2025 is Just Around the Corner

Chad Miesen: Welcome, everyone. My name’s Chad Miesen. I’m one of the shareholders here at CHDB Law. And joining me to present is my fellow shareholder, Josh Bolen.

Josh Bolen: Hello, everybody.

Chad Miesen: We are talking about 2025. We’re almost at the end of 2024. Still have a lot to do, get ready for the holidays at the end of the year, but we’re going to try and pull out our crystal ball and see if we can see what’s coming ahead of us here as best we can. So, first, why does it matter? Well, of course what comes our way on these topics that we’re going to talk about will certainly have an impact on community operations, including finances and relationships within the community, and between the community association and its members. And so it’s important to be as proactive as we can in thinking about what we need to do from a management standpoint, what we need to do strategically in our planning for 2025 to prepare, minimize the negative impacts obviously and maximize the positive.

So our topics today that we’ve come up with are state-level legislation. What can we expect in the 2025 legislative session from our state legislature? So we’re going to try. And I mean in 2024, there was a lot. And we’ll try and hit some of the things that we think we might see in this next legislative session. We’ll talk about the federal-level regulatory changes. There are some that impact community associations. In that same vein, we will talk a little bit about the Corporate Transparency Act. I’m sure most of you have heard about that and have been trying to prepare for the deadline that’s coming up. And we’ll talk about records requests. We think that’s going to be an issue, a larger issue in 2025, as well as insurance costs and renewals. That has been, at least in my experience, insurance costs, renewals or non-renewals have been an issue in 2024, and I think we’re going to see that in 2025. We’ll talk about that in a little bit more detail.

Vendor issues that we might see in 2025. Also, social dynamics and community relations. We’ve got social media and other technology that’s kind of changing the way that we interact. And so I believe we’ll see more of that in 2025. We’ll talk a little bit about that. And healing boards. Boards go through a lot, and so we’ll see what we have in store in 2025.

All right, we’ll dig right in. First topic, state-level legislation. So legislative trends to watch. Here’s what we see as some things that might come up in the next legislative session. 2024, there were a lot of different topics, quite a number of bills that were at least introduced, and then those were significantly reduced as far as those that actually became law. But I envision that we’ll see more in the collections/foreclosure world. That was the big one this last legislative session, and I think there’s still some talk that we may see some additional reforms in that regard. How significant will they be? Unknown, but there certainly could be some cleanup to the changes that occurred this last legislative session, but we may see additional bills that are more significant in this realm. So that’s something that we’re keeping our eye on. And here at CHDB Law, we’re certainly going to be following it and should have updates regularly for everyone as we go through the legislative session, so stay tuned.

Every year, we saw it in 2024, we’ve seen in past years, it seems like every year anyway, we see bills that come out about flags, and so we envision we’ll probably see more bills on this topic adding to the types of flags that cannot be prohibited by the association. So we’ll keep an eye on that. This last legislative session there were flags that I actually, I didn’t even know about. So we’ll see what comes up this next year, but it seems like that’s always an issue or a topic for a bill.

Also, I think the changes to the roadway bill or the roadway regulation statute, I’m talking about A.R.S. 33-1818, relates to plan communities only. But this was the one where for communities with declarations that were recorded in 2015 or later after the declarant control period, you don’t have any right to regulate the roadways, and public roadways to be clear. And then for communities that have declarations that were recorded prior to that time, so before 2015, that’s the one where you have to, if you want to continue to enforce parking restrictions and other restrictions that relate to the roadway, the public roadway, then you have to have a vote. And if that vote passes, then you can continue to regulate the roadways. If it fails, then you no longer have the ability to regulate roadways. So I am taking a shock here, but I think that it’s a possibility that we might see some further changes to that statute.

Certainly in the last legislative session, there were some last-minute efforts to kind of push it off. It’ll be interesting to see if the League of Cities and Towns, I think that’s what it’s called, if they’re going to come in to participate and try and get something changed here. So obviously it has an impact on what the cities then have to do because if the association’s not regulating it on street parking and other things, then the city might have to get involved. So I could see that being an issue that comes up for further reform or amendment, particularly with the deadline coming up for that vote, which is about mid-year.

And then finally, I think we could see some new laws targeting short-term rental restrictions. That always seems to be a topic of interest for the legislature. So last year, or in the year before, was focused primarily on municipalities and counties and their ability to regulate in this area, but I wouldn’t be surprised if we see some bills that come out that attempt to address the short-term rentals in some fashion on the more local association level, community level. So we’ll be watching for that. These are just some that I sort of came up with. Obviously, it could be any number of things. So you might see some of the other bills that did not pass committee or otherwise progress through the legislative process in 2024. We might some of those come back as well. There were some bills that dealt with records requests and other sort of operational things, so it’s possible that we’ll see some of those come back as well. We have a lot of new members in the legislature here in Arizona, so it’ll be interesting to see how that dynamic also plays into what bills come out.

So how do you prepare? We’re going to watch these things and I think that the key really is to track bills, the legislative session and bills that are coming out. As I mentioned, we certainly will be doing that and we’ll be putting out e-blasts and other information, newsletters and things, so that you can follow along and see what bills are out there and how they may impact the community association world. So stay tuned to that and follow along. That’s going to help, that’ll help you stay informed.

