BILL REQ. #:  S-1657.1 

READ FIRST TIME 02/17/11.   

     AN ACT Relating to homeowners' associations; amending RCW 64.38.005, 64.38.010, 64.38.020, 64.38.025, 64.38.030, 64.38.035, and 64.38.040; and adding new sections to chapter 64.38 RCW.

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

Sec. 1   RCW 64.38.005 and 1995 c 283 s 1 are each amended to read as follows:
     The intent of this chapter is to provide consistent laws regarding the formation and legal administration of homeowners' associations. Unless otherwise provided in this chapter, this chapter applies to all homeowners' associations in the state, regardless of when the declaration was recorded or the association was established.

NEW SECTION.  Sec. 2   A new section is added to chapter 64.38 RCW to read as follows:
     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 declarants, associations, and their members.
     For purposes of this section, "good faith" means honesty in fact and the observance of reasonable standards of fair dealing.

Sec. 3   RCW 64.38.010 and 1995 c 283 s 2 are each amended to read as follows:
     For purposes of this chapter:
     (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)), the owner 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)) assessments pursuant to the governing documents. "Homeowners' association" does not mean an association created under chapter 64.32 or 64.34 RCW.
     (2) "Governing documents" means the declaration, 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) "Assessment" means all sums chargeable by the association against a lot including, without limitation:
     (a) Regular and special assessments for common expenses, charges, and fines imposed by the association;
     (b) Interest and late charges on any delinquent account; and
     (c) Costs of collection, including reasonable attorneys' fees, incurred by the association in connection with the collection of an owner's delinquent account.
     This subsection (7) supersedes any inconsistent provision in the governing documents.
     (8) "Bylaws" means the code adopted for the regulation or management of the internal affairs of the association, irrespective of the designated name of that code. If an association is incorporated under Title 23 or 24 RCW, "bylaws" means the definition assigned to "bylaws" in the act pursuant to which the association is incorporated.
     (9) "Community" means residential real property that is subject to a declaration under which an association is established for governance of the community.
     (10) "Cooperative" means a community in which the residential real property is owned by an association where each of those members is entitled, by virtue of his or her ownership interest in the association, to exclusive possession of a portion of the property.
     (11) "Declarant" means any person who executes as a declarant a declaration or succeeds to the rights of a declarant pursuant to an instrument recorded in the real property records of every county in which any portion of the community is located.
     (12) "Declaration" means the declaration of covenants, conditions, and restrictions or any other document, however denominated, that is recorded in every county in which any portion of the community is located and that provides for the establishment of an association to govern the community. In the case of a cooperative, "declaration" means the document or documents, however denominated, that create the cooperative housing association that owns the residential real property comprising the cooperative, whether or not the document or documents are recorded.
     (13) "Lot" means a physical portion of a community designated for separate ownership or occupancy and designated for residential use, the boundaries of which are described in the real property records of every county in which any portion of the community is located. Within a cooperative, "lot" means that portion of the community designated for exclusive possession by a member of the cooperative's association. "Lot" does not mean an apartment created under chapter 64.32 RCW or a unit created under chapter 64.34 RCW.
     (14) "Owner" means a declarant or other person who owns a lot, but does not include a person who has an interest in a lot solely as security for an obligation. Under a real estate contract, "owner" means the vendee, not the vendor.
     (15) "Person" means a natural person, corporation, partnership, limited partnership, trust, government subdivision or agency, or other legal entity.
     (16) "Rules" means the rules, regulations, and policies, irrespective of their designated name, that are adopted by the members of the board of an association in accordance with the governing documents and that supplement, but do not contradict or contravene, the governing documents.

