The Politics and Psychology of Amending Governing Documents
The CC&Rs and Bylaws of a “Common Interest Development” can be amended by membership vote. They can but should they? And, if they should, what techniques can be used to improve the chances that a proposed amendment will be adopted. This article explores these issues and the politics and psychology of amending the CC&Rs, Bylaws or House Rules (“Governing Documents” or “GDs”).
I. Why Amend at All?
Here are some of the typical situations that prompt consideration of a GD amendment:
A. Conforming governing documents to the mandates of new legislation
Nowadays, this can be an illusory goal. The Davis-Stirling Common Interest Development Act, the main body of law affecting association operations, is constantly being amended. More and more legislation has been adopted that regulate virtually all aspects of how a CID is operated. Many of the new laws override or at least impact existing GD provisions. Unless the law requires amendments (and, sometimes it does)2, it is not practical to consider annual member-approved amendments every time the laws are amended.
B. Times change
As a project ages, CC&R amendments may become appropriate to respond to a project's changing demographics. Modifications more responsive to younger and growing families, more teens or an active aging population may be warranted (permitting, for example, on-street parking, second story additions, storage of recreational vehicles). Likewise, changes in products, materials or the delivery of services may make original CC&R prohibitions obsolete (such as those mandating or prohibiting certain types of windows, siding or roofs or those banning in-home business). Also, a more active “electorate” may find that voting and other project governance provisions are too general (no specific candidate rights) or antiquated (prohibiting notice via internet or email delivery).
C. Ambiguity isn't great for harmony
The shorter the Governing Documents, the more general their provisions; the more general the provisions, the greater the potential for ambiguities and challenges. Amendments which clarify the rights and responsibilities of the Association and its members foster “community,” volunteerism and preservation of property values. On the other hand, clarifying amendments are sometimes objected to as being “too wordy.”
D. Risk management
A decision of the California Supreme Court illustrates the use of CC&R amendments for strategic and risk management purposes. In Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, an association sought a preliminary injunction to enforce a pet ban contained in unrecorded rules. The trial court denied the request. Instead of continuing to litigate the enforceability of the rules, the Association adopted and recorded CC&R amendments that prohibited pets. The Court concluded that this amendment was as enforceable as the original covenants and dismissed the owners' argument that the covenants should not apply to those whose ownership preceded the amendment. The Villa De Las Palmas principle of “retroactivity” has wide ranging implications for the ways in which CC&Rs can address risks facing Associations.
II. Amendment Strategies
Almost always, the goal of an amendment process is to secure membership approval of the proposed amendment. This requires sensitivity to the procedural aspects of an amendment project as well as the substantive ones. Some things to consider include:
A. Who to work with
Some associations will delegate an amendment project to a committee, others to the board of directors. Sometimes, the amendments will be developed by counsel and the manager. All these models can be successful and each will have its own financial and political consequences and, for better or worse, can affect the outcome of a Governing Document amendment campaign.
Sooner or later counsel will be engaged. The attorney must be sensitive to the possibility that the “amendment committee” itself may have preferences (agendas?) that are not shared by the community at large. Those preferences and indeed the composition of the committee itself can doom an amendment project to failure. To the extent counsel is perceived to be aligned with this or other groups, his/her credibility may be comprised so as to imperil amendment passage. These considerations may need to be addressed throughout the amendment process. Approaches include use of letters directly from counsel; soliciting community input; use of membership questionnaires designed to identify controversial issues or approaches to community problems; attendance at open board or membership meetings to help counsel establish their own identity as attorney for the association and not any particular interest group and similar techniques that demonstrate counsel's objectivity and role as advisor to the community and not a committee or the board.
Part of this strategy includes determining whether there exists an “us versus them” atmosphere in the development and if one or more individuals might have an inordinately great (negative) effect on the outcome of the vote. These are important considerations and solutions exist: as discussed below, strong communication techniques can gain the support of “dissidents,” demonstrate to those with no preconceptions that the amendments are appropriate or even reveal that those in opposition have agendas not compatible with the prudent or fair administration of the association.
B. Questionnaires to the board or committee
The use of questionnaires can be an effective way of focusing attention on areas of potential amendment, controversy and cost. Questionnaires should be keyed to counsel's template of “new” governing documents (discussed below). While drafted in a way that should permits use of paralegals or secretarial staff to help reduce expense and speed up the amendment process, the questionnaire is a valuable tool to reveal counsel's skill and experience, issues of particular complexity and those which can be resolved in alternate ways.
