MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
April 24, 2001
The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 8:07 a.m., on Tuesday, April 24, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was video conferenced to the Grant Sawyer Office Building, Room 4406, Las Vegas, 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 Dean A. Rhoads
Senator Mark Amodei
Senator Raymond C. Shaffer
Senator Michael A. (Mike) Schneider
Senator Maggie Carlton
STAFF MEMBERS PRESENT:
John Meder, Committee Policy Analyst
Laura Adler, Committee Secretary
OTHERS PRESENT:
Tami DeVries, Legal Administrative Officer, Real Estate Division, Department of Business and Industry
Michael E. Buckley, Lobbyist, The Howard Hughes Corporation
Karen Brigg, Regional Vice President, Eugene Burger Management Corporation
Jim Flippen, Owner/Operator, Associated Management Incorporated
Pamela J. Scott, Lobbyist, Senior Property Manager, The Howard Hughes Corporation
Betty Ravendo, Raven Management
Joanne Young, Concerned Citizen
William A.S. Magrath II, Director, Caughlin Ranch Homeowners Association
Judy Cook, Owner/Operator, Cook and Company Limited
Sarah Barry, Community Associations Institute
Donna Erwin, Las Vegas Country Club Estates
William “Bill” Feliz, Owner/Operator, Feliz Management
Gerry Northfield, Concerned Citizen
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture
David T. Pursiano, Lobbyist, Nevada Trial Lawyers Association
Renny Ashleman, Lobbyist, Southern Nevada Home Builders Association
Shari O’Donnell, Lobbyist, Community Associations Institute
Samuel P. McMullen, Lobbyist
Joan Buchanan, Administrator, Real Estate Division, Department of Business and Industry
Pamela Darr, Concerned Citizen
Eldon Hardy, Ombudsman, Ombudsman for Owners in Common-Interest Communities, Real Estate Division, Department of Business and Industry
Chairman Townsend opened the workshop on Senate Bill (S.B.) 421.
SENATE BILL 421: Makes various changes to provisions governing common-interest communities. (BDR 10-446)
Referencing the “Work Session Document” (Exhibit C. Original is on file in the Research Library.), Senator Townsend stated the latest version of S.B. 421 that incorporates all the changes and proposed amendments to date, can be found under tab A. He said tab B contains the proposed amendment by Senator Schneider. He said under tab C is the proposed amendment submitted by William L. Coulthhard. Lastly, he said, under tab D is the proposed amendment submitted by the American Consulting Engineers Council of Nevada.
Senator Townsend noted the new section 3 gives definitions for “certificate” and “community manager.” He said section 4 defines management of a common-interest community, and “permit.” He inquired as to whether it was an inappropriate perception to assume if a person is a property manager, they now need to get a certificate to also be a community manager.
Tami DeVries, Legal Administrative Officer, Real Estate Division, Department of Business and Industry, responded, the community manager definition includes both property management permittees and certificate holders. She explained a property management permittee would not need to have a certificate.
Michael E. Buckley, Lobbyist, The Howard Hughes Corporation, conveyed it was his understanding the new commission would set the standards for anybody engaged in community management, but the Real Estate Division would still license a permittee licensee.
Senator Townsend stated he would defer to his colleagues, Senators O’Connell and Schneider. He asked if it was their intention to have current licensed property managers under chapter 645 of Nevada Revised Statutes (NRS) to have to get an additional certificate for community manager.
Senator Schneider commented he has found community managers are different from property managers. He emphasized it would help upgrade the industry to require a community license.
Senator Townsend asked if someone is currently a property manager, then should they also hold a certificate that is required under section 3, and section 3.5 of the proposed amendment under tab A of the Work Session Document Exhibit C.
Senator Schneider maintained they should also hold a certificate. He stated he would like an opinion from Ms. Brigg who manages the largest amount of properties.
Karen Brigg, Regional Vice President, Eugene Burger Management Corporation, expressed it would not be necessary for a permitted property manager to hold a certificate, but they would need to hold one or the other. She articulated she would like to see the definition of the community-managing agent, reworked. She explained the community-managing agent is a person who manages, possibly, more than one association. She remarked, in the definition given, community-managing agent means a person who will be responsible for acting in a supervisory capacity. She surmised it could be an individual that holds a certificate is also running a management company, but may not have anybody working under them except accounting people, but they may be managing multiple associations. She asserted the current definition, clearly, does not cover those individuals. Expounding further, Ms. Brigg stated there would be certificate holders that could work for brokers or community-managing agents, or there would be a permitted property manager, which carries a real estate license, and is permitted to manage condominium associations, apartments, and such, that would fall under a broker. She pointed out the lack was in the definition of a community-managing agent.
Jim Flippen, Owner/Operator, Associated Management Incorporated, interjected there is a lot of effort going into creating a commission that will oversee 150 or so certificate holders, as compared to the over-1000 permit holders performing similar functions. He said the education requirements for the certificate holder are vastly greater and different than the permit holder. He said he thinks, due to the effort to encompass it all, they should have the same education requirement, and all should be under the auspices of the commission doing the same function.
Ms. Brigg responded that a permitted property manager has a great deal of education. She opined more so than a certified manager, and did not see the need for two licenses. She asserted if a permitted property manager did not have enough education geared totally toward managing associations, then increase that education.
Pamela J. Scott, Lobbyist, Senior Property Manager, The Howard Hughes Corporation, articulated that she agreed with both opinions. She noted there is no reason for a permittee to also have a certificate. She said there is a need to raise the education requirement for common-interest issues of the permittees. Unfortunately, she concluded, that cannot be done by regulation, because the requirements are spelled out in chapter 645 of NRS, which would require amending the statute in order to do it by regulation.
Betty Ravendo, Raven Management, stated she was a licensed real estate broker and also a certificate holder to manage community associations. She said it was her experience that the permit holders do not have the required education to properly be a community association manager. She acknowledged they do have additional information regarding landlord and tenant relations, but that does not come into play so much with community associations. She conveyed only partial support that this situation could be rectified by increasing the education requirements. However, she said, it should all be encompassed under the same commission, and not split up between the Real Estate Division and the common-interest community commission.
Senator Townsend noted they have gone through sections 3, 3.5, 4, and 4.5, and do not have any agreement. He commented, this is not a good sign.
Mr. Buckley remarked he thinks there is agreement, in that Ms. Brigg stated two licenses are not needed, but is not saying they should not have the same education. Therefore, he averred, the consensus is whether someone is a real estate agent or a community agent, they need the same educational background, if they are going to manage a community association.
Mr. Flippen expounded that when they get to the commission portion of the amendment, all are clear that the commission is regulating anyone who is managing community associations, regardless of whether it is clarified that they have a certificate or a permit. He continued, if the commission is regulating those people in that particular activity, then the Real Estate Division should balance out the education requirements for those managers. He opined that would effectively accomplish the desired goal.
Senator Townsend pointed out there are three separate entities with which everyone is familiar. He expounded there is the licensee under chapter 645 of NRS that does real estate; then there is the property manager that has a permit to manage property for various clients; and now there would be a certificate for a person whose primary function is to be a common-interest community manager. He contended it might mean that a licensee for real estate does it, or someone who is a property manager does it, but if they do that then they have to get the certificate.
Ms. DeVries clarified that a real estate licensee cannot manage property, only if a permit has been added to their license.
Senator Townsend iterated if they have a permit as a property manager, and they are now going to manage an association or common-interest community, then they must get a certificate under this proposal. Ms. DeVries stated no.
Senator Townsend continued, in section 5, community-managing agent means a person who will be responsible for acting in a supervisory capacity to certificate holders under chapter 116 of NRS. He asked to have that person defined.
Ms. Brigg stated she has a problem with that definition, because it does not encompass enough to cover those individuals that are doing property management of common-interest communities. She explained the whole intent of a community-managing agent is similar status as a broker. She commented, if she had a broker’s license, she would not have to supervise people underneath her. She said, for example, she could have a fully operating company performing a number of real estate transactions, but she would have to comply with the requirement of an office, signage, and bonding, and so on. She insisted if the definition is left as is, then a group of people would be left out that needed to be covered. She expounded, under the certificate, she could open a management company and not be held responsible to the Real Estate Division, other than her certificate, because she is doing the management of multiple associations, and has only hired a staff of accountants and clerks. She asserted the definition has to be broadened.
Senator Townsend repeated what was being said, is in the case of the real estate agent who would hire multiple agents, they would need a broker’s license, which is a separate higher standard that they are held to. But, he said, if that person is going to do the same as a community manager, then they should be held to some other standard if all they do is manage community managers. Ms. Brigg agreed that was correct, and added, or multiple associations.
Mr. Buckley maintained he thinks everyone had come to that conclusion, but clearing up the language may help the understanding. He elucidated that all agreed there should be someone like a broker in the context of community managers.
