Month: January 2017

The New Form I-9: The Forgotten Immigration Law

While the President’s recent executive order on immigration has received widespread attention, another immigration law that affects employers across the United States quietly took effect last week.  Last fall, the United States Citizenship and Immigration Services (“USCIS”) issued a new version of the Form I-9, dated November 14, 2016.  On January 22, 2017, the prior version of Form I-9, dated March 8, 2013, became obsolete and no longer may be used by employers.  The core Form I-9 requirements are unchanged, but the new version includes some additional instructions and formatting.  Employers must use this form exclusively for all new hires and recertifications on or after January 22, 2017, or face increased fines and penalties.

As an added feature, the new Form I-9 has a fillable PDF option that enables users to complete the form electronically.  The PDF provides guidance for completion, restricts via drop down menus the information that can be inputted, and notifies the user of certain errors prior to printing, all aimed at reducing user errors.  The new form is not purely “electronic” though—it still must be printed and signed in hard copy.  Users who do not wish or are unable to use the interactive PDF features still have the option of printing the form and completing it by hand.

The substantive changes to the Form I-9 are as follows: 

  • The Instructions pages were increased from six pages to fifteen in order to provide additional guidance to users;
  • The following changes were made to Section 1, which is completed by the employee and reviewed by the employer:
    • The employee is required to enter “N/A” in fields rather than simply leaving them blank, as was the case previously.
    • Foreign nationals authorized to work in the U.S. now are permitted to provide an alien registration number, Form I-94 admission number, or foreign passport number, in lieu of providing both the I-94 number and foreign passport information, as was required on the old Form I-9.
    • The new form increases the space for preparers and/or translators to sign and date.  It also requires employees to affirmatively answer that they did not use a preparer or translator.
  • The following changes were made to Section 2, which is completed by the employer:
    • On page 2, the employer is required to enter the number corresponding to the employee’s attestation of citizenship or immigration status from page 1.
    • The online form has dropdown menus for acceptable documents, but employers should note that the dropdown menus do not include all documents the employer is permitted to accept.  This is important because employers face liability for refusing to accept documents that USCIS has found are acceptable.  In conjunction with reviewing documents, employers must continue to review the employee’s documents in person.  Even though the new “smart” I-9 can be completed online, documents may not be reviewed remotely via a webcam or similar technology.
    • The new form also has space for the employer to make notes or record additional information.  Employers should be cautious about entering non-essential information on this form, as anything written on the form can be reviewed during an audit or other governmental investigation.  Employers also should remember that Form I-9s, like other employment eligibility tools, should be used consistently for all employees—so employers should adopt consistent policies regarding what information, if any, is recorded in this space.
  • The reverification requirements in Section 3 were not changed.  However, reverifications performed after January 22, 2017 must use the new form. 

Employers do not need to use the new Form I-9 on existing employees—they should simply start using the form for employees hired or who require recertification on or after January 22, 2017.  Proper compliance requires the employer to use the version of the form in effect on the date the employee was hired or recertified.  If the wrong form was used, the employer should redo the employee’s Form I-9 using the correct form.  USCIS’s issuance of the new Form I-9 did not affect applicable retention requirements, which remain the same.

It is important for employers to ensure they strictly comply with the Form I-9 requirements—including by using the correct version of the form.  Last August, fines for Form I-9 paperwork violations, which include using an outdated version of the Form I-9, increased significantly.  Employers now can be fined a minimum of $216 and a maximum of $2,156 for each and every Form I-9 violation occurring after November 2, 2015.

The new I-9 and associated forms can be found here:  https://www.uscis.gov/i-9

2017 VA General Assembly Update For Community Associations (Week 2)

Having concluded the second full week of the General Assembly, we’ve seen tremendous activity and efforts related to legislation affecting Virginia community associations. On the first day of session (January 11, 2017), Vandeventer Black published a 2017 Virginia Legislative Forecast (available here). And, here on day 17, many of our predictions have been accurate.

As of January 27, 2017, 2,430 bills and resolutions have been introduced in the House and Senate. 484 bills or resolutions have failed, 195 have passed, and 1,993 remain pending – there is still much work to do.

Vandeventer Black has been tracking 26 bills affecting community associations, with the status of each summarized below:

Short-Term Rentals and “Limited Residential Lodging”

We forecasted that several bills will be introduced addressing short-term rentals. Legislation similar to that which passed last year is likely from short-term rental proponents, but also expected much more restrictive legislation coming possibly from any of the Senate Republicans (even though this issue has not seen divisive party support or opposition).

To date, legislation similar to that proposed last year on short-term rentals has not been proposed. But, as expected, Senators Norment and Stanley introduced separate bills restricting short term rentals.

Senate Bill 1578, introduced by Senator Norment, authorizes a locality to adopt an ordinance requiring the registration of persons offering property for short-term rental and defines “short-term rental” as the provision of a room or space suitable for sleeping or lodging for less than 30 consecutive days.

The bill amends the Alcoholic Beverage Control (ABC) Act to clarify that certain property rented on a short-term basis is considered a bed and breakfast establishment for purposes of ABC licensing and that the exception from ABC licensing for serving alcoholic beverages to guests in a residence does not apply if the guest is a short-term lessee of the residence.

Status: Senate Bill 1578 is currently pending before the Senate Committee on Rehabilitation and Social Services.

