Report of the Bylaw Committee
To The Treasure Island Country Club, Inc., Board of Trustees
October 4, 2008
A. Introduction
The TICC Board of Trustees identified a need to update the Bylaws of the Association and committed to a review and rewrite of its Bylaws along with the formation of a Committee. This action came about for a number of reasons.
1. In 1966, TICC incorporated under chapter 24.04 RCW, Nonprofit, nonstock corporations and the TICC bylaws were approved by the members in July 1966. In 1969, the Washington State Legislature repealed 24.04 RCW and replaced that act with chapter 24.03 RCW, Washington nonprofit corporation act. In 1995, the Legislature created chapter 64.38 RCW, the Homeowners’ Association Act, which relates specifically to Homeowner Associations such as TICC. With the exception of amendments made to the Bylaws as it relates to assessments and the Asset Replacement Fund, there has not been a complete review or update of the Bylaws as it relates to the current Washington State laws.
2. The make up of the Board of Trustees consists mostly of new members who are new to the Board as recently as 2006 and 2007. With this transition in Board members, the Board is attempting to address the gap in the historical knowledge needed for the consistent and efficient operation of the Association and for the carrying out the Board’s responsibilities. It has become more evident that there needs to be a formalized process on policies and procedures, and a process for educating new Board members on their role, responsibilities and duties. Policies and procedures are dependent on and supplement the Associations governing documents that include the Articles of Incorporation and Bylaws.
3. Additionally at the 2007 Members Annual Meeting, there was confusion as to the requirements and interpretation of the Bylaws and an understanding relating to the process and procedures of voting. The Board met to review and discuss the Bylaws in an effort to educate themselves and come to some consensus on the meaning and intent of the Bylaws. The Board members agreed that the bylaws were outdated, confusing, and difficult to understand.
It should be noted under the law that the Articles of Incorporation create a corporation, and the Bylaws provide the rules for the regulation and management of the corporation. Foundation for both the Articles and Bylaws are the Plat restrictions filed in Mason County and the Articles and Bylaws cannot have provisions that conflict with one another and at best should interrelate with one another. If there is a conflict between the two documents, the Articles of Incorporation will take precedence except as to the number of trustees on the Board.
B. Committee’s Purpose/Duties
At a special meeting of the Board of Trustees held on March 13, 2008, the Board established a Bylaw Committee for the purpose of:
The Committee would submit a draft of the proposed revised bylaws to the Board of Trustees no later than February 7, 2009. After Board review and approval, the final draft will be submitted to an attorney for a legal review. A final draft proposal will be submitted to membership for comment and input at an informational or special meeting. The objective is to present a final proposal to the membership for approval at a Special Meeting or the 2009 Annual Meeting.
The committee was to consist of no less than three and no more than five Association members. Two of the five members would be Board members. The President appointed Linda Pryor as temporary chair. Within 30 days, the temporary Chair would finalize committee membership and schedule the first committee meeting at which time the committee would elect its Chair. The first meeting of the Committee was held on April 11, 2008. Serving on the Committee were:
Debbie Axelson, Chair
Morina Dustan
Linda Pryor
Kim Cimmery
With the exception of the month of July, the Committee met on average twice a month.
The Committee submitted a project timeline and schedule to the Board of Trustees at the June 7, 2008 Board Meeting. The Board approved the schedule. That project/timeline is attached to this report as Addendum A.
Committee meetings were held on:
April 11, 25;
May 9, 23;
June 3 (Meeting with attorney: June 3), June 11, June 27;
August 15, 25
September 9, 16, 23, 30.
C. The Committee’s Approach
Each member has a responsibility to comply with all Association requirements and respecting the covenants and other applicable rules or regulations. Each elected board member has a legal and fiduciary responsibility to follow the laws and Bylaws and serve in a manner believed to be in the best interests of the Association, and with care and reasonable inquiry, as an ordinarily prudent person would use under similar circumstances. The only common ground we can meet on is our governing documents and bylaws.
If we disobey the rules or if we decide to choose which laws we want to obey, or if there is confusion as to their meaning, we have problems. So that we all can be good citizens in our community, it is important that those elected to the Board of Trustees and the members of TICC know the Association’s bylaws and governing documents and are made aware of the state laws regulating Homeowner Associations.
