October 24, 2019
Do I Even Have a HOA?
It’s usually clear to home buyers whether a HOA governs their subdivision. A well-maintained sign adorns the entrance. The community manager emails the buyer’s agent an official-looking disclosure packet. For many other landowners, especially in rural areas, it is not clear at the settlement table whether any HOA is active. Months or years after purchase, the owner may receive mysterious notices in the mail with demands to pay money or correct architectural features. This can come as an unpleasant surprise. The landowner may wonder whether this board or committee is for real or a rogue nonprofit. Does the owner have to obey the assessment or violation notice or can it be discarded as junk mail? The truth may not be revealed in the envelope enclosing the notice. The answer to this question is found by ordering a current title report for the property which will pull up all the declarations, easements, master deeds, amendments, plats, etc. This article focuses on problem solving for owners of lots in subdivisions. Questions about whether various legislative or bureaucratic acts are sound public policy fall outside the scope of today’s blog post.
Virginia courts treat the declaration of covenants as the “contract” to which all the lot owners and HOA are party. Recorded instruments may govern a lot even if the current owner didn’t sign anything, so long as the developer caused the covenants to encumber the subdivision. Courts enforce restrictive covenants where the intention of the parties is clear, and the restrictions are reasonable. In Virginia, restrictive covenants deemed doubtful or ambiguous are construed against the party seeking to enforce them. Without an act of the General Assembly facilitating enforcement, anyone (including the HOA) trying to impose the covenants against anyone else, likely must pursue several months or years of litigation with an uncertain outcome. Years ago, the General Assembly adopted the Property Owners Association Act and the Virginia Condominium Act. This legislation loosens the common law policies against restrictive covenants and provides procedures and powers that make it easier for a statute-qualifying association to collect assessments and enforce restrictions. For this reason, anyone that wants rules for the subdivision to be enforced without prohibitive cost, needs to confirm that the declaration qualifies for the POAA.
Whether the POAA applies matters in reality and is not a merely academic question or legal technicality. Without recourse to the POAA’s arsenal of remedies, the Association may not be able to impose and record fines through an internal hearing process for architectural violations and may be forced to bring a civil suit instead. The POAA allows HOA boards (where the declaration authorizes) to impose rules not stated in the recorded instruments on the community without amending the declaration. Without use of the POAA’s debt collection remedies, the HOA may abandon efforts to obtain assessments from owners because of fees associated with suing unpaying owners. Many abuses of power that cause consumers to complain about HOAs are enabled by these statutes that abrogate protections afforded to landowners under the common law.
The POAA includes the legal definition for an association or declaration to qualify for the rights and duties it provides. If the POAA doesn’t apply, there may still be a board or committee of some sort, but it will have less power. Without recourse to the POAA, covenants may still be enforceable, just not easily. The POAA “applies to a “Development” subject to a “Declaration.” To qualify under the POAA, the Declaration must contain terms such that the Association possesses both the power to (1) collect a fixed assessment or to make variable assessments and (2) a corresponding duty to maintain the common area. This must be expressly stated in the recorded documents and may not be inferred or implied. This legal test looks to what the recorded instruments say, not how things are actually functioning in the subdivision. For property to qualify as a “common area” under the POAA, it does not necessarily have to be conveyed, leased, or owned by an association. The POAA requires the court to construe how the declaration discusses any common areas.
This may seem like a simple definition that developers can easily fulfill by writing up the documents in accordingly. However, many declarations fail to meet this definition because they may impose on the lot owners the duty to pay assessments but fail to obligate the association to spend them on maintaining the common areas. Many developers may want to limit their maintenance obligations in the community while retaining effective control over the association. By failing to obligate the association to maintain the common areas, a developer may unwittingly put the community outside the POAA. This can be good or bad for a particular lot owner, depending upon how dependent they are on HOA services to enjoy their own lot. It is not always in a lot owner’s best interest for their subdivision to fall outside of regulation by the POAA. The POAA allows for reasonable attorney’s fees to a prevailing party. The lot owner may need to rely upon some other provision of the POAA to make their case. Sometimes, the aggrieved owner is the one who needs to enforce the covenants to vindicate their property rights. For example, if a lot owner needs the HOA to take responsibility for a problem with maintenance or operation of a common area, it may be counterproductive to undercut the boards authority to make repairs.
