Finance & Legal minutes: 2021-05-25

Minutes:

Minutes of 5-25-21 F&L Meeting


Present: Becky Grover, Becky Hoort, Debbi, Amy, Sharon
Guests: Annie & Bennie


Agenda
1. New Business - Becky G’s report on her 5-25-21 phone conversation with
Rick Delonis, GOCA’s attorney, about the following topics:
1. Unit Modification documents
2. Zoning issue
3. Common House Office availability/leases
4. Reserve Fund Investment Policy
2. Monkey Review
3. Bookkeeping Updates
4. Ongoing Business
5. Next Meeting


********
Minutes


1. New Business


Becky G.’s report on her 5-25-21 phone conversation with Rick Delonis, GOCA
Attorney


Link to Becky’s notes:
https://docs.google.com/document/d/1fZps7GER0nVa2P8g2MK63B9A2rFlWnBdHZr83DAk5ao/edit?usp=sharing


Minutes show Becky’s (BG) questions, followed by GOCA attorney Rick
Delonis’s responses (RD), followed by F&L’s discussion (F&L).


1. Unit Modification documents


BG:
Unit Modifications. Late January/early February 2021 I mailed you a large
envelope containing 2 unit modifications. Did you receive them and have
they been filed yet? I haven’t received a bill for them. They were the
original copies as requested. If you never received them, do I just have
the unit owners sign the copies and mail those?
RD:
Yes received both, tried mailing both to be filed, USPS returned them for
some unknown reason. While on the call, he checked and it turns out he can
e-file them with Washtnaw now and will do so. In about 2-3 weeks, we
should receive confirmation from the county, and maintain them in our
records. Rick will send an invoice when it is all completed.
F&L:
Invoice expense for attorney’s services in filing the Unit Modification
documents will be charged through to Terrence/Emily and Willie/Katie.


BG:
Another question I remembered we needed to ask regarding Unit
modifications. While our building agreements state that we require people
to build to code, we do not require any documentation. Does Rick recommend
that we start requiring building permits?
RD:
A lawyer could argue that if we require it but are not checking to make
sure it was done to code that the Association bears some responsibility if
there is an accident/fire/etc. caused by the remodel. Therefore, if we
want to be completely covered, he does recommend that we change our
documents to require building permits and that we be provided with a copy
that includes the final inspection sign-off. He also stated, when I
asked, that this is a low priority issue, and not something we would have
to change right away (unless we want to put in the Bylaws/Master Deed
changes)


F&L:
We could put the requirement for building permits and occupancy permits
docs in the MD


What if we can’t go back and get people to sign Unit Modification
agreements? We should try, but if they won’t sign, there is nothing we can
do.
Debbi made a note for the Bylaws/Master Deed changes project.


2. Zoning issue


BG:
Zoning and apartments. Great Oak has always allowed members to rent out
all, or part of their units. Recently, Scio Township has started to deny
building permits to anyone who says the reason for the build out is to rent
out their basements. The reason given is that we are zoned under single
family dwellings. In our 18 year history, this has never come up before
this year.


It is our understanding that this would only be a violation of the zoning
if someone were to create a completely separate rental unit, with it’s own
entrance. When the members explained they were sharing the space with
distant relatives, the permits were then approved. But, we obviously want
to make sure we understand what Great Oak’s liability and responsibility
are. The fast majority of members who are renting are in fact sharing
portions of the house: the front entrance, the interior stairs, laundry
and sometimes even the main kitchen. Are we OK if we continue to allow
that type of house share, as long as we say no to the completely separate
rental units? Several of our members would not be able to stay if they
could no longer share part of their unit.


RD:
The only time a township can really say no is when someone pulls a permit
because that is the only way they know about it. But, if they don’t know
about it, it should be OK because there is no harm being done. Extended
family situations and definitions have changed so much from the time the
language of these kinds of zoning laws were written that it is hard to
enforce them. Rick says that if the GOCA association is OK with house
sharing (sharing the front entrance and interior stairs), that he sees no
problem with us continuing to allow this.