Ms. Scott pointed out that one difference is the community-managing agent, just as a certificate holder, rarely has any responsibility or holds the funds of any person, because the board of directors sign off on the funds and make all the spending decisions.
Senator Shaffer questioned whether this action might be building another level of cost to an association homeowner, because once there is a broker or realtor involved, it almost always means money.
Ms. Brigg responded that no additional cost was intended, just additional protection for homeowner associations (HOA) of the assurance that other people who might be dealing with large associations and funds are bonded, are conducting business in a proper fashion, and are held accountable to somebody for their actions.
Senator Schneider communicated he has found there to be a big difference between a property manager, and a community association manager. He explained property managers that realtors work with a lot, keep everything in line, and manage a property for an owner, such as apartments and other rental properties. But, he said, an association manager works with a community, in part, by building community relationships, and contended that is an entirely different type of job. He explained in addition to collections and bookkeeping, they put on parties and group functions. He insisted it is a totally different type of industry requiring different skills, and attributed a lot of the problems in HOAs to those community-building skills not being fully utilized. He did not see it costing more money, but opined that maybe it should in order to upgrade the industry. He expounded on the testimony he heard while attending a hearing in Arizona, and at national meetings, is that in the late 1980s, community association managers were managing around 6 properties and charging $5 to $6 a door, and 10 to 12 years later, they are managing twice as many properties, and still charging the same rate. He noted the managers have doubled their workloads for about the same amount of money, and the service to the associations is bad. He maintained there are a number of people who are doing association management out of the trunk of their car, so to speak, while handling massive amounts of money, which has been addressed with the reserves. But, he emphasized, what is really needed is a more professional level of people as managers.
Senator Townsend commented, one goal that has come to his attention, that he thinks the committee is attempting to accomplish, is when a common-interest community manager is at a meeting, and the board is attempting to do something that is not within the framework of the law, that person needs to be able to look that board in the eyes and say, “You are wrong, this is the law,” and hold credibility when they say it. He stressed that is the issue his two colleagues took many hours of testimony on, and are receiving e-mail, letters, and telephone calls regarding the handling of these issues by boards that just do not understand. He asserted, that having informed managers with credibility that boards would listen to, is the goal of raising the bar relative to somebody who just manages.
Joanne Young, Concerned Citizen, stated she lives in a self-managed community where the board hired a manager. She wanted assurance that within this section of the bill the homeowner manager must be certified, have the certificate, and have the education. She averred that the present manager has absolutely no education in real estate or property management, that her previous experience has been secretarial only.
William A.S. Magrath II, Director, Caughlin Ranch Homeowners Association, opined the definition of community manager under section 3.5 that says a community manager must have a certificate or permit, answers the question of the last speaker. His concern was large associations that have employees as community managers that have certificates or permits, should not be required to work under some other broker-type, community-managing agent. He asserted the larger associations should have their own employees that do not have to answer to a broker.
Judy Cook, Owner/Operator, Cook and Company Limited, stated she was a real estate and property management educator. She averred on complete agreement with Senator Schneider regarding the education of property management permit holders as far as their education to manage common-interest communities. She explained she taught the 24-hour property management permit program. She stated, 3 hours of that program consisted of common-interest community association management. She articulated there is absolutely no way someone could be prepared to properly manage a HOA in 3 hours. She concluded she would agree that property management permit holders should be required to get a certificate for management of common-interest communities.
Senator O'Connell inquired if the education opportunity is available, and the course is 3 hours, then would there be a problem with requiring additional study when it appears there is no ability to gain a certificate, and what more could be added to the 3-hour course.
Ms. Cook answered if property managers that manage common-interest communities were required to have a certificate, the course would be borne to accommodate the requirements, just as the 24-hour property management permit was borne. She conveyed that need, requirement, and demand would be there, and educators like herself would write the course material, and provide the course instruction. She expounded there are approximately 1400 property managers, and at least one-third are managing one, two or more common-interest communities, which creates quite a demand for the course.
Sarah Barry, Community Associations Institute, stated she is an educator and is currently working on developing a 30-hour course of study through the University of Nevada, Las Vegas (UNLV), to be approved by the Real Estate Division. She said the course would be offered in the Las Vegas area first, then in the Reno area.
Donna Erwin, Las Vegas Country Club Estates, articulated that the national Community Associations Institute (CAI) course, the M-100, is already available and approved by the division for continuing education to obtain the certificate. She explained the course consists of a basic outline of all aspects of community association management. She expounded it is a 2½-day course, usually offered Friday through Sunday.
William “Bill” Feliz, Owner/Operator, Feliz Management, said he is a real estate broker and property manager. He stated he has taken the M-100 course over the years. He said he started out with the 45-hour association management course, plus he has acquired another 100 hours in association management training. He claimed there were a sufficient amount of classes being offered without adding more. He articulated the bill is excellent with emphasis placed directly where it needs to be, on the boards. He explained managers can be educated all you want, but until there is cooperation and responsibility placed on board members, there will still be the same old problems. He stressed what Senators O’Connell and Schneider heard in meetings, was exactly on point.
Senator Townsend queried, if someone took the M-100 course and received a certificate, would that then qualify them to receive a permit?
Ms. DeVries replied the M-100 course would qualify the person to get the certificate, but Mr. Feliz said he also took required courses to hold a permit.
Senator Townsend restated if a person comes before the commission and submits their credentials, could that person get a certificate without doing one other thing. Ms. Cook answered with a no.
Ms. Scott explained if a permit holder also takes the M-100 course, and the legal course required under chapter 116 of NRS, which is another day long class, then he could obtain a certificate making him a permittee as well as a certificate holder. She expounded the real problem with the law is not that there are not many good real estate agents out there also getting their certificates, it is that chapter 645 of NRS does not require a certificate, and is why that requirement has never been able to be placed in chapter 116 of NRS, because of the conflict with chapter 645 of NRS.
Gerry Northfield, Concerned Citizen, stated he was a new resident to Nevada, and came with CAI certification for a professional community association manager. He said he has held state certification under other state’s qualifications. He elucidated what he needed to do to get his certification in Nevada is to become oriented to the Nevada statutes. He suggested what should be required to be certified in Nevada is the M-100 course, plus a course in Nevada law. He expounded, should someone desire to proceed to a higher level, there is the professional management development program that CAI has provided nationwide. He emphasized he agreed with everyone else, that the minimum requirement in Nevada should be a certificate.
Mr. Flippen agreed with the recommendation to take the Nevada law course as certificate holders are now required to do. He said that course would allow any manager advising an association board of directors to state with confidence that they know the law and this is the way the board should act. He added the permit holders are not now required to take the Nevada law course.
Senator Townsend stressed the need to understand what the bill would require. He stated, in section 3.5 of the proposed amendment (Exhibit C), community manager means a person who holds a certificate or who holds a permit, which is a property manager permit, and who manages associations with a common interest. He reiterated, it means someone who holds a permit could now be a community manager. He opined it was Ms. Cook’s contention that there are only 3 hours out of the 24-hour course under the permit that addresses community management. Chairman Townsend stated the intent is to require permit holders to have more hours of community management, which is the key issue. He asked for clarification on terms and courses offered for the industry.
Ms. Scott responded, the M-100 is a class offered by CAI as the minimum required standard to obtain a national certification, and it is the minimum education to obtain the certificate holder for the state of Nevada, along with the law class. She commented, as others have testified, there are plenty of classes available, but the problem is not requiring enough people to take those classes. She claimed new classes do not have to be created, because there are already plenty now in existence. Ms. Scott explained another acronym of PCAM stands for professional community association manager. She elucidated the PCAM classes and thesis requirements are similar to the CPM for commercial property manager. She said the PCAM and CPM are similar designations denoting that a person has taken as many courses as are available and achieved the top level.
Ms. Scott reiterated the M-100 is a 2½-day class covering all aspects of community management at the elementary level. She stressed the M-100 plus the law class should be the minimum requirement for any person in Nevada that is managing a common-interest community.
Senator Townsend inquired whether the commission would establish the standards.
Ms. Scott remarked she was not sure standards could be established through the Nevada Administration Code (NAC), because of the requirements for a permit in the Nevada Revised Statutes. She surmised there could be both designations, and say if a person is going to manage common interest, they need to be a certificate holder, period. She clarified the certificate would be obtained by taking the M-100 class and the chapter 116 of NRS law class, and pass the test.
Mr. Buckley interjected that section 15 of the bill also deals with the education issue.
Ms. Ravendo stated when the law was originally passed to require a manager to be a certificate holder, there were no courses available at that time to obtain certification. She explained, because CAI already had the M-100 course in place, it was adopted. She stated she was a strong advocate that when a state has certain educational requirements, they should be the one providing the course of study. She expounded there are some people in Las Vegas that are putting together the same study material, but it would be given under the auspices of the state rather than a private trade organization, such as CAI.
