CAI-MN Minnesota Community Living - May/Jun 2012

Minnesota’s premier homeowners association magazine

May/June 2012

Volume 30 • Issue 3

In this Issue: Access or Excess?

Where to Draw the Lines in Your Common Interest Community Getting the Right Insurance Coverage for Your Volunteers And Much More!

Enforcing Your Governing Documents and Rules

Visit us online at www.cai-mn.com.

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Minnesota Communit y Living

Board of Directors

From the President

By Jonathan Edin | CAI-MN President

I am drawing to the end of my tenure as Board President, and also the end of 6 years on the Board of Directors. In that time, CAI-MN has gone from a struggling organization to one with vitality and purpose. CAI-MN has created the Vision Awards, Golf Tournament, Trade Show, CAVL seminars, and social events like the happy hours. Our educational efforts are second to none.

All of this has been accomplished, I emphasize, through the efforts of volunteers. I wish we could borrow Oprah for a day, to hand out new cars to the myriad fine volunteers we have working for us. Our Vision Awards in June is our marquee recognition event and is a great means to draw some much needed attention to All-Stars in our industry. However, many of you out there who volunteer with us won’t qualify for those

categories or be otherwise recognized. Thus, let me thank each of you for your work, and encourage you to keep it up, adhering to the fine standards that CAI-MN is known for.

Also, since I have the forum one more time, I would like to mention a few persons whom I have worked with most closely: I’d like to remember Marj Peterson, and to give special thanks to Alice Finley, Linda Wilkins, Pat Butler, Mark Schoenfelder, Joe Crawford, Mark Gittleman, Traci Lehman, Gene Sullivan, Halo Stafford, Sara Lassila, Holly Johnson, Michael Klemm, Tim Broms, Tom Engblom and Paul Hanscom. The list could be much longer, but this will have to do for now. Onward and Upward.

President Jonathan Edin Phone 651.222.2155 JEdin@mncondodefects.com President-Elect Traci Lehman, CMCA, AMS, PCAM Phone 612.381.8600 tracil@citiesmanagement.com Treasurer Michael P. Mullen, CPA Phone 952.928.3011 mike@cpamullen.com Secretary Halo Stafford, CMCA, AMS, PCAM Phone 952. 277.2785 hstafford@gittleman.com Directors Tom Engblom, AMS, ARM, CMCA, CPM, PCAM Phone 866.800.4656 tengblom@cabanc.com Steve Hoogenakker Phone 763.213.2410 steve@landscape.pro Michael Klemm, Esq. Phone 952.953.8832 klemmm@seversonsheldon.com Rich Klobuchar Phone 763.551.9827 rklobuchar@usinternet.com

Contact John Russo, Ph.D. 952-944-7137

Nancy Polomis, Esq. Phone 952. 941.4005 npolomis@hjlawfirm.com

Member

Jim Rezek Phone 763-424-9984 jimrezek@comcast.net

• Consulting Services • Specifications, Bidding, Contracts, Inspections of All Exterior Replacement Items including Asphalt, Concrete, Siding, Roofing, Windows, Doors • Litigation Support • Insurance Claims and Appraisal Support • Problem Solving and Investigations

Gene Sullivan Phone 952.922.2500 gene@ncmgi.com

CALL THE PROFESSIONALS ASSOCIATION SERVICES

Committee Chairs Legislative Action Chair Joe Crawford Phone 952.212.2216 joe.crawford9@gmail.com

Vision Awards Chair Lisa Astelford, CMCA Phone 952.277.2787 lastleford@gittleman.com

Golf Tournament Chairs Paul Brownlee Phone 414.918.4494 paul@reserveadvisors.com

Tradeshow Committee Chair Mark Schoenfelder Phone 952.345.2900 mark@schoenfelderpainting.com

Communications Chair Joel Starks Phone 952.224.4480 joel@sharpermanagement.com

Education Committee Chair Traci Lehman, CMCA, AMS, PCAM Phone 612.381.8600 tracil@citiesmanagement.com

Tom Engblom Phone 866.800.4656 tengblom@cabanc.com

Membership Chair Dennis Merillat Phone 952.997.2320 dmerillat@certapro.com

CAVL Chair Sara Lassila, CPA Phone 952.474.1631 sara@saralassila.com

May | June 2012

3

Stick to Your Guns Without Shooting Yourself in the Foot: Enforcing Your Governing Documents and Rules

By Matt Drewes, Thomsen & Nybeck, P.A., Attorneys

E

nforcing your association’s covenants and rules can be one of the most troublesome issues your community association faces. You may feel stress about the violation, the potential conflict between members, and the potential conflict between the alleged violator and the board. This article will attempt to give you some tools to evaluate your specific situation.

Is the homeowner violating a valid rule or covenant?

The board doesn’t have unlimited power.

When a violation or problematic owner or condition is reported, first consider whether the conduct or condition is actually a violation of a valid restriction. Common interest communities are formed and governed by a series of documents that should include the articles of incorporation, the bylaws, and the declaration. The Board derives its power from these governing documents and, in most cases, the Minnesota Common Interest Ownership Act (MCIOA), which is Minnesota Statutes Chapter 515B. In addition to the governing documents and MCIOA, you should also have rules and regulations. If you’re considering taking action to enforce one or more rules, consider whether the rules were properly passed.

Make sure the board complied with any requirements for passing rules which may be contained in your governing documents, especially the declaration, before proceeding with enforcement. Alternatively, if you complied with the rulemaking procedures, but failed to approve the rules at a validly called and conducted board meeting, your rules might be subject to challenge.

Make sure your rules are not inconsistent with your declaration. For example, if the declaration states that owners may have pets without any further limitation or a reference

to the board’s authority to regulate pets, then a rule that prohibits pets or limits their size or number is likely subject to challenge for being inconsistent with the declaration.

Some restrictions will require an amendment to your declaration; don’t assume you can address all matters with rules.

Know your governing documents and the rules that may apply.

Make sure the board is in the right before acting or communicating with the homeowner about a possible violation. If you haven’t received or located complete copies of your governing documents, including a recorded copy of your declaration, you should start there. The articles of incorporation are rarely implicated in enforcement matters, but make sure you’ve looked at them to be sure, and make sure you have a copy of the version that is on file with the Secretary of State. The bylaws should have been signed, and often amendments to the bylaws must be recorded before they become effective. Make sure this has been done if it is required.