However, he did say that under this zoning, we should prohibit the creation
of completely separate rental units with private entrances. That would
clearly be outside the definition of single family, however you interpret
the word family.


BG:
Follow Up Question: Do we need to change the lease template in light of
this new zoning information? (for this question, we are talking about the
lease template when renting out all or part of a house, NOT the office
leases!) RD: Rick will review that template and get back to us. It is very
likely that he will recommend a few changes to it.


F&L Discussion:
Q: How would we know if someone is creating a completely separate entrance
for a non-sharing arrangement?
A: If we were asked, we would have to say that there can’t be an exclusive
entrance for the renter. How they choose to practice this is up to then.
Q: Do we need anything official for any of this? How would the township
know? Only if someone tries to pull a permit.
Inform the community that they may have a problem if they try to pull a
permit if not for their family
No liability to GO with house share
Q: Does the Association have an affirmative duty to inform members that
they cannot require the renters to use a separate entrance?
A: If renters have the option to use the stairs but choose to use the
door, it’s ok. How would we know that?
Would we need to change the lease in light of this? Rick is checking into
that.
Q: Does this affect existing apartments or only newly pulled permits?
A: The zoning affects all units. But Debbi couldn’t get more information
from the township about this. We recommend avoiding the creation of
apartments with a completely separate entrance.
MONKEY: Becky will craft follow up questions for Rick on this
We don’t know what landlords say to their renters: Can we be wilfully
blind?
Should we modify our policies to say that any basement build-outs have to
provide a copy of their permits to GOCA going forward? Elph was concerned
that we don’t require a copy of permit and final occupancy permit. Rick
said we should. If we say we want them to pull a permit but don’t follow
up, a lawyer could call us on this.
We need to inform the community about this
Last winter already we were requiring the option for renters to use the
main entrance bc gravel path can’t be plowed
If tenants are required to do this, it needs to be in the lease, if they
want to change this, we will see this and can nix it.
It’s not our job to enforce the township laws
Is there any grandfathering in? It sounds like this Zoning has been on the
books since GO created, but we never realized the implications of it. Not
everyone pulled a permit, even though we said they were supposed to. No
harm being done here.
Note that sometimes the contractor pulls the permit, not the owner.
MONKEY: F&L will discuss how to bring this back to the community for
information and discussion.
Nothing urgent here.


3. Common House Office Leases


BG:
Common House Office Leases. Great Oak rents out 2 offices in our common
house. You (RD) helped create the lease we are currently using (attached
to msg sent to RD). We also have an internal agreement that we give
priority to members over non-members when deciding who to rent the offices
to. When that agreement was created and approved, the *intention* was that
the priority only applied when we had open offices to rent. The lease,
under section 2.5, clearly gives the current tenant the right of first
refusal. We now have a situation where a few new members are growing
frustrated because they really want an office, but none are available, and
one of the offices is being rented by a non-member. We obviously do not
want to, nor could, break the existing lease. However, we are being asked
what the options are. Can we modify section 2.5 in such a way that it says
the right of first refusal is for members only? If we can legally do
that, what is your opinion one whether or not we should?


If the community decided to change this section (assuming we can legally),
our understanding is that existing tenants have the right to sign the new
lease first, because that is still spelled out in their active lease. For
example, in December the non-member tenant would be given the new lease,
with the modified section, stating that the NEXT time their lease is up for
renewal any member who wanted it would be given priority. The Finance &
Legal committee sees a few potential problems with this, but we need legal
counsel so we can explain this to the community members.


RD:
Legally we can change section 2.5 of the lease, such that every time there
is a renewal that we state that we will prioritize members over
non-members. However, he is VERY uncomfortable with doing this to someone
who has been renting for 18 years and been an excellent tenant. He does
not recommend doing this because it is not a very humanistic thing to do
(his words). He recommends instead that she be allowed to rent as long as
she wants, and once she is done we have the new tenant sign the new version
of a lease (if we create one).


But going forward, we legally can modify the office leases to specify that
each year, we would give priority to members over non-members. He did
caution us to be really clear about what we want, and make sure we
understand the ramifications. And again, he voiced his opposition to
changing Melissa’s lease.


