Should Your Board Consider Amending Your Governing Documents? Here’s How You Can Start!
A substantial part of our firm’s practice involves the preparation of amendments to a community association’s governing documents, along with the supporting documents such as notices to the homeowners, proxies, and ballots. Typically, the governing documents consist of a Declaration of Covenants, Conditions & Restrictions (or something similarly named for condos), a Code of By-Laws, Plat Covenants, Articles of Incorporation, and Board-adopted Rules and Regulations. Sometimes, a Board of Directors will simply want to modernize old documents. More and more community associations have websites that contain the governing documents so that current owners and potential purchasers can quickly access them. An updated, “clean” set of documents can be a refreshing change for both the Board and homeowners, especially if they are easier to read and understand, as well with complying with the various laws that are applicable.
Below are common things that a community association’s Board might consider:
Add new covenants such as rental restrictions
Remove all of the obsolete “developer language”, such as different classes of membership that are no longer relevant
Especially for communities that are older than 20 years, bring the covenants and by-laws more in line with current trends
Change provisions that are no longer legally valid, either under federal or state law
Change the date of your Association’s annual meeting
Create 2- or 3-year staggered terms for your Board members instead of 1-year terms
Add more qualifications for Board members (such as having to be a resident, not just an owner)
Reduce your quorum for conducting homeowner meetings to something realistic!
Change the number of directors
Clarify the distinction between the board of directors and the officers (such as the president and treasurer)
Clarify collection policies for delinquent assessments as well as bolster your Association’s collection remedies
If your community has adopted one or more amendments in the past, they can all be consolidated into a single document. (see the discussion below about amended and restated documents)
Correct discrepancies between the covenants and the by-laws
Clarify the responsibilities of the homeowners concerning home and lot maintenance
For a condo or townhome community, clarify the Association’s responsibilities versus the homeowners’ duties
Streamline the documents as much as possible to make them more user friendly
Incorporate some rules and regulations adopted by the Board of Directors that should be included in the covenants
Make it easier to pass future amendments to both the covenants and the by-laws
Provide more details on very broad restrictions regarding nuisances or offensive behavior
If the community has multiple sets of covenants on a section-by-section basis, consolidate all of them into a single set of covenants applicable to the entire neighborhood
Ensure By-Laws are in line with Indiana Nonprofit Corporations Act (and Indiana law generally)
Clarify or modify insurance requirements, especially for condos, townhouses and planned unit developments (PUDs)
Clarify architectural control requirements and procedures
Add provisions to allow for electronic voting and sending notices by e-mail
Merging plat covenants with Declaration of Covenants so that owners are not looking at two different documents
If your Board is considering a “major overhaul” of your governing documents, we recommend that you start by having all members of the Board review all of your current governing documents. Then, develop your own “wish list” on the changes that you’d like. Don’t worry about the wording, but instead just list provisions that you’d like changed, deleted or added. For example, list any specific provisions that you’ve dealt with as a Board that are either confusing or that simply don’t make sense for your community. (You don’t need to worry about listing all of the now-obsolete developer references; we’ll take care of all of those.)
We recommend that you consider “replacing” your main documents (like your Declaration and By-Laws) with amended and restated documents, instead of just preparing amendments. That way, once the new documents are approved, the original documents (as well as prior amendments) can be discarded.
After you provide us with that wish list, we could meet with your Board and discuss the next steps, including the anticipated time (and fees) that will be involved. We would also review with you the original governing documents and point out provisions that either should or could be changed, including our suggested alternatives. A lot of the revisions would be based on what we consider to be “best practices”.
Assuming that you want to move forward with a “major overhaul”, we would then prepare the first draft of an Amended & Restated Declaration and the Amended & Restated By-Laws. As we do so, we would incorporate your “wish list” and also make changes that are either statutorily required or constitute “best practices”. Those two documents will be in a redline format, showing the exact changes to your current documents.
After that, we can meet with your Board to review everything, as well as to discuss the procedure that will be necessary to obtain homeowner approval, including the use of a “directed proxy” (that acts like a mail-in ballot). At that meeting, we can identify provisions that need to be further changed. Then, we prepare the final versions of the documents that would be presented to your homeowners.
We strongly recommend that you read a blog that I wrote in August of 2015 on amending documents. If you go to our website, hit the “Resources” tab. Then, go down and find that blog. (Our blogs are in chronological order.) Or, just hit this direct link: http://eadsmurraypugh.com/blog/reviewing-amending-the-covenants-and-by-laws/ In that article, we talk about a town hall meeting with the homeowners and THEN the final meeting at which the owners will vote on the amended documents. One of our attorneys can attend the town hall meeting to explain to the owners what we are doing and why, as well as answer all of their questions. Normally, as a result of such a town hall meeting, there will be some provisions that will be changed in order to appease the majority of the owners who have voiced their opinions about the drafts of the revised documents. After those revisions are made, the final version of the new documents can be sent to the owners along with a notice of when the final meeting will take place. That is when the official voting will start.
Once you obtain the necessary number of approvals from the homeowners, we will follow through and make sure they are filed with the appropriate office such as the County Recorder or the Indiana Secretary of State. That finalizes the amendment process.
Any amendment project, whether large or small, requires energy on the part of the board. However, when it is completed, your community can be better positioned for the 21st century!
