What to do about Nightmare Renters

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Oftentimes HOAs feel as though their hands are tied when dealing with problem renters.  All one needs to do is a simple Google Search to see a litany of ugly situations.  Luckily, HOAs have a variety of remedies that can be pursued to ensure that association rules are being followed by everyone, including renters.

 Enforce Rules

 Both the Condominium Ownership Act and the Community Association Act provide for associations to fine for conduct that violates the association’s governing documents.  Prior to fining, an association needs to be sure that their fine policies comply with the applicable statutory provisions.

 Any fines are applied directly to the landlord, which generally encourages compliance with the governing documents by the tenant because the landlord doesn’t want to lose money on the tenant.  Conduct such as noisy neighbors, an aggressive dog, parking issues, and and generally dangerous activity can be curtailed via effective enforcement.

 Evict?

 In some jurisdictions it is clear cut that an HOA can't evict a tenant.  In Utah, the situation is different.  In certain circumstances the HOA can evict a tenant.  If the HOA can establish that a Nuisance is occurring a court will grant an abatement of that nuisance via eviction.  Some of the criteria in order to prevail on an abatement of nuisance via eviction the HOA must show criminal activity committed in concern with two or more persons, the property is used as a drug house, gambling is permitted at the property, prostitution or promotion thereof is carried on at the property, or parties frequently occur.  An exhaustive list can be found here.

 We recently had a case in which a group of tenants were terrorizing their neighbors.  The HOA felt completely powerless.  Because the members of the HOA installed closed-circuit cameras and thoroughly documented the activity that was taking place in the community (drug use, animal abuse, criminal activity) we were able to present in detail to the court why an eviction was both proper and necessary.  Despite the fact that the Judge had never presided over a case brought under this provision she granted not only the eviction but an attorney fee award for bringing the action.

 Payment of Fees

 One of the great things about most CC&R’s is that they have enforcement provisions contained in them that include an attorneys' fees provision.  This means that the HOA can recoup the cost of enforcement against the landlord.  If your governing documents fail to include such a provision you might want to take a look at amending them so that the HOA can enforce without expending money.

Contracts - Review Before You Sign on the Dotted Line

Importance of Contract Review

 

Some time ago we posted an article by Tyler LaMarr with a checklist of essential terms for HOA contracts

A recent Utah Supreme Court ruling involving an HOA underscores how important contracts can be to protecting an HOA from liability and exposure to damages. The case is called  Mounter Enterprises, Inc., v. Homeowners Association for the Colony at White Pine Canyon, 2018 UT 23

 The Mounteer case shows how Utah law strongly favors the enforcement of specific clauses contained within a contract.  As a disclaimer, I have strong feelings on this case as I was personally named as a defendant by Mounteer Enterprises when the case was filed for engaging in an alleged civil conspiracy.  I was immediately dismissed from the case in a summary judgment proceeding because there were no facts supporting the civil conspiracy nor was there any legal basis for bringing such a claim against me. 

 The facts of the case are pretty straight forward.  Mounteer and the Colony entered a contract for snow removal services.  The contract required that Mounteer maintain $7 million in aggregate insurance coverage. The contract provided that if Mounteer failed to purchase the necessary insurance the HOA could immediately terminate the contract, withhold payments until Mounteer cured the default, or purchase the required insurance and deduct the premiums from payments due to Mounteer. The contract also contained an anti-waiver provision. That provision stated that “[f]ailure of the [HOA] to demand such certificate or other evidence of full compliance with these insurance requirements or failure of the [HOA] to identify a deficiency in the form that is provided shall not be construed as a waiver of Mounteer’s obligation to maintain such insurance.”

During the four-year period of the initial contract Mounteer only had insurance in an aggregate of $5 million.  However, despite the failure to comply with the express terms of the contract the Colony paid Mounteer for all services rendered.  The Colony then entered a new four year contract with substantially similar terms.  Three months into the new contract a conflict arose and the Colony, after providing Mounteer with multiple opportunities to comply with the insurance requirement, terminated the contract for failure to maintain adequate insurance. 

Mounteer sued for breach of contract and breach of the implied covenant of good faith and fair dealing. It asserted that the HOA had implicitly waived its right to require strict compliance with the insurance provision when the HOA approved the certificates of insurance and paid Mounteer every billing cycle. And it claimed that this conduct was enough to overcome the existence of the anti-waiver provision.