BG:
Follow Up Question: How many days in advance would GOCA need to notify the
tenant of non-renewal?
RD:
He says probably give at least 60 days. No magic number. But good
practice for us to give them twice what we require of them, and we require
the tenant to give us 30 days if they are not going to renew.


BG: Related Office Question:
Can we also add a section that spells out how Great Oak might decide to
stop renting offices, and what/how we would be required to communicate
that? Some examples of why we might want to stop renting could be: we
decide to no longer rent to non-members at all, or the community decides to
convert the offices into something else. Right now, it isn’t spelled out
anywhere how Great Oak can stop offering a renewal, except if the tenant is
not following the rules or not paying.


RD:
Yes, we can and should do this. He would add this as another sub-section
of #2. That would spell out that we reserve the right to not offer any
renewal in certain events. He would also spell out that we would be
required to give existing tenants 60 days notice in this case as well.


F&L DIscussion:
We legally can add a clause to 2.5 - change phrasing to state that
non-members do not have the right of first refusal, exclusively for
members. Also true that if we were to do that, the non-member’s existing
lease gives her the right to sign the next lease. Guaranteed to the end of
2022 if she chooses to sign again.
Rick advises against trying to do this to her, a person who has been
leasing for 18 years, but to put the clause in for any new leases.
F&L doesn’t get to decide this. We provide this information to the CH
Committee, and they decide, or bring it to the community. Or someone else
can bring forward a proposal. F&L will not be making this decision.
How many more years for the non-member? His personal opinion was that it
should be for as long as she wants. Not a legal opinion. It’s a
responsible and respectful landlord. We could talk to the non-member and
let her know that there’s someone who’s interested. CH Committee needs to
do this.


Who will notify CH and make clear what is their responsibility?
CH Com should give the non-member notification that the terms of the lease
are legally changing if they decide to do so.
MONKEY: Becky will pull out this information and send it to the CH
Committee.


BOA and lease documents are not in alignment. When the lease was written,
we didn’t pay attention to what was in the Book of Agreements, and we
didn’t provide a way out, for someone else to get into the lease. That
needs to be different in leases going forward. We understand that people
want an opportunity to rent the offices. We need to look for a way to get
them in alignment when demand exceeds availability
The intention of the agreement in the BOA was for when we had an open
office. We never discussed limiting non-members to one year. CH Committee
needs to discuss, or bring before the community
Next step; make sure CH gets info and understands of the expectations are:
* Give the non-member a heads up that language of next lease may be
different
* Address the question of what they want to do in language of next lease
* Find out what the non-member’s plans are


4. Reserve Fund Investment Policy


4. Reserve Investment Policy
BG:
Ever since Great Oak was established, we’ve held our Reserve accounts in a
separate bank. All of the funds are currently in a money market account.
One of the stories that has always been passed around is that we cannot
invest in any vehicles where the principal is at risk. Just recently one
of our finance members started digging into Michigan condo law, and our own
legal documents, and has been unable to find any such limitation. You have
much more experience than we have in this area. Are there any legal
limitations for our Reserve investments? Additionally, we’d like to know
what some of the best practices are for other condos. We want to draft a
Reserve Investment Policy as soon as possible, and need to know what our
options are.


RD:
There is no law regarding what investment vehicles condos may use.
However, he stressed that board members have a Fiduciary duty to protect
the community's investments. Because any loss of principal could result in
a member trying to sue GOCA for not doing its duty and/or being reckless
with the community’s money, this has resulted in almost all condos erring
on the side of extreme caution.

Most condos keep their reserves in CDs, money markets, etc. Safety of
principal has to be the predominant criteria when choosing investment
vehicles. If GOCA wants to do more than that, he suggested something like
Municipal bonds which are extremely low risk, and could earn slightly
better than CDs.


BG:
Follow Up Question: Would it help if we got board approval?


RD:
Yes, but again, anyone at any time who is not happy with the performance
could challenge that we are not being good stewards of the money.


