- Top Reasons to Amend a Community Association’s Governing Documents
- September 11, 2017 | Author: Deborah M. Casey
- Law Firm: Vandeventer Black LLP - Norfolk Office
Whether your community’s documents are relatively new or have been recorded for several decades, this article is intended to provide a basis for determining why amendments should be considered. Governing documents generally include the Declaration (or Master Deed for condominiums created under the Horizontal Property Act), Articles of Incorporation (for associations that are incorporated), Bylaws, Rules and Regulations, Plats, and Plans. The governing documents may also include Design or Architectural Guidelines. A Public Offering Statement is not part of the governing documents. It is important to consider which document(s) will be amended in order to determine the correct process and procedure.
As community association lawyers, we spend a large part of our time drafting governing documents, reviewing governing documents, interpreting governing documents and, in many cases, amending all or some provisions of those documents. We can distill that experience into a handful of reasons that documents should be amended. While it is a good idea to review governing documents each year when the state laws change to determine what, if any, effect the new laws have, this is more likely to be done by most associations on a less frequent basis (like every 20-25 years), at transition from declarant control, when recommended by counsel, or only when facing a particular situation (or crisis) that requires an intensive look at the documents.
1. Delete Obsolete Provisions.
This first set of reasons might be called clean up. It is a de-cluttering of governing documents. Governing documents initially are drafted on behalf of the declarant, or developer. After transition or the expiration of declarant rights, it is appropriate to delete provisions related to expansion, contraction and other declarant rights. These provisions tend to take up several pages throughout the Declaration and Bylaws. And, unlike other provisions that can create confusion, they simply are no longer needed or relevant.
In this age of accelerations, advances in technology have changed many aspects of common interest community life. Provisions relating to old technology should be deleted or modernized through amendment. When satellite dishes were the size of a small helicopter, it was appropriate to prohibit them in associations – they were huge and obtrusive. Not only has technology changed such that many are less than one meter or less in diameter, but federal law has preempted restrictions on “covered antennas” making those provisions no longer enforceable. Restrictions on some building products similarly have come a long way, making some products more attractive and durable than products on the market at the time documents were put to record. It may make sense to remove a restriction against vinyl fences, for instance, as they may require less maintenance and last longer. Virginia law further recognizes that notices, voting, consents and other aspects of association governance can be aided by technology. Documents should be amended to permit technology to aid the process and increase participation.
Provisions citing incorrect or repealed provisions in the Virginia code or other laws, or the documents, should be deleted or updated. The Condominium Act superseded the Horizontal Property Act. Terminology should be updated and provisions amended to comply with the Condominium Act.
2. Remove Unenforceable Provisions.
Federal law has trumped provisions in association documents in a few areas, including satellite dishes. Provisions prohibiting all antennas and requiring advance approval for antennas one meter in diameter or less in an owner’s exclusive use area are no longer enforceable. Keeping such restrictions in governing documents can be misleading and confusing. Boards may not know that such provisions are unenforceable or the parameters on enforceability. Fair Housing laws, federal and state, provide another example of laws that impact the enforceability of provisions in governing documents. In some cases, accommodations from provisions of the governing documents are required for those with a disability. Modifications to property may also have to be permitted for a similar reason. The governing documents should be reviewed to determine if there are any “red flags” with regarding to “children” or other fair housing implications.
Changes in state law also have the effect of making provisions unenforceable. This is more likely to result in rules being unenforceable. There are particular subject matter rules that no longer are enforceable unless specific authority exists in the recorded documents. Some examples include rules related to rentals, transfer fees and solar panels.
3. Clarify Rights and Responsibilities.
Perhaps the area that results in the need for legal opinions most often is the responsibility for maintenance, repair and replacement. To determine who is responsible, it is usually necessary to identify the particular components at issue, many of which are not identified with particularity in the documents. Condominium boundaries generally are identified by broad definitions. Sometimes the plans depict more specificity. The Virginia Code also provides some clarification when the documents do not otherwise provide.
