What is Community Association Law?
Community association law is the area of law that governs planned communities of condominiums and cooperatives, along with homeowners associations. Although there are differences in how these communities are set up legally, the law is always intended to address the numerous issues that can arise in reserved and shared space that need guidance.
The law in each state varies. For example, the statutes governing condominiums in Illinois (the Condominium Property Act) is different from those in Texas (the Uniform Condominium Act). The statutes were developed at different times and respond to different needs of the states’ citizens .
Because this is a rapidly evolving area of law, community association law also encompasses the evolving case law that interprets the statutes. The law changes even more with changing interpretations, common law principles, and court decisions.
Some of the key principles that these statutes and court decisions address include:
The statutes and case law deal with all these and many other areas of community living, including governance, control, authority, duties, and responsibilities of owners and associations. And because these sets of rules and regulations evolve, it’s important to stay up to date on developments affecting your community.
The Role of Homeowners Associations (HOAs)
Traditionally, the phrase "Common Interest Development" (CID) is used to refer to the private real estate developments we have come to know as HOAs (homeowners associations). That term is used in California’s Davis-Stirling Common Interest Development Act (Civil Code §4100-6150) and continues in our current Code. So although we refer to these private real estate developments as HOAs, the term CID will be used and understood in a legal context.
HOAs typically have three different types of legal structures. The common ones are the condominiums, the planned developments and the cooperatives.
HOAs are responsible to all of their members for the way the association conducts its business. They have certain statutory and contractual duties, and they also have duties that the courts impose based upon the law.
Associations’ responsibilities include managing property and funds and providing services to members, such as keeping track of assessments, providing for collection of assessments and expenditures from the funds, keeping member information, and setting up and maintaining reserve funds to allow for future repairs and improvements.
HOAs can enforce their rules and regulations. They can set and collect assessments for the upkeep of the development’s common areas and the administration of the association. They can institute legal actions against owners, or other members, for violation of the developed rules and regulations.
The powers that an HOA has in order to carry out its duties are mirror images of the statutory duties of the association. For example, while an association has a duty to levy an adequate regular assessment (Civil Code §5600.), an association has the power to levy such a regular assessment. If the association’s declaration allows it, it can also levy special assessments or special individual assessments (Civil Code §5600.).
Associations can enter into and enforce contracts. An association can delegate its duties to professionals, as long as the association remains responsible for those duties. These professionals could include community management companies, financial consultants, attorneys, engineers, real estate consultants, accountants, and mortgage brokers.
Associations can enforce their declaration (CC&Rs), which is essentially a contract between the association and the owners of units. They can restrict nuisances, impose reasonable rules and regulations, and set up and enforce design review boards. Associations also have leasing and transfer restrictions that are reasonable, pre-approved, and in writing.
HOAs can also sue and be sued as necessary.
Entitlements and Duties Granted to Homeowners
Homeowners also have rights and responsibilities under common community association law. They have the right to attend any board meeting or, if permitted, committee meeting and may speak at such meetings. However, homeowners have no right to vote at board or committee meetings unless they are a member of a committee. Homeowners have the right to attend association meetings, receive notice of and copy association records (subject to exceptions), participate in any open forum provided by the board, and attend any hearings prior to imposition of an assessment upon the homeowner.
Homeowners are obligated to follow these rules without regard to their personal feelings on the issues, belief that the rules do not apply to them, or the belief that the rules are unfair.
Assessments paid according to the community association governing document as required by state statutes are enforceable liens on the homeowner’s property. Failure to pay can result in foreclosure of the lien. The amount of the assessment depends on the provisions of the governing documents and may vary depending upon the type of governing documents (e.g., condominium, planned community), whether the association has a community management firm, among other factors. Association dues are typically for common element/special amenities maintenance, insurance, electrical bills, water utilities and funding for reserves. The purpose of reserve funds is to assist in defraying extraordinary or unexpected repair and replacement costs of major general common elements.
