By Stephanie Allen
Published in the August 2008 edition of The Nevada Lawyer
"As lawyers, it is our professional responsibility to serve the public through pro bono work and through legal organizations or associations such as the State Bar of Nevada."
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By Leslie Godfrey
Published in the August 2008 edition of Communiqué, the official publication of the Clark County Bar Association
Common interest communities or homeowners associations have become increasingly popular as Nevada’s population grows. They are designed with the goal of organizing a neighborhood community and preserving property values. Municipal governments have taken advantage of these organizations, handing over the significant responsibility of maintaining and repairing the community infrastructure. This often includes security lighting and gates, sewer, road and sidewalk paving, landscaping, fencing, block walls, and other vital components of a neighborhood. Many communities have fallen short of the necessary funds to uphold this responsibility, and as a result, Nevada Revised Statutes Chapter 116 (Chapter 116) was amended in 2005 to regulate how a community funds its infrastructure improvement and repair reserve.
Mandatory funding required
Since 2005, common interest communities have been required to obtain a reserve study to project the repair, replacement and restoration costs of the major components of the community’s common elements. NRS 116.31152(1). Further, Chapter 116 places an affirmative obligation upon common interest communities to calculate and levy assessments necessary to fund the reserve. The community may adopt a funding plan “that is designed to allocate the costs for repair, replacement and restoration of the major components of the common elements over a period of years if the funding plan is designed in an actuarially sound manner which will ensure that sufficient money is available when the repair, replacement, and restoration of the major components of the common elements are necessary.” NRS 116.3115(2).
Statutory conflict with a community’s governing documents
Conflict arises when a community’s governing documents effectively prevent the funding of the reserve plans. One specific example includes a community in which the governing documents provided that the Board of Directors must obtain two-thirds majority approval of homeowners before the homeowner assessment may be increased by more than 10 percent in any given year. Further, the same governing documents provided that “any special assessment for capital improvements to the common elements must be voted on by membership.” This language became a problem for one community when the reserve required a greater than 10% increase in the community’s assessment, and the community could not obtain approval of two-thirds of the homeowners.
The legislature likely intended to resolve this problem when it enacted NRS 116.1206. It states that “any provision contained in a declaration, bylaw or other governing document of a common-interest community that violates the provisions of this chapter shall be deemed to conform with those provisions by operation of law, and any such declaration, bylaw or other governing document is not required to be amended to conform to those provisions.” NRS 116.1206. In addition, the Bureau of the Legislative Counsel issued a letter in 2007 confirming the legislature’s intent. In that letter, the Bureau states:
An association has the mandatory statutory duty to fund adequately its reserves, to include in its annual budget a statement concerning its reserves and whether it will be necessary to impose any special assessments and to review its study of the reserves on an annual basis. . . . Any provision in the governing documents of a common interest community that conflicts with a statute is illegal, invalid, unenforceable and void and is deemed by operation of law to conform to the superseding statutory requirement. . . . The executive board of an association may, without an affirmative vote of the units’ owners, impose an assessment to fund the reserves of the association despite the fact that the governing documents of the association require an affirmative vote of the units’ owners to impose such an assessment.
The Bureau relied on several major principles of statutory construction in arriving at its conclusion. First, the Bureau examined the plain language of the statute. Moore v. State, 117 Nev. 659, 661 (2001) (citing Anthony Lee R., a minor v. State, 113 Nev. 1406, 1414 (1997). “When a statute is clear and unambiguous, we must apply the plain and ordinary meaning of the language as written, unless such a meaning violates the spirit of the act or leads to an absurd or unreasonable result.” The Bureau notes that NRS 116.3115 specifically states that a community “shall establish adequate reserves . . . .” “The term ‘shall’ imposes a duty to act and is construed as mandatory unless the statute demands a different construction.” Ewing v. Fahey, 86 Nev. 604, 607 (1970). See also NRS 0.025(1)(d). The Bureau thus concluded that associations are mandated by the plain language of the statute to fund a reserve. The Bureau also noted that NRS 116.1206 “implicitly recognizes that when a conflict arises” between a provision of a community’s governing documents and a statutory provision, “the statutory provision controls.” Accordingly, the plain language of these statutes clearly demonstrates that the legislature intends to allow an association to levy special assessments to fund adequate reserves even if the association’s governing documents require a two-thirds majority vote.
