What Constitutes a Homeowners Association Contract?
A Homeowners Association (HOA) contract is a legally binding agreement that outlines the terms and conditions governing a residential community organized as a non-profit homeowners association. Its purpose is to establish the rights, responsibilities, and obligations of the various stakeholders involved in the community, which typically involves the HOA board of directors, the individual homeowners or members, and in some cases, developers or builders who remain involved in the community post-sale.
These contracts are created to ensure that the interests of the collective community are met, by providing a legal structure whereby governing documents are developed, delegating authority to the board, and laying out the regulation of common interests, properties , and assets. Homeowners associations can take on many forms, and can be legally incorporated as non-profits, but generally, covenants, conditions and restrictions, and rules and regulations are established.
The legal significance of an HOA contract is profound, as it governs the conduct of all involved, and can be enforced through various means, including litigation. It is important to keep in mind the language and meaning of an HOA contract, as it binds not only the existing parties to the agreement, but also all future homeowners and the HOA. The often-cited adage that "a contract is only good as its least informed party" has special meaning with regards to HOA agreements, and the potential consequences should a dispute arise among the parties to the agreement.
Key Components of Homeowners Association Agreements
At the heart of any homeowners association (HOA) is its governing documents. These governing documents are both a contract between the homeowner and the HOA, and defining rules for how the HOA is governed, run, and funded.
The most important parts of any HOA contract are:
As part of the contract, the governing documents require you to abide by all restrictions defined in the deed restrictions and any other written polices issued by the HOA.
Enforcement of the restrictions is very important to the HOA. An individual violation may be subject to fines, but can escalate to extraordinary measures such as foreclosure in order to protect the value of the interest of the HOA and every other homeowner.
Fee structures are specified in the governing documents. HOA fees usually come in two forms: regular maintenance fees and special assessments. The regular maintenance fees are used for the care of the common areas of the subdivision, like parks and other shared spaces. Special assessments are usually for a single piece of capital improvement and usually due immediately, or at least in a short (compared with the regular fee) timeframe.
Common Problems with HOA Agreements
Common Issues in POA Contracts
Homeowners association contracts often result in disagreements surrounding the specific language of the agreement. Homeowner association contracts stipulate the responsibilities of the parties, often leading to disputes over maintenance obligations and the allocation of repair costs. It is common for confusion to arise in the interpretation of certain ambiguous terms.
For example, contracts frequently provide that homeowners are responsible for roof and gutter cleaning, yet require the association to maintain roofs, gutters, and drains. If a roof has fallen into disrepair, and the association replaces the roof, what happens when the homeowner gets stuck with future gutter cleaning costs? Or, if the association expects the homeowner to take care of all roof maintenance, how can the homeowner get the association to pay for the new roof that it installed? Often, courts are tasked with determining the intent of the parties and interpreting the contracts to determine what the parties intended when the contract was formed.
When homeowners associations act in non-compliance with the contract, there are consequences. The homeowner may sue for damages or an injunction to require the association to comply with the terms of the contract. Courts will favor homeowners associations and homeowners when interpreting the contracts; however, homeowners associations are only protected when they comply with the covenants set forth in the contract.
Initiating Amendments and Updates
In most homeowners association contracts, amendments and revisions are part of the master agreement. Adopting a change to your HOA agreement is different than changing the language of most normal contracts. A normal contract simply requires the parties to negotiate and execute a new agreement, effectively voiding the old one and replacing it with the new. The Cascade Classic Cars Court distinguished the differences between homeowners association contracts and other normal contracts by pointing out that a homeowner is not even a party to the original agreement and that the benefits of the original agreement are not fully binding until the new member has purchased property and read the agreement. In a normal contract, the terms of the original agreement would be binding on both parties once they negotiated the end of the agreement. However, for a member of a homeowners association, he or she only becomes bound to the agreement terms once the property directly affects him or her.
So how are amendments made to homeowners association contracts? First and usually only after 1/3rd of the members have voted for the amendments, the association sends a 30 day notice of amendment rejection to all of its members. The association must then send out a 2nd 30 day notice of amendment rejection to the members under its rules. If after the 60 day period, a member still objects to the proposed change the member has to ask for a meeting or hearing to contest the change. No discussion of change that violates state statute and/or public policy should occur at the hearing however.
Another important aspect of revising a homeowners association contract can be seen in the case of Worthale v. Hudson View River Club Condominium. In this case a member moved into a homeowners association seconded floor apartment complex, which when built, did not prohibit animals. Years after Worthale moved into his unit, the association amended its agreement to prohibit animals in the seconded floor and upper floors. The members were told of the amendment however, Worthale was "unreachable" and rent checks addressed to him always ended up being intercepted by someone else. Even when all of the attempts to contact Worthale failed, his animals still continued to enter into the apartments.