The jury found the HOA liable for breach of contract and awarded Mounteer $578,000 in damages. The district court then awarded Mounteer attorney fees and costs as the prevailing party.

The jury verdict was appealed by the Colony and the Utah Supreme Court examined the express language of the contract to determine whether the Colony had waived their right to require that Mounteer strictly comply with the terms of the contract. 

The Utah Supreme Court looked at the question of what a party must show to establish waiver of both the underlying provision and the anti-waiver clause. It is settled law that an express waiver of a contractual right is sufficient to waive both provisions. Calhoun v. Universal Credit Co., 146 P.2d 284, 285–86 (Utah 1944). The Utah Supreme Court concluded that the mere failure to insist on performance of an underlying contract provision is insufficient to establish the intentional relinquishment of a party’s rights under the antiwaiver provision. The Court determined that because the failure to insist on performance after breach is entirely consistent with the rights set out in the anti-waiver provision—rights of flexibility that often benefit the otherwise-breaching party. And a finding of waiver in such circumstances would thus render the antiwaiver provision meaningless.

When Mounteer failed to acquire sufficient insurance it ran the risk that the HOA would discover the deficiency and terminate the contract. And the HOA was thus within its rights in terminating Mounteer for its failure to secure the liability insurance required by the contract. The Court reversed on this basis. 

Because the Utah Supreme Court reversed the trial court and found the Colony to be the prevailing party, they were awarded all of their attorney fees and costs and Mounteer was not entitled to any damages.  Both the anti-waiver provision and the termination for failure to provide insurance may have appeared to be minor or boilerplate clauses contained in a multi-page contract.  However, literally millions of dollars turned on the outcome of those two clauses. 

It is a sound business practice to consult with its legal counsel prior to entering any contract and doing so affords an HOA the protections of the Business Judgment Rule.  An effective review of your service contracts will ensure that the necessary clauses are included in your contracts. Remember that An Ounce of Prevention is Worth a Pound of Cure  particularly when it comes to avoiding costly litigation.

 

 

 

Vacation Rentals in your HOA

By:  Tyler S. LaMarr, Attorney

Originally published at https://gogladly.com/blog/vacation-rentals/

Vacation rentals are booming, and HOAs are struggling to keep up with the impact on the communities that they govern. Vacation rentals are a lucrative business. From 2015 to 2016, Airbnb doubled revenue, with an estimated $12.3 billion in reservations.1 HomeAway (VRBO) has also had huge growth with an estimated $14-$16 billion in vacation rental bookings in 2015. With this tremendous growth, it’s clear that short-term rentals are not going away anytime soon.

HOA members who market their homes as a short-term or vacation rentals, celebrate the lucrative opportunity and often market the HOA’s amenities to attract tenants. On the flip side, full-time HOA residents often complain that short-term renters are noisy, careless, messy, apathetic to HOA rules, and hard on the common areas. These contrasting perspectives are a perfect recipe for conflict.

In the last two years, our law office has noted a sharp increase in the number of disputes concerning short-term rentals. Having represented both HOAs and landlords in these disputes, I appreciate the opposing viewpoints. Here are a few things for HOAs to consider when grappling with this emerging challenge.

Create Clarity in Governing Documents

If your HOA has not yet adopted and implemented a policy concerning short-term rentals, don’t delay; otherwise, it could be too late.

I recently represented a homeowner who had rented his cabin near a popular recreational lake and state park. The HOA’s CC&Rs were drafted in the early 70’s and included no express rental restriction. When the HOA became fed up with the vacationers who rented the cabin for a few nights or weeks at a time, the HOA decided to take action.

Rather than amending the CC&Rs, which would require the written consent of hundreds of homeowners, the HOA got creative and adopted rules to interpret antiquated CC&R provisions regarding “commercial use” to encompass short-term rentals. In other words, the HOA took the position that short-term rentals constitute a “commercial use” and therefore prohibited them by imposing a hefty fine of $1,000.00 per night.

The cabin owner was assessed a hefty fine. As a result, he filed a lawsuit which lasted more than two years and cost each side tens of thousands of dollars in legal fees. The lengthy litigation was due in part by the difficulty of proving that a rental is a commercial enterprise.2As one court put it, if the purpose of the vacation rental was for the renters to “relax, eat, sleep, bath, and engage in other incidental activities” that rental did not amount to commercial use.3

The lesson here is that short-term rental restrictions should be clearly articulated, and may need to be a covenant recorded against the lots. Enforcing short-term rental restriction based on a policy or resolution may not be enough to keep you out of court.