Association members may be required to sign up to serve on committees and participate in their work, attend board meetings, and vote on numerous issues if meetings of the board or members are called. Homeowners may be fined by the association for failing to make payments, late payments, failing to keep the homeowner’s unit in good repair, or violation of association bylaws (e.g., not cleaning up after pets, placing/burning rubbish/trash/cigarettes when association rules require a certain receptacle, etc.).
Resolving Community Association Disputes
Disputes are an unfortunate reality of community association living. The causes of these quarrels can be as minor as the tone of someone’s tone of voice, or as severe as a property damage claim. At some point, every board member and homeowner will probably have to deal with some sort of conflict. Fortunately, there are prescribed methods of settling disputes that align with the realities of governing a community association.
While all associations will ultimately go to court as a last resort, it is always preferable to keep legal spending to a minimum. One way associations and homeowners can do this is to seek informal resolution through Board involvement. Homeowners and members of the Board can communicate their complaints, grievances, and requests to each other in a civil manner, and qualify and quantify the issues at hand.
If at this point, the association or individual feels that their concerns are not being heard or addressed, they can move on to formal dispute resolution. For instance, the Colorado Common Interest Ownership Act ("CCIOA") allows (and in some cases requires) the association and the homeowner to follow a more formal pathway to settle their conflicting positions. The CCIOA outlines the process for mediation, arbitration, and litigation.
Alternatively, Board members and homeowners in the common interest communities governed by the Colorado Nonprofit Corporation Act (which most homeowner association’s are) can elect to submit matters in dispute between them to binding arbitration.
Most associations will wind up in litigation over the enforcement of covenants, rules, and regulations. Additionally, for owner-to-owner disputes, the courts are often the only route available to assert significant damage claims.
Modifying Community Association Rules
The authority to adopt rules and regulations is one of the key powers granted to community associations in virtually all state legislatures. Typically, governing documents provide that rules may be adopted by the board, subject to the procedural requirements of the specific document. Most highlights of the law of community associations will observe that in order for a rule or regulation to be enforceable, it must be "reasonable, properly promulgated, and uniformly applied." Virtually every community has at least a few rules and regulations that many residents don’t even know exist or believe require stricter observance than is given. That said, if a significant number of the members feel that rules and regulations aren’t adequately promoting the goals for which they were made or are simply in need of updating or replacement, then an amendment to bylaws may be in order.
Some bylaws require a specific percentage of the ownership to authorize an amendment. In most states, the percentage looks to the membership and not the "voting power" in the allocation of votes. For example, if in a 100 unit community an amendment requires 70% of the votes entitled to be cast on the issue the outcome of the election is determined by 70 out of 100 owners. Not an easy result to obtain considering the high amount of support (average often in the 80-90% range) required to obtain a loan in this economic environment!
Most bylaws require something less than a unanimous vote to amend the document . Comparison of the "number of units" versus the "voting interest" in the association to determine the effect of the amendment is a topic beyond the scope of this article which will be discussed in other posts.
Many provisions in bylaws and rules cannot be amended (for the purpose of being more restrictive) because enforcement or non-amendment generally can be tied to "vested rights" which allow units to rely on existing requirements. A vesting problem arises when a "downzoning" occurs, making a category of use allowed in an area smaller or more restrictive. So, putting the question to a vote of the members for amendment to bylaws may be invalid due to the need for a supermajority vote and members being disenfranchised from voting in the same proportion. In other words, creating a voting requirement so high no one can meet it because it is not reasonably and fairly within their abilities to do so is just as much disenfranchisement as preventing someone from voting because she is not a member at all.
Another way to accomplish document amendment may be to address it within the Declaration, allowing the board to change (some or all) of the rules subject to approval by the unit owners. Alternatively, the Declaration can simply be amended to abolish the need for super majorities altogether and require only a simple majority of unit owners present at the meeting to approve.
As the economic situation surrounding community associations continues to worsen, many homeowner boards continue to try to pass new rules and amendments to the existing rules in order to curb associations’ financial losses, however, those results haven’t been seen on a large scale quite yet.