You should be able to point to a specific provision of the governing documents, the rules, or MCIOA (if it applies to your association). If you need help identifying or articulating the basis for your concern and proposed enforcement action, check with an experienced community association attorney. The attorney might be able to point to enforcement options you haven’t considered and can help ensure you use the most effective remedy. Alternatively, your lawyer may spot problems with your position that can be corrected before you’ve gone too far. Reliance on an outside professional advisor also further insulates the board of directors from potential liability where your decision is a controversial one.

If you have passed or plan to pass rules and regulations, remember the authority to pass them is derived from the declaration (and MCIOA, if applicable) and the rules may not be inconsistent with the declaration.

Matters typically subject to rules include parking, noise, signs, or procedural matters like how owners apply for permission to make exterior alterations to their units.

Rules also are a useful tool for establishing procedures for enforcement, including how hearings will be conducted, where the declaration is silent on those details.

MCIOA will address a lot of enforcement concerns for those associations to which it applies. For example, it requires notice and an opportunity to be heard before the association can impose fines. MCIOA also contains provisions allowing for the recovery of attorneys’ fees, and even punitive damages for willful noncompliance.

The Minnesota Nonprofit Corporations Act (MNCA) also applies to nearly all community associations. It usually won’t play a role in your enforcement decisions, but it may guide Board meetings and votes, and contains requirements regarding electronic voting procedures if your association chooses to seek to use those options.

Communicate with the members about what is expected of them; be consistent.

Make sure that your members know the rules. Some declarations require you to distribute the rules to the members before they become effective. Even if your declaration doesn’t require you to do this, it’s a good idea to do so anyway. Send the rules to the members each time you change them.

When new owners move in, send them a complete copy of your governing documents and rules.

If you are not vigilant about enforcing the governing documents and rules, you open up the association to two potentially devastating arguments: selective enforcement and waiver. Selective enforcement means you’re unfairly trying to single out one owner or group of owners. Waiver means you’ve failed to enforce a particular covenant or rule in the past, and therefore you shouldn’t be perStick to Your Guns continued on page 6

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Minnesota Communit y Living

Calendar

Index

2012 June

2012 CAI-MN Vision Awards

June 7, 2012, 6:00 - 9:00 pm International Market Square $45 for members (early); $55 for members (regular); $65 for nonmembers

features Shooting Yourself in the Foot: Enforcing Your Governing Documents and Rules

July 11, 2012 StoneRidge Golf Club $160 for Golf (Includes Lunch and Dinner); $35 for Lunch Only; $45 for Dinner Only

10 A Meeting Primer: Is this a Board

CAVL Seminar

September 12, 2012, 5:45 pm - 7:45 pm AAA Minneapolis $15 for members (early); $25 for members (regular); $30 for nonmembers (early); $40 for nonmembers (regular)

Register online at www.cai-mn.com For more information regarding an event, call the office at 651.203.7250 or visit the CAI-MN website. Online registration is available at www.cai-mn.com.

Lines in Your Common Interest

Community

By Sarah B. Bennett

19 Getting the Right Insurance

Coverage for Your Volunteers

From RJF, a Marsh & McLennan Agency LLC Company

20 Raising the Bar High

By Tom Engblom

23 Member News 26 Reserve Studies Minimize Liability

By Joel Starks

2012 Annual Partners

12 Access or Excess? Where to Draw

By Nigel H. Mendez

21 Self-Management Series

By Nancy T. Polomis

the

By Jonathan Edin

8 Ask the Attorney

By Matt Drewes

Meeting? An Association Meeting?

Does It Matter?

September

3 President’s Message

4 Stick to Your Guns Without

July

6th Annual CAI-MN Golf Tournament

series

By John P. Poehlmann

Published by Community Associations Institute — Minnesota Chapter, copyright 2012. All articles and paid advertising represent the opinions of authors and advertisers and not necessarily the opinion of either Minnesota Community Living or CAI–Minnesota Chapter. The information contained within should not be construed as a recommendation for any course of action regarding financial, legal, accounting, or other professional services by the CAI–Minnesota Chapter, or by Minnesota Community Living, or its authors. Articles, letters to the editor, and advertising may be sent to Chapter Staff Editor Jane Duntley at janeyd@cai-mn.com, or at CAI–Minnesota Chapter, 1000 Westgate Dr., Suite 252, St. Paul, MN 55114.

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Stick to Your Guns continued from page 4 mitted to do so going forward. Maintaining, or re-establishing, a pattern of consistent enforcement is important to prevent these arguments from interfering with your enforcement efforts.

If you have had a lapse in enforcement in the past, you can attempt to restore integrity to your governing documents and rules by amending some or all of the documents.

Even delivering a new copy to all members, along with a notice that enforcement will once again be a priority, may put you back on course. If the association’s past is filled with half-hearted or half-completed enforcement measures, provide a clean break for those who might say they relied upon the board’s complacence.

The rules should be applicable equally to all owners. The rules should never differentiate between owners on the basis of a protected class (such as race, religion, age, familial status or sexual orientation) unless it is to express the manner in which a disabled owner or occupant may request a reasonable modification or accommodation under applicable laws. Senior housing communities may also impose age and family-related restrictions where the governing documents and rules comply with applicable federal and state law.

When making enforcement decisions, don’t leave your reason and conscience at the door.

It may be hard to discern the legitimate claims from the illegitimate ones, but the rights of owners and occupants to have requests relating to a disability or psychological or emotional condition are real. If an owner requests a reasonable accommodation (an exception to a rule such as permission to maintain a comfort animal or service animal) or a reasonable modification (e.g., the installation of a stair lift or access ramp), take it seriously. Whenever these issues come up, you should take great care; it is almost always advisable to engage a lawyer at that point.

Failing to plan is planning to fail.

Effective enforcement requires a consistent and decisive approach. Plan how to handle alleged infractions now, so you don’t have to

“wing it” when you’re faced with a tough issue. Start with a formal means for reporting violations; preferably in writing, even if the violation was witnessed by a board member.

Board members aren’t infallible, and they should not summarily punish an owner without giving him due process. Having an obvious trigger to the enforcement process helps show the board is acting in response to a valid problem. Don’t let complaints languish, or owners will become apathetic, or (even worse) they’ll be emboldened to commit further violations and may later argue selective enforcement or waiver.

repeat offender. Consider also that you have the following options for enforcement:

Upon receipt of a complaint, consider making informal contact with the alleged violator if the violation appears benign or unintentional. But ensure the issue is corrected based on this contact. If not, you must initiate a formal enforcement procedure.