Sec. 4   RCW 64.38.020 and 1995 c 283 s 4 are each amended to read as follows:
     Unless otherwise provided in the ((governing documents)) declaration, an association may:
     (1) Adopt and amend bylaws, resolutions, policies, rules, and regulations that are not inconsistent with the declaration or with this chapter;
     (2) Adopt and amend budgets for revenues, expenditures, and reserves, and impose and collect assessments for common expenses from owners;
     (3) Hire and discharge or contract with managing agents and other employees, agents, and independent contractors;
     (4) Institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more owners on matters affecting the homeowners' association, but not on behalf of owners involved in disputes that are not the responsibility of the association;
     (5) Make contracts and incur liabilities;
     (6) Regulate the use, maintenance, repair, replacement, and modification of common areas;
     (7) Cause additional improvements to be made as a part of the common areas;
     (8) Acquire, hold, encumber, and convey in its own name any right, title, or interest to real or personal property;
     (9) Grant easements, leases, licenses, and concessions through or over the common areas and petition for or consent to the vacation of streets and alleys;
     (10) Impose and collect any payments, fees, or charges for the use, rental, or operation of the common areas;
     (11) Impose and collect charges for late payments of assessments ((and, after notice and an opportunity to be heard by the board of directors or by the representative designated by the board of directors and in accordance with the procedures as provided in the bylaws or rules and regulations adopted by the board of directors, levy reasonable fines in accordance with a previously established schedule adopted by the board of directors and furnished to the owners for violation of the bylaws, rules, and regulations of the association));
     (12) Take enforcement action with respect to any violation of the governing documents;
     (13) After notice and an opportunity to be heard by the board of directors or by the representative designated by the board of directors, and in accordance with the procedures provided in the governing documents, levy reasonable fines in accordance with a previously established schedule adopted by the board of directors and furnished to the owners for violations of the governing documents;
     (14) Exercise any other powers conferred by the declaration, articles, or bylaws;
     (((13))) (15) Exercise all other powers that may be exercised in this state by the same type of ((corporation)) legal entity as the association, provided those powers do not conflict with any duties imposed on an association in this chapter; and
     (((14))) (16) Exercise any other powers necessary and proper for the governance and operation of the association.

Sec. 5   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 of the association 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.
     (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.))

NEW SECTION.  Sec. 6   A new section is added to chapter 64.38 RCW to read as follows:
     Notwithstanding any inconsistent provision in the governing documents or other applicable statutes, any member of the board of directors may be removed with or without cause by a majority vote of the owners (1) entitled to elect the board member and present, in person or by proxy, and (2) entitled to vote at any regular or special meeting of the owners at which a quorum is present.

Sec. 7   RCW 64.38.030 and 1995 c 283 s 6 are each amended to read as follows:
     Unless provided for in the ((governing documents)) declaration, the bylaws of the association ((shall)) must contain provisions that are consistent with this chapter and provide for:
     (1) The number, qualifications, powers and duties, terms of office, and manner of electing and removing the board of directors and officers of the association and filling vacancies;
     (2) Election by the board of directors of the officers of the association as the bylaws specify;
     (3) Which, if any, of its powers the board of directors or officers of the association may delegate to other persons or to a managing agent;
     (4) Which of its officers may prepare, execute, certify, and record amendments to the governing documents on behalf of the association;
     (5) The method of amending the bylaws; and
     (6) ((Subject to the provisions of the governing documents,)) Any other matters the association deems necessary and appropriate.

NEW SECTION.  Sec. 8   A new section is added to chapter 64.38 RCW to read as follows:
     (1) 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 adoption of the budget no less than ten and no more than sixty days after the mailing of the summary of the proposed regular or special budget. Notwithstanding any contrary provision in the governing documents, the board must allow members to vote on the issue of ratifying the budget either by mail-in ballot or at the meeting, in person or by proxy. Unless the proposed budget is rejected at that meeting by a majority of all the votes in the association, or any larger percentage specified in the governing documents, the proposed budget is ratified and approved whether or not there is a quorum at the meeting. If the proposed budget is rejected or the required notice is not provided, the periodic budget last adopted by the owners must be continued until the owners adopt a subsequent budget proposed by the board of directors.
     (2) An association's lien rights may not include liens to secure payment of fines validly imposed.
     (3) This section applies retroactively to any governing documents in effect on the effective date of this section.
     (4) This section supersedes any provisions of the governing documents that are inconsistent with this section. All such inconsistent provisions of the governing documents are void and unenforceable.

