BILL REQ. #:  S-0488.1 

Read first time 01/21/11.   Referred to Committee on Financial Institutions, Housing & Insurance.

     AN ACT Relating to homeowners' associations; amending RCW 64.38.010 and 64.38.025; adding new sections to chapter 64.38 RCW; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 64.38.010 and 1995 c 283 s 2 are each amended to read as follows:
     ((For purposes of this chapter:)) The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Homeowners' association" or "association" means a corporation, unincorporated association, or other legal entity, each member of which is an owner of residential real property located within the association's jurisdiction, as described in the governing documents, and by virtue of membership or ownership of property is obligated to pay real property taxes, insurance premiums, maintenance costs, or for improvement of real property other than that which is owned by the member. "Homeowners' association" does not mean an association created under chapter 64.32 or 64.34 RCW.
     (2) "Governing documents" means the articles of incorporation, bylaws, plat, declaration of covenants, conditions, and restrictions, rules and regulations of the association, or other written instrument by which the association has the authority to exercise any of the powers provided for in this chapter or to manage, maintain, or otherwise affect the property under its jurisdiction.
     (3) "Board of directors" or "board" means the body, regardless of name, with primary authority to manage the affairs of the association.
     (4) "Common areas" means property owned, or otherwise maintained, repaired or administered by the association.
     (5) "Common expense" means the costs incurred by the association to exercise any of the powers provided for in this chapter.
     (6) "Residential real property" means any real property, the use of which is limited by law, covenant or otherwise to primarily residential or recreational purposes.
     (7)(a) "Affiliate" means any person who controls, is controlled by, or is under common control with the developer.
     (b) For the purposes of this subsection:
     (i) A person "controls" another person if the person: (A) Is a general partner, officer, director, or employer of the developer; (B) directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, holds with power to vote, or holds proxies representing more than twenty percent of the voting interest in the developer; (C) controls in any manner the election of a majority of the directors of the developer; or (D) has contributed more than twenty percent of the capital of the developer.
     (ii) A person "is controlled by" another person if the other person: (A) Is a general partner, officer, director, or employer of the person; (B) directly or indirectly or acting in concert with one or more other persons, or through one or more subsidiaries, owns, controls, holds with power to vote, or holds proxies representing more than twenty percent of the voting interest in the person; (C) controls in any manner the election of a majority of the directors of the person; or (D) has contributed more than twenty percent of the capital of the person.
     (iii) Control does not exist if the powers described in this subsection are held solely as security for an obligation and are not exercised.
     (8) "Board of directors" means the body, regardless of name, with primary authority to manage the affairs of the association.
     (9) "Developer" means: (a) Any person who reserves any developer control in the governing documents; or (b) any person who exercises developer control or to whom developer control is transferred.
     (10) "Developer control" means the right of the developer or persons designated by the developer to appoint and remove officers and members of the board of directors, or to veto or approve a proposed action of the board or association.
     (11) "Homeowner" means any person who is an owner of real property subject to the governing documents.
     (12) "Person" means a natural person, corporation, partnership, limited partnership, trust, governmental subdivision or agency, or other legal entity.
     (13) "Special developer rights" means rights reserved for the benefit of a developer to: (a) Complete improvements indicated on survey maps; (b) exercise any development right; (c) maintain sales offices, management offices, and signs advertising the development; (d) use easements through the common elements for the purpose of making improvements to the development; (e) make the development part of a larger development; or (f) appoint or remove any officer of the association or any master association or any member of the board of directors, or to veto or approve a proposed action of the board or association, during any period of developer control.

