Punitive Fining is Outside Board’s Authority

Fairfax Co. Redevel. and Housing Auth. v. Shadowood Condo. Ass’n,
No. CL-2010-13282, Va. Cir. Ct., May 12, 2011.

In this case, a condo association levied more than $20,000 in fines against a housing authority, which owned several units to rent to low income families. The fines were related to rules violations by the authority’s tenants and failure to provide the association with paperwork relating to the units.

The court held that the fine amount was unreasonable and punitive in nature. After analyzing the association’s governing documents, the court determined that the board’s authority to fine was limited to maintenance of common area property and association operations. The board lacked authority to issue fines as a penalty.

Before levying fines, a board of directors must ensure that the association’s governing documents permit monetary fines. The board should also draft a policy outlining fine procedures and provide notice of the policy to association members.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Use Caution When Reviewing Leases

Many governing documents provide the association with the authority to review and either approve or deny the leases of community members. This authority can be helpful in that the association can ensure the lease document complies with the association’s governing documents, the association can have a record of the new tenant’s name and contact information, and the association can be sure that the number of units or homes leased does not exceed a set percentage if there is such a requirement in the governing documents.

However, with this authority comes great responsibility. Associations must use caution not to violate the Federal Fair Housing Act when reviewing leases.  By enacting a reasonable policy for lease reviews and applying it evenhandedly to all leases, the association can avoid the pitfalls of discrimination complaints.

A tenant cannot be rejected on the basis of her race, color, religion, age, sex, ethnicity, national origin, family status, or handicap. If the tenant participates in the Section 8 Voucher Program, denying the lease could be a violation of the Fair Housing Act on the basis of disparate impact. Similarly, conducting criminal background checks for tenants may also be a disparate impact violation under the Fair Housing Act in some circumstances.

The best approach for community associations is to formulate and enact a reasonable leasing policy and stick with it. Making exceptions in some cases and not others can open the door to litigation.  Leasing policies should focus on length of the lease and compliance with the governing documents rather than the background and identity of the tenant. However, having the tenant’s contact information and a copy of the lease on file will promote better communication within the community. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter. 

Self-Help and Covenant Enforcement- Drawing a Line in the Sand

Frustrated board members often find themselves in a predicament: how far is too far in covenant enforcement?  Oftentimes, the governing documents of an association will allow the board to use self-help to enforce the covenants in a handful of situations.  For example, the covenants may state that if an owner refuses to maintain his or her yard the board may hire a landscaper to mow and then charge the owner for the service.  Unfortunately, boards sometimes go too far in seeking enforcement measures and step into the realm of vigilante justice.  This was the situation in a Florida case where the board of Palomino Lakes Subdivision literally blocked access to the subdivision on three occasions to prevent an owner from delivering what they thought was a mobile home.  Parton v. Palomino Lakes Prop. Owners Ass’n, Inc., 928 So. 2d 449 (Fla. Dist. Ct. App. 2006).

The covenants for Palomino Lakes prohibited mobile homes, but the owner was actually delivering a modular home, which was to be attached to a concrete slab and was permitted by the covenants.  By blockading access to the neighborhood, the board violated the covenants.  The owner later sued the association and the board members individually for breach of contract and injunctive relief. 

At trial, a jury determined that the owner was entitled to $5,000 in compensatory damages and punitive damages of $60,000 against one board member, $50,000 against another board member, and $40,000 against a third.  As the prevailing party, the owner was also entitled to reasonable attorney’s fees.

Board members should think twice before taking self-help measures and subjecting themselves to personal liability.  Always ensure that board actions are permitted by the governing documents.

This site and any information contained herein is intended for informational purposes and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Risk Management Assessment for Condos and HOAs

Here is a link with tips on how to be sure you are covered by your association’s Directors and Officers (D&O) insurance.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Keeping the Reins: Beware of Underhanded Boards and Their Tactics to Remain in Power

Although the SC Nonprofit Code and the governing documents of an association maintain safeguards for fair elections, many boards are coming up with crafty ways to ensure re-election. An article in the Orlando Sentinel lists these as the most popular methods for power-corrupt boards to hold on to their seats:

1. Create a Nomination Committee, stacked with spouses and friends of the sitting board members. They plainly nominate the sitting board members – nobody else — and the ballot mailed out to the eligible voters will only contain the names of the “wanted” candidates, because the committee declares every other candidate who volunteers not fit to serve. Any owner trying to “nominate himself or herself as a candidate for the board at a meeting” has anyway no chance. The written mailed-in ballots already give the sitting board members the votes necessary for re-election.

2. HOA elections normally require a quorum of 30% of the total voting interests present in person or by proxy. 30% is quite a high hurdle, and the proxies collected by the board will only be used if it serves the advantage of the sitting board. It’s much easier to declare: “No quorum present” – therefore the old board is the new board.  Before anybody can object, the board and its supporters quickly leave the meeting room. Election won – no matter how many of the other owners complain about procedure.

3. Mail out general proxies, claiming these proxies only serve the purpose to fulfill the quorum requirements. But since they are actually made out as general proxies, they can be used by the board secretary to count as votes – if necessary.

4. Intimidation is another often used method to swing the election. Sitting board members go door-to-door to “collect” proxies with themselves named as proxy- holders. Especially the many elderly will often sign the proxy, just to live in peace. Violation letters and fines are the common threats used to “convince” the owners who are not voluntarily willing to sign over their voting rights!

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

Association Meetings Must be Properly Noticed

Bd. of Managers of Park Regent Condo. v. Park Regent Assoc., No. 2009-04227, N.Y. Supr. Ct., App. Div., March 30, 2010.

A condominium regime in New York was recently involved in litigation over the validity of an association member annual meeting. Several unit owners called the meeting and purported to elect a new board of managers for their regime. The board of managers in place prior to the meeting brought suit for a declaratory judgment that the meeting was invalid for lack of proper notice; therefore no new board members were elected. A unit owner also sued past and current board members for fraud and breach of fiduciary duty. The trial court held that the unnoticed meeting was invalid and issued a permanent injunction against the board members elected at the meeting, preventing them from acting as members of the board. The appeals court affirmed this holding.

The individual unit owner later amended his complaint to recover attorney’s fees and expenses, as permitted in the regime’s governing documents. This motion was also granted.

In sum, when associations fail to properly give notice of member meetings and board meetings very costly results may follow. Associations should closely read their governing documents for notice requirements and follow these requirements to the letter. Contact an attorney for help in complying with your governing documents.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Board Committees

From time to time, a Board of Directors may find it helpful to delegate responsibilities to Board Committees.  Committees are authorized by the Nonprofit Code in S.C. Code Ann. § 33-31-825, except where prohibited by the Association’s bylaws or articles.

A majority of Board members must approve the creation of a Committee, unless the Association’s bylaws impose a more stringent requirement.  Committees must abide by the same rules as the Board in terms of meetings, actions without meetings, notice and waiver of notice, and quorum and voting requirements.  Additionally, the Board may delegate non-board functions to Committees.

Some examples of Committees include: a Nominating Committee, Architectural Standards Committee, Covenants Committee, and a Social Committee.  Board Committees should always exercise reasonable care in delegating and supervising Committees and Committee members, as this delegation of authority does not exonerate Board Members from their responsibilities to the Association.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.