Granting Variances

Once a month, I receive a publication from Community Association Institute called, “CAI Law Reporter.”  This newsletter provides updates on current lawsuits throughout the country that may have an impact on HOAs.  I am continually surprised at the many ways in which a board can get itself embroiled in a lawsuit that it so easily could have avoided if that board had simply considered a variance (to allow something that would otherwise not be permitted due to conflict with the rules of the HOA).  Now, I am not suggesting, as could be interpreted, that boards, when faced with a potentially litigious owner, should simply cave in and allow that owner to do whatever he or she wants (or has already done).  What I am suggesting, however, is that boards should use some common sense when faced with a gray area.

What are some of the gray areas that seem worthy of a variance?  Certainly anything that pertains to a disabled or handicapped resident’s needs.  Another possibility is with active duty military personnel, who may need a variance while they are serving overseas.  Finally, an owner with a significant crisis in his/her life (sudden death or terminal/critical illness of a loved one) may need a variance while he/she copes with that reality.  The variance may be something as simple as waiving late fees for a month or two, or it may be as complex as permitting a companion animal, the installation of a ramp, or the use of a golf cart for those with mobility challenges.

When one of these gray areas appears before the board, what should the board do?  First, the board is within its rights to ask for documentation.  In the case of military personnel, we might ask for copies of the deployment paperwork.  For a medical issue, a letter from the doctor confirming the need for the variance (although boards should use caution - the doctor doesn't have to disclose the patient's diagnosis nor why, for example, that patient requires a companion animal for his/her treatment and/or health).  Second, the board must give the requested party time to get that paperwork together (30 days should be sufficient) and to them before taking further enforcement steps.  Finally, it is wise to offer the owner an opportunity to present his/her case before the board, whether or not the owner chooses to exercise that opportunity.  Finally, if the board grants the variance, the variance granted should be put in writing and should include clear and specific language about what exactly this variance allows, for example:

• Mr. Smith may install a ramp for access to and from his unit.  Mr. Smith is responsible for the cost of the installation and the ongoing maintenance required for it as long as he owns his unit.

• During her period of deployment in Iraq, Ms. Jones’ monthly assessment may be received within thirty days (in lieu of ten) of the due date to be considered received on time.  Once her deployment period has expired, Ms. Jones’ assessments will be considered late if not received by the tenth day of the month due.

If the board is not going to grant a variance, especially for a disabled or handicapped owner or resident, the board should discuss the matter with their legal representative prior to denying that variance.  There may be legal ramifications to such a decision that the board may be unaware of, including violating the Fair Housing Act.  It’s cheaper to spend a little money to get the attorney’s opinion now than to fight a bad lawsuit in the future.

Should the board be in the habit of granting variances?  In my opinion, no.  But variances should be carefully considered if there are significant, substantiated reasons for doing so.

Architectural Review

Most homeowners associations and all condominium associations have provisions in their governing documents for an architectural review committee (sometimes called architectural control committee and abbreviated as ARC or ACC), which is responsible for reviewing and accepting or denying proposed changes to the property within the association’s jurisdiction.  While these areas are community- and document-specific, some generalizations can be made about what might fall within the ARC’s area of responsibility.  In single-family detached subdivision, where owners are responsible for the grounds and structures, the ARC is generally responsible for reviewing and approving any changes to the landscaping (front, back and side yards), fencing, house color or design, additions, and any additional structures (shed, pool, greenhouse, gazebo, windmill, deck, etc.).  For attached townhomes, the ARC likely reviews any exterior additions like flagpoles, satellite dishes* or other permanently affixed or placed items.  In condominiums, in addition to things listed under townhomes, the ARC may also have responsibility for reviewing items inside the units that may affect neighboring units or the common elements like changes to plumbing, installation of flooring, installation of an air conditioning unit, etc.  It’s important for owners to check with the governing documents (and any ARC resolutions) prior to making any changes to their units.