Further, the Bureau reasoned that to construe the effect of these statutes otherwise would create a senseless result. “A statute should always be construed to avoid absurd results.” General Motors v. Jackson, 111 Nev. 1026, 1029 (1995); “A statute must be read in light of what is reasonable and not merely what is conceivable.” Ebarb v. State, Dep’t of Motor Vehicles and Public Saftey, 107 Nev. 985, 987 (1991); The Bureau states: “If the legislative mandate to fund a reserve was interpreted to be subordinate to the requirements contained in the governing documents of [an association] . . . the goals and purposes for which the statute was enacted would be rendered wholly nugatory if the units’ owners refused to vote in favor of the assessment.” If the statute were interpreted allowing homeowners to vote down additional assessments necessary to fund a reserve, that interpretation would defeat, rather than promote the statutes’ purpose and would therefore constitute an unreasonable and absurd result.
Opponents’ argument
Nonetheless, homeowners resisting an assessment increase have successfully argued that NRS 116.3115(2) is silent as to whether a community is required to allow their homeowners to vote, and therefore, the mandate to fund a reserve and an association’s voting requirement are not mutually exclusive. Arbitrator Dee Newell for the Office of the Ombudsman for Common Interest Communities ruled in July 2007 that “[c]lear and concise language [of the statute] does not extend to a particular method or plan that must be used to establish ‘adequate reserves.’ That is…, the Statutes do not deny other means (than the Board’s Special Assessment) to adequately fund the legally mandated monetary reserve. There simply is no language on how such reserves are to be funded.” See the Decision of Arbitrator Dee Newell, In Re: NRED Control No. 7-60. The Arbitrator pointed out that each relevant statute refers to the “Association” in mandating adequate reserves. She reasoned that homeowners comprise the “Association” and accordingly, they “should have some type of input in rendering adequate reserve plans.” An association’s executive board must work in tandem with the homeowners in rendering a method to comply with statutes requiring reserve funding, while at the same time meeting the voting requirements of the community’s governing documents.
This decision places common interest communities in a very awkward position. Essentially, if an increase greater than 10 percent is necessary in any given year to fund the reserve and the Board of Directors cannot obtain a two-thirds majority approval of homeowners, then it cannot properly fund its reserve. In addition to the risk associated with obvious safety risks of failing infrastructure, the Board of Directors are open to statutory repercussions for a failure to fund the reserve. Specifically, a fine may be levied against the association for failure to adequately fund the reserve. NRS 116.785(c). Ironically, such a fine would be paid through the homeowner assessment, which may require an increase of 10 percent or more. This begs the question: could the homeowners simply refuse to give a two-thirds majority approval to pay the state fine?
Arbitrator Newell clarified her opinion in Memorandum of Clarification dated August 14, 2007. Instead of requiring a full two-thirds majority as required by the association’s governing documents, she modified her opinion holding that the Association was only required to obtain a two-thirds majority of those homeowners who actually cast a vote. While this provides equitable assistance to an association attempting to obtain enough votes to fund their reserve, it highlights the impossible conundrum entwining Chapter 116 and voting requirements in communities’ governing documents.
Statutory amendment and veto
Assembly Bill 396 was introduced during 2007’s 74th Legislative Session. The bill included language amending NRS 116.3115(2) to directly invalidate any voting provision in an association’s governing documents that would impede the funding of a reserve. See Assembly Bill 396 First Conference Committee Amendment CA19, § 22(b).
However, AB 396 was vetoed by Governor Jim Gibbons. In his June 15, 2007 letter to the Secretary of State, the Governor states “[s]ome aspects of this bill represent good public policy. Other aspects, however, could have unintended and unanticipated impacts . . . including the possibility of increased assessments and the possibility of dramatic changes to common-areas without an opportunity for homeowners to participate.”
Current practice recommendations
Practically speaking, the present state of the law obliges common interest communities to fund their reserve while upholding any voting requirements within their governing documents. If the reserve requires a significant increase in the homeowner assessments, the Board of Directors must engage in a campaign to educate their homeowners. Then the Board of Directors must convince the homeowners that their method of funding the reserve is appropriate. An attorney advising an association under the current state of the law should assist the association in clearly defining for the homeowners the statutory responsibility to fund the reserve, the process of assessing the condition and lifespan of the community infrastructure, the necessary financial investment to properly fund the reserve, and the possible repercussions if the reserve is not funded. If a two-thirds majority approval is not obtained, the Board should provide different options to their homeowners.
However, changes to Chapter 116 addressing this conflict are expected in the next legislative session. Hopefully, new law will set forth clear procedures to balance homeowners’ input with the community’s responsibility to preserve community infrastructure in good condition.
Leslie Godfrey is an associate with the law firm of Kummer Kaempfer Bonner Renshaw & Ferrario. Ms. Godfrey practices primarily in the area of business and commercial litigation.
