HOA Basics: An Introduction To Homeownership In A Planned Community.

Depending on how well-run a community/homeowner association (community associations) is, it can provide residents with increased property values, structured governance, and harmonious living. These lofty goals often are achievable by properly organized community associations, but can require owners to live close to their neighbors, share common facilities, and voluntarily sacrifice certain freedoms. But what happens when a community association is poorly run? Although abiding by community association rules and board decisions can provide many benefits to members, a poorly managed association runs the risk of usurping personal property rights and creating a contentious living environment.

To maximize the potential of this arrangement, owners should understand their role within the community association. Knowledge of the governing documents, regulations, and governance structure can help an owner strike the appropriate balance between restrictions and privileges.

"Community association" is a generic term used to describe residential developments in which each owner is bound to a real estate organization by a set of governing documents that require adherence to a set of rules and the payment of assessments. There are three basic types of community associations: planned community, condominium, and cooperative. Approximately half of community associations are planned communities in which the association owns the common areas, but provides owners with specific rights and obligations for use and maintenance.

All community associations are governed by federal, state, and local statutes as well as legal documents unique to the association that bind the association and its owners. Lender requirements and professional standards also restrict community associations. The community's budget funds compliance with various codes, laws, and taxes.

While communities located within a given jurisdiction must comply with the same federal, state, and local statues, a set of documents unique to each community association is also applicable. These documents provide a framework for governing and funding the association's operations. They set forth the rules and standards that make possible the aforementioned  goals of increased property values and harmonious living. The documents also create the binding relationship between each owner and the association - defining the rights and obligations of both. Understanding how the governing documents create these rights is critical to protecting the interests of both parties.

The general hierarchy of documents within a community association is as follows: recorded map, plat or plan, Declaration of Covenants, Conditions and Restrictions, Articles of Incorporation, bylaws, rules and regulations, and other resolutions. The hierarchy is not definite and may vary based upon the contents of each document. The plan is an essential community association document, recorded in the County Recorder's Office before selling any lots or units. The plan defines who is responsible for maintaining what property and the appropriate location for improvements to the property.

The plan is generally included in the Declaration. The Declaration also serves several other functions. As stated, ownership in a community association involves the sacrifice of certain rights pertaining to one's property. Normally, limitations on the rights related to a piece of property - including leasing, building, and mortgaging, are included in the deed as "deed covenants" or "deed restrictions." In a community association, these restrictions and covenants are defined in the Declaration, which is then recorded in the County Recorder's Office.

The Declaration is the backbone of the association, and defines who owns what parts of the property, as well as providing protective standards, restrictions, and obligations. The Declaration also creates the interlocking relationships that bind all owners to one another and to the association for the purposes of maintaining, governing, and funding development. Crucially, the Declaration provides the association with the means to levy assessments and transition control of the association from the developer to the owners. Finally, the document identifies the initial board of directors - if one will exist.

While the Declaration provides most of the organizational groundwork, associations are governed by several other documents - known as Articles of Incorporation, per the incorporation requirement for community associations in Pennsylvania - bylaws, and resolutions. Bylaws are formally adopted governing regulations for the administration and management of a community association. Planned communities, condominiums, and cooperatives all have bylaws either adopted as part of the Declaration or following incorporation.

Understanding the bylaws of the community association is necessary to participate in community governance (a topic discussed in more detail below). The bylaws set forth requirements for membership in the community association as well as the procedures for electing the board directors and officers. An owner should also look to the bylaws for information on the powers and duties of the board if they are not contained in the Declaration.

Bylaws organize the board, but the board exercises much of their decision-making power through resolutions. Resolutions are motions that have been formally adopted by the board and typically enact Rules and Regulations or formalize other board decisions. In some communities, resolutions must be adopted by member approval - a condition that would be outlined in the bylaws.

The governing documents set up the structure of the community association and provide the mechanisms to create the rules, regulations, and fees characteristic of life in these communities. As part of the mandatory membership in community associations, owners must comply with the Rules and Regulations set forth in the governing documents. Unit owners in Pennsylvania should know that prior to execution of a contract for sale or otherwise before conveyance, they are required to furnish a purchaser a copy of: the Rules and Regulations, Declaration, bylaws, a certification containing a disclosure of any restraint on alienability of the unit, a statement of monthly common assessment and other fees, as well as the most recent financial information and budget of the association. Such information is usually supplied by the Association in the form of a "resale certification" of some sort (the association may charge a modest fee to provide these documents).