An “association” cannot unilaterally confer upon itself the POAA’s privileges simply by recording an instrument stating that it has the authority to assess the lot owners for common area maintenance and obligating the association to perform such maintenance. That would require an amendment. At common law, any amendment requires consent of 100% of the owners subject to the covenants. The POAA has its own “default” amendment provisions. Most declarations include amendment provisions that vary from the 100% common law requirement or the POAA’s 2/3 amendment provisions. Consultation with qualified counsel is necessary to determine what requirements apply. Lot owners must be wary about amendments because if the statute of limitations in the POAA for challenge to an amendment applies, the dissenting lot owner would need to file the challenge within one year of the effective date.
Do HOA covenants become unenforceable after lot owners get away with disobeying them for many years? Under Virginia law, the right to enforce a restrictive covenant may be lost by waiver, abandonment or acquiescence in violations. The party relying on such waiver must show that the previous conduct or violations had affected the architectural scheme and general landscaping of the area to render the enforcement of the restriction of no substantial value to the property owners. This legal standard sets a high bar for asserting such a defense.
In Virginia, there are procedural requirements for sellers to disclose a host of materials to buyers, including the governing documents of any association to which the POAA applies. The seller does this by paying a fee to the association to send the buyer the materials. Then, the buyer has three days to review these materials and exercise a right to cancel the sale if they are not acceptable. However, the current disclosure system does not adequately protect buyers. Three days is insufficient for a buyer to obtain counsel to review and answer questions about the covenants. If there is something deficient about the disclosure process or dissatisfactory about the covenants, the buyer’s only remedy is to cancel the deal timely. Few purchasers ever do this. The practical effect of this disclosure packet system is to protect sellers and associations from subsequent claims of surprise by purchasers. For insurance purposes, the title company will provide the purchaser with a list of covenants, easements and other encumbrances on the title of the land. Few buyers pay attention to this information.
Virginia law requires associations to register with the Virginia Common Interest Community Board. These registration requirements obligate HOAs and Condominiums to submit annual reports of basic information about the association each year. However, a declaration of covenants may still be enforceable against a lot owner even if the association leadership fails to keep their registration current. Also, HOAs incorporated under the Virginia Nonstock Corporation Act must make submissions and pay fees to the State Corporation Commission each year to keep the corporate status from being cancelled. However, even if a HOA is listed as “automatically terminated” in its official corporate status, this is unlikely to nullify terms of the governing documents. Lot owners should consult with qualified counsel before disregarding HOA notices because they haven’t observed registration formalities with the government.
If covenants and easements pop up in the exceptions to a purchaser’s title insurance, it’s likely that lots in the subdivision are encumbered. This is not always a bad thing, when someone needs to be held responsible for maintaining roads and drains. Some people like the amenities that their HOA offers and want the restrictions to be vigorously enforced so that they don’t have to suffer what they consider eyesores. Other landowners are uncomfortable about paying assessments to a HOA who inadequately maintains the common areas and roads and enforces the covenants in an uneven and erratic fashion. Determining whether the subdivision and its association fall within the scope of the POAA, is essential for evaluating whether certain provisions are practically enforceable. Everyone wants peace of mind and a sense of certainty about what debts they are obligated to pay and what they can or cannot do on their land. Determining whether the association enjoys the powers and duties found in the POAA is the first step to achieving that peace of mind or taking the next step to vindicate their rights.