The governing documents for each community outline the basic information about the ARC:  how many members, when a response must be provided by, what types of applications they review.  Many documents give the board the ability to serve as the ARC.  It is also very helpful to have an ARC resolution in place, which can provide much more detail about the process and an application form as well as any items that have been preapproved by the ARC (for example, a certain type of storm door or screen or light fixture).  If there are design guidelines for the community (whether created before or after the developer set the community up), it is useful to include these as well.

One of the things I’ve run into time and time again with ARCs is a misunderstanding about the purpose of the ARC.  The ARC is not responsible for ensuring whatever is built is built properly; the ARC is an aesthetic body only.  It is, however, responsible for ensuring any and all changes made that fall within its jurisdiction are applied for and decided upon.  When this comes into play most is when an owner has made a change to his/her property without obtaining proper ARC approval (usually innocently not realizing he or she was required to do so) and the ARC is satisfied with the change.  Many times, the board and the ARC have felt that since the alteration was acceptable, there was no harm and thus no foul.  However, by not requiring this owner to submit for approval (albeit after the fact), the ARC is potentially revoking its power because it is selectively choosing what it will or will not enforce.  This comes into play when several owners have made acceptable changes to their property without obtaining approval (and without the ARC requiring them to after the fact) and then an owner makes an unacceptable change that the ARC denies and requires the owner to restore things to how they were.  If the owner refuses to do so and can demonstrate that other owners have made changes without approval, the ARC, the board and the association will have little or not power to disallow this owner’s changes.  Certainly if a lawsuit ensued, the outcome for the association would be grim.

Most owners who have made changes to their homes without obtaining approval first simply did not realize that they were required to do so, and most comply immediately with the request to submit (it’s generally easier for them because they can simply complete the form and submit a photo of the finished change).  It is still prudent to give them a written deadline (as is wise in any enforcement proceedings) and follow up immediately after the deadline has passed if no submission has been provided.  Failure to submit an ARC application for a change should be treated like any other rules violation, regardless of the acceptability of the change.  If the owner continues not to submit the required information and the board has adopted a fine resolution, fines should be imposed (after sufficient notice and the right to be heard has been provided to the owner).  While this may seem excessive to some, the board should realize that failure to enforce one section of the governing documents may also hinder its ability to enforce other requirements of those documents.  While it’s unlikely an assessment obligation would be overthrown by the courts due to failing to enforce architectural review standards, it is a possible outcome that would be disastrous to an association.

The other area that ARC’s seem to get into trouble in is when they try to overstep their authority.  ARCs (and boards) should absolutely enforce regulations within their jurisdiction, but should try to avoid compelling enforcement for items that they do not (or do not clearly) have authority over.  I ran into this for one of my clients last spring (a condominium project that was also part of a master association).  Many of the homes were in need of repainting (the initial paint job was failing) and the board was in the midst of negotiating a contract with their desired painting contractor.  In the midst of this, I received a letter from the master association requiring the homes to be repainted (which was already planned for that summer) with an application and a request to submit the paint colors, the application, and a $ 100 review fee.  As it so happened, I had worked on behalf of the master association early in my career as the ARC administrator and compliance enforcement, so I was very familiar with their documents, and so I sent a letter back stating that as the condominium was not altering any of the colors, there was no requirement to submit any paperwork or a fee.  The master association responded that they were now requiring any and all repainting to resubmit and pay the fee, and required again that the condominium provide what they’d previously requested.  Well, that didn’t sit right with me.  It wasn’t about the money (the condo could easily afford the fee) and it wasn’t about the time to put together the paint colors (there were about 40 buildings all painted with different colors so this was not an inconsequential task) but it seemed that the ARC, rightly or wrongly, was overstepping its authority.  The master association and I went back and forth a few more times and in the end they backed down because they did not, in fact, have the authority to require this.  This is important to remember because, if the ARC had insisted and taken the condominium association to court (as unlikely as that seems), they would likely have lost and needlessly spent the association’s money in a frivolous manner (that could then get the board sued - possibly successfully! - for breach of fiduciary duty).

