Community Associations Update - June 2013

Date: June 11, 2013

"Mini-COBRA" for Small Employers
By: Jennifer S. Jackman, Esq.

Take-away: You have probably heard of the federal government's COBRA law -- it requires employers to continue group health coverage for some former employees or their dependents for a specific period of time after the end of employment. However, the federal COBRA requirement only applies to companies with 20 employees or more, so you may think you're off the hook if your property management company or community association has under 20 employees.

Think again. Maryland, Virginia and DC all have their own “mini-COBRA” laws for small companies, that is companies with fewer than 20 employees. Each jurisdiction takes a slightly different approach, so a summary of each is provided below.

District of Columbia: The District of Columbia mini-COBRA law provides for three months of continuing coverage, except for terminations arising from gross misconduct for small companies. The employer (as opposed to the insurer or third party administrator) is required to provide notice to the employee/former employee within 15 days after the date that coverage would otherwise terminate of the employee’s rights to continuing coverage. The employee is then responsible for electing coverage and paying the premium within 45 days after the date that coverage would otherwise terminate.

Maryland: The Maryland mini-COBRA law provides for eighteen months of continuing coverage for employees who are terminated without cause by small companies. There is no specific time requirement for providing notice to an employee but the employer must provide an election form within 14 days of request by an employee. We generally recommend that the employer send out a notice within 14 days of the qualifying event, despite the lack of a requirement to do so. Employees then have 45 days to elect coverage and are responsible for paying the premiums.

Virginia: The Virginia mini-COBRA law provides for twelve months of continuing coverage for small businesses. The employer has an obligation to issue a notice to the employee within 14 days of learning that a person covered under the health plan is no longer eligible for coverage. The employee has 31 days to pay the premium and elect coverage.

Summary: Small associations who employ fewer than 20 employees are not off the hook for providing continuing health coverage. All three jurisdictions require that the employer provide certain notice to the eligible employee upon a qualifying event. Accordingly, associations should develop a notice form and policy of providing timely notice to eligible employees. If you need assistance in preparing the notice, contact Jennifer S. Jackman.

"Just the Facts," Virginia Common Interest Communities 2013 Legislative Changes
By: Kevin A. Kernan, Esq.

The 2013 General Assembly session was recently completed, and it resulted in a number of new laws that directly or indirectly impact common interest communities in Virginia.

The new laws amend the Virginia Property Owners’ Association Act, the Virginia Condominium Act, and other statutes that may affect common interest communities. These new laws take effect on July 1, 2013 except as otherwise noted herein. Below is a brief summary of the changes that you should be aware of.

Imposition of Late Fees for Assessments
Virginia Condominium Act
Virginia Property Owners’ Association Act

This legislation amends Section 55-79.83 of the Virginia Condominium Act and Section 55-513.2 of the Virginia Property Owners Association Act. It provides that, except to the extent that the Association’s governing documents or its rules and regulations provide otherwise, condominium and property owners' associations may impose a late fee for any assessment or installment that is not paid within 60 days of the due date for payment of such assessment. The late fee shall not exceed the penalty provided in § 58.1-3915 of the Virginia Code, which is five percent (5%).

The legislation has enacted has limited application. First, as noted above, Virginia law limits the fee that may be assessed to 5% of the assessment payment. As an example, if the delinquent monthly assessment payment is $200.00, the late fee assessed could not exceed $10.00. Boards will need to evaluate whether the costs associated with the implementation of a late fee under this provision outweigh the benefits provided by the application of a late fee.

The legislation also includes some ambiguities that may impact a Board’s ability to assess late fees higher than the amounts stated in a community association’s recorded documents.

Notice to Owners of Election of Directors at a Special Meeting
Virginia Condominium Act
Virginia Property Owners’ Association Act

This legislation amends Section 55-79.75 of the Virginia Condominium Act and Section 55-510 of the Virginia Property Owners Association Act. It provides that in the event of the cancellation of any annual meeting at which members of the board of directors are elected, the seven-day notice of any subsequent meeting scheduled to elect such directors shall include a statement that the meeting is scheduled for the express purpose of electing directors.

Disclosure of Qualification for Federal Financing in Resale Certificates
Virginia Condominium Act
Virginia Property Owners’ Association Act

This is the first of two new resale disclosure requirement that take effect this year. The legislation ill amends Section 55-79.97 of the Virginia Condominium Act and Section 55-509.5 of the Virginia Property Owners Association Act. It requires the resale certificate and the disclosure packet include a statement indicating any known project approvals that have been issued by secondary mortgage market agencies and currently in effect, including but not limited to the Federal Housing Administration (FHA), the Veterans Administration (VA), and Federal National Mortgage Association (Fannie Mae).

