Thoughts on construction law from Christopher G. Hill, Virginia construction lawyer, LEED AP, mediator, and member of the Virginia Legal Elite in Construction Law

The Big Bad HOA: Not Actually So Big and Definitely Not So “Bad”

John TarleyFor this week’s Guest Post Friday here at Musings, I welcome back a good friend. John Tarley is an attorney with the Williamsburg law firm of Tarley Robinson, PLC. John is the managing partner for the firm and leads the firm’s business and litigation practices. A large part of the firm’s practice involves the representation of homeowners’ associations. In his spare time, John teaches two classes a semester as an adjunct at the William & Mary Law School, serves as the 9th Judicial Circuit’s representative on the Virginia State Bar Council where he serves as Vice-Chair of the Budget and Finance Committee, and is the editor of the Tarley Robinson blog and the @TarleyRobinson twitter account. Megan Scanlon, an associate with Tarley Robinson (and also an adjunct at W&M Law), provided substantial analytical, drafting and editing assistance with this post.

We see many news articles about a big, bad homeowners’ association interfering with Harry Homeowner’s “right” to live peacefully in his neighborhood. Whether it is demanding the removal of a flag pole that is too tall or forcing an owner to paint a faded mailbox, the stories we read often leave us asking the question: Why don’t they just leave that poor owner alone?

When you live in a community governed by a HOA, regardless of whether you know it, you have entered into a contract to abide by the Association’s Governing Documents: its Declaration (Master Deed), Bylaws and for incorporated Associations, the Articles of Incorporation. These documents contain covenants, conditions and restrictions that run with the land and all owners are subject to these documents’ terms and provisions.

Similarly, HOAs are governed by a Board of Directors, almost always composed of volunteers, our neighbors, good people like you and me. They soon find out, unfortunately, that they may not comprehend the immense and time-consuming obligations for which they are now responsible. It would be outstanding if new board members could receive Board of Directors’ training from their homeowners association attorney, because these volunteer directors are bombarded with new and often foreign concepts such as Governing Documents, Due Process and Fiduciary Duty.

Of these concepts, a director’s Fiduciary Duty is of the utmost importance, and incorporated HOA Boards of Directors in Virginia must comply with the Virginia Nonstock Corporations Act. Like directors in every stock and nonstock corporation, directors must follow the business judgment rule. This includes the duty of loyalty and the duty of care. Part and parcel of these duties is a director’s to enforce and not turn a blind eye to the Associations covenants, conditions and restrictions.

A recent case highlights what happens when an Association’s Board of Directors, trying to uphold its fiduciary duty by enforcing and upholding its governing documents goes head to head with homeowners, both believing that they are in the right.

When Sam and Maria Farran placed an “Obama for President” sign in their yard in October of 2008, the sign was four inches larger than the Association’s covenants permitted. The Association contacted the Farrans, asking them to remove the sign. The Farrans refused, and instead cut the sign in half and put it back up, claiming the sign was now in compliance with Association standards. The Board of Directors passed a resolution, relying upon Va. Code Ann. § 55-513(B), permitting charges (fines) for noncompliant owners, and then imposed those charges upon the Farrans in accordance with that statute. The statute reads as follows:

B. The board of directors shall also have the power, to the extent the declaration or rules and regulations duly adopted pursuant thereto expressly so provide, to . . . (ii) assess charges against any member for any violation of the declaration or rules and regulations for which the member or his family members, tenants, guests, or other invitees are responsible.

Apparently the Farrans did not pay the assessed charges, but instead filed a lawsuit against the Association, alleging that the Association did not have the authority to levy charges. After many months and many dollars in legal fees, the Fairfax County Circuit Court ultimately held in favor of the Farrans. The Court held that such charges could be assessed only if the “association’s declaration expressly allows it to impose fines or its declaration expressly allows it to adopt rules or regulations which impose fines.” Because the declaration was silent on those issues, the Court ruled for the Farrans and ordered the Association to pay the Farrans’ legal bills too (by statute), a cost that would ultimately get passed on to all of the homeowners.