Beware the End-Around

Other HOAs that I represent have lamented that enforcing short-term rental restrictions is difficult because landlords are crafty in evading the HOA’s restriction. Examples of such illusive techniques include:

  • Characterizing renters as “guests”, “visitors” or “friends and family members”
  • Entering long-term lease agreements, with an early termination clause for a nominal penalty ($5-$10)
  • Instead of paying money for the rental, the parties exchange services “off the books”

With these crafty landlords, HOAs must get creative as well. For example, an HOA might consider penalizing the advertisement of short-term rentals in addition to the rental itself. An advertisement can be easily monitored and documented. Or, the HOA may consider restricting early termination provisions in lease agreements within their community.

Consider Embracing Short-Term Rentals and Instead Enforce Behavioral Violations

HOAs will continue to struggle to stay ahead of the creative and elusive landlord. Accordingly, HOAs may consider embracing this emerging market trend and instead focus their efforts on regulating the harmful conduct and behavior that may accompany short-term rentals.

For example, if an HOA finds that short-term renters are noisy or violate parking rules, the HOA may impose a fine against the landlord-owner for its tenant’s violations. This will encourage landlords to properly educate their renters and to be careful in selecting responsible rental guests. Such fines will need to be sufficiently steep to deter the wrongful behavior.

Additionally, it enables the HOA to uphold its restrictions regardless of whether renters are characterized as “guests” or “visitors”. By focusing on the behavior, rather than the act of renting, the HOA takes an active role in ensuring the quality of life in the community.

Takeways

  • Establish clear and enforceable governing provisions related to short-term rentals;
  • Review the laws and cases in your jurisdiction to ensure that any rental restriction complies with state law;
  • Get creative in monitoring and documenting illusive rental practices;
  • Focus on the harmful behavior surrounding short-term rentals in addition to the act of renting;

1http://www.vrmintel.com

2Houston v. Wilson Mesa Ranch Homeowners Ass’n, Inc., 2015 COA 113, 360 P.3d 255; Wilkinson v. Chiwawa Communities Ass’n., 180 Wash. 2d 241, 249, 327 (2014); Slaby v. Mountain River Estates Residential Ass’n, 100 So.3d 569, 571 (Ala. Civ. App. 2012); Pinehaven Planning Board v. Brooks, 70 P.3d 664, 667-68 (Idaho 2003); Lowden v. Bosley, 395 Md. 58, 68, 909 A.2d 261, 267 (2006); Mason Family Trust v. DeVaney, 146 N.M. 199, 202, 207 P.3d 1176, 1179 (N.M.Ct.App.2009); Catawba Orchard Beach Assn., Inc. v. Basinger, 115 Ohio App. 3d 402, 409, 685 N.E.2d 584, 589 (1996); Yogman v. Parrott, 325 Or. 358, 366, 937 P.2d 1019, 1023 (1997)

3Slaby v. Mountain River Estates Residential Ass’n, 100 So.3d 569, 571 (Ala. Civ. App. 2012)

The Shakespeare Case and What it Means to Utah HOA’s

Authored by Peter H. Harrison

On June 22, 2016 the Utah Supreme Court published the Fort Pierce Industrial Park Phases II, III & IV Owners Association v. Shakespeare case, 2016 UT 28.  This case established a bright line rule that the Court rejected strict construction of restrictive covenants in favor of applying the rules of construction typically found in contracts. 

While many practitioners of community association law felt that this was already in the law in Utah, there was some confusion due to dicta in St. Benedict's Development Co. v. St. Benedict's Hospital, that "restrictive covenants are not favored in the law and are strictly construed in favor of the free and unrestricted use of property." 811 P.2d 194, 198 (Utah 1991).  In rejecting the dicta in St. Benedict's Development Co.  the Court cited to Swenson v. Erickson, 2000 UT 16, ¶ 21, 998 P.2d 807. In Swenson, the Court stated that "interpretation of [restrictive] covenants is governed by the same rules of construction as those used to interpret contracts" and that, "[g]enerally, unambiguous restrictive covenants should be enforced as written."  The Court also relied on Restatement (Third) of Prop. (Servitudes) § 4.1(1) (Am. Law Inst. 2000), which states,

“[t]he rule that servitudes should be interpreted to carry out the intent of the parties and the purpose of the intended servitude departs from the often expressed view that servitudes should be narrowly construed to favor the free use of land. It is based in the recognition that servitudes are widely used in modern land development and ordinarily play a valuable role in utilization of land resources.”