Mr. Buckley suggested for proposed section 7.5, subsection 1, paragraph (d) (Exhibit C), to add a subsection 5, that the data gathered would include information regarding foreclosures.
Karen D. Dennison, Lobbyist, Lake at Las Vegas Joint Venture, pointed out there is duplicated language in the new section 7.7 (Exhibit C), and section 14, and that the language should be reconciled into one section.
Ms. Brigg inquired if a board was in violation of chapter 116 of NRS, and it was not known to the homeowners until such time as a new board was seated, that violation could extend past a year’s time. Therefore, she asked if section 9 was saying the homeowners could not file a complaint after 1 year. She asserted it may not only affect boards, but it may also affect management companies when an association changes management companies, and it could take a year or longer before the issues that were in violation of chapter 116 of NRS could be unraveled.
Mr. Buckley contended that filing a complaint would depend if the violation still existed. He surmised if the violation occurred in the past, that may not be what the commission is for. He stated if the violation is still occurring with the new board, then the filing of a complaint would be valid, but if the violation with the old board was no longer occurring, then there would be no need to file a complaint. He commented the main thrust of the commission is that it issue cease and desist orders or orders to stop violating the law or orders to fix something, and if the condition no longer exists, then there is no reason to file.
Ms. Brigg offered an example in that her company took on management of an association in which an individual of the former management company had a roof replaced. She explained her company had the account for about 18 months when a strong wind took off that entire roof, and with it the $30,000 it cost to put it on in the first place. She insisted she would like to have been able to find someone to be held accountable for the workmanship on that roof.
Mr. Magrath surmised that the roofing company would be the one to be held responsible in that circumstance. He opined going back to the board, because they did not pick the right contractor, seems to him, not the way to handle it. He pointed out a complaint against that board under these circumstances is not the kind of filing for the commission, which sounds like it would already be busy enough.
Senator Townsend remarked that particular incident fits more into the construction defect bill.
Ms. Brigg elaborated the problem was that board was not following procedures. She expounded if that board had followed the NRS procedures and were doing due diligence, because they had a fiduciary duty, the roof incident most likely would not have happened. She clarified the person who put the roof on was not a licensed contractor. She contended, in this case, it is not easy to go back to the contractor, because he is un-licensed and cannot be found. This situation calls for looking for other avenues of recourse.
Senator Townsend posed the wording could be, 1 year after discovery.
Senator O'Connell asked for clarification if it was the association’s responsibility to replace roofs. Ms. Brigg affirmed.
Mr. Buckley questioned what section of chapter 116 of NRS that type of violation would be found. He noted that the commission would only deal with violations in chapter 116 of NRS, not the governing documents.
Ms. Brigg claimed the business judgment rule, and upholding fiduciary responsibilities would apply. She added the property management company also did not fulfill their obligation. She contended that was just one issue. She expounded it could be a money issue, where there could be funds missing, and it would take longer than a year to discover the missing funds. She concluded that her question is, “Is a year long enough?”
Mr. Magrath stated, as the president of an association, his concern about the purpose of the commission is to issue cease and desist orders, and assure compliance with the statutes. He opined the business judgment rule might not always be the answer. He conveyed there is always an alternative civil remedy against the manager, if the manager selected by the association proves irresponsible. He contended the commission should not be dealing in the issue of questioning the business judgment of every association management or board.
Senator Townsend remarked he is thinking of the homeowner that now has a roofless home.
David T. Pursiano, Lobbyist, Nevada Trial Lawyers Association, opined Mr. Magrath made a good point. He expounded there are some things the commission cannot deal with, and are best left to the district court to remedy the situation. He contended the roof issue, although tragic, was one of those issues that would have to go to district court. He expressed concern if areas are carved out, the commission could be overburdened. He concluded the business judgment rule would be best left for civil action.
Senator O'Connell queried that the manager who was at fault would, certainly, have malpractice insurance.
Ms. Brigg responded it could be one of those management companies that does not have a broker’s license, and does not fall under what is trying to be accomplished under this bill.
Senator Townsend articulated to insert the term, “1 year after discovery,” and to leave it at that. He continued to read through the various sections of the bill.
Mr. Magrath commenting about subsections of the new section 10.1, said he had a question as to the venue of the hearing. He noted if there were three commissioners from Las Vegas, and two from other parts of the state, where would the hearings be held in relationship to the location of the homeowner. He asked if the hearings would all be held in Las Vegas, or would the commission go to Elko County or Reno, if that was where the matter occurred. He expounded the hearing should be held in the homeowner’s locale, otherwise it would put a prohibitive expense on the complainant to travel.
Senator Townsend responded there should be no misunderstanding, the hearing should be held in the homeowner’ location, and the hearing could be conducted by conference call or by teleconference. He directed it be added to the bill that the commission venue is to be wherever the homeowner is located.
Ms. Erwin suggested the wording be changed to read, the respondent, rather than the homeowner, because the respondent might not be a homeowner, but a manager or a board member.
Mr. Magrath conveyed the wording could say, in the locale of the property that is the subject of the complaint. Ms. Erwin agreed with the wording.
Renny Ashleman, Lobbyist, Southern Nevada Home Builders Association, commented if teleconferencing is to be allowed, then he surmised it was not meant that the commission travels to each of the physical locations. He pointed out venue has no meaning, if there is teleconferencing capability. He insisted it would have to be made clear that the commission itself is not intended to physically go to each city, town or wherever the property is located.
Senator Townsend acknowledged the point. He stated the point is that the location of the property in question should not require an individual to travel somewhere. For example, he said, a person living in Reno who owns property in Elko that is in question, should not have to travel to Elko, and a property owner in Elko should not have to travel to another location. He emphasized that he wants to make it easy on everyone.
Mr. Ashelman commented that was his point, so long as there is to be teleconferencing, then venue should be left out of it. He mentioned that as a member of the state bar, they hear calls from all over the state.
Senator Townsend stated it would be made clear that the parties involved can communicate by telephone. He continued to read through the various sections of the bill.
Mr. Magrath commented he has been paying attention to the cost of return receipt requested, as mentioned in section 12. He opined why the results could not just be mailed, then if someone does not get the mailing, a fax or other response could be done. He asked the reason to spend $4 on every letter.
Mr. Buckley responded it was a final decision of the commission.
Responding to a question, Mr. Magrath said the cost of return receipt requested is $3.85, plus the cost of staff to prepare and process.
Senator Townsend commented it is a serious decision, because the property owners should know what is going on. He continued to read through the various sections of the bill.
Mr. Flippen remarked on behalf of volunteer boards of directors that he had a chance to talk with between sessions, all spoke about their concern for any monetary personal liability for their actions. He opined it is a complicated issue, and one that would have to be delved into. Mr. Flippen said it compromises the volunteerism and the will of any member of an association to want to serve on a board, if they could be held liable.
Senator Townsend commented the point is well taken. He clarified if the commission finds that someone did something wrong, and did not comply with a specific order, not that they broke chapter 116 of NRS, but the commission would have to find that the board did break chapter 116 of NRS, and fine them. He expounded the board would be notified by the commission that they broke chapter 116 of NRS, and order the board to fix the problem. He said if the board did not fix the problem, then the commission would fine them.
Mr. Magrath concurred it was a two-step process. He said after an investigation and a hearing, the commission enters a cease and desist order. He voiced after that, if the board or board member fails to take the direction of the commission, then there is the potential fine of up to $1000. He noted the language needed to be cleaned up. He stated subsection 1 says, “the commission determines after noticing hearing that, (a) a party has violated,” and, he said, paragraph (b) should go on to say, “a person has failed to comply.” He continued, technically, it is a two-step process. He said he has great comfort in that he can tell his board that if the commission tells us we made a mistake, we fix it, and if we do not fix it, then there would be a fine.
Mr. Flippen agreed with the explanation. He opined the challenge on the part of the managers is to educate boards. It is not a direct fine for an initial violation of the law, he remarked, because the commission issues an order that the board would have to respond to first.
Senator Townsend articulated, this is to strengthen the concept of a commission trying to correct inappropriate behavior. He expounded the boards would get notice, and given an opportunity to correct the situation. He continued to read through the various sections of the bill.
Mr. Magrath stated he agreed with an earlier comment that section 14 is a duplicate of section 7, subsection 7, subparagraph (2). He expressed concern, as a board member, when he sees the term, criminal prosecution in paragraph (b).
Mr. Buckley pointed out the only place criminal violation occurs is when there is the taking of something of value. It is the place where that is a misdemeanor.
