THE IMPACT OF SENATE BILL 187

ON HOMEOWNER'S ASSOCIATION OPERATIONS

Produced by:

ALTICK & CORWIN CO., LPA

STEPHEN M. MCHUGH

SCOTT A. LIBERMAN

1 South Main St., Ste 1700

Dayton, OH 45402

937-223-1201

SUMMARY OF OHIO SENATE BILL 187 (O.R.C. 5312)

            After the 2004 revisions to Ohio's Condominium Statutes (O.R.C. 5311), the state legislature turned its' attention to creating a similar uniform framework for the operation and management of homeowner's associations, and to supplement the documents of any homeowner association in existence to achieve such uniformity. The result is S.B. 187, the "Ohio Planned Community Law," which becomes effective on September 10, 2010, and will appear as Chapter 5312 of the Ohio Revised Code.

            The law applies to any "planned community," which is defined as a community comprised of individual lots for which a deed, common plan, or declaration requires any of the following: (1) that owners become members of an owners association that governs the community, (2) that owners or the owners association holds or leases property or facilities for the benefit of the owners, or (3) that owners pay membership fees to support property or facilities for all owners to use.

            This summary highlights only a few of the most unique and note-worthy issues in O.R.C. 5312, and is not intended to be a full review of the law. Should you have specific questions about your community, please contact an attorney experienced in common ownership community law. Please also note that the titles used in this article are the authors' and do not appear in the statutes.

O.R.C. § 5312.01: Definitions

            This section contains a number of definitions designed to create a common set of terms used by associations around the state. Similar to Ohio's Condominium Law, what most people refer to as "common areas" are called "common elements" under Subsection (C), and subsection (I) lays out limited common elements for areas that are reserved for use by certain lots to the exclusion of other lots. The definition of planned community indicated above appears in Subsection (M) of this statute.

O.R.C. § 5312.02: Bylaws

            This section requires developers to record declarations and bylaws when starting a community, and states that the statute does not invalidate a provision of an existing association's documents if the documents are recorded prior to September 10, 2010.

Associations should review subsection (B), which states a number of provisions that must be in an association's bylaws, such as the election, number, term length and method of removal of directors, the powers and duties of the board, and whether a managing agent may be engaged. However, see the comments below, regarding the provisions in O.R.C. § 5312.05 on amendments.

            Subsection (D) states that associations in existence on the effective date (September 10, 2010) have 180 days to record with the county recorder the bylaws that are in effect on that date. While it is presumed that associations whose bylaws are already recorded need not re-record them, some interpretation may be necessary, as the statutory language is confusing.

            Another important provision of Subsection (D) states that amendments to the bylaws are not effective unless they are recorded, and boards must record amendments to their bylaws within 60 days after they are adopted. As such, associations should review their documents and ensure that all amendments to their bylaws have been recorded.

O.R.C. §§ 5312.03 and 5312.04: Board of Directors

            These sections provide the process for creation and basic management of the association, including who may serve on the board (including spouses of owners, members of a company that owns a lot), as well as methods for conducting a meeting electronically. It also covers the ability of the Declarant (the person or company who first establishes the planned community) to control the board temporarily while the community is under construction. Additionally, these sections make clear that the term used to identify governing body of an association is the Board of Directors. Therefore, associations whose board members are known as "Trustees," "Managers," or other such terms should be aware of the change in commonly-used terms.

Boards should take note of O.R.C. § 5312.04 (C), which requires a meeting of all owners "at least once each year." Boards should also take note of O.R.C. § 5312.03, which requires owners associations to be organized as a nonprofit corporation. Any association that is not incorporated and registered with the Ohio Secretary of State in this manner should contact an attorney to complete the same.

            Many boards will find O.R.C. § 5312.04 (F) to be exceptionally useful in maintaining order and efficiency in the completion of association business. It states that "No owner other than a director may attend or participate in any discussion or deliberation of a meeting of the board of directors unless the board expressly authorizes that owner to attend or participate." Another important subsection is O.R.C. §5312.04 (G), which requires a board to comply with all applicable state and federal prohibitions against discrimination. It is imperative that associations consult an experienced attorney to oversee and review operations to help avoid liability in this area.

O.R.C. § 5312.05: Amendments

            This section sets forth basic provisions for amendment or termination of the declaration or bylaws. Unless an associations documents state otherwise, consent of 75% of the owners is required to amend the declarations or bylaws.

A provision similar to O.R.C. § 5311.05 (E) is conspicuously absent from this section, and the entire law. Under O.R.C. § 5311.05 (E), condominium boards were allowed to amend the declarations without a vote of the owners in order to accomplish certain tasks (i.e. to comply with requirements of banks and insurers, to bring the declarations into compliance with the new law, or to correct clerical errors). No such provision appears in the new Chapter 5312. As such, any amendment to the declarations, even if required by the new law, must be voted upon by the entire association.

O.R.C. § 5312.06: Powers and Duties of the Board of Directors

            Subsection (A) requires the adoption of an annual budget to include "reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments." While the Condominium Act requires a strict 10% of the budget to go towards reserves, the standard imposed upon planned communities is not as formulaic, and boards should consult with an attorney to ensure compliance.

