Is It Time for Your Community Association to Audit Its Governing Documents?4 min read
In other posts we have discussed a homeowner association’s governing documents. Many communities were established 20-40 years ago with governing documents that worked well for the developer, and for the most part the community association. However, many of these governing documents are outdated. Virginia and federal laws pertaining to community associations have changed substantially. If your board of directors has not engaged in an audit of your communities governing documents in the past 5-7 years, it should.
What is an “audit” of our governing documents?
An “audit” of your documents is an in-depth review by your HOA’s board of directors in conjunction with your association attorney. The Board reviews each document noting any sections that lack clarity, are no longer enforced, appear to not apply to your community, protect a long-gone developer, or do not provide the association with adequate remedies. The Board prepares a list of concerns or issues facing the community, such as homes that are not being maintained, large amounts of delinquent assessments, or enforcement capabilities of the association. The Board provides this information to the association attorney.
When should documents be amended?
Although there are many reasons for amending documents, these 7 reasons are the most common:
1. The documents do not comply with Virginia or federal law.
The board of directors for a community association are volunteers. Documents that do not comply with the law create difficulties an expense for a community association. Board members read the documents and determine that they should be enforcing a covenant, only to find out that the covenant has been preempted by a change in the law. Rather than require constant attorney involvement to interpret and advise the association on whether provisions of the documents have been changed by new legislation, amended documents that comply with the law permit a board to fulfill its duties without continued and constant attorney involvement.
2. The documents include declarant/developer language.
Once the developer/declarant period is over, the board should consider removal of the provisions regarding developer/declarant rights. Most of the provisions containing developer/declarant rights are likely no longer relevant and may cause confusion among owners. Removal of these provisions provides clarity in the document and often can result in a substantial decrease in the number of pages of your documents.
3. The documents contain high quorum percentages for meetings or difficult requirements for amending the documents.
Many associations are faced with apathetic owners. Reducing quorum requirements permits an association more flexibility in conducting business. Reducing quorum requirements encourages owner participation because the owner who wants to vote “no” on an issue can choose not to come to a meeting, and effectively, the “no” vote is exercised by not participating. Increased quorum requirements make it necessary for the owner to participate in the meeting in order to register their “no” vote. Amending documents should not be a daunting process. Communities need to be prepared for change. Amending documents should be efficient and possible. Reducing the percentage required to approve an amendment makes our communities more viable for the future.
4. The documents require approval by mortgagees.
Although this requirement is still necessary for condominium communities to permit financing through government guaranteed loans, single-family communities no longer require mortgagee approval. In our ever-changing mortgage world, non-condominium communities who want to consider removing mortgagee requirements may also want to consider authorizing the board of directors to make changes to the documents if necessary for government guaranteed loans.
5. The documents only permit the association to enforce the covenants and rules by filing a lawsuit.
Filing a lawsuit is the most expensive enforcement remedy available to an association. Amending the documents to permit assessing charges in accordance with Virginia’s Condominium Act or the Property Owners’ Association Act permits less-expensive enforcement by the association. Associations should also consider adding provisions that permit the association to “self-help” in certain situations. Abandoned homes that are neglected and in disrepair have plagued some communities. Permitting the association to correct the deficiency and assess the costs against the owner is more efficient and less expensive than a lawsuit.
6. The documents include unrealistic caps on increases in assessments.
All communities want to keep the assessments low. However, the reality for some communities is that they are unable to pay necessary operating expenses and adequately fund reserve accounts because the documents restrict how much assessments can be increased. Amending the documents permits the association to remove antiquated caps and replace it with a cap that permits appropriate budgeting by the association.
7. The documents include strict limitations on the types of construction materials permitted in the community.
Construction materials of today have changed. Providing flexibility in the documents to permit the use of new materials is not only owner-friendly but also may provide a substantial cost savings to the association for its responsibilities.