Preamble

• Delaware Governor John Carney orders state beaches as well as vacation rental properties to close amid the COVID-19 pandemic;
• DMF Associates and the Middlesex Beach Association reach a settlement in their ongoing lawsuit;
• the board moves forward with the rental fee proposition, engaging a lawyer to help draft a amendment for a covenant change; and
• Middlesex Beach has a new chairman of the Beach Patrol.

This is a COVID-19 special edition of the monthly update for Thursday, April 30, 2020.

Delaware state of emergency

On March 12, 2020, Delaware Governor John Carney declared a state of emergency amid the coronavirus outbreak. [1]

In a third modification to the Governor's state of emergency, dated March 21, 2020, Carney ordered that all beaches, whether public or private beaches, close until May 15, 2020 or when the crisis abates, whichever is later. The restrictions do not apply to persons using the beach for exercise provided people abided by the social distancing restrictions.

In a fifth modification to the Governor's state of emergency, dated March 22, 2020, Carney ordered Delaware residents to shelter in place.

In a tenth modification to the Governor's state of emergency, dated April 6, 2020, Carney ordered all vacation rentals to close until May 15, 2020 or when the crisis abates, whichever is later.

Carney also ordered a number of travel restrictions in and out of the state. Currently, Delaware allows people to travel through the state. However, non-residents entering the state must self quarantine for fourteen days.

The Bethany Beach Town Council voted to remain closed until May 31, 2020. The town council also cancelled a number of events, including the 4th of July celebration, Movies on the Beach, as well as the Bandstand Concert Series.

Delaware may be in a position to begin a phased reopening the week, starting Monday, May 18, 2020, according the latest projections from the Institute of Health Metrics and Evaluation (IHME) at the University of Washington. However, the models assume that there is ample capacity to test for the COVID-19 virus among the population as well as the capacity for contact tracing for those that test positive. [2] To date there is insufficient testing to meet the criteria for a phase one reopening.

DMF Associates Versus the Middlesex Beach Association

DMF Associates and the Middlesex Beach Association reached a settlement in their ongoing lawsuit. The settlement, dated February 17, 2020, stipulates the parties mutually release each other of all claims and counterclaims. The settlement aso stipulates that the Middlesex Beach Association pay the Norman Law firm 15,000.00 and that payment be made within 15 days of the signed settlement. [3] The settlement also stipulates that at the end of Norman's tenancy or the end of the current term of the lease that the Norman Law firm either (a) remove the sign from the premises, (b) change the sign so that it is no longer a V shape but rather back-to-back, or (c) apply to Middlesex for permission to maintain the sign as is. The settlement also stipulates that Norman rotate the sign no sooner than three hours. The message is limited to the business conducted onsite. The message must be static and not animated. The agreement also stipulates that the sign is to be no more than 100 square feet in size, which complies with the covenants of the homeowners association. The agreement also stipulates that the sign will diminish in brightness from 11:00 PM to 7:00 AM to nighttime standard.

The true cost of this law suit will not be fully realized until the homeowners association renegotiates its indemnity insurance contract. The current contract expires in 2021. The 15,000.00 cash settlement paid to the Norman Law firm will likely pale in comparison to the inevitable increase in the indemnity insurance premiums that the homeowners association will face, starting in 2021. Although it is unclear what the MBA will pay in indemnity insurance premiums once the current contract expires, the Middlesex Beach Association can anticipate that the cost of indemnity insurance premiums will dramatically increase.

Hopefully, future boards will take a more conservative approach to drafting policy and double check that policy follows the covenants and not arbitrary interpretation.

the board moves forward with the proposed rental tax

Margie Cyr called the meeting on March 14, 2020 to order at 9:30 AM. Marty Shecter, Ellen Throop, Steve Larsen, Tristan Kruger, Nancy Glasgow, Mike O’Mara and Margie Cyr were in attendance. Jeff Sella, Alex Sella were physically absent, but attended the meeting on conference call.

The coronavirus pandemic effecting the US was in its early stages at the time of the meeting. The NBA had just suspended its season and social distancing norms were in effect.

The board members met at the Bethany-Fenwick Area Chamber of Commerce. The space is inadequate to comply with social distancing. Each board member sat within two to three feet of each other. Fortunately, no one has reportedly tested positive for the virus. From what we now know about the virus had anyone in the room been carrying the virus asymptomatically everyone in the room would have been exposed.

The board discussed the prospect of imposing a rental fee on owners who lease their respective properties. Steve Larsen announced that he had drafted an amendment for a covenant change to charge a fee against owners who lease their property (e.g., a rental fee). Larsen did not share the draft amendment. Larsen said that charging a rental fee is a "fiscal responsibility" that the board needs to present to the community for a vote.

Nancy Glasgow said the board now has a duty to put the issue of a rental fee up to the community for a vote.

Ellen Throop said that it is a board decision whether to propose an amendment for a covenant change to the community. Throop said that any covenannt change would need to clarify the formula that outlines the fee.