It is also important for the protection of the board members and the members of the association that the bylaws are updated in accordance with the law. This will help ensure Association members are protected through fair practices by their elected board members, as well as protect the Board and members from lawsuits now and in the future.
When considering whether new requirements would benefit members of TICC, the Committee kept in mind that the bylaws along with our other governing documents, should include provisions in accordance with Washington State laws that ensure:
· Equality, fairness and impartiality for all members;
· Majority rules while at the same time the rights of the minority and absent members are protected;
· Association business is conducted with openness and efficiency;
· There should be accountability to and from the members of the Association; and
· Members should have opportunities to participate as well as to propose amendments to the laws that govern our homeowners association.
In addition to addressing specific areas noted by the Board (listed in item E. below), the Bylaw Committee directed its efforts to:
(1) Write the bylaws in a clear and readable manner;
(2) Incorporate into the bylaws basic requirements of law;
(3) Consider new requirements that would best serve the interests of the membership; and
(4) Look at reasonable checks and balances relating to the Association and the Board of Trustees authority vs. basic rights of the members.
D. Information/resources.
Information and resources read or reviewed by the Committee included but were not limited to:
1. Washington statutes chapters 64.38 and 24.03 RCW and other governing documents as they pertain to Homeowner Associations in Washington State.
2. King County Bar Association Non-Profit publications and handbook.
3. Review of Bylaws for other Associations including:
· Twanoh Falls Beach Club;
· Raft Island Improvement Association, Inc.;
· Herron Island – Herron Maintenance Company;
· Edelweiss Maintenance Commission Owners Association.
4. Internet Resources such as:
· Board Source, Building Effective Non-Profit Boards;
· Regenesis.net – Condo & Homeowners Associations;
· AARP Report and Policy – Bill of Rights for Homeowners;
· Parliamentary Procedures;
· American Homeowners Resource Center.
5. Other Information found on the internet relating to:
· Clear and Concise Writing;
· Clear and Readable Writing;
· Plain Talk – Washington State.
E. Specific Areas Identified by the Board for Review and Update
Areas within the Bylaws initially identified by the Board as needing review and/or update are listed below along with a summary of how the Committee addressed those areas:
1. TICC was originally set up as a share holder organization. TICC later learned that shareholders could not be assessed to finance projects, ergo incorporation. References to “membership certificates” and stock are still included in the bylaws and should be removed. Define member, and define membership as per property deed. Membership is proportionate to lots and divided lots. Consider definitions.
Committee Response: The Committee addressed this area by defining Member, lot(s) and owner of lot(s). All three definitions relate to membership voting and membership obligation to pay assessments. Article 2 of the revised draft Bylaws includes new language that clarifies membership, which is dependent on ownership of a lot in the Association, as well as stating the basic responsibility and rights of membership.
2. Article 3, Section 1 - Specifying the amount of assessments or dues in the bylaws means every time the dues or assessments change the amendment must be filed with the county resulting in a cumbersome and confusing document. Remove from bylaws.
Committee Response: The actual amount of the assessment has not been included in the Bylaws. The Board would submit a proposal in the form of a referendum for a vote of the membership. The results will be recorded as a matter of record in the minutes of the members meeting. Unchanged is the requirement that two-thirds approval of the members voting either in person or by proxy is needed to amend the assessment.
3. Article 3, Section 2 - Allows the Board to increase the assessment up to $10 per lot per year. Limit maximum to match amount of current dues and limit to one assessment per calendar year.
Committee Response: Under RCW 64.38.025 and 64.38.035(1), the Homeowners Association Act, the Board’s proposed budget must now be submitted to members at a member meeting for approval (see Article 6.D. of the revised draft Bylaws). This is a significant change in the law. As the budget process should have a direct relationship to the amount of assessment required, the Board of Trustees must provide to the members the budget or changes in the previously approved budget that result in a change in assessment obligation. Therefore, this provision has not been included in the revised draft Bylaws and the old language has been deleted.
