Does New Law Mean Associations Don’t Have to Hold Annual Meetings?

Since HB 320 passed (see Bill Adopted to Allow Electronic Membership Meetings and Voting in North Carolina Associations), we’ve had questions to the effect of “Do we have to hold annual member meetings anymore?” The thinking seems to be that because the new law allows decisions by “written ballots or electronic voting” that you could use those methods and forego the annual meeting. That is, a written or electronic ballot could be sent out for everything that needs to be handled at the annual meeting and then have no meeting at all.  

Anyone who suggests that the new law means there don’t have to be annual meetings of HOAs or condos has either misread the bill or misunderstood its intent. HB 320 was enacted to make it EASIER for members to participate in their associations, especially during a pandemic—not to remove member participation. That’s clear from several aspects of the law and what it changed (and what it did not change).

First, there’s nothing new about associations making decisions by a written ballot sent to members. That process has existed for many years. The change in HB 320 is that “electronic” voting is now included in the concept of voting outside of a meeting. In other words, the new law has not changed the process for members making decisions outside of a meeting by ballot, other than the type of ballot allowed. To argue that you avoid an annual meeting by sending out a written or electronic ballot would mean that associations NEVER had to hold annual meetings. Such an argument has really no support and would violate statute and governing documents.

Second, both North Carolina law and almost all association bylaws state that there shall be an annual membership meeting. NCGS § 47F-3-108 for planned communities and NCGS § 47C-3-108 for condominiums both state: “A meeting of the association shall be held at least once each year.” The NC Nonprofit Corporation Act also provides in NCGS § 55A-7-1 that “A corporation having members with the right to vote for directors shall hold a meeting of such members annually.” Those statutes have been on the books for years along with the statute allowing for members to make decisions by written ballot, but there has been no argument that annual meetings need not be held. Bylaws almost always have identical language. Unless you want members claiming the board has ignored State law and the bylaws, it is best to hold an annual meeting. Of course, under the new law such a membership meeting could be held either in-person or by remote communications.

So, what can be done by “member action by written ballot or electronic voting without a meeting”?

As noted above, NCGS § 55A-7-08 provides that unless prohibited by the articles of incorporation or the bylaws, “any action that may be taken” at a meeting can be taken by written or electronic voting by following the statute. Focus on the word “action.” Specific actions can be taken without a meeting, whether voting to amend the bylaws, adopting a special assessment, or various other motions that must go to the membership. However, while taking such action by written or electronic ballot will mean the business was accomplished, it will NOT mean that a meeting was held.

Do associations still need to hold an annual meeting?

Yes, but now that meeting can be held either in-person or through virtual means.

What about ratification of the budget?

The statute does not give a clear answer to this question.

As a reminder, planned communities created after January 1, 1999 and all condominiums must follow the statutory budget ratification process. In short, the board must adopt a proposed budget that is sent to all owners with a summary and “a notice of the meeting to consider ratification of the budget, including a statement that the budget may be ratified without a quorum. The executive board shall set a date for a meeting of the lot owners to consider ratification of the budget, such meeting to be held not less than 10 nor more than 60 days after mailing of the summary and notice.” The budget is then ratified unless a majority of ALL votes in the association or any larger vote required in the declaration rejects the budget “at that meeting.”

Budget ratification is a specific item of business that is sometimes done at a special meeting and sometimes as part of the annual meeting. That suggests budget ratification is action “at a meeting” that can be taken by written or electronic voting. The statute does specifically refer to having a “meeting,” but other statutes do as well. For instance, the statutory process for members to remove directors or to order a compilation, review or audit also reference “at a meeting,” but any of those steps could be taken outside of a meeting. In other words, these statutes are badly worded and were not intended to require a meeting for a few specific acts. However, as above with annual meetings, nothing changed in the new statute as to the budget ratification process. To say there is now no need for budget ratification meetings means that there was never a requirement to hold budget ratification meetings, but everyone did. Without question, the best outcome would be for the General Assembly to remove any confusion be deleting references in the statutes to a meeting or by adding language about written or electronic voting for these specific actions.

Even if a budget can be ratified by written or electronic ballot, that may well not be the proper or best course. Why? For one, a meeting–whether electronic or in person–allows members to ask questions about the budget and provides more transparency. Also, based on experiences with written ballots during the pandemic, having a meeting will increase the likelihood that the budget will be ratified. Remember that under the budget ratification process, the budget is ratified unless a majority of the ENTIRE ASSOCIATION rejects the budget. Budgets at meetings are often declared ratified because not more than half of the entire association is present at the meeting. However, if an association only sends an electronic or written ballot to every member of the association with no chance for discussion at a meeting, it is making it very easy for owners to vote “no.” Contrast that to holding a budget ratification meeting, even if just held virtually, where the budget can be discussed, questions answered, and planned expenditures defended. Then, just as at an in-person meeting, if the meeting doesn’t have more than a majority of the entire association in attendance, the budget is declared ratified (because there are not enough participants present to reject the budget). Even if more than a majority of the membership is in attendance, unless a majority of the entire membership rejects the budget, the budget is declared ratified.

In summary, while written ballot or electronic voting can be used in certain instances to adopt specific actions, it was never intended to do away with annual meetings. And whether your budget ratification process is held in person or electronically will depend on the specifics of your particular association.

If you have questions about or need assistance as to this new law, feel free to contact me or another attorney at Law Firm Carolinas. As there are developments on this or other legislative proposals relevant to associations, additional information will be posted.

Corporate LawHOA & Condo Associations