Senate Bill 1579, introduced by Senator Bill Stanley, affirms the rights of localities to regulate the short-term rental of property, defined as the provision of space suitable for sleeping or lodging for fewer than 30 days. The bill also provides that if a locality allows short-term rentals, the locality shall require that the person offering property for rental notify adjacent landowners in writing, obtain local permission to offer the property for rental, and carry a minimum of $500,000 of commercial premises liability insurance. If a locality prohibits short-term rentals, any person or entity, including an online hosting platform, that advertises the availability of a short-term rental in the locality shall be subject to a $10,000 fine per violation.

Status: Senate Bill 1579 is currently pending before the Senate Committee on Local Government.

For more information about short-term rentals in community associations, refer to Short Term Rentals: A Practical Guide, available here.

Home-Based Businesses & Child Care

As forecasted, Senator Chap Petersen introduced Senate Bill 1096, legislation similar to Senate Bill 238 he introduced in 2016. Senate Bill 1096 provides that a lot owner who is a licensed child care provider (licensure is generally triggered when five or more children, in addition to those children who live in the home, are cared for) operating within his personal residence pursuant to state law and in compliance with local ordinances shall be considered an “accessory residential use” and may not be prohibited by a property owners’ association unless child day cares are specifically prohibited by the declaration.

Property owners’ associations that restrict home businesses based on a limitation that lots be used “for residential purposes only,” would no longer be permitted to restrict licensed child care providers. And, communities that prohibit “commercial use” could also no longer restrict licensed child care provider. As the law stands currently, it is generally agreed that those child care providers with 4 or less children (in addition to those children that live in the home) are considered an “accessory residential use” and are probably allowed in most communities that do not have a prohibition against day cares specifically. The licensure changes the nature of the child care service from residential to commercial, regardless of the size of the licensed child care provider.

Status: Senate Bill 1096 is currently pending before the Senate Committee on General Laws and Technology and is likely to be considered by that Committee on Monday, January 30, 2017.

Resale Fees for Self-Managed Property Owners’ Associations

Earlier this month, we forecasted several different legislative proposals would be introduced in 2017 to remove the distinction between professionally-managed and non-professionally managed communities for the purpose of resale, but ultimately expected those proposals to be referred again to the Housing Commission. Our forecast was only half-correct.

As forecasted, Delegate Watts introduced House Bill 2376, providing that a property owners’ association that is not professionally managed may act as a professionally managed association only upon complying with specific conditions set out in the bill. But, House Bill 2376 was the only bill introduced on the topic.

Status: House Bill 2376 was laid on the table by the House General Laws Committee Subcommittee #1 – Housing and referred again to the Virginia Housing Commission for further study.

Fair Housing: Gender and Sexual Orientation

Senate Bill 822 was introduced by Senator Wexton to add discrimination on the basis of an individual’s sexual orientation or gender identity as an unlawful housing practice under the Virginia Fair Housing Act. Senate Bill 822 includes a definition of sexual orientation and gender identity.

Senator Wexton introduced similar legislation in 2016 (Senate Bill 67), which was passed by the Senate (25-15), but was not reported out of the House Committee on General Laws Subcommittee #4. Similar efforts to add sexual orientation as a protected class also failed in the 2014 and 2015 sessions.

Status: Senate Bill 822 was reported from the Senate Committee on General Laws and Technology and will considered by the full Senate.

Service of Process

Senator Wexton also introduced Senate Bill 823, requiring that an employee or agent of a common interest community with restricting access (i.e., a gate or key-controlled access doors) must grant entry to a person attempting to serve process on a party who resides in, occupies, or is known to be present in the community.

Status: Senate Bill 823 was stricken at the patron’s request by the Senate Committee for Courts of Justice.

Corporate Reinstatement

Proposed changes to Section 13.1-916 of the Virginia Nonstock Corporation Act were proposed by Delegate Albo (House Bill 1527) that would allow for reinstatement of a corporation’s status, regardless of the length of time that has passed since the corporate status was terminated.

Status: House Bill 1527 was tabled in the House Committee on Commerce and Labor.

Amendments – Property Owners’ Associations

House Bill 1554, introduced by Delegate David Bulova (D-Fairfax), proposes changes to the Virginia Property Owners’ Association Act to address concerns raised by Tvardek, clarifying the Act provisions apply only when a declaration is silent on amendment and including the statute of limitations language from the Condominium Act (providing that an action may not be brought to challenge an amendment more than one year after the amendment is recorded). An identical bill, House Bill 1670, was introduced by Delegate Joe Lindsey (D-Norfolk/Virginia Beach).

Status: House Bill 1554 passed the House of Delegate unanimously and has been referred to the Senate Committee on General Laws and Technology. House Bill 1670 was stricken from docket by House Committee on General Laws by voice vote.

Written Consent to Board Decisions

Delegate David Bulova also introduced House Bill 1553 related to the use of unanimous written consent by the boards of directors of property owners’ associations. As you may know, Section 13.1-865 of the Virginia Nonstock Corporation Act allows for boards of directors to take action by written consent, without a meeting of the board.

Written consents (usually required to be unanimous) are typically used by nonstock corporations, including incorporated property owners’ associations and condominium unit owners’ associations, to ensure that time-sensitive opportunities are not missed by the board.

House Bill 1553 amends Section 55-510.1 of the Property Owners’ Association Act adding additional requirements for the use of written consents by boards of directors of property owners’ associations (not condominium unit owners’ associations). The changes:
Require consents be delivered to the secretary, included in agenda packet and minutes, and kept in the association records;
Expressly provide that owners may comment on the action during open forum;
Expressly provide the action may be rescinded by the board; and,
Clarify the effective date of the action.