By Jim Smyth
Published in the August 2008 edition of Communiqué, the official publication of the Clark County Bar Association
One of the enjoyable parts of representing commercial landlords is that the eviction remedies available in NRS 40.253 and 40.300 actually work to quickly achieve the results that are desired by landlords. That is not the case in too many other areas of civil litigation. Unfortunately, however, the landlord-tenant provisions of NRS Chapter 40 contain somewhat archaic terminology that can be confusing. That confusion can lead to procedural defenses that slow down the eviction process and lead to frustrated and disappointed clients. The purpose of this article is to clarify some of the commonly confused commercial landlord-tenant issues. (Residential landlord-tenant issues are mainly covered in NRS Chapter 118A and will not be discussed in this article).
The relationship between the lease and chapter 40 remedies
The terms of the lease govern and control the rights and remedies of a landlord and tenant. See Anvui, LLC v. G.L. Dragon, LLC, 123 Nev. 25, 163 P.3d 405 (2007)(holding ambiguity in underlying lease terms created legal defense to summary eviction). The only time the provisions of NRS Chapter 40 come into play is when a landlord desires to evict a tenant. In those cases, a landlord must utilize and follow the procedures in NRS Chapter 40. See Gasser v. Jet Craft, Ltd., 87 Nev. 376, 487 P.2d 346 (1971)(service of proper notice is jurisdictional requirement for eviction for failure to pay rent under NRS Chapter 40). It is not improper for a landlord to first send the notice required under the default provisions of the lease prior to serving the NRS Chapter 40 notices that are required to start the eviction process. Lorenz v. Beltio, Ltd., 114 Nev. 795, 963 P.2d 488 (1998)(note also that NRS 40.252 prohibits terms in leases that shorten the notice periods specified in NRS Chapter 40).
The two most common types of notices
NRS Chapter 40 provides several different types of notices that are utilized based upon the nature of the particular lease default or dispute. However, the majority of commercial landlord-tenant matters are either defaults in the payment of rent (NRS 40.2512) or failures to perform conditions of the lease (NRS 40.2516).
Summary eviction and unlawful detainer
There are two separate eviction remedies. The first, which is only available where the default is the failure to pay rent, is the summary eviction remedy provided in NRS 40.253. The other eviction remedy, utilized for all other defaults, is the verified complaint for unlawful detainer and writ of restitution provided in NRS 40.300.
Distinction between monetary defaults and defaults in the payment of rent
Not every monetary default is a failure to pay rent. For example, the monetary default may be for failure to pay common area maintenance charges or taxes. Such items may constitute rent only if the underlying lease provides that such charges and costs are additional rental. Friedman on Leases § 5:1.1, (2006)(internal citation omitted). This is an important distinction because the summary eviction remedy is not available where default is a monetary default that would not constitute the failure to pay “rent”. See 118.090 (defines “rent”) and NRS 40.253(9) (distinguishes rent from “collection fees, attorney’s fees or other costs other than rent….”). If the monetary default is not a failure to pay rent, the appropriate remedy is the unlawful detainer remedy specified in NRS 40.300.
Claims for contract damages for post-eviction rent
NRS 40.253, the statute providing the supplemental remedy of summary eviction, does not discuss whether an order for summary eviction releases the tenant from claims for contract damages for post-eviction rent. Nevertheless, some attorneys argue that an eviction does release a tenant from liability for such damages. They argue that their position is supported by the Supreme Court of Nevada’s dicta statement in Lynn v. Ingalls, 100 Nev. 115, 676 P.2d 797 (1984), that a landlord may “elect to declare the lease terminated and seek an unlawful detainer action to oust the defaulting tenant. See NRS 40.253.” They also point to NRS 40.360(1), which provides that a judgment for unlawful detainer “shall also declare the forfeiture of such lease or agreement.”
Unfortunately, the Supreme Court of Nevada has not determined whether a landlord that obtains a summary eviction pursuant to NRS 40.253 or a judgment for restitution pursuant to NRS 40.360(1) loses its claim against the tenant for contract damages for post-eviction rent. Courts are now less unfriendly to the idea of enforcing savings clauses that reserve the rights of a landlord to contract damages for post-eviction rent. See Friedman on Leases, § 16:3.3 (2006); Hi Kai Investment, Ltd. v. Aloha Futons, Beds & Waterbeds, Inc., 929 P.2d 88 (Haw.1996); and Circuit City Stores, Inc. v. Rockville Pike Joint Venture Limited Partnership, 829 A.2d 976 (Md.2003). Therefore, if there is a well-drafted savings clause in the lease, the landlord has a strong argument that it is entitled to contract damages for post-eviction rent. Nevertheless, the landlord should understand this issue prior to utilizing the NRS Chapter 40 eviction remedies.
