February 18, 2015
Letter to the Members of Altos de Antigua
I have been asked to assist the Board with the process of putting into place a Community Association to govern matters affecting our Community. I note that I am a lawyer in Canada but have no expertise in Costa Rican law. Nevertheless, my expertise does enable me to understand the advice of legal counsel in Costa Rica. The following is a summary of where we are at. I do not purport to be an expert. The summary below is based on my understanding which is limited by the challenges of trying to obtain legal advice long distance and seeking, at the same time, to keep legal expenses to a minimum.
The existing SA currently has 2 shareholders, 4 directors and 1 comptroller. There were originally 5 directors but Dave Towner resigned his position and this position has not yet been filled.
None of the lot owners are shareholders of the SA which means that any time that there is a meeting of the lot owners, the decisions of the lot owners must then be confirmed by the two actual shareholders who must then pass all of the resolutions of the lot owners. The current Bylaws and any future revised Bylaws only apply to the shareholders not to the lot owners. There are several problems with this process:
- This is a cumbersome process as it requires two steps – a vote by the lot owners and then a confirming vote by the actual shareholders.
- The shareholders hold the shares in trust for the lot owners. However, there is no document that sets out the voting rights of the lot owners. What will happen when lots get subdivided for example? There are no rules governing the calling of meetings of lot owners (who are not shareholders) nor are there any rules governing what constitutes a quorum or what is required for a vote to pass with respect to the meetings of the lot owners. Further, there is no basis for differentiating between what is required for a vote by lot owners on special issues such as amending bylaws which usually require a higher percentage of support than normal resolutions. The only rules in place are rules governing the shareholders and these do not cover the lot owners.
- The complexity of the current mechanism has caused a great deal of confusion.
Accordingly, if the existing SA is to be maintained, it is not sufficient to maintain the status quo. Shares will need to be issued to the lot owners who will then having voting rights as set out in the bylaws. There are several issues related to issuing the shares. The first of these is that Costa Rica does not have a process for authorizing an unlimited no. of shares to be issued. You need to know exactly how many shares will be issued. This raises a problem if the intent is to have one share per lot and the no. of lots increases as lots are subdivided. Legal advice would be required to deal with this issue. As a result, it is not correct to think that if the community maintains the SA that there is no cost to proceeding this way. There is a cost to preparing and issuing shares to the lot owners and obtaining legal advice to deal with the issue of issuing additional shares in the future.
As well, the existing SA has a set of standard Costa Rican Bylaws. These Bylaws are in Spanish and have not been tailored to our community. This is part of the reason that lot owners have been confused about what rules govern meetings of the lot owners. To continue with the existing SA would require that the Bylaws be revised and properly translated into English. This is as much work as creating new Bylaws and would likely entail a similar expense.
Carlos has set out in his email the benefits of proceeding with an Association. I note that he does not state that an SA would not work. However, he does indicate that it is the more appropriate vehicle to use. Further, he indicates that establishing a monthly maintenance fee, enforcing payment and suspending an individual for nonpayment can be achieved through an SA as well as an Association but is a way more difficult process. I think that there is a great benefit to the convenience of dealing with the proper vehicle. This would become evident to whoever happens to be on the Board in the future. Carlos has not set out all of the details in this regard. The Board has accepted his opinion on this matter. Certainly, they could require a more detailed explanation and a mini seminar on Costa Rican law regarding Associations. However, they have endeavoured to be fiscally responsible in this regard.
I note that the Board previously dealt with a more junior lawyer that was formerly an employee of Carlos. The reason for dealing with her was that her rates were lower than those of Carlos. However, the Board and myself found that we could not understand her and this caused a great deal of confusion in trying to decipher what she was advising. As well, she did not have the experience to address the Board’s concerns and suggest a solution. She was willing to carry out the Board’s instructions but not able to guide and initiate the Board to a better solution. I recommended that the Board use Carlos as he speaks and writes English very clearly and was able to provide more direction in a one hour meeting than the previous lawyer ever provided. He is senior counsel who has dealt with the incorporation of Community Associations in the past. Clearly, the previous lawyer did not recognize that she had used the wrong vehicle for incorporating the Community Association.
As a lawyer, I can confirm that it can in some cases be a false economy to retain a junior lawyer. A junior lawyer is appropriate when the matter is more routine or when they are supervised by a senior lawyer who provides the guidance but allows the junior lawyer to do the work. When you need advice and direction, it is often preferable to retain more senior legal counsel that is familiar with the relevant area of law and who can provide insight, guidance and solutions.
Neither the Board nor myself have all of the answers to the questions that may arise. However, we are not Costa Rican lawyers. I believe that it is prudent for the Board to seek advice from senior Costa Rican counsel and to rely on the recommendations given by that counsel. If we wish to understand all of reasons behind his recommendation, we can seek answers to some of the questions raised. However, you cannot seek to minimize legal fees and expect to have full answers to all of your legal questions. A choice has to be made. The Board has accepted the brief response of Carlos recommending that an Association is the better way to proceed. If further clarification is needed, this will involve further costs to obtain clarification from Carlos.
With respect to whether the Association can own land, Carlos has confirmed that the Association can own the land and that the cost to transfer the pond lot from the SA to a new Association would be approximately $350. Spread out amongst all of the lot owners, this is a little over $10 per lot.
I wish to say that, in my view, you have elected excellent people to the Board, who have endeavored to seek proper advice to deal with the thorny issues relating to ownership of the SA shares and the best way to move forward in establishing a Community Association. It should be recognized that there are complexities in dealing with this task when the members live in different parts of the world and have to navigate different language, legal and cultural barriers. There are also the challenges of minimizing costs yet still ensuring that proper advice is obtained. Board members have had to exercise judgment in this regard and have tried to find the right balance. In addition to all of the above, there are time constraints involved in proceeding with the route recommended in establishing a new Association. Namely, there must be 10 founding members present. This is a problem because many people who are visiting the community right now will soon be leaving. As a result, the Board has sought to obtain a quick response from the members based on the recommendations of Carlos. In the event that a decision is not made quickly, the window will be lost as the community will not have enough people to act as founding members. We would then have to wait until next year when there are again enough people to proceed.
I note that the main role of a Board is to set the vision and to make high level decisions for an entity such as an Association. The Board made a decision as a group to proceed with Carlos recommendation and set out a summary of its reasons for doing so. This was a proper manner to act. If there are questions or concerns, members should feel free to contact a Board member to seek clarification. However, keep in mind that they may not have all of the answers and may only be able to obtain such answers by obtaining further advice. Please be respectful in dealing with the Board as they are good people attempting to do what they believe is best for the community.