Restrictions on Solar Panels in Community Associations
Virginia Condominium Act
Virginia Property Owners’ Association Act
Covenants Restricting Solar Energy Collection Devices
Virginia Residential Property Disclosure Act

Virginia law provides that no community association shall prohibit an owner from installing or using a solar energy collection device on that owner's property. However, a community association may establish reasonable restrictions concerning the size, place, and manner of placement of such solar energy collection devices.

The new legislation further clarifies this requirement by providing that it expressly applies to “property designated and intended for individual ownership and use.” It also amends Section 55-79.97 and Section 55-509.5, by requiring that resale certificates and the disclosure packets contain a statement setting forth any restriction, limitation, or prohibition on the right of an owner to install or use solar energy collection devices on his property. In addition, it also amends the required disclosure provisions in Section 55-519 of the Virginia Residential Property Disclosure Act in that the residential property disclosure statement form provided by the Real Estate Board must state among other things that the owner makes no representations with respect to the right to install or use solar energy collection devices on the property.

Community Association will need to review their recorded documents and design guidelines in order to include the required disclosures in resale certificates and disclosures provided to sellers and purchasers.

Lot Owners Permitted to Operate Home-based Business
Virginia Property Owners’ Association Act

This legislation amends the Virginia Property Owners’ Association Act by adding a section numbered 55-513.2 which provides that, except to the extent the declaration or rules and regulations of an association expressly provide otherwise, no association shall prohibit any lot owner from operating a home-based business on his lot. Under the bill, the association is permitted to establish reasonable restrictions as to (i) the time, place, and manner of the operation of a home-based business and (ii) the size, placement, duration, and manner of the placement or display of any signs on the owner's lot related to such business. The bill also requires any home-based business to comply with all applicable local ordinances. The General Assembly found that the bill's objectives serve the public interest by promoting Virginia's small businesses.

Expands Respective Declarant Control Period, Warranty Review Committees
Virginia Condominium Act

This legislation amends Section 55-79.74 and Section 55-79.79 of the Virginia Condominium Act. It is emergency legislation, which means that it took effect on the date it was enacted.

The new legislation addresses condominium properties under declarant control. Briefly, Section 55-79.74B of the Virginia Condominium Act currently provides that “[t]he time limit …[for control of the condominium by the declarant] … initially set by the condominium instruments shall not exceed five years in the case of an expandable condominium, three years in the case of a condominium (other than an expandable condominium) containing any convertible land, or two years in the case of any other condominium. Such time period shall commence upon settlement of the first unit to be sold in any portion of the condominium.”

The new legislation amends Section 55-79.7 by permitting a declarant to request, prior to the expiration of the initial declarant control period, that the time period be extended for a period not to exceed 15 years from the settlement of the first unit to be sold in any portion of the condominium or after units to which three-fourths of the undivided interests in the common elements appertain have been conveyed, whichever occurs first. In order to extend the period) a special meeting is held prior to the expiration of the initial period of declarant control; (ii) at the special meeting, the extension of the time limits is approved by a two-thirds affirmative vote of the unit owners other than the declarant; and (iii) at the special meeting, there is an election of a warranty review committee consisting of no fewer than three persons unaffiliated with the declarant.

It also requires that prior to any such vote, the declarant shall furnish to the unit owners in the notice of such special meeting made in accordance with § 55-79.75 a written statement in a form provided by the Common Interest Community Board that discloses that an affirmative vote extends the right of the declarant, or a managing agent or some other person selected by the declarant, to (a) appoint and remove some or all of the officers of the unit owners' association or its executive organ and (b) exercise powers and responsibilities otherwise assigned by the condominium instruments and by this chapter. In addition, such statement shall contain both a notice of the effect of the extension of declarant control on the enforcement of the warranty against structural defects provided by the declarant in accordance with § 55-79.79 and a statement that a unit owner is advised to exercise whatever due diligence the unit owner deems necessary to protect his interest.

The new legislation also amends the warranty provisions in Section 55-79.79 of the Virginia Condominium Act expands time period pursuant to which an action to breach of warranty may be commenced. As amended, action for breach of any warranty prescribed by this section shall be commenced within (i) five years after the date such warranty period began or (ii) one year after the formation of any warranty review committee pursuant to subsection B of § 55-79.74, whichever last occurs.