Status: House Bill 1553 was laid on the table by House General Laws Committee Subcommittee #1 – Housing.

For-Sale Signs

Several similar bills (House Bills 2045 and 2274 and Senate Bills 1231 and 1255) were introduced providing that except as expressly authorized in governing documents or condominium instruments, no association may (1) require a specific sign provided by the association (at or a fee or for free), or (2) causes a violation of the Virginia Real Estate Board regulations.

The legislation also includes authority for associations to regulate signs on common area and address specific issues related to real estate signs through the adoption of rules.

Status: House Bills 2045 and 2274 were reported unanimously from the House Committee General Laws with substitute language. Senate Bills 1231 and 1255 are pending before the Senate Committee on General Laws and Technology.

Association Disclosure Packet – Required Form

Delegate Robert Orrock introduced House Bill 1475 that will require the Common Interest Community Board to revise its one-page disclosure packet cover sheet to include a statement that “that the purchase contract for a lot within an association is a legally binding document once it is signed by the prospective purchaser where the purchaser has not elected to cancel the purchase contract in accordance with law.”

Status: House Bill 1475 was reported unanimously from the House Committee on General Laws with the substitute language described above.

Dam Safety – State Funding

Delegate Mark Cole introduced House Bill 1562 and Senator Wexton introduced Senate Bill 1079 allowing state funds to be dispersed in the form of grants to common interest communities, as defined in § 54.1-2345, that own dams in order to protect public safety and welfare. The grants can be used for the design, repair, and the safety modifications of dams identified in safety reports.

Status: House Bill 1562 was reported from the House Committee on Agriculture, Chesapeake and Natural Resources with substitute language (20-Y 2-N) and will be considered by the full House of Delegates. Senate Bill 1079 was passed by indefinitely in the Senate Committee for Finance (13-Y 3-N).

Declaration Cover Sheets

Delegate David Bulova introduced House Bill 2307 requiring the cover sheet for a declaration creating a development that is subject to the Property Owners’ Association Act to contain an acknowledgment of the review of best practices for the contents of declarations published by the Common Interest Community Board.

Status: House Bill 2307 was reported from the House Committee for Courts of Justice Subcommittee on Civil Law (6-Y 4-N) and will be considered by the full Committee.

Group Homes

Senator Tommy Norment introduced Senate Bill 1373 related to Group Homes. Senate Bill 1373 provides that any entity intending to locate a public or private detention home, group home, or other residential care facility in a locality shall give the chief administrative officer of that locality and the president of any home owner’s association for the neighborhood in which such public or private detention home, group home, or other residential care facility is to be located at least 90 days’ written notice prior to the issuance of the license.

Status: Senate Bill 1373 has been referred to the Senate Committee on Local Government.

Declarant Control of Property Owners’ Associations

Senate Bill 1401 was introduced by Senator Siobhan Dunnavant requiring, unless the declaration expressly provides otherwise, that the membership of the board of directors of the association include lot owners other than the declarant until the transfer of the common area to the association by the declarant.

Status: Senate Bill 1373 is pending before the Senate Committee on General Laws and Technology.

Conclusion

As we continue to monitor the 2017 session, we may issue legislative alerts through our website www.VanBlackLaw.com.

The contents of this article are intended to be for information purposes only and does not constitute legal advice.  This article is intended to highlight certain legislation affecting common interest communities and cannot, therefore, be considered a full compendium on all legislation or the impact of legislation on particular persons or entities.  None of the information set forth in this article necessarily reflects the opinions of Vandeventer Black LLP, or of any of its staff members or attorneys.

Landlord Has Personal Claim Against Officer Of Tenant Corporation For Removing Property From Premises

In the recent case of KCE Properties, Inc. v. Holy Mackerel, Inc., a landlord pursued a fairly routine claim against its former tenant for unpaid rent.  In the case, however, the landlord also included a claim against one of the officers of the tenant corporation for “conversion” (wrongful exercise of control over another’s property) claiming that the officer removed certain property from the premises that belonged to the landlord.

The commercial lease contained a fairly common clause providing that any “alterations and improvements” to the premises became property of the landlord upon termination of the lease.  After giving notice of termination and vacating the premises, one of the tenant’s corporate officers allegedly removed some of these fixtures and in doing so caused damage to the premises.  The landlord brought a claim against the corporate officer, as an individual, for the value of the removed fixtures.  The United States District Court, applying Virginia law, found that the conversion claim could proceed against the corporate officer personally, separate from any claim the landlord had against the tenant corporation.

The case is significant in that the officer of the corporation was not a party to the lease.  In most circumstances, officers are not personally liable for debts of the corporation.  In this case, however, the court recognized that there was an independent, common law duty prohibiting the wrongful exercise of control over the property belonging to another person.  The court allowed the claim to go forward against the corporate officer since the landlord alleged that the corporate officer personally removed the property, even though he did not sign the lease in his personal capacity.

Virginia law allows several options for landlords to pursue collection of unpaid rent and other damages against tenants, including a “landlord’s lien” against property owned by the tenant that may be present in the premises.  Commercial landlords should consult with an attorney experienced in Virginia landlord-tenant law regarding their possible remedies for collecting unpaid rent, including to determine the most cost-effective options. For more information about this article, please contact the authoring Attorney.