Many media reports cheered for the victory of “the little guy” and demonized the Association for letting the dispute go so far. But what should the Association have done differently? Weren’t the directors simply upholding their fiduciary duty to enforce the restrictive covenants drafted by the developer and agreed to by all the homeowners? What would happen if the Board of Directors only selectively enforced the covenants?

Remember that the Court did not determine that the Association improperly ordered removal of the “Obama” sign. When the homeowner left the sign standing, but cut it in half, the Association could have filed suit for an injunction in the Circuit Court (beginning in 2011, an Association can now seek an injunction in General District Court). However, that lawsuit would be costly and time-consuming, so it’s probable that the Association decided to try a less litigious approach in an attempt to encourage compliance with the Governing Documents. Furthermore, up to the time of the lawsuit, no reported cases had determined an association could not unilaterally impose fines by using Va. Code Ann. § 55-513(B).

Complicating the matter was a seemingly conflicting decision by the Circuit Court of neighboring Loudon County, a decision that was affirmed by the Virginia Supreme Court in Lee’s Crossing v. Zinone. In that case, the trial court and Supreme Court approved the developer-controlled Board’s decision to unilaterally impose fines, holding that “nothing in the [Property Owners Association Act] prohibits a declarant from making express provisions in a declaration for a different manner of amending the declaration.” The unanswered question remained “what if the declaration was silent on the issue?”

Most recently, after the “Obama Sign” case had already been decided, the Virginia Supreme Court gave us a window into how it would likely rule if presented with the facts of Farran v. Olde Belhaven, in the case of Shadowood Condominium Association v. Fairfax County Redevelopment and Housing Authority. As we wrote in our blog on the Shadowood case, the case, as an unpublished order with no precedential value, still provides insight into the Virginia Supreme Court’s position on the issue of charges holding:

[A]n association should nonetheless follow the Court’s analysis and reasoning. Unless the condominium instruments or governing documents specifically permit the common interest community to impose the charges and/or suspension of rights for violations of the documents and authorize the charges to be assessed by the association, it is likely that a court may find against the association where the owner contests such actions.

HOA Governing Documents are drafted by counsel for the developers, and when the developers leave, the enforcement of those restrictions is left to the volunteer Boards of Directors of your neighborhood. Although we urge HOAs to consider a review to amend their Governing Documents, it is not an easy process.

Media articles and blogs portray a Board of Directors that acted badly. Although this case ended favorably for the homeowners, in this situation, are there really any winners? Did the Board of Directors run rampant over the rights of the homeowners? Were the actions of the homeowners what we would call “reasonable” under the circumstances?

Our experience is that the volunteer Boards of Directors, when faced with tough choices, try to make decisions consistent with their fiduciary duties, in an attempt to protect the rights of all the owners in the neighborhood. That doesn’t mean they always make the right decisions, but these ordinary people are not ogres, either.

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*Note – this blog post does not address the Association’s denial of the Farran’s architectural review applications for roof and deck modifications which ultimately became part of a separate lawsuit.

As always, John and I welcome your comments below. Please subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.

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18 Responses to The Big Bad HOA: Not Actually So Big and Definitely Not So “Bad”

  1. “It would be outstanding if new board members could receive Board of Directors’ training from their homeowners association attorney…”

    It would also be outstanding if the homeowners received training on how to propose changes to arcane, outdated and downright illogical covenants & restrictions. This, too, would help shape the community into something that all homeowners want. (Specifically sustainability hurdles as referenced in my Musings from a few weeks ago.)

  2. You are correct Mike, unfortunately the “homeowners” in homeowners associations are not major forces in lobbying efforts. The Virginia Legislative Action Committee (http://www.cai-valac.org/link/linkshow.asp?link_id=14337) lobbies on behalf of homeowners, but does not have the funding or influence to battle other special interests. However, we do our best to urge homeowners to make their voices heard, and Susan Tarley is the current chair of VALAC. Any suggestions would be much appreciated!

