Best way to update the CCR and By Laws

Started by DennisG7 • 15 replies • 1179 views

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DennisG7 (Georgia)
Posts: 155

Posted:

Our 17+ year old CCR's and By Laws have never been updated or amended. Much of it can be used but we see areas that should be "freshened up" before they be put to a vote by our HOA. Any ideas or suggestions on what works and what doesn't? Use an attorney? Form a working group to review? Thanks for your thoughts.
DennisG

GwenG (Florida)
Posts: 669

Posted:

Recommend training mode to begin with. Have a community meeting about "changes" to governing documents and why it is a good idea (in theory). If there is anything you think needs to be changed, put the issue out there for discussion and questions. Begin with relatively benign, non-controversial issues on ballots first and get members to get used to checking those YES boxes!

For controversial issues, suggest isolating them and not embedding several changes on one ballot. One controversial item can taint the entire mood of the ballot and cause defeat for other changes that are not controversial. This happened to my HOA. People were p***** about one issue and voted NO on everything.

Keep in mind the old adage "If it ain't broke, don't fix it". More than one association has attempted a change and regretted opening Pandora's Box. (Yep, you guessed it, my HOA again! Result: 2 lawsuits)

Also recommend you not fool with "nice but not necessary" changes such as changing references from "Developer" to "Association". You also do not need to make changes to conform to state laws as the state laws will trump the governing documents unless the State law says otherwise. This means the MC and board will have to "keep up" with legislative changes and mark governing documents for referral to law.

It is expensive (legal costs) to make changes and they should be kept to an absolute minimum.

KerryL1 (California)
Posts: 14,550

Posted:

Gwen makes sense, Dennis. You might be able to do a lot of it yourselves, but You'll most likely want an attorney eventually to make sure everything is legal.

What size HOA are you? Do you have a lot of amenities? How long are your existing CC&Rs? bylaws?

What % approval do you need for each document?

DouglasK1 (Florida)
Posts: 2,045

Posted:

Quote:

Posted By KerryL1 on 10/11/2017 1:18 PM
Gwen makes sense, Dennis. You might be able to do a lot of it yourselves, but You'll most likely want an attorney eventually to make sure everything is legal.

Absolutely, if the changes are ever challenged in court, you don't want them to end up being unenforceable because of some verbiage issue because it was a DIY project. Not to say attorneys are perfect, but if you find one that is familiar with HOA law and CCRs, they are more likely to get it right than laypeople are.

Escaped former treasurer and director of a self managed association.

DennisG7 (Georgia)
Posts: 155

Posted:

I very much appreciate your comments. We have considered doing much of what has been suggested: form a working group to review and highlight all portions of the CCR's & By Laws that we feel needs to be updated or modified, hold a series of meetings with the members to garner input and suggestions, propose and draft language for changes, send to an attorney for review and comment, provide copies of the "revised documents" in both hard copy and on line for review by membership, vote on the revised CCR and By Laws.

Our HOA is 189 single family homes. Price range is $300K-$400K. We have a swimming pool, 4 tennis courts, playground, basket ball court, open air pavilion and a club house. Annual income is $80K from dues only.

Hope to move this project along with a new HOA BOD in January.
Thanks for your ideas and suggestions.
DennisG

GenoS (Florida)
Posts: 4,276

Posted:

Dennis, we attempted just that over the last year. We examined about 10 areas of concern that were identified in our documents by our HOA attorney a number of years ago. We first came up with an amendment to our pet and animal restrictions (under nuisances). That amendment is only 2 pages long and will go before the homeowners in January for a vote, assuming the board approves it first, which is not guaranteed.

We did all the heavy lifting on the amendment. Soliticted homeowner input, held 6 meetings (!) just on the pet restrictions, surveyed about a dozen other HOAs in the area to see how their animal/pet restrictions were written, and came up with new language. Then we sent it to our HOA attorneys for comment, review, and preparation of the actual amendment text and board resolution. $3,800 later we stood down from any further work on amendments. We've only scratched the surface of amendments that really should be done, but the perception - which I share - is that the attorneys want to milk this process. With the number of changes we want to make we estimate a $50,000 legal bill in all, which we're not going to spend. Not with the current HOA attorneys, at least.

