Is the BOD violating the Declarations?

Started by BarbaraP3 • 20 replies • 1263 views

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BarbaraP3 (Maryland)
Posts: 90

Posted:

I belong to an association in a “mobile home vacation community” in MD. I have owned in the community for 16 years, served on the BOD for 4 years and the ARC committee for 6 years. The assn has “bulk electric billing” and then they read the individual homes meters to bill them for their own electric. The difference between members electric and the total electric bill is the “common ground electric’. For the 16 years I have been a member, our monthly dues (annual assessment) has always covered the common ground electric. This past summer our BOD started to bill members for “common ground electric” on our individual electric bills. Line 1 is electric usage; line 2 is common ground electric. Our declarations state:

9.1, Assessments and Liens, page 14...
“Each owner....agrees to pay to the Association for purposes herein provided: (1) ANNUAL ASSESSMENT for operation and maintenance of COMMON AREAS; (2) special assessments, etc.....”

9.3, Assessments and Liens, page 14...
“The association shall levy and collect, in each year, an ANNUAL ASSESSMENT upon each campsite liable therefore in an amount sufficient to provide revenues to pay ALL costs, including a REASONABLE reserve for depreciation and a reasonable reserve for uncollectible amounts, for operation and maintenance of the COMMON AREAS, including the UTILITY facilities and all other obligations of the association for EACH YEAR….. In January of each year the Board shall adopt a budget setting forth all such costs and obligations of the Association for THAT CALENDAR YEAR and on the basis thereof, shall establish the amounts of the annual assessment for such year and shall collect the same.”

I have written to the board three times regarding this issue indicating that they are in violation of the declarations. Their feeling is that this is the “fair” way to bill for common ground electric. I asked, “What has happened to the $25K that has been in the budget for common ground electric for the last 20 years?” I have never received a direct answer to that question. We know what has happened; they spent it, and spent it and spent it. The BOD raised our dues $20/month in Jan 08, and then initiated this “electric surcharge” with the July billing. We are billed quarterly and was charged $16 on the July billing and then $44 on the Oct billing…total $60 for 6 months times 2 is $120 per year…another $10/month which is in essence a $30/month increase. I think they did not want to raise the dues $30 so squeezed an additional $10/month with this “common ground electric surcharge”. They have now posted on the assn web site the following:
“After contacting the lawyer for WHP, it has been determined the way the invoicing for the common ground is being done, is not against our declarations. There will be No change in the way the electric bills are invoiced."

Now where does this leave me and the other members? A lawsuit?

Any suggestions would be greatly appreciated.

Thanks,
Barb

SusanW1 (Michigan)
Posts: 5,202

Posted:

This is a little hard to figure out since you state YOUR perceptions of what is going on.

But basically, there used to be one pot from which they pulled out all payment obligations; NOW they are itemizing it and you can see it on your actual bill.

The best you can do is to track the revenue/sxpenses for THIS particular line item and see if collected funds are applied as determined by the board.

BarbaraP3 (Maryland)
Posts: 90

Posted:

Thanks, Susan.
I have no doubt that they are using it for common ground electric. That is exactly how we figured out the common ground electric when I was on the board. My perception only applies to the spending of the originally budgeted $25k for common ground electric that has been paid for from our assessments.
It would be very difficult for any member to track the electric charges, since we only get a year end statement prepared by the accountant at our annual meeting. We can request association documents in writing and charged a $1.00 per page for the document. We have tried to get the board to publish quarterly statememts or post them on our web site.....but they just ignore our requests.

We are really questioning the validity of a separate charge for common ground electric since our declarations state that our annual assessment is to cover all common ground operating and maintenance costs. Isn't electric an operating cost?

Our declarations do allow for the board to set fees.....for limited amenities, late fees/charges, legal fees, interest, violatios, etc.

SusanW1 (Michigan)
Posts: 5,202

Posted:

From the quote you have posted, it looks like the Board DOES have the power to levy annual dues, based on a budget - which all members have a right to see, along with the minutes and attached financial reports. Just request to see these from the Secretary.

