New Washington Nonprofit Corporation Act Took Effect on January 1

A new comprehensive law governing Washington nonprofit corporations took effect on January 1. Condominium and homeowners associations located in Washington state that are organized as nonprofit corporations are required to comply with that new law except to the extent that the other statutes applicable to them take precedence over it. The most important portion of that new law from their perspective pertains to records retention and production.   

The new law contains an extensive list of records that must be kept, including governing documents (articles of incorporation, covenants, bylaws, and rules), minutes of all meetings of the members and of the board, all records produced by committees, records of all actions taken by unanimous consent, all communications with members that are in the form of a record for the past six years, a list of the names and addresses of the directors and officers, the most recent annual report, appropriate accounting records, and a record of all members that contains their names and addresses and the number of votes that each of them possesses.

The new law establishes that all members of a nonprofit corporation have the right to review its records. A member who wishes to do so must deliver an executed notice describing in detail the records that they want to review to the corporation at least five days before the date on which the member or their agent seeks to review the records. The member must be acting in good faith and for a proper purpose, and the requested records must relate directly to that purpose. Certain records may be withheld by the corporation, including attorney-client or work product records, confidential addresses, records that would cause harm to the corporation if they were disclosed (such as disciplinary proceedings) and records required to be kept confidential by law or an agreement with a third party. 

The new law permits nonprofit corporations to provide records to members in either a tangible form or an electronic form. If records are provided in a tangible form, then corporations are permitted to charge reasonable fees that do not exceed the cost of reproduction.    

The entire new law can be reviewed here. 

The Benefits of Working with a Solo Attorney

Community association boards have the option to work with either a solo attorney or a firm composed of two or more attoneys. Many boards decide to work with a solo attorney due to three significant benefits that are unique to that situation. First, they know that the same experienced and knowledgable attorney will be providing them with legal guidance in all matters. A firm, on the other hand, can assign different attorneys with varying levels of experience and knowledge to them depending on the type of legal service that they request. Second, they know that the attorney-client relationship will have continuity in terms of rapport and history. A firm, on the other hand, can assign different attorneys with varying communication styles and limited information about past matters to them, and those assigned attorneys may not remain with that firm for very long. Third, they know that they will save money over time because a solo attorney has lower overhead expenses than a firm and will not need to periodically familiarize themselves with previous matters as new attorneys at a firm will be required to do. Given these benefits, your board should consider working with a solo attorney in the future.     

Cultivating Thankful Owners

Community association board membership can be thankless and stressful work. Owners often do not appreciate their board because its work is not perceived or poorly understood. The board is usually only contacted by owners who have a problem concerning their property or a complaint about how the association is being managed. The board must sometimes endure unfair criticism and even litigation relating to its decisions and to issues facing the association that are out of its control. This can make it difficult to attract and retain new board members with useful skills and good judgment.

The board can minimize these difficulties by regularly communicating with the owners regarding its contributions to the community. The board should describe the specific ways that each board member and the board as a whole has benefited the association. For example, board members who have volunteered their time to find the best contractors, to provide bookkeeping services, or to organize community events should be publicly thanked in an email to all of the owners and at the annual meeting. Owners who know the ways that the board has served them are less likely to express harsh attacks and more likely to give the board the benefit of the doubt. They might even feel gratitude towards the members of the board for their service.

Happy Thanksgiving to all of the community association board members who generously volunteer their time to make a positive impact in their communities.

Does Your Condominium or HOA Budget Provide for Legal Expenses?

Some condominium and homeowners associations' annual budgets do not include funds for legal expenses that may be necessary during the year.  However, most associations' boards have questions about the requirements of their governing documents and state law from time to time.  Those requirements are often difficult to understand without legal expertise.  If associations do not provide for legal expenses in their budgets, then they will likely rely on the opinions of persons who, despite good intentions and best efforts, will often lead them astray. Such persons include board members (even if they are attorneys) and property managers. Those associations' boards are also likely to rely on free information (including the information on this blog) that is not applicable to their situations or to misinterpret that information. Since failure to comply with governing documents and state law can have serious consequences for associations, board members, and owners, all associations' boards should at least give serious thought to establishing a legal line item in their annual budgets.

As previously discussed on this blog, all condominium and homeowners associations in Washington state are now required by law to provide each proposed budget to the owners and schedule a meeting to consider ratification of that budget.  A budget is ratified unless owners to which a majority of the votes in the association are allocated reject it. This ratification process must be followed even if an association's governing documents contain a different procedure.

Residential Use Covenant Held to Take Precedence Over Zoning Authorization

The Washington Court of Appeals issued an unpublished opinion concerning the use of real property earlier this month.  The Court ruled that a subdivision's restrictive covenant mandating residential use of property took precedence over a county's authorization for an owner to use its property for nonresidential purposes.  The Court pointed out that "enforcement of public zoning laws and private restrictive covenants are distinct processes" and concluded that "[t]he fact that Jabco obtained approval for nonresidential use of its property through the county's zoming procedures does not mean that it was entitled to disregard restrictions contemplated by private covenant."

Covenant enforcement can lead to costly litigation and significant liability. If your Washington community association becomes involved in a covenant enforcement dispute, then it should consider contacting an attorney with experience in that practice area.