Legal Foundations of Ownership In Las Mañanitas

ByWayne Willis

This post may be the most important thing I have ever written about Las Mañanitas.  I'm writing this personally; reasonable minds can vary about my suggestions.

I strongly recommend you read it closely.  Here’s a summary of why you should:

  • Our current legal foundation documents[1] are inefficient, sometimes ambiguous and even contradictory on occasion. Bottom line: Our legal foundations are complex and hard to comply with in their current condition.
  • This inefficiency adds unnecessary costs to our budget – you pay several hundred dollars per year for that inefficiency.
  • This inefficiency also adds time and complexity to Vigilance Committee and Board work – which burdens volunteers’ time and reduces their willingness to serve.
  • The ambiguity creates different kinds of problems … from an Owner’s inability to get a clear, timely answers to legitimate questions,[2]  and even to conflicts that could escalate to litigation[3] unnecessarily. It also burdens decision-making so much that Boards are sometimes reluctant to take any action.[4]
  • I’ll share some of the “outright contradictions” orally as I don’t want to publicize them. Trust me: We have three Regime Declarations that are different from each other in some subtle yet important respects.  And they all were written before a major 2016 reform of the BCS Condominium Law.  It’s no surprise they sometimes conflict internally.
  • Right now, we are not in full compliance with the requirements of the 2016 Condominium Law. BTW, we are not alone – many of our neighboring condos are dealing with the same sorts of technical “loose ends” I’m talking about.  Below I report on how one of them cured their issue with a regime-level revision (and a 75% vote.)  We may need to do the same.

We are making progress toward getting into compliance, but the inefficiencies and ambiguities referred to above make that process very slow and perhaps impossible to achieve completely without a revision to our Regime Declarations.

I worry that this situation is a time bomb because Mexico appears to be tightening regulatory compliance.[5]  I don’t want Las Mañanitas to be unprepared and non-compliant with the 2016 BCS Condominium law when and if the government ramps up enforcement of that law or some lawsuit exposes an avoidable vulnerability.

I’ll declare my personal bias here.  I don’t like loose ends like this.  In my management consulting career, I’ve seen companies encounter unexpected disasters and expensive consequences that were completely avoidable with better foundational documents.  Getting all your “ducks in a row” not only reduces unnecessary delay and expense when you want to do something (or defend yourself), but it also gives you a confidence and sure-footedness when dealing with other parties.  Ultimately, I personally believe that having Las Mañanitas be in full legal compliance – and on a sound financial footing – will make it even more desirable and valuable.

My multi-year goal as President was to complete the prior Boards’ work toward getting into full compliance.[6]    I have huge respect for what they accomplished as of 2021.  We all owe them gratitude … and a commitment to complete the work they started.

There are four immediate implications to the points I’m making:

  1. Dues
  2. Reserves Funds
  3. Documentation Completion
  4. Governance in the Future

Dues

(This discussion relies on the background above.)  It took the Board almost 18 months to get complete copies of the Regime Declarations for all three Phases, in both Spanish and English versions.  It was quite a journey.  Until the summer of 2023, the Board and I could only see poorly translated snippets of our Regime Declarations.[7]

Now, armed with complete and legally vetted translations of the Regime Declarations, the Board researched the authority for allocating dues.  The legally correct way to allocate dues (or special assessments when we need them) is pro-rata by “indiviso” percentage.  (Your “indiviso” percentage is in your deed as well as the Regime Declaration.)

Prior Assemblies approved dues, allocating them using the indivisos for residential units only -- not allocating them using indivisos for “units and garages” as required in the Regime Declarations.  They raised revenues for garage maintenance separately through periodic special assessments charged only to garage Owners.  While this is a reasonable way to allocate dues, it is not what is required by the Regime Declarations.

I do not fault the prior Assemblies or HOAs for doing this.  It was a fair and totally reasonable way to allocate fees when you don’t have good access to the legal source documents.  However, it’s not what is legally required.  Our HOA counsel recommends that we comply with the law by allocating dues across “units and garages” (the “new method”) instead of across “units only” (the “old method”).   The proposed 2023 Dues utilizes the new method.

How much does it matter?

I looked at the dollar impact of the change.  For most Owners with one Unit and one garage, the difference in allocation methods is quite small.  As expected, those with no garage will pay less; those with more than one garage will pay more.  How big is the change?

The dollar difference that Owners face between the old method and the new method is zero in the aggregate.  As said, though, some Owners face higher fees and some lower -- and the variance, plus or minus, is modest -- an average of 4.3 percent lower or higher depending on your situation with garages and the indivisos in your deed.

Reserves

Because the garage owners were assessed separately (by way of periodic special assessments), prior administrations maintained two reserve funds per Phase – one for the residential building and one for the garages in that Phase.  Again, this was not unreasonable.  But it is also non-compliant with the Regime Declaration.  The Regime Declarations define one reserve, not two.  Accordingly, we should be merging the two reserve funds in each Phase into one fund for that Phase, effective at EOY.   I’ll discuss this at the Assembly.

The motion offered at the Assembly will address three things:  approval of a) the actual 2024 dues, b) the new dues allocation method, and c) the consolidation of the two reserve funds in each Phase into one for that Phase.

Documentation Completion

In addition to my observation about legal documentation being “inefficient, sometimes ambiguous, even contradictory,” there’s more.  Sometimes important documents are not yet easily accessible by Owners at all. There will be a motion at the 2023 Assembly to form a blue-ribbon committee of Owners (a “Documentation Committee”) to review all existing documents, including those in “final draft” form and not yet published, and create clarifying restatements of existing policies and suggested changes for the Assembly to consider.