If you’re uncomfortable with drawing this line, then deal with every complaint with a formal enforcement procedure. If you’re consistent, owners should understand.

How to conduct the board during a dispute.

The association acts through the board.

Members have a right to be present for board meetings, but they don’t have a right to speak. The board may close a meeting for confidential discussion of the following: personnel matters such as hiring or firing any employees; pending or potential litigation where unit owners may have an adversarial interest; or criminal activity within the association. Board meeting minutes should be available to unit owners unless they are for a closed meeting. Revealing the contents of closed meeting minutes or communications with your attorney may waive the association’s right to maintain confidentiality.

Unless your declaration says otherwise, you don’t have to distribute your minutes; they just have to be made available upon owner request. The obligation to maintain meeting minutes extends for six years.

In your formal response to a complaint, begin with a notice of the violation that adequately describes the conduct or condition that led to the notice and identifies the specific rule or covenant that was violated.

Where possible, the notice should afford the owner an opportunity to “cure” the alleged violation before further action.

If the owner fails to cure the violation, you may choose to fine the owner. You should decide if you want to have a rigid fine schedule, a different set of fines for violations of different severity, or whether the board will use its discretion each time it levies a fine. Fines should be significant enough to encourage compliance, but they should not ordinarily be financially ruinous.

Do not levy a fine until the owner has had an opportunity to respond to the matter at a hearing before the board (MCIOA allows the board to appoint a committee to conduct these hearings).

No protocol can be one-size-fits-all. Allow the board the discretion to deviate from any protocols to the extent it can legally do so based on the severity or urgency of the violation, or where the board is dealing with a

• Fines; • Restrictions on access to the use of • •

amenities (but not access to the owner’s unit); Termination of association services/ utilities; or Legal action (in which you can seek money or an injunction).

Under MCIOA, you may not restrict voting rights – even if your declaration says so.

Anything you say can and will be used against you, so try to keep the meeting minutes brief. As a general rule, include additional detail if it helps you; don’t do so if it hurts you. You can’t always know which will be which, so you may want to err on the side of shorter minutes. The minimum content of your minutes should be: a general description of the item(s) discussed; the results of any vote(s); a concise description of any resolutions passed; and any other significant action occurring at the meeting.

Unit owners have the right to demand to review copies of past meeting minutes, but the request must be for a proper purpose. In other words, the owner can’t ask for docuStick to Your Guns continued on page 15

6

Minnesota Communit y Living

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May | June 2012

7

8

Minnesota Communit y Living

Ask the Attorney by

T

his column is comprised of questions that have been posed to me by homeowners, property managers and related professionals regarding legal issues they have encountered with respect to their associations.

of the board. For example, a committee that is established to research companies to professionally manage the association may not have the ability to enter into a binding contract. The committee would research and interview various management companies and report to the board with a recommendation. The board would then vote on which management company to contract with, and execute the contract.

“My friend in a different association serves on a committee. My association does not have any committees. What does a committee do?”

However, should the board wish, it could grant greater power to a committee. Some associations have a landscaping committee that is charged with the upkeep of the common area. The board can give the landscape committee a budget, along with the power to contract with a lawn maintenance or snow removal vendor. The resolution that establishes the committee should detail the specific purpose and power that is being granted to the committee.

While all associations have a board of directors that runs the association, many also utilize various committees. Committees are established by the board to assist in various areas of the association. Committees can be created for short-term projects, such as revising the governing documents, or they can be ongoing, such as a landscaping committee, nominating committee or architectural control committee. Committees provide an opportunity for homeowners who have an interest in a specific area to contribute to the association without having to commit to being a board member. Committees can provide invaluable insight and benefit to the board. The ability for the board to utilize committees should not be overlooked.

The power to appoint, regulate and dissolve committees is found in the Minnesota Nonprofit Corporation Act and most association’s bylaws. Minn. Stat. §317A.241 provides that through a majority vote, the board can pass a resolution establishing a committee. Unlike board members who are elected by the members of the association, members of a committee are generally appointed by the board.

Committee members serve at the pleasure of the board and can be removed, with or without cause, by a simple majority vote of the board. While many committees have at least one member who is a board member, unless the association governing documents require it, it is not mandatory.

Committees are an extension of the board, but do not generally have the full powers

Minn. Stats. §§317A.231 - .239 detail requirements for board meetings (notice, quorum, actions outside of a meeting).

These same guidelines apply to the actions of committees. It must be remembered that the board retains all power over a committee, and at any time can add members, remove members or dissolve the committee.

“My association foreclosed on a home and we learned there is a tenant living there – are we stuck with him?”

The short answer is yes, but for how long is the real question. Before I explain the details, it must be noted that the following answer does not apply to the previous owner – any holdover owner may be evicted immediately. State and Federal laws were changed in recent years to provide protection for tenants who lived in properties that were subsequently foreclosed upon by a mortgage company or association.

The laws state that the “immediate successor in interest” (here the association that foreclosed), must provide tenants with a minimum of 90 days notice to vacate the property. The 90-day notice can not be given until after the end of redemption period.

Nigel H. Mendez, Esq., Carlson & Associates, Ltd.

If the tenant has a bona fide lease that extends more than 90 days beyond the end of the redemption period, the immediate successor in interest must then honor the term of the lease. In this instance, the 90-day notice to vacate is still required and should be given 90 days prior to the expiration of the lease. A bona fide lease is one that is not with the previous owner’s child, spouse or parent; it was the result of an arm’s length transaction; and the rent is not substantially less than fair market rent. However, if the association sells the property to a buyer who intends to occupy the property as a primary residence, the term of the lease does not have to be honored and the 90 day notice can be given immediately upon sale to the new owner.

During the period that the tenant occupies the property, the tenant must follow the terms of the lease and must pay all rent to the association. Tenants are not required to pay association assessments as they are not an owner of the property. Should the tenant fail to follow the terms of the lease or pay the required rent, the association may bring an unlawful detainer (eviction) action immediately without regard to the 90-day notice period.

Both the Federal and Minnesota laws are set to expire on December 31, 2012. Unless extended, no tenant protections will exist in 2013 and an eviction action can be commenced immediately following the end of the redemption period.

