1. Bylaw Change Affecting Special Assessments:
What is the purpose of a special assessment?
As stated in our Bylaws, the purpose of a special assessment is to help the Association pay for large ticket items that cannot be handled in a timely way (or at all) by our current monetary assets. We as owners in the Elizabeth have a responsibility to keep up not only our individual units but what we share in common such as roof, mechanical systems, lobbies, hallways, garage, pool, exercise equipment, grounds, etc.
Are we voting in November to authorize a special assessment?
No. The issue currently before the owners is a bylaw amendment that reduces the percentage of Elizabeth Condominium Association (ECA) ownership votes needed to pass a special assessment sometime in the future. The proposed amendment, if adopted, would reduce the required vote necessary to adopt a special assessment from 75% of the total percentage of votes to 60%, which is the same standard that the new (Oct. 1) Maryland condominium law sets for approval of bylaw amendments generally. The proposed amendment also adds “debt repayment” to the description of what a special assessment can be used for. ECA’s 75% requirement dates to the creation of The Elizabeth 42 years ago. (See Elizabeth Bylaws, Article IX Directors, Section 2 Special Assessments)
If, in the future, the ECA Board determines that a special assessment is a proper tool for funding a major expense, owners must vote then to approve the special assessment. Any proposed special assessment will specify the size, purpose and timetable for paying the special assessment, so owners can determine whether to support it.
Why do we need to change the level to approve a Special Assessment from 75% to 60%?
The current 75% vote (or . vote) is 75% of ALL ECA membership, NOT 75% of the people who vote. This is such a high hurdle to meet, practically almost unachievable, that our Boards over the years have avoided even seeking to use this financing tool. For example, extraordinary effort and expense would be needed to achieve the 75%, 2
especially since a sizeable number of the apartments are not owner-occupied. Today over 30% of Elizabeth apartments are rented.
The effect of not having the option of a special assessment is that only funds derived from monthly condo fees can be used as the source to pay for necessary building capital improvements like structural repair in the garage, renovation of the halls and refurbishment of aging mechanical systems. Increases in fees may negatively affect property values when they exceed those of neighboring condominiums. According to real estate agents, The Elizabeth has high monthly condo fees relative to other Friendship Heights buildings.
What are the Pros and Cons of a Special Assessment Versus Condo Fee Increases?
As was explained to owners at the October 24th Board meeting:
If we pay off the existing loan with a special assessment, 1) owners save $1 million or more in interest expense over the course of the loan, 2) ECA will then have about $650,000 per year to put toward capital improvements because we don’t have to pay the loan, and 3) ECA will have taken steps that may result in an increase in our real estate values because potential buyers and lenders will view the Elizabeth more favorably.
If we use only condo fee increases to pay for the required capital improvements, owners will all pay $1 million or more over the life of the loan, will have to pay with increased condo fees which compound for each year’s costs, and will have continued the status quo which potentially continues to have a negative impact on property values because we’ve not paid the loan and have much higher condo fees than other condominiums in our neighborhood.
But one Board member said he would do better with condo fee increases over a special assessment to pay off the loan?
That Board member was using preliminary estimates and looking at part of the equation. The final figures to be brought forward in November will make clear the advantages of a special assessment for the ownership as a whole.
There is no question that either choice—special assessment or condo fee increase may cause a financial hardship for some owners, and that the impacts will differ based on individual circumstances. That is why the Elizabeth is planning to have an expert speak to owners about options for financing whatever the final decision is in November.
2. Bylaw change affecting Election Cycle & Term Length:
What changes are proposed in the Election Cycle and Term Change Bylaw?
This second proposed bylaw change has multiple impacts on the terms of future directors:
Under the current Bylaw:
The 7 Board members serve 2-year terms with 4 elected one year and 3 elected the next year, as part of the May annual meeting. A potential turnover of 4 directors (a majority) exists every other year which can dramatically alter plans already in motion for the Elizabeth, causing, for example, delays for major repairs and wasted funds. (See Elizabeth Bylaws, Article V Directors, Section 5 Election and Term of Office)
With Board resignations, appointed directors serve until the next annual meeting, potentially creating more than 4 openings on the Board. (See Elizabeth Bylaws, Article V Directors, Section 6 Vacancies)
Proposed Bylaw changes:
One change alters the elected terms from 2 years to 3 years.
The next change shifts the number of directors elected at annual meetings to a 3-year cycle of elections. This means in year 1 of the 3-year election cycle, beginning in 2019, 3 director positions would be up for election (this is not a change), and in 2020 and 2021, 2 director positions would be up for election and this pattern would repeat, creating a 3:2:2 staggered board elections.
Another change is that directors, appointed because of resignations, would serve out the remainder of the term of the director they replaced, maintaining the 3-year Director election cycle into the future.
Does that mean that the current appointed directors will serve without being elected by owners?
No. Four current director positions will be voted on in 2018, consistent with the current Bylaw. All current directors who have been appointed this year to fill a vacancy due to resignation, are filling terms already set to expire at the 2018 annual meeting.
To create the new staggered terms, the owners will determine who gets the initial 3-year terms in our 2018 election. The amendment specifically requires that the two highest vote-getters will serve the first 3-year terms. The other two elected directors will serve 2-year terms. The Board is not determining the terms of the elected directors under the amendment, rather the owners, by their vote, are deciding which director gets which initial term. After the 2018 election, each director would then be elected to a 3-year term. This will establish and maintain the 3-year cycle of 3-year terms into the future. The transition from the old cycle to the new is hard to follow. If you have questions, please ask a board member. At the end of these FAQs are four graphics to help understand how this transition will work.
ECA owners will control who fills the positions under this system.
Why is the change to the term of directors appointed to fill a vacancy important?
With less regular turnover of a majority of Board positions, owners will have better assurance that approved building-wide projects and plans will be implemented. Wild swings in management decisions can undermine ECA’s fiscal health. Our building lost the confidence of lenders including Federal Housing Administration (FHA), nearly lost our insurance, have seen property values drop, and potential buyers go elsewhere because of our financial statements. More than 20 apartments are currently on the market.
With the proposed system, a majority of Board members will always be involved in what are often lengthy discussions and analysis to approve projects, establish policies and set priorities for our condo homes. It encourages long-range planning.
Institutional memory will be enhanced, encouraging quicker follow through on Board decisions.
Do other condominiums use this system?
Many condominiums, like the Carleton, use this system. It is also commonly used by many condos throughout the area as well as corporate and association Boards for the above reasons.
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