Does the Membership approve this budget? or does the board work it up and approve it?

How could you have $25,000 in a fund set aside for common electricity costs? You were on the board before, so did you see that "resricted fund" on the balance sheet?

Electricity costs are difficult to project, except to see what was used in the past and add some to it. That's an Annual expenditure, not a "Reserve Fund" cost for the HOA.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Barbara,

“The association shall levy and collect, in each year, an ANNUAL ASSESSMENT upon each campsite liable therefore in an amount sufficient to provide revenues to pay ALL costs, including a REASONABLE reserve for depreciation and a reasonable reserve for uncollectible amounts, for operation and maintenance of the COMMON AREAS, including the UTILITY facilities and all other obligations of the association for EACH YEAR….."

I think this provision of your gov docs is quite explicit in saying the utility costs should be included in the annual assessment. IMO, the board has no authority to bill separately for electric fees. If the members have not been paying enough through the annual assessment to cover the elec. costs, then the annual assessment should be raised accordingly. This separate assessment for elec fees appears to be a special assessment which should require a vote of the members!

SusanW1 (Michigan)
Posts: 5,202

Posted:

It's not clear who is using the term "surcharge" - the board or the O.P.

SHE seems to have pulled the billing apart, but the Board is lumping everything together and has raised the dues accordingly, first in Jan. and then again in July.

We need to see the Board's wording of the dues increase, as stated in the minutes.

MaryA1 (Arizona)
Posts: 7,043

Posted:

I did not have the impression this was a dues increase but rather a separate charge for electric. If it was just a dues increase, then it would be OK and IAW the gov. docs.

BarbaraP3 (Maryland)
Posts: 90

Posted:

Hi ladies,
Here is the wording from the board regarding the dues increase in Jan 08:

The xxxxxx Board of Directors has voted to increase the dues $20.00 per
month. Effective January 2OO8 the monthly Homeowners Association fee will now be
$110.00. Although this may seem like a large increase dues have not been
raised since July 2004. Allocation of the increase is as follows: $5.00 to cover inflation, $5.00 to cover the moving of the slip rent to the Reserve Fund, and $10.00 to the Reserve Fund.

Here is the wording for the electric "surcharge"...(note this is MY word not the boards)

The xxxx of Directors has voted to change the method used to bill homeowners for common area electric usage. In the past, several cents per kilowatt-hour was added to each bill to pay for common area electric charges and pedestal replacement. Although this method worked it did not distribute the cost of the common area electric evenly among homeowners.

This is an inaccurate statement. In reality the .035 cent increase to the KW hour was stated at the June 2006 annual meeting that it was for pedestal replacement AND the rolling rate that the electric company was charging us that year. This happened the year I left the bod (june 2005). In 2005, these board memebers kept saying that we did not collect enough electric money to cover the bill. I tried to get them to understand that the "electric income" line item was for "homeowners" electric only. Our assn dues covered the balance which was common ground and was included with the dues. There was no "restricted" fund for the common ground electric. All of the dues money went into the general fund and the bod would set the budget line items (expense & revenue) for the year. The only restricted money was the budgeted amount that was to go to the reserve account. The remainder of the budget line items were for operating and maintenance costs, i.e., salaries, maintenance contracts, lawn and landscaping, clubhouse maintenance, office supplies, insurance, vehicle payment, etc.

We also have a marina with 72 slips that pay $400/yr rent, total $28,800 per year. They moved that income to the "Waterfront improvement fund" NEW reserve account. Now all members are paying for the electric usage at the marina......no marina expenses are cover by the rental income. Should this have been treated as a special assessment also and voted on by the members?

KirkW1 (Texas)
Posts: 1,665

Posted:

I notice two different problems. The first is that based on what you have posted the common utilities do need to be from the assessments. What the Board is doing is against the declarations and also unfair. Here is the thing: you use of electricity (or lack thereof) has no effect on the cost of keeping the common area lights on.

