May 31, 2017
Stop Explaining Community Associations Law the Wrong Way
The proponents and critics of HOAs and Condominiums both tend to over-simplify the law and governing documents in a way that ignores many rights of owners (and boards). Some are explaining community associations law the wrong way. This area of the law is confusing, even to law school graduates and real estate professionals. Among the governing documents are declarations, bylaws, rules & regulations, architectural guidelines, articles of incorporation and amendments. Virginia law includes the Condominium Act, Property Owners Association Act, Nonstock Corporation Act, for the state Common Interest Community Board. This is not to mention federal laws such as the Fair Housing Act. On top of this you have the state and federal constitutions and published court opinions. If a legal dispute emerges between a board and an owner, the parties will struggle to determine which, if any of these statutes and documents apply to the situation. If more than one speaks to the problem, how do you reconcile ambiguities or discrepancies. Given the rat’s nest of law and governing documents, it is a challenge for anyone to quickly sort out these things without the assistance of legal counsel.
So how do you begin to explain community associations law? Most people are visual learners. They sort out complex matters faster with cartoons, charts and other graphics. Some lawyers practicing community associations law have tried to do this for association laws and governing documents. For example, an attorney in Washington State created this graphic. I’ve seen similar graphics for other states prepared by others. Charts like this don’t explain the hierarchy of authorities in a way that reduces confusion. I don’t want my readers to think that I’m picking on the author of this chart. Perhaps this is useful for Washington State. I will explain why this approach is unhelpful with respect to Virginia law.
The General Assembly enacts legislation and private parties join covenants and other contracts. The legislature declares what statutes say. The same can be said for private parties and contracts. Under our constitutional system, the judiciary’s mandate is to declare what legislation and contracts mean in the controversies brought in litigation. Sometimes this is easy because the “plain meaning” of a statute or contract is apparent on the face of the document. Often adversaries bring with them conflicting interpretations of documents or laws when they come into the courtroom. The contract or statute may not be clear on what remedies are available for breach of a statute or contract.
Often, the courts enforce claims, defenses and remedies that aren’t memorialized in any constitution, statute, regulation, contract, etc. Someone can read all community association legislative enactments and the association’s governing documents and not identify fundamental legal rights or duties that the owner (or board) may hold. This is because Virginia, like almost all other states, has “common law” legal doctrine enshrined in older case decisions that applies, except where abolished or superseded by statute:
The common law of England, insofar as it is not repugnant to the principles of the Bill of Rights and Constitution of this Commonwealth, shall continue in full force within the same, and be the rule of decision, except as altered by the General Assembly. Va. Code § 1-200.
American judges further interpreted the common law in case decisions applying it from 1776 to the present day. The common law includes a highly-developed set of doctrines regarding property rights, covenants, defenses and court remedies. The Supreme Court recently published an opinion in Tvardek v. Powhatan Village HOA discussing how the common law disfavors restrictive covenants. Here is a link to my previous post discussing the Tvardek case. That case is still important even though the General Assembly enacted legislation in 2017 in response. Enactments of the General Assembly that strengthen the enforcement of covenants are narrowly interpreted by Virginia courts because they limit owners’ common law property rights. This means that the statutes are not interpreted to give HOAs broad powers. The authority must be sufficiently articulated. This is why the proponents of community associations are so active in state capitals.
What are these common law rights, defenses and remedies and why do they matter? There are too many to summarize in this blog post. I will provide one example. A declaration of covenants is a type of real estate contract. The Property Owners Association Act makes it easier for covenants to be legally enforced against owners (and associations) that allegedly breach them. But common law defenses to breach of contract are still available to oppose the legal action. For example, if a board is found to have clearly or consistently failed to enforce the architectural guidelines, then an owner may be able to assert common law defenses such as waiver, estoppel, abandonment of the restriction or acquiescence in the alleged violation. Common law defenses like waiver and estoppel don’t need to be in the governing documents or statutes to be asserted by the owner. Where applicable, the owner just needs to understand the definition of the common law defenses and whether they have been abrogated by statute or the covenants themselves. This is just one example of common law defenses. The Washington state community associations law graphic fails to show common law rights, defenses and remedies that are valuable to boards and owners alike.
The common law is a secret treasure trove to property owners defending themselves against board or neighbor overreach. Property owners have legal rights that aren’t described in the statutes or governing documents. These rights don’t require wing-and-prayer appeals to various state officials or convoluted constitutional arguments. They are already there in legal treatises available in law libraries. In the fast-pace of litigation where parties don’t have months or years to sort out the diverse array of legal authorities and governing documents, owners need qualified legal counsel to help them identify and protect their rights.