Selected Legal Authorities:
White v. Boundary Ass’n, Inc., 271 Va. 50 (2006)
Scott v. Walker, 274 Va. 209 (2007)
Anderson v. Lake Arrowhead Civic Ass’n, 253 Va. 264 (1997)
Dogwood Valley Citizens Ass’n v. Winkelman, 267 Va. 7 (2004)
Dogwood Valley Citizens Ass’n, Inc. v. Shifflett, 275 Va. 197 (2008)
Shepherd v. Conde, 293 Va. 274 (2017)
Village Gate Homeowners Ass’n v. Hales, 219 Va. 321 (1978)
Property Owners’ Association Act, Va. Code §§ 55.1-1800 through 55.1-1836
photo credit: Editor B Surreal Suburban Subdivision via photopin (license)
May 24, 2019
Injunctions in HOA Cases
Some people like to talk about awards of money damages or attorneys’ fees that the courts order losing parties to pay. Litigation involving landowners, HOA or condominium boards revolve around what remedies the court may apply if it sees things the same way as one of the parties. Contrary to the focus of many news articles, monetary awards may not be the essential remedy available in property rights or corporate governance cases. In Virginia, and elsewhere, the law makes awards of money damages or possession of property preferred remedies. However, in many cases, an award merely of money damages is insufficient to properly vindicate the rights of an aggrieved party. In disputes between owners and HOA boards or neighbors involving the use of land, claimants frequently ask for the court to order the defendant to do certain things or to stop performing improper actions. This is called an “injunction.” For example, a neighbor or the HOA may be causing a nuisance on a lot or common area (e.g., improperly diverting drainage water), that unreasonably damages or interferes with the adjoining landowner’s rights. There are other examples which do not involve nuisances. An aggrieved owner could just sue for money, but the offending party may continue with the wrongful behavior, which results in more damage or interference justifying another suit. A succession of suits for money damages doesn’t solve the root of the problem. Community associations and their members have ongoing relationships that usually only end if someone sells their property or dies. While courts apply high standards for aggrieved parties to obtain injunctive relief, the scope of subject-matter to which injunctions may apply is as broad as the topics addressed in the governing documents, the applicable statutes or other controlling legal principles, such as the doctrine of nuisance. Cases where structural failure may cause catastrophic injury to person or property absent corrective action often include requests for injunctive relief. The ongoing character of neighborhood disputes makes an injunction a powerful remedy. The purpose of this blog post is to summarize how injunctive relief may work in HOA, condominium or adjoining landowner disputes.
Community associations revolve around a declaration of covenants, and any amendments, that function as a “contract” between the association board, committees, the developer and the lot or unit owners. To interpret and enforce this “contract”, Virginia courts apply statutes and judge-made doctrines pertaining to restrictive covenants, easements and deeds. Under the judicial doctrines, if a party requests a court to enter an injunction against conduct that violates a covenant, they must show that the covenant is not ambiguous or presents other enforcement problems. Courts traditionally apply heightened skepticism towards enforcement of covenants and easements. This is why lobbyists asked the General Assembly to enact the Property Owners Association Act (POAA) and the Virginia Condominium Act (Condo Act) and their amendments. This legislation made it easier for association boards to enforce HOA covenants and powers. The POAA and Condo Act provide for injunctions (not excluding money damages or other relief) as a remedy available to lot or unit owners for breach of the association covenants by the board or an adjoining owner. If those statutes don’t apply, a claimant must go to the Circuit Court to obtain an injunction. The association statutes provide an exception, allowing HOAs, condominium boards or owners to go to the local Circuit Court or the General District Court for money damages or injunctions for violation of the declaration of covenants.
In Virginia state courts, to obtain an injunction, the complainant must show irreparable harm and lack of an adequate remedy at law. The Supreme Court of Virginia has held that when an injunction is sought to enforce a real property right, a continuing trespass may be enjoined even though each individual act of trespass is in itself trivial, or the damage is trifling, nominal or insubstantial, and despite the fact that no single trespass causes irreparable injury. The injury is deemed irreparable and the owner is protected in the enjoyment of his property whether such be sentimental or pecuniary. An injunctive order must be specific in its terms, and it must define the exact extent of its operation so that there may be compliance. The declaration of covenants, like other contracts, require parties to perform as prescribed. The entry of an order granting a motion for an injunction based on HOA or condominium covenants takes this a step further, because disobedience to a court order allows the aggrieved party to file a subsequent request with the court to hold the party bound by the injunction to be held in contempt. This is why attorneys seek to avoid having their clients become subject to injunction orders.
There are two main kinds of injunctive relief. One is a “permanent injunction” which the judge enters at the end of the case should she agree that such a remedy is proper in a final order. The other kind is a “preliminary” or “temporary” injunction which the court may enter on motion for the time between when the suit is filed and the trial. Preliminary injunctions provide immediate relief, subject to revision at the end of the case. In Virginia, different judges apply different legal standards for preliminary injunctions. Many draw from common law cases which do not articulate a uniform standard. Some judges apply the strict federal standard for preliminary injunctions, requiring a showing that (1) the plaintiff is likely to succeed on the merits, (2) the plaintiff is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in his favor, and (4) an injunction is in the public interest. Preliminary injunction orders are unusual because waiting until the case is decided on the merits affords more due process to the defendant.