To have a question answered in a future article, please email it to me at nmendez@carlsonassoc.com with the subject line of “Ask the Attorney.” While I can’t promise that all questions will be answered, I will do my best to include questions that have a broad appeal. Questions will also be answered by other attorneys practicing in this area of law.

The answers are intended to give the reader a good understanding of the issue raised by the question but are not a substitute for acquiring an opinion from your legal counsel.

May | June 2012

9

A Meeting Primer: Is this a Board Meeting? An Association Meeting? Does it Matter?

R

ecently, after I had completed a presentation for community associations, a director of an association approached me to ask a question about a meeting the association was planning. When I asked whether it was a meeting of the board of directors or a meeting of the association membership, I was sure I must have asked the question in Greek based on the look the director gave me. (For the record, I am not Greek and don’t speak Greek.

I am, however, reasonably fluent in English most of the time.) His next question: “What difference does it make?” As I explained to him, it makes a big difference.

The basics of association-related meetings

Board meeting vs. association meeting While a board of directors typically has significant power to administer to and govern the association it serves, some matters and decisions must be addressed by the association membership. If a decision that is supposed to be made by the association membership is made by the board alone, the effectiveness and enforceability of that decision may be called into question. Conversely, if the board repeatedly allows association members to vote on decisions that should be made by the board—on issues within the board’s purview—the board gives the membership the impression that association members are entitled to vote on such matters. That practice may create difficulties if the board later seeks to make a decision on a similar matter without a vote of the membership. Association members may cry foul, since the board has created an expectation that the vote of the entire association membership is not only needed, but somehow required.

Once a determination is made as to whether the issue at hand is a decision for the board or for the association, the board must then ensure that the proper notice requirements are followed. There are, in fact, differences in notice requirements for an association meeting and for a board meeting. Using the wrong notice provisions can jeopardize the validity of decisions made at that meeting.

10

Minnesota Communit y Living

It is important, then, for both associations and boards to have a clear understanding of what matters are within theboard’s purview, and what matters require meetings of the association membership.

Typically, the board is empowered and authorized to make decisions regarding: • Budgeting and collection of assessments • Adopting, changing or revoking rules • Determining late fees and fines for violations of the association’s governing documents • Engaging the services of professionals— attorneys, property managers, vendors, etc.

• Maintaining the common areas and those portions of units which the association is obligated to maintain • Appointing, regulating and dissolving committees1 On the other hand, some decisions require the participation of the association membership. These issues include: • Amending the declaration, bylaws or articles of incorporation • Removing a director before his or her term has expired • Electing directors Open meeting of board vs. association meeting Under the Minnesota Common Interest Ownership Act (Minnesota Statutes Chapter 515B), commonly known as “MCIOA,” meetings of the board of directors must be open to all unit owners to attend.2 Some homeowners—and indeed, some boards—believe that being permitted to attend a board meeting is the same as being permitted to participate in that meeting. That belief is erroneous. In associations working under that misguided premise, many decisions within the purview of the board of directors are “voted on” by the association membership at a board meeting. Such votes can create several misperceptions: (1) that the meeting is actually a meeting of the association rather than the board; (2) that the issue is one that requires a vote of the association members rather than the board alone; (3) that association members are entitled to participate in

By Nancy T. Polomis, Esq.

board meetings and that the members’ votes are binding on the association.

For those associations governed by MCIOA or whose governing documents require open board meetings, it is important for the board to establish clear guidelines for the administration of board meetings. Boards must be clear with homeowners that, once any “open forum” an association may allow is completed, homeowners not serving on the board are welcome to stay for the meeting (provided, of course, it is not a closed meeting, as permitted under MCIOA in certain circumstances), but may not participate in the meeting unless invited to do so by the board. Homeowners are, in essence, an audience for the board meeting: they are not permitted to participate in discussions, offer opinions or information or vote on matters before the board. By establishing clear ground rules from the outset, a board of directors can avoid disputes and controversy about the homeowners’ role in board meetings.

Regular meeting vs. special meeting Most meetings of the association and the board of directors are “regular” meetings, scheduled and held in the normal course of business. A board of directors generally deals with, for example, budgeting issues, collection issues, and contracting with landscapers and roofing contractors in the board’s normal course of business. Generally, the routine business for association members consists primarily of electing directors each year at the only “regular” meeting of the year—the association’s annual meeting.

Occasionally, however, business of the association or the board requires immediate attention. Storm damage may require emergency board meetings to engage contractors.

Health or safety issues may require the board to call a special meeting to make decisions on matters that simply cannot wait until the next regularly scheduled board meeting. For associations, controversy regarding board membership may result in a special meeting at which a vote to remove one or more directors may be considered. If the association is amending its governing documents, A Meeting Primer continued on page 18

May | June 2012

11

Access or Excess? Where to Draw the Lines in Your Common Interest Community

By Sarah B. Bennett, Esq. Thomsen & Nybeck, P.A.

C

ommunity associations frequently face the problem of deciding whether, and when, they may access an owner’s unit. Whether an association or its property manager may access a unit will depend on the terms of the association’s governing documents and whether the association is subject to Minnesota Statutes Chapter 515B, the Minnesota Common Interest Ownership Act (the “Act”).

When confronted with this issue, it is best to start with the governing documents (articles of incorporation, bylaws, declaration, and rules and regulations, and any amendments thereto) to determine if a provision applies to the present situation.

The declaration typically provides for access to a unit upon advance reasonable notice to the owner/occupant. Or, in the event of an emergency, immediate access is authorized.

What constitutes “reasonable notice,”or what form of notice must be provided, may not be defined within the declaration, however. To avoid any confusion, the board should adopt additional rules and regulations that are not inconsistent with the terms of the declaration, which provide further clarification as what constitutes “reasonable notice” (i.e. 24 hours) and the methods by which notice may be provided (i.e. written or verbal notice, by email or letter,).

If the governing documents do not shed any light as to whether the association may access a unit, then the Act will authorize the access if the association is subject to it. The Act provides: The association shall have access through and into each unit for purposes of performing maintenance, repair or replacement for which the association may be respon-

sible. The association and any public safety personnel shall also have access for purposes of abating or correcting any condition in the unit which violates any governmental law, ordinance or regulation, which may cause material damage to or jeopardize the safety of the common interest community, or which may cause a health or safety hazard for occupants of units.

Minnesota Statutes § 515B.3-107(b) In the absence of similar language in the governing documents, the language in Section 515B.3-107(b) provides the authority for the association to access any unit to perform maintenance or to deter or correct existing violative conditions to prevent damage to the association property or which may endanger the health or safety of the members of the association.