And then as we get closer to the end of the legislative session, then we will have a better idea of what bills either were signed by the governor are going to be effective at some point or those that we think are on track for that. And then each community is going to need to review governing documents, make sure that they’re in alignment with changes in the law and that if there are impacts to whether it’s enforcement or it’s more operational, that we’re prepared, understand what our governing documents are saying on that topic, so that if we need to make changes or take some other action that we’re prepared to do that. And part and parcel with that is then of course, engaging with your legal counsel for guidance and proactive strategies to get ahead of it.

So those are some of the key issues on the state-level legislation front, and I’ll let Josh take it away on the federal level.

Josh Bolen: Yeah. So thank you, everybody. If you didn’t hear or you didn’t know, there was an election that just happened about a month ago, and as you know there was a pretty contested election. There’s already lots of moving and shaking and everything that’s going on. And with Donald Trump now coming back into office, there is going to undoubtedly be a lot of shakeup. The biggest concern right now is simply just the unknown. As Chad talked about earlier, we don’t really have a crystal ball to see ultimately what it’s going to look like, but there is already things in place that could have a great effect on community associations.

First and most importantly is Federal Fair Housing. If you don’t know, the US Department of Housing and Urban Development, also referred to as HUD, kind of does and is the top regulatory branch for Federal Fair Housing. So a lot of that from Federal Fair Housing kind of funnels down to the state levels and then down into the actual implementation practice that we have in each one of our communities. There’s already been a chief or secretary of HUD appointed for this potential position. It’s going to be Scott Turner. If you don’t know about Scott Turner, he is an ex-NFL football player, played for 10 years. He’s been a US House representative for the State of Texas. He’s already been involved with Donald Trump’s kind of cabinet and inner circle of dealing what’s called opportunity zones. And it’s a thing that we’re going to probably see a lot more growth of.

If you didn’t realize back in the ’16 to 2020, these opportunity zones are a way to spur economic growth in lower income communities by providing a variety of different tax benefits for various investors. So that’s going to be more implemented by HUD and their regulatory process and we could see a lot more of those. If you don’t know this, Donald Trump is also very business-oriented, so a lot of the changes that we’re going to see are most likely going to be a more business focus and a less on the social aspects of things. So with Federal Fair Housing, we could see changes in and maybe what is a protected class that could grow or that could shrink. It also could be, if you don’t know, as a part of Federal Fair Housing law, we have something that’s called the disparate impact that if you have a law or regulation or a covenant or something that’s not specifically geared towards a protected class, but the implementation on the effect of it as a disparate impact of somebody on a protected class, we could see a lot of those changes.

So from the Federal Fair Housing regulatory scheme, we just don’t know what this is going to look like. It could be good for community associations, where it could get more definitions and less control, or it could be bad for associations because we have less definitions and less control over those. Any of you that have had a fair housing complaint from either HUD or through the Attorney General’s Office here in Arizona, the one thing that’s very common right now is the lack of attention that these are receiving. We’re seeing Attorney General cases and other fair housing complaints sit for months and potentially a year. I had one case that actually just resolved from last year, so that could have a great impact on how we’re able to address fair housing issues altogether.

The other part of course that we’re going to see is anytime a business-oriented president comes in is changes in the IRS regulations. There is nothing presented at this point, but we could see changes in the US Code 528, which exempts community associations from various types of taxes. We could also see a change in tax-exempt status for 501(c)(4). There may be a number of one of your communities that classify as a 501(c)(4) community. Those are the common good and general welfare of the community kind of tax-exempt organizations. So always want to classify this as just because you’re nonprofit doesn’t mean you’re tax-exempt. Tax-exempt is always our 501(c) whatever categorizations that we have under the federal law, but just because you’re a nonprofit corporation doesn’t make you exempt from paying taxes.

So we’ll be going to look out some changes in there because we know whenever the government wants to raise money or they want to do things, they’ll look for every aspect how they could do that. So we could see changes in the IRS regulations and it could be good for community associations. That’s one of those things we just don’t know, but we anticipate there being some types of changes.

The other part is housing regulations. There are already two bills that are teed up by various senators and house representatives in the federal government. The first one is the Affordable Housing Credit Improvement Act. What that is, and both these bills are focused on one thing. They’re focused on making housing more affordable and there’s going to be different ways in how they do that. And that was one of the key components of the election is, how can we make housing more affordable? As we know here in Arizona, that is one of the big issues that’s even talked about on a state level.

And this is key to us because from an HOA perspective, depending upon where your HOA is or where you’re located in the valley, we could see some changes because these are really kind of spearheaded towards affordable homes and what we would call kind of distressed areas that need an influx of investment. And that’s what they’re looking to do here, kind of what those opportunity zones are the same way looking to spur economic growth in these various types of communities. So the Affordable Housing Credit Improvement Act, that’s a tongue twister, is looking to influx a lot of money back into it via tax credits, federal government spending. And what the goal is if you look at this is to basically build 1.94 million additional federal homes. Now, how do you do that? You got to find a way to invest in the land, you got to find a way to invest in the property, and this is what the federal government’s looking to do to try to stimulate that.

