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Instructor 1 – Management CompanyInstructor 2 – CompanyInstructor 3 - Company

This course will familiarize with you with:

• Navigating Records Requests

• Restatement of the Law of Servitudes

• Nonprofit Corporation Act

• Amendment Procedures

• Mandatory Alternative Dispute Resolution (ADR)

• Developer Issues in a Stressed Economy

ARS 33-1258 (Condominiums) /ARS 33-1805 (Planned Communities)

“All financial and other records must be reasonably available for inspection”

Exceptions:

1. attorney/client privileged communications;

2. pending litigation;

3. closed meeting minutes or other closed meeting records;

4. personal, health or financial records of individual members, employees and employees of contractors;

5. job performance, compensation, health records or specific complaints against individual employees or employees of contractors

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Portions of Confidential Documents

1. Documents that are totally confidential

2. Documents with portions that are confidential and portions that are not

Disclosure

• Common Law/Case Law

• Unique circumstances

Case Study Question #1Homeowners request a membership list of the last meeting. Must you give it to them?

Case Study Question #2Case Study Question #2Homeowners want copies of the last two attorney invoices. Must you give it to them?

Case Study Question #3Homeowners want to see the management contracts. Must you give it to them?

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Response Times• ARS 33-1258 and 33-1805 provide that documents “shall be

made reasonably available for examination…” within “10 business days.”

Designated Representatives• See A.R.S. §33-1805(A)

• Documents should be made available to “any person designated by the member in writing as the member's representative”

Requests• The statute does not distinguish between oral and written

requests. • Associations should defer to their governing documents on

this issue.

Case Study Question #4

• A member requests you provide corporate minutes from 1976 to 2010.

• Must this be done within 10 business days?

• How would you handle this request?

• Arizona courts follow Restatements of the law

• Restatement of the Law of Property (Third): Servitudes (2000)

• AZ Supreme Court adopted - Powell v. Washburn (2006)

• Modern rule – Intention of the parties when interpreting ambiguous CC&Rs – not “free use of the land”

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Limitations on Assigning Income as Security

• Section 6.5 of the Restatement

• Associations have power to borrow• Associations have power to borrow

• Assigning future income – Issues?

• Planned Communities v. Condominiums

• Allowed? Vote? Percentage?

Authority to Assess for Insurance?

• Section 6.5 of the Restatement

• General authority to assess to carry out functions even if not in CC&Rsif not in CC&Rs

• Blanket property insurance?

• Depends on the documents

• Silent? If you can insure, you can assess (generally)

Power to Make Alterations to Common Area

• Section 6.6 of the Restatement

• General power to alter common areas except asGeneral power to alter common areas except as limited by Governing Documents

• Power to assign licenses and easements unless rights of members significantly changed

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Power to Adopt Rules Governing Property Use

• Section 6.7 of the Restatement – generally ok

N t d t l t i ti• No power to adopt rules restricting use or occupancy or behavior in units without specific authority in the Declaration

• Wilson v. Playa de Serrano (2005) – no “55 plus” Bylaw amendment (need Declaration amendment)

Judicial Power to Excuse Compliance

• Section 6.12 of the Restatement

Examples of provisions:Examples of provisions:

• Those limiting the amount of assessments• Those requiring that an amendment be approved by

lenders• Those requiring that an amendment be signed by

members• A quorum requirement

Duties of Community Association to Members

• Section 6.13 of the Restatement

• Duty to treat members fairly

• Duty to act reasonably – discretionary powers

Tierra Ranchos HOA v. Kitchukov (2007)Member challenging “bears the burden of proving that the association breached its duty, and if the action is discretionary, the members also has to prove the breach “caused, or threatens to cause, injury to the member individually or to the interests of the…community.”

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Case Study Question #5

• A neighbor of a homeowner in a planned community reports a neighbor has put a shed in his backyard.

• The CC&Rs prohibit sheds but permit doghouses.

• The structure is 6 feet tall but has a doggie door.

• It has a slab and is about one foot over onto common area (the backyard has no fence).

• It’s unclear how long the shed/doghouse has been there.

• The Board wants advice.

• Transfer Fees

• Member Resignation

• Action By Written Consent (of the Members)

A ti B W itt B ll t• Action By Written Ballot

• Cumulative Voting

• Compensation of Directors

• Action Without Meeting (Board)

• General Standards for Directors

Case Study Question #6

• The President of an Association (which is a planned community) wishes to make major modifications to her home.

• She also happens to be one of only two (2) members on the architectural review committeearchitectural review committee.

• Architectural Review Committee has decision-making authority, but owners can appeal any such decision to the Board.

• How does this Association legally and practically review the president’s submission, taking into account possible issues relating to conflict of interest?

• Hint: Look at both the Planned Community Act and Nonprofit Corporation Act (about conflict of interest.)

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• Why amend?

• Use restrictions

• Enforcement mechanisms

• Increase or decrease maintenance obligations• Increase or decrease maintenance obligations, insurance obligations

• Unclear or ambiguous provisions or errors

• Outdated provisions

• Conflict

Requirements to Amend Document

• Check your documents – each provision is different (see samples – p. 13 & 14)

• ARS 33-1227 (A)

• ARS 33-1227 (D)

• Language of the Amendment

• When does it go into effect?

• Who does it affect?

• Develop plan for amendments

• What happens after approval?

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Vales v. Kings Hill

• Affirms an association’s ability to restrict owners’ ability to rent their units and/or lots through an amendment to the Declaration.

• Important to note: this case was in regard to a pre-1986 condominium and the holding of the case was prior to the application of the Arizona Condominium Act to all condominium associations.