Association boards can sue for injunctions, but they don’t have to. The POAA and the Condo Act allow associations to fine property owners for violating covenants or rules when the declaration allows fines and the board strictly fulfills the requirements of the declaration and the statute. I don’t agree with these fine statutes because they enable HOAs to get a free pass from having to plead and prove breach of the covenants or the appropriateness of an injunction enforceable by contempt. In a sense, HOAs and condominiums are able to skip over months of litigation “due process” to determine if a remedy is proper for breach of the governing documents and instead, just enact a kind of contempt penalty. Owners don’t have the ability to jump ahead of the process and fine people without having to litigate for a year or more. Nonetheless, preliminary and permanent injunctive relief are powerful weapons for owners aggrieved by the wrongful actions of association boards or adjoining owners. Owners can draw from the governing documents, statutes and common law doctrines to achieve a judicial remedy or favorable settlement that resolves the dispute without forcing the owner to sell or engage in endless lawfare. Understanding what court remedies may be available, such as money damages, attorneys’ fees or injunctions is necessary in order to chart a legal strategy to resolve the dispute and achieve peace of mind.
2022 Update:
In 2022 I posted a new article, “Homeowner Injunction Claims Against HOAs.” This new article contains additional information regarding this important topic.
Selected Legal Authority:
Scott v. Walker, 274 Va. 209 (2007)
Va. Code § 55-515 (POAA – Compliance with declaration)
Va. Code § 55-513 (POAA – Adoption and enforcement of rules)
Farran v. Olde Belhaven Towne Owners’ Ass’n, 83 Va. Cir. 286 (Fairfax 2011)
Unit Owners Ass’n of Buildamerica-1 v. Gillman, 223 Va. 752 (1982).
Winter v. N.R.D.C., Inc., 555 U.S. 7 (2008)
Levisa Coal Co. v. Consolidation Coal Co., 276 Va. 44 (2008)
April 10, 2019
How to Fire a Contractor
Property owners often have bad experiences with contractors and desire to end the relationship. In such instances, knowing just how to fire a contractor is important. An owner “invests” in the contractor by signing a written agreement, paying substantial amounts of money, and allowing demolition and construction to begin. At this time, the owner is vulnerable, and the true character and competence of the contractor, or lack thereof, becomes evident. If the contractor is good, the work continues diligently. There are many great contractors out there; this blog post isn’t about them. If the contractor is bad, the owner may see signs of a lack of commitment to the owner and supervision of the work, such as piles of dirt or trash, apparent workmanship defects or unapproved changes, communication problems and disputes over payment. After this happens, it’s all too common for the relationship to deteriorate. Sometimes the owner is to blame, in part. Many owners experiencing a breakdown in the relationship wonder if they should cut ties with the contractor or continue to make payments in the hope that the situation will improve. Be aware that unless the owner is the government, getting out of a contract may not be easy. Firing a contractor is more akin to getting a divorce than letting an employee go. An owner wanting to know how to fire a contractor will likely need an attorney and expert witness.
We all experience contracts daily, when we purchase retail goods, sign up for an online service, or summon an Uber driver. Contracts are like the air we breathe – something that happens without much ceremony: part of day-to-day living in a post-agrarian society. Many “contracts” are easily undone or abandoned without large consequences. A defective microwave oven may be returned with a swipe of a card. If they miss stains, dry cleaners will usually re-do garments for no extra charge. Signed builder contracts are not so easy to avoid. Part of this is practical or logistical. The contractor pulls permits, the county approves the owner’s drawings, subcontractors demolish existing structures, and the owner makes significant payments. The parties are usually bound by a written agreement. This agreement determines many issues during the course of the relationship, including how easily either party may get out of the deal.
Property owners want contractors who have the character, capability and competency to do the work properly without undue delay, for the agreed upon price. It is easier to choose the right contractor for the job before anything else happens than to try to make big changes in the middle of a project. For many owners, such preparation is easier said than done.
This blog post focuses on the rights and responsibilities of owners considering whether to unilaterally end their relationship with a contractor before the work is complete. The details may come as a surprise to anyone accustomed to having businesses bend over backwards to keep them as patrons.
- Any Contract May be Terminated by Mutual Agreement. Ordinarily, a contract may only be undone by agreement of all the parties. Many legal disputes may be avoided if the contractor and the property owner mutually agree to terms cancelling the agreement.
- Many Written Agreements Include Termination Provisions. There may be language in the contract that spells out how a party may terminate the contract for breach and which actions do not constitute a breach. Many agreements contain language limiting the ability of owners to terminate a construction contract unilaterally. For example, the owner may be required to give notice of the perceived defect, triggering a lengthy opportunity for the builder to cure. Experienced builders have been through this before. They know that it is in their interest to secure owners’ payment obligations and to restrict termination by the owner. If the termination clause is ambiguous, the court may resolve ambiguity contrary to the interests of the contractor who prepared it. Many sophisticated property owners retain an attorney to review the ten- to thirty-page contract before responding to the contractor. Professional assistance with the contract is imperative when the price is six or seven figures.
- It’s Called “Contracting” Because Parties Get a Contract: Many owners sign builders’ proposals under a false sense of security. The owner might get the results that they bargained for. Or they may simply bind themselves to papers. Generally, a contract is only as good as the character, competence and solvency of the contractor. If a contractor violates the regulations of the state licensing board, he may be fined or suspended. That proceeding won’t fix the defects in the work on the owners’ property, but it may interfere with that contractor’s ability to later pay a money judgment awarded by an arbitrator or court. Many states require contractors to pay into a fund or purchase a bond to provide some protections. For example, the Commonwealth of Virginia has a fund that can pay up to $20,000.00 for predatory practices with contracting. However, claims to this fund usually require the owner to first get a money judgment for fraud or misrepresentation. There are other technicalities that the board requires that may be used to deny a claim. Egregious problems usually exceed $20,000. To litigate a case to judgment may cost over $20,000.00 in attorney’s fees, let alone the damages for repairs. Many claims by owners against contractors aren’t covered by insurance. Many contractors organize as small limited liability companies or mom and pop corporations that don’t have many assets. The law obligates a contractor to maintain sufficient financial resources to keep the promises made in the contract. If the contractor is unable to perform the contract due to illiquidity, this may be grounds to terminate. This is of little consolation to an owner prejudiced by the impecuniousness of the contractor. Mistaken views of how regulatory safeguards work impairs owners’ ability to properly assess risks presented by various opportunities.
- Misrepresentation or Concealment. If one party commits fraud or the intentional concealment of facts to induce the other into signing the contract, then the court or arbitrator may “undo” the contract and relieve the parties of its terms. Even if a contractor blatantly failed to fulfill the contract terms, the building codes or professional regulations, it may not constitute fraud. Fraud is difficult to prove. The facts of the case may look like deceit to one person, and simple incompetence to another.
- Unilateral Right of Termination for Material Breach of Contract. When the contract does not outline terms for termination for breach, the law of contracts provides an answer. Sometimes, a contractor’s breach of the contract justifies the owner’s decision to terminate the contract. Whether a contractor’s breach is significant enough to justify termination presents an issue of fact to be proven later by the owner. Submitting a termination letter to a contractor with the sounds of construction work in the background is a drastic move. If the owner’s termination is unjustified, the contractor may have a claim for money damages or lost profits. The owner and the contactor should make a diligent effort to resolve any disputes amicably to avoid litigation. Even if the contractor materially breaches the contract, the contractor may eliminate the right to terminate by curing the breach. A material breach is one that “goes to the root of the contract” and defeats the contract’s essential purposes. For example, a breach by a contractor may be of great annoyance to the owner and require considerable cost to correct and still not be “material breach”. A material breach is so great that the work actually provided could be counted as nothing. One example is when the contractor causes a defect to the structural integrity of the building, eliminating all value of work done. The burden to obtain a money judgment for breach of a contract is significantly easier.
- Abandonment of the Job by the Contractor. Repudiation is a kind of, “material breach”. Sometimes, the contractor’s abandonment is obvious. He convinces the owner to pay the full price in advance (“Help me keep things going”), and then slowly winds down work on the project, removes his equipment, and stops responding to calls and emails. Or the contractor may directly refuse to do more work. Often, abandonment is less clear. Experienced contractors, even the unscrupulous kind, know that blatant abandonment gives the owner a clearer claim of repudiation. When contractors “ghost” a jobsite, it’s often in slow motion (with promises that the crews will be back soon) or by picking fights with the owner seeking any pretext to stop work.
- Owner Interference. Contractors frequently complain that owners interfere with their performance. For example, an owner might pressure a subcontractor to do something contrary to the general contractor’s instruction. There is a human tendency to try to hold things “hostage” to get demands met in a dispute. For example, upset owners may bar the contractor from the jobsite. Or, the contractor may try to misuse the “right to cure” in efforts to achieve milestones for additional progress payments. Such efforts may backfire if it appears in litigation that one side prevented the other from performing or mitigating damages.
A property owner with ongoing construction problems wants to know how to fire a contractor if necessary. In many cases, this is the best move for the owner because of the severity of the situation. It’s not impossible, but it will most likely test the owner’s patience, like going through any other “divorce.” The best way to avoid these problems is to make smart choices in “dating” a contractor before signing a high-priced deal, by asking good questions during meetings, checking out the contractor’s background and work history, and retaining other consultants as necessary to help with negotiating the agreement and inspecting the work. Because practical considerations make owners often vulnerable in such matters, and contractors highly motivated to make sales, it is usually not the owner’s fault for finding herself bound to a contract with the wrong builder and out lots of money with a half-finished project. In such situations, owners need legal, financial and technical advice to chart a pathway out of the mess in order to avoid potentially materially breaching the contract themselves or giving the contractor carte-blanche to make things worse.
photo credit: WSDOT A glimpse into the waterfront’s future via photopin (license) This photograph is provided to depict a construction site. The author of this post has no evidence of any defects on the depicted job site and contracting company
March 27, 2019
Rain, Rain, Go Away: Drainage Problems in the HOA
Drainage disputes among adjoining property owners are common anywhere developers subdivide and build on land. Raw land’s natural grading channels surface water into streams and rivers. Development plans frequently ignore potential drainage problems and construction disturbs drainage patterns, often causing water to divert or accumulate. When buildings and hardscapes replace trees and grass, soil cannot absorb water. Instead, the grading of the road, sidewalk, eaves or gutters channel water. All rainwater has to go somewhere. Unless a house or other building is on the top of a hill, a property owner may suffer from surface water diverted from adjoining parcels.
State common law governs the rights and responsibilities of adjoining property owners regarding surface water diversion. In residential neighborhoods, HOA roads, greenspace and other common areas encompass owners’ lots. Many lots lie at lower elevations from neighbors or common areas. Even if a developer constructs the subdivision according to an acceptable drainage design, all it takes is one neighbor or HOA board that improperly maintains or modifies drainage features to cause nuisances at lower-lying homes.
In Virginia and elsewhere, adjoining property owners are not strictly liable for damage or interference caused by changes they make to drainage conditions on their own property. Courts apply a reasonableness standard, but the burden is on the aggrieved neighbor to prove that the diversion of water is improper. The Supreme Court of Virginia’s judicial precedents provide guidance as to whether damaging changes to grading conditions on an adjoining property subject that owner to liability.
One leading Virginia case is Kurpiel v. Hicks. In 2011, Patricia and George Kurpiel of Stafford County sued their adjoining neighbors, Tammy and Andrew Hicks. The Kurpiels alleged that the Hicks stripped their land of vegetation, changed the elevation of their land, brought in additional fill dirt and caused stormwater, sediment and siltation to flow onto the Kurpiel lot. The Kurpiels sued the Hicks for trespass, requesting the Circuit Court to enter an injunction against the flooding.
Under Virginia’s common law, the courts view surface water as a “common enemy.” By general rule, owners may “fight off” surface water by construction or changing drainage conditions to their own property, even if this discharges additional water onto an adjoining parcel. This recognizes the higher landowners’ freedom to make changes to their land, within reason. The focus of this blog post are the exceptions to the common enemy doctrine, and how such exceptions may be tools to adjoining owners.
Unreasonableness:
The “common enemy” doctrine’s main exception provides that diversion of surface waters may not be done wantonly, unnecessarily, or carelessly, must not injure the rights of another, and must be a reasonable use of the land exercised in good faith. Whether any exception applies will depend upon each case’s unique facts. Many cases require the testimony of an engineer or another expert to professionally evaluate the sufficiency of drainage. Because the exception to the “common enemy” doctrine is fact specific, the reasonableness of the adjoining owner’s changes present a factual question to be decided at trial.
To sue an adjoining owner for flooding, the aggrieved party must choose one or more claims or “causes of action.” The “common enemy” doctrine applies regardless to whether the lawsuit is for trespass, nuisance or negligence. The adjoining owner may also be able to sue for violation of restrictive covenants recorded in the land records. The Kurpiels only sued for trespass, which provides that every owner is entitled to the exclusive and peaceful enjoyment of their own land, and redress if such enjoyment shall be wrongfully interrupted by another.