Sec. 9   RCW 64.38.035 and 1995 c 283 s 7 are each amended to read as follows:
     (1) A meeting of the association must be held at least once each year.
     (2) Special meetings of the association may be called by the president, a majority of the board of directors, or by owners having ten percent of the votes in the association and must be held at a reasonable time and at a reasonable place. Any business may be placed on the agenda for a special meeting as long as the business does not conflict with this chapter or the association's governing documents. If the special meeting is called by the members, the members may determine the business to be placed on the agenda. The board may also place business on the special meeting agenda. This subsection supersedes any inconsistent provisions of the governing documents or other applicable statute.
     (3) Not less than ((fourteen)) ten nor more than sixty days in advance of any meeting, the secretary or other officers specified in the bylaws shall cause notice to be hand-delivered or sent prepaid by first-class United States mail to the mailing address of each owner or to any other mailing address designated in writing by the owner. The notice of any meeting shall state the time and place of the meeting and the business to be placed on the agenda by the board of directors for a vote by the owners, including the general nature of any proposed amendment to the articles of incorporation, bylaws, any budget or changes in the previously approved budget that result in a change in assessment obligation, and any proposal to remove a director.
     (((2) Except as provided in this subsection, all meetings of the board of directors shall be open for observation by all owners of record and their authorized agents. The board of directors shall keep minutes of all actions taken by the board, which shall be available to all owners. Upon the affirmative vote in open meeting to assemble in closed session, the board of directors may convene in closed executive session to consider personnel matters; consult with legal counsel or consider communications with legal counsel; and discuss likely or pending litigation, matters involving possible violations of the governing documents of the association, and matters involving the possible liability of an owner to the association. The motion shall state specifically the purpose for the closed session. Reference to the motion and the stated purpose for the closed session shall be included in the minutes. The board of directors shall restrict the consideration of matters during the closed portions of meetings only to those purposes specifically exempted and stated in the motion. No motion, or other action adopted, passed, or agreed to in closed session may become effective unless the board of directors, following the closed session, reconvenes in open meeting and votes in the open meeting on such motion, or other action which is reasonably identified. The requirements of this subsection shall not require the disclosure of information in violation of law or which is otherwise exempt from disclosure.))

NEW SECTION.  Sec. 10   A new section is added to chapter 64.38 RCW to read as follows:
     Except as provided in this section, all meetings of the board of directors must be open for observation by all owners of record and their authorized agents. The board of directors shall keep minutes of all actions taken by the board, which must be available to all owners. Upon the affirmative vote in open meeting to assemble in closed session, the board of directors may convene in closed executive session to consider personnel matters; consult with legal counsel or consider communications with legal counsel; and discuss likely or pending litigation, matters involving possible violations of the governing documents of the association, and matters involving the possible liability of an owner to the association. The motion must state specifically the purpose for the closed session. Reference to the motion and the stated purpose for the closed session must be included in the minutes. The board of directors shall restrict the consideration of matters during the closed portions of meetings only to those purposes specifically exempted and stated in the motion. A motion, or other action adopted, passed, or agreed to in closed session may not become effective unless the board of directors, following the closed session, reconvenes in open meeting and votes in the open meeting on such motion, or other action that is reasonably identified. This section does not require the disclosure of information in violation of law or that is otherwise exempt from disclosure. This section supersedes any conflicting provisions in Title 23 or 24 RCW or in the association's governing documents.