ARS 33-1227 (D)

• An amendment shall not change the uses to which any unit is restricted, in the absence of unanimous consent of the unit owners.

• Practitioners have differing views as to whether this statutes applies to rental restrictions (as opposed to “uses” such asapplies to rental restrictions (as opposed to uses such as residential vs. commercial).

Enforcement

• Association has the continued authority and duty to enforce its governing documents against the owner.

Case Study Question #7

• The Board of Directors of the ABC Association, a condominium, wants to prohibit owners from renting his/her Unit within the Association.

• The Bylaws require approval from majority of the Owners voting at a meeting in which quorum is met, whereas, the CC&Rs require 75% approval of the entire Membership.

• The Board decides to amend the Bylaws prohibiting all Unit Owners from renting their Units.

• What should they have done differently?

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Most Documents Have an ADR ProvisionCommon ADR requirements:

• Compel mediation and/or arbitration of any claim against the Declarant for negligence, fraud, breach of fiduciary duty, and construction defects.

• Homeowner vote requirement to engage in ADR, frequently 80% q g g , q yor more.

• Waiver of the right to a jury trial.

• Waiver of class actions.

• Partial waiver of right to discovery.

• Waiver of some remedies: punitive damages, consequential damages, special damages

• Some provisions are designed to limit or prevent award of attorneys' fees, expert fees, and costs

Is it Enforceable?

The law favors arbitration of disputes that the parties actually agree to arbitrate

• Restatement (Third) of Property: Servitudes:

• Servitudes should be interpreted to give effect to the intentions of the parties ascertained from the language of the instrument

Unconscionable arbitration clauses are not enforceable

• Arbitration requires excessive fees and costs.

• One way or non-mutual arbitration clauses.

• Clauses that eliminate statutory remedies.

• Class-action Bans.

• Secrecy Provisions.

• The Arbitration Agreement permits the selection of a biased arbitrator.

• Arbitration will place the Plaintiffs in a worse position than litigation

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Case Law

• Harrington v. Pulte Home Corp.: Court held that arbitration clause was not unconscionable, no civil litigant has the automatic right to a jury trial, and the arbitration costs were not prohibitively expensive.

• Regatta Point Condominium Association v. Regatta Point, LLC: Court upheld ADR provision because there was no evidence that purchasers would not have accepted the purchase contracts if they had known of the ADR provisions, and the requirement that the parties split the cost of arbitration was not unconscionable.

• Venu at Grayhawk Condominium Association v. Town Home Village at Grayhawk, LLC: Court held that the effect of all of the arbitration clauses taken together was unconscionable and therefore unenforceable.

• The notice required was more complex than its statutory counterpartp

• The Deadlines for submission to arbitration were arbitrary and subject to manipulation

• The arbitration clause prohibited consequential or special damages

• The arbitration clause modified the statute of limitations

• Written approval of 80% of the homeowners to commence action

• Amendment of Declaration required approval of the declarant.

• Pinnacle Museum Tower Association v. Pinnacle Market Development: Court held that the Homeowner’s Association was not bound to arbitrate where the Association could not amend the CC&R’s without developer consent, and the documents contained a waiver of the constitutional right to jury trial.g j y

• Saguaro Highlands Community Association v. Biltis: Court held that an arbitration clause was not designed for disputes between the Association and individual homeowners

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Case Study Question #8• ABC Corporation developed the Big Condominium project in 2005.

• ABC sold 70% of the units at Big Condo prior to the sub-prime mortgage crisis in 2008.

• In 2009, ABC abandoned the project. ABC stopped maintaining the common elements, and stopped paying assessments and taxes.

• The ABC-controlled Board of Directors never transitioned control of the Association to the Homeowners, but continued to bill homeowners for assessments.

• Many homeowners claim that their units and common elements contain construction defects.

• The Condominium Declaration states "any dispute or claim between or among ABC and any owners or the Association shall be subject first to negotiation, then mediation, and then arbitration as set forth herein prior to any party to the dispute instituting litigation with regard to the dispute." …continued on next slide

Case Study Question #8, cont.• The clause also states that:

• 80% of the units must consent to any legal action or arbitration against ABC,

• Neither the Association nor the Homeowners may collect their attorneys' fees and costs if they arbitrate or sue ABC (as permitted by the Purchaser Dwelling Act)by the Purchaser Dwelling Act),

• The Association or Homeowners must pay $10,000.00 to the American Arbitration Association to commence an arbitration proceeding,

• Neither the Association nor the Homeowners may amend the arbitration clause without the written consent of ABC, and

• The Statute of Limitations is not tolled during any period of negotiation or mediation prior to arbitration or the filing of a lawsuit (as permitted by the Purchaser Dwelling Act).

Case Study Question #8, cont.

• What should the Community Manager do?

• What recourse does the Association have against ABC?ABC?

• What recourse do individual homeowners have against ABC?

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• Abandonment by Developer

• ReceivershipReceivership

• Bankruptcies

• Solvent/insolvent developer collections

• Role of management company after abandonmentabandonment

• New developer

• Terminating common interest communities

• Terminating HOA, but not the Declaration

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Case Study Question #9• A community consists of 90 lots, only 10 of which have been

built out.

• The developer of the property held on as long it could throughout the economic downturn, but it has now filed for Chapter 7 bankruptcy (liquidation)Chapter 7 bankruptcy (liquidation).

• It is a small family-owned company, and it does not appear they will continue operating after the bankruptcy is complete.

• The developer feels bad about what has happened, and within reason, is willing to cooperate with the association in the aftermath from the bankruptcy and the failed development.

• What should you do as a manager?

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