Big Changes in Washington State HOA Law

June 27, 2018 | By: Greg Coxey Esq. & Brittaney Bones

The Washington Common Interest Ownership Act (WUCIOA) was passed by the Washington State Legislature on March 6, 2018 and goes into effect on July 1, 2018. This comprehensive legislation represents a significant change in community association law for Washington.  The numerous statutes that previously governed community association law in Washington were vague, leading to disputes among owners.  WUCIOA seeks to combat this problem by providing specific guidance on the rights and obligations of the association and owners.

This legislation is based on the Uniform Common Interest Ownership Act, which was then revised by a committee of attorneys and industry professionals to conform to Washington’s needs.  To provide uniformity among the three forms of Common Interest Communities (CICs), WUCIOA will replace the Condo Act (RCW 64.34) and the HOA Act (RCW 64.38) for all CICs created after July 1st2018.  However, small plat communities with twelve or fewer units and annual assessments which do not exceed $300 per unit are exempt from most of the provisions.  The full text of the bill can be found at: http://lawfilesext.leg.wa.gov/biennium/2017-18/Pdf/Bills/Senate%20Bills/6175-S.pdf

Pre-existing communities will be governed primarily by existing laws, unless the communities amend their governing documents to bring their community exclusively under the authority of WUCIOA.  However, certain provisions of WUCIOA will apply to all CICs regardless of when they were created.  These include Section 120, which directs the decision of preexisting CICs to be governed by WUCIOA, and the budget provision under Section 326.

Sections Applicable to Existing Communities

  • Section 120:

Section 120 directs the process amending governing documents to subject CICs to the WUCIOA. The section gives the process in which this amendment may be made notwithstanding conflicting provisions within the association’s governing documents.  The board may propose the amendment, or owners holding at least twenty percent (20%) of votes may propose the amendment in writing.  The Board will prepare the proposed amendment and provide owners notice in a record containing said amendment and a minimum of thirty (30) days advanced notice of a meeting at which the amendment will be discussed. Following such meeting, the board will again provide owners notice and a ballot to approve or reject the amendment. Approval of the amendment requires a minimum of thirty percent (30%) of votes in the association to participate, and sixty-seven percent (67%) of the votes cast to be in favor of the proposed amendment.

  • Section 326:

Section 326 replaces RCW 64.34.308(3) and (4) of the Washington Condominium Act and RCW Sections 64.38.025(3) and (4) of the Homeowners’ Association Act.  After the board of the homeowner’s association has proposed a budget, the board must provide a copy and summary of the budget to all owners. The board must set a date for the owners to vote on the budget between 14 and 50 days after the budget has been provided.  The budget will be adopted unless the majority of votes reject it. Majority includes all owners, not just those in attendance of the meeting. Thus, a budget may be adopted even if there is no quorum at the meeting.  Section 326 also governs the specific information the budget summary is required to contain.

Impact of WUCIOA

  • Creation:

At the time of creation, all CICs must record a declaration and a survey map.  The contents of the declaration are governed by 14 requirements set out in the WUCIOA. Amendments to the declaration commonly require a sixty-seven percent (67%) vote. However, certain amendments such as changing boundaries or the total number of units require a ninety percent (90%) vote. A period of declarant control is now mandatory, and the declarant’s rights during this control are provided.

  • Records:

WUCIOA provides specific definitions for “record,” “written,” and “writing.”  What records the association must keep is clearly presented, including how long associations must keep each type of record. These records include actions taken by committees for the board. Associations are required to keep a variety of records for seven years including: (1) all materials used to enforce the governing documents, (2) all financial statements and budgets, (3) all contracts the association is a party to, and (4) any materials used for architectural approval.  Ballots for all membership votes are required to be kept for one year. Unless owners agree otherwise, records must be made available at the association or management office.

Records that can be withheld from the owners are set out as well. These include the following: (1) email addresses and unlisted phone numbers, (2) personal information about other owners, (3) personnel and medical records related to individuals, (4) other owners’ individual files, and (5) contracts that are in the middle of negotiations. WUCIOA also authorizes associations to charge reasonable fees to supervise an owner’s inspection of records.

WUCIOA does leave some unanswered questions concerning records. WUCIOA fails to address whether emails of managers or board members are records of the association which members are entitled to view.  “Records” includes both “electronic transmissions” and “tangible medium” (such as paper).  However, the “association records” provision fails to mention email or provide information on their requisite retention or disclosure.

            (C) Restrictions on Use:

Problems dealing with apathetic owners are reduced by many of the new provisions in WUCIOA.  Unlike the current Condominium Act, ninety percent (90%) approval (and every affected unit) is not required for amendments which restrict the use of a unit.   Further, in situations where the declaration requires a vote higher than 67% for approval, if 67% of the owners vote for approval and no other owners vote against approval the declaration can still be amended. A higher percentage approval for restriction on use is still allowed under WUCIOA. However, this change of statute will not change the text present within each association’s declaration.

Section 323 allows an association to adopt rules which restrict the leasing of residential units to meet underwriting requirements of institutional lenders. However, what owner occupancy standards are being used by institutional lenders is difficult to determine making it hard to know whether a rental cap adopted by rule is enforceable under the statute.

            (D) Open Board Meetings:

In order to better inform owners of the boards activities, WUCIOA requires transparency by requiring all board meetings and board committee meetings to be open. This provides an opportunity for owners who desire to be more informed to have better insight into the boards actions and information they review. Boards may still meet in executive session (which excludes owners) pursuant to Section 310 which lists topics which may be discussed during executive session.  A final vote or action may not be taken during an executive session.  All material considered at a board meeting must be made available to owners, excluding material reviewed in executive session and unapproved minutes.  If board meetings are not an emergency or are not regularly scheduled, they require 14 days’ notice to all owners.