The Effects of Community Association Law on Real Estate
When it comes to real estate, Community Association Law can have a significant impact on buyers and sellers. As a potential buyer of a home or condominium, it is important to understand how these laws can affect a planned transaction. Community Association Law includes governing documents, compliance policies, procedures, and collection policies. Most homeowners are not aware of these regulations and it can result in significant problems during a transaction without proper guidance.
Whenever a property is purchased that is part of a homeowners association, it will typically be encumbered by covenants, conditions, and restrictions (CC&Rs). CC&Rs are rules and regulations imposed on owners to govern the association. CC&Rs are filed with the county recorder’s office and are attached to the title of the property, binding all owners in the association. From the standpoint of a potential buyer, CC&Rs should be reviewed with the assistance of a qualified real estate agent or attorney prior to purchase of real property. CC&Rs can impose restrictions on leasing, what color shutters can be attached to the exterior, or whether a number on a mailbox is permitted.
In a townhome or condominium development, CC&Rs can also be referred to as "specifications" that govern the materials, design, and any alteration of the home or unit. While specifications are not usually as strict as CC&Rs, specifications that are not adhered to by a buyer can result in penalties against them, including lawsuits brought by an association’s board of directors. It is imperative for potential buyers to ensure that specifications are adhered to prior to a purchase to prevent late fees, daily fines, and liens against their unit.
As an example, assume a person purchases a new construction home and the electrical plans required numerous ceiling fans. If the owner were to buy decorative chandeliers, even with an electrician’s help, the association may fine the owner several hundred dollars due to the violation of the specifications or CC&Rs. In the worst case scenario, the association board can require the owner to remove and replace an installed fixture. It is inevitable that association boards can be unreasonable and apply a strict interpretation of their specifications or CC&Rs. This concept is especially important to keep in mind if you are purchasing a home from a homeowner that has provided warm and fuzzy updates, such as a black painted porch, or moody purple ceilings in their bedroom.
Association boards of directors and community managers frequently put up roadblocks to buyers and sellers. The obstacles associations can put up include incorrect statements to lenders, not allowing a short sale or foreclosure home to be sold, requiring approval of a sale, or selling to the association prior to foreclosure, to name a few. When anticipating a transaction, board meeting minutes should be reviewed to determine if any obstacles exist. Consulting an attorney early in the process may help circumvent difficulties later.
The realm of Community Association Law can be daunting, but proactive steps to understanding how these regulations affect real estate sales can save many headaches and expenses in the future.
Current Trends and Changes
A continuation of the theme of boards taking action in response to changes in the law is the upward trend of governance and transparency legislation. Florida Statutes Chapter 718, which governs condominiums, had several changes in 2018 which generally related to transparency of operations and how a board communicates with its members. The Condominium Ombudsman issued a report in May 2019 to Governor DeSantis outlining several proposed bills adding additional requirements to board members and associations focusing on transparency.
New powers were delivered to Florida’s real estate regulators under Florida Statutes Chapter 720 (commonly known as the Homeowners’ Bill of Rights) effective July 1, 2019. The Florida Real Estate Commission can now access the official records of homeowner associations at reasonable times and make copies of those records. It also required the developer of a subdivision to create and retain a "welcome packet" for newcomers to the community. The statutes also placed additional requirements on associations before instituting a foreclosure action.
Courts across Florida continue to issue decisions that affect community associations over the past year . For example, the commonly misunderstood Florida Statutes Chapter 718.112(2)(d)4.a, which governs vote tabulations and recounts, has recently been analyzed by the appellate courts. In Fidelity Land Trust v. Tower Hill Prime Ins. Co., it was determined that there is no right to a recount, tabulation or recheck of a ballot unless the requirement is specifically set forth in the documents. Despite the relatively short length of this statute, it has been analyzed and interpreted several times. Unfortunately for the associations, the appellate courts have considered certain provisions to mandate recounts in certain circumstances (autopilot recounts) without regard to the language of the statute. As a theme across Florida Statutes directed at common interest communities, additional requirements continue to be placed on homeowners’ associations and their managers who work diligently together with the elected boards to keep our communities running. Most of the changes clearly demonstrate the continuing trend toward promoting transparency, communication and independence of the boards.