The second problem is that what you quoted indicates that there is an annual assessment and the Board is actually making a monthly assessment. Not to split hairs, but they need to charge an annual assessment even if they allow you to make it in monthly payments. There is a slight difference here.

BarbaraP3 (Maryland)
Posts: 90

Posted:

WOW, thanks for the observation.
It is splitting hairs but accurate. Our members concern is that we have tried to no avail to get them to put the common ground electric back into the "annual assessment" (paid monthly). Now, is our only resource to take it to court? None of us really want to front the money for this but I guess we could start a donation fund to do this.

BarbaraP3 (Maryland)
Posts: 90

Posted:

Hi again,

Well, here I am again with the BOD's claim that they are not in violation of the declaration in the way they are collecting "common ground electric". Here is their BOD statement from our Oct "web letter"....

"After contacting the lawyer for WHP, it has been determined the way the invoicing for the common ground is being done, is not against our declarations.
There will be No change in the way the electric bills are invoiced."

The assn atty is the same atty when I was on the BOD for 5 years. He has always interpreted the declarations in favor of what the BOD wants.....not in a unbiased way (for members).

This board is getting away with anything/everything they want to do without members approval. They are permitted to raise the dues without members approval, which they did in Jan 08. Then they initiated the additional "common ground electric" fee which should be in the annual assessment, they slid in a "special assessment" for the waterfront improvement fund by removing the slip rental revenue from the operating budget and moved that money to the waterfront improvement reserve fund without members approval. Of course, they did not state that this was a special assessment, but in actuality it is. They state that this procedure will be in place "indefinitely"......."
They have estimated that our marina will need $500K in improvements. That amounts to a capital improvement which should be covered by a special assessment since they have neglected to collect enough rental income to fund this capital impvrovement. The bod has failed to recognize that the marina uses electric, water and sewer which should be covered by the rental fees.....and should not be incuded in the common ground electric or assessments! Oh, BTW, the marina is a limited amenity...there are only 72 slips and 465 members. There is a boat launch for other members use.

I don't know where to go from here. I'm about ready to give up. There are 15 other members that are in agreement with me. There are over 450 other members that I don't have contact with. We are a part-time vacation community with people spread all over the eastern states who cruise in on a Friday night and out on Sunday night .... they don't have the time or want to get involved as long as the community looks nice!
Apathy, apathy, and more apathy!

SusanW1 (Michigan)
Posts: 5,202

Posted:

Barbara - your marina should at least be paying for itself (in maintenance, utilities, etc.)

Having that marina (even if its for 72 slips)and launching rights (for all Members) does increase your property values for EVERYONE, even if you don't use the marina. That's what being a part of a "community" is.

Every one of us here that has a community center (or pool or tennis courts, or beach) wrestles with the same issue: does a limited-use asset really benefit ALL? And should ALL pay for something used by a few?

Your membership will have to work this out.

Perhaps selling the marina and retaining the launch rights might even be considered.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By BarbaraP3 on 11/16/2008 6:51 AM
Hi again,

Well, here I am again with the BOD's claim that they are not in violation of the declaration in the way they are collecting "common ground electric". Here is their BOD statement from our Oct "web letter"....

"After contacting the lawyer for WHP, it has been determined the way the invoicing for the common ground is being done, is not against our declarations.
There will be No change in the way the electric bills are invoiced."

The assn atty is the same atty when I was on the BOD for 5 years. He has always interpreted the declarations in favor of what the BOD wants.....not in a unbiased way (for members).

This board is getting away with anything/everything they want to do without members approval. They are permitted to raise the dues without members approval, which they did in Jan 08. Then they initiated the additional "common ground electric" fee which should be in the annual assessment, they slid in a "special assessment" for the waterfront improvement fund by removing the slip rental revenue from the operating budget and moved that money to the waterfront improvement reserve fund without members approval. Of course, they did not state that this was a special assessment, but in actuality it is. They state that this procedure will be in place "indefinitely"......."
They have estimated that our marina will need $500K in improvements. That amounts to a capital improvement which should be covered by a special assessment since they have neglected to collect enough rental income to fund this capital impvrovement. The bod has failed to recognize that the marina uses electric, water and sewer which should be covered by the rental fees.....and should not be incuded in the common ground electric or assessments! Oh, BTW, the marina is a limited amenity...there are only 72 slips and 465 members. There is a boat launch for other members use.