4. Article 3, Section 3 – Method of appraisal outdated. Rewrite in accordance with current law.
Committee Response: This section relating to the appraisal and purchase of land of a member who is in default has been omitted entirely. TICC has never utilized this provision, and the Committee does not foresee it being used in the future. Lien and foreclosure provisions are included which will be used in accordance with state law. Minimum provisions are included as it relates to initiating action of foreclosure because it is the Committees opinion that the Association should only initiate lien and foreclosure proceedings only as a last step in a well-defined debt collection procedure, and only after less disruptive measures have failed to resolve a serious delinquency issue within a specified period of time.
5. Article 3, Section 6 – Clarify meeting quorum; retain 2/3rds or change to 60 percent.
Committee Response: Unchanged is the two-thirds requirement threshold for a vote of approval. This was one area that some may have found confusing as to interpretation. The Committee has revised the language for clarification. It states under Article 4.A. of the revised draft Bylaws, “Before the Association levies any regular or special assessment, or increases or decreases an assessment, the assessment or change in assessment must receive two-thirds approval of the members voting either in person or by proxy at an annual or special members meeting.” A quorum for a member meeting remains twenty-five percent of the membership (see Article 3.G. of the revised draft Bylaws).
6. Article 3, Section 7I - Minimum withdrawal from the ARF is $25,000. Strike out greater than 10 percent; strike out mandatory compliance with state or federal law; provide for emergency or catastrophic occurrences; allow flexibility on repayment.
Committee Response: A provision for emergency or catastrophic occurrences was included.
The $25,000 limitation on ARF withdrawals was intended to safeguard the fund from indiscriminate use by the Board. With the law now requiring membership approval of budgeted expenses, the need for this safeguard is questionable. This limitation was struck, allowing the members to authorize withdrawals based on need rather than cost.
The requirement that projects involve a cost greater than 10% of the value of the asset was struck; the provision for withdrawals to comply with state or federal law was struck.
Flexibility on repayment is provided by not imposing a payback requirement. Repayment of any withdrawal can be addressed on a case by case basis in conjunction with approval of annual or special assessments.
7. Article 3, Section 7 – The provisions for operation of the ARF includes provisions for operation of the Tax Fund. The two funds should be separated into difference sections. State ARF purpose; omit amounts separate tax fund from ARF (new section); purchaser or contract purchaser (difference); for legal document, Reach Island is correct.
Committee Response: TICC’s accountant recommends de-segregation of the Tax Fund, depositing all money not allocated for the ARF to the General Operations Fund. Estimated quarterly tax payments can be incorporated into the Budget each year, allowing more flexibility on a year to year basis. Revised drafted Bylaws Articles 1 and 4 provide for payment of taxes.
8. Article 3, Section 7III – All Board members shall conduct review of annual assessment every five years.
Committee Response: Language is included under Article 5.A. of the revised draft Bylaws requiring all board members to conduct a review instead of the review being limited to officers of the Association. Language outlining the basic criteria for a review also has been included. A review would include:
· The anticipated cost for replacement, rehabilitation or major repair of the Association’s community assets in relation to the level of the Fund at the time of the review;
· The ARF’s estimated accumulation value in the future;
· The federal income tax consequences to the Association; and
· Other factors or circumstances as may be considered appropriate at that time.
9. Article 4, Section 1 – Seek legal advice on whether club can only impose rules on common areas, and that rules applicable to private property are Plat Restrictions. Consider provisions involving the levying and collecting of fines.
Committee Response: The Committee agrees that attorney advice is needed as it relates to rules applicable to private property and plat restrictions. The Board’s authority to create rules has been included in Article 6.I. The language is similar to the existing bylaws allowing the Board to create rules for the use of tracts of land on Reach Island. In light of the fact that rules may affect private property under authority of Plat restrictions, a provision is included that rules governing the use of privately owned lots must be approved by a vote of the membership. A definition of rules and regulations is included under Article 1 of the revised draft Bylaws stating that all rules and regulations are adopted in accordance with the governing documents and they supplement, but do not contradict or contravene, the governing documents. It should be noted that according to the plat restrictions in order to amend or adopt plat restrictions at least 65 percent of the total membership must approve.
New language is included under Article 6.H. of the revised draft Bylaws on levying fines. The Board’s has authority to levy fines under RCW 64.38.020(11). The revised draft bylaws include the Board’s authority to levy fines, however, the Committee included language that a schedule of fines must be approved by a vote of the membership, and the Board must also develop procedures.