The Court closely examined the contents of the CC&R’s and found that the Board had “broad authority” to consider the need of an additional cell phone tower.  The fact that the Court performed a detailed examination of the CC&R’s is indicative of how courts will treat HOA enforcement cases moving forward by determining whether or not the Board is acting within its designated authority.

The Court examined other factors in its decision namely the Business Judgment Rule (i.e., that decisions must be reasonable and made in good faith and not be arbitrary or capricious).  Additionally, the Court scrutinized the timeliness of the Board’s decision, examining whether or not the deadlines as required by the CC&R’s were followed.

The Shakespeare case is important from a risk management perspective, and has rules that HOA’s need to be sure to follow:

1 – When making enforcement decisions the Board should consult with professionals to ensure that they are acting reasonably and in good faith.

2 – The Board should make sure that their decisions are grounded in the authority granted by the CC&R’s.

3 – The Board needs to sure that any timelines dictated by the CC&R’s are strictly followed.

NEW FHA LAW REDUCES OWNER-OCCUPIED REQUIREMENT FOR FHA CERTIFICATION

Authored by Douglas C. Shumway

If you manage or own a unit in a condominium association, you know how difficult it can be to obtain FHA certification. The volume of documents and ever-changing FHA guidelines can make the certification and re-certification process pretty daunting. One of the things that creates an obstacle for some associations in obtaining FHA certification is the requirement that 50% of the units must be owner-occupied.  A new law changes this requirement, however, in a way that benefits condo associations, purchasers, and developers.  

New FHA Law

On July 29, 2016, President Obama signed into law the Housing Opportunity Through Modernization Act (passed by unanimous vote in the US House of Representatives), which changes FHA requirements for condominium certification.  Specifically, the new law requires the Secretary of HUD to issue additional guidance for the owner-occupied percentage requirement within 90 days of the law’s enactment, which will be around November 1, 2016. 

If the secretary does not issue any such guidance in the 90-day timeframe, the percentage requirement will automatically reduce from 50% to 35%.  The secretary could issue guidance requiring more than 35% on a project-by-project basis, however, but the overall purpose of the law is to relax current FHA requirements and make FHA financing more available to condo buyers and developers.  As such, we will likely see a significant decrease in the owner-occupied requirement for condo associations in Utah.  

Revisiting Your Condo Rental Cap

This new law is great news for Utah purchasers, and for condo associations that struggle getting certified due to the current owner-occupied requirement. For associations that desire less rental units, the law does not prohibit lower rental caps, it merely authorizes higher ones.  As such, and in light of this new law, it would be prudent for your condo association to reconsider the purpose behind your current rental cap, and determine whether amending your rental cap in your governing documents would be in the best interest of your community once the new percentage requirement is established on or around November 1, 2016.  

Please contact one of the friendly attorneys at Miller Harrison if you would like assistance with this and any other HOA concerns.

 

 

Architectural Control, What Can an HOA Actually Enforce?

By Peter H. Harrison and Tyler S. LaMarr

Architectural Control is one of the key reasons people either choose to live in or run from an HOA.  Some people appreciate the HOA’s ability to enforce architectural controls via an Architectural Control Committee (“ACC”); whereas, others resent the thought of another organization telling them how they can modify or decorate their home. When these preferences are mismatched, it often leads to conflict.

Architectural controls include such things as the general design of a home, exterior finishes, color, landscaping, fencing, window covering, sheds, etc.  Those who appreciate them, point out that compliance with these standards dramatically increases property values and ensures a beautiful community for the owners.

Owners opposed to architectural controls feel as though they unfairly target HOA members, and create arbitrary or even silly standards.  I have heard residents refer to their ACC in derogatory terms such as “gestapo”, “Nazi”, “commie”, “crazy”, or “belligerent”.  Some of these owners feel as though an ACC is antithetical to the ideals of American home ownership and the United States Constitution, not realizing that the Constitution generally does not apply to private contractual relationships in this context.

