually states the same provisions as the new section NRS 116.31175, with the exception of the electronic submission and the $ .10 per page thereafter.  Why repeal the section?  Just add the new information. 
SB 89 is another example of the law that has been changed every legislative session.  It revises the NRS 116 provisions pertaining to associations’ audits and reviews of financial statements.  The 2009 law stated that if an association’s annual budget was less than $ 75,000.00, the association was to have a review of its financial statements in the year immediately preceding the year in which a study of the association’s reserves is conducted unless an audit was requested by 15% of the voting members of the associations.  The 2011 law “waters down” the regulations even more by exempting association’s whose annual budgets is less than $ 75,000.00.   I personally did not agree with the 2009 changes and absolutely do not agree with the 2011 changes.  It is in the best interests of the board members, homeowners and managers that financial statements be prepared by an independent certified public accountant on an annual basis.  What does not make sense for me is that so many bills were introduced to protect the homeowners and this bill does not protect the homeowners.  By providing annual certified financial statements, the homeowners can have a certain amount of comfort knowing that a third party reviewed its finances.  Both lenders of mortgages and insurance companies want to see these reports as to the financial viability of the association.  Finally, this is a perfect example where the legislature’s right hand and left hand are out of sync and where the legislature demonstrates its ignorance of association management.  One of the new laws that will become effective on January 1, 2012 will require associations to have fidelity coverage of at least 3 months of aggregate association’s assessments plus the amount in the reserve account, not to exceed more than $ 5,000,000.00.   Insurance companies providing fidelity coverage will absolutely want to review the associations’ financial statements.  This law was solely passed because of complaints that it cost too much money to have a financial statement.  A fact that really is not true.  And in the long run could cost homeowners more money in the absence of a third party reviewing the finances of the association.       
Homeowners’ Lose Rights- 
AB122 revised the already existing laws which restricted associations from unreasonably restricting systems related to wind energy. The original law which was passed in 2009 stated that for the purpose of the law “unreasonably restricts the owner from using a system for obtaining wind energy” was defined that any restriction or requirement on the system which significantly decreases the efficiency or performance of the system and which does not allow the use of an alternative system at a substantially comparable cost, efficiency and performance.”   Now what the new law did was to delete the above section which does not make sense to me as it in essence diminished the rights of a unit owner, not enhanced the rights.  The previous law stated that the provisions of the law did not prohibit an association to have reasonable restrictions or requirements which related to “ height, noise or safety”.  The new law adds to this list to include “ finish, location and setback”. 
Modern Age of Technology- 
SB30 revised NRS 116.31153 pertaining to the section on electronic payments.  The law has been expanded from the single item of automatic payments for utilities to any invoice that needs to be paid.  As association may now use electronic signatures to withdraw money in the operating account of the association if the electronic transfer of money is made pursuant to a written agreement entered into between the association and the financial institution where the operating account is located.  The board must expressively authorize the electronic transfer of money and the association has established internal accounting controls which comply with generally accepted accounting principles to safeguard the assets of the association.