Contractor Denied Payment For Work Performed Because Contract Violated Virginia Public Procurement Act

Imagine doing emergency repair work worth over $500,000 for a school board, only to have the school board later take the position that it had illegally contracted with you, and so was not going to pay you for your work. Shouldn’t there be some way for you to get paid? Recently, a Federal Court in Virginia said no.

The case is H.S. Martin Construction Corp. d/b/a Insurance Claims Construction Services v. Lee County School Board, decided by the U.S. District Court for the Western District of Virginia last month. It involved work done by H.S. Martin in 2014 and 2015 for two schools in Lee County, Virginia to address storm damages.  The School Board has contracted H.S. Martin to perform mitigation and reconstruction work, including repair of the schools’ roofs.  The School Board and its insurance company authorized the contractor to perform the work.  The School Board even signed a document entitled “Authorization to Pay,” specifying that any insurance proceeds could be paid to the contractor.

The contractor performed the work as requested and received partial payment from the insurance company.  As the work progressed, however, the insurance company refused to authorize further payments to the contractor, and $500,000 was not paid to H.S. Martin; who then sued the School Board, the insurance company, and others for the unpaid amounts.

The School Board and the insurance company moved to dismiss the claim because the contract for the work did not comply with the Virginia Public Procurement Act (VPPA), which requires public bodies to conduct competitive sealed bidding for construction contracts.  Noting that a school board can exercise only “those powers expressly granted by the General Assembly,” the court found that the School Board had no authority to enter into the contract unless it complied with the VPPA, even though it had expressly authorized the work.  (It also appears that the School Board did not comply with the VPPA’s procedure for authorizing emergency work.); and the court then dismissed the claims against the School Board and the insurance company even though it acknowledged that the School Board may have received work for which it did not pay.

While seemingly a very harsh result, this case further illustrates the complexities, and risks, of government contracting; and the need to understand, and strictly follow, Virginia’s procurement requirements.

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Recent Virginia Supreme Court Decision Impacts Subcontractor Liability

PART ONE:  Flowing-Down the Statute of Limitations to Subcontractors

Last month the Virginia Supreme Court issued an impactful case decision regarding subcontractors’ liability. That decision, Hensel Phelps Construction Co. v. Thompson Masonry Contractor, Inc., in particular, addressed the effect of general subcontract flow-down provisions and reaffirmed prior law on the enforceability of indemnity provisions in construction contracts.  This Part One article addresses liability flow-down and limitations periods. Our next Part Two article will address the case’s reaffirmations regarding construction related indemnity provisions.

The dispute in Hensel Phelps arose out of a construction project at Virginia Tech.  As the prime contractor, Hensel Phelps hired subcontractors to complete portions of the work.  Twelve years after final completion, Virginia Tech sued Hensel Phelps to recover costs of repairing defective work on the project.  Ordinarily, Virginia’s five-year statute of limitations on contract claims would have barred the claim.  However, the statute of limitations does not apply to Virginia Tech because it is an agency of the Commonwealth, so the claim could be brought at any time.

Hensel Phelps settled the claim and then sued various subcontractors (and their performance bond sureties) for breach of contract and indemnity.  The subcontractors and their sureties moved the trial court to dismiss Hansel Phelps claims on the basis that Virginia’s five-year statute of limitations applied and had expired. The trial court agreed and Hansel Phelps appealed.

Hensel Phelps appeal argument was that the statute of limitations did not apply because of flow down provisions in the subcontracts, via which it argued the subcontractors assumed toward Hensel Phelps the same obligations Hensel Phelps assumed toward the owner.  The Virginia Supreme Court disagreed, finding that the general flow down provisions in the subcontracts were insufficient to impose on the subcontractors the open-ended statute of limitations governing Virginia Tech’s claim against Hensel Phelps.

But, of note, as part of its analysis, the court recognized that limitations periods could be waived if the contractual language was specific enough to show specific, knowing waiver. Therefore, if the subcontracts had contained provisions specifically waiving the statute of limitations or incorporating by reference the statute of limitations waiver in the prime contract—rather than generically flowing down the prime contract terms—Hensel Phelps’ claim would not have been barred by the statute of limitations.

Part Two will address the court’s consideration of Hensel Phelps arguments that the subcontractors and their sureties were regardless liable pursuant to the subcontracts’ contractual indemnity provisions.

 

Recent Virginia Supreme Court Decision Impacts Subcontractor Liability

PART ONE:  Flowing-Down the Statute of Limitations to Subcontractors

Last month the Virginia Supreme Court issued an impactful case decision regarding subcontractors’ liability. That decision, Hensel Phelps Construction Co. v. Thompson Masonry Contractor, Inc., in particular, addressed the effect of general subcontract flow-down provisions and reaffirmed prior law on the enforceability of indemnity provisions in construction contracts.  This Part One article addresses liability flow-down and limitations periods. Our next Part Two article will address the case’s reaffirmations regarding construction related indemnity provisions.

The dispute in Hensel Phelps arose out of a construction project at Virginia Tech.  As the prime contractor, Hensel Phelps hired subcontractors to complete portions of the work.  Twelve years after final completion, Virginia Tech sued Hensel Phelps to recover costs of repairing defective work on the project.  Ordinarily, Virginia’s five-year statute of limitations on contract claims would have barred the claim.  However, the statute of limitations does not apply to Virginia Tech because it is an agency of the Commonwealth, so the claim could be brought at any time.

