In many Associations (both condominium and non-condominium communities) there is uncertainty, and sometimes major conflict, over the proper procedure by which annual Association budgets and assessments are adopted. The following questions arise:
A. Regarding The Budget (Expenses):
– Do the owners have the right to vote on the budget OR can the Board of Directors adopt a budget without any input from the owners?
– If the owners do get to vote on the budget, must the budget be approved by owners at an Association meeting attended by enough owners to constitute a quorum?
B. Regarding Assessments (Dues):
– Do the owners have the right to vote on the assessments OR can the Board of Directors adopt assessments without any input from the owners?
– If the owners do get to vote on assessments, must the annual assessment be approved by owners at an Association meeting attended by a quorum of owners?
I. Homeowner Associations (“HOAs”)
With respect to HOAs (not Condominium Associations) a statute provides part of the answer. RCW 64.38.025(3) states:
(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.
This statute makes it clear that the budget proposed by the Board will be adopted unless it is rejected by a vote of a majority of all owners in the community and not just the majority of a quorum at the meeting. The CCRs (covenants) for the community can specify a larger percentage than a majority to reject, but cannot require a less than a majority to reject and cannot require owner approval of the budget.
Thus, as to the budget, owner approval is not required and the Board’s proposed budget will prevail unless rejected by the necessary percentage of HOA members.
On the other hand, assessments are subject to a different analysis in light of the recent case of Casey v. Sudden Valley, 182 Wn.App. 315 (2014). In this case the Washington Court of Appeals ruled that RCW 64.38.025 does not apply to the adoption of HOA assessments. Thus, the required procedure and vote for the adoption of annual and special assessments are determined not by statute but by the provisions of the community’s governing documents – generally the CCRs – which documents may establish a completely different procedure for the proposing and adopting of assessments.
While in my professional opinion the Sudden Valley decision was incorrect and poorly reasoned, it is now the law in Washington until overturned by the Washington Supreme Court or the legislature.
II. Condominium Owner Associations (“COAs”)
COAs are not governed by either RCW 64.38.025 or the Sudden Valley decision discussed above. That statute and that case apply only to HOA’s.
RCW 64.34.360(1), which is applicable only to condominium communities, provides:
(1) Until the association makes a common expense assessment, the
declarant shall pay all common expenses. After any assessment has been
made by the association, assessments must be made against all units,
based on a budget adopted by the association.
This language implies that assessments are to be imposed as part of the budget adoption procedure. If that is the case, the same procedure applicable to HOAs for the adoption of a budget described above would apply to assessments pursuant to RCW 64.34.308(3) of the Condominium Act.
The Sudden Valley court touched on this condominium procedural issue in its decision but did not make any formal ruling, because there was no condominium community involved in that case. Thus, there yet remains some uncertainty as to whether the procedure for the imposition of assessments by COAs is governed by statute or the community’s CCRs.
The proper and lawful procedure by which Associations must adopt their annual budgets and impose annual and special assessments is important to understand. Budgets or assessments adopted without following valid procedures are probably unenforceable and subject to challenge by the owners.
If you have questions concerning such procedures or any other matters relating to your HOA or COA, please call on us. We represent and advise Associations as well as individual owner/members of Associations that we do not represent.