Effective ACC Procedure

No matter the viewpoint, an HOA should and can implement effective procedures to reduce conflict. Over the years there have been multiple media articles referencing methods to properly manage an ACC or criticizing the role of an ACC[1].  These articles include opinions from architects, constitutionalists, lawyers citing national case, and property managers who deal with the day to day realities of such policies.  While these articles effectively contrast general policy consideration, the following practical tips will help an ACC properly function:

Tip # 1 – Follow your governing documents and form a committee.

Tip # 2 – Engage professionals such as architects, attorneys and managers to help draft appropriate architectural control guidelines.

Tip # 3 – Follow and enforce the guidelines in a uniform and clear manner.

Tip # 4 – Communicate with the owners and provide notice of the requirements and guidelines.

Tip # 5 – Monitor construction, and architectural changes and take early action to correct any deviations from the guidelines.

Enforcement – Case Law

The case law in Utah is pretty clear that an HOA can indeed enforce standards via an ACC.  In Swan Creek Vill. Homeowners v. Warne, 2006 UT 22, ¶ 44, 134 P.3d 1122 the Utah Supreme Court determined that an HOA’s governing documents constitute a contract between owners and the HOA.  In Rowley v. Marrcrest Homeowners’ Ass’n, 656 P.2d 414 (Utah 1982) the Utah Supreme Court recognized an HOA’s authority to enforce restrictive covenants relating to construction and unapproved building plans where the violating owner had notice of the restriction but nonetheless proceeded with construction.  Freeman v. Gee, 18 Utah 2d 339, 423 P.2d 155(1967)., made it clear that it is the Court’s duty to enforce the intentions of the parties as expressed in the plain language of covenants.

The case law focuses on the enforcement of the covenants and governing documents.  Thus, it is essential for an HOA to have a clearly outlined policy of specific guidelines for the ACC to enforce.  An HOA that has a thorough set of guidelines could have a set of documents that consists of over 30 pages of both process (the method and manner of submitting an application, follow-up throughout the construction process) and form (what the structure will look like, including finishes).  Once an HOA has a policy in place, it is important that the HOA uniformly follows that policy.

An important consideration in the enforcement battle over ACC guidelines is the fact that generally the prevailing party will be entitled to an award of attorney fees.  Pepperwood Homeowners Ass’n v. Mitchell, 2015 UT App 137, ¶ 12, 351 P.3d 844.  In Kenny v. Rich, 2008 UT App 209, ¶¶ 42-43, 186 P.3d 989, a Utah court awarded attorney fees to an HOA who was obligated to sue to enforce architectural restrictions.  I have personally been involved in representing HOAs who have both enforced their guidelines and recovered substantial attorney fee balances as a result of an owner’s noncompliance. In some cases, the expense and stress of litigation could have been avoided if the non-compliant owner (or their attorneys) could have set aside the emotions and made a decision on the case law and contracts.  

In the event of a violation, it is important for the HOA to inform the owner of the potential liability that will result if the HOA has to take enforcement action.  This simple step can often prevent the necessity of the HOA taking additional judicial action to correct the issue.

An effective ACC can be integral to the long-term function and cooperation of the owners within an HOA.  If you have questions regarding your ACC or the proper implementation of an ACC, please don’t hesitate to contact any of the attorneys at http://www.millerharrisonlaw.com.

[1] http://www.charlotteobserver.com/living/home-garden/michael-hunter/article9097763.html, http://communityassociations.net/cacondoguru/hoa-board-architectural-control-control/, http://www.washingtonpost.com/wp-dyn/content/article/2007/09/07/AR2007090701143.html, and http://articles.chicagotribune.com/2001-05-20/business/0105200220_1_architectural-single-family-homes-board-and-committee.

Taking Action Without a Meeting

 

Authored by Michael Miller, also published at http://uccai.net/blog/taking-action-without-a-meeting/

While SB 99 from the 2015 legislative session required Board meetings to be open to all Association members, the Utah legislature, effective May 10, 2016, has provided 2 ways by which a Board can take action without a meeting.

The first way by which a Board can take action without a meeting is through unanimous consent of all Board members. Under this approach, a Board member may email the other Board members with a proposed action. If all Board members affirmatively consent, the proposed action becomes effective. Any Board member can revoke consent at any time until the action becomes effective. The action becomes effective when the final Board member so consents unless a different effective date is designated. If a single Board member fails to consent to the proposed action, the matter cannot be decided without a meeting.

