Legal Formality in Residential Homeowner & Condominium Associations

Because Homeowners Associations- for both Condominiums and Residential Communities- are staffed and run by volunteers, it’s sometimes easy to lose sight of the formal requirements that must accompany some organizational decision making. As is the case with all non-profit corporations, however, Associations typically must formally get board approval – and sometimes member approval as well- before taking important actions or making key decisions. But board approval is not needed for all decisions, such as those that merely involve day-to-day operations.

Many Homeowner Associations associate with a professional property management company to assist with maintaining the proper formalities, but for those that do not, the following are some rules of thumb regarding board or membership approval.

When Board Approval is Required

While Homeowner Associations always act through the board of directors, many decisions that must be made by formal board action are typically set forth in the provisions of the applicable State statute and also in the Declaration and CCR’s. Generally speaking, however, the board should formally approve any decision involving significant financial, legal, or tax issues, or any major maintenance or capital improvement-related matter.

Some of the most common matters that typically require board approval are:

Hiring and firing managers, employees, major vendors and contractors;
Adoption and amendment of bylaws, rules, and regulations, including collection policies;
Appointment of Board Officers, filling vacancies on Board;
Creating and staffing committees;
Calling annual and special meetings of the Association;
Preparation, execution, and recording of approved amendments to the Declaration and CCR’s;
Adoption and amendment of budgets and imposition of assessments for common expenses and reserves;
Decisions on commencing, defending or intervening in litigation;
Purchasing liability insurance or director and officer insurance;
Major decisions regarding the regulation use, maintenance, repair, replacement, and modification of common areas;

Not every decision, however, requires formal action or approval by the board. Day-to-day operational matters, such as administrative procedures, collections, enforcement of rules and regulations, and similar functions, are usually handled by staff or a designated property manager without formal board involvement.

When Membership Approval is Required

The Declaration, CCR’s and/or Bylaws, together with state statutes, specify many decisions that members have a right to vote on. In some cases, members are also asked to ratify a board decision.

The types of decisions that members may have the right to approve or ratify usually relate to global or structural changes to the Association and how it’s governed, or changes to members’ rights or responsibilities, including:

Electing the board of directors, or determining or changing the number, qualifications, or duties of the board of directors;
Amending the Declaration / CCR’s;
Amending the property rights of members, or changes/removal of common elements and limited common elements;
Dissolving the Condominium or Association;
Removal of board members; and
Ratification of budgets.

Obtaining and Documenting Board or Member Approval

There are typically two ways for an Association to formally take action and make decisions. A meeting of the directors or members and vote, or the directors or members can sign written consents in lieu of a meeting. Both methods have the same legal result- the decision of the board or members is binding and final so long as it was properly done.
An in-person meeting allows the board and/or members to engage in discussion and arrive at decisions after debate, argument, or conversation. Most Associations favor this method because defining and implementing the board’s policies often works best through open discussion and consensus-building among the membership. Also, if an issue is significant enough to require board input or approval, it’s usually also important enough to warrant an in-person meeting.

The written consent procedure is typically the quicker way to approve and document a formal decision. The time restrictions and logistical issues associated with calling and holding a meeting may be avoided. Instead, a written resolution may be circulated that states the action or business under consideration among the board or members, and those who approve the resolution sign the form. Written consents work best to handle non-controversial or more routine items of business. They are also useful if something is needed in a hurry and there’s no time to hold a meeting.

If the board takes action during a meeting, the board secretary (typically) prepares written minutes (during or after the meeting) that show the date, time, place, and purpose for the meeting and the decisions (resolutions) approved by the board of directors or members. If your board takes action by written consent, the written consent itself serves as documentation of the action. It should be kept in the corporate records book.

These are just a few general guidelines that can assist you with maintaining corporate formality for your Association’s decision making. The Declaration, CCR’s and Bylaws may have additional or alternative requirements, and you should be sure to frequently refer to those documents for further guidance. By observing- and equally important, by documenting- the necessary formalities attendant to Association decision making, you can be sure you are further strengthening a solid foundation for your nonprofit corporation.

ⁱ For Residential Homeowner Associations, RCW 64.38, et seq.; for Condominium Associations, RCW 64.32, et. seq. and/or RCW 64.34, et seq.