Regulatory permitting, legal frameworks, and governance of EcoBlock assets
How are the neighbors going to work together? Will this project require a new type of organization in the neighborhood?
The UC Berkeley research team will support the community participants in creating a Common Interest Development (CID) incorporated as a non-profit mutual benefit corporation. Typically, a CID will be called an “Association.” The community members of the CID will pick the name, but an example might be: “The EcoBlock Energy Association.”
The Association will operate in some ways like a Homeowners Association (HOA), but it is organized as a commercial/industrial CID and it only covers the shared systems, not people’s homes; this type of Association is simpler than a typical HOA. All participating property owners will be members of the EcoBlock CID, which will be governed by a five-member board that is elected by the members. The board can include representation from tenants, technical experts, and others.
The Association serves as a method of collecting the necessary funds for the continued operation, maintenance, and insurance of the microgrid after the EcoBlock research project ends; it also serves to ensure equitable distribution of energy and allocation of costs. Through this organization, participants collectively own and are responsible for managing shared assets such as the energy storage, microgrid control, solar panels, and shared curbside electric vehicle (EV) charging.
What is your [Tuttle Law’s] experience in creating co-ops or CID Associations?
For twenty years, Tuttle Law Group’s attorneys have worked with cooperatives and other types of democratic organizations—including CID Associations—to create businesses and organizations that respond to specific community needs. Some examples of our recent projects include:
- A housing community for adults with developmental disabilities. The community includes retail space, a restaurant, and a farm garden to provide jobs for the residents.
- A cooperative of medical testing labs dedicated to providing low-cost medical tests for hospitals.
- A cooperative of northern California ranchers who organized to fund and operate a humane mobile slaughter facility that visits each ranch to provide services.
Oftentimes, community needs are inadequately addressed by non-democratic firms because they are organized to maximize profit. Democratic firms can achieve non-monetary objectives by consensus of the members/owners. Each of these projects worked better as a democratically organized firm than as a shareholder/investor-driven one.
How does an Association work? How do you exit or enter? If I sell my house, is the new owner automatically in the Association?
The organization, whether CID Association or cooperative, is flexible and can be designed to support the best outcomes for sharing management responsibility and ensuring the long-term success of the communal microgrid. Tuttle Law Group will be listening to the community to help design an organization that meets their short- and long-term needs.
In general, property owners who establish a CID Association incorporate as a special kind of non-profit organization where they are the members and co-owners of any shared assets like the microgrid. A CID Association has a certain structure required by law, with a board of directors and committees. But rather than an organization with a central leader, middle management, and members, this organization has a centralized Board, responsible for the long-term success of the organization, which can create a committee structure that is inclusive and efficient. A committee structure allows the Board of Directors to get needed information from professionals and others outside the organization, while maintaining the organization as a democratically self-governed entity. The committees might be standing committees (ones like Finance/Budget or Maintenance that will last for the duration of the Association) and “ad hoc” committees (developed as needed to deal with a particular concern); see Figure 1. Each committee has a charter, requirements and is required to follow the Assocation’s Bylaw provisions, that are specific to it. A typical decision-making process might be: the committee meets and drafts a proposal, and then presents the proposal to the members, after which there is a vote by all the homeowner members. Often voting can be structured as obtaining consent to the proposal through a process, which enables all homeowners to voice objections and have them resolved before reaching collective consent to the proposal.
The members vote to:
- Elect a board of directors (Chair, Secretary, Treasurer) who run the organization;
- Adopt Bylaws which determine how the organization is run;
- Adopt certain rules and restrictions on the use of their properties, which are sometimes called “Covenants, Conditions and Restrictions” (CC&Rs). Each member agrees to record a notice that their property is subject to these CC&Rs. This means that any new owner will buy the property knowing of the existence of the CC&Rs and will automatically be a part of the Association. One way of thinking about this is that the property itself is in the Association, regardless of who is living there. This is similar to a Homeowners Association that shares a community swimming pool.
So is this going to involve a lot of intimidating legal documents?
Tuttle Law Group really works hard to make these legal documents simple to understand. Figure 2 shows the legal agreements needed to create and operate the organization over the long-term. The Articles of Incorporation—typically 2-4 pages—are filed with the California Secretary of State and create a legal entity which limits liability of any individual member. The Bylaws and any Membership Agreements bind the Members to a set of governing principles and policies that are written out to avoid confusion. The Recorded Declaration or CC&Rs means that the property owners are committing to the project for the long term and that participation in the system will go with the property even if the property is sold.
What is the process of creating the Association like (e.g., how to create CC&Rs)?
Figure 3 below shows the steps of forming an Association. The pre-formation process includes figuring out the operational needs, developing the declarations or CC&Rs and Bylaws, establishing a budget and fee schedule, and determining the name. Then the articles are filed, and within 30 days after filing the Bylaws must be adopted by members of the Association.
Tuttle Law Group will provide the community with an initial set of draft documents for the organization’s Bylaws and CC&Rs. We anticipate that there will be a series of community meetings or conversations where we can hear everyone’s ideas and answer questions. Using a consensus-based decision-making process, we can develop a final governance structure that reflects the community and will launch the organization to enable members to achieve long-term success.
What is difficult about this process? What can the block expect to happen (e.g., 2-hour monthly meetings for three months? day 1: overview, day 2….)?
The initial difficulty is getting people to come to meetings consistently. Optimistically, this will take between three and four (2-hour) meetings, depending on how much time people are willing to commit to reviewing the documents between meetings. Reading through legal documents can be boring so people avoid reviewing them. This means that meeting time is spent on document review rather than modifying or approving the documents and/or answering questions.
Another big difficulty is COVID-19. While Zoom meetings are often difficult to conduct with a larger group, they can be more accessible. For example, we recently worked with a housing cooperative that had 75 participants on a Zoom call and it was the highest meeting attendance the cooperative ever had! One key takeaway from the project was that we started using surveys for smaller check-ins between meetings; this ensured that people reviewed any relevant legal documents beforehand and made the actual meeting time more productive.
So how do we start?
We’d like to start with a group of volunteers: 5 to 9 people (must be an odd number to break the tie vote) as a Steering Committee. This Steering Committee can start meeting with Tuttle Law and the EcoBlock research team to gather information—not to make decisions. They would present to the entire group of homeowners for a vote.
What do we do about reaching a consensus? Some people may be active and others not; how do we ensure all homeowners have a voice, and that attendance doesn’t hold up the process?
There does need to be a baseline commitment from all the homeowners. One way to move forward with all people having a voice is by a consent process (consent or object) instead of a majority vote (yes-no-abstain). Each homeowner has to respond to a query either by consent (no objection) or offering an objection; the homeowners must all respond either way to move forward. Objections are addressed and resolved so that all are heard and acknowledged. A simple Google survey can be used for the collection of consents, objections, and concerns.
Creating a democratic organization will not only ensure the long-term success of the EcoBlock project but deepen existing community ties as well. Tuttle Law Group is excited to work with the EcoBlock team and looks forward to contributing to this collective effort in shaping a stronger, more sustainable, and resilient neighborhood.
For more information, visit the FAQ page.