We could write the amendments ourselves, but the Florida Bar Association recently petitioned the state Supreme Court for a ruling on what constitutes the "Unlicensed Practice of Law" in the state, and one of those things is:

"Drafting amendment (and certificates of amendment that are recorded in the official records) to a declaration of covenants, bylaws, or articles of incorporation when when such documents are to be voted on by the members."

The threat of being accused of UPL has been enough to scare the document amendment committee off the idea of drafting the amendments ourselves. So here we sit. Maybe some day we'll find a more cost-efficient attorney, but until then, just as 2 other amendment committees before us have done, we're standing down.

Good luck. Our committee put in a lot of hours before we had a good idea of the legal costs involved, and now we're shelving most of it.

DennisG7 (Georgia)
Posts: 155

Posted:

Thank you for your comments and insight. I am rethinking this issue as to how best to "update" portions of the CC&R and By Laws. Because the Developer did not include language in the original documents we have some issues that allow the BOD to do much of what they want with no oversight or approvals. An example is taking nearly 50% of our reserve fund to build something new and then having to use more of it because the contractor really mucked it up. There is no language that discusses the reserve fund use for new construction or approval procedures.

Another is that after 17 years of existence and taking in nearly $2,000,000 in dues the HOA accounts have NEVER been reviewed or audited. Not once in 17 years. There is no provision for them to ever be checked. Our budget documents have some serious holes in them. When I have asked how our utilities bill is the same every month I never get a response. The electric and gas company payments are not set up for billing the same amount. Some budgeted items have NO information provided for months.

The Tennis Committee is allowing "non HOA" members to use the courts and even to join teams but they are not billed anything for use, practice sessions and they even have " non HOA instructors" charging for lessons. The instructors use the facilities, collect for instruction fees and then go back to their community. In some cases, they are not teaching our HOA members.

Don't misunderstand me. This is not sour grapes or some vendetta. We have a number of issues that are not covered or addressed in either the CC&R or the By Laws. Recently we had a couple of people flying drones around peoples homes and looking around them (in windows). Another guy used his drone to hover above the pool area using his camera to get a closer look at the people sunbathing. It would seem like some sort of rule might be published to correct these things but I've been told it's "not allowed". The county has no rules in place to address this issue.

Anyway, as I and others have read the CC&R and By Laws we see a few things that need to be freshened up. Sometimes just by adding a sentence or a word. I've looked at a few other CC&R's and By Laws from newer HOA's and have spotted some good ideas and language in them. I agree with the "if it ain't broke don't fix it" adage. I'm just exploring some updates like getting approval for members before spending nearly $50K (that's over half our budget) on a shade pavilion or requiring periodic financial reviews or an audit of our books. The treasurer will not certify anything is correct on the budget...there is no written requirement to do so. Good grief.

I'll take your comments under advice. Thank you very much for your insight.
DennisG

GwenG (Florida)
Posts: 669

Posted:

@Geno You wrote:

We could write the amendments ourselves, but the Florida Bar Association recently petitioned the state Supreme Court for a ruling on what constitutes the "Unlicensed Practice of Law" in the state, and one of those things is:

"Drafting amendment (and certificates of amendment that are recorded in the official records) to a declaration of covenants, bylaws, or articles of incorporation when when such documents are to be voted on by the members."

I am curious about this. As I recall, there was a brouhaha about CAM's "unlicensed practice of law" when conducting business for others, for compensation, outside a defined licensed scope of practice. Is the petition you refer to a more "global" demand to extend protections to attorney territory against ALL persons (unlicensed or not, paid or not)?

Board members do not get paid to offer legal advice ie draft amendments to private documents. Such a prohibition would be a bit of an overreach IMO. Can you direct me to the Petition you referred to?

DennisG7 (Georgia)
Posts: 155

Posted:

Wow. I am not aware of any such law or legal opinions in GA that addresses this. It seems to me that contracts and other legal documents (wills, etc) can be written by the lay person.

Sounds like one more thing that attorneys want to keep to themselves $$$$. If we proceed down this road I'd fully support the HOA attorney to review and sign off on it. I'd not like something to be tossed out because of an error, poor wording or on a legal issue.