Tvardek v. Powhatan Village HOA, 784 S.E.2d 280 (Va. 2016)
StevenM_61 Neighborhood in Snowstorm, North Richland Hills, 2008 via photopin (license)
May 16, 2017
Breach of Agreement to Purchase Insurance
Many construction contracts contain provisions requiring one or more parties to purchase insurance to cover certain activities or property related to the project. These provisions put an affirmative duty on a party to go out and obtain insurance to protect themselves, the other party in the contract or for against third party claims. Given the potential for expensive property damage claims or even personal injury, it makes sense for the parties to consider insurance provisions. This can be a great way of protecting against the risks of loss and litigation. If there is damage or loss and it is covered by a policy, this “Plan B” works. But what if in the event of loss the party that agreed in the contract to purchase insurance failed to do so? Is there a “Plan C?” Can they sue for breach of agreement to purchase insurance? In Virginia, the courts often deem the party who failed to fulfill their obligations to purchase insurance responsible for the loss. This seems obvious, but in cases where the opponent also breached the contract, it may not be clear how to sort out the liabilities. Whether an owner, contractor or subcontractor is what lawyers and judges call a “constructive insurer” by failure to buy insurance turns on the specific language in the agreement.
The leading Supreme Court of Virginia case on this is the 1983 decision, Walker v. Vanderpool. Roland and Elizabeth Walker owned a home in Virginia, southwest of Richmond. In 1977, they retained Vanderpool Heating & Air Conditioning Service for purchase and installation of an oil-burning furnace for $2,305. The contract said, “All work to be completed in a workmanlike manner according to standard practices.” The terms also required the Walkers to acquire and maintain fire insurance on the house. After completion, the furnace caught fire and the house burned. The Walkers had not purchased fire insurance. The Walkers alleged that their home burned because Vanderpool negligently connected the new oil furnace to a “non-existent chimney” and then turned it on. The Walkers sued Vanderpool for $45,000.00 in damages.
Vanderpool argued that if a person enters into an agreement to obtain insurance and neglects to fulfil this obligation, that person becomes the insurer and is potentially liable as such to the other party to the contract. The Walkers responded that the insurance provisions do not properly work to protect Vanderpool from liability for their own negligence.
The Supreme Court of Virginia took a “freedom of contract” approach on this case, observing that the Walkers were free to reject the Vanderpool contract unless the insurance provision was removed or modified. The Court agreed with Vanderpool that by their failure to procure the insurance, the Walkers became self-insured on this risk, and could not come after Vanderpool.
It’s easy to see how these parties looked at the contract and saw in it what they wanted. Vanderpool liked the insurance provisions, and the Walkers liked the scope and standard of workmanship provisions. In general, courts will try to harmonize different provisions in a contract so that no sections are effectively removed or rewritten in the judge’s decision.
Owners and contractors often do not focus on the insurance provisions in a contract until after something unfortunate happens. It pays to understand any contract before signing it.
Sometimes a party who fails to purchase required insurance for a project has no means to pay on a claim. A contractor may have no assets except a few pieces of equipment. An owner may have spent all of their extra cash on the project. It is important to obtain certificates of insurance to confirm that there is coverage in place.
These insurance provisions are found in a variety of other real estate related agreements, such as lease agreements, condominium or HOA covenants or mortgage documents. Newer HOA and condominium covenants seek to shift risks off the board and onto individual owners in sections dealing with liability, indemnification and insurance. Sometimes state statutes will impose insurance requirements. For example, in the District of Columbia, the Condominium Act requires owners and the association to purchase insurance. To understand insurance obligations for an owner in a HOA or condominium, it is necessary to also check what statutes, if any may apply should a dispute arise. Owners and contractors usually need the assistance of a qualified attorney to answer questions raised by mumbo jumbo in real estate and construction documents. Individual persons can often protect themselves by purchasing insurance. Being fully insured can save property owners from potential costs, including repairs and related attorney’s fees.
Walker v. Vanderpool, 225 Va. 266 (1983)
May 5, 2017
Community Association Dispute Resolution Procedures in Virginia
When owners have disputes with their condominium or HOA boards, sometimes it is unclear where or how they must go about seeking redress or defending their rights. Owners must understand how association dispute resolution procedures work so that they do not prejudice their own claims or defenses by failure to go to the proper forum or meet deadlines. What options are available will depend upon the facts of the case and the governing documents. Sometimes it can feel like a labyrinth without an aerial view of sorts. The following is a summary overview and is not intended to explain everything:
In the absence of other dispute resolution procedures, owners have the option of filing or defending a lawsuit. The Property Owners Association Act and Condominium Act both provide that owners or associations may bring suit in order to enforce the declaration of covenants. They also provide that the prevailing party shall receive an award of reasonable attorney’s fees. The Supreme Court of Virginia recently made an owner-favorable decision on the issue of attorneys fees. See my post, Condo Owner Prevails on her Request for Attorney Fees.
