Condominium Boards of Directors in the District of Columbia have been given greater latitude when on March 4, 2014, the Council enacted significant amendments to the District's Condominium Act. The new law, which is awaiting the Mayor's signature and Congressional approval, will become effective later this year.
Courts in the District currently judge a condominium's action based on a "reasonableness test" - in other words was the board's decision appropriate under the circumstances. The Council rejected this and replaced it with the "business judgment rule". Under this new approach, the courts will not second guess a board decision in most cases.
However, the Council made it clear that this rule does not absolve board members from their fiduciary duties. "They still must work in good faith, stay reasonably informed, and only take actions in furtherance of the legitimate interests of the condominium association they represent in their role as officers."
In the final analysis, however, should a majority of owners dislike certain actions of the board (or individual board members), all condominium legal documents provide a procedure whereby by vote of a majority, they can "throw the rascals out".
There are an estimated 50,000 condominium units registered in the District, and looking at the cranes all over the city, many more units will be available within the next few years. The original condominium law was enacted in the District back in 1976; it was amended in 1991. The Council felt the need to enact sweeping changes, based on the fact that "best practices and technologies have changed considerably, justifying the types of modernizations made in this legislation..."
Here is a summary of some of the other amendments:
- Ttransparency: the new law was not one-sided in favor of the boards. One of the stated purposes of the amendments is to "foster a more participatory environment for unit owners, give them confidence that their interests are being served, and to allow them to take informed action when those interests are not being served."
Too many times, unit owners complain that their elected board is unfair or that the President is on an ego trip. The new law requires that all board meetings be open to all owners who are in good standing, and gives owners the opportunity to raise questions, vent their concerns, and make suggestions to the board. The board can, however, go into closed executive session, but only for specific reasons, such as discussing personnel matters, litigation issues. Books and records as well as board minutes must be made available for owners's examination, subject to certain privacy restrictions.
- Attorney fees: litigation is expensive - whether brought by or against an association. The new law requires that the winning party in any such dispute be awarded attorney's fees. According to the Council, "this should discourage the filing or meritless lawsuits given the risks entailed in losing. But it should also help make parties whole when they are forced to bring legitimate claims in court."
- Insurance: currently, if a pipe in one unit freezes and floods other units in the complex, the association's insurance will pay for most of the repairs, but the association will have to pay the insurance deductible. This can be as high as $10 or $20 thousand dollars per occurrence. Many condominiums in the District were converted from existing rental buildings and are experiencing problems as the buildings age. It is a significant financial burden on the association to have to pay the deductible each and every time there is damage.
The new law addresses this in two ways. First, if the cause of damage originates in a unit, unless it is determined to be a common element problem, and except if there are different requirements in the condo legal documents, that owner is responsible to pay up to $5,000 of the association's deductible. "Although this is a burden on owners," the Council wrote, "it serves to protect their neighbors and the overall financial health and condition of the association." This is similar to the law in Maryland.
Second, all owners are required to obtain their own condominium owner's insurance (called an HO-6 policy) . Currently, most association documents merely encourage such insurance. This coverage should cover most of the cost of the deductible that the owner will have to pay to the association. Typically, the deductible for the owner's insurance will be $500. So the H0-6 policy will reimburse up to $4,500 of the $5000 the owner has to pay to the association.
- Electronic voting: board members are permitted to participate by teleconference in meetings, and unit owners are allowed to submit ballots and proxies electronically.
There are many more amendments in the new law. Every condominium association in the District should consult with its legal counsel. There are a number of rules and regulations which must be drafted and approved by the board and the membership. Additionally, all owners should receive a comprehensive analysis of the entire act.
Living in a condominium is quite different from living in a single family home. The council recognized: "The condominium structure", as reported in the Report, "is a key legal entity used widely through the District, nation and world that allows for the peaceful and orderly joint ownership of a single building for multiple residential, commercial and other owners."