It is impossible to list all possible scenarios in which access may be appropriate. An example of such a situation is where there may be a need to winterize a vacant unit. If an association is left with a vacant unit (due to foreclosure or abandonment of the unit) winterization may be prudent to prevent damage to other portions of the property.

In a foreclosure situation, if the owner is no longer living in the unit and the redemption period has not expired, the association should first attempt to contact the unit owner to provide reasonable notice of its intent to access the unit to winterize it. If there have been good-faith, but unsuccessful efforts to contact the unit owner, the association has the authority to winterize the unit and assess the costs thereof against the unit if governed by the Act, or if the declaration authorizes the association to do so. Similarly, if the redemption period has expired and purchaser at the foreclosure sale failed to winterize the unit after reasonable efforts have been made to contact the purchaser, the association may access and winterize the unit and assess any reasonable costs incurred against the unit.

The question becomes harder to answer when the reason access is desired is to evaluate whether there is, in fact, a condition that may endanger other residents’ health or property. For example, the problem of hoarding has gotten more attention recently, and it can be a real threat to the safety of a common interest community. It can create a fire hazard and an impediment to escape that jeopardizes the owner himself, while the risk of a unit full of flammable materials that may fuel a blaze creates obvious danger for others. In other cases, perhaps an owner has been observed to behave erratically, or is reclusive, and there is concern about her competence to maintain safe behavior.

But, can a community association enter a unit of a suspected hoarder to evaluate the potential threat, or can a high-rise condominium require owners to permit regular inspections even where there has been no report of a potential danger? Where there has been no report of an actual problem, there may be alternatives that help enhance the board’s credibility and influence in performing safety checks. For example, the association might enlist the assistance of the local fire official to perform an inspection for the presence of appropriate smoke and/ or carbon monoxide detectors. While in the unit, the official can evaluate other conditions that may affect the safety of the unit or the occupants. This has an added benefit of allowing the board and management to stay out of the business of evaluating matters they are not trained to evaluate – such as fire safety and health concerns.

However, before accessing any unit, the association should review its governing documents to determine what provisions, if any, apply to the present situation and if the association is governed by the Act. Reasonable efforts to contact the owner of the unit should always be made and documented in writing prior to accessing any unit for any purpose, except in an emergency situation if the health and safety of the members of the association is threatened. In a nonAccess or Excess continued on page 16

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Minnesota Communit y Living

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Minnesota Communit y Living

Stick to Your Guns continued from page 6 ments just to harass the board or to seek evidence to support a lawsuit against the association. Rather, the purpose must be reasonably related to the collective interests of the members of the corporation. If an owner does request the association’s documents, the association may charge certain reasonable expenses associated with the production, but MCIOA does impose some limits where it applies.

Beware of conflicts of interest on the board. If a board member has an interest in a contract, transaction, or other matter (or perhaps a personal connection to the enforcement action to be taken), the affected director should not be present at the meeting where the matter is discussed. The remaining directors should decide the matter. If the remaining directors are unable to establish a quorum, their vote must be unanimous.

Interacting with the adverse homeowner.

Keep your communications short and focused on communicating the nature and basis for the believed violation, or in gathering information from the owner. Written communications are preferable; where that is not possible, try to ensure at least two members of the board are present. Consider also whether you plan to keep confidential the identity of another owner who reported the violation. You may have to explain to the reporting owner the need to reveal the source of the complaint to allow the responding owner an opportunity to address the allegation, or risk weakening your ability to substantiate the need for enforcement activity.

Take the moral high ground in all your dealings regarding a violation. Don’t use insults or sarcasm. A judge may one day read or hear what you say. And if you take matters too far you might give rise to a claim for defamation.

If a homeowner is hounding the board, consider establishing these protocols through new rules: direct that concerns to be addressed by the board should be submitted through management; concerns should be expressed in writing; properly- and timelysubmitted concerns will be addressed by the board at the next regularly-scheduled board meeting; and, if necessary, owners may be directed not to communicate with the board by any other means. If the unit owner is becoming abusive or threatening and will not follow the alternatives provided for communicating Stick to Your Guns continued on page 16

Minnesota Legislature Considers Bills Threatening Community Association Enforcement The topic of enforcement for community associations is one that has gained the attention of the Minnesota legislature, though not in a positive light. Companion bills in the Minnesota House and Senate (Senate Bill 926; House Bill 1254) could significantly limit community associations’ ability to regulate aesthetic appearance and to exercise meaningful enforcement options. The bills were first introduced during the 2011 legislative session, and since that time have been amended to reduce significantly the detrimental impact on community associations, but they still retain some problematic provisions.

The most significant change the pair of bills would impose in their current state is to reduce the effectiveness of fines. One of the reasons fines currently have a strong deterrent effect is they constitute a lien against the unit against which they are assessed. These bills would remove fines from the list of assessments that constitute a lien, meaning they no longer may be enforced by a foreclosure of that lien. This would mean associations may only collect a fine by commencing a lawsuit; even though the time and expense of litigation was precisely what remedies such as fines were designed to avoid. Consequently, fines would be rendered much less effective, although community associations may be able to preserve some of their effectiveness in at least a couple different ways depending upon how they apply fines.

The bill also would impose prohibitions (subject to certain exceptions) against community associations’ regulating: (1) political signage in a townhome or single-family home development during certain times leading up to an election; and (2) the installation of flag poles if the association is comprised of detached, single-family homes. The exceptions would allow the association to restrict these two items to the area to which the owner or tenant has exclusive use, and to a size customarily displayed on residential property. Associations would also be able to regulate whether and how the signs and/or flagpoles may be illuminated.

The good news is the House Civil Law Committee, which heard testimony regarding the bill on February 15, 2012, opted to pass along the bill to the House Commerce and Regulatory Reform Committee for further review without recommendation. The Civil Law Committee clearly was influenced by the testimony of several community association managers, board members and attorneys expressing concerns about the negative impact of the bill on the proper operation of community associations. So this bill is weakened but not yet dead. If you have not done so already, you should consider contacting your local legislators and letting them know your own thoughts and concerns regarding these bills.

May | June 2012

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Stick to Your Guns continued from page 16 concerns to the board, you might consider getting the court involved.

• Assembled information from any other

Judicial intervention.

