ELS3/OperatingAgreements

Remember to sign your comments. An easy way to sign is to add ~ 4 times. Mika (talk) 22:23, 18 February 2024 (CET)

Draft

Governance

• The LLC will operate using consensus decision-making. Every member will need to support a decision and we shouldn't move forward if somebody feels strongly enough to say that they "block" (i.e., they are absolutely opposed). This will cover:
  • Addition of renters
  • Addition of new members
  • Addition of pets
  • New construction
  • Renovation
  • Refinancing
• Many things we don't need formal consensus and any members can simply act on behalf of the LLC to do these things. In these cases, folks should use their judgement and are strongly encouraged to ask others about in advance. (Note: new proposal —mako๛ 18:25, 17 April 2024 (CEST))
  • List of things:
    • anything related to normal use of the house as a living or social space (e.g., having guests over for parties or dinners, storing property in the house, etc)
    • Inviting friends/guests for short-term stays
    • Making minor or nonstructural changes to the house
    • paying bills on behalf of LLC
    • buying financial stake from other members as per the rules below
  • If somebody objects to these things, they can always invoke the full consensus process, and there will then need to be consensus in order to continue or proceed.
• Process
  • If the need arises, any member may call for a synchronous meeting to reach a consensus decision. The secretary must schedule a meeting in these cases within a month and should endeavor for all members to be able to attend, but must ensure at least a majority of members. If the secretary fails to organize such a meeting in this time frame, the member calling for the meeting may organize their own meeting with at least a majority of members, which will be considered valid.
  • In the event of the death of a member, that member will not count toward quorum. The member's financial stake can be inherited but their governance stake in the organization can not be. (Note: added based on comments from Forrest —mako๛ 17:51, 17 April 2024 (CEST))
  • If a member is incapacitated and/or unable to participate for a period of six months, that person will not be counted against quorum for decision-making (Note: added based on comments from Forrest —mako๛ 17:51, 17 April 2024 (CEST))
• Governance-related record-keeping
  • All actions taken on behalf of the entity will be kept durably by a designated secretary (decided upon by the group), in a shared location accessible to all members
    • we can perhaps take turns (annual?) for the secretary role? Mika (talk) 18:45, 17 April 2024 (CEST)
• Limits on use of the property
  • The property will not be operated as a hotel or AirBnB.
  • The property will not be used as a long-term rental. (should check seattle rules)
    • what about things like 1 year sabbatical leave? should we add "unless all members agree..."? Mika (talk) 18:48, 17 April 2024 (CEST)
    • that might not fall under long-term rental lucy (talk) 21:20, 17 April 2024 (CEST)
• Grounds for expulsion of members
  • A member may request the removal of another member through a standard governance process.
  • The person who is being decided against shouldn't get a vote in the consensus decision.
  • If more than one person is suggested for expulsion, we would need to make these decisions serially (i.e., one at a time) in the order they were proposed.
    • what about couples? lucy (talk) 21:20, 17 April 2024 (CEST)

Financial Stuff

Note: This has not been as fully vetted/discussed as some of the material above.