Senator Townsend averred that to use subparagraph (2) of section 7, would deal with the issue without getting into the criminality. Therefore, section 14 can be struck, if section 7, subsection 7, subparagraph (2) is retained. Mr. Magrath concurred that it would eliminate the issue of criminal prosecution. Ms. Dennison also agreed.
Mr. Buckley pointed out section 14 also deals with residents outside the state, and suggested that portion to be added to section 7, subsection 7, subparagraph (2).
Senator Townsend remarked the hardest part of all this is to take care of the consumer, who cannot just move when they are not receiving customer service, and customer service is what we are trying to achieve here. He continued to read through the various sections of the bill. He noted there is a new section 15 regarding a managing agent, not a community manager, and the qualifications, education, duties and responsibilities. He asked for clarification on what standard a community-managing agent would be held to as opposed to a community manager, or would they be held to the same standard, but receive a license as opposed to a certificate.
Ms. DeVries explained the intent is to allow the commission to adopt a separate set of standards for that entity.
Mr. Buckley added that person would be responsible for others complying with the act as well.
Ms. Scott noted her objection to paragraph (f) of section 15, where it says, “Must establish criteria for exemptions from obtaining such a license.” She surmised that would be in the Nevada Administrative Code (NAC), and pointed out exemptions for certificate holders are in NRS 116.31139. She pointed out financial institutions would be exempt, an attorney licensed to practice in Nevada, a trustee, an employee of a corporation, unless the corporation is an association, a declarant, and a receiver.
Mr. Buckley pointed out section 15 is written almost the same way NRS 116.31139, and to parallel that, there would be a need for these types of exemptions or to combine the sections, since they read almost the same.
Senator Townsend recited the goal is to strike paragraph (f) of section 15, and use the exemptions under chapter 645 of NRS.
Mr. Buckley commented the exemptions would go under section 46, subsection 4, pages 29 and 30 of the bill. He added it would also pick up the working group discussion that a board member or officer of the association would carry out board member functions.
Mr. Feliz inquired if this now meant that a real estate broker would have to have the additional license or are they still covered under the broker’s license, because he was not clear on what was meant by a community association agent.
Ms. DeVries answered, brokers would not have to obtain the community-managing agent license. She explained it would be similar to the broker-permittee relationship, but only for people who fall under chapter 116 of NRS. Further, she said, it would be like a broker over the certificate holder.
Mr. Feliz questioned if the conditions for an agent have been determined as yet. He expressed there are certain rules that a broker has to go through in order to qualify. He said what he wanted to know was if the rules had been established for an agent.
Mr. Buckley articulated the agent rules have not been established. He noted that was part of the discussion under section 5.
Senator Townsend remarked, everyone had to keep moving forward through the bill in order to go back to issues contained in the earlier sections. He pointed out the basic definitions could be found in sections 3, 3.5, and 4 of the Work Session Document (Exhibit C).
Mr. Northfield summarized, for clarification, if there is a written complaint, the executive board would be required to discuss it in open session. He stated right now if there is an issue of a hearing with a homeowner and the board, then they do that in executive session. He expounded a person could opt not to do the hearing in regular session, but, he said, he understood that boards normally discuss complaints or hearings, requests, appeals, in executive session versus in a regular session.
Mr. Flippen conveyed the issue could easily be addressed by inserting executive session held during the next scheduled board meeting.
Mr. Buckley claimed they are not saying what the complaint might be. He said it might not be a violation. He stated the original point was the board cannot respond except after a meeting, so then put it on the agenda. He added they are being specific about where on the agenda it should be placed.
Mr. Magrath asserted they want to be sure the homeowner gets a response within 10 days, that it has been acknowledged that the complaint was received, and the complaint will be on the next agenda for discussion. He opined many of these would be an open item on the agenda where discussion could be had about the problem. He said if it turns out it is something that should be handled by the executive session laws, then it would be handled that way. He maintained the important point was that the homeowner knows the problem will be addressed at the next meeting.
Ms. Brigg opined she would add if it is a complaint that does not require board action, then give it an immediate response. She expressed it is best to quickly respond to, and resolve a complaint.
Ms. Erwin inquired about adding language to section 25, subsection 2, “if the governing document so provides.” She explained a lot of documents, specifically, state that volunteers cannot be paid commission. They are volunteers and so could only be reimbursed for actual expenses incurred.
Ms. Brigg surmised that was the intent of the committee.
Mr. Buckley commented if the governing documents prohibit payment of a salary, he opined that it was not the intent of the bill to allow it. He expounded there would still have to be something in the documents, such as, a board resolution or a change in the bylaws that would permit the action. He articulated subsection 1 prohibits paying things of value, and subsection 2 does not prohibit paying a salary to a board member. He added it should also say, an officer.
Mr. Buckley elucidated the seminars he has attended are espousing that it makes sense if board members are paid in other areas of business, that it would also make sense to pay HOA board members to encourage a better group of board members. Additionally, as discussed in subsection 1, he said it is trying to prohibit conflicts of interest in contracts, subsection 2 is intended to make it clear there is no attempt to prohibit paying reasonable board fees.
Expressing agreement, Mr. Magrath stated the necessity for subsection 2 comes from subsection 1, which prohibits in paragraph (b), any commissioned personal profit or compensation or any kind to the association. He conveyed if the association’s governing documents, and the members of the association want to reimburse or pay an officer or member of the board for the hours it takes to serve on these boards and be responsive, then the point is why not allow it. He added that it should not be prohibited under subsection 1.
Ms. Ravendo commented, after hearing the discussion, she thinks it is even more important to include that clause, subject to the governing documents. She noted it has to be made very clear, that state law would not supersede the language in the governing documents.
Mr. Magrath recommended it should be a member of the executive board, an officer of the board or the association. He said to add at the end with a comma, if allowed by the governing documents.
Senator Townsend reiterated if any of the governing documents of an association allow for paid board members, they could be reimbursed for their official capacity, but only on condition the documents allow it. He noted it carves out the sole exemption to the previous paragraphs (a) and (b) under subsection 1.
Mr. Magrath commented he found the language very confusing. He said he prepared some alternative language for guidelines on the bottom of subsection 4 of section 27, of what a board, an association or an attorney can do if there is going to be destructive testing (Exhibit D).
Mr. Buckley pointed out section 27 contains a lot of shoulds. He contended it should be a yes or a no that these people have to be licensed. Additionally, he suggested the wording, “shall not hire a contractor,” should read, “a person.”
Mr. Magrath stated he had no problem with the suggested changes. He averred there would be a requirement that the person be a licensed Nevada contractor.
Senator O'Connell voiced she wanted to be sure the language in the proposed amendment was compatible with the language in the construction defect bill, especially subsection 4, paragraph (d).
Mr. Magrath stated his only desire was to clarify all the shoulds in the language. He agreed it would be less confusing to make sure the language conforms to the construction defect bill.
Mr. Buckley suggested adding the word, “written,” in paragraph (c) of subsection 4, so it reads, “written repair schedule.”
Shari O’Donnell, Lobbyist, Community Associations Institute, stated section 27 only addresses units, and it should include common areas.
Mr. Buckley agreed that it was a good point. He stated another point is if one owner holds out, for spiteful or malicious reasons, that should not prevent the other unit owners from proceeding with a lawsuit. He suggested addressing opting out as well as the common elements issue.
Mr. Magrath commented about what would happen if a developer that had a defective building cut a private deal with several unit owners to vote, no. He remarked the comment was if such action would prevent a lawsuit.
Senator Townsend responded the point made by Ms. O’Donnell is a good one, and everyone agreed to it, and that can be added. He stated he would like to address the voting issue later, but, first, he would like to get through the remainder of the bill.
Mr. Buckley suggested adding a new subsection 2, to read the same as the existing subsection 2, except replace unit with common element, as it was done in an earlier section.
Ms. Dennison pointed out the same wording change needed to be made in section 27, subsection 1, to read, constructional defects in any of the units or common elements, and the same wording in subsection 2.
Senator Townsend commented, common elements could be a pool house, a dance area, a roof on a condominium or a recreation room, or any non-interior areas.
Mr. Buckley pointed out in the revisions to the bill, the working group reworked the language on litigation. He opined it might be desirable to add the original language in NRS 116.3115, to subsection 2, which stated, the statement would also include a reasonable estimate of the cost of the civil action, and explanation of the potential benefits, disclosures that are required to be made upon the sale of the property, so that it is all in one section.
Mr. Ashleman articulated taking in the chairman’s comments as well as Ms. O’Donnell’s, perhaps it should be considered about constructional defects “affecting any” of the units, instead of “in” any of the units. He surmised that wording should take care of any problems in and around any units.
Mr. Buckley commented he understands the intent, but saying, affecting any unit, the common elements, obviously, affect a unit. He opined saying, in a unit, is one thing where there would have to be approval of the unit owner. He said if it is a common element, it would be assumed that the approval of the association would be needed, not just the unit owner’s.