BG:
Follow Up Question:
Do we need to create a Reserve Investment Policy?


RD:
No, there is no requirement to do so. However, if we are serious about
wanting to earn more than CDs, we absolutely should and outline exactly
what level of risk the community is willing to take on, and what percentage
of our reserves we would be willing to invest at the slightly higher level.


F&L:
Good idea to prepare a RIP. Talk to the community to find out if there is
agreement that some risk is worthwhile, and how much are we willing to risk
If comty agrees to a certain amount of risk, would that meet our fiduciary
responsibility, so we wouldn’t be liable?
1. Create RIP
2. Make sure we regularly disclose how our investments are doing and how
invested. As long as we keep communication open and transparent, would
that be enough? Quarterly reports. (Bonds can go down) Here are
projections of an advisor for a quarter or year. Gives people the
opportunity to say wait, this is not responsible and up to date.
1. We could do a pilot - gain some experience
We’re trying to beat inflation
We’d need a group to work on this
MONKEY: Becky will send this info to Mary King, invite her to a future
meeting




2. Monkey Review - We did not have time for this
* BG will post the reserve study on the important documents page
* BG will check in with Mary about Reserve fund increases for the next four
years. We *might* have to make an adjustment sometime during this 5 year
period. Dependent on Investment Strategy
* BG - completion of tax return
* Mary King will read history of Reserve Investment policy email exchanges
* Becky G. will ask our attorney Rick about any legal information about
RIPs for condos
* Becky G. will ask our attorney for his thoughts about the recent zoning
issues that have come up, and whether there are concerns for GOCA
* Amy will invite Kathy B. to a future meeting to resume the unit rental
lease documentation project
* Sharon will read Debbi’s Master Deed/Bylaws draft
* Everyone should read Sharon’s Unit Modification Form draft before the
next meeting - Amy will distribute in advance of the meeting




3. Bookkeeping Updates
* Documenting Becky Grover’s 5-12-21 conversation with State Farm Insurance
agent Susan Rosales:


#1. All of our existing policies have just been paid.


#2. We’ve added the new value to Katie & Willie’s building, and Susan will
send us an additional bill for the adjustment - it is a trivial amount.


#3. Viruses and Great Oak. Our policy has always excluded covering any
medical associated with any virus. However, after confirming with the
underwriter, it is interesting to note that if someone were to sue Great
Oak, claiming that we were responsible for their getting sick, that our
policy DOES cover our legal fees. It just won’t pay anything to the person
if we lose the case. And, she noted, she’s never even had this happen
because it would be almost impossible to prove where someone got a virus
from.


#4. We’ve added an endorsement known as the Replacement Cost Endorsement
for a grand total of $10.00 per year. With the current skyrocketing costs
of buildings supplies, this ensures that we are protected if we need to
make any claims this year. It also seems good to continue this into the
future.


#5. Wood Chipper. This was an inquiry from the Ground committee (please
nobody panic, we are just doing research at this time to see if we want to
purchase one!) Right now, our existing State Farm policy would NOT cover
any medical expenses if someone was injured while using one, but similar to
the virus coverage mentioned above, our legal fees would be. The next
thing I have to do is contact Goodman Venegas to see if our Volunteer
Worker policy with Philadelphia has any exclusions around wood chippers.
MONKEY: Becky will let everyone know once she has an answer to the
question of whether our Volunteer Worker policy with Philadelphia has any
exclusions around wood chippers..


#6 Overall, she said we are in great shape insurance wise - as long as we
make sure to check with the other policy about the wood chipper. And other
than adding that 1 endorsement, nothing else is recommended at this time.


* Arrears - a household has caught up. 2 households are one month behind.

4. Ongoing Business
* Discuss Unit Modification Agreements draft (Sharon) - Some people hadn’t
had time to read this before the meeting, so we tabled it for the next
meeting.
* Master Deed/Bylaws update check-in (Debbi) - no news
* F&L Cooler Doc - finish reading through doc together, next step is to
prioritize - no time today


5. Next meeting: Wednesday, June 23
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