Five-day notice to pay rent or quit jurisdiction
If the default is a default in the payment of rent, the notice must conform to the requirements of NRS 40.253(3). A link to a good sample Five-Day Notice to Pay Rent or Quit may be found on the Las Vegas Township Justice Court website, http://www.clarkcountycourts.us/lvjc/court-forms.html. NRS 4.370(1)(g) provides that the jurisdiction of the justice courts is limited to those landlord-tenant matters where the damages claimed are less than $10,000.00. Therefore, if the amount of delinquent rent is in excess of $10,000.00, the district court would have jurisdiction. Keep in mind, however, that most commercial landlord-tenant matters will exceed $10,000.00 and, therefore, will be within the jurisdiction of the district court.
Five-day notice to perform covenant or surrender
NRS 40.2516 provides that a tenant is guilty of an unlawful detainer if it remains in possession after it receives and fails for five days after service to comply with a written notice requiring the performance of a condition or covenant of the lease. The statute does not contain a form, but it does specify the required language. In common practice, the NRS 40.2516 notice looks much the same as the NRS 40.2512 Five-Day Notice to Pay Rent or Quit. One important distinction is that the Five-Day Notice to Perform Covenant or Surrender will not specify that the tenant may file a response in the court. There is no need for such a response because the landlord is not entitled to seek a summary eviction under NRS 40.253 when the default is not for the failure to pay rent. Rather, if the tenant does not comply with the notice, the landlord will have to file a verified complaint for unlawful detainer and motion to seek a writ of restitution pursuant to NRS 40.300.
Service of the notice on the tenant, subtenants, and any guarantors
The notice must be served in accordance with NRS 40.280. The notice should include proof of service (see the Five-Day Notice form referenced above) and should be served upon any guarantors of the lease in order to avoid their subsequent procedural defenses.
The tenant’s contesting affidavit
Pursuant to NRS 40.253(3), a tenant may file an affidavit “stating that he has tendered payment or is not in default in the payment of rent” with the court having jurisdiction over the matter. If the tenant files an affidavit contesting the Five-Day Pay or Quit Notice, the court shall, after service of notice upon both parties, hold a hearing “to determine the truthfulness and sufficiency” of the affidavit. If the court determines there is no legal defense, it may issue a summary order for removal of the tenant or an order providing the nonadmittance of the tenant.” NRS 40.253(6). If the court does find there is a legal defense, the request for summary eviction will be denied, but the landlord may continue with an action for unlawful detainer. NRS 40.253(6).
Affidavit of complaint for summary eviction
If the tenant does not file a contesting affidavit or comply with the Five-Day Pay or Quit Notice, the landlord will then file an Affidavit of Complaint for Summary Eviction. The requirements for the form of affidavit of complaint are set forth in NRS 40.253(5). Generally, the form must set forth specific information such as the term of the lease, the delinquent amount, the length of time the tenant has gone without paying, and the amount of rent claimed. NRS 40.253(5). A sample affidavit of complaint for summary eviction can be found on the Las Vegas Township Justice Court website, http://www.clarkcountycourts.us/lvjc/court-forms.html (but keep in mind the jurisdictional issues discussed above). Also, the landlord will include claims for post-eviction damages.
When they are understood, the eviction remedies contained in NRS 40.253 and 40.300 may be utilized to help landlords quickly achieve desired results. Those quick results will help you enjoy representing commercial landlords.
Jim Smyth is a partner at Kummer Kaempfer Bonner Renshaw and Ferrario practicing in the areas of construction, commercial litigation and landlord-tenant law. He may be reached via email at jsmyth@kkbrf.com or via telephone at (702) 792-7000.
MEDIA ADVISORY
For release August 15, 2008
Contact: Diane Lancaster Gibes, Kummer Kaempfer Bonner Renshaw & Ferrario,
702-792-7024 or dgibes@kkbrf.com
Nevada Utility and Energy Lawyer Kathleen Drakulich To Provide
Luncheon Address at UNLV Renewable Energy Symposium on Aug. 20
Energizing Renewable Technology: Policy, Permitting and Politics
WHAT: Longtime Nevada utility and energy attorney Kathleen Drakulich will be the luncheon speaker at the 2008 UNLV Renewable Energy Symposium in Las Vegas on August 20 presenting on the topic Energizing Renewable Technology: Policy, Permitting and Politics.
Drawing on 12 years of experience as a utility lawyer for Nevada Power and Sierra Pacific Resources and currently working with clients worldwide to bring renewable energy projects to the U.S. market, Drakulich will discuss the regulatory and political landscape and how it intersects with the many facets, processes and stakeholders involved in moving forward a renewable energy project from the early stages of development to a fully operational power generation facility.