Mr. Ashleman acknowledged that point, but said his concern was that he did not want the focus only on the interior of the unit. He explained a roof over several units, but with a problem only over one, could still involve another unit, then that is the type of situation to be covered. He concluded it is a matter of finding the right language.
Mr. Buckley interjected the term property manager as used in section 33, should be a person engaged in management of the common-interest community. He clarified, to delete the word property, so it reads, a person engaged in management for a common-interest community. He suggested adding a subparagraph (7) to paragraph (e), to disclose whether there have been any foreclosures within the past year.
Senator Schneider addressed section 33.3, subsection (3), paragraph (a), the rural agricultural residential common-interest community. He said, specifically, that is Senator Rhoads’ amendment for Spring Creek. He commented that Spring Creek is behaving itself, temporarily, but advocated Spring Creek should come under chapter 116 of NRS. He expounded, over the past 2 years, he has received numerous telephone calls from people in Spring Creek. He explained they try to behave themselves, but they could not. He opined, Mr. McMullen’s proposed amendment for rural communities might be applicable to Spring Creek, and still have the homeowners there have access to the ombudsman, and fall under this program. He noted they have a way to go to get some help and relief, instead of always calling a state senator in Las Vegas. He voiced he visited Elko in June 2000 to address the HOA. He pointed out Spring Creek has already been working with chapter 116 of NRS for a couple of years, and with the ability to notice in their newspaper. He maintained Spring Creek really needs the ombudsman, and for $3 a-year per-door is very cheap for the remedies an ombudsman would offer.
Senator Rhoads commented he has had very little communication from the people in Elko, and thought the problem had gone away, therefore, he said he would not support the $3 fee.
Senator Townsend recited this chapter does not apply to associations created for limited purpose of maintaining the landscape of common elements of community interest, facilities for flood control, or a rural agricultural residential community interest. He queried if that applied to just Spring Creek.
Samuel P. McMullen, Lobbyist, representing, Humboldt River Ranch Property Owners Association, responded it does affect Spring Creek, but said he was not the person to ask if that was all that section in the bill affects. He contended there are regulations adopted under that section that is zoned agricultural.
Joan Buchanan, Administrator, Real Estate Division, Department of Business and Industry, communicated there are about three associations that are registered under agricultural rural. She expounded there is Spring Creek, one by Virginia City, and another one that she could not remember at the moment.
Pamela Darr, Concerned Citizen, stated she was concerned about that section, because she comes from a small county. She said she was concerned that Storey County would not be affected because they have less than 35,000 people. She explained the community was created before 1992, but the association was not created until 1993.
Senator Townsend stated he was trying to establish who was exempted under section 2, paragraph (a), subparagraph (3), and since no one knows, there is no need to talk about it. He addressed subparagraph (d), a common-interest community located in a county whose population is less than 35,000, which was created before January 1, 1992, and has less than 50 percent of the units put to residential use. He said three categories had to be met to be exempt under subparagraph (d). He noted that Ms. Darr’s association meets the population requirement, but does not meet the second criteria, and, therefore, the third condition is moot. He concluded her association would still fall under chapter 116 of NRS.
Ms. Dennison clarified the common-interest community is created when the declaration is recorded, not when the association is created, therefore, Ms. Darr would have to check as to when the covenants, conditions, and restrictions (CC&Rs) were recorded to determine whether the association comes before 1992.
Mr. Buckley suggested paragraph (d) be made at the election of the association. He explained that way it does not exempt everybody, if they wanted to be covered by it, they could be covered. Responding to comments by the committee regarding, if an association had enough problems, they could choose to opt into it, Mr. Buckley expounded the idea of allowing something in the middle, rather than either in or out, and even the commission could develop regulations that would be of assistance.
Senator Townsend insisted Nevadans stick together, in that if a neighbor has a problem, at least help is offered to find solutions.
Ms. DeVries stated, after the previous session, the Real Estate Division created a document in which a common-interest community could complete to determine themselves exempted. She said that document would be in place of the normal registration, so they would have on record who is and who is not exempted. She offered that solution could be added to this bill.
Mr. McMullen remarked the issue of electing to be in or out should be done procedurally. He contended the action should be done by the board not the association. He suggested just leaving the language in the bill alone, unless procedures were added into the bill on how to elect out in paragraph (d). He added in the Storey County association, although the units have already been put to residential use, the third qualification is also not met, putting them under chapter 116 of NRS, anyway.
Senator Schneider stated he had a problem with just the board electing out. For example, he said, if there is an ornery board that is not listening to the homeowners.
Mr. McMullen interjected that he was wrong, that it is electing in.
Senator Townsend clarified the point is the board is being contrary, so it should be the association members that make the decision.
Ms. Erwin interjected she had previously said minutes and language of proposed amendment, and it was not in here, it was affecting NRS 116.1206. She stated it was fairly simple in that it allows all associations to amend their documents to comply with chapter 116 of NRS without going through the procedural guidelines that are generally required, in other words, getting the vote of the membership. She opined it is important to realize the older documents are more confusing than the newer documents. She added the newer documents at least try to comply. She expounded her documents were written in 1969, and they do not come close to complying with chapter 116 of NRS, they actually contradict statute.
Mr. Buckley claimed no matter what the documents say, chapter 116 of NRS governs.
Senator Townsend remarked when Ms. Erwin has to explain to her board that chapter 116 of NRS governs, and the board responds that they do not care, they are going with what was written in 1969, then there should be a mechanism that updates the older documents to bring them into compliance.
Mr. Magrath pointed out section 58 of the bill says, any provisions contained in the declaration, bylaws or other governing document, shall be deemed as a matter of law, to be amended by chapter 116 of NRS. He insisted all anyone has to do is point to section 58 in the bill to clarify the question of older documents.
Mr. Buckley maintained since the laws changed with every session, the intent of section 58 was to help associations avoid the cost of regularly hiring an attorney to amend the CC&Rs, which is a difficult process every time the legislation changes. He opined there is no problem with section 58 saying that chapter 116 of NRS covers, no matter what.
Senator Townsend inquired if the problem stems from boards believing their governing documents are what count.
Ms. Erwin affirmed that was correct. She added those in the profession of association management struggle to understand and properly interpret the law. She said most homeowners and board members find it difficult to understand the difference between their documents and what the law says, making it very difficult for those in the business to counsel and explain.
Senator Townsend agreed with the point about confusion, especially for the layperson. He expounded, from testimony given at committee by very able people, it is apparent that chapter 116 of NRS is very hard to understand, even when practicing in the law. He sympathized with how difficult it is for the average homeowner who volunteers to serve on HOA boards.
Mr. McMullen commented section 58 is intended to make sure that any pre‑existing provision of the governing document of a common-interest community does not have to be changed, and is deemed to be in conformance with the law. He said that is a separate issue from what Ms. Erwin was referring to, which would be a good addition. He suggested that language to be, that the governing documents could be amended to come into conformance with the law. He commented they would, most likely, have to notice, and all those things might take away the requirement for the vote, and the approval by the homeowners. He expounded if an association wanted to move their documents into conformance with the law, they would have to notify people to participate at the board level. He suggested the ombudsman could also be called upon, if needed.
Senator Townsend clarified whatever documents were in place as of October 1, 2001, are the ruling documents. He said section 58 deems them to be predominant over the law.
Mr. Ashleman interjected on page 42, line 31, to change the first must, to may, and restore the stricken language, then the associations would be permitted to restate the declarations, CC&Rs, and so on, so they would be in conformance without all the complications of the problem raised by Ms. Erwin. He opined that would resolve the situation of having to make associations go to the time and expense of revising their governing documents, without doing any harm.
Mr. Buckley remarked it is extremely difficult to go through a 50-page CC&Rs document and amend them to conform to chapter 116 of NRS. He suggested adding a section to say, notwithstanding anything to the contrary, the declaration now complies with chapter 116 of NRS, or just saying, in the statute, that declarations now comply.
Mr. Magrath stated he has no problem with adding the permissive “may” language. He elucidated the current language of “must,” caused associations difficulties, because people were coming to associations saying, the law has changed, now we have to be paid to conform. As a lawyer, Mr. Magrath stated he knows how very difficult the process is to incorporate chapter 116 of NRS into CC&Rs.
Senator Townsend said he wanted to know if section 58 would grandfather in anybody.
Mr. Magrath replied that it did not. He elucidated should this bill become law, it would supersede any existing governing documents. He surmised any future laws would, equally, supersede governing documents.
Senator Townsend concluded that is to what everyone had testified. He stated Mr. McMullen said anything in the bylaws is deemed to be okay. He remarked, if he is confused, then he could see why Ms. Erwin would find it difficult to explain all this to her board.
