Things to know about the ECA Bylaw Changes & it’s Meeting November 13

Your participation either by attending in person or sending in your proxy in advance is critical.

Why? This is a special meeting like the Annual Meeting and requires 51% participation or the meeting cannot be held.

Your financial responsibility for repairing and maintaining the building is not optional.

Owners in a condominium are not only responsible for upkeep of their own units but also for all the elements in common ownership with other Association members. This means if the garage floor needs repairing (as it does now), the Association funds (which come from you mostly by condominium fees) will pay for those repairs.

We have limited ways of getting money into our Association funds: condominium fees, sale of property in common, and special assessments.  

Our condominium fees are at an all-time high price and that in combination with our large loan (which we got to pay off our windows and balcony door project) and our small reserve fund are driving down our property values. We currently have about 20 apartments on the market and lenders, given our poor financial profile, are not willing to give buyers loans. Most buyers do not purchase with cash. So if they can’t get a reasonably priced loan, they won’t buy at the Elizabeth.

As to the Association apartment that we recently renovated, we have been advised not to sell it because we will not get a good sale price at this time, given all the other Elizabeth apartments on the market.

Currently the bylaws say if we want to levy a special assessment, 75% of the Association must agree. Since we have trouble every year getting 51% participation for our Annual meeting and more than 30% of our owners do not live in the Elizabeth, it is impossible to achieve a 75% agreement for something as significant as a special assessment.

Why aren’t apartments selling at the Elizabeth?

There are three main reasons apartments are not selling: the high condo fees with no end in sight for additional increases, the modest amount of money in our reserve fund, and the questionable funding for the long list of major capital improvements. Lenders look at these three things before they will consider giving a buyer a mortgage.

I can’t afford a special assessment.

Since this bylaw change does not address what the cost of a special assessment might be, it remains to be seen whether an individual owner can afford a special assessment. No definitive plan has been offered to any owner. All owners would be invited to participate in articulating special assessment options should the bylaw amendment changing the Association approval from 75% to 60% is ratified.

One way a special assessment might be used is to pay off our large loan. Paying off the ECA loan early has monetary benefits. It is estimated that if we had a special assessment to pay off our loan, we would free up over $650,000 to use for much-needed capital improvements, such as hallway refurbishment.

Why can’t we pay off the loan with small increases in our condo fees?

In theory, we could pay off the loan over a ten-year period as long as we are not hit with unexpected large capital expenditures. The cost of paying off the loan is significant as detailed above and our property values will continue to fall. With old buildings, we should expect the unexpected relative to urgent needs to repair something. No amount of strategic planning can make up for a limited capital reserves fund and the burden of carrying a large loan. That is why 6 out of the 7 board members are supporting the special assessment bylaw change.

Did we really need to take out that loan?

This is water under the bridge but Association members are asking this question.

Yes, we needed to replace the leaking window and doors which were driving up our energy costs and ruining the quality of life for some unit owners, given all the dirt and grime coming in through the worn-out gaskets.  Repair of balconies and the façade provided not only timely safety measures but also improved the real estate appearance of our building.  As an owner since 1978, I know people began lobbying for window replacement in 1997, when I moved back into my unit after 5 years of living elsewhere. It was then that I saw and experienced how run down the Elizabeth had become.

Since our Board knew it was not possible to levy a special assessment and get 75% agreement, taking out a loan was our only option.

What are the consequences if I don’t vote my proxy?

Your inaction would be a NO vote, indicating that you do not want to take responsibility for what happens to our plummeting real estate values and the upkeep of our building. Other condominiums in Montgomery County, Maryland, have gone in to financial failure and building disrepair to bad effect.

Condominiums in crisis: Financial troubles put many communities at risk

By Bill Turque September 18, 2016

https://www.washingtonpost.com/local/md-politics/condominiums-in-crisis-financial-troubles-put-many-communities-at-risk/2016/09/17/07ba32ac-6972-11e6-ba32-5a4bf5aad4fa_story.html?utm_term=.7aae8c00573f

Why should I approve the bylaw pertaining to how directors serve?

The main reason is to provide continuity so that board members have enough time to finish major projects.

More information below in previous blog post. 

Elizabeth Bylaws Frequently Asked Questions (FAQs)

 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.  

Summary of ECA Board Meeting October 24, 2017

Board Present: Zlatan Beca, Makarand (Mac) Dehejia, Monique Fridell, Al Muller, Connie Row, Lyle Schwartz, Rhonda Taller (new)

Others Present: ECA General Manager MaryAnn Hall, Gates Hudson Portfolio Manager Larry Hirschman, Jeremy Tucker (ECA legal counsel, Lerch Early & Brewer, Chtd.)

HIGHLIGHTS OF THE MEETING

President’s Report

Board Member Resignation—On October 6, 2017, Pat Batey resigned from the Board. She was replaced by the Board as the Bylaws are written by Rhonda Taller. Others considered were Molly Frantz and Jim Jones.

Legal Counsel’s Report

On October 10, 2017, Montgomery County has enacted a new law pertaining to short term rentals (less than 90 days) such as those done by Air BnB. One feature of this law, which goes into effect July 1, 2018, is that anyone participating with Air BnB must obtain a license. The Elizabeth does not permit short term leasing.

More info at: http://montgomeryplanning.org/planning/functional-planning/short-term-residental-rentals/

Financial Report

The Elizabeth funds are all in the black and delinquency collection continues to show gains. The final payment for EPipe work has been made.

General Manager’s Report

Elevator Inspection: Inspection completed and now awaiting new certificates.

Cleaning Main Sewer Lines—main sewer lines have been cleaned. Next step deals with clearing pipes that affect riser stack cleaning.

The upright exercise bike—New bike installed. Waiting for a part for recumbent bike.

Garage Repair Project—independent verifies need to repair concrete that is failing under the seemingly pristine garage floor coating.

Landscaping—Fall flowers were planted.

Trash Chute Cleaning—Both towers has trash chutes cleaned. Next project will be dryer vent cleaning next month.

Boiler Tubes—Cracked boiler tubes were replaced, eliminating the need for frequent replacement of chemicals to keep the closed loop system water clean.

Pool Pump—An energy efficient pump has been installed which should save us $1800 in utility costs yearly.

Window Cleaning—is underway from October 24-27 by Diamond Window Cleaners. Our GM negotiated a several hundred-dollar reduction in cost from their work last year.

Metal and Stone Cleaning—a service done on a quarterly basis is underway in the afterhours time frame (7 pm to 3 AM).

EPipe credit—we received a several thousand-dollars credit.

Halloween Party—October 31 from 3:30-5 pm. Remember we do not allow door-to-door trick-or-treating.

New Business

Motions

—Adopt the Strategic Plan process: Approved by 6 board members.

The two motions deal with two different scenarios, one involving a special assessment and the other concentrating on raising condo fees.

5550 Friendship Blvd Development

The developers of the property next door to The Elizabeth have withdrawn their application to build for now. MD Park & Planning Commission was set to reject their plan.

Unit #10

Unit #10 is owned by the Association. The hope is to sell this unit when the market is right. Someone living in the building is interested in renting the unit with option to buy at the current price. The Board agreed to rent now and hope for a better market price in a couple of years.