THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, April 15, 1995 TAG: 9504130302
SECTION: REAL ESTATE WEEKLY PAGE: 08 EDITION: FINAL
COLUMN: Common Ground
SOURCE: G. Robert Kirkland and Michael A. Inman
LENGTH: Medium: 70 lines
I am president of our homes association. Our common areas include a small park with a pond. Our dues are less than $300 per year, which pays for our insurance and lawn service. There are several questions:
Why must we pay $100 each year to maintain our corporate filing status?
Is our insurance really necessary?
Is it necessary to maintain a business account for our financial dealings?
How can we revise our documents to make them more user friendly?
All the questions reflect the greatest concern we have about small associations, whether an HOA or a condominium. That concern is that the board and the owners will think it is not necessary to operate the association as the legal entity it is.
We realize that much of what we recommend and that is required by law seems unnecessary to many owners. It is not unnecessary; it is imperative that every board and every owner insist that their association be operated in strict compliance with the documents and state law.
Our answers always reflect that point of view.
First, you pay the $100 because the state requires that you file each year so it knows who is running the association. This becomes critical when there is a need to give your association official notices, including changes in the legal requirements or lawsuits. Also, it is of value to be a corporation so that the provision of the Non-Stock Corporation Act apply to your association.
Second, insurance is the only effective way you have of providing security to the owners in the case of a lawsuit. If the association is sued, even if the suit is unjustified, the insurance company will defend the association against the suit. It also will pay any damages awarded against the association within the terms of the policy.
If the association did not have insurance, the individual owners could be assessed to pay for any legal costs or damages. This would be critical if someone was injured on the association property, or even if one of the directors injured someone while acting for the association.
Over the years, we have seen many associations sued over many issues by both visitors and homeowners. These suits have involved the storage of vehicles, basketball goals, collection procedures, insect stings, house colors and even the weight of a pet. Better safe than sorry.
Third, you must maintain a separate account in the name of the association for all money received and disbursed. The alternatives all leave too many opportunities for funds to disappear or to be unauditable, thus leaving the board open to charges of mishandling funds.
Fourth, the documents may be completely rewritten to make them more user friendly. The process is called amendment by restatement. It requires that the association adopt the new documents by the required percentage of owners for each document.
Many associations more than 10 years old find that their documents need to be revised. The best way to do this is to have an experienced advisor assist you. It generally takes about six months to complete the necessary steps.
We congratulate you for taking the time to ask the questions rather than simply taking the actions you discussed. Boards must be aware that the failure to abide by the declaration, by-laws and articles of incorporation often lead to personal liabilities. MEMO: G. Robert Kirkland, is president of a Virginia Beach property management
consulting firm, and attorney Michael A. Inman specialize in Virginia
community association issues. Send comments and questions to them at
Real Estate Weekly, 150 W. Brambleton Ave., Norfolk, Va. 23510. To
submit questions by phone, call 446-2033; fax: 446-2531. by CNB