Senator Schneider communicated, last session it was put in the law that anything created before 1992 was deemed to be in compliance with the law. He said there were a lot of small associations that had very obsolete CC&Rs. He remarked there were even associations on the verge of bankruptcy. He continued it was put in that they could take chapter 116 of NRS, and say they were in compliance with their old outdated CC&Rs, shoved off someplace, and the association did not have $5000 to hire an attorney to upgrade their CC&Rs, and that is why the compliance provision was added. He pointed out chapter 116 of NRS is the bible for associations, and they should be able to turn to chapter 116 of NRS that overrides any obsolete CC&Rs.
Mr. Buckley conveyed in going through the process of amending documents, his association finally decided the easiest way to do it was to put something in the declaration to the effect that, notwithstanding anything to the contrary, this provision is subject to whatever is stated in chapter 116 of NRS. He declared that type of amendment is simple, and he was not sure why the whole document had to be amended, when a statute would do the same thing.
Ms. Dennison opined the confusion stems from the last phrase in section 58, as to whether or not the original documents override the statute or not. She suggested leaving that last part out of the section, unless someone else has clarifying language, that is intended to make a provision severable, but said, she was not sure that would do the trick.
Mr. Buckley voiced it was his language at the end of the section. He explained the intent was the bill should say no matter what the association documents say, chapter 116 of NRS governs, and the governing documents do not have to be amended. He emphasized his concern was with a situation where chapter 116 of NRS now conflicts with certain association documents. He insisted that should not throw out the whole declaration, it should just conform what was wrong. He recognized, perhaps, his language was a bit confusing, and it should simply refer to those provisions which conflict with chapter 116 of NRS.
Senator Schneider noted it has to be like that or the ombudsman’s hands would be tied when he comes in.
Mr. McMullen offered to try to resolve the confusion. He said lines 22-26 state, any governing document in effect on October 1, 2001, shall be deemed to be in conformance. He contended that means, for instance, in an association of which he is aware, the term of officers is every 3 years, and the law generally requires rotating 2-year terms. Consequently, he said, if the association did not want to change all their governance and rotate right away, they would not, necessarily, have to do that. Further, if the language was put back in lines 31 to 33, with the word may in line 31, then that would give the HOA the ability to redo their regulations without going through all the procedural requirements; i.e., the vote. They would also be able to explain to the homeowners that they are updating the document to bring it into conformance with state policy as stated in chapter 116 of NRS. Commenting further, Mr. McMullen stated there is recognition that some sort of transition period is needed. He opined some of these organizations could not jump right into chapter 116 of NRS, just because it is a ranch. He expounded what would be important is some transition time, an association would have to bring their documents into compliance, and that could be 2 years or 4 years or whatever the committee chooses. He clarified that a provision could be created to say any conflict, as stated in lines 35-38, should be separate and given some effect there.
Mr. Ashleman commented that Mr. McMullen was doing fine until he got to the word transition. He noted the use of may in line 31, requires no one to do anything. He pointed out to take out line 29, and create on or after January 1, 1992. He claimed this will result in deeming everybody to be in conformance, and those who wish to change their CC&Rs may do so without going through all the elaborate procedures otherwise required. He concluded that should make that section of the bill work for everyone.
Ms. Dennison requested additional clarification on section 58, as to what would happen with the balance of lines 34-37.
Senator Townsend answered that Mr. Buckley’s efforts were well intended, but confusion might be created if that language were to remain. He explained the point Mr. Buckley was making was a simple one that if there is a conflict in the documents, then the association would not want to lose the whole thing. He asked if there were case law relative to section 58.
Mr. Buckley claimed he was not aware of any specific case law. He commented the case law says a provision of a contractor would be retained if the intent of the provision could be retained. He opined by leaving those lines in, nothing is being added to that concept, so maybe it could be removed.
Senator Townsend thanked everyone for their efforts, but said there still seems to be some confusion, and he would like to take it up again after the Senate Floor Session. He brought everyone’s attention back to section 34.
Mr. Magrath pointed out there is a duplicate, and the second “or restrict” should be removed, so it would read, “unreasonably restrict or withhold approval.”
Mr. Buckley noted a missing preposition. He stated line 18 should read, in a unit.
Mr. Magrath noted the end of line 21 should read, “to a unit, or in a unit.”
Mr. Buckley conveyed in subsection 2 to add, reasonably desirable, to have a subjective standard.
Senator O'Connell stated she would like to return to subsection 2, paragraph (a). She noted earlier someone had said a unit only has to do with the interior, and wondered why there would then be concern about the interior.
Ms. Scott responded the definition of a unit in a condominium is the air space, while the definition of a unit in a single-family HOA, is the entire lot. Commenting further, she said the other thing to clarify to say, in a unit, when it concerns a condominium, is if the exterior is a common element, the person should not be able to alter the exterior; i.e., the common element, without approval.
Mr. Buckley interjected the language in section 2 is confusing the way it is presently written. He suggested, “if the improvement or alteration,” in line 29, were put in the beginning of that line, it would then read, “If the improvement or alteration is visible from any other portion of the common-interest community, any device or other improvement included or added to unit, pursuant to paragraph (b) or (c) of subsection 2, must be added or installed in accordance with the procedures in the governing documents, and must be selected or designed to the maximum extent practical to be,” and he suggested using, “compatible to the style of the common-interest community.” He explained compatible is a well-known term in this area rather than complimentary.
Ms. Cook commented, regarding subsection 2, paragraph (c), subparagraph (2), she does a lot of work with fair housing and persons with disabilities. She stated it is generally preferred that persons with disabilities be referred to as such, rather than a person who is disabled.
Mr. Magrath noted it should also say, if the person or occupant is a person with disabilities, rather than the owner.
Ms. Dennison stated she would like to comment on the same section before the word “desirable,” to add, “reasonably desirable.” She said the same would apply in subparagraph (3), to add reasonably before the word desirable. She explained this would add an objective standard to an otherwise subjective term.
Senator Schneider queried whether the wording has been crafted so a board could say a person could not really have those things, because they do not meet any of their regulations. He claimed he did not want a war when he returns to Las Vegas with people complaining that the law says one thing, and the board says that architecturally they do not fit under the guidelines, therefore, they are to be removed, so no one can have them.
Ms. Scott commented under paragraph (c), subparagraphs (1) and (2) are covered in other laws, so they should not be an issue. As for subparagraph (3), she said, they could, in certain cases, say it is not compatible. For example, if they are talking about rolling shutters on the outside covering up the architectural detail of the house, then, perhaps, they are not compatible. However, she continued, if they are fit into the pop-outs of the windows so they are not covering up all the detail, then, probably, they are compatible. She concluded she was not saying there would never be a problem.
Senator Schneider stated they should go on record to say the intent of the committee is to allow these, and the boards should not find ways to disallow them, boards have to find ways to work with the homeowners to provide them.
Senator Townsend commented that reasonably is an important term, and there has to be some understanding of what is the committee’s intent. He recessed the hearing on S.B. 421 at 10:32 a.m.
Senator Townsend reconvened the hearing on S.B. 421 at 4:31 p.m. He stated Senator Rhoads was excused from this segment of the hearing.
Mr. Buckley communicated, during the recess, the items that were discussed earlier were incorporated into a revised version of the bill (Exhibit E), and stated he would like to review those changes. He said starting with a technical correction in section 3.5; section 4.7, deleted property management, and added the definition of division; the verb tense was changed in section 5; a technical change to section 6; section 2, paragraph (c) uses the term division; 2 (d) corrected term; section 7.5 added the commission would keep track of homeowner foreclosures and reserve studies; paragraph (c) corrected “term;” paragraph (d) “commission to educate people regarding foreclosures;” on paragraph (e), subparagraph (1), lines 28 to 30, were deleted; subparagraph (2) was moved to page 5, where it now starts out, “promulgate guidelines and best practices . . .;” subsection 2, technical correction; page 6, line 31, specify references; page 6, line 36, added discovery of; new section 9, line 32, technical reference, also used respondent; page 9, added new paragraph (f) regarding hearings by videoconference or telephone conference.
Mr. Magrath commented paragraph (f) says, all those present may hear one another. He stated it should say, all participants, because not everyone would be present.
Continuing the review of the changes, Mr. Buckley said on page 10, line 24 of Exhibit E, incorrect reference to subparagraph (3); lines 25-26, grammatical correction; lines 37-38, deleted because the information already exists in section 14; page 14, lines 14-15, added exemptions from NRS 116.31139, section 4; line 22 includes language about an executive board responding to a complaint within 10 days, then agendizing. He added the respondent could be anyone from an officer to the manager. He said section 25, line 35, added in reference to an officer who cannot enter into a conflict of interest; line 46, regarding paying an officer unless permitted by the governing documents.