Sec. 2   RCW 64.38.025 and 1995 c 283 s 5 are each amended to read as follows:
     (1) Except as provided in the association's governing documents or this chapter, the board of directors shall act in all instances on behalf of the association. In the performance of their duties, the officers and members of the board of directors shall exercise the degree of care and loyalty required of an officer or director of a corporation organized under chapter 24.03 RCW. An obligation of good faith is imposed in the performance and enforcement of all contracts and duties governed by this chapter and in all other transactions involving developers, the board of directors, associations, and their members. For the purposes of this section, "good faith" means honesty in fact and the observation of reasonable standards of fair dealing.
     (2) The board of directors shall not act on behalf of the association to amend the articles of incorporation, to take any action that requires the vote or approval of the owners, to terminate the association, to elect members of the board of directors, or to determine the qualifications, powers, and duties, or terms of office of members of the board of directors; but the board of directors may fill vacancies in its membership of the unexpired portion of any term.
     (3) Within thirty days after adoption by the board of directors of any proposed regular or special budget of the association, the board shall set a date for a meeting of the owners to consider ratification of the budget not less than fourteen nor more than sixty days after mailing of the summary. Unless at that meeting the owners of a majority of the votes in the association are allocated or any larger percentage specified in the governing documents reject the budget, in person or by proxy, the budget is ratified, whether or not a quorum is present. In the event the proposed budget is rejected or the required notice is not given, the periodic budget last ratified by the owners shall be continued until such time as the owners ratify a subsequent budget proposed by the board of directors.
     (4) ((The owners by a majority vote of the voting power in the association present, in person or by proxy, and entitled to vote at any meeting of the owners at which a quorum is present, may remove any member of the board of directors with or without cause.)) (a) Subject to subsection (6) of this section, the governing documents may provide for a period of developer control of the association, during which period a developer, or persons designated by the developer, may: (i) Appoint and remove the officers and members of the board of directors; or (ii) veto or approve a proposed action of the board or association. A developer has a fiduciary duty in appointing and removing nonowner members of the board of directors. A developer is responsible for actions of nonowner members of the board of directors appointed by the developer under the doctrine of respondeat superior. A developer's failure to veto or approve proposed action in writing within thirty days after receipt of written notice of the proposed action shall be deemed approval by the developer board of directors.
     (b) Regardless of the period provided in the governing documents, a period of developer control terminates no later than the earlier of: (i) Sixty days after conveyance of seventy-five percent of the lots that may be created to owners other than the developer; or (ii) the date on which the developer records an amendment to the declaration pursuant to which the developer voluntarily surrenders the right to further appoint and remove officers and members of the board of directors. A developer may voluntarily surrender the right to appoint and remove officers and members of the board of directors before termination of that period in accordance with (b)(i) of this subsection, but in that event the developer may require, for the duration of the period of developer control, that specified actions of the association or board of directors, as described in a recorded instrument executed by the developer, be approved by the developer before they become effective.
     (5) Not later than sixty days after conveyance of twenty-five percent of the lots that may be created to owners other than a developer, at least one member and not less than twenty-five percent of the members of the board of directors must be elected by owners other than the developer. Not later than sixty days after conveyance of fifty percent of the units that may be created to owners other than a developer, not less than thirty-three and one-third percent of the members of the board of directors must be elected by owners other than the developer.
     (6) Within thirty days after the termination of any period of developer control, the owners must elect a board of directors of at least three members, at least a majority of whom must be owners. The number of directors need not exceed the number of lots subject to the governing documents. The board of directors must elect the officers. These members of the board of directors and officers take office upon election.
     (7) Notwithstanding any provision of the governing documents to the contrary, the owners, by a two-thirds vote at any meeting of the owners at which a quorum is present, may remove any member of the board of directors with or without cause, other than a member appointed by the developer. The developer may not remove any member of the board of directors elected by the owners.

NEW SECTION.  Sec. 3   A new section is added to chapter 64.38 RCW to read as follows:
     Within sixty days after the termination of the period of developer control, or in the absence of a period of developer control, within sixty days after the first conveyance of a lot subject to the governing documents, the developer must deliver to the association all property of the owners and of the association held or controlled by the developer including, but not limited to:
     (1) The original or a photocopy of all the governing documents;
     (2) The minute books, including all minutes, and other books and records of the association;
     (3) Resignations of officers and members of the board who are required to resign because the developer is required to relinquish control of the association;
     (4) The financial records, including canceled checks, bank statements, and financial statements of the association, and source documents from the time of incorporation of the association through the date of transfer of control to the unit owners;
     (5) Association funds or the control of the funds of the association;
     (6) All tangible personal property of the association, represented by the developer to be the property of the association or ostensibly the property of the association, and an inventory of the property;
     (7) Insurance policies or copies thereof for the association;
     (8) Any other permits issued by governmental bodies applicable to the real estate subject to the governing documents in force or issued within one year before the date of transfer of control to the unit owners;
     (9) All written warranties that are still in effect for the common elements, or any other areas or facilities which the association has the responsibility to maintain and repair, from the contractor, subcontractors, suppliers, and manufacturers and all owners' manuals or instructions furnished to the developer with respect to installed equipment or building systems;
     (10) A roster of owners and their addresses and telephone numbers, if known, as shown on the developer's records;
     (11) Any leases of the common elements or areas and other leases to which the association is a party;
     (l2) Any employment contracts or service contracts in which the association is one of the contracting parties or service contracts in which the association or the owners have an obligation or a responsibility, directly or indirectly, to pay some or all of the fee or charge of the person performing the service; and
     (13) All other contracts to which the association is a party.

NEW SECTION.  Sec. 4   A new section is added to chapter 64.38 RCW to read as follows:
     (1) No special developer right created or reserved under the governing documents may be transferred except by an instrument evidencing the transfer executed by the developer or the developer's successor. The name of the transferee must be recorded in every county in which any portion of the real property subject to the governing documents is located. Each owner must receive a copy of the recorded instrument, but the failure to furnish the copy does not invalidate the transfer.
     (2)(a) Upon transfer of any special developer right, a transferor developer is not relieved of any obligation or liability arising before the transfer. Lack of privity does not deprive any unit owner of standing to maintain an action to enforce any obligation of the transferor.
     (b) If a successor to any special developer right is an affiliate of a developer, the transferor is jointly and severally liable with the successor for any obligations or liabilities of the successor relating to the real property subject to the governing documents.
     (3)(a) A successor to any special developer right who is an affiliate of a developer is subject to all obligations and liabilities imposed on the transferor by this chapter or by the governing documents.
     (b) A successor to any special developer right who is not an affiliate of a developer is subject to all obligations and liabilities imposed by this chapter or the governing documents. The successor is not liable for any:
     (i) Misrepresentations by any previous developer;
     (ii) Warranty obligations on improvements made by any previous developer;
     (iii) Breach of any fiduciary obligation by any previous developer or the developer's appointees to the board of directors; or
     (iv) Any liability or obligation imposed on the transferor as a result of the transferor's acts or omissions after the transfer.

NEW SECTION.  Sec. 5   This act takes effect August 1, 2011.