Sec. 11   RCW 64.38.040 and 1995 c 283 s 8 are each amended to read as follows:
     Unless the governing documents specify a ((different)) smaller percentage, a quorum is present throughout any meeting of the association if the owners to which ((thirty-four)) twenty-five percent of the votes of the association are allocated are present in person or by proxy at the beginning of the meeting.

NEW SECTION.  Sec. 12   A new section is added to chapter 64.38 RCW to read as follows:
     For rules, or amendments to rules, adopted after the effective date of this section:
     (1) A rule adopted by the board is valid and enforceable if all the following requirements are satisfied:
     (a) The rule is in writing;
     (b) The rule is required by law or, within the authority of the board, conferred by law or by the declaration;
     (c) The rule is consistent with the governing documents; and
     (d) The rule is adopted or amended in substantial compliance with the requirements of this chapter.
     (2) Except for emergency rules, the board of directors must provide the association's members with notice and an opportunity to comment on any proposed new or amended rule before the board is authorized to adopt or enforce that rule. For purposes of this section, an "emergency rule" is a rule that is necessary for the immediate preservation of health and safety or a rule that sets forth specific rights or obligations affecting the association or its members under state statutes or administrative rules. Emergency rules become effective immediately, subject to the members' right to request a ratification vote under subsection (3) of this section.
     (3) Except for emergency rules, rules adopted by the board of directors following notice and an opportunity for comment become effective thirty days after notice of the rules is provided to the members in the manner authorized by the governing documents, unless a written petition signed by twenty percent of the total votes in the association is submitted to the board within that thirty-day period requesting a ratification vote on the proposed rule. If a ratification vote is requested, the association shall use the following process for the ratification vote:
     (a) The board of directors must submit the rules on which a ratification vote has been requested to a vote of the members. The vote must be conducted at the next regularly scheduled annual meeting of the association, or at a special meeting held before the next annual meeting.
     (b) The notice of the meeting, at which the ratification vote will be conducted, must include the text of the proposed rules.
     (c) Unless the governing documents specify a longer advance notice period for an association meeting, notice of the meeting, at which the ratification vote will be conducted, must be provided at least ten days in advance of the meeting but not more than sixty days in advance of the meeting.
     (d) The proposed rule change is deemed approved and ratified by the members, unless a majority of all the votes in the association vote at the meeting, in person or by proxy, to reject the rule change approved by the board.
     (e) All rule changes ratified by the members in accordance with this section take effect on the original effective date or later effective date established by the board.
     (4) The board of directors is not required to use the following optional rule-making process. However, use of this process establishes compliance with the requirements of subsection (1) of this section. For purposes of this section, "rule change" means the adoption or amendment of a rule by the board.
     (a) The board shall give notice of a proposed rule change to the owners. The notice must include the following information: (i) The text of the proposed rule change; (ii) a description of the purpose and effect of the proposed rule change; and (iii) the deadline for submission of a comment on the proposed rule change.
     (b) For a period of at least thirty days following actual or constructive delivery of a notice of a proposed rule change, the board shall accept written comments from owners on the proposed rule change.
     (c) The board shall consider any comments it receives and make a decision on a proposed rule change at a board meeting. Except for emergency rules, a decision on a rule may not be made until after the comment submission deadline.
     (d) The board shall give notice of a rule change to the owners. The notice must set out the text of the rule change and state the date the rule change takes effect. Except for emergency rules, the date the rule change takes effect must not be less than thirty days after notice of the rule change is provided in the manner authorized in the governing documents.

NEW SECTION.  Sec. 13   A new section is added to chapter 64.38 RCW to read as follows:
     Unless the governing documents permit or require other methods for providing notice, all notices required under this chapter or the governing documents must be delivered or sent by first-class mail postage prepaid to the mailing address of each owner, but not for a shorter time period for providing notice than is required under RCW 64.38.035.

NEW SECTION.  Sec. 14   A new section is added to chapter 64.38 RCW to read as follows:
     Owners may vote in person or by proxy or by any other method permitted by their governing documents or the law applicable to the association's legal entity.