The decision to amend a community association’s governing documents begins with an understanding of the community association and its governing documents; progresses through the formulation of goals for any new documents, identified based on weaknesses in or issues with the existing governing documents; and ends with an understanding of the amendment process required to accomplish the desired governing document goals.
WHY AMEND THE GOVERNING DOCUMENTS?
The first step in the amendment process is an analysis of the community association’s existing documents, including the identification of specific goals for any amended governing documents. If there is nothing to improve, there is nothing to gain by amending the documents. The governing document amendment process will take time—and money. Therefore, the identified goals for the amended governing documents must justify the process.
Update to Conform to Current Law and Industry Norms
A community association considering an update to its governing documents must understand whether it is currently governed by MCIOA (Minnesota Statutes Chapter 515B), and if not, whether it would be advantageous to be governed by it. Common advantages in becoming governed by MCIOA include:
- Original governing documents lack certain rights for the benefit of the community association (e., foreclosure by advertisement, right to impose fines, right to access units to perform maintenance or address an emergency);
- Superlien provisions for delinquent assessments accrued during senior mortgage foreclosure;
- Statutory authority for assessments, late fees, fines, and the collection of attorneys’ fees and costs; and
- Expanded operational guidelines (e.g., leasing restrictions, architectural approval, etc.)
Communities not currently governed by MCIOA “opt in” to coverage by amending their governing documents to bring them into compliance with MCIOA.
To be clear, an association not currently governed by MCIOA is not required to opt in to MCIOA when it updates its documents.
Common Areas For Governing Document Improvement
- Maintenance Obligations
In many cases, the way an association handles maintenance is not consistent with the terms of the Declaration. Amending the Declaration can make the documents “match reality.” Amending existing documents also provides an opportunity to describe maintenance responsibilities in greater detail and make it clearer as to who is responsible for performing such maintenance (the association or the homeowner) and who is responsible for paying for such maintenance.
- Rental Restrictions
If an association wants to restrict or prohibit leasing (including the prohibition of short-term rentals), the restrictions or prohibition must be stated in the Declaration. Common restrictions include leasing caps, minimum lease terms and eligibility requirements (i.e., owners must own their units for a specific time period before being eligible to lease their units).
- Insurance
Community associations and their homeowners rely on insurance for the protection of their community. With the rising costs of community association insurance, the original governing documents may not adequately protect the community association’s interests. A common problem is the inability to increase assessments by the amount necessary to pay increasing insurance premiums while maintaining an adequate budget for common expenses and reserves. Some associations are required, under the terms of their declarations, to carry a specific level of coverage or coverage with a specific (often low) deductible. Such mandates may hamper the association’s ability to maintain the level of coverage its members want and are able to pay for.
- Clarify And Resolve Unclear Issues
Many older governing documents are vague, and some matters are simply not addressed at all, making interpretation and enforcement difficult, if not impossible. Changes are often necessary to clarify and resolve unclear issues under the initial governing documents or to make the documents fit the realities of how the community operates—or wishes to operate.
AMENDING COMMUNITY ASSOCIATION GOVERNING DOCUMENTS
The legal process for amending community association governing documents is governed by the original governing documents and MCIOA, if applicable. In general, all amendment projects follow a similar path.
Document Amendment Requirements
The first step is to identify the documents to be amended and the approval requirements for any such amendment. Depending on the circumstances, the amendment process may include amendments to one or all of the community association’s governing documents (Articles of Incorporation, Bylaws, Declaration, and Rules and Regulations), and may require homeowner and lender approval as part of the amendment process. The community association attorney will draft the amendment documents for review and comment by the community association’s Board of Directors and/or a committee formed for the governing document amendment project. Boards of directors or property managers should not attempt to draft any amendment to governing document, even for an apparently “simple” amendment. Correcting problems created by a poorly drafted amendment can be far more expensive, time-consuming and frustrating than would likely have been the case if the association’s attorney had drafted the amendment from the start. Clearly, a full update of the governing documents requires the expertise and knowledge of an experienced community association attorney.
Homeowner Review and Comment
Once the amendment documents have been approved by the community association’s Board of Directors, the amendment documents are delivered to the individual homeowners for review and comment. An informational meeting is typically conducted with the community association attorney available for homeowner questions and comments. Depending on the issues raised by homeowners, additional drafting may be necessary to improve the documents or make them more likely to be approved by the homeowners.
Homeowner Approval
Once the amendment documents are in final form, the Board requests approval of the homeowners on the applicable amendment. Homeowner approval of amendments to the Declaration, Articles of Incorporation and Bylaws is commonly requested at a special or annual meeting, via mailed ballot or written consent.
Effective August 1, 2020, if an association’s request for consent/approval is sent to all owners via certified mail, owners who do not notify the association that they do not consent to or approve the proposed documents are deemed to have consented. This “silence is consent” provision applies to all common interest communities (as defined in MCIOA), regardless of whether they are otherwise governed by MCIOA.
First Mortgagee Approval, If Necessary
Many governing documents require first mortgagee approval in addition to homeowner approval. Once homeowner approval is obtained, first mortgagee approval is sought when necessary.
As is the case for owner approval, Section 515B.2-118 provides that, if lender consent is required for an amendment, then, if the association seeks such consent in accordance with the procedures set forth in the statute and the lender does not object within 60 days of receipt of the request for consent, the lender is deemed to have consented. As is the case for owner approval, this “silence is consent” provision applies to all common interest communities, regardless of whether they are otherwise governed by MCIOA.
Filing
Some amendments are required to be filed before they are effective. An amendment to the Declaration must be recorded with the county in which the property is located. If the amendment to the Declaration is not recorded, it is not effective or enforceable, even if all other requirements for amendment have been met. An amendment to the Bylaws may be similarly recorded when required by the existing documents. An amendment to the Articles of Incorporation must be filed with the Minnesota Secretary of State. Therefore, as soon as all approvals have been secured, the Association will file all updated documents as needed.
Distribution
Once all documents have been duly approved and recorded/filed, as the case may be, the Association should provide a copy of the amendments to each household. Since amended and restated documents (“re-writes”) completely replace the prior versions, the Association should advise its members as such, and instruct them to destroy prior versions to minimize confusion. The Association should also ensure its “document packets” provided in conjunction with Resale Disclosure Statements are updated.
Amending an association’s governing documents can seem like a daunting project, but working in partnership with counsel and management makes the task feasible. The final products will help homeowners understand their rights and responsibilities more clearly, and will make governing the association easier.
Please Note: This article is intended to provide general information only. You should not rely upon it for legal advice, as proper advice depends on various facts and circumstances unique to each matter. No attorney-client relationship is formed without a signed letter or agreement by which the client and the law firm agree to the terms of representation.
