The Condominium Amendment Act of 2014, which was passed by the D.C. Council and signed by the Mayor in April 2014, became law on June 21, 2014, following a period of mandatory congressional review. This legislation puts forth sweeping changes to the D.C. Condominium Act (the “Act”), which will affect the management, operations and governance for condominium associations in the District of Columbia.
The Business Judgment Rule Is Now Black Letter Law
The Business Judgment Rule provides that a court reviewing the actions of a condominium board of directors may not second guess the judgment of the board unless bad faith or self-dealing exists. The D.C. Council has now codified this business judgment
standard, making it statutory law in the District of Columbia. This action protects the
decisions of D.C. condominiums and their boards of directors from judicial review as long as they exercised their judgment and did not act in bad faith. Additionally, in litigation between a unit owner and the condominium, the substantially prevailing party is now statutorily entitled to recover reasonable attorneys’ fees and costs.
Leasing Restrictions Are Authorized Pursuant to Amendment of the Bylaws
A condominium may restrict leasing of individual units if the Bylaws are amended to add those restrictions. However, any such amendment is enforceable only against owners acquiring their units after the amendment is adopted. Existing unit owners are deemed exempt from any such amendment unless they specifically consent to be governed by its provisions.
Unit Owners Must Obtain Their Own Insurance Policies
The condominium may require unit owners to obtain at least $10,000 of what is commonly referred to as HO-6 insurance coverage for their unit; these amounts cover damage to or loss of personal property within the unit and betterments and improvements to the unit. The condominium may also mandate that owners procure liability coverage of at least $300,000. These amounts could be increased at the option of the condominium’s board of directors where appropriate.
If an insurable loss originates in the common elements, the deductible charged by the condominium’s master insurance policy carrier is a common expense. However, if the damage originates in a unit, that unit’s owner may be charged the deductible, up to $5,000, pursuant to the new legislation. If the owner carries the HO-6 insurance mentioned above, that policy will likely cover the owner’s deductible obligation.
Assessments May Now Include Costs to Maintain Limited Common Elements
If the condominium maintains limited common elements appurtenant to a given unit, the costs incurred to do so may be assessed against that unit. Additionally, where the condominium association takes action to recover assessments that are unpaid by delinquent owners, it may also recover late charges, interest, reasonable expenses, attorneys’ fees actually incurred and costs of collection. Such amounts constitute a lien upon the unit that may be satisfied by non-judicial foreclosure – a powerful remedy. Where assessments are payable in installments, they may be deemed delinquent upon the owner’s failure to pay the first installment.
Electronic Notice Is Now Permissible
Notice of meetings of the condominium and its board of directors and committees may now be sent to unit owners in good standing by electronic means so long as those unit owners have requested electronic notice and waived notice by mail. The Bylaws must specify that an officer of the condominium give notice, whether electronically or by U.S. Mail, at least 21 days prior to any annual or regularly scheduled meeting and at least 7 days prior to any other meeting (e.g., a special meeting of the condominium or its board of directors).
Notice of board meetings must be provided to any unit owner requesting notice and published in a manner and at a location reasonably calculated to ensure that it is seen by unit owners (e.g., in the lobby of the condominium building). A unit owner who requests to be provided notice of meetings of the board on a continuing basis must make that request at least once annually.
In addition to obtaining the consent of the unit owner to receive electronic notices, as well as a waiver of the right to receive such notices by regular mail, the following additional steps must be followed in order for electronic notice to be effective:
(i) The Board must authorize electronic notice; and,
(ii) An officer or agent of the condominium must certify in writing that notice
was provided by electronic means as authorized by the unit owner.
Notice by electronic means is not effective if it is undelivered after two attempts
and the inability to accomplish delivery electronically is known to the individual
responsible for giving notice. The inadvertent failure to provide notice to a unit owner
does not invalidate the meeting or other action that is the subject of the notice in question.