It is not always easy or apparent how a building component is classified, and that leads to the need for a legal opinion. To assist in determining who is responsible for the various building components, it is usually very helpful to work with association counsel to develop a maintenance chart that identifies building components, classifies them and sets forth who is responsible for maintenance, repair and replacement. This provides a useful tool for owners, the Board and management, and may save cost in the long run.
Once a component has been identified, the documents generally set forth the various responsibilities to maintain, repair, replace and insure. The responsibility to maintain, repair, replace and insure do not have to be consistent with classification or “ownership”. The responsibility for unit or lot components is not always on the unit or lot owner. The documents may slice and dice those responsibilities between the owner and the association. In a high rise, for example, the repair and replacement responsibility for balconies (that may be classified as part of the unit, limited common element or common element) may rest with the Association, while the obligation to maintain the balconies (i.e. keep clean and free from snow, ice, debris) may rest with the unit owner. Or, maybe only the responsibility to replace the balcony railing rests with the association. It would be difficult for an individual owner to contract and coordinate a balcony repair ten stories off the ground, but not as difficult for the Association.
In some cases, it may be the desire of the Association to shift the obligation from one party to the other. This would be a good reason to amend. If owners, for instance, are responsible for all aspects of the balconies, but it is not practical, then an amendment to shift that responsibility from the owners to the Association may be the solution. Conversely, if it makes more sense for the owners to repair a certain unit or limited common element component rather than the Association, then an amendment may be the answer.
Similarly, an association may decide that it is more appropriate for the insurance requirements of certain components (generally unit components) should follow the obligation to maintain, repair or replace. Therefore, an amendment to the insurance provisions to, for example, to remove master policy coverage of finished surfaces of units, may be in order. It could reduce claims, preserve the ability to obtain insurance at favorable rates and align maintenance with ownership. Alternatively, it may be more appropriate to amend to allocate responsibility for the deductible under the master policy. The approval requirement for an amendment to change maintenance, repair, replacement and insurance obligations is less than changing classification and addresses the issue.
4. Remove Obstacles to Governance.
Limits on the amount of the annual assessment, high quorum requirements, proxy witness requirements, certified mail requirements for most notices, restricted borrowing authority, higher than required amendment requirements, inadequate enforcement authority and lack of assessment collection remedies (late fees, interest, acceleration, attorneys’ fees) are some of the more prevalent obstacles Boards face to carrying out the business of an association and accomplishing Association goals. Any or all of these may be prevent or delay a Board from performing its duties that can decrease property values, hamper progress and stymie decision making and governance.
Dollar and percentage limits on the increase in the annual assessment are arbitrary, tend to lose relevance over time and are not related to the actual needs of an association.
With apathy running rampant in many associations, high quorum requirements are an impediment that is unnecessary. Many older documents have quorum requirements of 25-50%, which is too high just to call a meeting of owners to order. The Virginia statutes permit quorum as low at 10%. This does not affect the requirement necessary to take action, but at least a meeting can be held.
The requirement to have a proxy witnessed was removed from the Condominium Act over a decade ago. Yet, many condominium instruments still require that proxies be witnessed. This is one more hurdle that could invalidate a proxy and decrease participation. Removing the requirement by amendment is one way to facilitate the process and make it easier for owners to be part.
Certified mail requirements can add expense, and do not insure that owners will receive a notice or letter. Many owners are not home when mail is delivered and will not take the time to pick it up later. Unless required by statute or other good cause, consider removing this requirement and saving expense.
Documents may contain an amendment requirement that is more onerous than is required by statute. An amendment to lower the approval requirement (to statutory minimums) or streamline the amendment process itself may be needed to make needed changes and progress.