10. Article 5, Section 1 – Strike out action and replace with business.
Committee Response: The Committee included the following language under Article 3.A. “An annual meeting of the members of this Association shall be held on the second Saturday of July of each year for electing trustees, review and approval of proposed annual budget and for general Association business.”
11. Article 5, Section 3 – Emergency meetings – can 5 days notice be retained.
Committee Response: RCW 64.38.035 provides that not less than fourteen nor more than sixty days in advance of any meeting, the secretary or other officers specified in the bylaws shall cause notice to be hand-delivered or sent prepaid by first-class United States mail to the mailing address of each member or to any other mailing address designated in writing by the member. RCW 24.03.080 is similar. It is noted that a special Board meeting can be called (Article 9.B. and D. of the revised draft Bylaws), and provisions have been included to allow for emergency expenses out of the Asset Replacement Fund in the case of an extreme emergency (Article 5.B. of the revised draft bylaws).
12. Article 5, Section 5 – clarify proxies are counted in quorum.
Committee Response: The Committee included language under Article 3.G. of the revised draft Bylaws stating, “A quorum for the transaction of business at any member meeting shall be twenty-five percent or more of the total number of votes of eligible members, voting either in person or by proxy.”
13. Article 6, Section 1 – Strike out Board members shall be elected “by ballot” at annual meetings.
Committee Response: Elections have been conducted with verbal approval for years except when there were more candidates than there were vacant positions. It was suggested that “by ballot” be struck so this practice could be continued. Rather than change the language to suit this informal practice, the committee recommends changing the practice to comply with the bylaw as written. Ballot elections provide the members with privacy when voting and eliminates ‘shoe-in’ candidates (electing all candidates with a single motion).
14. Article 6, Section 4 – States we can charge for electricity. Leave in as cannot predict future needs.
Committee Response: Under Article 6.H. of the revised draft Bylaws, language has been included which allows the Board to levy fees or rates for “utilities” provided by the Association. This allows for flexibility on type of “utility” the Board may provide.
15. Article 7, Section 1 – Simplify and clarify.
Committee Response: This section has been simplified and clarified under Article 8 of the revised draft Bylaws.
16. The Club has a policy that members are responsible for damages to Club Property (caused by themselves, tenants, guests or contractors. We should make sure this is covered in the bylaws.
Committee Response: This provision has been included under Article 2.A. of the revised draft Bylaws as a responsibility of membership.
17. Refer to Robert’s Rules of Order for guidance on conducting meetings.
Committee Response: This provision is included under Article 6.J. of the revised draft Bylaws.
18. Clarify quorum of the Board and eliminate any conflicts.
Committee Response: Quorum for the Board is provided for under Article 9.C. of the revised draft Bylaws and it states, “A quorum of the Board of Trustees for the transaction of business shall be a majority of the then sitting board members but no less than three board members.” Due to writing the Bylaws in a clear and readable format, the Committee believes this has been helpful in eliminating conflicts.
19. Clarification on the use of proxies as a result of confusion at the 2007 annual meeting.
Committee Response: This was a matter for the Board and the Board began the process of developing procedures for voting and the use of proxies at the June Board meeting. The annual member meeting was conducted in accordance with those procedures. The Secretary will be preparing a final draft for Board approval.
F. Suggestions submitted by Membership- Committee Recommendations.
Listed are suggestions submitted by members and the Committee’s response to each:
1. Suggestion: Can a member assign a voting proxy to a relative who is not a member and if not, then there should be a provision that allows the member to notarize and file a permanent proxy statement with the corporation secretary. In addition, who is a relative should be defined although it should be closely defined.
Committee’s Response: It has been the practice and policy of TICC under its governing documents that owner of lots are members and only members may vote or hold a proxy to vote. The owner of lot(s) is as recorded by Mason County. As stated under the law, members consist of those persons who are an owner of property under the jurisdiction of the Association, and who have both rights and obligations as it relates to the Association. Only owners of lots/members have voting rights. The Committee believes that those holding a proxy should also be members who have the same rights and obligations of the voting member under the law, and who are directly affected or impacted by the results of any vote of the membership.
