Chapter 11 RECORDS OF COMMON INTEREST COMMUNITIES

• Jurisdiction: North Carolina

11 RECORDS OF COMMON INTEREST COMMUNITIES

§ 11.01. In General

Homeowners associations generate lots of paper and produce abundant records of various meetings and transactions. Proxies, ballots, minutes of membership meetings, minutes of board meetings, budgets, correspondence to members, correspondence between board members, vendor contracts, bank statements, legal documents to name a few. What records must be kept, how these documents are stored, how long these documents must be stored, who has access to them and member's remedies for an association that fails to produce records, are all common questions that arise on a daily basis with associations. Contrary to what some people think, these associations are private entities and, consequently, not subject to North Carolina public records laws.¹ The fact that these associations are not subject to the same statutes as public entities does not mean that association recordkeeping is not heavily regulated by statute. Like most other aspects of these associations, their record retention and disclosure requirements are governed by a combination of the Nonprofit Act, PCA, Condominium Act and even the Unit Ownership Act.

Proper record retention for an association is important for a number of reasons. First, it is the law in North Carolina. There are a number of statutes that govern what records must be kept, how long they have to be kept and who has access to them. All associations should endeavor to comply with all applicable statutes with respect to record retention and disclosure. The law is grounded, in part, on preservation and disclosure of records so that members can make informed decisions with respect to the management of an organization they are a member.² Further, many associations have provisions in their articles, bylaws and other governing documents that go beyond the minimum standards in these statutes. A knowing violation of the association's governing documents with respect to records retention could subject the secretary or even the board to liability. Second, proper record retention allows the association to recall events that occurred before board members resigned, before owners sold their lots and events that happened three annual meetings ago. Recollection of these acts and events of the association may be crucial in defending a lawsuit, prosecuting claims of the association or verifying results of elections or amendments to legal documents. In homeowners associations and condominium associations in particular, where the makeup of the membership is constantly changing, an association that has a good record retention policy can go a long way to ensuring the necessary continuity in association operations. Third, proper record keeping allows the association to judge its current performance with its past performance. Past budgets serve as a baseline for future budgets and give boards the ability to see how fast expenses are rising, where expenses could be trimmed and how association operations could be run more efficiently.³ Vendor contracts from previous years allow the association to make informed decisions in obtaining competitive bids and negotiating contracts necessary to fulfill the association's maintenance responsibilities in future years.

Failure to keep accurate and complete records of association actions, at best, leads to inefficient association operations and, worst, lawsuits against the association or its board members for failure to keep the records in the first place. Consequently, an association is encouraged to adopt a formal record retention policy that, at a minimum, complies with all applicable North Carolina statutes and its own governing documents. In some instances, it is advisable to go above and beyond what the statutes require with respect to recordkeeping. Such policy should indicate fundamentally, what records are kept and who is responsible for keeping them.

§ 11.02. Records That Must be Kept

There are a number of records that associations must keep under the PCA, Condominium Act or Nonprofit Act. Additionally, many documents are generated that are not necessarily required to be kept by statute. These documents may or may not be kept depending on the association's own record retention policy. With respect to documents that must be maintained by statute, the association has no discretion on whether to keep these records, failure to do so is violation of the law.⁴

If an association is incorporated, it must comply with the record requirements under the Nonprofit Act. The Nonprofit Corporation Act specifies that a nonprofit corporation keep records of minutes of all meetings of its members and board of directors, a record of all actions taken by the members or directors without a meeting, and a record of all actions taken by committees of the board of directors in place of the board of directors on behalf of the corporation.⁵ Although action by the membership without a meeting is exceptionally rare in all but the smallest homeowners association, action without a board meeting is common. The signed "written consents" must be kept by the association as an official corporate record.⁶ Further, almost all associations have architectural committees. When such committees meet to consider an application, a record of the action taken by the committee must also be kept as an official corporate record. Notes, drawings, schematics and correspondence between committee members need not be kept; however, the record of the final action taken by the committee should be kept.⁷ This is usually in the form of a marking on the application itself indicating the committee met and accepted or rejected the application, or perhaps a separate, free-standing letter or document indicating what the decision of the committee was. In either case, these are official records of the association that must be kept.

Additionally, the Nonprofit Act requires incorporated associations to maintain "appropriate accounting records."⁸ The Nonprofit Act does not specify exactly what "appropriate accounting records" are, but both the PCA and the Condominium Act do. Both the PCA and the Condominium Act require an association to keep financial records sufficiently detailed to enable the association to comply with the PCA and Condominium Act.⁹ Both statutes also require associations to keep accurate records of all cash receipts and expenditures and all assets and liabilities.¹⁰ Further, both the PCA and Condominium Act require that associations keep annual income and expense statements and balance sheets of the association's finances.¹¹ These requirements of the PCA and Condominium Act are applicable to all planned communities and condominiums regardless of when formed.¹²

A nonprofit incorporated association must also keep a copy of the following records: (1) its articles of incorporation or restated articles of incorporation and all amendments to them currently in effect; (2) its bylaws or restated bylaws and all amendments to them currently in effect; (3) resolutions adopted by its members or board of directors relating to the number or classification of directors or to the characteristics, qualifications, rights, limitations, and obligations of members or any class or category of members; (4) the minutes of all membership meetings, and records of all actions taken by the members without a meeting; (5) all written communications to members generally; and (6) a list of the names and business or home addresses of its current directors and officers.¹³

The requirement to keep communications to members "generally" often confuses board members and managers. The requirement to keep "all written communications to members generally" does not mean all letters sent to homeowners. Rather, it means all letters that were sent to all homeowners. For example, letters to specific individuals regarding delinquencies in assessments or covenant violations for a particular lot would not have to be kept under the statute.¹⁴ However, a form letter that was sent to all owners giving all owners notice of a meeting or some other event of common interest to all owners is required to be kept by statute. The requirement for the association to keep its articles of incorporation and all amendments to them is simple because they are (or should be) recorded with the Secretary of State. However, an association's obligation to keep its bylaws or restated bylaws can trip an association up since most associations do not record their bylaws.¹⁵ Since most corporate procedures are governed by the bylaws, however, the association should have ready access to its bylaws and all amended bylaws. The bylaws usually are the source of answers to proxy, ballot, notice, quorum, voting and meeting related questions. A resolution relating to the rights, limitations, and obligations of members may include, without limitation, a board's limitations on members attending meetings, or their use of the common elements.¹⁶

All incorporated associations must also keep a copy of the membership list. This is difficult task for an association because the membership role is constantly changing with the sale of lots and units. It is imperative that the board or the property management company constantly keep up with the sale of lots or units so that it may comply with the requirement to maintain a copy of the membership lists.¹⁷ Under the Nonprofit Act, the association or its agent has to maintain a record of its members, in a form that permits preparation of a list of the names and addresses of all members, in alphabetical order showing the number of votes each member is entitled to cast.¹⁸ For managed associations, therefore, it is acceptable for the property manager to maintain this list as the "agent" of the association. For planned communities, the list will likely reflect one vote per lot, whereas, for a condominium association, the members' votes may be levered to their interest in the common elements, which may all be...