Meetings Must Be Open Meetings, With A Few Exceptions
All meetings of the condominium association, the condominium’s board of
directors, and committees must be open to all unit owners in good standing (defined in the Act as unit owners whose accounts are not more than thirty days’ delinquent). The agenda of any board meeting must be available for inspection by unit owners in good standing upon request. At all meetings of the board of directors, unit owners in good standing who are in attendance must be provided with an “open forum,” during which owners may address the board regarding matters pertinent to the condominium.
Notwithstanding the general public policy expressed in the Act that favors open
board meetings, the Act now contains provisions permitting a board meeting to be closed, upon the majority vote of the Board, to address:
(i) Personnel matters;
(ii) Contracts, leases and other commercial transactions that are currently in or
under negotiation;
(iii) Pending or anticipated litigation, including where litigation has been
threatened by a party or their attorney;
(iv) Matters involving state or local administrative or other formal proceedings
before a government tribunal for enforcement of the condominiums
governing documents or rules and regulations;
(v) Consultation with legal counsel;
(vi) Matters pertaining to enforcement of the governing documents or rules
against unit owners or their personal liability for assessments; or,
(vii) For any other reason deemed sufficiently compelling by the Board to
override the public policy in favor of open meetings, where the Board has
voted to close a meeting by a two-thirds vote of its members.
A board of directors is now permitted to conduct its meeting via video or audio conference call or by other means that allows all participants (including owners in good standing who wish to attend) to hear and address one another contemporaneously. Alternatively, the board may take any action outside the confines of a regular meeting that it would otherwise be permitted to take during a meeting; provided, however, that it does so by unanimous written consent and the action is documented in a written resolution.
Minutes of all condominium meetings must be made available for inspection during
reasonable business hours by unit owners in good standing upon five (5) days’ written
notice.
Unit Owners May Vote by Email
Unit Owners may submit votes or proxies by electronic means, notwithstanding any provisions of the Bylaws to the contrary; provided, however, that the method of electronic voting permits the verification of votes or proxies received. So long as good faith efforts to submit, receive, and count votes or proxies can be shown, the inadvertent failure to submit, receive or count votes or proxies will not invalidate an election, meeting or other action that is the subject of the vote in question.
Obtaining Mortgage Lender Approval Just Got Easier
If the Condominium Declaration and Bylaws require the consent of mortgage lenders in order to adopt an amendment, but the lender fails to respond, that failure to respond is now be equivalent to lender consent if 60 days have passed since the lender received notice of the amendment.
There is also new language in the Act that excuses the condominium’s inadvertent failure to notify a given lender, so long as good faith effort of its intent to do so can be demonstrated. In that case, the amendment is not invalidated due to the failure to provide such notice. This is significant in DC since lenders often fail to file updated Substitution of Trustee documents with the Recorder of Deeds, making actual notice difficult despite good faith efforts.
Books and Records Must Ordinarily Be Made Available for Inspection – But There Are Exceptions
All condominiums must maintain books and records and make them available for inspection by unit owners upon request. The request to inspect must relate to the
business of the condominium and the owner’s interest therein, and not for pecuniary gain of the unit owner or for commercial solicitation purposes.
The condominium’s records must be maintained within the District of Columbia (or within 50 miles thereof) and may be withheld for inspection only insofar as the records withheld concern the same subjects for which a meeting may be held in closed session. Furthermore, the books and records of a condominium are subject to audit upon the vote of 33-1/3% of the unit owners.
Other Minor Changes
In addition to the many changes discussed above, the Act was also amended in the following way:
(i) Unit boundaries may be adjusted and units may be subdivided if allowed by the Bylaws;
(ii) A condominium’s board of directors may pledge the condominium’s income as security for a loan; and,
(iii) The declarant (developer) of a new condominium may employ a bond or letter of
credit to satisfy its bond obligations under the Act.
What It All Means
The DC Council has dramatically updated the Condominium Act. Some of these changes are a long time coming, and while several of them simply codify long-time practices, others represent drastic changes in the rights and obligations of both Condominium boards and Unit Owners. If you have any questions on how these changes impact you, please feel free to contact me.