Not having adequate enforcement remedies in the recorded documents can be a source of frustration to associations trying to achieve their objectives. It can result in increased cost for court action that may be impractical or not justified under the circumstances, and hamstring a Board in its ability to seek compliance. If documents do not provide the ability to suspend facilities or services for non-payment or assess charges for violations (in accordance with Virginia law) or utilize self-help (ability to correct violation if owner fails or refuses), then consider an amendment to include these important tools.
Assessments are the lifeblood of an association. Failure to pay results in a drain on the association and the other owners have to make up the deficit. There is a cost to non-payment. Not only is there the time value of money, but there is administrative and legal cost and expense. The documents need to provide adequate remedies in event of default so the association can be made as whole as possible. With a provision making the owner responsible for attorneys’ fees, for instance, an association can only recover such fees if it obtains a judgment and prevails, and there is no guarantee a judge will award all fees incurred. Post-judgment collection efforts, such as garnishment or debtors’ interrogatories are not considered as part of a court award, and there is no opportunity to seek them after a judgment is final.
5. Address Particular Circumstances; Changes in Community.
Addressing particular circumstances is more likely to result in amendment of one or a few provisions of the governing documents rather than a wholesale review and amendment and restatement. Examples include high rental occupancy rates, short-term rentals, home-based businesses, smoking, pets and zoning/proffer-related obligations.
It is also important to note that as a community develops and evolves, the desires and constituency of its membership may change and call for amendments. Perhaps it was envisioned as a “retirement” community originally, but the demographics have changed and young families or millenials inhabit a community, or vice versa. Or, perhaps an office park was envisioned to encompass only certain business, but as the community develops, additional uses are desired. This may lead to the desire to add or delete restrictions to adapt to changed uses.
6. Clarify Conflicting, Ambiguous or Complex Provisions.
Believe it or not, many governing documents are put to record or created with contradicting provisions. For instance, the Declaration may provide for a late fee of a percent of the assessment, but the Bylaws have a specific dollar figure. Or, perhaps a rule is enacted that has a figure that does not agree with Declaration provision. While Virginia law provides rules on complementarity, with the Declaration and Articles of Incorporation controlling over the Bylaws and the Bylaws controlling over the rules (unless included as an Exhibit to the Declaration), the more specific governing the general, etc., these inherent contradictions tend to create confusion or enforcement problems that can be alleviated through amendment.
In other cases, documents are ambiguous, and could be improved by clarifying ambiguous or complex provisions that are difficult to read and understand. Older documents frequently contain provisions in the Declaration or Bylaws and rules that are duplicative, and in some cases conflicting. It is not necessary to have the same provision in multiple documents, and it may simplify the documents (and save some pages and trees), and reduce conflict and ambiguity to remove the repetition.
7. Make Document User-Friendly.
This category of change may not be reason alone to undergo the amendment process, but if amendments are in play, it provides a good opportunity to clean up existing documents and make them more user-friendly. Documents that are easy to read and identify lead to great understanding and compliance.
When amending, consider including a table of contents, headings and other organizational tools. Consider changing font, letter size, adding charts and tables, section numbers, indentation and offsets and other formatting tools that can make documents easier to read. This is also a good opportunity to correct typos and other errors, some of which may be amended by a corrective amendment.
When documents have been amended several times in piecemeal fashion, it can be difficult to determine what the current provision is on a particular issue. It also can lead to errors in record keeping, resale packets and decision-making based on changes that get missed. If documents have been amended several times, consider amending and restating into a single document that encompasses all changes to date and alleviates the need to flip through several documents to locate a provision. It can save time and expense and lead to a greater understanding.There are many reasons to amend governing documents. It can facilitate the governance of an association, save time and expense and further the goals of enhancing property values, by leading to a greater understanding by owners, boards and management, all of which increases compliance, reduces confusion and conflict and brings more clarity. Amending documents is a technical process. It is an unauthorized practice of law for a non-lawyer to prepare amendments that affect title to or an interest in real estate. Consult your association attorney about amendments that may be right for your community.