It also describes the duties, power and authority of a warranty review committee established in accordance with the requirements of the statute. Briefly, subject to the requirements of the statute, the warranty review committee has irrevocable power as attorney-in-fact on behalf of the unit owners' association to assert or settle in the name of the unit owners' association any claims involving the declarant's warranty against structural defects with respect to all of the common elements and (ii) the authority to levy an additional assessment against all of the units in proportion to their respective undivided interests in the common elements pursuant to § 55-79.83 if the committee determines that the assessments levied by the unit owners' association are insufficient to enable the committee reasonably to perform its functions pursuant to this subsection.

It also establishes the responsibilities and obligations of local governing authorities and the declarant to the warranty review committee.

Residential Property - Notice of Sale to be Provided to Common Interest Community Association

This legislation amends current provisions that require localities in Planning District 8 (Northern Virginia) to be given notice when residential property is subject to a sale under a deed of trust by making those provisions applicable statewide and by requiring notice to be given to the common interest community associations when such property is located within a common interest community. This notice must be given within 60 days after the sale of the property by the trustee or substitute trustee authorized to conduct the sale under the deed of trust and it must include the name and address of all owners holding the property as a result of the sale.

Uniform Statewide Building Code; Establishment of Occupancy Standards for Residential Dwelling Unit by Owners or Managing Agents

The legislation authorizes an owner or managing agent of a residential dwelling unit to develop and implement reasonable occupancy standards restricting the maximum number of occupants permitted to occupy the dwelling unit to two (2) persons per bedroom. Under the bill, the occupancy standard is subject to the provisions of applicable state and federal laws and regulations, including the Virginia Fair Housing Laws. This legislation also provides that the occupancy standards of an owner or managing agent shall not be enforceable under the provisions of the Uniform Statewide Building Code.

Unemployment Compensation; Disqualification from Benefits Due to Loss of License or Certification

This legislation provides that an individual is ineligible for unemployment benefits if he has been discharged because he lost or failed to renew a license or certification that is required for his job. The failure to renew a license or certification must not have been the fault of the employer. This provision applies to those individual managers who are required to hold a certificate issued by the Common Interest Community Board.

If your Association has any questions associated with the upcoming changes to Virginia law, please contact our Whiteford, Taylor & Preston Community Association attorneys.

Maryland Court of Special Appeals Upholds Board's Decision to Deny Architectural Application
By: Roberto M. Montesinos, Esq.

Randall Reiner, et ux. v. Clifford Ehrlich, et al. 2013 Md. App. LEXIS 61

A recently reported decision issued by the Maryland Court of Special Appeals offers some guidance and support for community associations on two issues that are frequently the subject of homeowner disputes. The case of Randall Reiner, et ux. v. Clifford Ehrlich, et al. involved a homeowners association’s denial of a request to install a new roof on a home using materials not authorized by the bylaws of the association. The Plaintiffs in the case filed suit against the homeowners association and sixteen individual community members. After holding a hearing, the underlying circuit court dismissed the complaint as to the individual homeowners, and entered summary judgment in favor of the homeowners association. On appeal, the Court of Special Appeals held that the granting of summary judgment in favor of the Association and the dismissal of the individual homeowners was proper.

In upholding the grant of summary judgment to the Appellees, the Court determined that the business judgment rule applied. As the Court stated, “the general rule under Maryland law is that decisions made by a homeowners association’s board of directors will not be disturbed unless there is a showing of fraud or bad faith.” In this particular case, the Bylaws of the Association made it clear that certain roofing materials were prohibited. Furthermore, the evidence presented indicated that the Board of Directors based its decision on the language of the bylaws and that bad faith and/or fraud was not implicated. This is a helpful ruling for community associations as a whole in Maryland because it reaffirms the notion that Board decisions with respect to architectural applications are enforceable provided that bylaw (or other governing document) authority forms the basis of any decision.

Another issue of note in this case is the dismissal of the matter with respect to the individual defendants. Frequently, community associations encounter lawsuits in which individual board members are named as part of the suit. Under the Maryland Code however, the named homeowners association would be the only proper party. In Reiner, the Court recognized the statutory provisions which immunize board members from actions challenging the acts of a homeowners association.

Please feel free to contact us if you have any questions relating this case specifically or the general principles of community association law addressed by the Court.