June 25, 2021
Condominium and HOA leaders usually expect the owners and tenants to do what they tell them to do, and often struggle to back down when their authority is questioned. At the same time, boards and committees like to make decisions that affect others without being monitored or disclosing what was done. I recently published an article in a bar journal entitled “HOA Books and Records Requests: Can They Really Withhold That?” This article explores common managerial objections to owners’ books and records requests. But to actively participate in HOA business, lot owners need to know what is going on now, so they can react accordingly, and not wait unit after the fact to look up in a records request. In this blog post, I discuss the common practice of HOA and condominium directors deliberating and deciding community business in email or other electronic exchanges, outside of any meeting that a lot owner can attend. In Virginia, most HOAs and condominiums insist that their boards are legally entitled to make binding decisions outside of open meetings by unanimous director written or electronic consents. Can a board of directors make decisions for the HOA by unanimous emails? The Property Owners Association Act and the Condominium Act both impose “open meeting” requirements on boards and committees to prevent decisions being made in ways affected parties cannot attend. Most HOAs are organized under both the POAA and the Nonstock Corporation Act. The NSCA provides for directors to do business in noticed meetings, or, under limited circumstances, for directors to take action outside of a meeting:
Except to the extent that the articles of incorporation or bylaws require that action by the board of directors be taken at a meeting, action required or permitted to be taken by this chapter to be taken by the board of directors may be taken without a meeting if each director signs a consent describing the action to be taken and delivers it to the corporation.Va. Code § 13.1-865(A).
The NSCA states that “electronic submissions” may be used in lieu of a signed written consent. Va. Code § 13.1-865(E). However, the POAA states that,
All meetings of the board of directors, including any subcommittee or other committee of the board of directors, where the business of the association is discussed or transacted shall be open to all members of record. The board of directors shall not use work sessions or other informal gatherings of the board of directors to circumvent the open meeting requirements of this section.Va. Code § 55.1-1816(A).
The POAA also requires that minutes be taken and made available. Va. Code § 55.1-1816(A). Notice of directors’ meetings is supposed to be provided to the membership. Va. Code § 55.1-1816(B). Any director or member may audio record board meetings. Va. Code § 55.1-1816(B). The POAA has limited exceptions to the “open meeting” rules when it comes to matters that can be discussed in an “executive session” such as communications with attorneys, personnel matters, pending or probable litigation, covenant violations, or personal liability of members to the association. Va. Code § 55.1-1816(C). Executive session is convened during an open meeting. They will ask the lot owners to step outside of the room until told they can return, or the directors will go into a separate room and come back. Any resolutions have to be made after the confidential deliberations are over and the board ends executive session. “Executive Session” is not the same thing as “Unanimous Written/Electronic Consent.” The HOA open meeting rules also require that owners be given an opportunity to speak during directors’ meetings. Va. Code § 55.1-1816(D). Some boards operate very informally by email or telephone discussions among directors. Others deliberate and make unanimous email decisions by directors, and later try to “ratify” those unanimous email consent decisions in open HOA director meetings. When disputes arise over these unanimous directors’ emails, the HOAs and their representatives point to the NSCA, and the owners contesting the email decision cite the POAA open meeting provisions. Who is right? There are no published court opinions in Virginia resolving the statutory dilemmas surrounding the “Can a board of directors make decisions for the HOA by unanimous emails?” question. However, there is case law that helps point the way. Virginia courts (like other jurisdictions) employ the established rule of statutory construction that when one statute speaks to a subject generally and another deals with an element of that subject specifically, the statutes will be harmonized, if possible, and if they conflict, the more specific statute prevails. This is so because a specific statute cannot be controlled or nullified by a statute of general application unless the legislature clearly intended such a result. Is Va. Code § 13.1-865 (NSCA) or § 55.1-1816 (POAA) the “specific” statute when it comes to incorporated HOAs conducting business by emails or text messages? Not all nonstock corporations are HOAs. Not all POAA associations are incorporated. Another judicial doctrine provides that statute provisions are not supposed to taken out of the context provided by the statute as a whole. Va. Code § 13.1-865(A) of the NSCA qualifies the use of unanimous director consents as available only for “actions required or permitted by this chapter to be taken by the board of directors.” The NSCA unanimous director consent statute doesn’t apply where the articles of incorporation or bylaws don’t allow for that. By contrast, the POAA is absolute: “All meetings of the board of directors . . . where the business of the association is discussed or transacted shall be open to all members of record.” Va. Code 55.1-1816(A). The POAA includes a limited exception for deliberations that may be made in “executive session” but includes nothing about unanimous director written or electronic consents outside of open meetings. If unanimous director written or electronic consents are permitted, then the open meeting requirements of the POAA are of little use and easily circumvented by incorporated association boards who all agree on something. Another judicial doctrine provides that where possible, all the words of a statute are to be given some effect, because it is presumed that the legislature does not enact language for no reason. I think that the proper way of resolving this conflict between the NSCA and POAA is that the unanimous written consent provisions of the NSCA don’t apply to associations regulated by the POAA, because the open meeting rules of Va. Code § 55.1-1816(A) apply