Mr. Magrath pointed out the new section 27 language on a separate sheet (Exhibit F). He explained the original document was brought into compliance with the changes discussed earlier. He stated they attempted, in section 47, to bring this into compliance with the process, in the event of any construction defect litigation, where there is giving notice to the unit’s owner whose unit may be the subject of the lawsuit, or any limited common element that is associated with that particular unit. Referring to an earlier comment about the standard of repairs made by a contractor, Mr. Magrath said section 27, subsection 4, paragraph (d) addresses that by using the language in S.B. 516 for consistency.
SENATE BILL 516: makes various changes concerning contractors and constructional defects. (BDR 54-1452
Mr. Buckley stated it was brought to his attention in section 25, if a member of an executive board is interested in a contract, then there should be a declarant exemption. He explained the declarant controls the board in the beginning until the end of that declarant period. He said the declarant would be providing a number of services to the association in the startup period.
Senator Townsend commented he happens to currently belong to an association that has not been turned over. He stated there have been some changes by the declarant per their rights in employee status, and it raised the ire of some members who came to him. He said he told them whether he agrees or disagrees, no one has the right to say anything, because the declarant still owns and operates this association. He continued he cautioned those most upset by the idea that they had no rights at that time, that this may not be the time to take over, because they might find the bottom line is in the red. He concluded that satisfactory answers were found that alleviated their concerns.
Senator Schneider stated he has heard comments from many managers in Las Vegas about the amount of extra work they have to assume, for which there is no remuneration, when a construction defect litigation starts. He said they also expressed great concern about how liable they are in the proceedings. He expressed concern after all their work on the bill, this area may still not be fully addressed.
Ms. Scott remarked she had been in construction defect litigation about 12 years ago in Missouri. She stated the attorneys representing both sides took a lot of time and resources by going through the files, using the copier, and taking up a significant amount of her small staff’s time. As a result, she said, every contract after that stated if there was litigation, there would be a fee. She opined whether it could be addressed in chapter 116 of NRS, but recommended that managers, if they have not done so already, start dealing with it in their contracts.
Senator Townsend inquired of Ms. Brigg, if she had a litigation fee in her contract. He also asked how many property managers are currently licensed.
Ms. Buchanan answered there are approximately 1500 property manager permittees. She said of those surveyed about 1 year ago, they managed a total of 500 HOAs, and the rest are managed by common-interest communities, and there are 109 certified community managers.
Ms. Brigg communicated, even if it is in their contracts, which there are additional fees that can be charged, the problem is that construction defect attorneys are saying they would take on the bulk of the work. But, she said, what they do not include are telephone calls received. She explained as a result of the mass mailings by the attorneys, the manager’s office receives a high volume of calls from homeowners, which takes up a lot of time, and is very disruptive to the regular work of the office.
Ms. DeVries interjected the Real Estate Division somewhat addressed that when regulations were adopted last year. She said the division put in the information that management must include the following things, and emphasized the issues that need to be addressed in the manager’s contract. She elucidated some of them are, schedule of fees to be charged for special or non-reaching services, which according to regulations, the managers are supposed to cover in their agreements.
Mr. Magrath pointed out it might be a good idea to have the attorneys notify the association of the approximate amount of time or cost to the association of their manager being tied up because of the litigation. He referenced section 27, subsection 2, paragraphs (a) through (g) in (Exhibit F), where language could be added that would at least inform the unit owners and the executive board of what would be involved if that association becomes involved in litigation.
Mr. Flippen said he agreed the communication aspects of litigation do add a burden to the office staff. He said litigation could be a year-in, year-out project that members want updates on, and that puts an extra burden on the manager’s office for a long period of time. Also, he said, it is uncharted territory since there is no training for construction defect litigation and how an office would manage itself through it. He insisted it is learn-as-you-go with heavy reliance on the attorney as to how to handle it. He acknowledged property managers are drawn into an area in which they have no training, yet they are called on to orchestrate the process on behalf of the association.
Senator Townsend averred the point is well taken. He acknowledged the validity of referencing the burden of litigation on the association manager and office staff. Additionally, he noted the liability issue for managers, and the need to keep them out of harm’s way.
Ms. Brigg pointed out another issue of property managers often called to testify. She stated they are not prepared, because it is totally new territory for most managers to know how to handle these situations.
Mr. Buckley continued with the review of proposed amendments to S.B. 421. He noted technical changes on page 17 to lines 8 and 9, and 16 and 17. He elucidated in lines 26 to 29, it was added to have the ombudsman keep statistics regarding the number of foreclosures, assessment liens, and reserve-study information, so it would be accessible in the ombudsman’s records.
Senator Schneider commented that performing reserve studies last year was one of the most important things done. He stated there were a lot of complaints from members about the money to do the study, but later on these studies would make the associations healthier. He expounded there are many associations around 20 years old that have next to zero dollars in their reserve with many repairs in front of them, and they are struggling to get financially healthy. For example, he said he talked with one association that looked well-kept, but they needed new roofs at $400,000, new asphalt on the streets at $350,000, paint and stucco at $200,000, and when it was all added up, it came to about $1 million in repairs, and the reserve had only $78,000. He said when he told them they were bankrupt, the association’s reaction was as though he had hit them in the head with a baseball bat. He emphasized the association thought $78,000 in reserve was a lot of money, because they had never done a reserve study. He told them there were no agencies or governments that would help them through this situation, and commended them for starting to take action to rectify the situation. Senator Schneider asserted there are way too many associations around the state with inadequate reserves, and, in his opinion, the reserve-study requirement is one of the most important things to put in the law.
Mr. Flippen agreed the last 2 years have been most productive in getting the word out, and people assuming the responsibility for the reserve, getting things on a program, and getting studies done, and he credited the law.
Senator Townsend stated it has been stressed that the main reason for joining a HOA is to maintain and enhance property value. He conveyed that some may consider it a pain and added expense, but when there has been appropriate maintenance, the retention of property value does pay off.
Continuing with the review, Mr. Buckley said on page 20, most of the items are technical corrections. He noted lines 19-21 have been reworded for better clarity. As discussed about the oversight in the earlier draft, he said the omitted language in lines 41-44 has been put back in.
Referring to section 34, line 27, Mr. Magrath said the line should read, “compatible with the style.”
Senator Townsend stated, because of all the changes, he wanted to clarify that lines 38 and 39 were to remain.
Mr. Buckley said that was correct, lines 38 and 39 were to remain.
Ms. Cook claimed the way the language was written, if the intent was to limit the total amount of cumulative fines, then it needed to say, cumulative total. She explained that the segment could be read to infer that each fine could be $1000 each, and she opined the intent was to cap it. She asserted the language should be, cumulative totals of all additional fines not to exceed $1000 in a calendar year.
Senator Schneider attributed the excessive fines to something overlooked in the previous legislation that was found by attorneys. He insisted the bill and the statute be combined, this time, to make sure there is no contradictory wording to go over the $1000 cap.
John Meder, Committee Policy Analyst, opined it was an oversight by bill drafting last session. He stated the language Ms. Cook suggested would correct that situation.
Mr. Buckley pointed out on page 21, line 13, there was a period after cured, causing it to appear that there was no limit on additional fines.
Mr. Meder commented as he remembers, subsection 1 in the bill referred to the $500, but in subsection 2, it did not clearly specify that the limit was a total $500 for the accumulated amount. He asserted, before the bill is finalized, the Legislative Counsel Bureau would make sure that is cleared up.
Mr. Ashleman surmised the cumulative total was for that particular set or series of violations, and if there were a different violation, then the clock would start again. He emphasized everyone should be clear on this issue, otherwise it could be interpreted to mean if you leave your truck out overnight, that is one fine that could add up to the $1000 cap, and if you paint your house an unapproved color, that could be another fine that could accumulate to an additional $1000.
Ms. Cook elucidated that should be added for each violation deemed to be a continuing violation. She contended the language on line 15 did not make it clear.
Mr. Magrath agreed the cap needs to be for each violation, otherwise, he said he could save $2000 a year by parking his boat in his driveway instead of in a storage yard, and pay the $1000 cap, and continue to violate other rules without receiving further fines.
Senator O'Connell expressed her concern for the smaller associations is that some of them cannot even afford the $500, much less $1000 per calendar year. She concluded there are definite distinctions between associations. She acknowledged some small associations are like that, because they can afford to keep it that way, but the concern is for others.
Mr. Magrath articulated the goal is not to have any fines. He surmised if there is a smaller cap, because of legitimate concern for the homeowner who cannot afford it, those individuals could protect themselves simply by guarding against violating the rules. He claimed as an association they cannot protect themselves from those who flaunt the rules, and more people could flaunt the rules with a low cap. He articulated it is already a difficult aspect, and a $1000 is already doubling the number, but, he said, in his association, it is emphasized they hope they never have to fine anybody. He voiced if the fine system is not left intact, then there are only two alternatives; to ignore the violations, or commence alternative dispute resolution, which is a much more expensive process. He said the goal is to find that medium where people are encouraged to follow the rules.