Geoff Sella weighed in saying that he had thought the next step in the process was to commission a study as to the cost impact of rental properties. In fact the agenda listed the cost impact study as the discussion point and not necessarily a rental fee. However, Sella's point gained no traction on the board and the commissioning of a study was not brought forward for a vote.

Geoff Sella also said that imposing a fee on owners who lease their property would likely be a contentious issue in the community and could invite litigation.

Steve Larsen moved to solicit legal advice from the in house council as to the process to affect a covenant change. Larsen also moved to engage legal advice from the in house council on behalf of the membership as to the process of drafting a member-driven petition to affect a covenant change. In effect legal council would be made available to one set of members who seek to impose fees against another set of members.

Ellen Throop pointed out that asking the in house council, Mary Schrider Fox, to advise members how to draft a petition would constitute a conflict of interest. Throop emphasized that the in house council serves at the pleasure of the board and not necessarily factions of the membership.

Board president Margie Cyr proctored a vote on the motion to solicit the legal council as to the process to affect a covenant change.

Steve Larsen, Nancy Glasgow, Mike O'Mara, Marty Shecter, and Margie Cyr voted in favor of Larsen's motion to solicit the legal council as to the process to affect a covenant change. Ellen Throop, Geoff Sella and Alex Sella voted in opposition to Larsen's motion. The motion carried.

Board president Margie Cyr proctored a vote on Larsen's motion to engage the legal advice from the in house council on behalf of the membership as to the process of drafting a member-driven petition to affect a covenant change.

Steve Larsen, Nancy Glasgow, Mike O'Mara, Marty Shecter, and Margie Cyr voted in favor of Larsen's motion to engage the legal advice from the in house council on behalf of the membership as to the process of drafting a member-driven petition to affect a covenant change. Ellen Throop, Geoff Sella and Alex Sella voted in opposition to Larsen's motion. The motion carried.

Ellen Throop brought a forward a motion to engage the in house council to address any conflict of interest of advising members on the process of drafting a member-driven petition to affect a covenant change prior to issuing an opinion on the second motion above.

Board president Margie Cyr proctored a vote on Throop's motion to engage the in house council to address any conflict of interest of advising members on the process of drafting a member-driven petition to affect a covenant change prior to issuing an opinion on the second motion above.

Ellen Throop, Geoff Sella, Alex Sella, Nancy Glasgow, Tristan Kruger and Margie Cyr voted in favor of Throop's motion to engage the in house council to address any conflict of interest of advising members on the process of drafting a member-driven petition. Steve Larsen, Mike O'Mara, and Marty Shecter voted in opposition. The motion carried.

Tristan Kruger brought forward a motion to invite legal council to a future meeting to address questions surrounding the rental fee whether in open session or in executive session depending on the legal council's opinion.

Board president Margie Cyr proctored a vote on Kruger's motion to invite legal council to a future meeting to address questions surrounding the rental fee.

Steve Larsen, Tristan Kruger, Mike O'Mara, Marty Shecter, Nancy Glasgow and Margie Cyr voted in favor of Kruger's motion to invite legal council to a future meeting to address questions surrounding the rental fee. Ellen Throop voted in opposition. Geoff Sella and Alex Sella abstained. The motion carried.

Analysis

I often agree with Steve Larsen's opinions. However, this is not one that I agree with. Bringing a amendment for a covenant change involving a rental fee to the membership for a vote in the absence of a cost justification is legally irresponsible. It is legally obtuse. Its disappointing.

A cost impact study of rental properties would in theory bring clarity into how you go about defining a fee structure. The study, itself, would serve as the cost justification for charging such a fee.

However, it is not necessary to commission a study. We already know that the homeowners association does not provide any services to rental properties outside the basket of services covered in its annual budget for which the association collects an assessment. Whereas a number of homeowners associations provide marketing and sales services for rental property owners, Middlesex Beach does not. Whereas a number of homeowners associations provide property management services for rental property owners, Middlesex Beach does not. Owners of rental properties either perform these services themselves or they hire outside services to perform them. Often these owners hire real estate agencies to perform these services.

You may ask what about the cost of trash collection, life guard services and security services for rental properties. Do not renters consume these services? Would these services not count? In fact they do not count as these services are covered in the assessment. For example in exchange for the 2020 season assessment of 2,450.00 dollars an owner is entitled to unlimited trash pickup bound by a schedule, life guard services, and security services. When an owner leases his property to a leasee, he/she consigns all his rights associated with the property to the leasee for the term of the lease. [Ellen Throop, 2019] [5] The homeowners association cannot double charge for these services, e.g., charge a rental fee in addition to an assessment. The homeowners association can only charge owners, who lease their property, for services above and beyond what is provided in the basket of services outlined in the budget for which an assessment is charged.

This is a case where John is trying to force Bob to pay for John's utility of the beach.

Middlesex Beach has a new chairman of the Beach Patrol

Middlesex Beach has a new chairman of the Beach Patrol. On the event David Taylor resigned his position as chairman of the Beach Patrol committee, the board appointed Mark McCulloh as Taylor's replacement. McCulloh has experience on the Ocean City beach patrol. Outside of patrol experience McCulloh reportedly has thirty years of experience on Wall Street.

References