Hensel Phelps settled the claim and then sued various subcontractors (and their performance bond sureties) for breach of contract and indemnity.  The subcontractors and their sureties moved the trial court to dismiss Hansel Phelps claims on the basis that Virginia’s five-year statute of limitations applied and had expired. The trial court agreed and Hansel Phelps appealed.

Hensel Phelps appeal argument was that the statute of limitations did not apply because of flow down provisions in the subcontracts, via which it argued the subcontractors assumed toward Hensel Phelps the same obligations Hensel Phelps assumed toward the owner.  The Virginia Supreme Court disagreed, finding that the general flow down provisions in the subcontracts were insufficient to impose on the subcontractors the open-ended statute of limitations governing Virginia Tech’s claim against Hensel Phelps.

But, of note, as part of its analysis, the court recognized that limitations periods could be waived if the contractual language was specific enough to show specific, knowing waiver. Therefore, if the subcontracts had contained provisions specifically waiving the statute of limitations or incorporating by reference the statute of limitations waiver in the prime contract—rather than generically flowing down the prime contract terms—Hensel Phelps’ claim would not have been barred by the statute of limitations.

Part Two will address the court’s consideration of Hensel Phelps arguments that the subcontractors and their sureties were regardless liable pursuant to the subcontracts’ contractual indemnity provisions.

 

The Housing Opportunity Through Modernization Act (HOTMA) Update

In our inaugural issue in October, 2016, we reported that HOTMA was unanimously approved in the U.S. House of Representatives and Senate and signed into law by President Obama on July 29, 2016.  The full text of the bill is available here.

Among other things, HOTMA required the Federal Housing Administration (FHA) to:

  • modify its certification requirements to make recertifications substantially less burdensome than original certifications,
  • consider lengthening the time between certifications,
  • allow information to be updated rather than resubmitted for recertifications,
  • allow private transfer fee covenants in the same manner as Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), and,

FHA had 90 days from July 29, 2016, or until October 27, 2016, to provide guidance regarding the percentage of units that must be occupied by owners or that percentage would default to 35% (down from 50%).

On September 27, 2016, FHA released a proposed regulatory update to its condominium mortgage insurance program that was published in the Federal Register and provided a 60-day comment period, which ended on November 28, 2016.  A summary of the major provisions prepared by CAI can be read if you click here.  Of particular note was the proposed owner occupancy requirements providing for a range between 25 and 75 percent.  To read the proposal in full, click here.  The process from here is unclear, and we will provide further information when it becomes known.

On October 26, 2016, FHA published Mortgagee Letter 2016-15 (ML 2016-15) that establishes FHA’s condominium project approval owner occupancy percentage requirements as mandated by HOTMA.  You can view ML 2016-15 here.   Regarding owner occupancy for existing units, ML 2016-15 amends FHA’s Condominium Project Approval and Processing Guide, and clarifies the definition of owner occupancy; and establishes conditions under which FHA will allow owner occupancy in Existing Projects as low as 35 percent, as follows:

-applications must be submitted for processing and review under the HRAP option

-financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20% of the budget; and

-no more than 10% of the total units can be in arrears (more than 60 days past due) on condominium fee payments; and

-3 years of acceptable financial documents must be provided.

In sum, the current owner-occupancy requirement remains at least 50%, although the requirement may be lowered upon certain conditions.

The Housing Opportunity Through Modernization Act (HOTMA) Update

In our inaugural issue in October, 2016, we reported that HOTMA was unanimously approved in the U.S. House of Representatives and Senate and signed into law by President Obama on July 29, 2016.  The full text of the bill is available here.

Among other things, HOTMA required the Federal Housing Administration (FHA) to:

  • modify its certification requirements to make recertifications substantially less burdensome than original certifications,
  • consider lengthening the time between certifications,
  • allow information to be updated rather than resubmitted for recertifications,
  • allow private transfer fee covenants in the same manner as Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), and,

FHA had 90 days from July 29, 2016, or until October 27, 2016, to provide guidance regarding the percentage of units that must be occupied by owners or that percentage would default to 35% (down from 50%).

On September 27, 2016, FHA released a proposed regulatory update to its condominium mortgage insurance program that was published in the Federal Register and provided a 60-day comment period, which ended on November 28, 2016.  A summary of the major provisions prepared by CAI can be read if you click here.  Of particular note was the proposed owner occupancy requirements providing for a range between 25 and 75 percent.  To read the proposal in full, click here.  The process from here is unclear, and we will provide further information when it becomes known.

On October 26, 2016, FHA published Mortgagee Letter 2016-15 (ML 2016-15) that establishes FHA’s condominium project approval owner occupancy percentage requirements as mandated by HOTMA.  You can view ML 2016-15 here.   Regarding owner occupancy for existing units, ML 2016-15 amends FHA’s Condominium Project Approval and Processing Guide, and clarifies the definition of owner occupancy; and establishes conditions under which FHA will allow owner occupancy in Existing Projects as low as 35 percent, as follows:

-applications must be submitted for processing and review under the HRAP option

-financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20% of the budget; and

-no more than 10% of the total units can be in arrears (more than 60 days past due) on condominium fee payments; and

-3 years of acceptable financial documents must be provided.

In sum, the current owner-occupancy requirement remains at least 50%, although the requirement may be lowered upon certain conditions.