specifically to the business of property owners’ associations than the “action without meeting of board of directors” provisions of the NSCA. The only exception I think might apply is if the HOA declaration allowed for unanimous director consents to be made regarding certain subject matters regulated by the NSCA but not treated as part of the business of the association pursuant to the POAA. The NSCA only allows unanimous director consents with regard to “action required or permitted by the NSCA.” Va. Code § 13.1-865(A). There are many functions of a property owners association that are described in the POAA but not the NSCA. For example, HOA boards have the power to, “establish, adopt, and enforce rules and regulations with respect to the use of the common areas and with respect to such other areas of responsibilities assigned to the association by the declaration.” Va. Code § 55.1-1819(A). “Rules and regulations may be adopted by resolution and shall be reasonably published or distributed throughout the development.” Va. Code § 55.1-1819(A). The power of a HOA board to make and enforce rules and regulations not found in the recorded covenants without honoring the onerous process of formally amending the declaration is a statutory innovation unavailable under the English common law of property. This rulemaking power creates scenarios where a home purchaser could carefully read the governing instruments before purchasing a property in the subdivision, and later for the board to change the rules governing the use of land in the subdivision, to the extent that the declaration empowers them to do so. Va. Code § 55.1-1819(A) specifically requires that such rules be adopted by “resolution.” It does not make sense to look to the NSCA for rules on how to adopt such a resolution, because recorded declarations and architectural guidelines are not the kinds of governing instruments addressed by the NSCA. This is the “business of the association” referenced in the POAA’s open meeting provisions. The same can be said for other types of association business that are regulated by the POAA, such as the authority to levy special assessments (Va. Code § 55.1-1825) and the making of the annual budget (Va. Code § 55.1-1826). In my opinion, it doesn’t make sense to interpret the NSCA’s unanimous director consent provisions as abrogating the open meeting requirements of the POAA, particularly when the open meeting provisions are codified along with other sections regulating how the property owners’ association’s business is supposed to be conducted. I think that if the General Assembly intended that section of the NSCA to function as a general exception to the POAA’s open meeting rules, they would have referenced it in the POAA along with the other exceptions dealing with the use of “executive session.”
In 2021, the Virginia General Assembly enacted new amendments to the POAA to make it easier for association boards to conduct meetings virtually. These enactments go into effect July 1, 2021. I address that legislation in more detail in my January 27, 2021 post, “Modernizing HOA Law or Exploiting a Crisis?” The new amendments add the language:
Any meeting of the association, the board of directors, or any committee may be held entirely or partially by electronic means, provided that the board of directors has adopted guidelines for the use of electronic means for such meetings. Such guidelines shall ensure that persons accessing such meetings are authorized to do so and that persons entitled to participate in such meetings have an opportunity to do so. The board of directors shall determine whether any such meeting may be held entirely or partially by electronic means.2021 Special Session 1, HB 1816
That bill also says that, “A meeting conducted by electronic means includes a meeting conducted via teleconference, videoconference, Internet exchange, or other electronic methods.” This legislation may cause additional confusion. Some may think that this, taken with the NSCA unanimous consent language, means that HOA boards can do business electronically without observing all of the open meeting rules of the POAA. However, this interpretation would be false, because nothing about these 2021 amendments incorporates the NSCA consents or repeals the POAA open meeting requirements. The purpose of these legislative developments is make HOA meetings more accessible by allowing everyone to participate from the convenience of their own homes using Zoom or similar technology. The new 2021 amendments specifically provide that guidelines adopted by the board shall ensure that persons entitled to participate have an opportunity to do so. While the drafters of these 2021 amendments could have done better by properly addressing the NSCA vs. POAA statutory dilemmas, the POAA’s open meeting requirements remain the law.
Lot owners are in a position where their boards are probably doing business by unanimous email director agreements that affects them personally or the community as a whole. Often, these matters are conducted by email because the directors don’t want them to be put out in public before the community, and they may never be “ratified” in an open meeting or if so, the substance of what is being ratified may not be fully disclosed. The ongoing effect of this is to call into doubt the legality of a wide variety of board actions, such as which rules and regulations are valid or what director decisions regarding the finances of the association people are supposed to follow. In my February 3, 2021 post “What it Means for Ultra Vires HOA Actions to be Void” I get into the question of corporation actions that are nullities. These questions are not merely procedural or insubstantial, because in many Virginia HOAs the board has the power to make rules and regulations regarding a wide variety of subjects. Many HOAs will go after owners by imposing fines, filing liens or filing lawsuits based on alleged violations of rules made by directors in informal, unopen fashion. Untangling such thorny questions requires careful consideration of the POAA, NSCA, other laws, and interpreting the declaration and other governing instruments in addition to weighing a variety of practical considerations.
One of the ideas that animated the founding of our country was that even the rulers ought to have to obey the laws, and not just the citizenry. The open meeting statutes of the POAA are an important procedural safeguard to prevent the substantive protections of the state laws and the community’s declaration from being replaced by the evolving preferences of the board of directors at any given moment.