As I mentioned, I would like to clean up things that deal with a long gone developer and add a few things that address some fiscal safeguards. Virtually no language in our current documents discuss members voting on budget, new construction projects, etc. Nor is there anything that requires us to conduct a financial review or audit EVER.

Appreciate your comments.
DennisG

KerryL1 (California)
Posts: 14,550

Posted:

Dennis, does GA have no statutes or laws about HOAs???? In CA HOAs, for instance, annual audits are required with the results sent to Owners 120 days after the start of the HOA's fiscal year.

Another in CA is that reserves may be used only for expenses to repair of replace existing components that are listed in the reserve study. New projects or extreme upgrades of existing reserves components must be funded some other way often by a special assessment. But the amount must be voted on by owners if it exceeds something like 5% of the annual budget.

Also in CA, HOAs are required to update their reserve studies every three years.

Perhaps GA corporations codes can help you a bit.

I think more municipalities are fashioning laws about drones and there might even be federal law by now. That topic probably can be handled by a new rule in your Rules & Regulations, which probably are fairly easy to change if like most HOAs.

Re: your tennis courts, it seems very risky to let non-members of your HOA use it. I don't know much about such things, but I'd worry about liability issues. I do think you can add rules to cover who may use the courts without changing your CC&Rs. Might want to check with your HOA's insurance agent.

Because your HOA is relatively complex, I'm thinking a meeting with an HOA attorney is a good idea before you start. No point adding/changing anything that can be handled, maybe easily and certainly more cheaply, by lower-level documents like Rules & Regs or, perhaps, Architectural Guidelines if you have any issues along those lines.

GwenG (Florida)
Posts: 669

Posted:

I looked up the Supreme Court UPL. It is lengthy and does not directly speak to the question: If a board drafts an amendment to one of its own legal documents, is that UPL?"

From what I have read, IMO the answer is no for several reasons. First, the Supreme Court is primarily addressing lawyers and auxillary legal practitioners to control behavior. Two important criteria are often cited for the rationale on what is UPL: is the activity FOR ANOTHER and is the action FOR COMPENSATION? This closely follows real estate licensing laws, which permit licensed salespersons to make template contracts for others (but not write them). IMO, real estate is dangerous territory for UPL because sales people routinely write-in and strike-out language on templated forms.

The discussion on this subject also makes a distinction between "UNauthorized practice of law" and AUTHORIZED practice of law". It is concerned not so much with the activity of practicing law, but protecting the public against practitioners who hold themselves out to be authorized to practice law and who are not authorized!

It is an interesting question and I would love to know if there has been a case brought against a board for writing covenants. It seems to me, that in the absence of a Bylaw which prohibits this, that the board would have the implied authority to propose language to change its own governing documents. Whether that change can stand up to a potential future challenge is another matter.

Absent a clear case law guideline, I think the deciders should be the Members; governing documents are, after all, a private contractual matter. If members are risk averse and can afford the legal fees, then they can specifically prohibit board members from drafting amendments that could result in a legal skuffle down the road and put the lawyers on speed dial.

If members want to save legal fees and defer to the judgement of the majority, allow the board to have the authority and make the final decision on the ballot.

If the proposed provision involves a vested property right, I would never allow a volunteer board to write a provision. An example of that would be "rental restriction". If it is something administrative, I would be open to the board writing a provision; example "amend the # of directors required on the board".

And it should go without saying, but I will say it anyway "I am not a lawyer and the above is an opinion and not legal advice".

GenoS (Florida)
Posts: 4,276

Posted:

Quote:

Posted By DennisG7 on 10/13/2017 5:58 AM
Recently we had a couple of people flying drones around peoples homes and looking around them (in windows). Another guy used his drone to hover above the pool area using his camera to get a closer look at the people sunbathing. It would seem like some sort of rule might be published to correct these things but I've been told it's "not allowed". The county has no rules in place to address this issue.

Addressing this was on our TODO list. The Federal Aviation Administration has complete authority over the National Airspace System and that includes the airspace over your pool (for instance). FAA regulations on drones are in flux and evolving so it's a twisty area to navigate.