• After the initial purchase, shares (which we use to mean only financial stake, not governance) will be divided up among individual members based on their contributions to the down payment, fees, and any inspections incurred in the purchase of the home, where each individual gets a number of shares that are proportional to their contribution. We'll have some system for recording and tracking this that we agree to (e.g., on a wiki page or a shared repository)
• Going forward, contributions for monthly mortgage payments, property taxes, and house insurance will also result in a proportional number of shares based on contribution.
• Payments for any construction, house maintenance, purchase/repair/replacement of appliances, and contributions to an emergency fund will all be in the category of further contributions to the house/LLC or something like that. Any of these contributions will also result in a proportional number of shares based on contribution. For something to be considered an expense in this category, the group must decide to do this based on our normal processes. If someone purchases an appliance independently, that's fine, but it remains their property.
• For monthly payments and for any further contributions like those listed above that are agreed upon, everybody is committed to contributing an equal share in the same way we do for the mortgage payments and such (i.e., 1/n of the total cost where n is the number of members). If everybody agrees, we can always change this distribution for a specific transaction, and the shares will be distributed according to whatever we decide.
• Everybody can purchase shares from other people in the LLC up until they have a set of shares that are equal to whoever has the largest share at the time. So, if everybody took full advantage of this, everybody would have equal shares. However, some people may have lower shares based on unequal contributions to the original purchase.
• This means that people with smaller shares can effectively choose to contribute more for any monthly payments and other further contributions. Maybe it's unnecessary to state this explicitly since it can be handled in multiple transactions, and maybe it's implicit in the other rules.
• If we sell the house or somebody decides to leave, they are entitled to their proportion of the house's value and other LLC assets based on the shares.
• If somebody joins the LLC after purchase, they start with no shares but are on the hook for everything else put above and can buy up in the way that is listed above. If the mortgage is not paid off, they would also need to be added to the mortgage or whatever the lender requires in order to make this happen. That will probably require getting a new mortgage, but that's up to the lender.
• Complete withdrawal from the LLC
  • A member may give notice to the LLC of their intent to fully withdraw. When doing so they have two options
    • The member may ask to be reimbursed as they withdraw. The LLC would purchase back that financial amount within 6 months and the member would lose their right to vote in LLC matters. At the future dissolution of the LLC, the former member would receive their share of the difference between initial and final value of the LLC if it is positive.
    • The member may choose to retain their financial stake as they withdraw. The member would be allowed to vote for matters of refinancing or dissolution of the LLC, but not for changes in renters, members, or day to day operations. In this state, the member would be able to be subsequently 'bought out' by a prospective new member.
• Withdrawal of financial stake by a member
  • If somebody needs liquidity, they can ask for any amount up to the total value of their shares at any point, which should also be paid in 6 months. Other members can either buy those shares in cash (even if it upsets the distribution) or the group can choose to refinance the home as a way of getting that money to distribute it. If folks can't or don't want to do those things, the group would commit to selling the home in order to get the person who needs money or needs to leave their shares.
    • Does this last bit only apply to when someone needs liquidity or also to someone who chooses to leave? Is six months enough time before forcing this decision in the latter case?lucy (talk) 21:20, 17 April 2024 (CEST)

• Emergency Fund: Also, we should have an emergency fund that works like this:
  • The target value of the fund should be 5% of the tax-assessed value of the home assessed at some point in the year.
  • If we are lower than the value, everybody agrees to pay a minimum of some amount to the fund monthly. My suggestion is 0.04% of the assessed value. (With a 2m assessed value, this is $800/month, meaning it would take two years to build up the complete 5%). Folks could always pay more to this if want up to the target value of the fund, even if it meant that they increased their shares.
  • Contributions to this fund are treated like other contributions to the house value in terms of funds and proportions.
    • Distributions of the fund are made through the normal process.
    • In the case of a sale or someone leaving, the value of the fund will be added to the value of the house for the purposes of someone leaving/being added/whatever.
      • this all sounds good, although 5% seems quite high Mika (talk) 19:00, 17 April 2024 (CEST)

• Question for the lawyer; would/how would personal bankruptcy affect the rest of the group? Mika (talk) 19:11, 17 April 2024 (CEST)

Discussion of Proposed Policies

[Related to all these, I prefer that we make rules only for financial decisions (direct (e.g., mortgage) or indirect (sublet)). Thoughts? Mika (talk) 22:23, 18 February 2024 (CET)]