The second way by which a Board can take action without a meeting does not require unanimous consent from all Board members. Under this approach, unless the Association’s Bylaws provide otherwise, a Board member may email the other Board members with a proposed action that includes a specific notice. This notice must state and include the following information:

  1. The specific action to be taken;

  2. The time by which a Board member must respond to the notice;

  3. A statement that failing to timely respond to the notice will have the same effect as: (i) abstaining in writing, and (ii) failing to demand in writing that the action not be taken without a meeting; and

  4. Any other matters deemed necessary by the Association.

The proposed action is approved if the affirmative votes equal or exceed the minimum number of votes that would be required if the action was taken at a meeting (typically this would be a majority of a quorum of Board members); and the Association hasn’t received written demand from a Board member that the action should not be taken without a meeting. In addition, this second approach may not be utilized by an Association if its Bylaws say that they cannot.

To illustrate this new legislation, let’s say the ABC Association has 3 Board members — X, Y, and Z. The ABC Association Bylaws provide that Board decisions require approval from at least 2 Board members. Board member X becomes aware that an Owner’s vehicle is parked contrary to the Association’s rules. Board member X sends Board member Y and Z an email proposing that the Association levy a fine against the Owner for the violation. Board member Y consents to the action, but Board member Z fails to respond. At this point, the Board would not be able to take action under the first approach since unanimous consent from all Board members was not reached. Knowing that the next Board meeting wasn’t scheduled for another 30 days, Board member X tries the second approach. Board member X emails the other Board members and provides them with the specific notice requirements. Board member Y responds consenting to the action, but once again, Board member Z fails to respond. This time however, the action carries because no Board member demanded that the matter be decided at a Board meeting and because it was approved by at least 2 Board members, which fulfills the Board voting threshold required by the Bylaws.

This new legislation can be an effective way for the Board to take action in between regularly scheduled meetings. However, it is not recommended that it be used simply as a way to avoid the open Board meeting requirements.

Please contact our legal team, if you would like assistance with chairing an upcoming Board of Annual meeting, or with taking action without a meeting.

Hidden Structural Elements: What You Can’t See Can Hurt You (Utah Law)

By: Doug C. Shumway

For those of us that live in or work with a community association, whether it’s a condominium or a traditional P.U.D., sharing the responsibility for maintaining, repairing and replacing structural elements can be a headache—okay, maybe even a migraine. The most hotly debated question whenever there’s damage to an association’s building structure is: “Who’s responsible in paying for that?” Depending on what the association’s governing documents say, the path to finding the correct answer to this question can be fraught with peril.

The answer ultimately depends on what the governing documents (“CC&Rs”) say, and—more specifically—how “common elements” are defined. Associations are most often responsible to pay for damage to the common elements, whereas owners are responsible to repair and maintain everything else. While most CC&Rs attempt to draw a clear line between where the association’s liability ends and the owner’s responsibility begins, many CC&Rs are less than clear. It is common to see documents that assign liability to the association for roofs and exterior walls, and liability to an individual owner for everything “from the drywall in,” i.e. anything within the walls of the unit. However, what about the space between the ceiling and the roof? Or the 2 x 4 wood studs behind the drywall? If your governing documents do not clearly assign responsibility for these elements, you could find yourself being held liable for damage that shouldn’t be your responsibility.

For example, during the winter holiday in 2011, “Adam and Theresa” were away from their condo unit for a week-long honeymoon. Two days into their nuptial celebration, the water line behind the kitchen wall broke, causing flooding and damage to the walls, floor, and the neighboring unit. The association hired an emergency plumbing service to break down the door and open the wall to perform the necessary repairs. When the happy couple returned, not only did they discover the damage to their unit, but the association handed them a repair bill in excess of $5,000. The couple immediately tendered the bill to their homeowner’s insurance carrier, but the carrier refused to pay because all elements within the wall were arguably the responsibility of the association.  Attorneys were hired on both sides and the legal arguments dragged on for several weeks. A close reading of the CC&Rs revealed that, while the main water line was a “common element” and therefore the association’s responsibility, the water line that broke was a “limited common area” sub-line, and was the responsibility of the unit owner. The association’s attorney sent a demand letter to the insurance attorney citing the CC&Rs, and, within a week, the insurance company paid the association in full for the repair.