ARCs are a critical component of a successful community and care should be taken to ensure any and all changes within its jurisdiction are submitted and reviewed.  Documentation about those changes and approvals should be maintained for the duration of that change and maybe even for the duration of the association.  ARCs must also be cautious not to exceed its authority or jurisdiction, make all of its decisions in writing and require the same of all submissions to its aesthetic judgment.

* Although many governing documents, especially those written before the mid-90s, limit or prohibit the placement of satellite dishes, FCC regulations (known as the OTARD rule) allow owners to install a dish one meter in diameter or smaller.  ARCs cannot prohibit installation nor require a lengthy approval process.  Dishes must be permitted to be placed in a location with good reception.  For more on how the OTARD ruling might affect your association, please contact the association’s attorney.

Intro to Community Rules Enforcement a.k.a Compliance

My first role in this industry was doing rules enforcement and architectural review committee administration for a large planned unit development.  What I found out very quickly is that in order for rules to be effectively enforced, the enforcement has to be done in a consistent and timely manner and the rules themselves (as well as the consequences) must be clearly delineated.

First, let’s talk about the rules themselves.  The initial rules for the community are set by the developer/builder (also known as the declarant) in the governing documents themselves.  These are generally put together in a section with the words “rights” or “restrictions” and may be in the Declaration or Bylaws (depending on whether the community is a condominium or a PUD).  These are the most basic rules that all owners implicitly agreed to when they closed on their home and a board cannot opt to ignore violations of these rules (note, if there is a rule that is generally considered not to reflect the desires of the neighborhood, the board, with the consent of an appropriate percentage of the owners, can pass and record an amendment to remove that rule).  The documents usually also give the board the authority to pass additional rules that are deemed to the benefit of the owners, provided that these new rules do not conflict with the governing documents.

Once the rules are identified, the next step is to determine how the community will respond to infractions of these rules. Some communities choose to send a friendly reminder notice first before sending a formal violation letter.  I have had others opt to speak to the owner first (either by phone or in person).  Whatever process the board determines is best for the community, this process should be a) in writing and b) followed each and every time (this is where a compliance resolution can be very helpful).  A typical process looks like this:

a.  A compliance violation is reported to the board.

b.  The board confirms the violation exists.

c.  A compliance letter is mailed to the owner.  This compliance letter must include the nature of the violation, the date by which the violation must be corrected, what must be done to correct the violation, and, if a fine is to be imposed upon failure to correct, the fine amount and the right to be heard.

d.  If the violation is corrected within the specified period, the violation and correction are filed away and the matter ends.

e.  If the violation is not corrected within the specified period, a written notice of the intent to fine and the right to be heard is mailed to the owner (unless the initial notice included this).

f.  If the matter is still not resolved within the specified period and the owner has not requested a hearing, the fine amount indicated in the letter is applied to the account.

g.  Fines continue to accrue if the matter is still not resolved, until the matter is turned over to the association’s law firm or until the owner has resolved the violation.

It is important to remember:  fines cannot be imposed unless the owner has been given the right to be heard.  Fines also cannot be imposed if the board has not adopted and published a fine schedule.  It is also critical to remember that fines are not an appropriate way for the association to make money and must not be unreasonable.  Instead, the purpose of the fine is to be a deterrent and to cover any costs associated with gaining compliance.

The absolutely best way for the board to set themselves up for rules enforcement is by adopting a compliance resolution.  This resolution includes the authority of the board to make and enforce rules, how infractions are enforced, the fine schedule, and the appeal process.  It is also prudent to include (as an exhibit or attachment) the rules being enforced.

