Board Intention to Revise Governing Documents
9/2021: The following letter from the Board was mailed to all homeowners in September 2021 regarding the Board’s desire to review and potentially revise Salemtowne’s Governing Documents:
10/2021: After polling the community, the Board has decided to use a staggered approach to the various issues. The first area that is under review is financial issues.
11/2021: The Governing Documents are being reviewed and edited systematically and the Board anticipates it will take at least 5 months for this process to be complete. The community is invited to review the current Governing Documents (see sections above) or ask at the office for a hard copy. Read them closely looking for any changes, corrections or additions that you would like to see addressed. Share those thoughts with a Board member, in writing please, along with your name and contact information so that we can get back to you for questions or clarification.
12/2021: The following information was distributed as part of an insert in the December newsletter:
It is in our best interest that Salemtowne’s governing documents meet current legal requirements. The board and committees are working on this important project. The first step is to address the financial matters.
State law requires that articles related to the Annual Assessment, the Membership Fee, and the Reserve Account be in the Declaration. This means moving text from the Bylaws to the Declaration. Several sections of Bylaws Article VII will be moved unchanged.
Our attorney advises that specific dollar amounts should not be in governing documents as changing the amount requires amendments that add legal requirements and expenses. Instead, the best practice is to describe how the amount is to be determined.
Heeding this advice, we will update two important sections while revising the governing documents. We want you to understand and comment on those changes.
The current process has a “base assessment” amount in the Bylaws, applies an annual cost of-living adjustment, and calls for regularly revising the base assessment. This cumbersome process results in a series of amendments being recorded at the county.
At a community forum, an owner recommended that when the budget and assessment need to be increased the board should explain the need and ask the owners to vote on the increase. The proposed update follows that recommendation, as was done with the 2021 budget and assessment. However, a ballot takes about a month and costs $1,000 in materials, postage, and staff time.
It is sensible to set a threshold for using a ballot which would not require the time and expense for small increases every year. The Treasurer and the Finance Committee decided that 5% was a modest threshold. Therefore, the budget process would be as follows:
- The Treasurer and Finance Committee develop the budget and calculate the assessment based on projected expenses, reserve requirements, and other income.
- If the resulting annual assessment is between 0% and 5% above of the previous year, the Board may approve the budget.
- If the resulting annual assessment is more than 5% above the previous year, the owners will be asked to approve the budget by majority vote.
The Treasurer and Finance Committee keep a firm rein on expenses. You can expect them to continue to do so. Any budget and assessment increase will be only what is necessary and will be presented with a clear and reasonable explanation for your consideration.
Membership Fee (Buy-in)
The Membership Fee (also known as a Buy-in Fee or a Transfer Fee) was established in 2003 when the Asset Replacement Fund (ARF) was established. The fee is added to the closing cost when a buyer purchases a home in Salemtowne. The fee reduces the annual assessment by providing additional revenue for the ARF. For example, without the Membership Fee funding, the ARF would have required $162 be added to the annual assessment. The fee has not been a barrier to home sales in Salemtowne or other communities.
The fee is currently in the bylaws as a specific dollar amount. As noted above, this approach should be avoided.
Other communities have a transfer fee that is a fixed percentage of the purchase price, ranging from 1.0% to 1.5%. This approach is easy to administer. However, the Finance Committee felt the downside of this approach is that each home buyer pays a different fee for the benefit of the same common property.
The committee had previously considered setting the fee as one percent of the average saleprice from the previous year. Our attorney noted that this creates a challenge in calculating the fee and leaves room for someone to dispute the accuracy of the calculation.
Therefore, the selected approach is for the Board to set the fee each year during the budget process at an amount that approximates 1% of the average sale price.
This removes the possibility of someone challenging the calculation because, an exact calculation is not required. Yet, the amount of the fee will follow the change in home values and continue to fund the replacement and renovation of the common property.