• How decisions are made
  • majority vote proposal
    • Any member may propose an action to be taken on behalf of the entity by messaging the action to the full set of members on an approved communication channel.
    • If nobody else contests the action within a week from receiving it, it is considered ratified.
      • unless other people cannot be contacted (e.g., being offline/in remote places) during that period? maybe a different rule for house emergency? Mika (talk) 19:03, 17 April 2024 (CEST)
    • If everyone affirms the action, it can be ratified sooner.
    • If anyone else contests the action it will be brought to a vote of the membership.
    • In the event of a tie, the proposal fails.
  • consensus decision-making or some sort of variant
    • I'm happy to propose something more concrete but the idea not that everybody needs to agree/support but that we shouldn't move forward if somebody feels strongly enough that they are absolutely opposed. Probably every should read some aobut consensus decision-making in order to make this work. We could do some modified systems like consensus-minus-one or a situation where a person can block, but only once ever. Basically, if somebody was seriously seriously against something, I don't want to move forward with it as part of a majority vote. —mako๛ 20:05, 18 February 2024 (CET)
    • I also like consensus decision-making and knowing us, I feel this is possible to do. I'm averse to the idea of people being able to oppose e.g., once every ten years. Speaking for myself, I'll most likely "ok" any group decisions but want to be heard for my concerns and I ask people to actually consider any concerns raised by any members of the community, regardless of the final decisions. Mika (talk) 22:23, 18 February 2024 (CET)
    • Perhaps, all we need to decide is how we make decisions; almost everything in the following could follow the rules in this section? Mika (talk) 22:23, 18 February 2024 (CET)
    • Generally speaking, I prefer less rules, more trust in our ability to accommodate and be considerate to other people's needs, as we've done so far. Things will not always be perfect and not equal for all community members but achieving equity through legal rules seems dystopian to me. Mika (talk) 22:23, 18 February 2024 (CET)
    • I support consensus decision-making lucy (talk) 01:42, 12 March 2024 (CET)
• Dispute resolution
• Grounds for expulsion
• Governance-related record-keeping
  • All actions taken on behalf of the entity will be kept durably by the designated secretary, and will be made available on request to any member.
  • perhaps rotate this role? Mika (talk) 22:23, 18 February 2024 (CET)
  • use wiki lucy (talk) 01:42, 12 March 2024 (CET)
• Renters
  • the Entity may offer rooms for rent.
  • It'd be good to discuss who rents the room (as we've done in the past)? Mika (talk) 22:23, 18 February 2024 (CET)
  • how do renters participate in decision-making? lucy (talk) 01:42, 12 March 2024 (CET)
• Subleasing
  • A member may propose to sub-lease their share of the LLC.
  • Such a proposal requires unanimous approval by membership to be valid.
    • SGTM —mako๛ 20:28, 18 February 2024 (CET)
• Additional members
  • In general, addition of a new member to the LLC requires unanimous membership approval.
    • SGTM —mako๛ 20:28, 18 February 2024 (CET)
  • To keep things simple, I have a slight preference to not add a new member unless it becomes financially necessary (e.g., permanent departure of an LLC member)? We can still rent out a room for temporary housemates but I'm less interested in expanding the coop, at least for now. I may change my mind later though. Mika (talk) 22:23, 18 February 2024 (CET)
  • What to do if marriage or divorce?
  • What to do if new residents who are partners?
    • I think they should be added in the same way we make other decisions. —mako๛ 20:05, 18 February 2024 (CET)
  • What to do if one of us has children? Adopts a child?
    • Kids get live in the house but don't become decision-making members except through the normal unanimous thing? —mako๛ 20:05, 18 February 2024 (CET)
  • What if one of us becomes caretaker to an aging parent?
    • Normal process of addition? —mako๛ 20:05, 18 February 2024 (CET)
  • What about pets?
    • Not allowed except with consensus by the group. —mako๛ 20:05, 18 February 2024 (CET)
• Limits on sales by a member
  • A member may give notice to the LLC of their intent to withdraw
    • A member may choose to withdraw their governing shares while maintaining their financial stake, such that they receive that fraction of the ultimate value of the LLC upon dissolution.
    • The LLC may propose a successor to purchase the stake from the member before it is allowed to be put on the public market. The member may choose to pay for an independent valuation of their shares to be determined. This successor may be the LLC itself.