It is also useful to determine how rules violations will be identified and followed up on.  As a manager I have done many compliance reviews (both by myself and with board members).  This can be good for spotting initial violations but is problematic for follow up as the board usually doesn’t want to pay the management company to drive back out in a week (or whatever the deadline is) to check on the status of the issue.  What I think works much better is for a committee to be established by the board (which can include less than a quorum of board members) to periodically inspect the community for infractions and return to those locations after the correction date to determine if the problem has been rectified or if further compliance action needs to be taken.  Unless the committee is very vigilant with its paperwork, I prefer that the management company sends the enforcement letters since we are normally the ones who receive the calls from the violators.  However, a thorough committee (or a self-managed community) can be successful with rules enforcement provided it is consistently and frequently done.

One final note:  board members are not exempt from following the rules.  If a board member has an infraction at his/her home, she or he should receive a notice just like everyone else.  It’s uncomfortable to have to enforce against a board member (for rules violations, failure to pay dues on time, etc.) but the board has a responsibility to treat all members equally.

Holiday Decorations

It’s the time of year again when many homes are being decorated for the holidays.  Strings of lights are on the homes or in the windows (and trees and bushes) and the inflatable Santas are sitting on the front laws.  There may be candy canes, sleigh bells and mistletoe.  Rudolph may be hiding among the greenery, and possibly even some elves.  While many people enjoy the holiday decor, most are ready for it to be down after the new year.  If your association don’t have a policy in place, now is the time to adopt one, to avoid Christmas (lights) in July.

The first step always in adopting new rules or regulations is to check the governing documents.  Does the board have the right to adopt a policy about holiday decorations?  If so, great.  There may even already be specifications in the declaration or bylaws that states when these decorations may be put up and when they must be taken down.  In that case, the board may not need to do anything else (assuming the board has already adopted a compliance resolution).  If, however, the documents give the board authority to adopt rules but nothing specifically addressed holiday decorations, now is the time to determine what is appropriate.

So what time frame is appropriate?  Most people have their own thoughts about what is the correct length of time for decorations to be in place, and they are probably different for different holidays (Halloween or St. Patrick’s Day, for example, versus Christmas).  Many boards that I’ve dealt with over the years felt that, for holidays between January 2 and Thanksgiving, it was sufficient to allow owners 10 days before and after the holiday to have decorations out.  For holidays between the day after Thanksgiving and the January 1, most boards wanted to allow owners from the day after Thanksgiving until January 10 to have those decorations in place.

Another good question is what decorations are permissible?  Again, check your documents, but the board may want to limit the wattage of lights or require that they cannot be directed into a neighboring home.  The board may want to allow strings of lights but prohibit those inflatable Santas (or Rudolphs or snowmen).  This may be a question of aesthetics or may be an issue of harmonious living, so the board should consider both.

Should the board have any restrictions on the installation or placement of the decorations?  If the exterior of the homes are the responsibility of the association, the board may want to prohibit any installation that penetrates the exterior siding or envelope of the home.  If the association maintains the landscaping, the board may want to restrict what may be placed on the lawn or in the bushes.

Ultimately the purpose of decorations is to celebrate and enjoy the holiday more, so while I think it is prudent for the board to consider these issues (and take action, if no rules or restrictions are in place), I also think the board should adopt rules cautiously and with the desires of the owners thoroughly considered.  If your community looks like Peacock Lane, it would be imprudent to ban holiday lights.  Whatever guidelines the board decides to adopt (whether for decorations or not), be sure to be in compliance with the governing documents and consider the desires of the majority of the owners in your community.

Resolutions!

Resolutions are one of my favorite tools for boards to use to address routine, common problems and procedures.  CAI describes a resolution as “...a motion that follows a set format and is formally adopted by the board...(they) may enact rules and regulations or formalize other types of board decisions.”  Simply put, resolutions are decisions by the board on topics that are commonly encountered in the day to day business affairs of the association.  Resolutions cannot contradict the rules and restrictions in the governing documents (or state or federal laws) but are instead considered an extension of them.