An exception may be an actual power of attorney, and it is assumed that any person holding a power of attorney is obligated by law to act in the interest of the person giving the power of attorney. However, this is a separate legal matter and a person may want to consult with an attorney.
If for some reason, the Board decides to reconsider past practice, it is the Committee’s recommendation this issue be included with the questions to the attorney for guidance and advice.
"Member" means an individual or entity having membership rights in a corporation in accordance with the provisions of its articles or [of] incorporation or bylaws. RCW 24.03.005(6)
“There shall be no capital stock of the corporation but the corporation shall issue certificates of membership to members of the corporation.” Articles of Incorporation, Article 5
2. Suggestion: Member’s spouses should be able to vote even though they are not named on the Property Title recorded with the Mason County Auditor. Not permitting spouses to vote is in direct violation of the community property laws of Washington and therefore illegal as stands.
Committee’s Response: It cannot be assumed that Community Property Rights apply to any member’s lot. There are many provisions and exceptions to that law. In addition to those specified in RCW 26.16.10, Prenuptial Agreements and Divorce law (that may have secured property rights for a previous spouse) could be in effect.
Verification of community property may require obtaining a legally executed Community Property Agreement from the owner/member who wants a spouse not named on the Title to have TICC voting rights. Signing a Power of Attorney specifically for TICC voting rights may also be an option. (Also, see F.1.)
“Property and pecuniary rights owned by a spouse before marriage and that acquired by him or her afterwards by gift, bequest, devise, descent, or inheritance, with the rents, issues and profits thereof, shall not be subject to the debts or contracts of his or her spouse, and he or she may manage, lease, sell, convey, encumber or devise by will such property without his or her spouse joining in such management, alienation or encumbrance, as fully, and to the same extent or in the same manner as though he or she were unmarried.” RCW 26.16.10
3. Suggestion: Competitive bids aren’t mentioned in the current Bylaws and should probably be required on all expenditures over a certain dollar amount, for example $1,000 or $2,500.
Committee Response: Under Article 6.D., Budget a provision is included that would require the Board to develop procedures relating to purchasing. Additionally under Article 5.A. a provision is included that preferably three but no less than two bids are required for expenditures from the ARF Fund.
4. Suggestion: Voting process needs review and updating. The Board should consider use of proxy absentee voting by mail to encourage broader participation of the 251 lots.
Committee Response: The Secretary is working on developing draft procedures relating to the voting process and conducting a vote of the membership. The Committee has included that votes cast by proxy be specific as to each particular issue. Refer to Article 3.I. of the revised draft Bylaws.
5. Suggestion: Board Members/Employee Voting should be reviewed to avoid possible appearance of conflict of interest.
Committee Response: This is a matter for the Board. Board members who have an actual or potential conflict of interest should not participate in discussions, be involved in decision-making or vote on matters affecting those areas where the conflict exists. The Board may want to develop a policy on conflict of interest.
The following is an excerpt from Board Source-Building Effective Non-Profit Boards on conflict of interest. It states, “Board service in the nonprofit sector carries with it important ethical obligations. Nonprofits serve the broad public good, and when board members fail to exercise reasonable care in their oversight of the organization they are not living up to their public trust. In addition, board members have a legal responsibility to assure the prudent management of an organization's resources. In fact, they may be held liable for the organization's actions. A 1974 court decision known as the "Sibley Hospital case" set a precedent by confirming that board members can be held legally liable for conflict of interest because it constitutes a breach of their fiduciary responsibility.”
6. Suggestion: The Board should determine why getting volunteers for the Board is a problem and try to improve the Bylaws in a way to correct.
Committee Response: This is a matter for the Board.
7. Suggestion: The spending and assessment process should be carefully reviewed to coordinate the two processes.
Committee Response: Refer to E.3. of this report.
G. Bylaw Committee Report Addenda:
Incorporated into this report are the following addenda:
Bylaw Committee – Review and Revision Project/Timeline (Addendum A)
Working Copy of Revised Draft Bylaws (Addendum B)
Reference Document (Addendum C)
Copy of Current Bylaws (Addendum D)
Also attached to this report for the Board of Trustees reference and convenience are copies of chapters 64.38 and 24.03 RCW and the Articles of Incorporation.
Signed and dated this date of September 30, 2008.