Association Finances (capital improvements, bids, insurance, reserves, etc.)
What are the requirements of the executive board when initiating a capital improvement?
NRS 116.3115(9); NRS 116.345(3); NRS 116.3102(1)(g); Advisory Opinion No. 16-01
Pursuant to NRS 116.3102(1)(g), “subject to the provisions of the declaration, the association may cause additional improvements to be made as a part of the common elements.” The governing documents define the authority of the board, and as such, any capital improvement must be authorized in the governing documents.
Though not defined in NRS 116, a capital improvement can be thought of as any addition to the common elements requiring association funds. Pursuant to NRS 116.3115(9), “the association shall provide written notice to each unit’s owner of a meeting at which an assessment for a capital improvement is to be considered or action is to be taken on such an assessment at least 21 calendar days before the date of the meeting.” This must be followed even if the association is using surplus funds.
If the improvement is a building/structure, NRS 116.345(3) also applies, requiring the written consent of a majority of the units’ owners and residents of the planned community who own property or reside within 500 feet of the proposed location of the building or structure.
When should an association’s board of directors be obtaining bids?
NRS 116.31086; NRS 116.3103(1); NAC 116.405(8)(d)
If an association solicits bids for a new association project (i.e. a project that involves the maintenance, repair, replacement or restoration of any part of the common elements or which involves the provision of professional services to the association, including, without limitation, accounting, engineering and legal services):
(a) The association MUST, whenever reasonably possible, solicit at least three bids if the association project is expected to cost:
(1) In a common-interest community that consists of less than 1,000 units, 3 percent or more of the annual budget of the association; or
(2) In a common-interest community that consists of 1,000 or more units, 1 percent or more of the annual budget of the association; and
(b) The bids MUST be opened and read aloud during a regular meeting of the executive board.
As the provision above begins with the word “if,” we understand that there are certain circumstances which may make it impracticable to obtain bids. Pursuant to NRS 116.3103(1), however, in the performance of their duties, officers and members of the executive board are fiduciaries and shall act on an informed basis, in good faith and in the honest belief that their actions are in the best interest of the association.
Officers and members of the executive board:
(a) Are required to exercise the ordinary and reasonable care of officers and directors of a nonprofit corporation, subject to the business-judgment rule; and
(b) Are subject to conflict of interest rules governing the officers and directors of a nonprofit corporation organized under the law of this State.
Additionally, pursuant to NAC 116.405(8)(d), in determining whether members of the executive board have performed their duties, the Commission may consider whether board members caused the association to obtain at least three bids from reputable service providers who possess the proper licensing before purchasing any such service for use by the association.
The Division expects that at least three bids will be solicited for each association project unless it is not reasonably possible to do so.
What is considered an acceptable “electronic signature?”
NRS 116.31153(4) allows electronic signatures to withdraw money from the operating account provided certain provisions are met. The use of “signature on file” means the bank’s requirements were met, but does not verify that the requirements of NRS 116.31153 are being met. While an electronic signature may not be the actual signature of the person authorizing the check, it must be clear and verifiable who is authorizing the check to be issued to determine if that person is legally authorized to do so. Absent such evidence from the check, this procedure indicates a lack of proper internal accounting controls are being met. The Division does not find that placing “signature on file” on an association check complies with NRS 116.31153.
How many signatures are required on checks written by the association for withdrawal of funds?
Money in the RESERVE ACCOUNT may not be withdrawn without the signatures of at least TWO directors of the board, or one director AND one officer.
Money in the OPERATING ACCOUNT may not be withdrawn without TWO signatures; one director or officer, and another: director, officer or community manager.
If I live in a condominium or townhouse, does the association’s insurance cover the interior of my unit as well as the exterior?
In the case of a building that contains units divided by horizontal boundaries described in the declaration, or vertical boundaries that comprise common walls between units, the property insurance maintained by the association must include damage to the unit itself [excluding any personal property of the unit owner], but need not include any improvements and betterments that were made to the original construction of the unit by units’ owners over time.
How long does the board have to ADOPT the results of the reserve study?
Associations are required to have reserve studies performed every five years. The clock starts five years from the date that the previous reserve study was conducted, commencing on the date on which an on-site inspection of major components is performed (NAC 116.427). The board must adopt the reserve study and provide a summary to the Division, using reserve study summary Form 609Request Document Remediation - Form 609, no later than 210 days after the board receives the first draft of the reserve study. If the board adopts the reserve study earlier, a summary of the study must be provided to the Division within 45 days of adoption [NRS 116.31152(4)].