The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:00 a.m., on Thursday, April 1, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

John L. Meder, Committee Policy Analyst

Ardyss Johns, Committee Secretary

OTHERS PRESENT:

Chairman Townsend announced the meeting would be spent on construction and common interest issues and deregulation issues would be presented in a subsequent committee meeting. Chairman Townsend opened the work session and requested suggested changes to Senate Bill (S.B.) 32.

Pat Coward, Lobbyist, Nevada Land Title Association, and Justice for Home and Condo Owners, testified there would not be a problem with the concept of drafting an amendment to require a document be included in closing documents each time a property changed hands. Ron L. Lynn, Lobbyist, Clark County Building Department, presented a sample of a residential certificate of occupancy (Exhibit C). Chairman Townsend stated the certificate is close to the concept the committee had in mind. A copy of a residential certificate of occupancy would be provided with each change of property hands.

Chairman Townsend referred to a section of the law which exempts from the requirement of obtaining a contractor license as an "owner-builder" (Exhibit D). Margi A. Grein, Lobbyist, Nevada State Contractors’ Board, presented proposed changes to verbiage in the law which assumes "owner-builder" property, if sold within 1 year after completion, was built with the intent to sell (Exhibit E). Ms. Grein added the board has problems with people who use the exemption and never live on the property. Mr. Lynn testified "owner-builder" situations vary. The building inspectors know when the same individual, using the names of relatives, abuses the exemption; therefore, inspectors could police such a scenario without further legislation.

Irene E. Porter, Lobbyist, Southern Nevada Home Builders Association, suggested one or more committee members accompany Mr. Lynn when he addresses the Statewide Building Officials Council, to describe the legislative intent of issues concerning construction.

Ms. Grein, in answer to Chairman Townsend, said she had no objection to changing language in the proposed amendment (Exhibit E) to "conclusive" for a 1-year period, and "rebuttable" after 1 year.

Ivan R. Ashleman II, Lobbyist, Southern Nevada Home Builders Association, suggested requiring "owner-builders" go before the State Contractors’ Board and receive a waiver, before applying for a permit. This could provide a tracking tool for those who are abusing the "owner-builder" exemption. Mr. Lynn said the other side is, abusers use the names of relatives when applying for a permit, and could use those names when applying for a waiver. Mr. Ashleman interjected the form could be filled out, under oath, with a penalty of perjury.

Chairman Townsend referred to Exhibit F, which suggests changes to Nevada Revised Statutes (NRS) 624.161. Ms. Porter answered an inquiry by Chairman Townsend by stating the goal is to expedite the complaint procedures for the consumer. She continued the State Contractors’ Board and the building industry could make this work. Ms. Porter would like to discuss time frames with Ms. Grein.

Senator Shaffer wondered if this is getting into the inspection area. The Senator suggested a building department would understand building codes more than the State Contractors’ Board. Ms. Porter responded the proposal is intended for after construction is complete, and the certificate of occupancy has been issued.

Robert R. Barengo, Lobbyist, Nevada State Contractors’ Board, testified the board is currently doing everything suggested today, and the changes are unnecessary and redundant. Mr. Barengo assured Chairman Townsend this action is something that can be accomplished by the board through reorganization and regulation. Mr. Barengo claimed the deadlines mentioned in the suggested changes differ from current statute, however, in order to expedite residential complaints, the board is working on establishing time frames consistent with the suggestions.

Chairman Townsend requested the current schedule to resolve a complaint. Ms. Grein responded the complaint is assigned to an investigator, and notification is mailed to the parties. An investigator arranges a job-site visit with both parties, within 30 days. Ms. Grein added the 30-day period is an internal policy, and was decided upon in order to allow the contractor time to resolve the problem. Ms. Grein said the board would like to shorten the period, but there is a huge backlog of complaints, and previous policy allowed a 60-day period. After the job-site visit, a checklist is completed by the investigator, and if warranted, a notice of correction is sent to the contractor within 20 days.

