A Common Misconception
Many community association and Homeowners Association (HOA) boards (including other types of not-for-profit common interest developments) believe compliance with their governing documents is a defense against their failure to comply with local, state, or federal statutes. This notion can be a costly misconception. Many governing documents are outdated or do not align with new legislation.
Community association boards should review their governing documents regularly and obtain advice from independent community association counsel should they spot an issue. The savings from not seeking advice from outside counsel will never exceed the cost of potential litigation. Remember that even if the association’s Directors and Officers (D&O) policy pays for defense, there are still unintended consequences for attempting to resolve without counsel, even if the matter is frivolous, false, or fraudulent. Specifically, the board’s decision may impact a renewal or the ability to obtain a new policy.
This post further reviews why a HOA board might need to occasionally review and amend its governing documents. But first, we will start with a quick refresher on the types of governing documents.
What are HOA Governing Documents?
Governing documents define how a community association runs. There are three categories of documents, each serving a distinct purpose.
Bylaws
HOA bylaws act as an operating manual for the HOA board, detailing critical areas like meeting conduct, elections, and board member roles. They are essential to a smoothly operating HOA, often working unnoticed by homeowners.
Learn more: 10 Tips for Successful HOA Elections
CC&R
The Declaration of Covenants, Conditions, and Restrictions (CC&Rs) outlines the mandatory obligations homeowners agree to comply with when they sign their deed at the time of closing on their unit. These issues include restrictions such as pet ownership, assessment payments, aesthetic standards and landscaping, paint colors, signage, trash can rules, parking, storage, and rule enforcement procedures and penalties.
Rules and Regulations
Modifying HOA bylaws and CC&Rs is complex due to their legally binding nature. For more flexibility, using Rules and Regulations allows for easier changes for specific issues with just a majority vote from the board. Unlike bylaws or CC&Rs, which generally need a quorum of the total membership and a two-thirds majority of the total memberships, rules can quickly adapt to needs, including changing community spaces hours for different seasons, political signs, religious amulets, timeframes that basketball hoops can be in front of the house, and trash can guidelines.
Six reasons to update the governing documents
1. Potential Litigation
Many HOAs have “unenforceable” rules within their governing documents. These guidelines may have fallen out of compliance or contradict federal, state, or municipal law as they change over time. Updating bylaws and CC&Rs to conform to recent legislation helps to limit your organization’s liability. Federal, state, and local laws almost always take precedence over HOA bylaws—unless those governmental regulations expressly indicate that the HOA rules preempt the regulations.
The savings from not seeking advice from outside counsel will never exceed the cost of potential litigation.
2. Changes in Technology or Social Trends
If an HOA is older, its governing documents may not cover emerging technology such as electric vehicle charging stations or solar panels. They might not consider recent societal trends like home-based businesses or re-wilding lawns. Address these issues before they arise as homeowner complaints or lawsuits. Additionally, it can be helpful to codify how board members utilize technology for official HOA business. The key is to be proactive.
Learn more: Minimize Risk with 6 Best Practices for HOA Email Communications
3. Refining Unclear Language
At the initial writing of the bylaws and CC&Rs, they are generally prepared by developers or builders who have a vision of the development, but that vision is untested by the actual community. As a HOA grows and changes, homeowner requests can reveal ambiguous regulations or gaps in what the documents cover. While addressing these instances one at a time may not always make sense, the HOA secretary should document them. Then, the HOA can file for multiple amendments that address these wording changes at once.
Again, the assistance of counsel is worth its weight in gold. Many community associations have programs where they initially review and possibly restate the governing documents and update them to comply with changing regulations, which can be a trap for unwary homeowners. Obtaining a quorum can be much trickier than at first blush.
4. Updating Maintenance Practices
Modifying the type and frequency of routine maintenance can help increase property values. For example, updating the rules on how often a homeowner must address peeling paint or tuckpointing adds to the overall attractiveness of the community. This routine maintenance can also prevent many potential property damages and bodily injuries.
5. Conflict Resolution
If there are multiple recurring complaints from homeowners, board members can strengthen or clarify existing language to resolve the issue.
6. Removing Offensive Language
NPR reported that many HOA governing documents still contain outdated, sometimes racist language, about who could own property within a community. Such clauses, often discovered when a resident wants to make property modifications, are legally unenforceable but can be embarrassing and offensive for the HOA. Amending these bylaws is vital for creating a welcoming environment for all homeowners. Your community association attorney can assist with this to avoid unnecessary conflict. Making these changes proactively can prevent many significant discriminatory claims in community associations.
How Often Should Bylaws Be Amended?
Staying proactive helps avoid the issues listed above. Schedule a review of the governing documents every three to five years to see if anything has become outdated or out of sync with recent legislation.
Of course, should a homeowner’s request reveal an outdated regulation, the HOA should amend the bylaws or CC&R as needed.
Amending the bylaws
Many HOA governing documents become outdated because the process of amending them can be extensive. Remember, bylaws and CC&R are legally binding, whereas Rules and Regulations (R&R) address and cover more day-to-day issues within the board’s authority. Bylaws and CC&R require a majority vote of the board after complying with any notice and hearing requirements. The HOA must file these generally with the county registrar where the declarations of CC&Rs are filed. R&R, on the other hand, can typically be changed with a simple majority board vote. Both must be sent to homeowners under any notification requirements.
As we have established, ignorance is not a sound legal defense. Updating HOA governing documents is worth the time and money to avoid litigation and align bylaws and CC&R with state and federal laws. One common cause of conflict and challenges is that many homeowners do not review the governing documents before signing the closing documents. When residents execute the deed, they expressly agree to the CC&Rs and the R&Rs whether they read them or not.
McGowan Program Administrators (MPA), with more than 30 years in the field, specializes in advising HOAs and offers Community Association Insurance and risk management with what they believe are the most appropriate coverage options for the community association industry. Our extensive experience in comprehensive insurance solutions ensures your HOA or community association is well-protected against potential liabilities. MPA underwrites to protect the HOA’s assets.