            Subsection (B) requires associations to keep property and liability insurance for common elements, and directors & officers insurance, and subsection (C) requires the association keep records concerning collection and disbursement of monies, minutes of meetings, and a record of the names and addresses of owners.

            Subsection (D) grants a number of management powers to the board of directors of an association, and each association should review their declarations and bylaws to compare what powers may now be available to them. The statutory powers include the ability to hire and fire independent professionals (managing agents, attorneys, etc.), to enforce all provisions of the declaration and bylaws, to adopt and enforce rules concerning use of the common elements and the collection of delinquent assessments (including charging returned check fees, interest, late charges and enforcement assessments), suspend a delinquent owner's voting privileges and use of recreational facilities,  and the power to contract for operating the property.

Of particular import is Subsection (13) which allows the board to grant "designated individuals" access to any area of the property (i.e. lots and houses) "when conditions exist that involve an imminent risk of damage or harm to [property] . . . or to the health or safety of [people]." This section is slightly broader than the mirror provision in the Condominium Act, in that it allows the Board to grant "designated individuals" access to a lot under emergency circumstances. However, no definition of "designated individuals" is provided. As such, any board should be extremely cautious when exercising this power, and should consult an experienced attorney prior to doing so.

O.R.C. § 5312.07: Records

            This section grants an owner the right to access certain association records, and allows the board to adopt certain reasonable rules regulating such access. Subsection (B) states that an owner must have a board's approval in order to access certain records related to matters such as enforcement of the declarations, information related to contracts under negotiation or confidential contracts, personnel matters, and certain communications with an attorney.

O.R.C. §§ 5312.08 and 5312.09: Common Elements

            These sections set forth obligations and restrictions with regards to common elements, including the association's duty to maintain them, an owner's responsibility to maintain and repair their lot and improvements, and certain provisions are set forth concerning the use of lots to maintain the common areas. Additionally, unless the declarations specifically grant the power, the board is prohibited from conveying or encumbering common property or the right to collect assessments, without approval of 75% of association.

O.R.C. §§ 5312.10 and 5312.11: Assessments

            These sections discuss assessments and application of payments received. However, under O.R.C. 5312.10(C), a board "may not charge assessments for common expenses unless the declaration provides for or contemplates the charging of such assessments."

Under O.R.C. 5312.10 (A), an association may assess lots for common expenses, which are all costs the association incurs in administering, governing and maintaining the community, and unless the declarations state otherwise, each lot owner shall be equally liable for common expenses. This provision also requires that common expenses shall be assessed annually.

Under O.R.C. § 5312.11 (A) the board may also assess enforcement assessments, utility services, and repair or replacement costs incurred due to an owner's negligent or willful act. Additionally, the association may assess an individual lot owner for costs associated with enforcement of the declaration or any rules, including attorney's fees, court costs, and other amounts.

Under O.R.C. § 5312.11(B), unless the declarations say otherwise, an association can credit any monies received in the following order: (1) interest, (2) late fees or enforcement assessments, (3) collection costs, attorney's fees, and paralegal fees, (4) oldest outstanding common assessments of that lot. Associations contemplating a lien or foreclosure on delinquent lots should carefully review this section and the application of any payments received to ensure they are listing the appropriate delinquent balance of unpaid assessments.

            Any board that is contemplating a specific assessment upon a lot owner for enforcement of the declarations, bylaws or rules should first review the procedure set forth 5312.11 (C) and (D). These sections require a notice to the offending owner and the ability to request a hearing, all prior to the actual assessment, and directly mirror the procedures that experienced attorneys and property managers have been using under the Condominium Act.

O.R.C. § 5312.12: Liens

            This section concerns the association's ability to file a lien against lots for unpaid assessments.  It uses most of the procedures that have been in place for condominium associations, such as recording a certificate of lien, foreclosure and the priority of the association's lien behind a first mortgage, and the ability appoint a receiver to collect rents. The lien is effective the date it is recorded, and is valid for five years.

Associations will appreciate Subsection (B)(2), which states that the recorded lien "is subject to automatic subsequent adjustments" to reflect additional unpaid amounts, including collection costs, attorney's fees, and court costs.

O.R.C. §§ 5312.13-15

            The remaining provisions of the Act require owners and their guests to comply with the declarations and other documents, provide for law suits by or against the association, and set forth the overarching mandate that an association's existing declarations or bylaws control over the statute, unless the association's documents are silent with respect to any of the statutes.

OTHER NOTES

            Although condominium and homeowners associations are similar in many respects, there are several conspicuous provisions that were not granted to homeowners associations, despite the fact that they still exist in the condominium law. As stated above, no provision was made in this homeowners law allowing amendment of the association documents without a full vote of the association.

            It should also be noted that homeowners associations are not granted the powers of eviction that are granted to condominium associations under O.R.C. §5311.19(B)(1). Furthermore, the new law does not contain a specific provision overruling declarations that prohibited the placement of one United States flag, as set forth in O.R.C. § 5311.191. Finally, the new law does not include required disclosure and purchaser remedy provisions, like those required of condominium associations by O.R.C. §§ 5311.26 and 5311.27.