Senator Shaffer thought a little more coordination is required than meets the eye. Often the complaint involves a subcontractor. Ms. Grein said the system seems to be working well and the board makes continuous changes to find methods that succeed. When there is a hearing, the burden of proof is on the contractor. Chairman Townsend expressed hope that the board can give top priority to the residential complaint issue.

Senator Schneider interjected when a commercial project is "tagged" for violation, the inspector can go right to the owner and resolve the problem. Ms. Porter represents thousands of small builders and Ms. Grein has testified 95 percent of complaints handled by the State Contractors’ Board concern home builders. Senator Schneider expressed the committee should focus on homeowner satisfaction during the interim and the next session.

Chairman Townsend turned to the investigation of regulated activity. Ms. Grein referred to proposed changes developed at the request of the chair (Exhibit G).

Mr. Lynn said Exhibit G lacked two adjustments he thought would appear. Ms. Grein agreed the corrections mentioned by Mr. Lynn were approved, and do not appear because the document was prepared in haste.

Senator Schneider asked about the financial responsibility portion of the proposed amendment. Ms. Porter expressed approval of the wording "or as requested by the Board" [State Contractors’ Board], since audited financial statements are expensive, and could be prohibitive for small contractors.

Senator Schneider commented on the section of the amendment relating to continuing education for contractors. He alluded to the success of requiring real estate agents to continue their education, and thought it just as important for contractors.

Steve G. Holloway, Lobbyist, Associated General Contractors (AGC), Las Vegas Chapter, testified the section applies to both residential and commercial contractors, and the AGC is in complete agreement with this portion of the amendment. Ms. Porter said the Southern Nevada Home Builders Association and the AGC will work together during the interim to develop regulations. Ms. Grein added wording in Exhibit G is condensed to create core guidelines for continuing education. Mr. Lynn added the hours required for professional development would be consistent with national standards.

Chairman Townsend related to Mr. Lynn assertions some northern Nevada contractors have conveyed, that they found out about certain code changes when a plan submitted for approval was rejected. Mr. Lynn said the code adoption procedure is lengthy. Clark County issues bulletins and newsletters to unions and associations, but if contractors did not belong to those groups, it could take up to a year before they are aware of changes. Chairman Townsend called for ideas to try to make the procedure more efficient. Ms. Porter suggested the quarterly newsletter mailed by the Nevada State Contractors’ Board could include code changes.

Chairman Townsend confirmed to Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, that all of the changes discussed today would be made a part of a part of S.B. 32.

Chairman Townsend opened the hearing on S.B. 451 and referred to Exhibit H, the work session document concerning the bill.

Senator Michael (Mike) A. Schneider, Clark County Senatorial District No. 8, reported S.B. 451 is the result of meetings and conferences with members of homeowners associations during the interim. He said the first suggested amendment on the exhibit is to increase the time for an executive board of an association to conduct a reserve account study, from 3 years to 5 years.

Mr. Ashleman commented the studies are expensive, and after the critical first study there is no reason for a study every 3 years. In response to a query from Senator O’Connell, Mr. Ashleman said the reserve account study is not about finances; it is to review the original estimates of the life of certain assets and anticipate future needs of the association. Senator Schneider added the need to resurface the streets, or plaster the pool, are examples.

Senator O’Connell asked a representative of a homeowners association to explain the accounting of funds. Pamela Scott, Property Manager, Community Association Management, The Howard Hughes Corporation, averred all of the documents for the master association require an annual audit. Ms. Scott offered Exhibit I for consideration by the committee.

Chairman Townsend opined Exhibit H refers to a study of whether assets are deteriorating faster than anticipated, as opposed to the overall finances of the association.

L. Duane McPherson, Lobbyist, President, Spring Creek Association, testified when an annual audit is performed, the reserve account is audited at the same time. Mr. McPherson circulated Exhibit J for consideration by the committee.