  3. As the Secretary of my HOA in Fort Collins, it’s sometimes a challenge trying to maintain work, family and my HOA duties. When I discovered Association Online all of that changed. No need to worry about piles of paperwork, their software is quite easy to use and all our HOA documents are stored and managed online. This allows our Board of Directors to operate in a more effective way. You should check them out at http://www.associationonline.com or call (970-226-1324). I highly recommend them for all Homeowner Association needs.

  4. Yes, it would be outstanding if the Board of Directors and the homeowners received training. Unfortunately, when the Board of Directors selectively enforced the covenants, training is mute. Example: We informed our Boad of Directors on a previous board member use of his back yard as a driveway to access the main road. Disregard of the covenants is one thing, but to disregard the safety of the pedestrians who use the sidewalk is unconscionable.

  5. John:

    While it has been quite a while since we last posted here, your request was not forgotten. Here is a mix of comments & questions:

    1. VALAC “lobbies on behalf of homeowners”, but how does it know what homeowners want?
    2. A lack of funding doesn’t mean it can’t have an influence on what transpires. Often, code hearings are free to attend (and hence deliver testimony). As far as I know, city/town/village council meetings are, too.
    3. While I don’t think I’ve ever used one, there are online petition sites where one can start a petition. Depending on the tech “savviness” of the person, a movement could be organized that way.

    Also, since we last corresponded, I’ve looked into ways to modify my neighborhood’s covenants. The document was unclear, so I asked the HOA president. She wasn’t very confident when she responded to my inquiry, but it appears they are modified by submitting the changes to the village’s planning & zoning commission for a determination.

    Have you (or Christopher) ever heard of such a method of modification?

  6. Picking on your comment on what the Ferran does not mean, what if a “fine” is actually a settlement between parties to settle a matter instead of going to court. The law probably does not preclude the voluntary financial agreements between owners and HOAs to settle rule violations. That is, if the owner assents to the HOA’s fine, and no filing is made by either party, is there even a case to take to court? So what if the HOA presents the fine as the cost of not going to court?

    So we would view the fine as an contractual agreement to settle a grievance, that includes the stipulation that the matter is closed and there will be no further proceedings.

    A possible advantage of this new legal environment is that adjudicating these matters before a court could take any personal antipathy between neighbors and HOA leaders out of the process. Moreover this is arguably a check against runaway and unreasonable HOA administration. If HOAs fancy themselves as petite governments then there have to be limits to their authority. So maybe HOAs should be subject to judicial review just like our local, state and federal governments are.

  7. […] So what is an HOA to do? Note that these court rulings do not say that HOAs cannot make rules and regulations, or see that the covenants in its declaration and by-laws be enforced. Rather the issue is what mechanism does it have to affect enforcement. […]

  8. The first thing I noticed about your article: you make it easy to spot that it’s written from the perspective of an attorney who works on the side of the HOA. Using phrases such as “big bad homeowner’s association” and “Harry Homeowner” is very dismissive.
    Ask yourself why the HOA tried to fine this couple once the sign no longer violated the height requirement? That’s easy: they were just mad that the homeowner outwitted them and complied in a way they did not like.
    But to the crux of the problem: you stated it yourself when you say homeowners have agreed to abide by the covenants WHETHER THEY KNOW IT OR NOT.
    Homeowners need to be informed of how HOAs operate, how they often follow legal advice to write covenants in as vague a manner as possible in order to be able to legally harass homeowners over trivial issues. Homeowners do not generally understand the full legal ramifications of what they could be getting into, especially if you end up with a power-mad little clique of permanent board members. The problem isn’t that the idea behind HOAs is bad, or that all board members are power crazy — the problem is that there seem to be few, if any, safeguards for homeowners when abuses or disagreements DO happen.
    HOAs should be required to write covenants in clear, precise language. If flagpoles are forbidden, SAY SO!!! Don’t write covenants that don’t even mention flagpoles or flags; then use the phrase “other structures” to hide flagpoles within the meaning.
    Put a mediation requirement in the rules in case of a disagreement, or require the development of a state regulatory authority the homeowner can appeal to.
    As it stands now, the majority of satisfied parties in an HOA dispute are board members who are vengeful and arbitrary and get their power high; and lawyers who rack up fees.