The Committee will define its own scope and work product, but I’m going to urge them to:

  1. Restate and clarify ALL rules, procedures, regulations, guidelines, required forms, checklists, appendices, etc., in a single document that I’ll call an “Owners’ Manual” for now. The objective is to have one place for Owners to find any written materials they need.  Note: this Owners’ Manual will rely mostly on the existing Regime Declarations and Administrative Rules and will not have any legal validity until adopted by the Assembly, preferably in 2024.
  2. Keep clarifications and suggested changes to a minimum for the first year. Basically, just getting all the existing policies, etc., published and restated without material change will be a BIG JOB.  When that is done and in a single document, we can decide what more to do later.
  3. While compiling, clarifying and restating things, the Committee will notice things that need modest updating or changing, e.g., parking. A few of the changes the Committee will list will likely be non-controversial.  The Vigilance Committees and Board may want to add such non-controversial changes for Assembly acceptance in 2024, per #1 above.  Any “update or change” that would be controversial should simply remain listed for future consideration, with or without Documentation Committee comment.
  4. Shortly after the 2016 BCS Condominium Law, one of our neighboring condominiums created a “blue ribbon owners’ committee” to review the new law, their Regime Declaration and their Administrator’s Rules. That committee then advocated for two motions – one for the HOA, which could be adopted by a simple majority of those attending the Assembly, and the other which had to be ratified at the regime level by a 75% supermajority of ALL Owners in the regime.  By keeping the regime-level changes to those really required and/or relatively uncontroversial, they ultimately were able to approve forty (40) changes to their Regime Declaration.  The President of that HOA told me that things are much improved and they are in compliance with BCS law, much to everyone’s relief.  The process took two and a half years, start to finish.  It is a half marathon, not a sprint.

Governance In the Future

One major source of inefficiency and confusion is who makes what decision … and what the spending limits are.  Let me give you two examples and then request that the Documentation Committee consider some fixes.

Spending Limits. Based on input from the Vigilance Committee at its July meeting, the HOA sought a proposal from a local landscape architect for a plan to overhaul our irrigation system --with an objective to reduce wasted water (and still adequately water the plants.)   The bid was just under $8,000 USD to do the work, and the projected savings were a minimum of $1,600/month.  That’s a four-month payback period.  In business, there's a technical name for this kind of decision: It’s called a “no-brainer.”

In any other business, the CEO would simply pull the trigger.  Here, because this $8,000 would be “reserves” spending (not operational spending), neither I nor the Board had legal authority to approve it.  Luckily, we established a procedure for this year whereby the Vigilance Committees could approve it.  Otherwise, we’d have to wait for full Assembly approval, wasting many months of potential cost savings.  As it was, it took two weeks to draft the full memo explaining everything and poll the Vigilance Committee members.

Other. The other example was the Board’s decision re: the pickleball court layout.   A number of Owners insist that this is a decision that must be made by the full Assembly.  We’ll talk about this briefly at the 2023 Assembly, but figuring out how to use “representative democracy” to have this kind of decision made by the Board, a special committee and/or the Vigilance Committees strikes me as far preferable to having 106 Owners debate and decide.

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[1]                See 2016 BCS Condominium law, the Regime Declarations page on LasMananitasCondos.com (which links to all three Phases’ Regime Declarations in both Spanish and English) and the Administrator’s Rules

[2]                “Can I add a screen door to my unit?”  Or “what are the requirements for selling my garage from an HOA perspective?”   Or “I’m bringing in a lot of furniture.  Can I bring in a trailer?  Parking?”

[3]                Happily, that hasn’t happened yet, but our neighboring condominiums have had suits.  Generally, if your “ducks are in a row” in terms of CLEAR legal authorities, arguments are less likely.

[4]                I am happy to give you several examples orally.

[5]                In 2020-21 Mexico tightened financial reporting requirements, factura formalities, tax reporting and penalties, RFC requirements (with biometric identification) and anti-money laundering regulations.  They are enforcing those now.  In 2022-23, they tightened Labor Law … and it’s getting enforced now (and likely reformed further next year).  As Mexico modernizes, the anti-corruption reforms will probably continue and the regulatory enforcement will likely tighten.

[6]                For those of you who are new here, the HOA was born of a mutiny in 2011 that the Owners staged against the Developer who built Las Mañanitas.  The Developer fought the ouster and impeded the transition by not handing over documents and interposing delays. Assemblies in the early were sometimes very contentious affairs, with reports of raised voices and much gnashing of teeth.

Hurricane Odile created serious damage (our insurance claim was about $8m) and the HOA negotiated the buyout of the remaining properties owned by the Developer.  Last, the prior HOA Boards created the consolidated Administrator’s Rules in 2021 that clarified many things.  Trust me: those are amazing accomplishments, especially considering that all leaders were volunteers!

[7]           BTW, the term “Regime Declaration” is sometimes referred to by others as “bylaws” or a regime’s “constitution.”  It includes several sections, the most important of which is the “Rules and Regulations” – which govern most things about your use of units, garages and common areas.  US and Canadian condos call Rules and Regulations by a different name -- “Conditions, Covenants and Restrictions” or “CC&R’s.”  My use of the term “Regime Declaration” primarily means the Rules and Regulations.