The committee agreed with Senator Schneider that increasing the reserve account study requirement from 3 to 5 years is satisfactory. Senator Schneider reviewed item 3, of Exhibit H, concerning notification of executive meetings. Ms. Scott asserted provisions need to be adopted to clarify the differences between the notice requirements for membership meetings and executive board meetings. She said master associations often meet every month, and since they are addressing issues that do not affect the individual homeowners, they should be exempt from the requirement to inform every homeowner.

Karen Brigg, Eugene Burger Management Corporation, related a management company handling 130 associations, trying to meet a 10-day notification deadline for the agenda is difficult, because issues are not always known in advance, and the printing cannot be handled in-house. Ms. Brigg suggested notifying the owners of the date of the meeting along with directions when and where the agenda would be posted, by mail. Ms. Brigg clarified for Chairman Townsend current law requires a minimum of quarterly meetings of the executive board.

Mr. Ashleman informed Chairman Townsend the problem with including the agenda in a mail notice or a newsletter is that often the agenda is unknown until the last minute. Mr. Coward pointed out there is existing legislation requiring individual notification by first-class mail of items that require a vote by the property owner; for example an assessment, or litigation. Mr. Ashleman said an exception to this could be an emergency. Senator O’Connell said if a board can become involved in a lawsuit without a vote of the entire association, this is a major problem with her constituents. Ms. Scott pointed out one of the amendments suggested for S.B. 451 states if the board takes action to become involved in a lawsuit, the homeowners must ratify such action within 30 days or the lawsuit must be withdrawn.

Mary Lyn Ashworth, Ombudsman, Ombudsman for Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry, suggested extra copies of the agenda be available at the location where it is posted.

Donna Erwin, District Manager, Eugene Burger Management Corporation, viewed a suggestion by Senator O’Connell to change the requirement for posting of an agenda from 10 days to 5 days, as helpful. Mr. Ashleman recommended 7 days as a compromise, since 5 days does not give a group much time to organize if they wish to protest.

Senator Schneider assured Senator Carlton that nothing in S.B. 451 prevents an individual homeowner from pursuing a contractor

Commenting on item 5 of Exhibit H [require public comment at the beginning of each meeting], Michael Trudell, Manager, Caughlin Ranch Homeowners Association, said the association sends requests to homeowners soliciting items for the agenda in advance. Mr. Trudell presented Exhibit K, proposed changes to S.B. 451. Ms. Ashworth said having a public comment period at the beginning of each meeting is an excellent idea.

Senator Schneider requested comment on the proposals to delete sections of S.B. 451 pertaining to the resolution of disputes.

Mr. McPherson spoke in favor of the commission, if it was expanded. Mr. Coward said he saw no problem with the commission as long as the homeowner can still go to court, and the ombudsman has subpoena power.

Mr. Ashleman added that his experience as an arbitrator in real estate and construction areas makes him wonder if this would place an enormous burden on the ombudsman. Ms. Ashworth testified she estimates half of the complaints will go to the commission, and half of the complaints would go through the alternative dispute resolution process. She said her intention was for the commission to have six members.

Jean G. Georges, Concerned Citizen, read prepared testimony (Exhibit L), with suggested amendments to S.B. 451.

Ms. Ashworth expressed appreciation to Ms. Georges for her suggestions. She stated the six-member commission would consist of three board members and three homeowners. Chairman Townsend suggested those wishing to serve on the commission could submit an application, and be chosen at random to serve for a year. Ms. Scott said the commission must be balanced to include developers and managers. Ms. Brigg emphasized the importance of the commission members having knowledge of the industry. Senator Schneider interjected the homeowner has the assistance of the ombudsman and attorney general available. Mr. Coward said homeowners have been upset in the past with the communication process, and there is a great need to have a balance.