Although they are mandatory in nature, most rules are merely expressions of unit owners being courteous and considerate of their neighbors, and respectful of their rights and investment in the community. Other rules, however, involve architectural requirements/restrictions, landscaping, and other similar guidelines. For a purchaser, the rules establish the standards of lifestyle particular to that community, and he or she should look elsewhere if this is not the standard that he or she wants and is willing to support, maintain, and enhance as an owner-member.

In addition to the Rules and Regulations, all community associations have mandatory fees (assessments) payable to the association on a monthly, quarterly, or annual basis. Assessments are often aimed at preserving the aesthetic and functional value of the common areas, but also include payments for garbage and snow removal. Insurance and access to amenities, such as a pool or exercise room, may also be covered by assessments.

Although some are specifically prescribed by law, many of the governing documents, rules, regulations, and assessments are functions of the community governance. Community associations are composed of different groups of people working together. To govern a community association effectively, association leaders should understand the roles and responsibilities of these groups and how they interact. The groups are comprised of owners, board members, officers, and committees.

Board members run community associations, however, governing documents and the law often reserve certain powers for the owners. These powers can include electing the board members and filling vacant positions on the board. Additionally, the owners - not the board members - generally have the power to amend the Declaration.

The basic authority in a community association lies with the owners. The owners elect a board of directors to act on their behalf. Board members and committee members are volunteers who meet regularly to discuss pertinent details about running their community. A board meeting at a community association is comparable to a town council meeting of a municipality.

General board powers include: authority to set goals, standards, and policies for the association; maintain the property and financial stability of the association; purchase insurance; entering into contracts for services; and conducting annual meetings and board meetings. The board generally has at least four officers: president, vice president, secretary, and treasurer. The duties and powers of these officers are usually set forth in the bylaws.

In a volunteer or self-managed community association, the board manages the community itself, as is often the case in smaller associations. Community associations may also choose to employ an outside manager directly. Larger associations generally choose to hire a management company. These companies specialize in managing community properties and are usually experts in: landscaping, budget maintenance, board of directors' development, governing document development, and more.

Regardless of how a community association is structured, owners, board members, and officers must have a clear understanding of their rights and responsibilities. Generally, owners have the right to a responsive and competent community association where their community leaders treat them honestly and respectfully. The owners may participate in community governance by attending meetings, serving on committees, and standing for election. Owners are entitled to prudent expenditures and fair treatment regarding all association obligations and the opportunity to appeal, non-routine responsibilities. Finally, owners must have access to appropriate association records and documents addressing rules and regulations.

To assure that all members enjoy these rights, owners must make sure that they and their guests comply with the governing documents of the community. This also means treating association leaders with respect. Owners also must pay their assessments on time and maintain their property according to  standards. Working together with the board to solve problems, as well as participating in elections, also helps promote a harmonious living situation.

Like owners, board members have specific responsibilities entitling them to particular rights. Board members expect owners to comply with the Rules and Regulations and to treat them with honesty and respect. Personal privacy in the community during personal and leisure time is also a right of board members.

As managers of the community, the board has many responsibilities, which include the exercise of discretion and judgment in all of their business dealings. Board members must also understand the governing documents and conduct business and elections in an open manner - providing residents access to all relevant documents and financial reports. Generally, board members are expected to foster a sense of community by welcoming new members and receiving input from all owners. Owner input is critical to the success of a community because owners have very few direct powers after they elect a board to act on their behalf.

The documents and governing bodies that make up a community association can vary greatly from association to association. However, the important qualities for success in this environment are relatively standard. Owners and board members must communicate thoroughly and effectively to create and support organized and productive business operations, community programs and fair and effective rules. These qualities will lead to an enhanced quality of life and increased property values.

Poorly managed associations can have the opposite effect - dragging down property values and adversely affecting the quality of life of their members. Boards that arbitrarily enforce rules and do not respect the rights of the members create a myriad of problems. This highlights why it is so important for all parties to be well informed and to understand their own rights and responsibilities, as well as those of the other groups involved.

The attorneys at Fox Rothschild have extensive experience in forming associations and representing them going forward. Conversely, we also routinely utilize our experience in this area by representing home owners in situations involving disputes with associations should the need arise.

www.foxrothschild.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Ronald Kalyan, Jr.

Fox Rothschild LLP 

2000 Market Street

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PA 19103-3291

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