Herb Jaffe: Conversion to Article 82 is vital to Sun City’s financial future

Imagine some Fortune 500 corporation being automatically dissolved because of a law that says its life span must end at 50 years. Well, that’s what has come to light for a handful of homeowner associations in and around Summerlin due to a statute enacted many years ago by the Legislature.

By far the largest HOA to feel the effects of this law is the Sun City Summerlin Community Association Inc., which came into being June 22, 1989. Under the law, which is commonly referred to as Article 81 of the Nevada Revised Statutes, the corporate status of Sun City Summerlin will cease June 22, 2039.

That’s not all. Amendments to the law during the 2015 legislative session impose a business tax on all Article 81 corporations that produce $4 million or more in gross revenue. Sun City, with 7,778 housing units, far surpasses that with an annual budget that exceeds $15 million.

But Sun City is a nonprofit corporation without stock. You might ask, Why should it be required to pay the newly imposed tax, which comes to $15,000 for the first year and would be expected to grow annually thereafter?

“Makes no difference,” says Ken Resnik. Ellen Bachman agrees. Both are lawyers and members of the Sun City Board of Directors. Resnik, a retired judge, is also the board’s treasurer and chairman of the Finance Committee. Bachman is the board’s secretary and chairs the Legal Committee.

So what’s really going on here? And what about corporations such as Sun City, which would cease to exist after 50 years?

“As I understand it, this tax came into being to help the state balance its budget,” Resnik said. John Leach of Leach Johnson Song and Gruchow, the law firm that represents Sun City, reasoned that the state simply created a business tax two years ago to produce more revenue, and it used the Article 81 statute as its lever.

It was the business-tax amendments to the law that opened the Sun City Board of Directors’ eyes to the fact that corporations formed under Article 81 automatically cease to exist after turning 50.

“Many of the HOAs in the valley were created under Article 81,” Leach said. “That was the standard at the time.”

Adding to Sun City’s dilemma are 38 sub-associations within the community.

“Each is a separate nonprofit corporation, ranging in size from a handful of housing units to more than a hundred,” Resnik said. “None of them produce anywhere near $4 million in revenue. So they won’t have to pay the tax, but these corporations also will cease to exist at age 50 if we don’t correct the situation.”

Bachman explained that the answer to the Article 81 dilemma lies in Article 82, a statute that also has been on the books for many years.

“When the Legislature amended Article 81 two years ago, it exempted Article 82 from the tax,” Bachman said. She reasoned that by converting its status to a nonprofit Article 82 corporation, Sun City would not be required to pay the tax. Moreover, its corporate life, and similarly the corporate lives of the 38 sub-associations, would remain undisturbed in perpetuity.

“Therefore, we have notified all homeowners in Sun City of a ballot they will receive in the April edition of our community publication, the ‘Link’, asking them to vote in favor of converting our homeowners association to an NRS Article 82 corporation,” Resnik said.

A letter sent to all Sun City homeowners said the changes have been “recommended by our legal counsel, our accounting manager, our executive director and was unanimously approved by your board of directors.”

The letter then emphasizes that the plan to convert to Article 82 must be affirmed by a majority of the community’s homeowners. That means “at least 3,890 owners must vote in favor of the plan,” the letter says, again stressing the significance of an affirmative vote.

Herb Jaffe was an op-ed columnist and investigative reporter for most of his 39 years at the Star-Ledger of Newark, New Jersey. His most recent novel, “Double Play,” is now available. Contact him at hjaffe@cox.net.