      • I'm not sure if these bits cover it already but Mika thinks it's important that if somebody is in a very bad financial situation and needs money within weeks (a week?) there should be some path for this. Even if it's only the money they have already put in, that seems like something we should be able to support. —mako๛ 20:28, 18 February 2024 (CET)
      • As I mentioned before, I prefer that we make an effort to make an offer only for places that any one group can take over (e.g., Mako and Mika together), so that we can be more flexible when emergencies occur to any community member... Mika (talk) 22:23, 18 February 2024 (CET)
• Limits on use of the property
  • I'm not sure what this should be beyond what the house is zoned. I guess there are lots of ways people might use the house (e.g., running a hotel/Airbnb, etc) that I would want to restrict, but I feel like we could deal with that with the normal decision-making process. No?
  • +1 no hotel/airbnb
• How do rights apply to new construction on property? ADU?
  • Only possible with the normal decision-making process? —mako๛ 20:28, 18 February 2024 (CET)
• Common areas vs private areas?
  • Residents can make improvements or alterations to their personal living space area that don't affect the rest of the community
  • Two residents may swap personal living spaces without community approval
  • Maybe bigger changes to common space and such require consensus? I'm not sure how to define bigger changes but presumably new constructions.
  • Do we need to make a rule about this, at least when it's just the core people who've lived together (BLMMW)? Mika (talk) 22:23, 18 February 2024 (CET)
• Contingencies for late / failure to pay
  • Folks should try to come up with a plan with the group? If that can happen, what are our options? —mako๛ 20:28, 18 February 2024 (CET)
• Planning for high-cost expenditures (renovations, roof, sewer etc)
  • We split equally, no? —mako๛ 20:28, 18 February 2024 (CET)
  • Sounds good to me Mika (talk) 22:23, 18 February 2024 (CET)
  • how do we want to arrange large-cost expenditures? (yearly) upfront contributions? or fundraise at the time? i'm pro contributing to a pot of money for large-cost expenditures, and as an emergency fund for covering yearly expenses if needed lucy (talk) 01:42, 12 March 2024 (CET)
• Do major repairs/replacements need member approval? How many? Costs?
  • Sure, why not? —mako๛ 20:28, 18 February 2024 (CET)
• Contingencies for major unplanned costs not covered by insurance (asbestos, flooding etc)
  • Split, no? —mako๛ 20:28, 18 February 2024 (CET)
  • Sounds good. Mika (talk) 22:23, 18 February 2024 (CET)
  • could be covered by the emergency fund ^ lucy (talk) 01:42, 12 March 2024 (CET)
• Worst case scenarios
  • Death of member
    • Upon joining, members must designate if they intend for their shares to be willed to the LLC or to another beneficiary.
    • If they choose the LLC, their shares are returned to the LLC
    • If they choose another beneficiary, their shares are put in trust. The LLC must attempt to buy those shares at fair-market value within the following year, and remit the proceeds to the designated beneficiary. If this cannot be done, procedures for liquidation/insolvency should be followed.
  • Incapacitation of member
• What are the options/suggestions here? —mako๛ 20:28, 18 February 2024 (CET)
  • Harassment/Protection orders/Restraining orders between members
    • A member may request the removal of another member through standard governance process.
      • If we use a consensus problem, the person who is being decided against (obviously?) shouldn't get a vote. —mako๛ 20:28, 18 February 2024 (CET)
    • I think this kind of issues may become more important if we add more permanent members? If it's already a problem or if someone thinks it's likey to become a problem among the existing members, we should halt the house shopping process and discuss this first. Mika (talk) 22:23, 18 February 2024 (CET)
  • Natural disaster destroys house
    • No special policy needed
    • No insurance available? Mika (talk) 22:23, 18 February 2024 (CET)
    • we should probably get reasonable coverage lucy (talk) 01:42, 12 March 2024 (CET)
  • Zombie apocalypse
    • No special policy needed
    • Consult with a zombie epidemiologist Mika (talk) 22:23, 18 February 2024 (CET)

Resources

Condo Association handbook https://www.condolaw.net/wp-content/uploads/sites/560/2022/02/2019_Condo_Law_Handbook_for_Community_Associat.pdf

WUCIOA https://app.leg.wa.gov/RCW/default.aspx?cite=64.90&full=true

Sample worker coop bylaws https://institute.coop/sites/default/files/SampleWorkerCooperativeBylaws.pdf https://www.co-oplaw.org/knowledge-base/cooperative-bylaws/#Sample_Bylaws

Sample cohousing operating agreement https://docplayer.net/17757078-River-edge-cohousing-llc-1-operating-agreement.html

Misc / Not fully structured thoughts

• Our friends on the east coast thought of a few unlikely scenarios that we may/may not need to think about. For example, if any of us decides to have kids, what kind of rights would the kids have?