Unless the bylaws state otherwise, board meetings must be at the community or in a location convenient to the community. Board meetings may be held through conference call as long as the owners have the ability to listen in. All board meetings (not committee meetings) require an owner comment period. However, if a community member is repeatedly disruptive despite warning, they may be removed from the meeting and their attendance prohibited.  Board members may not vote by either absentee ballots or by proxy.  If the board fails to comply with meeting requirements, any challenge must be made within 90 days after the minutes of the meeting are either approved or distributed to the owners (the later date is controlling.)

            (E) Electronic Notice:

            Regardless of if the bylaws and declaration are silent on the matter of electronic notice, it is now authorized by WUCIOA.  WUCIOA allows associations to give electronic notice to members who “opt in.” Each owner is required to have consented in a “record” that they will accept notice by email or other electronic transmission. Once an owner has consented to electronic notice, any other type of material may also be sent electronically.  This development could lead to a substantial reduction in costs for associations. This consent may be revoked by the owner at any time upon sending another record.  Consent is automatically revoked if the association is aware that the method of electronic notice has failed twice in a row. Any notice sent electronically is deemed delivered on the date it was sent.  If a good-faith effort to deliver notice by authorized means is ultimately ineffective, action taken at or without a meeting is not invalidated.

            (F) Actions without Board Meetings:

RCW 24.06.510 was more generous to boards, as it did not restrict the kind of actions that may be taken by unanimous vote.  Under WUCIOA, boards may only take “ministerial” actions where there is unanimous written consent of the board members.  The meaning of “ministerial” pursuant to the statute is not clearly defined.  Under WUCIOA, boards will be required to meet more frequently and call more special meetings in order to conduct business. However, this may be mitigated by delegating authority to committees who can administer lesser board activities between meetings.

            (G) Board Committees:

Committees may exercise board powers as delegated to them by the board. If exercising board power, the committee must maintain a minimum of two board members.  Only those board members may vote on committee decisions. Any other committee types which are formed are solely advisory and may give recommendations to the board but must refrain from action. This delegation of authority will allow the community to be operated more efficiently. Board committee meetings are required to be open in the same manner as board meetings. The owners’ ability to comment within board meetings, as well as the notice requirement to owners, applies similarly to committee meetings. The committees must also keep minutes which are subsequently made available to owners.

            (H) Collections:  

WUCIOA makes various changes that impact collections for CICs.  Under WUCIOA super-priority lien is given to all associations, which was not previously available for HOAs and older condominiums.  The statute of limitations for collection of unpaid dues has been extended from three years to six years. A default interest rate is set at the maximum allowed by law, and detailed collection remedies are now provided for cooperatives. Unlike many older Condominium Acts WUCIOA does not provide for utility termination, and it is unclear if this practice is able to continue.

A court-appointed receiver may collect rent from homes that are not owner occupied, even before commencement of a foreclosure lawsuit. Nonjudicial foreclosure is allowed for all communities, however the board is required to approve commencement of any foreclosure action.  Further, associations are prohibited from foreclosing for less than three months’ worth of dues.  WUCIOA also allows associations to pursue collection of a portion of attorney fees from banks that fail to pay the super-priority lien within a specific time, after having first provided notice to the bank.

Emerging Issues

  • Section 418:

There are certain provisions within WUCIOA which could lead to difficulty among communities. Section 418 allows for the parties to agree to binding or nonbinding arbitration at any time. This provision therefore allows declarant to bind the association to arbitration prior to homeowner control of the association, which is inconsistent with the UCIOA.  This Section allows parties to agree to ADR at any time and places no limitation on the terms of the arbitration, which may prevent access to the courts for wronged homeowners.

  • Section 318:

Section 318 governs the lien created from unpaid assessments, which gains priority over most other liens and security interests as long as multiple criteria are met. The lien must be derived from common expense assessments, excluding capital improvements, and be based on the periodic budget adopted pursuant to Section 317(1). Attorneys’ fees must either not exceed this amount, or two thousand ($2,000) dollars (whichever is less). This limit on legal fees that may be collected by associations as part of the “super-priority” lien from lenders may ultimately discourage communities from being able to collect delinquent assessments.  This type of limitation is not imposed on any other creditor in Washington.

Associations must also give the holder of the security interest whom the lien will supersede in priority from advanced notice. This notice must include the following: (1) name of the borrower, (2) recording date of the trust deed or mortgage, (3) name of condominium, unit owner, and unit designation as stated in the declaration, (4) total amount of unpaid assessments, (5) a statement informing recipient that failure to submit payment to the association of six months of assessments within sixty days will result in the priority of the lien. If the lien is foreclosed nonjudicially it is not entitled to this priority.

  • Miscellaneous:

Other changes from current law include the ability of the developer to appoint a non-owner to a board, who then may not be removed by the owners pursuant to Section 218(1)(b) and 305(3).  Developer-related board members do not have an elevated fiduciary duty, instead it is the same duty as an elected board member pursuant to Section 303(b).  Under Section 401(3) there are no warranties for HOAs and limited warranty rights for condominiums. Further, WUCIOA also allows for the creation of “miscellaneous communities” that may allow the developer to avoid condo warranties while still essentially creating condos.

If you have questions about how WUCIOA will impact your community, please don’t hesitate to contact us.