What we were going to do, however, was not attempt to regulate the airspace, but rather the ability of people to launch and recover drones on the property. We were going to (and someday we will) require written permmission from the board to launch or land a drone on the property. Applicants would have to show some evidence of insurance (even for hobbyist or recreational use) and if the flight was for a commercial purpose (requires an FAA license), say by a real estate agent or a roof inspector, then we'd need to get a copy of the license and proof of insurance along with a copy of any video foootage and a non-exclusive license to use that video for any purpose that suited us. Without written permission, no drone could take off or land here.

That wouldn't control drones flying in from the outside, of course, so if a peeping tom from the next neighborhood wanted to fly his drone over our pool then there's not much we can do about it except try to identify the owner and report him to the FAA. They do take that stuff seriously even if the drone isn't jeopardizing anyone's safety.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

As Gwen said:

It is an interesting question and I would love to know if there has been a case brought against a board for writing covenants. It seems to me, that in the absence of a Bylaw which prohibits this, that the board would have the implied authority to propose language to change its own governing documents. Whether that change can stand up to a potential future challenge is another matter.

I advise any changes be done by attorney to be able to withstand any future challenge

My BOD is in favor of a major Covenant change but I have said we must talk to our attorney to be sure we can do such before we go any further.

GenoS (Florida)
Posts: 4,276

Posted:

Quote:

Posted By DennisG7 on 10/13/2017 12:22 PM
Sounds like one more thing that attorneys want to keep to themselves $$$$.

Yes, that's my exact take on the situation.

Gwen, the petition did specifically refer to providing legal advice "for compensation" (link at the end) and was obviously put together for the purpose of stopping PMs and CAMs from intruding on the lawyers' turf. But there's also some pretty strong language in it that implies it would only take a very slight adjustment in logic to apply the reasoning to everyone, paid CAM or not.

For instance, "In the 1996 opinion, the Court held that the drafting of documents which determine substantial rights is the practice of law. The governing documents set forth above determine substantial rights of both the community association and property owners. Consequently, under the 1996 opinion, the preparation of these documents constitutes the unlicensed practice of law."

Saying that we're doing it on a volunteer basis (none of us are lawyers) might insulate us from a charge of UPL. Odds are no one would challenge self-written amendments anyway, but you never know.

There are other opinions online that echo the same concerns. This one, from Tennessee, says, "When you consider amending your documents, be advised that your association should have legal representation. The documents being amended will impact your development for years to come. Whether you are aware of it or not, small changes in your governing documents may have significant impacts in how your Association operates."

I think it's a lot of bluster, myself, but when a vote is held and a homeowner speaks up and asks, "Is this legal for us to do by ourselves?" I think I wouldn't give my opinion because I don't know for sure.

Here's the link for the 2015 Florida Supreme Court Advisory Opinion. http://www.floridasupremecourt.org/decisions/2015/sc13-889.pdf The opinion discusses the petition in detail.

GenoS (Florida)
Posts: 4,276

Posted:

Quote:

Posted By JohnC46 on 10/13/2017 6:29 PM
I advise any changes be done by attorney to be able to withstand any future challenge.

It's an interesting question. Back in 1995 when the first homeowner board wanted to amend the CCRs the original HOA attorney did the paperwork and said in a letter that, "You know, you people can make these changes yourself." That was before the state supreme court issued the first advisory opinion in 1996.

I think we could draft some of our own amendments without any trouble at all. The question is whether or not the risk is worth it, even if the risk is tiny.

GenoS (Florida)
Posts: 4,276

Posted:

One last point that frosts my onions. In this Q&A column published in Ft. Meyers five years ago, attorney Joe Adams, who's with a very large HOA and Condo law firm in FL, says (on page 2),

"The projected cost depends on how extensive the amendments are. It can involve anywhere from an hour or so of attorney’s time for a simple amendment, to several thousand dollars if you are completely updating your governing documents."

This is either a joke or our HOA attorneys took us for a ride (our attorneys are NOT the ones the article author works for). The amendment they prepared for us is less than two pages long and half of it is the crossing out of the existing language. It doesn't get much simpler than that. They invoiced us $3,800 for 16 hours of work on a drop dead simple amendment. They made one slight change in wording from the language we provided them to work with.

I'm confident we'll be changing attorneys in the near future. Most of the board thinks what they charged us was outrageous.

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