There’s also the Neighborhood Homes Investment Act. This is a tax credit for developers to revitalize distressed areas. So a lot of the times you have a developer, what do they want to do? They want to build as quickly as they can for as cheap as they can, and make as much profit as they can. The problem with that, in a lot of our central areas here in the valley, that’s not very accommodable for them to find areas like that. So what this is trying to do is say, “Hey, developers, if you come in and you build in this area,” and they have not defined these areas yet, “What we’ll do is we’ll give you a tax credit equal to what you could have made somewhere else on your investment.” And so that’s the way that they’re trying to spike these affordable housing built in distressed areas and give incentives to developers to not just continue to look for parcels of property outside the valley, but potentially inside the valley. So we’re going to see a lot of that.

Americans with Disabilities Act, although most of your HOAs are not affected by the Americans with Disabilities Act because it does only apply to quasi-public property or public property, we could see some changes in those regulations. So we’re going to be keeping an eye on that just to make sure that if you are bound by the ADA, and maybe you have a clubhouse that’s open, that’s rented, or various common areas that you have to keep open, we’re going to be looking for that, also monitoring it.

And then finally, the Fair Debt Collections Practices Act. If you don’t know for any debt collector, mainly your attorneys or maybe you have some other company that you used to use that may be bound by the Fair Debt Collections Practices Act, we could see some changes in that, maybe some more regulation or some less regulation, but there may be times where your attorneys, or whoever’s collecting your debt, may need to make changes throughout this. And I think Chad said, and you saw that from a state level this year, we could always see that becoming an issue from the federal level. So with these types of changes every four to eight years that we see, always something that we have to keep an eye on, always something from our level as your attorneys, that is very important to us. And so we’re going to keep monitoring this. But day one, we could see a lot of changes already coming right out of the gate when President Trump is inaugurated.

Chad Miesen: All right. So sort of in that same vein of federal regulation, there’s the Corporate Transparency Act, and like I said, you probably heard about this, but basically this was enacted as part of the Anti-Money Laundering Act of 2020, which was to increase corporate transparency and combat money laundering and other illicit activities. And what it does is it imposes a reporting requirement on many US business entities, including community associations to disclose information about its beneficial owners. Now, those reports, as you may know, they’re filed and maintained by FinCEN, which is another government agency under the Department of Treasury, and it’s to be held in a confidential database available to certain law enforcement entities like the FBI. And the primary goal is to prevent the misuse of shell companies to conceal illicit activity.

But what it does is it does wrap in community associations as reporting entities. And so unless you fall in one of the exclusions that exist under the law, and there are 23 categories of exclusions, we won’t go through them all, but they’re generally larger, highly regulated type of entities or they’re regulated in some other way, where this information, the government already has it connected to the entity, so there’s no need to report. But the ones that would most likely apply in the community association context are going to be the large operating companies. So if it’s a community association that employs more than 20 full-time employees and reports gross receipts exceeding $5 million annually to the IRS, then it might fall under that category, it would fall under that category and you wouldn’t have to file, that would be exempt when that file the report.

Another one is tax-exempt entities like Josh was just talking about 501(c) tax-exempt entities if they’re… Again, being non-profit is different, but if the community association is also tax-exempt under section 501(c), then it wouldn’t have to file the report. And then there are certain subsidiaries of exempt entities. So let’s say the association’s a 501(c) entity, or actually perhaps more likely it’s a large operating company, so it has more than 20 full-time employees in over $5 million in gross receipts, and it has an entity that’s wholly owned by the association, like maybe a foundation or maybe some other type of actual entity corporation, LLC, or something else, then some of those may be exempt as well.

But anyway, if you’re not in those categories, then you got to report. So what do you have to report? Well, you have to report some basic information about the company itself, about the association itself, which is full legal name, tax ID number, any DBAs or trade names that it’s used, the current address of principal place of business, and then jurisdiction of formation. Most cases here for our purposes is Arizona. And then you also have to report, or it has to report beneficial owner information.

Well, what is that? Well, beneficial owner is not a super clear definition, but it’s basically any individual, so a natural person, who directly or indirectly either exercises substantial control over the reporting company or owns or controls 25% or more of the ownership interest of the reporting company. I’d say voting rights is a better way to term it for the association context, but substantial control or 25% or more of the voting rights, then those individuals have to be reported as, quote, unquote, “beneficial owners” and they have to provide full legal name, tax ID number, the date of… I’m sorry, not tax ID number for that. So full legal name, date of birth, residential address, and then provide a copy of an ID issued by US state or a US passport. Or if you don’t have one of those, then a foreign passport, and you have to do that for each beneficial owner.

So it can seem like a lot, but most of that information is found on a driver’s license and is probably already with the government, but it connects those individuals to the entity. And currently, unless there’s some change, and there are some bills out there in Congress to make a change, and there’s a big push by CAI National to get Congress and these government agencies to exempt community associations as a base category additional exemption so that we don’t have to do this, but for the time being, the deadline to file these is the end of the year. And if there’s any update like an election where the board members change who were otherwise reported as beneficial owners previously, then you have to update that and 30 days to do it.

Josh Bolen: Chad, how do you see them enforcing this?

Chad Miesen: Well, it is a good question. So there are potential penalties for non-compliance. The law says that someone who willfully violates the reporting requirements may be subject to civil penalties and criminal penalties, which can include prison time and fines. So it’s pretty serious. But the question is, how will they be enforcing? It’s a good question because we don’t know. There are certainly a lot of entities. And how is the government going to audit these reports essentially to determine, “Oh, wait a second, you haven’t identified everybody”? Well, frankly, they may not know. There may be some that are easier than others, but I would envision that if there is a problem that comes up where there’s some investigation by a law enforcement agency and they go and look, and they don’t see a report for example, that’s where we’ll see enforcement.