C. Input from the community; explain the amendments proposed; using a “Comment Sheet”
Obtaining membership input prior to the final amendment vote may be essential to its success. Input in turn requires a clear explanation of the nature and effect of the proposed changes. This can be done at meetings, via websites, in newsletters or a “Q and A” format. In some communities, providing a “Comment Sheet” permitting members to react to proposed amendment concepts (not necessarily the actual text revisions) may identify issues requiring further analysis, discussion or those which, if included in the final product, might be so controversial as to put the entire amendment project in jeopardy.
D. Templates, use them
While some may believe that the GD's are “canned”, in fact, they are not. However, experienced law firms will have templates that reflect years of training and experimentation; they are forged by experience, wisdom, evolving legislation, technological efficiencies and a host of other considerations. To ignore them is to leave on the table the skill and talent of the lawyer engaged to draft the new GDs.
Using association or board generated forms, by contrast, is the least efficient method of amending GDs. Even if the ideas are good, often they will not be expressed clearly, or in a manner consistent with original document provisions that must be preserved (protecting easement rights, for example) or those in counsel's own template. Using association forms can dramatically increase the time and cost of the amendment project since those forms must be analyzed and compared to the existing documents and the lawyer's template; almost as bad, telling a board their forms are not useable can cause hurt feelings, frustration and can jeopardize the amendment process.
E. Defining statutory obligations by reference or incorporation; eliminate lawyer language
The Governing Documents must reflect the law of the state in which the development is located (and not provisions found on a website from another state). Should the provisions reiterate the law verbatim, refer to the relevant statute or generically state a particular government-mandated duty (“the Association shall annually distribute a pro forma budget as required by law”)? In the Uniform Common Interest Ownership Act (followed by many states and so a good source of non-binding information) some statutes express obligations generally, while others are more specific and detailed.3 Referring to the legal obligation without spelling it out makes Governing Documents shorter and more readable but also potentially risky: failing to precisely specify the statutory obligations may not adequately inform directors or members of their respective responsibilities and rights. On the other hand, documents with specific statutory language can create confusion, mistrust and expense should the incorporated statutes be amended.4
There is no “right” or “wrong” choice as between statutory reference or verbatim incorporation. Some types of statutory regulation may lend themselves to reference while others may warrant incorporation. Also, in some associations, the political atmosphere may be such that reprinting the statutes exactly as written may be necessary to obtain passage of the amendments.
A related consideration is the use of terms the most association members would deem too legalistic like “heretofore” and “infra.” On the other hand, some, such as “appurtenant” or “easement” are essential. The goal is to create a readable and precise document and to the greatest extent possible, those legal terms that detract from a “user-friendly” product should be avoided.
F Explain and defend the amendments
Proposed amendments, especially those that change existing procedures, rights or obligations, should be accompanied by counsel's analysis that describes the effect of the revisions. Especially where the amendment changes something taken for granted – the extent of association jurisdiction over use or modification of property; maintenance responsibility; liability for interior damage; quorums or other voting rights- a clear, direct, honest explanation can defuse potentially devastating attacks on the credibility of the board and counsel who otherwise may be accused of “trying to pull a fast one…”.
Explaining the amendments is not enough; defending them is also wise. There are generally very good reasons to support CC&R amendments; some are mentioned at the beginning of this article. The justification for the proposed amendments – to manage the budget better, limit risk, maximize a litigation strategy, conform to current law, eliminate ambiguity, delete obsolete references to the developer—need to be stated clearly and frequently as part of the campaign supporting amendments.
G. Changes that conform to law
Many owners do not realize that some proposed CC&R revisions are more or less dictated by law. For example, in Arizona and Colorado, owners are generally guaranteed the right to display political signs, subject to some limitations. In California the authority of a board to unilaterally increase assessments twenty percent per year cannot be restricted.5 A great deal of confusion and disputation can be avoided if counsel identifies for the members those proposed amendments that reflect legally mandated obligations or rights which are guaranteed by law.
H. Amendment by board vote?
A useful procedural device is one which permits Governing Document amendments upon the vote of the board (while not requiring membership approval). This permits fast, efficient amendments and is best used in states with active legislatures effecting annual or at least frequent changes to homeowner association laws. On the other hand, amendments requiring only board approval may foster membership suspicion of board action. This suspicion can be mitigated by requiring that any amendment vote by the board be conducted at an open meeting at which counsel is present, limiting the amendments to specific changes in the law and mandating that the amendments conform to counsel's written analysis of the changes.