2017 Virginia Legislative Forecast*

Today is the day.  At noon today (January 11, 2017) the Virginia General Assembly will be called to order and the 2017 session will begin.  As a bi-yearly, “short session,” the 2017 Session will span only 45 days and the General Assembly will consider between 2500 and 3400 bills (beginning January 11, 2017 and ending, sine die, on February 25, 2017).  In 2015, the last “short” session, 2776 bills were introduced (1513 bills were passed; 1497 bills failed).

In 2016, the House of Delegates and Senate voted to carry over 242 bills for consideration in the 2017 session.  Several bills affecting common interest community associations are included in the carried over bills and we expect a busy session.  In addition to those carry-over bills, the Virginia Legislative Action Committee of CAI (VALAC) has been working closely with legislators and stakeholders throughout the off-session on a number of other legislative initiatives.

In 2017 we expect bills to be introduced to address a variety of issues affecting community associations – legislation we have seen recently (related to short-term rentals, home-based business, recycling, service of process, camping and fair housing) and new legislation never before introduced (related to unanimous written consent).

Members of the House of Delegates are limited to introducing 15 bills pre-session. Once the session commences, delegates may introduce an additional five measures.  The Senate does not have similar limitations. Even with these limitations on the House of Delegates, we project a very busy session in 2017.

The Virginia Housing Commission – A Quick Primer

The Virginia General Assembly and Department of Legislative Services relies on the Virginia Housing Commission to identify and recommend legislative priorities and policies for adoption or examination by the General Assembly, and to study and provide recommendations to ensure and foster the availability of safe, sound and affordable housing in Virginia.

The Virginia Housing Commission also studies and make recommendations relating to such other housing, real property, and community development issues as requested by the Virginia General Assembly.

During the 2016 session of the General Assembly, four bills affecting community associations (related to short-term rentals, home-based businesses, recycling and fees that may be charged by self-managed communities) were referred to the Virginia Housing Commission for study.  Several initiatives considered by the Housing Commission will be considered further as legislation during the 2017 session.

Short-Term Rentals and “Limited Residential Lodging”

In 2016, the Virginia General Assembly Senator Jill Holtzman Vogel (R-Fauquier) introduced Senate Bill 416, the Limited Residential Lodging Act, establishing a statewide framework for short-term rentals, like those provided through AirBNB or VRBO, by preventing localities from prohibiting the “limited residential use” or a private home or attempts to regulate those homes as if there were commercial lodging establishments (such as hotels or motels).

Amendments were added to the bill to clarify the provisions do not alter restrictive covenants limiting short-term rentals.

The measure narrowly passed the Senate (20-19) on the last day of consideration before crossover.  However, a substituted bill in the House included a “re-enactment” clause, requiring a year of study and re-enactment before the law becomes effective.  The substituted bill received significant support in the House (90-8-1) and Senate (32-7), and allowed additional time for stakeholders to consider the impact of the bill.

Throughout the off-session, limited residential lodging has been studied by the Virginia Housing Commission, soliciting input from local governments, the state lodging industry and hosting platforms (AirBNB, VRBO, etc.).

Consensus among the stakeholders has been difficult to achieve (an understatement) and consensus legislation was not approved by the Housing Commission.  Competing stakeholders have held proposed legislation “close to the vest” and as of January 9, 2017, no legislation has been introduced.

We forecast that several bills will be introduced addressing short-term rentals.  Legislation similar to that which passed last year is likely from short-term rental proponents, but we also expect much more restrictive legislation coming possibly from any of the Senate Republicans (even though this issue has not seen divisive party support or opposition).  Finally, we expect legislation somewhere in the middle, attempting to strike a balance between the competing interests.

For more information about short-term rentals in community associations, refer to Short Term Rentals: A Practical Guide, available here.

Home-Based Businesses & Child Care

In 2016, Senator Chap Petersen (D-Fairfax) introduced Senate Bill 238 to provide that a property owners’ association may not prohibit a lot owner from operating a home-based business within his personal residence if the operation of the home-based business is in compliance with all applicable state laws and local ordinances.

Under current law, changed only several years ago, operation of a home-based business may be prohibited if the prohibition was provided in the recorded declaration.

As it has done with all legislation that attempts to abrogate existing, restrictive covenants, VALAC expressed opposition to the bill.  Ultimately, a substitute bill was introduced by Senator Petersen in committee.  The substitute included specific reference to licensed child care providers, providing that such providers shall “be considered an accessory residential use and shall not be prohibited unless specifically prohibited by the declaration.”  The effect of the legislation would have been significant, allowing large child care facilities in any residential community unless expressly prohibited.[1]

The bill was ultimately “passed by” in committee, but referred to the Virginia Housing Commission for study.  A Vandeventer Black attorney testified before the Housing Commission in opposition to the bill.  The bill was not reported out the Housing Commission.  Nonetheless, we can expect an identical (or similar) bill will be introduced by Senator Petersen in 2017.

Resale Fees for Self-Managed Property Owners’ Associations

In 2008, as part of the omnibus bill, House Bill 516 (the same legislation that created the Common Interest Community Board and Ombudsman), the Property Owners’ Association Act was amended to distinguish between those associations that are professionally managed, and those that are not, for the purpose of the assessment and collection of fees related to the provision of association disclosure packets.