The best medicine for the liability migraine discussed above is clear and specific language in your CC&Rs. If your current documents do not sufficiently define “common elements,” or do not specifically enumerate the various types of elements and spaces within your building structures, make sure you either amend your documents appropriately or see that the association establishes guidelines for who is responsible for specific kinds of loss.

Amending Governing Documents

Amending Governing Documents- Utah

By: Tyler LaMarr

A common question of HOA directors and managers is “How often should the Association be amending its governing documents?” A common answer provided by HOA lawyers is “It depends.” This brief article outlines a few important considerations in deciding whether it is time to amend.

Overview of Governing Documents

HOA’s are governed by the following documents: (a) the Plat, (b) the Articles of Incorporation (if incorporated), (c) the Declaration of Covenants, Conditions and Restrictions (CC&Rs or Declaration), (d) the Bylaws, and (e) the Rules, Regulations, and Resolutions. This collection of documents is referred to more generally as the HOA’s governing documents.

When the governing documents are silent on a given topic an HOA should turn to the Utah Statutes for “gap-fillers”. Important Utah Statutes include the Utah Condominium Ownership Act, The Utah Community Association Act, and the Utah Revised Nonprofit Corporation Act.

Resolving Ambiguity

HOAs often encounter problem areas in their documents when a new dispute arises in the community. For example, an ambiguity may be discovered in the architectural control provisions when an owner decides to paint their siding neon pink. Or HOA may discovery that it does not have authority to charge interest until an owner becomes delinquent in paying assessments. Likewise, an HOA may learn it is does not qualify for Fair Housing Act approval because its provisions are discriminatory to residents based on age. These are just a few examples of the many unanticipated issues that may manifest over time.

When an HOA encounters such an ambiguity, the best course of action is likely to clarify the ambiguity. Sometimes this can be done through a simple Interpretive Resolution of the Board of Directors, which can save the Association time and money associated with an official amendment. Other times, an amendment will be required. Keep in mind that the cost to litigate about ambiguous and confusing provisions frequently exceeds to cost to amend the documents. Competent legal counsel can guide an association in helping them to know whether an amendment is necessary.

Removing Unnecessary or Undesirable Restrictions

Sometimes, new leadership of an HOA decides that it no longer wants to enforce certain provisions of the Governing Documents. If those provisions are embedded in the Rules and Regulations, the new Board can likely make policy changes without seeking approval of the membership. In contrast, if the provision is stated in the CC&Rs, members of the Board of Directors should remove the provision rather than just ignore it. Simply ignoring provisions invites lawsuits against the HOA directors for failure to uphold their duties to enforce the governing documents. Similarly, if a provision is desirable but the directors want to grant exemptions or exceptions to certain members, it is prudent to amend the documents accordingly. Otherwise, the HOA may face a lawsuit from its members for selective enforcement or waiver of its right to enforce.

Conformity with State and Federal Law

State and Federal legislation can have a large impact on the governance of an HOA. However, when new legislation conflicts with the provisions in the governing documents it can be very confusing for both directors and members. As such, from time to time, HOAs should review their documents and prepare amendments to conform them to impactful legislation.

Tips for Efficient Amendments

When it comes to an amendment, there are a number of things that board members and committees can do to give the amendment the greatest chance of approval by the owners. First, an Association should determine the percentage of homeowner approval needed. Once determined, it is helpful at this point to do a straw poll to determine owner support for the conceptual amendment.

When the amendment has garnered sufficient support, it will need to be drafted and circulated to the membership and sometimes the banks holding mortgages in the community. At this point it is helpful to hold town hall meetings to discuss the changes, why the changes are necessary and advertise the amendment. Committees can then be appointed to go door to door to educate the owners and resolve concerns. This face to face interaction will encourage the owners to fill out and return the ballots giving an association a higher chance of obtaining the necessary percentage of owner approval. After all, the more work that is done to educate and help owners understand the amendments, the greater the likelihood that the amendment will pass. Finally, don’t forget to timely record the amendment with the County Recorder’s office in which the community sits. Failure to record will likely invalidate the significant investment of resources.

Because amendments to governing documents have a significant impact on owners’ property rights, it is important that associations engage competent legal counsel to assist the association through the amendment process.