I. Amend the amendment clause first
For CC&Rs with very high approval requirements (75% to 90%) or those where apathy paralyzes almost any action, pursue with single minded determination a spot amendment permitting future amendments upon a lesser percentage or those only requiring board approval.
J. Fee Agreements
Estimating the legal cost of amendments to Governing Documents is difficult. In part, the fee quoted may be based on local market conditions, a desire to serve a particular community (a prospective client or one longstanding), a tested template, and that portion of the amendment drafting that is in counsel's sole control. The attorney can generally estimate the time spent at one meeting, a follow-up analysis, or inputting and analyzing questionnaire responses. On the other hand, no one can know how many meetings will be required, whether member meetings raise important issues requiring changes to the proposed amendments or re-votes, whether legal challenges will arise and if so whether they threaten the amendment process. Attorneys should build into fee agreements language addressing the possibility that circumstances affecting the estimates may arise, this point should be emphasized periodically during the give-and-take drafting and meeting process.
In contentious communities, it is entirely possible that the fee agreement and hourly rate will become fodder for public debate. Counsel should be prepared to accurately and candidly discuss fees (including amounts paid and billed as of the date of meetings) and costs, as many communities question the board's willingness to spend “their” money for an attorney even though, without one qualified, the risk of jeopardizing the amendment process would be very high.
K. The vote
Voting can generally be done at or as part of a meeting and/or by some sort of mail-in ballot. Members need to know that once cast, their votes cannot always be recast. In states which permit, the board should explicitly reserve the right to extend the voting period to increase the chance of passage or at least to obtain a quorum.
L. Planning for the hereafter: if the vote fails
It is important for the board and community to understand why an amendment vote is not successful. There are many possible reasons: basic apathy; objection to new use restrictions (like a limitation on rentals) or elimination of old ones (that would permit RV's to park in driveways); perceptions about incumbent control (giving the board too much power) or assessment increases (if the association takes on more maintenance obligations). Once the reasons are know, the board can decide whether to retool the GD's to eliminate the provisions thought most objectionable or controversial or, instead, to request the Court to authorize the amendments as authorized by section 1356 of the Civil Code.
III. Substantive Issues
Discussed below are various topics that are frequently the subject of amendments.6
A great deal of thought and elbow grease goes into a successful campaign to pass Governing Document amendments. The process takes several months and requires a partnership involving initially, the board or committee, counsel and the manager, and later, the members. Sometimes, a board should remain firm in its recommendations for proposed amendments; other times, it should be receptive to objections or concerns raised by the members. Always, the amendments should be as clear as possible and their objectives timely and properly communicated. Using the techniques described here, it should almost always be possible to secure membership approval of essential and proper amendments.
1 A version of this article was originally prepared with the assistance of Tanis Duncan, Esq. of Arizona and Colorado for presentation to the College of Community Association Lawyers of the Community Associations Institute. Information about the College can be obtained at www.caionline.org/ccal/index.cfm.
2 In the context of certain unlawfully discriminatory covenants, California Civil Code 1352(b) requires directors to effect governing documents without membership approval and regardless of requirements imposed by the documents or by law. California is not alone: Colorado law requires associations to adopt specified rules and bylaw changes concerning such things as conduct of meetings, assessment collection, conflicts of interest, CC&R enforcement and governing document amendments.
3 Compare UCOIA Section 3-102(a)(2) and 3-103(c) with California Civil Code Section 1365.
4 For example, before 2005, California budgets were required to be distributed 45 – 60 days prior to the fiscal year. Many CC&R provisions include that requirement. Current law, however, expands the budget window and allows budget distribution 30 – 90 days before commencement of the fiscal year. Is the board required to comply with the old or the new statutory requirements? While the legal question may be resolved by appropriate statutory language (“notwithstanding timing requirements provided for in an association's governing documents, the budget shall be distributed…”) this does not solve the internal confusion that may result when a board follows a law that is not consistent with a community's governing documents.
5 Colorado 38-33.3-106.5(1)(c); California Civil Code Section 1366(b)
6 Attached are two interesting articles dealing with smoking and pets worth reviewing prior to the drafting of amendments addressing these issues.