Resolutions must follow a set format:  citation of authority to adopt the resolution, which may include sections of state or federal statutes or of the governing documents; purpose, which explains why the board is adopting this resolution; scope and intent, which is who this resolution affects and for how long; and finally the specifications, which explains what those affected by the rule are expected to do.*

There are four resolutions that I think all boards should adopt:  payment resolution, insurance and maintenance resolution, architectural review resolution and rules enforcement resolution.  It can also be prudent to have a resolution to explain how resolutions are made and adopted, but it is unclear if that is truly necessary or not.  So what do these resolutions do?  Let’s take each of them in turn.

Payment Resolution.  The payment resolution, which may have several different names, is all about monies due to the association.  This resolution details the frequency of regular assessments, the due date, the grace period (how many days after the due date the payment is still considered not late), the late fee (which may be a dollar figure or a percentage of the assessment), as well as any other fees or penalties for failure to pay.  This resolution also details what actions are taken and in what time frame when an assessment is not received by the end of the grace period.  Typical steps you’ll see in this resolution is notice to the owner at 30 and 60 days, with a demand letter being sent around 90 days (provided this conforms with the governing documents).  It should also detail when an owner’s account will be turned over to a collections attorney (usually an amount or a minimum number of days without payment).  Things like NSF charges, attorneys' fees, etc., are generally also mentioned in this document, so that there’s no question the HOA has the right to recover these costs.

Insurance and Maintenance Resolution.  This resolution is especially critical for condominiums and those planned unit developments where the HOA and the owners share maintenance responsibility for the homes/units.  This two-fold resolution helps owners, the board, and the insurance agent to clarify the items that are the responsibility of the association (versus what each owner is responsible for) in accordance with the governing documents.  In addition to giving an overview of owner versus HOA maintenance responsibilities, it also explains insurance coverages, deductibles, and the procedures for filing an insurance claim.  When the association has its first insurance claim, the board will be glad to have this resolution in place.

Architectural Review Resolution.  Most governing documents give the board the authority to set up an architectural review committee (commonly called ARC or ACC) to help review and approve potential changes to the community.  Developers like to put this clause in their documents (and many owners like to see it in them) because an ARC can help ensure that the standards of the development are upheld and potential neighbor concerns are considered.  This resolution is generally a formalization of the procedures mentioned in the governing documents but may also include specific restrictions (such as no fences may be more than 6’ in height or all homes must use cedar shake or tile roofing).  It also usually includes a form that details the process and information to be provided for consideration.

Rules Enforcement Resolution.  The governing documents for your community most likely include some restrictions on use that may address such issues as rentals, trash cans and recycling bins, recreational vehicles, etc.  This resolution expands on those restrictions by putting into place the procedure to follow when a violation occurs.  Without such a resolution, and the accompanying fine schedule, a board may not be able to enforce the restrictions in its documents.  This resolution usually also includes a recap of the rules for quick reference.  Any board that wants to enforce its rules should adopt this resolution.

One important thing to note about all of these resolutions:  they cannot be contrary to your governing documents nor to state or federal laws.  So if your documents say that a boat cannot be in sight in the community, the board should not adopt a resolution that states that an owner can keep a boat in his/her driveway overnight.  The resolution should match the governing documents.  Likewise, if the governing documents allow owners a 30 day grace period to submit their dues payments, the board cannot opt to reduce that to 10 days in its resolution.

It is also a good idea to have any resolution being considered for adoption by the board be reviewed by legal counsel to ensure there are no invalid clauses nor anything imprudent contained with them, especially if the person drafting them does not have experience doing so.  Even though I’ve written countless resolutions (maybe 75 or so over the years), I still encourage my boards to run them past their legal counsel if they want to do so.

Finally, resolutions must not only be adopted by the board but must also be provided to all owners before they go into effect.  It is not sufficient to post them on the HOA's website; all owners must be notified and receive a copy of the resolutions (electronic or physical) before the board undertakes any enforcement of them.

Resolutions are incredibly powerful and somewhat underutilized tools of the board.  If your community does not have these resolutions in place, please consider which may be appropriate for you.

* This section is based entirely on the text on pages 52-53 of the M-100:  The Essentials of Community Association Management from CAI.