Senator Townsend posed if someone is stopped and ticketed for the taillight being out on their car, they have 30 days to respond to the citation, which gives the owner of the vehicle 30 days to get the taillight fixed, otherwise the fine is due. He contended the point for the smaller, less expensive properties, is that it may take the homeowner a month to financially address the violation and fix the condition. He asserted he was reluctant to start drawing economic lines or size lines. He queried if there was a way to accommodate the elderly person on a fixed income who could not financially cure the violation within 14 days, that it might take that person 90, 100 or 120 days to accumulate the resources needed. He said it has already been covered for economic reasons, stemming from illness, infirmity or other condition, and that is part of what is trying to be accomplished.
Senator O'Connell asked what amount everyone would consider justifying.
Senator Townsend suggested the commission could rule on the appropriateness of the fine.
Eldon Hardy, Ombudsman, Ombudsman for Common-Interest Communities, Real Estate Division, Department of Business and Industry, stated he has given this very inequitable situation a lot of thought. He said he has been exposed to a lot of situations at lots of government agencies where they have a process for making adjustments in penalties and fines, and so forth. He suggested that each HOA have a provision for a small committee who could listen to the extenuating circumstances of a fine. He said this grievance committee could consist of only three people who are randomly selected by the board, and could make adjustments based on the findings of the facts and circumstances, and the ability of the person to take care of it.
Senator O'Connell agreed that ability to pay is a major concern, and people should not continually break the rules. She questioned if the person cannot pay, then are they fined out of their home.
Senator Townsend expressed the issue is not with the property, it is usually with someone who has had a lien put on their home, not because they wanted to violate it, they did violate the rule, but they could not pay the fine. He emphasized, somehow that situation should be accommodated, because not everyone is blessed who lives in a HOA. He noted there are many HOAs in southern Nevada that go way back with older homes.
Mr. Hardy stressed something like a grievance committee could work.
Senator Townsend agreed the grievance committee suggestion has value, and everyone needs to think it through now.
Mr. Magrath stated he had an opportunity to look through other statutes which address the issue of fines and warnings, et cetera. He directed attention to page 23 of Exhibit E, section 39, line 32 that references NRS 116.31065, which deals with rules adopted by an association. He pointed out subsection 6, paragraph (a) says; “The person alleged to have violated the rule has received a notice of the alleged violation that informs him of his opportunity to request a hearing on the alleged violation.” He concluded, under the section dealing with rules there is a requirement there be a notice of violation before a fine is imposed, and a requirement that the violator be given a hearing before a fine is entered. He suggested that language, although it applies to rules, could be used in section 35. Also in section 35, subsection 3, line 17, he noted the fine must be commensurate with the severity of the violation. He told everyone to picture a situation where a HOA wants to fine somebody. He said first they would have to issue a warning, to which that person is entitled to a hearing, should they choose to do so, then the fine is imposed. He continued, if the homeowner thinks the fine is not commensurate with the seriousness of the violation, then they are saying the fine is in violation of this section in chapter 116 of NRS.
Mr. Magrath stated a remedy has already been established, which is to file a complaint with the division so the ombudsman could then investigate. He expounded the ombudsman prefers the grievance committee as the first line to consider the circumstances of the violation and the fine, but should it be determined that the citizen has a medical condition or extenuating circumstances, and is being fined excessively; i.e., the fine is not commensurate with the violation, then the ombudsman would contact the association to inform them that the fine is excessive, and if no satisfactory adjustment is made, then the ombudsman would file a complaint with the commission against the association saying they have violated that provision in the law. Continuing, Mr. Magrath suggested if the association is faced with the complaint process over that fine, they would be put in the position of having to justify that fine before the commission. He admitted it seems a bit convoluted, but it would encourage the grievance committee to take a serious look at their decision as to whether it fits the violation, and if it is excessive to the violation. He contended the existing statutes, and the statutory setup in the bill, plus the requirement that the fine must be commensurate with the severity of the violation, protects a homeowner, especially those with economic constraints.
Senator Townsend stated the point is that the people who have the most difficulties are those who cannot work through chapter 116 of NRS to understand they have substantial rights, while they are being hammered by a board. He opined it behooved everyone to find a way to make it clear to that homeowner that they do have rights. He averred the legislature can only write the law, they cannot make people adhere to it, and that is what seems to be happening, and that is when those situations go to the ombudsman and the commission. He stated the unfortunate part is the homeowner is never going to know how to get to the ombudsman. He stressed the solution lies in getting that information to the consumer, so they know what their rights are.
Senator O'Connell recommended a pamphlet on the homeowner’s bill of rights be prepared for the ombudsman’s office to send as part of the response to calls. She inquired whether that was financially and otherwise feasible to be put together. Senator Townsend expounded if a committee of HOA representatives and some of the legislators got together and picked out the key points to place on a card. He acknowledged that a few HOAs already have something like that, but stated not everyone lives in those associations.
Ms. Scott posited one problem is how fast some HOAs are fining. She explained at Summerlin the method used is to send a courtesy notice, if it is not an emergency issue. She said if that courtesy notice does not correct the violation, then a first-warning notice is sent that has a reply section for the person to explain the circumstances and state how they would fix it. She continued if the problem is still not fixed, then a hearing is held no matter what. She expounded most of the HOAs are simply sending a notice about a violation, which says this is the fine, because that is all the law requires. She concluded, just as there are more notices for foreclosures, perhaps, more notices for fines are needed.
Mr. Flippen stated a good manager should already be doing those practices. The manager should afford the owner an understanding that there is a violation, and give them the opportunity to remedy and or reply. He articulated the board is looking for compliance rather than just fining. He said the desired process could work, if the homeowner can go before the board and express a desire to comply and their inability to either comply right away and or the inability to pay the fine, and the board could understand that. He said this way the board does not have to impose the fine at that time, especially if they can get compliance and help the homeowner to achieve compliance.
Senator O'Connell interjected such a scenario might work in an ideal world. She said it is clear what HOAs should be doing, but many of them have not been doing it, and that is why we have to clarify the process in the bill.
Ms. DeVries conveyed part of the 11-point program contained in the package would be the guide pamphlets, booklets, notices, and other material which the ombudsman’s office would prepare and distribute. She said the page or card notice could be provided to management companies to attach to notices as they go out, explaining the rights of the homeowner at that point. She opined, as the ombudsman’s office becomes more active in this area, next year there would not be so many problems of this type.
Senator Townsend recommended within the first few months after session the ombudsman develop, along with input from others, a homeowner’s bill of rights on a card that can be mailed in response to an inquiry. He said if there is a second inquiry or complaint from that same person, then the ombudsman has something to bring to the board’s attention regarding how they are working to resolve violations and fining. He explained the intent is to balance the interests of all concerned.
Mr. Magrath stated, in reviewing page 23, line 47, he commented about a warning ticket, and he might have misspoken. He said currently the statute says the rules may be enforced by the assessment of a fine only if the person is alleged to have violated the rule, has received a notice of the alleged violation that informs him or her of the opportunity to request a hearing. He remarked as he reads that section now, it does say the homeowner has to have a warning before the fine is imposed. He said he now reads it to say the homeowner has to have a notice that says they have a right to a hearing, so the HOA might have already made the conclusion that the association is going to fine the homeowner.
Senator Townsend responded he was going to give Mr. Magrath the opportunity to fix that section.
Referencing page 23, section 39, subsection 6, paragraph (a), Mr. Buckley, opined, they could incorporate something on line 48, after the alleged violation, “and a reasonable opportunity to correct the violation prior to the imposition of a fine.” He commented another paragraph or a new section might need to be added.
Senator Townsend remarked that was reasonable. He noted the intent is not to take any rights away from a board’s ability to correct behavior, but there is a need to accommodate these individuals. He cautioned he did not want to create tiers, because this could cause additional problems.
Senator Townsend expounded there are still issues to get clear on, and he did not want to overlook them, therefore, he advised everyone the hearing on S.B. 421 would continue the next day. He stated the hearing would be teleconferenced for those who had to return to Las Vegas.
Mr. Buckley drew attention to a new proposed section regarding short-term, transient rentals in a planned community (Exhibit G). He said this section would appear at the end of the existing bill. He said this is taken from the proposed amendment under tab C of the “Work Session Document” (Exhibit C). He noted there were three options offered, some of which were taken from California law.
There being no further testimony, Chairman Townsend adjourned the hearing at 6:06 p.m.
RESPECTFULLY SUBMITTED:
Laura Adler,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: