A new law going into effect Jan. 1, 2013, will substantially change the rules that apply to records maintained by homeowners associations (HOAs). This article discusses some of the changes and how they will affect HOAs and owners.
> Requirement to disclose construction defect claims and settlements: The new law expands an existing list of documents that must be maintained by HOAs. Of note, the law requires HOAs to keep records of all construction defect claims and amounts received in settlement of those claims. It would be prudent for a person purchasing property in an HOA to require the seller to provide this document.
> Requirement to disclose written communications between board members: Most HOAs are nonprofit corporations governed by an elected executive board. The executive board is required to take action on behalf of the HOA at formal meetings unless it satisfies requirements in the bylaws or corporate law for taking action in lieu of a meeting. Whether action is taken with or without a meeting, HOAs are required to maintain minutes indicating the action taken. In practice, many executive boards routinely take action through informal exchange of emails not made available to the owners. This practice is generally not consistent with the bylaws and applicable law. The new law aims to increase accountability by requiring HOAs to keep records of all "written communications" (including emails) and the votes cast by board members "directly related" to action taken in lieu of a meeting. HOAs are not required to keep records of other communications between board members. As a major change, HOAs will need to figure out a process for maintaining the required written communications.
> Expanded right of owners to obtain records: If an owner wishes to obtain records under current law, the request must be "made in good faith and for a proper purpose." These limitations have sometimes allowed HOAs to control access to information by declaring that a request was not made in good faith and for a proper purpose. The new law expands owners' rights by giving them an absolute right to obtain most HOA records by making a simple written request without first being required to show a proper purpose.
> Changes to time for providing records: Current law generally requires HOAs to make documents available within five business days after an owner's request or at the next meeting (either of the owners or the executive board) if it is scheduled to occur within 30 days after the request. The new law expands the response time to 10 business days unless the next meeting of the executive board (not the owners) is scheduled in the next 30 days, in which case the documents can be provided at the meeting.
> Records that don't need to be disclosed. The new law helpfully provides a list of records that HOAs are not required to disclose to owners. This includes documents subject to attorney-client privilege ... owner lists if intended to be used for purposes unrelated to ownership of a unit ... architectural drawings without the consent of the person who owns them ... documents relating to transactions to purchase goods and services that are under negotiation ... documents relating to units not owned by the requesting owner ... specific personnel, salary, or medical records ... and documents with personal identification and account information.
> Consider changing policy: HOAs are generally required to adopt and follow policies concerning inspection and copying of records by owners. It may be necessary for HOAs to revise an existing policy (or adopt a new one) and initiate practices consistent with the new law. HOAs should consider consulting an attorney for assistance drafting an appropriate policy.
Noah Klug is principal of The Klug Law Firm, LLC, located in Summit County, Colorado. His practice focuses on business, real estate, and litigation. He may be reached at (970) 468-4953 or Noah@TheKlugLawFirm.com.