Delegate Vivian Watts (D-Fairfax), in 2016, introduced House Bill 710 to conform the maximum fees that may be charged by property owners’ associations for the provision of an association disclosure packet, regardless of whether an association is professionally managed, or not.  House Bill 710 was continued to the 2017 session by the House Committee on General Laws Housing Subcommittee to allow study of the proposal by the Housing Commission.

The Housing Commission reviewed the proposed concept at their December 2016 meeting, but consensus legislation could not be a consensus.  We expect several different legislative proposals in 2017 to remove the distinction between professionally-managed and non-professionally managed communities for the purpose of resale, but ultimately expect those proposals to be referred again to the Housing Commission.

Fair Housing: Gender and Sexual Orientation

Senate Bill 822 has been pre-filed by Senator Wexton (D-Leesburg) to add discrimination on the basis of an individual’s sexual orientation or gender identity as an unlawful housing practice under the Virginia Fair Housing Act. Senate Bill 822 includes a definition of sexual orientation and gender identity.

Senator Wexton introduced similar legislation in 2016 (Senate Bill 67), which was passed by the Senate (25-15), but was not reported out of the House Committee on General Laws Subcommittee #4.  Similar efforts to add sexual orientation as a protected class also failed in the 2014 and 2015 sessions.

Service of Process

Senator Wexton also pre-filed Senate Bill 823, requiring that an employee or agent of a common interest community with restricted access (i.e., a gate or key-controlled access doors) must grant entry to a person attempting to serve process on a party who resides in, occupies, or is known to be present in the community.

In 2016, additional protections for community associations were added to a similar bill, requiring the process server be authorized to serve process and (ii) presents to the owner, or its employee or agent, a valid identification and evidence of the process to be served.  The bill was not reported out of the Senate Committee for Courts of Justice (was defeated 8-7), but has been reintroduced.

Corporate Reinstatement

Proposed changes to Section 13.1-916 of the Virginia Nonstock Corporation Act have been proposed by Delegate Albo (House Bill 1527) that would allow for reinstatement of a corporation’s status, regardless of the length of time that has passed since the corporate status was terminated.

Section 13.1-916 of the Virginia Nonstock Corporation Act currently allows for reinstatement within five years and the uniform law provide a period of only two years.  Such a significant derivation from current state law and the uniform act is unlikely to garner support, although we favor an increase in the time permitted for reinstatement.

Termination of association’s corporate status, particularly the purging of a corporation after five years, can have significant implications for a community association.  It is critical that corporate filings are timely made and corporate records of such filings are kept among the association books and records.

Amendments – Property Owners’ Associations

On February 12, 2016, the Virginia Supreme Court overturned a lower-court decision in Tvardek v. Powhatan Village Homeowners Association, Inc. determining that an amendment recorded in the land records did not include signatures of the lot owners who voted in favor of the amendment.

The Court also held that ratifications signatures are required by the Virginia Property Owners’ Association Act (even if an amendment was approved pursuant to the declaration) and that unless an amendment is ratified pursuant to Virginia Property Owners’ Association Act, an amendment will never become “effective” and the one-year statute of limitations would never begin to run, making amendments subject to challenge in perpetuity.

The ruling in Tvardek v. Powhatan Village Homeowners Association, Inc. has had significant consequence: creating significant uncertainty in the land records, imposing addition burdens and costs on associations, and, potentially, misreading the application of the Act on associations.

House Bill 1554, introduced by Delegate David Bulova (D-Fairfax), proposes changes to the Virginia Property Owners’ Association Act to address concerns raised by Tvardek, clarifying the Act provisions apply only when a declaration is silent on amendment and including the statute of limitations language from the Condominium Act (providing that an action may not be brought to challenge an amendment more than one year after the amendment is recorded).  An identical bill, House Bill 1670, was introduced by Delegate Joe Lindsey (D-Norfolk/Virginia Beach), but we expect only House Bill 1554 to move forward.

Significant stakeholders are in support of the anticipated changes (including CAI) or neutral.

Written Consent to Board Decisions

Delegate David Bulova (D-Fairfax) also introduced House Bill 1553 related to the use of unanimous written consent by the boards of directors of property owners’ associations.  As you may know, Section 13.1-865 of the Virginia Nonstock Corporation Act allows for boards of directors to take action by written consent, without a meeting of the board.

Written consents (usually required by governing documents to be unanimous) are typically used by nonstock corporations, including incorporated property owners’ associations and condominium unit owners’ associations, to ensure that time-sensitive opportunities are not missed by the board.

House Bill 1553 amends Section 55-510.1 of the Property Owners’ Association Act adding additional requirements for the use of written consents by boards of directors of property owners’ associations (not condominium unit owners’ associations).  The changes

  • require consents be delivered to the secretary, included in agenda packet and minutes, and kept in the association records;
  • expressly provide that owners may comment on the action during open forum;
  • expressly provide the action may be rescinded by the board; and,
  • clarify the effective date of the action.

For-Sale Signs

Both the Property Owners’ Association Act and Condominium Act were amended in 2015 and 2016 to enact limitations on restricting rentals.  We expect similar legislation in 2017 related to sales.  Specifically, we expect legislation providing that except as expressly authorized in governing documents or condominium instruments, no association may (1) require a specific sign provided by the association (at a fee or for free), or (2) causes a violation of the Virginia Real Estate Board regulations.

The anticipated legislation will include authority for associations to regulate signs on common area and address specific issues related to real estate signs through the adoption of rules.