Some suits where the amount in controversy is $25,000.00 or less can be brought in the General District Court (GDC) for the city or county where the property is located. The advantage of the GDC is that cases go to trial faster and are in most situations less expensive to litigate. Suits over $25,000.00 or where equitable remedies are sought by the owner must be brought in the Circuit Court. The procedures there are more complex. This blog post explains how they usually start, The Beginning of a Virginia Circuit Court Case. Community association cases usually don’t end up in the U.S. District Court. If one of the parties is in bankruptcy, the case may end up in the U.S. Bankruptcy Court. While litigation is more time-consuming and laborious than some other dispute resolutions options, the outcomes tend to be more favorable because of the independence of the judiciary.
Internal Nonjudicial Dispute Resolution:
The most common “venue” for resolution of disputes between owners and boards is internally within the association’s governance structure. Declarations of covenants, bylaws, architectural standards, rules & regulations and articles of incorporation may provide for claims to be brought by owners or the association before the board of directors or the architectural review committee.
The most notorious form of this is where the association issues a notice to an owner that she has violated a covenant, rule or regulation and must appear in a hearing before the board or committee. See, Don’t go it alone on a Notice of Violation. The courts allow this under the statutes, but there must also be provisions in the covenants that allow for the association to assess nonjudicial fines. These procedures are controversial because they allow the association to act as prosecutor, judge, jury and collection agent in their own case.
Sometimes owners have disputes with one another over party walls or boundary fences. Many covenants have provisions that require them to submit disputes over party walls or boundary fences to the board of directors as arbitrator. I don’t like these provisions because board members typically don’t have experience or training as arbitrators. Arbitration is not the same as rules violation hearings. Board members may have a vested interest or bias in the outcome of the party wall arbitration.
Some newer governing documents have internal dispute resolution procedures that seem all-encompassing. For example, an owner may be required to exhaust detailed procedures under the governing documents before acquiring the legal right to bring suit. Rules may require deadlines and procedures for seeking board of directors “appellate” review of decisions adverse to the owner. This may require an owner or their lawyer to compare multiple governing documents and to analyze them under Virginia statutes and case-law to determine whether action is necessary in order to protect one’s property rights. If the owner fails to first exhaust the” internal remedies” before going to court or fails to follow some dispute resolution procedure, they may be prejudiced in their ability to get a judge (or arbitrator) to consider it on its merits.
In general, the world of these internal nonjudicial procedures favors the boards. Not only do they sit as decision makers, they also may have authority to record liens, foreclose or even act as trustee in condominium termination proceedings. That said, owners should not ignore these procedures. If the board fails to follow its own internal rules, then that may position the owner for a favorable outcome in litigation or arbitration. The board has no authority outside of what the covenants and statutes create. See, Do your association’s parking rules pass the small test?
Virginia law allows community associations to put binding arbitration clauses in their covenants. This means that in the event of a dispute, an owner may find out that they cannot simply bring the case before the judiciary. Arbitration clauses typically designate a company such as the American Arbitration Association as the “venue” that acts in the place of a court. Sometimes, arbitration can be more expensive to the participants than litigation. Significant up-front fees may be required. The covenants may require the case to be arbitrated through an agency that has cozy relationships with real estate industry people and doesn’t have a consumer protection orientation. The arbitration process doesn’t favor the “little guy.” See, Overcoming Delay Tactics in Arbitration.
Office of the Ombudsman of the Common Interest Community Board:
If there weren’t already enough potential venues, the General Assembly created another one. If an owner has a grievance against a board or licensed property manager, they may submit an adverse decision to the state Common Interest Community Board for review. This has been touted by some as a way of having a government regulator review the legality of a board or property manager action without having to court or arbitration. As my previous blog post explains, the Ombudsman does not render decisions adverse to boards where the parties are arguing opposing interpretations of statutes or governing documents. See, Condo Owner Prevails on her Request for Attorney Fees. Since both sides need to take opposing interpretations for a dispute to arise in the first place, this is not a useful process for an owner to pursue when they are concerned about the outcome.
In my practice, I prefer to help clients to understand and protect their rights without unnecessary legal action. Ideally, boards and owners can negotiate a mutually acceptable outcome without going to court or arbitration. Unfortunately, this is not always possible in many owners’ circumstances. When a HOA or condominium board seems to be taking improper action or failing to fulfill its obligations under the governing documents, owners need to know where they can turn to obtain useful and cost-effective relief. As this survey shows, in Virginia there is a potentially confusing array of procedures and venues. An owner can potentially become focused on one or two and run the risk of having a deadline expire on bringing the claim properly. When owners need some help making sense out of the governing documents, laws and correspondence from the association, they need an attorney who practices community associations law but isn’t allied with the boards or association industry. That’s why I started my little firm where we don’t accept cases where we represent boards.
photo credit: –v Laberint d’Horta via photopin (license)