Or if it seems like the report should have been updated, then they might have some enforcement action coming. But right now sort of in my view, it’s probably that the federal government doesn’t have the resources to go through and audit each one of these reports. But nonetheless, as counsel, we always recommend following the law, avoid those penalties, and right now get those reports in by the end of the year. There are some cases that are currently going through the courts that could impact this, and we’ll keep following those and updating you through e-blasts, and newsletters, and things. So stay tuned on that.

All right, Josh, turn it over to you. Records requests.

Josh Bolen: So one of the things I always talking about records requests, and it’s one of the things that I think as managers and board members that are potentially self-managed, really dislike the most, and there’s a variety of reasons for it. And one of the biggest reasons why is because a lot of the records requests that you get under the Planned Communities Statutes or the Condominium Act are used to somehow harass a management company or a board, or you really have a problematic owner that is really diving deep into some issue. Sometimes it’s done for a proper purpose and sometimes it’s great. One of the ways to keep checks and balance on the association is through records requests. The other one is attending the open part of the board meeting. So what I’ve noticed in the general council world for community associations is that in this fourth quarter and at the end of the third quarter for 2024, I’ve seen a rise in these records requests.

And the reason why a lot of them become problematic is because a lot of associations are simply just not prepared or don’t know how to address a records request. So under A.R.S. 33-1805 and 33-1258, the association has an obligation to provide all financial or other records of the association. The problematic part with this statute is when it was drafted. When the statute was in effect, which is before I started practicing law, so I’ve been here for 19 years, so at least 20 years ago, this records request statute became into effect. And at that point, we had these things called filing cabinets, and what would happen was the manager or the board, they would take whatever the record was, they would turn it and put it into the filing cabinet. Then if a member said, “Hey, I want to review those records,” they’d have the ability to inspect or to request a copy.

And so what happened is either the manager had to go through and flip through the filing cabinet, pull out that record, make a copy, and then the owner would have to pay for it. Or they could sit in a room and inspect the records. They would literally get boxes upon boxes and sit in that room either with the attorney or with managers or with a board member, and go through it, review them. And if they wanted copies of certain records, they would get them. That’s what that statute was designed to do. So when we look at it from that perspective, we got to say, “Okay, well, what is a record of the association? What makes it into the filing cabinet?” Because we have all financial or other records of the association and the nonprofit corporation statutes and the plan community and conduct are not generally helpful.

And so we did get some help last year through the Arizona Department of Real Estate petition process. If you don’t know, any owner can go file a petition with the Arizona Department of Real Estate when they have a complaint against the HOA. So we see a lot of these records request issues addressed through this department because it’s inexpensive and it moved faster. And lately they’ve come out and said, “Hey, an association record, the other records of the association, are records kept in the ordinary course of the association’s business.” So to me, it’s everything that would go in the filing cabinet, and things that are not in the filing cabinet are probably not things that we would keep. So things like contracts, minutes, financial documents, budgets, reserves, all of those things that you would think that you would need or keep to run a business because got to remember, that’s what we are as a business. Those would be the records of the association.

So I like to really have a clean policy that outlines what these records may be. And the reason for doing that upfront is because whenever you have someone make a records request, they can look at that policy in the form and expect what they can and cannot get. The other part that the Arizona Department of Real Estate has been helpful about is what are our obligations? We have no obligations to create records. So when a member says, “Hey, I would like to see a spreadsheet of every time you replace the sprinkler in the association,” you have no obligation to go and make that spreadsheet. You also, a records request is a records request of, “Hey, I’d like to see this budget or this document.” It’s not a Q&A. It’s not a, “Hey, I want this and I want you to tell me why the board did X, Y, and Z.” That’s not a records request. They can come to the board meeting and maybe ask those questions at that time.

The other thing is management or the board has no obligation to search for records. This is the one thing that I see a lot where a homeowner will say, “Hey, I want all the meeting minutes where a,” I’m just going to use sprinklers, I don’t know why I have that in my head, “Where sprinklers were addressed at a board meeting.” Well, that would take management or the board a ton of time to go through that. And at 15 cents a page, we got to protect your assets. You don’t really have the obligations to do that. But a lot of that gets asked, so by outlining what is and what is not available to a member is not only helpful for the board, but it puts the member on the same page as the community association.

The other thing is we have no obligation to supply privileged records. These are all outlined in the statutes also. Those are your executive session meeting minutes, attorney client privilege communications, things that relate to pending litigation, personal information of an individual owner, financial or health information of an individual owner, records regarding an individual employee or an employee of your vendors. All of those were our privileged records. And so that’s a lot of times when we get asked for copies of those also, they want to know how much your manager makes, they want to know compensation of this, they want to know why your attorney gave certain advice. Those privileges are for the board and they need to make sure that they’re protected.