Give peace a chance. Although you may have the right to recover your attorneys’ fees, there’s no guarantee the court awards you all of them, or that the owner can pay them. More importantly, you probably will still be neighbors at the conclusion of the dispute. But if you can’t resolve the dispute amicably, then you should have followed the above provisions to ensure you’re prepared to go to court.

•

The association’s remedies may include seeking a money judgment or seeking an injunction. Consider whether and how you might go about recovering your attorneys’ fees, and whether the owner may be entitled to an award of fees if you lose. Also consider that a lawsuit may trigger a counterclaim.

The owner doesn’t have to be right to make life difficult. You should be able to tender the defense of any counterclaim to the association’s insurance carrier, but there are a few exceptions to coverage in many policies.

Also, even if the claim is covered by your insurance, reporting the claim may increase the association’s insurance premiums.

By the time you reach the decision to involve the courts, you should have done the following:

• Identified the provisions of the govern-

•

•

owners who can verify/attest to the violation; and Approved the litigation by a vote of those members of the board who do not have a conflict of interest relating to the dispute.

ing documents, rules or statutes that have been violated and notified the owner of the alleged violation; Sent any required notice to the homeowner and otherwise complied with the governing documents concerning fines or opportunities to cure the violation; Compiled any evidence such as written communications from the owner in which he or she admits the violation or otherwise makes statements against his or her interests;

Other means of controlling offensive behavior.

If a homeowner becomes belligerent or threatening, and you’re concerned suing them will take too long, there are criminal law enforcement options you may wish to consider. Those options include: obtaining a restraining order for harassment; or seeking

Access or Excess continued from page 12 emergency situation, if reasonable notice is provided and the unit owner prohibits the association or its representatives from entering the unit, the association should obtain a court order authorizing it to access the unit to avoid a claim by the owner against the association that the access was improper or caused injury to the owner or the owner’s property.

not establish an attorney-client relationship.

Readers are urged to speak with a qualified attorney focusing on community association law when making decisions regarding a specific legal issue. Contact: sbennett@tn-law. com, 952.835.7000

Note: The information in this article is provided solely as general information and not as legal advice. Your receipt, and even your use of this information, does 16

Minnesota Communit y Living

to prosecute an owner for criminal stalking, obscene or harassing telephone calls, repeatedly mailing or delivering by other means communications intended to abuse, disturb or cause distress to another person, and/ or criminal defamation. However, once the police are involved, you will lose some control, and ultimately the decision to pursue the matter will belong to the prosecuting attorney.

Effective enforcement requires fairness, consistency, and vigilance. But it isn’t just about what you do after a violation is reported.

Following the procedures and suggestions in this article should lower your stress and give you a plan for seeking a successful outcome.

Note: The information in this article is provided solely as general information and not as legal advice. Your receipt, and even your use of this information, does not establish an attorney-client relationship. Readers are urged to speak with a qualified attorney focusing on community association law when making decisions regarding a specific legal issue. Contact: mdrewes@tn-law.com, 952.835.7000

May | June 2012

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A Meeting Primer continued from page 10 the board may call a special meeting of the association membership to take the vote on the proposed documents rather than waiting until the next regular meeting, which may not occur for months.

What business can be conducted at a regular meeting?

The agenda of a regular meeting is quite flexible. As most association members know, the final item on most agendas is “new business.”

New issues and questions or concerns of homeowners are often addressed under “new business.” In general, any business “properly before the forum”—business that appropriately considered by the group holding the meeting—is business that may be conducted at a regular meeting.

What business can be conducted at a special meeting?

One of the limitations of any special meeting, whether that of an association or a board, is that the only business that may be conducted at that meeting is the business noted as the purpose of the meeting on the meeting notice.3 By law, the notice of a special meeting must state the purpose of the meeting, and the business conducted is limited to that stated purpose. So, if, for example, the notice of special meeting of the board states that the 18

Minnesota Communit y Living

sole purpose of the special meeting is to vote on engaging a contractor to repair damage resulting from frozen pipes, the board cannot deal with budgeting issues at that meeting.

How do committees fit into the mix?

Committees act at the direction of the board of directors, and their members serve at the pleasure of the board. In some associations, the declaration or bylaws set forth a requirement that certain committees be maintained (e.g., nominating committee, architectural control committee). Where no such mandate is present, the board of directors is authorized to establish and dissolve committees and to give such committees direction as to their purpose. Generally, a committee is comprised of a few homeowners (none of whom sits on the board) and one or two directors, who act as liaison to the board and keep the board informed as to the committee’s work.

Typical committees might include nominating committee, grounds committee, communications committee, planning committee, as well as ad hoc committees for special projects.

Committee meetings are not subject to the same notice requirements as board or association meetings. Committees often function much more informally than the board or entire association. Any decisions made by a

committee must usually be approved by the board of directors. It is important that the board maintain oversight of committees so that committees do not exceed their authority and continue to be productive and helpful to the overall governance of an association.

Whether a decision is the board’s to make or the association’s has a significant impact on whether the issue is addressed at a board meeting or an association meeting. Making the wrong choice can have potentially troublesome consequences for an association.

The information in this article is general in nature.

If you need assistance in interpreting your association’s governing documents, particularly as to notice requirements or delineation of items within the board’s authority and those reserved to the association membership, contact an attorney well-versed in community association law.

1 These powers are those that are typical for an Association board of directors. However, readers should consult the governing documents for their association to determine the extent of the power of the board of directors for their association.

2 See Minn. Stat. Section 515B.3-103(g). Note, however, that MCIOA does not govern every association, so the mandates of MCIOA may not apply to your association.

3 It is possible to conduct additional business, but generally, doing so requires consent of all members of the body holding the meeting—not just those attending the meeting.

Getting the Right Insurance Coverage for Your Volunteers From RJF, a Marsh & McLennan Agency LLC Company

M

any community associations have volunteer committees and volunteer homeowners offering their time to serve their communities. From landscaping to libraries, volunteers increase community connectivity, and their involvement contributes to making the association a place everyone is proud to call home. A question that often arises, though, is whether there is coverage for a homeowner volunteer in the event the homeowner is injured while volunteering. To explore this question, there are many different coverages to consider.

Managing to make a

difference 30 years of association management experience Reserve Plans are included in our management program Proactive management, including weekly property visits Smart, expert, professional advice

Workers’ compensation While most associations have a workers compensation policy, workers’ compensation will not cover association volunteers.