Chairman Townsend directed attention to item 7 of Exhibit H that states, "the election of any executive board member shall be by secret ballot. Ballots shall be sent to each unit owner by United States Mail."

Senator Schneider explained the proposal of a secret ballot would be similar to the absentee ballot concept, thus eliminating the requirement for proxies or a quorum. Senator Schneider clarified several points of the proposal. Proxy votes would be allowed only for issues other than the election of executive board members, and board members would be required to disclose how many proxy votes they hold.

Answering a concern of Senator O’Connell, Ms. Scott said she would have no problem in allowing homeowners to review proxy votes, and she suggested the committee consider the designated proxy method that has been successful with the Summerlin planned community. Mr. Coward spoke in favor of the secret ballot for the executive board elections, and a designated proxy ballot.

Judy Farrah, CMCA, PCAM and CAI, General Manager, Desert Shores Community Association, related the association allows the homeowner to assign the proxy to whomever she or he chooses, and there is an election inspector to count the ballots.

Ms. Scott made the point that while a developer owns the majority of the units, the developer controls the association until all of the units are sold. Chairman Townsend explained the intent of this legislation is to discourage voter apathy by easing the red tape. He said the committee would return to the issue of delegate voting.

Ms. Farrah reminded the committee, at the annual member meeting when boards are elected, it is privilege of the people to nominate candidates from the floor.

Chairman Townsend directed attention to item 10 of Exhibit H. The item reads "executive board members shall be full-time residents of the association and a Nevada resident."

Ms. Ashworth guessed the ombudsman’s office has received more calls from homeowners on this issue than any other has and that item 10 should clear up many problems.

Mr. Trudell described a situation in Caughlin Ranch Homeowners Association, where a member of the board is a part of the group that developed the property, and his expertise is invaluable; however, he no longer lives in the association. Michael Buckley, Attorney, Community Associations Institute, thought such a scenario could be addressed by exempting developer appointees to the executive board.

Ms. Erwin expressed concern about older properties that she manages. Thirty five percent are owner occupied, generally by elderly people or disinterested young people, and the balance are investor owned. The investors care very much about the property, and are invaluable as board members. Jim Flippen, CMCA, Project Manager, Associated Management Inc., testified the change would not work for vacation area associations where up to 75 percent of the units are owned by investors. Senator O’Connell inquired if limiting the number of absentee owners on the board would help. Ms. Farrah said it would be acceptable if the majority of the board were owner occupants. Mr. Buckley added an exception would be required if a majority of the units were not owner occupied. Mr. McPherson said Spring Creek is not entirely developed and many owners of lots who live in Elko wish to participate on the board. Ms. Scott mentioned requirements of custom home communities; when 75 percent of the lots are sold, the association is turned over to the owners, yet the lot owners are not residents.

Chairman Townsend thanked those who testified for valuable input, and turned to discussion of certification for property managers.

Senator Schneider explained the issue was a concern of the industry. He added that some associations have had the same manager for many years, and those people do not wish to become certified. An exception to "grandfather" those managers could be made. Ms. Scott said from this period on, all managers should be certified to help preserve the integrity of the profession and the association.

Jennifer Lazovich, Lobbyist, Volunteers of America, testified in favor of the certification requirement, and the change in wording from "shall employ a property manager " to "may employ a property manager." Mr. Ashleman said the change would allow a developer to be his own property manager, while the property is under construction.

Mr. Trudell asserted the certificate for homeowner association managers issued by the Real Estate Division, is not available in northern Nevada, and there is one class available in Las Vegas. Joan Buchanan, Administrator, Real Estate Commission, Real Estate Division, Department of Business and Industry, stated the two times the 14-hour law course was offered in northern Nevada, there were no enrollees. The instruction has been offered in Las Vegas, through the University of Nevada, Las Vegas (UNLV).