So with all of this, because we are seeing a rise in these records requests, there’s a very simple way of addressing this, and that is to adopt a record retention and request policy and form. So what this does is outlines all the records of what somebody may be entitled to and how they can request them, and what we need in order to supply them with that. Because when we’re doing searches or they’re doing Q&As or we’re going back and forth, or we’re denying privilege communications, it’s just taking a lot of management’s or the board’s time to compile all of these documents, or at least spending the time to respond to the owner of why they’re not entitled to see those documents. So what you can do is to get prepared for 2025 is just to adopt these policies and these forms. And again, it’s not there to make it more difficult for the owner, it’s not there to be less transparent. It’s there to just make it more efficient. And when we can have efficiencies built into these business operational policies, it’s going to be very easy.

And in fact, if you email me, I have a sample that I’m happy to just share with you and then you can look at it, but consider adopting it because what happens is we get a dispute about records and then we look to adopt a policy. Whenever we do that, whenever we put the cart in front of the horse, it’s always an issue. What we’d like to do, adopt a policy and get in front of these issues before they come. That’s the way to save yourself on legal dollars, that’s the way to save yourself on disputes with your members who really genuinely have the right to look at these records and want them for a proper purpose. So that’s the way we need to handle these things, but we need to be proactive or active in implementing these rather than reacting and then just causing more legal issues and business issues for your community.

Chad Miesen: Yeah. And as I had briefly mentioned earlier, there was a bill that was introduced in the last legislative session that I think it was sponsored or at least put forward by AACM. And it had the intent there was to help identify or define what an association record was in really clear terms to make this process more efficient, because it does end up resulting in a lot of time spent. Time is money.

All right. Insurance cost and renewals. I don’t know if any of you have noticed, but insurance premiums are on the rise. In some communities, I mean I’ve seen communities that have flat out been either completely unable to get insurance, at least the insurance that it needs to obtain pursuant to the CC&Rs. A typical one would be replacement costs at 100% replacement costs of common areas and facilities and just being unable to get 100% because the carriers are just not willing to do it or the premiums are so incredibly high, it’s cost prohibitive. And when you couple that with CC&R language, that caps assessment increases at no more than say 3% a year without needing a vote of the membership, which can always be a challenge to get, it really puts the association in a tough spot.

And so we’ve seen this for both condominiums and plan communities across the board, and we’ve seen it in areas all across Arizona, not just in Phoenix or outlying areas. The fact is this is actually a national issue, and particularly in high risk areas like Northern Arizona where you’ve got higher risk of fire disasters, it’s incredibly difficult and/or expensive to get insurance, but it is critical to have the insurance, particularly in those areas but everywhere, to make sure that if there is a significant loss, the association is able to handle that or at least shift that, that risk to a carrier as opposed to a large special assessment and all of the nastiness that tends to come from that.

So what are the key drivers? What is causing these insurance premiums to be so high and increase at such incredible rates? Well, there’s a number of factors. Certainly, inflation is one. We’ve seen that across the board with any number of goods and services. There’s inflation. There’s also natural disasters, a higher number of natural disasters around the country. So it’s not just talking about Arizona, but when you’ve got carriers that are getting hit with significant costs in Florida, and California, and other places, North Carolina, then we see across the board increases on premiums. Also, aging infrastructure. Communities, as they continue to age, it becomes more likely that a loss will occur or that a larger expense will be incurred. And so premiums reflect that. And then in Arizona, there’s just fewer carriers than there used to be that are offering these coverages, so reduced supply prices go up if demand doesn’t change. So that’s a challenge as well.

And on an individual basis, of course, claims history is going to be a significant factor for premiums. You’ve got a community where you’ve got a huge number of claims. In some cases, it’s because the documents require the association to cover more than just the common areas. Maybe the association has to cover individual units in a condominium, and then you have losses and high number of claims. That’s going to be a challenge. And obviously, risk management practices, I see this in high-risk areas, but other areas as well, to try and reduce your risk profile so that you can have a better rating and reduce your premium.

Josh Bolen: I’ve seen too many associations think that insurance is a maintenance practice, right? “Oh, we don’t need to do that. We have insurance if that happens, and we have it if this happens.” Rather than planning and preparing and taking care of the items that you’re supposed to maintain, a lot of past boards, and even some of our current boards, rely on insurance, “Oh, we got insurance for that.” That is a terrible policy, because if you have way too many claims, you’re just going to one time find yourself uninsured or it’s going to be so expensive. And when we’ve had boards come to us and say, “Well, what if we just don’t get insurance and we become self-insured?” To me as a board, that may be already a breach of your duty of care to the community.

I don’t think being self-insured or not having insurance is really a strategy here. And I wouldn’t want to be on that board that doesn’t have that layer of protection. And so sometimes we have to make the tough decision of what do we need to do to get insurance? And that may be pain, an arm and a leg to get it.

Chad Miesen: And having a higher deductible where you’re basically self-insuring for a more significant amount because that’s what you have to do in order to get any insurance at all. And yeah, Josh, to your point, the CC&Rs generally require some level of insurance. And so to not insure, there’s risk in that for getting a claim for breach of duty. So risk management practices are important, and regular maintenance, having a good reserve so that you can be replacing items that need to be replaced at end of life so that you don’t have huge losses. And also, engage professionals. I’ve had some clients that have had to look at alternative coverage, maybe going on the alternative market for some coverage or to fill a gap.