In Minnesota, with a few exceptions, an injury is not covered by workers’ compensation unless an employer/employee relationship exists.

General liability If the association is negligent, the homeowner can sue under the association’s general liability. An example would be if the association provides a ladder that is defective and the volunteer is injured. Many injuries do not involve negligence though. There is also a section within the general liability policy called Medical Payments. This section may provide bodily injury coverage for some association volunteer workers, regardless of fault. Typically, medical payment limits for associations average between five and ten thousand dollars.

Personal general liability A homeowner’s personal liability would not provide coverage for the homeowner volunteer because the volunteer, as named insured, is excluded under their personal liability.

Association volunteer stand-alone policies Some associations choose to purchase stand-alone volunteer policies that are designed to bridge the gap. Volunteer policies vary in cost and coverages. Premiums start around $400 and increase based on the number of volunteers, the volunteer activities performed, and the coverages and limits desired. Available coverages include medical and dental, accidental death and dismemberment, sickness, catastrophic injury, and temporary disability.

Before volunteering, association homeowners should know what coverage, if any, is provided by the association under Medical Payments or on a stand-alone volunteer policy. In many instances, there is little or no association policy coverage for injuries sustained while volunteering. Homeowners should consider this and their own personal medical and disability insurance coverage(s) prior to volunteering.

An alternative for the association to consider is controlling the volunteer exposure by transferring the risk to independent contractors and vendors. This strategy is especially important to consider with volunteer activities that have high risk of bodily injury.

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Raising the Bar High

By Tom Engblom, Mutual of Omaha Bank - Community Association Banking & CondoCerts

“I

ain’t settlin’ for just getting by, I’ve had enough so for the rest of my life, Tired of shooting too low, so raise the bar high” are lyrics from Sugarland’s Settlin’. These lyrics have so many applications to the homeowners industry that we are involved in daily.

Recently I was appointed to the National Business Council for Community Associations Institute. As a member, each volunteer is assigned chapters to create a communication conduit between National and the local chapters. Numerous responses were positive while others reflected the urgency for sponsors and volunteers. The organization is invaluable in providing education for membership.

seminars, communicate to the membership, hire professionals in their respective industries, listen to and learn from the professionals, get membership involved so their input is important and discuss with other associations their success stories. In addition, social events such as a community summer barbeque bring the membership together in a relaxed atmosphere. Leadership and a sense of belonging to the community inspire 100% environment. The first and last breaths are not important. It’s what’s in between, and the same holds true for being a member of an association.

I don’t have a resolution for the Pareto Principle related to your association, but I do have numerous suggestions to reaching an environment of 100% participation.

It’s not about being flashy; more, it’s the ability to inspire people to follow leaders because they trust them. Create committees for the association, attend educational

Sometimes you have to lose before you win.

You can raise the bar for your association by leading your membership to the next level of expectations for your association.

C

bS

Recently I received training wherein the instructor reiterated the Pareto Principle, which I have studied in the past. Vilfredo Pareto, an Italian economist, in 1906 de-

termined through observation that 80% of the land was owned by 20% of the population in Italy. Vilfredo applied the same application to his garden, where 20% of the pea pods contained 80% of the peas. The Pareto principle is directly correlated to the association industry; in fact, the blueprint (I believe) was taken from the Principle.

The 80/20 Rule (common knowledge to salespeople) is something that many associations must overcome: Typically 20% of the membership or board does 80% of the work-creating overwhelming tasks and burnout for association volunteers.

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Minnesota Communit y Living

763.544.3366

Self-Management Series

Self-Managed Association Boards: What Gives Way When a Board Does not Know the Basics

By Joel Starks, President, Sharper Management

I

n this series we are focusing on you, the board member, and the challenges you face each day when running your homeowners association. We are exploring the challenges of self-management and ways to work through them. This series will answer questions from readers. If you see something that seems common or you identify further challenges, email joel@sharpermanagement. com. I will add your comments and feedback as the year goes on.

Bored with the norm How active are you in your association? Are you someone who simply trusts that the elected board members are exercising sound, fair judgment?

Board members and owners, speak up!

1. Deferred maintenance: When should it be fixed, replaced or maintained?

2. Trusting a board: Get involved and go to meetings.

3. Contracts: Not just for their sake but yours as well.

4. Board fraud: Boards make mistakes, but what if?

5. Agendas and announcements: Where do I find out info about meetings?

In the Rights and Responsibilities for Better Communities (RRBC), a document published by the Community Associations Institute, homeowners have the right to “participate in governing the community association by attending meetings, serving on committees and standing for election.” And they have the responsibility to “read and comply with the governing documents of the community” as well as “treat association leaders honestly and with respect.”

Self-managed boards sometimes lack depth of involvement and are more focused on immediate needs. In reality, lack of involvement can have negative long-term effects.

Each homeowner should get involved in the association in some way. It is hard to be upset with the norm if you aren’t helping to shape your community. Join a committee or simply volunteer to go on spring and fall inspections. Help spread the work out.

Some homeowners are left thinking that there is something underhanded going on or someone on the board is doing things that

would be considered illegal or even criminal.

Use the meetings to gain trust and learn their point of view. Someone has to do it.

Why not you?

Be the leader There are best practices and duties for board members. The RRBC notes that leaders have the responsibility to “fulfill their fiduciary duties to the community and exercise discretion in a manner they reasonably believe to be in the best interests of the community.”

Most self-managed boards entrust the majority of the duties of the association to a small percentage of active members. This group is often referred to in negative ways and sometimes can seem controlling. That is usually not the group’s intention, nor should it be. Many board members struggle to work 40 hours a week and then continue working into evenings, weekends and holidays as association projects pile up and members request more of them. They burn out or finally just move.

Be considerate of these folks and be a leader with them. Thank them when the lawn looks good, and understand that being a board member is a bigger responsibility in self-managed communities.

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Minnesota Communit y Living

Member News Congratulations to everyone below who has received a designation over the past year!

AMS Paul Lawson, Gittleman Management Corporation Kathleen Meyer, Cities Management, Inc. Crystal Pingel, Cities Management, Inc. Debra Bremer, Gassen Company, Inc. Jane Bristow, Gittleman Management Corporation Dawn Richardson, Gittleman Management Corporation Sher Trombley, Gittleman Management Corporation Stana Gerlach, Gittleman Management Corporation Christopher Campbell, Gittleman Management Corporation Cheryl Hoiosen, Cedar Management, Inc. Jared Lawrence, Omega Management, Inc. Kathryn Grutzmacher, Gittleman Management Corporation Benjamin Fotland, Omega Management, Inc.