WHO: Kathleen Drakulich works with local, national and international entities that are developing renewable energy facilities including biomass, biogas, hydroelectric, geothermal, wind and solar resources. She is experienced in all aspects of the construction of utility facilities including the negotiation of contracts for the purchase and supply of gas, water, energy and renewable energy. She provides counsel on a wide range of utility matters including electric rate case applications, resource plans filings, deferred energy filings, environmental permitting and line extensions. (Expanded biography for Drakulich is available on page two.)
WHEN: August 20, 12:15 p.m. to 1:15 p.m.
WHERE: The Stan Fulton/IGI Building located on the UNLV campus at the corner of Flamingo
Road and Swenson Road.
PARKING: Media may park in the lots surrounding the Stan Fulton/IGI Building and the
nearby Boys and Girls Club. Overflow parking will also be available in the garage off of Cottage Grove Avenue, adjacent the Foundation Building. For a map, please visit http://osep.unlv.edu/Esy2008/map2.jpg
Drakulich Luncheon Speaker/2
SPECIAL INSTRUCTIONS FOR MEDIA: The conference is sold-out, however, there are still media passes available. Please RSVP to Diane Gibes at 702.792.7024 or Megan Hutsell of UNLV at 895.5883 to register for the luncheon. If you would like to schedule an interview with Kathleen, please contact Diane who will help with the arrangements. Please advise of any special technical requirements.
CONFERENCE BACKGROUND: In its second year, the symposium (http://osep.unlv.edu/Esy2008/) is presented by UNLV’s Office of Strategic Energy Programs and co-sponsored by the Division of Research and Graduate Studies. Focusing on renewable energy production in Nevada, the U.S. Southwest and renewable research projects nationwide, the symposium is expected to again draw researchers, educators, students, policy makers, the private sector, and general public for a full day of presentations and discussions on renewable energy sources.
DRAKULICH BACKGROUND: Kathleen M. Drakulich is a partner of the statewide law firm of Kummer Kaempfer Bonner Renshaw & Ferrario (www.kkbrf.com). She has been practicing law in excess of 20 years. Immediately prior to coming to the firm, Drakulich served as assistant general counsel for nearly 12 years for Sierra Pacific Power Company and Nevada Power Company, Nevada’s two largest utility companies. With more than 15 years in the utility industry, Ms. Drakulich counsels clients on matters related to the procurement, supply, pricing, permitting and construction of facilities related to energy, renewable energy, gas and water.
Drakulich currently represents clients that require legal support on all aspects of the construction of utility facilities including the negotiation of contracts for the purchase and supply of gas, water, energy and renewable energy. She provides counsel on a wide range of utility matters including electric rate case applications, resource plans filings, deferred energy filings, environmental permitting and line extensions. Her clients also include entities seeking assistance with transactions that involve water service and water rights and local, national and international entities that are developing renewable energy facilities including biomass, biogas, hydroelectric, geothermal and solar resources. She also represents entities in Nevada seeking permits from local, state and federal governmental entities and counsels the firm’s legislative team at each legislative session on water, gas and energy issues.
As associate general counsel for Sierra Pacific Power Company and Nevada Power Company from 1993 through 2004, Drakulich served as lead counsel for the utilities’ general rate cases, large customer open access applications, environmental permitting applications, renewable energy initiatives and a large variety of other regulatory matters. In addition, Drakulich served as lead in-house legislative counsel for both utilities and was actively involved in the 1999, 2001 and 2003 Nevada legislative sessions. Drakulich is a member of the Board of Directors, Audit and Finance Committees for Renown Health. She also is on the Board of Directors for their South Meadows facility. Drakulich is a member of the Clark County and Washoe County Bar Associations and the State Bar of Nevada.
Keep on top of zoning issues that affect you by attending the National Business Institute’s CLE seminar on October 16, 2008 presented by attorneys Stephanie H. Allen, Thoams D. Amick, Tony Celeste, Tabitha Fiddyment, Mark H. Fiorentino, Robert J. Gronauer, Christopher L. Kaempfer, Jennifer Lazovich, Russell M. Rowe and Elizabeth Sorokac . The seminar will be held at the Gold Coast, 4000 W. Flamingo Road, Las Vegas, Nevada 89103.
The State Bar of Nevada, Gaming Law Section will be presenting the 2008 Gaming Law Conference on November 7, 2008 at the Mandalay Bay Resort & Casino. SEC Hot Topics for Gaming Companies - 2008 will be presented by Michael J. Bonner, Manager Partner.
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