Ms. Farrah stated she is certified to instruct the basic management classes that are required for certification, and she will be teaching the class on April 30 in Reno. Ms. Farrah offered Exhibit M, which suggests changes to S.B. 451. Ms. Buchanan has offered provisional certification to applicants until the 14-hour law requirement is met. Senator O’Connell asked Ms. Buchanan to explore the concept of video teaching from UNLV to northern Nevada. Ms. Farrah requested the law portion of the instruction be reduced from 14 hours to 8 hours. Mr. Ashleman said the bar association might be interested in teaching the course for law students, and opening it to certification applicants.

Senator Schneider summarized item 14 of Exhibit H, which transfers the collection of the ombudsman’s fee from the Office of the Secretary of State to the Real Estate Division. Scott Anderson, Deputy Secretary of State, Commercial Recordings Division, Office of the Secretary of State, agreed the duty to collect the fee should be with the Real Estate Division.

Senator Schneider proceeded to item 15 of Exhibit H, which provides the Real Estate Division the authority to impose fines for the late payments of the ombudsman’s fee. Mr. Buckley said current law defines the creation of the community when the declaration is recorded. Ms. Buchanan questioned if the fee is due on the date of incorporation or declaration of the community. Mr. Ashleman suggested the Real Estate Division should, by regulation, establish the date the fee is due. Douglas E. Walther, Senior Deputy Attorney General, Civil Division, Office of the Attorney General, said originally the fees were paid on the first of the year.

Senator Schneider advanced to item 16 of Exhibit H, pertaining to subpoena power for the ombudsmen’s office. Ms. Buchanan held the Real Estate Commission currently has subpoena authority, and Mr. Walther said the authority requires the signature of one commissioner.

Mr. Young asked if the existing subpoena authority extends to association records. Mr. Ashleman suggested adding verbiage to existing law if research indicates it is necessary. Ms. Georges requested the word reasonable be inserted, because some homeowners may make unreasonable requests; for example, obsolete records, and information about the delinquency of dues by other homeowners.

Senator Schneider said items 17 and 18 of Exhibit H are to assure every association pays the ombudsman’s fee, and no association pays it more than one time.

Mr. Ashleman explained item 20 (Exhibit H) was prepared at his suggestion, and would put into the law that no action may be taken by an association unless the association furnishes each member with a reasonable estimate of the costs and attorneys’ fees involved, and also discusses the degree of risk. Mr. Buckley suggested the notice should include the possible effect a lawsuit could have on the credit or borrowing capability of the homeowner. Mr. Ashleman agreed with the suggestion, and said most people would not think of those points.

Senator Schneider said item 21 of Exhibit H concerns the funded reserve account. Ms. Scott recommended further definition of the term "fully funded." Mr. Ashleman agreed the term needs further research. Ms. Scott suggested there be a period within which the declarant/association can build up reserves called for in the study. Mr. Young requested clarification of those associations that will fall under the 3-year deadline in item 21. Senator Schneider opined the definition would encompass associations that have started construction. Ms. Scott added perhaps the funding of the reserve account commence on the day the association fees begin. Ms. Erwin asked what method would be used to assure the developer complies with the requirement. Ms. Georges responded the authority could be with the Commission for the Resolution of Disputes Related to Common-interest Communities, which was proposed in S.B. 451. Mr. Ashleman said a lien could be placed on the developer’s remaining property.

Chairman Townsend said it appears the parties agree with the concept of item 21, and he requested those concerned submit ideas for change to Mr. Young. Larry W. Bennett, Lobbyist, Justice for Home and Condo Owners, said language indicating a board member would be elected for a term "which shall not exceed 2 years" would be appropriate. Mr. Ashleman affirmed a need to return to the establishment of a commission portion of the bill.

Chairman Townsend declared the work session must conclude; and he requested those interested to remain and work with staff to address the issues discussed today. The meeting was adjourned at 10:25 a.m.

RESPECTFULLY SUBMITTED:

Cynthia Cook,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: