IREM Las Vegas 99

New Laws

The legislative session is now over and many new laws have been passed. Unfortunately, many changes were made behind smoked-filled doors in conference without public comments. It is ironic how the legislature wants association boards to have complete open meetings for their members and yet the final versions of legislative bills are the result of negotiations and deals. Assembly Bill 350 is one of these “life- after- death” legislation that has created many changes in association management and amended NRS 116. I have first addressed the changes in the law that were amended in conference without public comments, as follows:

Section 1.7 states that an association may charge reasonable fees to cover the cost of collecting any past due amounts but the new law authorizes the Commission to adopt regulations establishing the amount of the fees that an association may charge regardless of what is currently stated in your covenants. This new law will apply not only to the association but also to the collection agencies that are engaged by the associations to collect past due assessments and other money owed to the association by homeowners. The law then lists what constitutes cost of collecting which includes any collection fee, filing fee, preparation fee, recording or delivery of a lien, lien rescission, title search lien fee, bankruptcy search fee, referral fee, postage, investigation, and enforcement. The term does not include any costs incurred by the association if a lawsuit is filed to enforce any past due obligation or any costs awarded BY THE COURTS.

NRS 116.31031 (8) is amended and states that any past due fines must not bear interest but may include the cost incurred by the association during a civil action to enforce the payment of the past due fine. Doesn’t this make great sense when Section 1.7 disallows the collection of court awards?

Please note that this provision was never in the original bill so members of the public had no opportunity to comment upon the proposed changes that was part of the conference committee amendment to the original bill. Please note the additional problem that this bill has created by stating that awards by the Court can not be included in the collection costs but then states that an association can include the cost incurred from a civil action. What a travesty of justice and of the members’ association funds. If you win a court case, you should be entitled to collection costs when awarded by the courts. Obviously, there is a conflict in the law- this is what happens when law is passed quickly without thought and comment from the public.

NRS 116.3108 (3a) is amended and now requires an association if requested by an owner to send the minutes or the summary of the minutes in electronic format at no cost to the owner or if unable to provide the minutes in paper format at a cost not to exceed 25 cents per page for the first 10pages and 10 cents per page thereafter. (the same language is found in section 6 of NRS 116.3108 and also in NRS 116.31083 (4a) and (7)).

NRS 116.31083 states that board meetings must be held every 90 days and must be held at a time other than during standard business hours at least twice annually.

NRS 116.31151 (2a) originally allowed an association in lieu of distributing copies of the budget to inform owners that the budget is available for review at the business office of the association. The law now has a stipulation that the location of the business office can not exceed 60 miles from the physical location of the community. This law is sensible and most associations mail their budgets to the homeowners in the first place so it really impact very few but the next section has created problems.

NRS 116.31175 has always stated that homeowners had the right to review certain association records which are usually located at the business office of the association. It has now been amended to read at the business office of the association or a designated business location not to exceed 60 miles from the physical location of the community. Now this is a real issue, especially for parts of Nevada in the rural locations where a professional management company may not even exist. No one can realistically bring all of the potential records to the property location that an owner may want to review, especially when the letter states that the owner wants to review all of the records without specifically identifying what records.

NRS 116.31183 subsection 2 a and b are new additions to the law. The first part of the existing law states that an association board or agent shall not take any retaliatory action against a unit owner who has complained in good faith about any alleged violation or who has requested to review association records. The new law states that in addition to any other remedy provided by law that a unit owner may bring a separate action to recover compensatory damages and attorney fees and costs of bringing the separate action. Let’s review the very first part of this article. So what happens if the court of law agrees with the association and awards the association the collection costs, i.e. attorney’s fees, etc?

NRS 116.4103 (1k1) has been added to the public offering statement requirements that is provided to the buyer by the declarant. A statement is to be included describing all current and expected fees or charges for each unit including without limitation fees, fines, assessments, late charges, penalties, interest rates on delinquent assessments, additional costs for collecting past due fines and charges for opening or closing any file for each unit. If we refer back to one of the beginning paragraphs of this article, declarants will have to wait just like the association boards and managers to find out what are reasonable charges from the Commission as to costs of collecting past due assessments. This section of the law is repeated again in NRS 116.4109 which is part of the resale package when a homeowner is selling his home to another homeowner (1f).

The other changes that were included by amendment during the conference committee pertained to the management agreement. Most of the sections are already part of NAC 116 regulations that have been in existence for quite some time. By adding these sections to the law, the only way to change any of the sections is through legislation (unless a court of law claims that it is unconstitutional). The Commission lost some of its authority when these sections were included as regulations can not be modified when conditions warrant change without waiting for another legislative session. Some of the new requirements pertain to insurance coverage for the community manager.

In bullet format, here are some of the new additions to NRS 116A and NRS 116B: *the community manager discloses any material or relevant information which he knows or should know relating to the performance of the management agreement and his ability to comply with the laws in a written statement…

*any direct or indirect compensation, gifts or profits he will receive or anyone in his organization who will perform services for the association and to identify the person and the nature of the services rendered…

*any affiliation with or financial interest in any person or business who furnishes goods or services to the association…

*any pecuniary relationships with any unit owner, or member or officer of the board (monetary or financial)…

*management agreements to be in writing, signed by the parties, state the terms, basic consideration of services and payment schedule, direct and indirect to include start up costs, special and nonroutine services, reimbursable expenses, fees for the sale or resale of a unit for setting up the account of a new member, the portion of fees that are to be retained by the client and the portion to be retained by the community manager (this is an example of one of the flaws of the current law as the contract is generally with the company and not by the individual community manager, unless self-managed and the association hires a community manager)…

*state the identity and the legal status of the contracting parties

• state any limitations on the liability of each contracting party
• include a statement of the scope of work of the community manager
• state the spending limits of the community manager
• include grounds and procedures of termination of the community manager
• id the types and amounts of insurance coverage to be carried by each contracting party without limitation liability for errors or omissions, professional liability or surety bond in the amount of one million dollars or more (again this is where the legislature does not understand insurance matters as most community managers would not qualify to obtain such insurance- it is the kind of insurance that a company maintains on behalf of their employees including the managers)
• an indication of who will maintain fidelity bond coverage (not unusual for both the hoa and the management company)
• a statement of who maintain the directors and officer liability coverage for the board (again the lack of knowledge by the legislature as only the hoa can maintain this coverage)
• include provisions for dispute resolution
• acknowledge that all records and books are the property of the hoa except proprietary information andsoftware belonging to the community manager (again it should state management company)
• state location of office as it must be within 60 miles of the physical location (since this is law the Commission can not modify and this could cause some problems with existing contracts
• frequency and extent of the regular inspections
• state extent of authority of community manager to cosign checks on operating account
• management agreement may provide for mandatory binding arbitration
• allow for month to month management but no automatic renewal provisions
• not later than 10 days after the effective date of the management agreement, evidence of insurance to be sent to the board to include the name and address of the insurance company, the amount of the coverage and any deductible..
• copies of management agreement to be sent to the board and within 30 days after an election to any new member of the board
• any changes to the management agreement must be initialed by the parties or in writing and signed by the parties
• at termination, community manage to return records within 30 days to new management company or community manager regardless of whether there are any unpaid fees or charges to the hoa
• management contract can be terminated without penalty upon 30 days notice following a violation by the community managerof any provision of NRS 116

The new law continues by adding the standards of practice for community managers which most are found in NAC 116.
One of the new sections within the standards will be of importance to associations as it is a major change. Item 12 under NRS 116A.400, an association may maintain and invest funds in a financial institution whose accounts are insured by the FDIC (Federal Deposit Insurance Corporation), National Credit Union Share Insurance Fund, Securities Investor Protection Corporation or a private insurer approved per NRS 678.735 (which pertains to credit unions and has not been published in the law on the internet yet) and in government securities that are backed by the full faith and credit of the United States Government. Prior to this new addition to the law, associations could only place funds in a bank that was licensed in the State of Nevada. This will allow more flexibility for the associations and more opportunities of obtaining higher interest rates on their funds. It also means that associations will need the support of financial experts or consultants as the average community manager and management company really do not have this expertise.

Section 16 requires that the community manager ensures that the association develops and approve written investment policies and procedures (again a financial consultant should be engaged to help develop these policies).

Section 21 states that the community manager ensures that the association has written collection policies approved by the board and in compliance with all local, state and federal collection of debt laws and that the board must approve all write-offs of debt.

The last section of the new law which would amend NRS 116A.400 is a list of what a community manager shall not do. Section 6 states that except as otherwise permitted by the provisions of the court rules governing the legal profession, establish an attorney-client relationship with an attorney or law firm which represents a client that employs the community manager or with whom the community manager has a management agreement.

The last of the new language in the law that was amended in the conference committee pertains to swimming pools and this has already caused a controversary with Southern Nevada Health District laws. NRS 444.065 (state laws pertaining to swimming pools) would be amended. Section 2e states that any location if the structure is a privately owned pool used by members of a private club or invited guests of the members would not be included in the definition of public swimming pool. What this means is that these privately owned pools of a private club would not fall under the jurisdiction of the health departments in the State of Nevada.

From the grapevine, this provision was pushed by one of the major hotel players and was passed literally on the last day possible. It was not meant to include homeowner associations but a big can of worms are out and about on this one. Our health district has already received multiple calls telling the staff that they are no longer covered under NRS 444. I would recommend to all association boards and community managers and management companies to maintain their pools and spas according to all SNHD regulations, if for nothing else to protect the association from lawsuits caused by injuries or death at your facilities.

This is part one of AB350 as it does not include other new language in the original bill or deleted sections. Now many of the proposed changes will become effective July 1, 2009, some on October 1, 2009 and some on Janaury 1, 2010 which will also be included in another article. All of the information listed in this article were amendments made in private in the committee conference. It almost makes you feel that your efforts to effect positive change as members of the public are negated by the legislators.