MEMORANDUM

NEW LAWS EFFECTIVE JULY 1, 2007 

Below are new Virginia laws regarding community association operations that are effective July 1, 2007 .

I.   NEW LAWS APPLICABLE TO BOTH CONDOMINIUM AND HOMEOWNERS ASSOCIATIONS

  A.   Senate Bill No. 969 and House Bill No. 1836 - Display of the American Flag

These bills amend the Condominium Act and the Property Owners’ Association Act to prohibit an association from restricting the display of certain flags in the units or on lots. Generally, the Virginia legislation is similar to the provisions of the federal Freedom to Display the American Flag Act of 2005 (H.R. 42) which was enacted last year. The federal law now acts to preempt any community association prohibition on the display of the flag of United States , but allows associations to make reasonable rules about the time, place and manner of displaying it necessary to protect a substantial interest of the association.

   Action you should take :

Associations may wish to adopt certain regulations regarding the display of the American Flag. There are no model rules at this time. General information on what may be acceptable rules is available on our web site (www.seganmason.com). However, associations should be careful to amend the resale disclosure certificate made available to potential purchasers to provide a statement of any restrictions.

B.   House Bill No. 2016 – Resale Disclosure

There have been some dramatic additions to the provisions relating to disclosure packets or resale certificates. Most of these have to do with their cost: who pays it, when it is paid and how much they cost.

1.   The amendments permit an association to collect up to $325.00 for preparing the resale certificate if the fee reflects the association's actual cost , and the fee is established in the contract between the association and its managing agent and the fee is disclosed on website of its managing agent.

2.   The additions also require that the association pay its managing agent “promptly” for preparing the resale certificate. However, when the statute is read together with the 2007 amendments, it is our opinion that the provision still permits the association to demand payment from the seller in exchange for the resale certificate, rather than allowing the seller to pay from the proceeds of the sale when the unit settles.

3   The existing provision regarding cancellation of the sales contract upon delivery of the resale certificate has been amended to permit delivery by electronic means, unless the seller or the purchaser requests a paper certificate.

4.   The statute also adds a new requirement that the resale certificate disclose the balance of any outstanding loans of the association.

     Action you should take :

1.   Make sure your resale disclosure includes the balance due on any loans the Association has taken out.

2.   Review the provisions in your management contract regarding charges for resale requirements and make sure they comply with the new statute.

C.   House Bill No. 2016 – Handling of Association Funds By Management

1.   The 2007 amendments require a managing agent handling association funds to hold them in a “fiduciary account” in a federally insured financial institution and to separate their funds from the funds of the agent or other associations.

2.   The statute also requires the managing agent to purchase a fidelity bond or employee dishonesty insurance policy covering officers, directors, employees and the managing agent and its employees.

   Action you should take

Obtain assurances from the Association's management company that the funds of the association are being kept in a manner consistent with the statute.

II.   NEW LAWS APPLICABLE TO NONSTOCK CORPORATIONS

Almost all homeowner associations, and many condominium associations, are nonstock corporations. The General Assembly adopted large scale changes to the statute that governs these corporations, known as the Virginia Nonstock Corporation Act. These changes may affect election procedures, director conflict of interest and the potential terms of directors, particularly when the governing documents are silent.

For example, some election provisions deal with election procedures such as counting votes and deciding how to stagger the term lengths of various board members. These were often decided using industry custom or Robert’s Rules of Order. Now these situations will be covered by the statute.

Other provisions address when a director is deemed to have a conflict of interest and the disclosure and voting provisions that may apply.

   Action you should take :

Associations should be aware that provisions of the Act that were formerly silent may now apply to situations not covered by your governing documents. We will be providing further information on the new provisions on our website in the coming months.

III.   NEW LAWS APPLICABLE TO CONDOMINIUM ASSOCIATIONS ONLY

   House Bill No. 2016 – Notice of Meeting

The amendment eliminates the requirement of the association to provide notice of board meetings or meetings of the members to both the unit address and such other addresses designated by the unit owner. Notice must be sent to the unit unless the unit owner has provided an alternative address.

Action you should take :

Review your mailing list to confirm that the association no longer has the expense of sending notice of meetings to multiple addresses.

IV.    PROPOSED ADMINISTRATIVE REGULATIONS – NOT YET ADOPTED

The Virginia Real Estate Board is expected to increase the annual registration fee charged to associations and structure it proportionately to the size of the community association. Small associations would pay less and larger associations would pay more under a plan that may include several brackets. The money would be used to support the Common Interest Community Management Information Fund, including the office of the community association liaison and programs by third parties. The Virginia Real Estate Board and the Department of Professional and Occupational Regulation have been compiling public comments and are expected to announce the regulations this year.