The Circuit Court of Stafford County dismissed the Kurpiels’ lawsuit on the grounds that it failed to allege sufficient facts to establish the “reasonableness” exception. The Supreme Court of Virginia reversed the decision, finding that the Circuit Court improperly short circuited the case, finding reasonableness of surface water diversion to be a factual issue for trial.
No Artificial Channels:
“Unreasonableness” is not the only exception available to flooded neighbors. The Supreme Court of Virginia held in other cases that a landowner cannot collect water into an artificial channel or volume and pour it upon the land of another to his injury. As one example, an owner cannot drain surface water into a ditch or pipe and aim that artificial channel onto an adjoining property.
Eaves of Buildings:
Sometimes disputed stormwater is from the eaves or gutters of a building. The water that drips from the eaves or downspouts of a building is not treated as “surface water” per the “common enemy” doctrine. Stormwater from a roof or downspout is another exception. There is no natural right of drainage from the roof of a building. This is consistent with the other exception, because gutters and downspouts are “artificial channels.”
Disturbing Existing Watercourses:
An additional exception is where the flow of water is in a defined channel or watercourse. In that instance, a landowner may not injure another by interfering with its natural flow.
HOA Covenants:
The afore described rule and exceptions define the obligations that adjoining property owners have to one another that arise where there are no covenants of record regarding nuisances and drainage. Most residential subdivisions have restrictive covenants, and many establish HOAs. Those covenants may include provisions regarding nuisances or other restrictions on how an owner may divert water. Those covenants will define the HOA’s rights and obligations to maintain common areas and rights of way. Some covenants contain provisions inserted in attempts to limit the liability of the homeowners association for property damage from stormwater problems. If the flooding comes from an adjoining lot or an HOA common area or road, the aggrieved lot owner needs copies of the declaration of covenants and any amendments to determine how they may add or subtract from the adjoining owners’ rights and responsibilities in dealing with the “common enemy.”
Courts do not apply local government-type legal standards in evaluating HOA actions. Also, courts do not interpret restrictive covenants encumbering real estate according to the general rules regarding garden-variety contracts. There are a few basic principles to consider when interpreting HOA covenants:
- Courts treat HOA covenants like “contracts” to which each party owning land in the subdivision are party, including the lot owners, the HOA, possibly the declarant and/or holders of easement rights such as utility companies.
- Courts interpret covenants according to conditions existing at the time the developer recorded the document. HOAs or lot owners commonly change grading and drainage on their lots to fend off the accumulation of rainwater in the cheapest means possible.
- The courts treat interpretation of what HOA covenants mean as “matters of law” discernable on motion or appeal without taking evidence. Applying them to disputable facts requires evidence at trial.
- The courts interpret covenants “as a whole,” resisting the tendencies of trial lawyers to quote language out-of-context.
- The courts enforce restrictive covenants where the intentions are clear and the restrictions are reasonable.
- While ambiguous covenants may be a challenge to enforce, courts may find that a party has a right that may not be explicit but is plainly implied by the language.
- Covenants are construed strictly against persons seeking to enforce them, and substantial doubt or ambiguity is resolved in favor of free use and against restrictions.
HOA directors frequently misunderstand their rights and duties. Many falsely believe that once the members elect the board of directors, they enjoy unfettered exercise of business judgment. Some believe that a lot owner can’t challenge decisions outside of the next election. Many HOA boards believe that when they award a contract to maintain or renovate a road or drainage system to the lowest bidder, lot owners can’t complain. This is not true. The HOA must fulfill the requirements imposed upon it by the declaration. The HOA, as a fiduciary, cannot show favoritism towards certain owners over others, and divert flooding away from one lot onto another lot. The HOA is liable in contract for failure to fulfill obligations clearly established by the declaration.
Under Virginia law, the fundamental purpose of a property owners association is to collect assessments from lot owners and spend those receivables on maintaining the common areas, such as roads, greenspace and drainage improvements. The Supreme Court of Virginia has held that if the declaration fails to require this, the governing body established by the covenants may not qualify for the various remedies and powers established by the Property Owners Association Act. This rule is consistent with federal law requiring community or public purpose for the spending of HOA assessments to preserve tax exempt status. It is often difficult for a HOA board evade its duties to maintain the common areas it owns.
If an HOA or adjoining neighbor makes changes to their property that causes a flood, the damaged landowner has rights. When the stormwater diversion is harmful, usually there is at least one legal theory by which the adjoining owner or HOA may be held accountable. Flooding of houses, yards and driveways is a nuisance that no landowner should have to live with.
