BIG CHANGES IN NH CONDO LAW OPPOSED BY INDUSTRY LEADERS

Published on: February 20, 2018

A number of new condominium related bills came before the NH House Commerce and Consumer Affairs Committee on January 25, 2018. As a member of CAI-NE’s NH Legislative Action Committee, I appeared with other committee members before the legislative committee to oppose these bills as the majority were very bad for associations and board members.  I am proud of the work our committee did to stop these bills at the outset.  We were able to make the legislators understand the practical consequences of these bills and just how negative of an effect the bills would have on all associations.

Personal Liability Against Board Members

Perhaps the most alarming proposed bill sought to impose personal liability upon board members for certain defined acts which included fraud and deceit, but also the failure to comply with certain portions of the Condominium Statute. Yes, you read that correctly.  As it currently stands, it is hard enough to get unit owners to run for board positions.  Many condos that I represent have unfilled board positions due to owner apathy.  Imposing any type of personal liability upon board members—even for purposeful acts of fraud—will undoubtedly result in less owners being willing to serve on the board.  Why accept any risk of personal liability?  Moreover, laws already exist that would allow an aggrieved owner or condo board to sue a board member who commits and act of fraud or theft.

Changes to Quorum Requirements

The next defeated bill required that, for “a vote that is not a simple majority vote of those present” at a meeting [e.g., a vote to amend the documents or budget vote], a quorum would require “the presence of at least one more unit owner or proxy than the number of votes needed to pass or reject any item on the agenda for the meeting.”

This proposal would have been nothing short of a disaster for condominium associations. Let’s assume you have a condo of 100 people. In order to conduct a veto vote on the annual budget—a vote which requires 2/3 of all owners to vote down—68 unit owners would be required for a quorum (67 owners for the 2/3 plus 1). Such a requirement would make it virtually impossible to pass a budget since a quorum would be so difficult to attain. Personally, I have never been to a meeting where more than 2/3 of all owners have been present in person or by proxy. That type of attendance happens from time to time, but it is rather rare.

Moreover, I found this bill to be simply unnecessary for amendment votes since an amendment cannot pass unless the vast majority of residents appear in person or by proxy. Let’s assume you need 2/3 of owners to pass a particular amendment. If 30 of the 100 owners show up in person or by proxy, the amendment fails given that the necessary “yes” votes cannot be obtained. Thus, you simply do not need a higher quorum requirement to “protect” absent owners as, by definition, you need at least 2/3 of owners to show up in person or by proxy to pass the amendment (not 2/3 of those present).

Budgets and Special Assessments

Another newly proposed bill seeks to once again make changes to the budget-making process. While not officially defeated as of this writing, our committee has already testified against the bill and will do so again when it comes before the committee for a second time.  This bill requires that in order to have a veto vote on the board’s proposed budget, at least half of all owners must be present for the meeting (in person or by proxy).  Thus, if 49% of owners show for the meeting (which would be a great showing for most associations), the budget cannot pass and the condo will be forced to schedule another meeting or fall back on the prior year’s budget.

Needless to say, this bill would also produce terrible consequences for condos and condo boards. For many associations, getting a quorum for even the most important issues is difficult.  To require 50% or more of all owners to show for a budget meeting is a monumental task for many associations and will be outright impossible for others.  For such associations, the budget process will be totally hamstrung.

The 2016 amendments to the condominium statute struck a balance between board power to create a budget and the power of the owners to push back against an unwise budget. Requiring a 2/3 vote of all owners to veto a budget makes it so a rogue board cannot assert its will against a powerless group of owners.  However, requiring 50% of owners just to show up in order to conduct a vote goes too far the other way.  This bill would cripple a board’s ability to make budgets when obtaining a quorum is not possible.  In turn, this will mean that condos cannot adjust their budgets to meet changing financial obligations.  This could result in money not being available for vendors or to fulfill contractual obligations.  The ripple effects are enormous.

One aspect of this particular bill that already did pass through the legislative committee and will likely become law. It amends the special assessment section of the statute to specifically define what constitutes an emergency for purposes of a special assessment.  Under the 2016 amendments, a board can pass an emergency special assessment by a 2/3 board vote and avoid the unit owner veto vote.  The new law will define an emergency as “a situation that requires immediate action by the board of directors, that if not attended to will cause damage to either units, common areas, or personal property of residents, or will injure residents.”

Dispute Resolution Board

One bill which continues to be examined each year is a Dispute Resolution Board. This would be a state-run board composed of appointed condominium industry professionals (board members, property managers and attorneys, e.g.), who would hear owner grievances.  The NH LAC is vehemently opposed to this bill as it would result in a flood of complaints by unit owners to the Dispute Resolution Board (DRB) that the condominium board would be required to defend.

Any fine that an owner or resident disputes could be theoretically brought to the DRB and the condominium board would be forced to spend its own time defending its actions or hire an attorney to defend the case resulting in a loss of funds which could otherwise be put to good use. Either eventuality is clearly not good for associations.  Moreover, resolving condominium disputes is simply not something state government should be involved in.  Aggrieved owners can turn to the judiciary if they are dissatisfied with attempted resolution directly with the condominium’s board of directors.  The NH LAC will continue our active opposition of this bill.

For any questions regarding this article, please contact Dean Lennon at dlennon@meeb.com.