So there are specialized brokers that do that, but working with your broker to shop it and really do the legwork to make sure that you’re finding the best policy you can find out there. And sometimes that takes a significant amount of work, frankly. But do your homework, be prepared for the renewal so that you’re not caught flat-footed and scrambling in the face of a coverage deadline. And then I always think communicate cost impacts to residents. Be transparent as much as you can with your residents, with your homeowners, so that they are prepared as well. That’s going to serve certainly board and management from the backlash at the last minute when you’ve got challenges or significant increases, and that hasn’t been communicated to prepare ownership for that. So just staying ahead of the game, being prepared for it.

Josh Bolen: All right, so with vendor issues, want to talk about the easiest way to save your association some money in 2025. And that is finding good vendors. I always get nervous because I’ve been through some downturns and I thought that maybe, “Hey, a downturn is coming at some point.” And the only reason why I get concerned about vendors is because when we did have our other downturn, a lot of vendors went out of business. And I feel like in the association world right now, we’re very vendor-heavy. There was a lot of vendors that were needed in COVID times, even right now it’s hard to find good vendors, but I really worry about what that’s going to look like if we do have a downturn in the community. So what are some of the ways that you can protect yourself? Any vendor, do your research. Do they have a license? Are they bonded? What is the history of it? Get references.

The reason why this is so important is when we hire a vendor, we’re shifting the risk of that issue away from the association and trying to give it to a vendor. So if you hire an arborist, you’re shifting the risk away from the association and giving it to the arborist. You hire a CPA, an insurance broker, management, your law firm, everything that it may be. Whenever we hire a vendor, we’re shifting whatever that risk may be and giving it to them because as the board, you’re volunteers and we may not be up-to-date on every issue, so we want experts coming in to handle these issues. And if they’re going to come in and handle these issues, we want to shift that risk away from the association and give it to them.

So one of the easiest ways you can do that is, first of all, do you have an agreement? Lots of times they’ll say, “Oh, we got this landscape or we have this issue,” but nobody has a copy of the agreement. If you don’t have a copy of the agreement, try to get it now. And I will tell you this, an RFP or a bid that is signed is not a contract. It may be for what you did, but you’re stuck with those terms in the details of whatever that may look like. And if you have something like that, that could be fine and we could use the RFP or the bid as an exhibit for the work, but you need to make sure that you have proper terms inside every agreement to make sure we are properly shifting that risk. So key terms that we always look for here at CHDB Law, make sure that we have a term of the contract and the ability to get out of the contract, make sure that they’re required to carry insurance, and also most importantly, make sure that they have indemnity.

Meaning that if you’re going to hire them to do something for you and they mess it up, you want to make sure that you have the ability to hold them responsible for it. That’s our indemnity part of it. So if you have a landscaper out there, and I don’t mean to always pick on landscapers, but they cause damage to a party wall or they cause damage to a lot, and an owner comes back to you to say, “Hey, association, your vendor caused this damage,” you want to make sure that you have a good indemnity clause to say, “Hey, vendor landscaper, you are responsible for this damage, not us. We hired you to do this, you caused this,” but we need to make sure that that’s clearly outlined in our indemnity part. And then on top of that, indemnity does this no good most time if they have insurance. So we need to make sure that they have insurance, make sure they’re required to carry enough insurance.

And the other thing you need to make sure that you do is make sure that you get a copy of those policies because they, like you, will most likely have a claims policies when a claim arises. That may be when it has to be covered. So even if they go out of business, you may still have the ability to go after their insurance. So these are the three key terms that we’re looking for in every contract with the idea in mind of shifting risk away from them. Now, there may be other things that we’re looking like if you’re having a large project done, do we want to have some hold back of some money? What are the dispute regulations if we do have an issue? What are the payment terms? Who pays attorney’s fees? Any term that’s important to you as a board, you need to make sure that that’s outlined in your agreement.

A lot of times they said, “Hey, well this person promised us this and this and this at the meeting, but when we look at the actual agreement, those terms are nowhere found in there.” And that’s hard for us to then go back and play the he said, she said game. That’s where your disputes get very, very expensive. So having a good agreement up front avoids those issues. I always like to say this, it’s like a marriage. Whenever you are getting into a marriage at the beginning of it, everybody’s in love, everybody’s doing great things. We are getting together to establish this relationship. It’s easier at that time to develop what that’s going to look like. As those of you who may have been through a divorce, you know it’s not a good time to start negotiating those terms when things have gone horribly wrong.

That’s what we call the full-time lawyer employment act, because if you had asked me to look at that contract at the beginning, that probably would’ve cost you $300, $400, $500, maybe if it’s complex a little bit more, but asking you to get out of a bad contract or when the stuff hits the fan, that’s when things get really expensive, especially if you have an agreement that could be hundreds of thousands of dollars in some cases. I’ve seen that where it’s like, “Oh, well, we had this handshake agreement with this pool contractor and it’s a $75,000 to a $100,000 pool remodel,” and the association didn’t get it checked, didn’t really do its due diligence, which would’ve cost them a little bit of money up front and save them a lot more money in the back end.