I don't know where to go from here. I'm about ready to give up. There are 15 other members that are in agreement with me. There are over 450 other members that I don't have contact with. We are a part-time vacation community with people spread all over the eastern states who cruise in on a Friday night and out on Sunday night .... they don't have the time or want to get involved as long as the community looks nice!
Apathy, apathy, and more apathy!

Barbara,

Did you hear the attorney's statement? If not, it could be that the board is not telling the whole story. Oftentimes the board will go against the advice of their attorney and just do as they please. I can't imagine an attorney giving advice that would violate the community documents. If they are doing certain things that require member's approval w/o that approval then they are in violation of the community documents.

You state a special assessment occurred when the board transferred money from one account to another; this, IMO is a grossly inaccurate statement. A special assessment usually requires a vote of the members and if approved means the members are required to pay a certain amount of money, in addition to the regular assessment, each month for a certain period of time or in a lump sum.

What do your docs say about funding for the marina? Is it supposed to be a self-supporting amenity? Perhaps the assn is resp. for maint which is only subsidized by the rental fees. This should be spelled out in your docs.

BarbaraP3 (Maryland)
Posts: 90

Posted:

Thanks for your replies....
MaryA1,
No, I did not see nor hear the atty statement. The BOD posts a monthly ltr/summary of the meeting/happenings in the community(just started in Aug 08). I guess I should request a copy of the lawyers response letter (if there is one). I don't think the atty would blatently mis-adivise them, but would mis-construe some of the by-laws such as:

from by-laws and declarations
....each member is obligated to pay to the assn annual and special assessment and charges by the association.....

from by-laws
Members shall have the privilege to use the common areas subject to provisions of the declaration and subject to such rules and regs that the board may establish. (declarations basically say same thing)

To regular people the word "CHARGES" would mean late charges, legal fees/charges, charges for fines, charges for clean up of property, charges for infractions of rules and regs, violation charges, etc.
But, I could see that the lawyer would agree with the bod that this could apply to any charges they would like to introduce! i.e., the newly instituted "common ground electric charge".

This is the avenue I think they are taking, which is in violation of the declaration statement that the annual assessment is to cover the annual costs of the common ground.....copied in a previous post.

Any insight you can provide is greatly appreciated.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Barbara,

Since the marina is owned by the assn it would be considered "common ground". At least that's how I would define it. Exactly what do your docs say about maint of the marina? Is it to be maintained by the assn or only through the rental fees collected from those members who use it? Perhaps the rental fees are only meant to subsidize the actual costs that are paid by the assn. IMO, this should all be spelled out in your gov. docs.

BarbaraP3 (Maryland)
Posts: 90

Posted:

MaryA1 and SusanW1,

Now in response to the marina questions....

I totally understand that the marina does increase everyone's property value. But, when you have limited amenities like the marina, boat storage and laundry rooms, good financial accounting practice would establish that the revenue collected should cover the operating and maintenance expenses, replacement, and if there is any revenue above that then into a reserve fund for that amenity capital improvement. We are all being charged for the electric for these revenue generated amenities and the bod is collecting twice for the electric. Once from the user and then from the members. I questioned the president if they were subtracting the electric costs for these amenities from the total common ground electric that they are now charging us. He stated, Oh, never thought of that!

We also have a pool, clubhouse, playground, etc and other amenities that there is no fee for. At settlement, every owner gets six pool tags for their use of the pool, which is basically a pool membership. They are aware that their annual assessment covers these amenities. These amenities are available to all 465 members and they have the right to use or not use….but are still obligated to cover those expenses by their assessment. The limited amenities (marina and laundry rooms) that generate revenue should be covering their own expenses and possibly reserve funds if the revenue allows.

The marina slip charge was $350/year for over 20 years. The last five years, the bod has increased it up to $425/year. A whopping $75.00 increase over 20 years. Slip rental fees in our area start at $1,000/year. We have a 7 member board; 5 men (all boat owners) and 2 women (non-boat owners). This has been the norm for the 17 years I have been an owner. I was only the 3rd woman on the bod….and I won’t go into the way I was treated. It was the good old boy club. I served a 2 year term then re-elected to a 3 year term then decided not to run again.

Our declarations do not state anything specific about the marina…..the wording is all recreational facilities. This is because the marina was built after the declarant turned over to the association. The by-laws expanded the “common ground paragraph” to “recreational facilities....including, but not limited to pool, marina and clubhouse areas.” The bod has set up a set of rules and regulations for the use of the marina and that’s it! They otherwise just group it into the “common ground” operating and maintenance expense that comes from our assessment.

The special assessment I referred to was not stated by the bod as a special assessment. They moved the slip rental fee of $28K to the Waterfront improvement reserve fund….hence our assessment now needs to cover that revenue shortfall. This action should have been treated as a special assessment and voted on by the members. Now the bod is stating that this will be done every year. I guess they mean until the half million dollars is raised to cover the capital improvements they want done on the marina.

I am at a loss…..and any suggestions are welcome.
Am I off base here?

SusanW1 (Michigan)
Posts: 5,202

Posted:

Get on the Reserve Fund Committee.

That's about the only thing you can do at this point to watch the movement of funds BASED ON A RESERVE FUND PLAN (usually 20 years)

BarbaraP3 (Maryland)
Posts: 90

Posted:

MaryA1,
Since the accounting practice is not stated anywhere in any of our documents, how should I go about spelling out the "operation and maintenance" of revenue generating limited common ground amenities? WOW, that's a mouth full! A by-law amendment?

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By BarbaraP3 on 11/16/2008 12:11 PM
MaryA1 and SusanW1,

Now in response to the marina questions....

I totally understand that the marina does increase everyone's property value. But, when you have limited amenities like the marina, boat storage and laundry rooms, good financial accounting practice would establish that the revenue collected should cover the operating and maintenance expenses, replacement, and if there is any revenue above that then into a reserve fund for that amenity capital improvement. We are all being charged for the electric for these revenue generated amenities and the bod is collecting twice for the electric. Once from the user and then from the members. I questioned the president if they were subtracting the electric costs for these amenities from the total common ground electric that they are now charging us. He stated, Oh, never thought of that!

We also have a pool, clubhouse, playground, etc and other amenities that there is no fee for. At settlement, every owner gets six pool tags for their use of the pool, which is basically a pool membership. They are aware that their annual assessment covers these amenities. These amenities are available to all 465 members and they have the right to use or not use….but are still obligated to cover those expenses by their assessment. The limited amenities (marina and laundry rooms) that generate revenue should be covering their own expenses and possibly reserve funds if the revenue allows.

The marina slip charge was $350/year for over 20 years. The last five years, the bod has increased it up to $425/year. A whopping $75.00 increase over 20 years. Slip rental fees in our area start at $1,000/year. We have a 7 member board; 5 men (all boat owners) and 2 women (non-boat owners). This has been the norm for the 17 years I have been an owner. I was only the 3rd woman on the bod….and I won’t go into the way I was treated. It was the good old boy club. I served a 2 year term then re-elected to a 3 year term then decided not to run again.

Our declarations do not state anything specific about the marina…..the wording is all recreational facilities. This is because the marina was built after the declarant turned over to the association. The by-laws expanded the “common ground paragraph” to “recreational facilities....including, but not limited to pool, marina and clubhouse areas.” The bod has set up a set of rules and regulations for the use of the marina and that’s it! They otherwise just group it into the “common ground” operating and maintenance expense that comes from our assessment.