CMCA Bryan Dorr, Wright Management & Real Estate Services Charles Krumrie, Urbanwood, Inc. James Rosvold, Cedar Bluff Townhome Condominium Association, Inc. Cheryl Hoiosen, Cedar Management, Inc. Jared Lawrence, Omega Management, Inc. John Tracy, Community Development, Inc. Jennifer Pingel, Cities Management, Inc. Joel Starks, Sharper Management, LLC Kathryn Grutzmacher, Gittleman Management Corporation Elin Michel-Midelfort, Gittleman Management Corporation Nicole Bjerke, Gittleman Management Corporation Kim Rademacher, Marketplace Management, Inc. Han Tran, Gittleman Management Corporation Kathleen Baerthel, Gittleman Management Corporation Michele Lindgren, Gittleman Management Corporation

Congratulations Crystal Pingel and Family!

Crystal Pingel of Cities Management gave birth to Preston Reid on April 27. Weighing in at 7lbs. 8 oz. and measuring 21 inches, the little guy was anxious to arrive into this world and surprised mom at exactly 36 weeks. Congrats to Crystal and family!

Dale Culver, Gittleman Management Corporation Angela Zembrycki, Community Development, Inc. Royce Pavelka, Gittleman Management Corporation CIRMS Tracey Lund, RJF Agencies, Inc.

Traci Lehman Named President of Cities Management Cities Management, Inc. promoted Traci Lehman to President.

Traci has nearly 11 years experience in community management. She holds designations as a Certified Manager of Community Associations (CMCA), Association Management Specialist (AMS), and a Professional Community Association Manager (PCAM.) Traci is President-Elect for CAI-MN, beginning her role as Chapter President in June 2012.

Congratulations, Traci!

Crystal, Nate, Payton, Parker and baby Preston

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Reserve Studies Minimize Liability

By John P. Poehlmann, Reserve Advisors Inc

T

hese days it seems that boards are being barraged by many issues that weren’t even considered only a few years ago. Lawsuits and claims of financial mismanagement take place on a daily basis. They are at best a nuisance, and at worst very costly and stressful. Over the years, homeowners volunteered to serve on the board because they had expertise and skills from professional careers that were applicable to the association. Examples include attorneys, accountants, and engineers.

Boards comprise people with these skills as well as other owners who are simply concerned about protecting their most important investment – their home. This approach generally worked well in the early years of the association industry. Today, however, community associations are being managed more like a business with the help of outside consultants such as attorneys, engineers, and accountants who specialize in community association property. One example is planning for future capital repairs with an adequate reserve fund.

Now more than ever, associations are using the services of independent engineering firms that specialize in 30-year reserve studies. A professional reserve study determines accurate, supportable annual reserve contributions necessary for the repair or replacement of common property as it wears out over the development’s life.

Professional reserve studies are designed to eliminate special assessments by ensuring that sufficient funds are available when property components need to be repaired or replaced.

Elimination of special assessments offers peace of mind to owners and reduces claims of financial mismanagement.

Why are community associations being managed like businesses?

Homeowners view their home as a financial investment that they expect to appreciate in value. More important, associations are increasingly emulating business management because of the fiduciary nature and responsibility of association boards.

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Minnesota Communit y Living

Lawsuits and claims of financial mismanagement have driven state governments to protect citizens who are a part of community living. Regulatory pressure from state governments has increased dramatically in recent years regarding the fiduciary obligations of boards and managers.

Also, board members can be subpoenaed in litigious situations years after leaving the board to testify regarding accusations of mismanagement. Even the American Institute of Certified Public Accounts (AICPA) has guidelines that specifically address community associations and the funding of reserves.

Examples include licensing and certification of property managers and more state legislation. These laws are designed to ensure that associations are reserving appropriate levels of funding for common element replacement.

Some state statutes call for “reasonable” or “adequate” reserve funds, while others such as Michigan require that the association “shall maintain a reserve fund which, at a minimum, shall be equal to 10% of the association’s current annual budget on a noncumulative basis.” While regulations vary from state to state, there is a strong trend toward more legislation rather than less.

The AICPA Audits of Common Interest Associations clearly states that the association’s “primary duties are to maintain and preserve the common property.” “Inadequate funding for future major repairs and replacements may adversely affect the ability of owners to sell or refinance their units, because of the concerns of prospective buyers or the banks which can lead to difficulty in obtaining mortgage financing.”

The purpose of condominium related legislation is to protect current association members and prospective buyers, and to ensure that the association is properly managed. Questions of fiduciary responsibility date back at least as far as the early 1980s in California case law with the landmark Raven’s Cove decision, which discussed the fiduciary responsibilities of directors of a nonprofit organization, namely, the association. On January 20, 1981, The Court of Appeal, Taylor, P.J., held that: “...Where owners’ association’s original directors... failed to exercise their supervisory and managerial responsibilities to assess each condominium unit for an adequate reserve fund ... Former directors of the association breached their fiduciary duty and were individually liable to the association for said breach...” Thus, important case law came into being which affects the individual liability of condominium directors and officers. One may wonder what his “fiduciary duties” are or “why should I be concerned if I am covered by D&O liability insurance?” As a director of a community association, your actions (or inactions) have an impact on your and the members’ financial well-being now and in the future. Your association’s insurance premiums could escalate as a result of D & O litigation.

The AICPA audit guidelines require disclosure in the financial statements about an association’s funding for future repairs and replacements. If the disclosure about an association’s funding for major repairs or replacements is inadequate, the auditor will modify his or her report. In other words, the association will receive a qualified audit.

Qualified audits raise many questions on the part of prospective buyers, and particularly, their lenders.

Association boards are becoming more sophisticated in the way they conduct association business. Sound business decisions for the future cannot be made without a reliable snapshot of where the organization is now, as well as where it’s planning to go.

Boards and management companies alike look to firms specializing in reserve studies for an independent, accurate projection of future capital repair costs. The reserve study becomes the blueprint that the current and future boards will rely on with complete confidence to fulfill their fiduciary responsibility.

They’ll be assured fewer claims of financial mismanagement because they invested in independent, expert advice.

John P. Poehlmann is a co-founder and principal of Reserve Advisors Inc. He can be contacted at 800-221-9882.

May | June 2012

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