So that’s the best time, when they want your business, you want them to come to your project, that’s the best time to negotiate the proper deal points, not at the end. That’ll save you a ton of money. So to us, and I hate to say this in the ask of business, but I would have every contract of the association reviewed. And I’ve had people say, “Well, what’s like a dollar amount?” Well, your $500 playground inspection contract may be more critical legally than a tree trimming project. You don’t know. You never know until you need it. So you have to really have everything kind of looked at and reviewed by your council. We’re happy to give you budgets and stuff, but that’s the number one way. And I say this in every board training and we still don’t get contracts, but this is the key to doing all of this. And if you do have a good contract, I’m going to go back up, make sure that we are not signing secondary agreements or change orders that may modify the terms of the original contract.

We had that happen in a big case where they were having a remodel of the clubhouse, which I think was like $800,000. We had a very nice tight contract. The vendor came in and said, “Hey, we need this change order.” The board said, “Okay,” and they just signed that change order. Well, that change order negated the original terms of the contract and changed the indemnity and the waiver language altogether. And that just created more friction when there was ultimately a dispute at the end of it and what ultimately the parties were responsible for. So these vendor issues are things that we see year, but I do think that we may see more if we see an economy change or we see more building or vendors are getting overstretched, that can always happen. So this is a good way to plan and prepare for 2025 to save yourself some money, is to make sure you’re doing your work up front and not on the back end whenever you have these types of vendor issues arise.

Chad Miesen: And, Josh, there’s a comment from someone that Andrea put on the chat. So the question is, is a community management company included in this group of vendors in addition to landscape reserve study, etc.?

Josh Bolen: I mean, does the management contract have to be reviewed? I would definitely have your management contract reviewed.

Chad Miesen: Yeah, I think it’s what are your larger contracts? Well, the management contract and landscaping contract are probably two, your larger ones, but to your point, Josh, earlier, I mean this benefits both parties.

Josh Bolen: Right.

Chad Miesen: We’re not talking about one-sided changes. We’re talking about an agreement that both parties are happy with and can live with, and then it sets the expectations. So hopefully, you don’t have a problem down the road because you’re on the same page.

Josh Bolen: And always remember one last point on this, when somebody’s presenting you with a contract and it’s an extensive contract, they’ve most likely had their counsel draw that up to protect them. That’s them protecting themselves. Our job is to protect you. So we could have contracts on that. Most of the vendors that are in our industry, they’re good about this, they know what we’re going to be looking for. I review all the management contracts that come through us. They know what we’re looking for in these agreements. But if you have some outside vendor that you’re using, and it may be okay, but remember, their attorney’s working for them, they’re going to protect them. And so you need to just make sure that somebody’s looking out for you.

Chad Miesen: Yeah. All right, we’ve got a little bit of time left, so I’ll try and run through this here. Another issue that I think we’ll see continue in 2025 is just social dynamics, community relations. We’ve got evolving resident expectations, increased demand for transparency and engagement. And that’s partly because of the technology that we have available to us to be able to provide more transparency and allow for more engagement by homeowners. And so they expect it, and I think rightly so. So I think we’ll see increased demand for transparency and engagement. And also with respect to resident expectations, there are challenges that arise from diverse resident demographics. I think as we continue forward in time, but looking at next year, but also just forward in time generally, we will see a more diverse demographic within communities. People have become more mobile and move from place to place, different backgrounds, different life experiences, and with that, different expectations. And so that can create some challenges. Even though diversity is good, it creates some challenges in dealing with that effectively.

And so we need to be sort of on the watch for that and understanding of those things, those expectations constantly evolving. Also on the topic of technology is managing social media and communication. Again, we’ve got great tools out there that help us reach out to members, residents, and for them to be able to reach back and communicate outside of a meeting. And so that’s fantastic. But of course with that, there are some challenges because you want to balance that free speech concept that we all understand living here in this country, but at the same time, we have to watch out for the potential of harassment and how that can creep up in social media and other communication avenues and platforms. So it’s difficult, but we have to look at each one of these things. If there starts to become this almost harassing nature, let’s look at it, let’s figure out if we need to do something about it.

Someone complaining is not necessarily harassment. We may not like it, but it may not be harassment, but there are times where it does rise to that level, and then you have to take some action. So we’ve got to balance that and watch it. But to that end, establishing clear policies for digital conduct. So we have codes of conduct. Josh is going to touch on this a little bit with respect to boards, but many communities have a code of conduct with respect to member behavior as well, resident behavior. And so we need to look at those policies or establish policies if you don’t have them, to make sure that they extend not only to in-person interactions, but digital conduct as well.

And then we want to build stronger communities. That’s what we’re in business of doing. And so to that end, promoting inclusivity and getting people to work together as neighbors and having those types of activities that we can promote and sponsor in our communities to help bring people together and get to know each other, because sometimes there are times where people, we’re busy, we drive into our garage, shut the garage door, we don’t even see our neighbor until there’s a problem. And so getting people out of their homes and getting to know their neighbors really helps to personalize behavior and become more understanding and less reactive in a negative way. And so that’s what I think we should focus on in 2025 with respect to the community relations.

Josh Bolen: And the last thing I have, and I put it this way because I feel like this year more than any recent years, I’ve seen a lot of board distress, I’ve seen a lot more anger between board members, I’ve seen boards be very dysfunctional. And so what I’d really like for the community association world to really heal those boards, how can we get everyone together to focus on the main goal of a community association? And the main goal of a community association is to operate the business of the community to the best that it can. And we have found that boards are more decisive than ever. And why? I think honestly, and I know this is the easy cop out, but I think of the election, I think the election was very… I’m trying to say this nicely, very aggressive towards each other, very divisive. And I think that resonated through our communities in a number of ways. And I also think it’s the decorum that we saw in a lot of our elections that we funneled down to how our boards were treating each other. And I think that this is very problematic.

