Tips from our Community Associations Team
Under Virginia law, Virginia corporations must maintain a registered agent at all times. A registered agent is a vital contact point for any entity for receipt of service of process of law suits and other legal proceedings, as well as for notices from or necessary documents to be filed with the Commonwealth of Virginia. As community associations are almost always incorporated as non-stock corporations, they normally must maintain a registered agent who meets the statutory requirements of the Virginia Nonstock Corporation Act.
According to Section 13.1-833 of the Virginia Nonstock Corporation Act, a registered agent “shall be:
- An individual who is a resident of the Commonwealth and either an officer or director of the corporation or a member of the Virginia State Bar; or
- A domestic or foreign stock or nonstock corporation…authorized to transact business in the Commonwealth…; provided such a registered agent (i) shall not be its own registered agent….”
While it is tempting to have an individual who is an officer or director of the association serve as registered agent, it is not the best practice. A registered agent should maintain regular business hours on a daily basis at an established business address. Individual officers or directors – most often volunteers – are frequently unavailable to receive service of process during regular business hours for many reasons, including travel or illness. Also, they often move to another home without changing the address of the registered office. Volunteer officers or directors also may not want a sheriff or process server to visit their home or workplace to serve legal papers at inopportune times or to have legal papers affixed to their door.
Failure to pay fees to or properly file annual reports and other necessary documents with the State Corporation Commission can cause the termination of the incorporated status of the entity and other adverse effects such as loss of the corporate shield. The failure to receive and properly process notices of lawsuits and other legal proceedings can have even more far reaching and costly consequences. For example, going into default in a law suit by failing to timely file a response with the court can be costly, and even catastrophic. Given these potential risks and the normally reasonable cost of registered agent services, community associations should avoid using volunteer directors and officers and their residences as the registered agent and office for the association and should instead rely on the association’s legal counsel or companies which provide registered agent services on a regular basis (and meet the requirements of serving as a registered agent in Virginia).
An added benefit of having the association’s legal counsel serve as registered agent is that the association’s attorney will normally be the person receiving the first notice of a law suit filed against the association and is in a position to read and explain the complaint to the board of directors and/or the association manager. Although it’s never fun to be sued, it helps to have an attorney explain the nature of the lawsuit at the same time the association becomes aware of the lawsuit.
Tom Ebel is a member of Sands Anderson’s Community Associations Team and Commercial Real Estate Team. He represents developers, brokers, investors, and financial institutions in a variety of real estate and other commercial transactions.