The association sued Worthale, as an absent member of the HOA to evict him and his pets. Worthale argued that since he did not sign the amendment he could not be evicted. However, the Court held that Worthale had constructive knowledge of the amendments and either ignored the process or is simply "unreachable." The Court further points out that a member’s actual knowledge of the amendments "would eliminate the need for someone else to provide notices. As such, the notice requirement is solely to avoid ignorance and therefore constructive notice suffices." So in the case of Worthale, his court ordered eviction undoubtedly led to the abatement of his nuisance of a dog.
The Cascade Classic Cars Court also pointed out that unlike normal rules of contract, there is no obligation to furnish a copy of a contract amendment prior to its adoption. This is particularly interesting because in California there are no HOA statutory guidelines requiring advanced notice of adoption of an amendment. This means a homeowners association can alter the agreement without prior notice. However, it must still furnish a copy of the revised agreement to all of its members after the fact.
Legal Rights and Responsibilities of Homeowners
Homeowners are entitled to actively participate in the governance of their communities and have a right to be a part of the decision making process, while also having the obligation to follow the restrictions and guidelines as laid out in these contracts. Under Florida law, a board or committee member must be an owner in the community (unless they receive board approval to serve based upon hardship). It is important that association members understand their legal "Bill of Rights" as established in Fla. Stat. 720.303 (2) which outlines the rights and privileges guaranteed to homeowners under Florida law. Homeowners with CDDs must also familiarize themselves under Fla. Stat. 190.011 (3) with how their HOA differs from a Master HOA and their legal rights and obligations unique with CDDs . Statutes governing homeowner associations do not limit an association’s ability to impose reasonable time, place, location, or manner of speech, or to impose reasonable content-neutral restrictions on free expression activities at a meeting where notices are required to be mailed or delivered. The law does not prohibit an association from adopting reasonable rules for speaking and commenting at meetings so long as they are not content-based.
Florida law also allows for a board or committee to adopt reasonable written rules governing its frequency, place, notice, and length of meetings.
Owners have a right to attend meetings, and to speak at meetings with respect to all designated items on the agenda that are presented at least three days prior to the meeting. While owners may address each item, however, they are not entitled to speak for an unlimited period of time.
Resolving Disputes with Homeowners Associations
Dispute Resolution Methods in HOA Contracts
A critical part of understanding your HOA contract is knowing what happens if disputes arise. Fortunately, a variety of dispute resolution mechanisms are available to homeowners through the association.
Levelling the Playing Field with a DBR
The Declaration of Building Restrictions (DBR) is the backbone of your HOA contract. The DBR, also known as the CC&Rs (Covenants, Conditions & Restrictions), details the rights and obligations of homeowners and the association. The most common methods to resolve disputes are mediation, arbitration and litigation.
In mediation, an impartial third party listens to both sides of the conflict and helps facilitate compromises. Mediation is often the first step in resolving a dispute. In regard to mediation, the DBR may include mandatory language that any dispute between any member and the Association that can’t be settled shall be settled by mediation. Mediation in good faith is required. If there is no settlement achieve, an award shall be entered by the mediator, as if it the judgment entered by the court. The parties to the dispute shall equally share the cost for the mediator. The DBR may completely dispense with the mediation process.
Arbitration is another option. Similar to mediation, it involves an impartial third party but the mediator is a retired judge or private attorney where they conduct a hearing. Unlike mediation, arbitration is binding and cannot enter a judgment. Parties may be required to go to arbitration before proceeding to court. The DBR may require that arbitration be used in all disputes, or only where the amount in controversy is less than a certain threshold. Arbitration is usually not less expensive than litigation and often takes more time. The parties are expected to split the arbitrator’s fee.
The last option is litigation. Litigation involves filing a lawsuit in state court. If the DBR is worded properly, a court may grant a party’s request to file a lawsuit instead of attending mediation or arbitration. Litigation may be unavoidable in certain circumstances where injunctive relief is needed or a party is not complying with any pre-litigation requirements.
While mediation, arbitration, and litigation are available to settle disputes, they may not be the best option for every situation. Disputes involving amendments to or a violation of a DBR can result in significant costs. The best practice is to understand the appropriate dispute resolution mechanism and the costs involved so you can use the terms as a tool to reach a fair resolution in case of a disagreement with your HOA.
Helpful Tips for Reviewing HOA Agreements
During the review of any HOA contract, it is vital to discuss contractual conditions with the appropriately licensed legal expert. For example, developer-controlled associations will have different nuances than non-developer-controlled associations. While much of the information contained in an HOA contract will be similar, there can be important differences that could significantly alter the governance of a community association. For example, the contract can address both voting and accounting procedures. The methods for voting – are there proxies allowed, how many proxies can be delivered , etc. – can have a significant impact on the governance of an association. Accounting procedures can affect the level of transparency and allow for reading HOA financial reports by those that are not accounting experts. However, HOA contracts are not just for homeowners, given that a developer of real estate can enter into an HOA contract with the HOA if certain conditions are met. Thus, contracts can reflect provisions impacting both homeowners and developers.
Prior to entering into any HOA contract, it is important to understand what the contract does. This is especially true in HOA contracts, where the failure to understand a contract’s implications can have a negative impact on both the short-term and long-term health of a community association.