  9. Ah, actually I came on here to ask a question, if anyone cares to answer: are HOA governing documents (CCRs, ByLaws, Rules and Procedures) considered a unilateral contract; and if so, which party is the offeree -the homeowner or the HOA?

  10. The answer may turn of some legal technicality, but as a long time HOA officer who tries to keep up with case law, it does not seem possible for a new homeowner to opt-out of and refused to abide by the CCRs, ByLaws, Rules and Procedures.

  11. I wish to replace the siding on my house with a vinyl siding that has been approved by the town for our cluster of townhomes. The previous board also approved this to replace cedar board and batten [no longer available]. Now the new HOA board says they can’t find proper paperwork and won’t approve any further. I say this is preferential treatment. There are several houses that have had this used as siding and you can not tell the difference. This is what I want to use as it is much better in this northern Virginia climate. What can I do? Precedence has been set by approval being given and by the town approving it as well.

  12. Gail:

    The town has misplaced the documentation that states they approved a building material? If you haven’t already, I’d double back with them, as often a municipality can trump an HOA.

  13. I am an HOA board member in a NOVA HOA. I read with interest your synopsis of the Farran vs Ole Belhaven. I also read the actual case ( FYI: I am not an attorney) documents and the ruling. It is my understanding the point that the judge used to make his decision was how the defendant HOA’s Board of Directors enacted the new bylaw regarding fines. My read was the judge rule that the board did not follow its on declarations and bylaws in establishing the fines rule. They made a procedural error that gave the appearance of an arbitrary and reprisal-based action. That said the result of this precedence has now created an unintended consequence of hamstringing HOA’s ability to legitimately enforce declaration, articles of incorporation, and bylaws at the lowest level of engagement…at the community level. Our HOA is now regularly threatened with litigation over any enforcement of long established bylaws. We even had to acquiesce and grandfather clear violations of architectural standards because homeowners have reneged on previous bilateral agreements to correct architectural deviations prior selling their property. Because our annual assessments are growth constrained to increases NTE 10% per year without an affirmative vote of at least 75% of members in good standing, we have no real budget to litigate even a minor dispute. So now we have a real dilemma…how do we maintain our community standards?

    So here is a real question…we have issues with both residents and transients speeding and running stop stop signs on our HOA’s private streets. The local law enforcement entity is prohibited by law from doing any traffic enforcement because our streets are private property. Several residents have formally complained to the board that their safety is as risk. Is the HOA potentially liable for any injury and damage due to a accident in which the proximate cause is speeding or stop sign violation given we have clear and documented evidence of these traffic safety issues?

  14. Scott,
    I think as it is now, the HOA needs to go district court to levy a fine.

    If you have a know recidivist offender you can go in district court and get an order that they comply. Then after each offense the HOA you can go to district court with your proof of violation, i.e., witnesses or camera footage.

    As a long time HOA officer I actually like this approach. This puts the HOA on the same accountability footing as the police on any public thoroughfare. It squeezes whatever personal animus and vendettas out of HOA administration by having the courts being forum for adjudicating matters.

  15. One thing you left out regarding this case — From what I read, the Farrans also sought approval for a home improvement (a deck, I think) while the sign kerfuffle was going on … and the HOA promptly nixed the improvement at a meeting w/o providing notice to the Farrans. That, as much as the sign issue, probably motivated them to go to war with the HOA.

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