Size of Common Interest Community Board

Legislation introduced in 2016 by Senator Chap Petersen (D-Fairfax) to increase the size of the Virginia Common Interest Community Board and number of resident-members was carried over to the 2017 session for consideration after Board staff-supplied statistics demonstrated the difficulty in selecting and maintaining volunteers to the Board.

Nonetheless, Senate Bill 689 will again be considered by the General Assembly in 2017.

Association Disclosure Packet – Required Form

Throughout the off-session, there has been significant discussion about the effectiveness of Commonwealth-mandated resale disclosure.  Provisions of the Code related to resale are among the most-often amended by the General Assembly (the Condominium Act provisions related to resale certificates, for example, have been amended 37 times in the 42 years the Act has been in effect) and those changes have resulted in the required provisions of hundreds of pages of documents to prospective purchasers (to be read, digested and acted upon in three days).

Public policy dictates that homeowners should be informed about association matters that may impact their decision to purchase a home/unit and will educate them about their personal rights and responsibilities with regard to the community association.

Disclosure documents/resale certificates are invaluable consumer information tools because it is vital that buyers know what they are buying. But, care should be given to ensure disclosures are effective in identifying the rights and responsibilities of purchasers that may become members of an association.

In an attempt to address issues related to the effectiveness of disclosures (for Property Owners’ Associations only), Delegate Robert Orrock (R – Caroline and Spotsylvania Counties) pre-filed House Bill 1475 that will require the Common Interest Community Board to revise its one-page disclosure packet cover sheet to summarize “how covenants may impose obligations on the association and upon the land use of individual lot owners.”

Dam Safety – State Funding

Delegate Mark Cole (R- Spotsylvania) and Senator Jennifer Wexton (D-Loudoun) have introduced House Bill 1562 and Senate Bill 1079, respectively, allowing state funds to be dispersed in the form of grants to common interest communities, as defined in § 54.1-2345, that own dams in order to protect public safety and welfare. The grants can be used for the design, repair, and the safety modifications of dams identified in safety reports.  The legislation was put in by Delegate Cole expressly by request of a constituent and the Community Associations Institute Virginia Legislative Action Committee supports both bills.

Merger of Property Owners’ Associations

Several years ago, Delegate Jimmie Massie introduced a bill establishing a method for the merger of condominium unit owners associations.  At the time, Delegate Massie did not address merger of property owners’ associations because a procedure for merger was already provided for in the Virginia Nonstock Corporation Act.

During the off-session we have been involved in discussions with legislators about easing the ability of property owners’ association to merger, providing economic and administrative reprieve for smaller associations.  From these discussions, legislation may be proposed, but will not fundamentally alter the method for merger provided in the Virginia Nonstock Corporation Act.

Conclusion

Although we cannot predict all the legislation that will be introduced affecting community associations in 2017, we can easily predict that the 2017 Session will be an active one.  As we continue to monitor the 2017 session, we may issue legislative alerts through our website www.VanBlackLaw.com, through Twitter (@DMCaseyAtty, and @CAIVALAC) and on LinkedIn.

As always, updates and a legislative tracking chart maintained by VALAC Chair and will be posted throughout the session on the CAI VALAC website (www.cai-valac.org).


* An abridged version of this article will appear in the January 2017 edition of Currents magazine published by the Southeastern Virginia Chapter of Community Associations Institute.

[1] Restrictions related only to “residential use,” or prohibiting “commercial use,” would not have been sufficient authority to prohibit licensed child care providers.

NEW FAR CLAUSE HEIGHTENS CYBERSECURITY STANDARDS FOR CONTRACTORS’ INFORMATION SYSTEMS

Overview

Earlier this year, the Department of Defense (DOD) issued a Final Rule adding a new clause to the Federal Acquisition Regulations (FAR) — FAR 52.204-21, which, in short, imposes fifteen specific requirements for contractor information systems possessing or transmitting “Federal contract information.” FAR 52.204-21 defines “Federal contract information” as any acquisition-related information not public and not purely for transactional purposes. This broad definition signifies the new clause will cover most federal contractors. Likewise, the clause flows down to subcontractors that “may have” federal contract information residing in or flowing through their systems.

Scope

The Government, whether rightly or wrongly, expresses the view that the Final Rule requires “only the most basic level of safeguarding.” See 81 Fed. Reg. 30441 (May 16, 2016). Consequently, contractors should expect frequent implementation of the FAR clause in future federal contracts. Furthermore, although the FAR excludes commercial items from the new requirements, the Government has proposed certain instances where “subcontracts for commercial items . . . at lower dollar values . . . would involve covered contractor information systems.” See id. Moreover, for all non-commercial procurements, FAR 52.204-21 is a mandatory flowdown to subcontractors. In short, the Final Rule’s breadth and scope highlight the Government’s expansion of cybersecurity regulations to protect both government information and the systems utilizing such information.

The Requirements

FAR 52.204-21 imposes fifteen specific requirements for information systems that store or transmit federal contract information. The requirements mirror those already employed by DFARS 252.204-7012. Compliance is required by December 2017. Despite the above-noted Government view that the new requirements are “basic,” contractors should consult with their in-house or external IT professionals to confirm implications upon their systems and contracts.

More detailed information regarding the new fifteen specific requirements of the Final Rule could be found at www.law.cornell.edu. Generally, they concern access to and maintenance of information systems. For more information on cybersecurity regulations or FAR compliance generally, Vandeventer Black’s Construction and Government Contracts Team attorneys are poised to help navigate those needs for our clients.

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