The special assessment I referred to was not stated by the bod as a special assessment. They moved the slip rental fee of $28K to the Waterfront improvement reserve fund….hence our assessment now needs to cover that revenue shortfall. This action should have been treated as a special assessment and voted on by the members. Now the bod is stating that this will be done every year. I guess they mean until the half million dollars is raised to cover the capital improvements they want done on the marina.

I am at a loss…..and any suggestions are welcome.
Am I off base here?

Barbara,

Based upon the info you have provided us with, here are my observations:

1) when the marina was built and the bylaws changed, the marina was designated as "recreational facilities" along with the pool and clubhouse.

2) the marina is an amenity, the maint, etc of which is paid for by the assn. The rental income is only a subsidy to the total operation and maint costs.

3) transferring monies from the slip rental fee account to the waterfront improvement fund was not a special assessment. Since the marina is a waterfront property I see no reason why those funds cannot be used for marina expenses. Transferring slip rental fees into this account seems like a good idea to me.

4) You said: "We are all being charged for the electric for these revenue generated amenities and the bod is collecting twice for the electric. Once from the user and then from the members." I'm not quite clear on what you're saying here. Who are the "users" and what electric fees are they paying? What electric fees are the members paying?

5) When the board started assessing the members for electric fees, IMO, this would be a violation of the gov. docs. unless it's explicitly stated these fees are to be charged separately and in addition to the monthly assessment. IMO, the electric costs should be built into the assessment and not charged separately. When the budget is prepared a determination is made as to how much it costs to operate the assn for a given year. All the income received and all the expenses incurred should be taken into consideration. The total operating cost is divided by the number of members of the assn and the result is what the yearly assessment should be for each member. This is only meant to be a simplistic example of the procedure which should be followed to show that there should be no reason to levy an extra assessment for one particular operating expense.

BarbaraP3 (Maryland)
Posts: 90

Posted:

SusanW1
We don't have a reserve fund committee nor a budget committee. Our revenues total about $750K. Only an ARC, election,entertainment, pool and of course, a marina committee (members are all boat owners). The marina committee proposes the rules and regs and requests improvements.
Some concerned members are pushing small claims court for the new electric common ground charge. Not sure if that is the way to go.

Thanks for listening and the suggestions. I hope other bod's here can see that the power that has been vested to them can not and should not be abused. BOD's need to remember they serve the members AKA shareholders and should be looking after their best interests and most of all be abiding by the declarations.

BarbaraP3 (Maryland)
Posts: 90

Posted:

OMG....thanks for the summary/outline!

1. yes
2. yes
3. The waterfront improvment RESERVE fund is not used for operating and maintenance expenses. It will go to the $500K improvements the bod wants to make to the marina. Here is where it gets cloudy....
Shouldn't this have been a membership decision? i.e. special assessment?
4. The users are the members and renters who use the laundry facilities and the 72 members who use the marina slips. Doesn't the $1.50 per wash load and $1.00 per dryer load minimally cover water, gas and electric?
Doesn't the $425 per yearly rental fee minimally cover the water and electric that is supplied to each slip?
The electric usage covered by these user fees should be deducted from the total common ground electric. Correct?
5. Your description of the common ground electric charge is exactly how we used to do it.....then add it to the annual assessment.
The board is computing it that way, but effective July 1, now adding an additional charge to our individual electric bills. Line 1 - electric usage, line 2 - common ground electric, line 3 - total amount due.

Now that I am addressing your invidual questions/outline, I now feel that the assn is collecting for the same electric wattage three times, first with the user fee, 2nd with our assessments, and 3rd with the new charge for common ground electric on our electric bills.

I don't think the bod wanted to increase the annual assessment more than it did ($240/year) to cover an increase for electric if needed. Their explanation was $60 for inflation, $60 for moving the slip rental fees from the operating budget to the waterfront improvement reserve fund and, $120 to general reserves.

BTW - our posts are crossing....

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