And when it comes to me when I get asked about this, there’s no perfect solution here. When a board member is elected to the community, unless there’s a provision in your governing documents that would automatically remove somebody from the board, removal usually has to occur by the membership, the people that elected them. So we may be stuck with a very divisive board. There’s also a case called McNally V. the Sun Lakes Homeowners Association. If you don’t remember this case, this was a board member that had been excluded from executive session meetings and excluded from receiving executive session materials because she was out sharing them with other people in the community.

And in that case, they just unilaterally removed her from things of what a board member should be entitled to. And the court said, “You can’t do that. If you want to exclude somebody or prohibit a board member that’s been properly elected from doing these things, you have to get an injunction or you have to have a code of conduct set up, or you have to have some type of cures in your governing documents for those. But you can’t unilaterally not allow a board member that’s been elected to have these issues.”

Now, there’s parts of that, cases if you have a dispute specifically with the board member, that board member’s filed litigation, there may be times where you can recuse that board member from that topic, but we can’t generally just exclude board members that we don’t agree with. So we need to figure out what can we do to get everybody on the same page? Workshops and strategic planning to me have always worked really well. Now, they’re an open meeting most of the time, depending upon what you’re talking about. But having an idea where people have time to hash out ideas, to talk about their ideas for the community, to feel heard go a long way.

Now, I know your board members are volunteers and sometimes they don’t want to give up their time, or sometimes even our good board members don’t want to go through this process, but it goes a long way to allowing people to be heard rather than just, “Hey, it’s our way or the highway. This is what’s going to happen because we’re the majority.” So that’s something that we’ve looked at to be very successful.

Roundtables. Sometimes this can be, “Hey, we need to get in and we need to tell board members why they can’t do a certain thing. We all need to meet.” Rather than just an email or a scathing letter or something like that, we look to those types of a roundtable with the board of when an issue comes up, getting together to see if we can resolve it amicably at first. Now, that’s difficult sometimes, because sometimes we have to call out board members that are breaching their duty, and that may be tough, but I think if we get everybody on the same page, it goes a long way to healing whatever divisiveness may be.

Also, board training. Take advantage of board training. The biggest part of board training is to ensure that the board members understand their role. And their role is to run the business that is the association. A lot of board members get on there and think it’s a political seat and they’re going to run it politically and it’s their kingdom, or they’re going to get on and they’re going to make waves and they’re going to do that. But that’s not really what an association is. The association is there to protect the assets of the community, to grow the community, to grow the values of the community. It is a business. We’re set up as a nonprofit corporation business, and a lot of board members just don’t understand that. And good board training can help board members understand their role. That’s the one thing we hear constantly is, “Oh man, this board training was great. I didn’t know this is what I signed up for.” And so sometimes just explaining that or having that education can work.

Code of conducts are the same way. Code of conducts are not meant to be punitive. A lot of board members look at them as punitive because there are sometimes punitive consequences for violating it, but the idea of a code of conducts is just to say, “Hey, let’s all get on the same page. We’re all agreeing that here’s how we’re going to operate.” And again, it’s better to have those in place before there’s an issue. It’s really hard when a board’s being very divisive and fighting with each other to go in and now try to implement a code of conduct because they look at it as punitive. “You’re only adopting this to try to get me off the board, or to try to sanction me, or whatever it may be.” The best code of conducts are when the board’s getting together to plan on future code of conducts, because that’s the idea. It’s to make the business of the association efficient and to save you all money by not having to have attorneys involved or disputes involved whenever these legal issues with the boards may come up.

So idea of really 2025 if you had one of these boards of focusing back on the business, focusing on getting things done, and really healing the board, because when you have a good board that trusts each other and works well, it funnels down to your community. That’s why I see it. Divisive boards, equal divisive communities. Good boards that trust each other and do that can really go a long way in making not only the board’s job easier, but management’s job easier, and us as attorneys, our job easier because we’re all essentially on the same page. And we need to really focus on 2025 of trying our best to get everybody on the same page. People may disagree, but we also, if we can do it professionally and amicably, it will be very beneficial to the entire community.

I know I don’t have the cues of this. Anyone else have any other ideas on things that you’ve done for the boards? Maybe you can, Andrea, I don’t know if you can unmute yourself or ask, but I know we have just a few minutes here, but I’d really like to hear from board members specifically, or maybe some managers, of things that you’ve done that may help with boards when you have this kind of decisive culture going on.

Chad Miesen: Everybody’s too shy. Yeah, I look at it as a code of conduct, for example, it’s like a vendor contract. I mean, in a way it’s setting the expectations that everybody can live by. Hopefully, you don’t have to actually enforce it because everybody understands we agreed to this, and in a time when it wasn’t divisive, hopefully.

Josh Bolen: Exactly.

Chad Miesen: All right. Well, we’re a bit over the hour, but Josh and I are happy to answer any additional questions that you might have. Otherwise, that concludes our presentation today. So thank you so much for being with us this afternoon and hopefully we’ll see you at the next one.