Selected Legal Authorities:
Kurpiel v. Hicks, 284 Va. 347 (2012)(rule of reasonableness)
Third Buckingham Community, Inc. v. Anderson, 178 Va. 478 (1941)(channels)
Noltemeier v. Higginbotham, 32 Va. Cir. 388 (Spotsylvania Co. 1994)
Raleigh C. Minor, The Law of Real Property (1908)
Scott v. Walker, 274 Va. 209 (2007)(how to read covenants)
photo credit: r.nial.bradshaw 160404-neighborhood-sidewalk-morning-clouds.jpg via photopin (license)
February 6, 2019
Rental Restrictions in Virginia Condominiums
Teachers often compare property rights to a “bundle of sticks.” Each stick represents a discernable owner’s right such as the right to occupy, the right to use the community swimming pool, the right to live free of water intrusion, the right of access, and so on. One powerful right is the ability to rent out possession of the property. A property that cannot be conveniently rented is less useful, and therefore, less valuable.
Neighbors often view renters in a negative light. They view a community predominantly composed of owner-occupants as more vibrant than that of a community full of renters. Many view owner-occupants as wealthier, more committed to maintaining their property and more engaged in the community. Individual owners may desire the privilege of renting their own property while at the same time wanting their neighbors to be owner-occupants.
This conundrum readily manifests itself in condominium developments. High-rise condominium complexes often look and feel like rental buildings. Some investors shop for condominium units because they make great rental units during a housing shortage. However, condominium developers and managers frequently insert rental restrictions into covenants, bylaws or board-adopted regulations. While buyers and owners want the sale of their units to qualify for FHA-sponsored financing, current mortgage market conditions place pressure on the resale values for condominium units and the FHA imposes owner–occupant ratio threshold requirements for certain types of desirable financing options. For example, if the current applicable threshold is 51% owner-occupants, the current owners, as a group, will want to suppress rentals in the building to protect the resale value of their units. At the same time, those owners will individually have a personal interest in the option to rent their units if so desired. Therefore, rental restrictions in condominium governing documents are breeding grounds for conflict.
Many perceive short-term rentals as a threat to condominium communities since most condominiums are not set up to be operated as hotels or resorts. For example, a condominium concierge is not the same as a hotel receptionist, the amenities in a residential condominium differ from those found at a resort, and parking passes are often in short supply. In addition, short-term renters have a reputation for treating condominium units like hotel rooms, adding noise and traffic. To that end, it’s common for covenants or regulations of a condominium to contain provisions forbidding, discouraging or restricting the rights of owners to list and operate their units using Airbnb, HomeAway or other short-term rental websites.
Here we will discuss rental restrictions in Virginia condominiums. Every condominium association has different rental restrictions. In addition, the city or county may have separate rules (ordinances) of its own regulating short term rentals, which a short-term rental landlord must be aware of. This article focuses on where to look to find the applicable association rules and how to determine their enforceability. Frequently, rental restrictions cannot be enforced as clearly and certainly as management argues. For that reason, condominium unit owners owe it to themselves to fully understand the meaning and possible enforceability of the rental restriction rules they are bound by.
In condominium matters, one starts with the careful review of the declaration of covenants and bylaws. The condominium association is charged with administering the declaration of covenants. The Supreme Court of Virginia held that a condominium declaration is in the nature of a contract between the condominium association and the unit owners (including the unit owners among each other). One must look to Virginia law to determine how to interpret the declaration and what remedies may be available. The declaration and plats define the shape of the property rights that the owner can pass on to the tenant in a lease. The owner cannot convey rights to a tenant that the owner does not enjoy under the governing documents. Owners commonly incorporate the condominium instruments into the lease by reference to avoid situations where the tenant insists that they have a right to do something which the covenants do not allow.
The principal authority for interpreting covenants is the Virginia Condominium Act. Between 2015 and 2016, the General Assembly added provisions limiting the authority of a condominium association to restrict the rental of units. Va. Code § 55-79.87:1(A) provides a broad list of restrictions that a condominium board cannot impose unless provided for in the declaration or bylaws. Even if the amendments weren’t adopted, the Supreme Court of Virginia has held that a condominium association cannot do anything that isn’t explicitly or implicitly authorized in the governing documents. The legislature adopted this legislation during the emergence of short-term rentals. Let’s take a look at these restrictions that are permitted only if expressed in the governing documents or other parts of the Condominium Act:
- Condition or prohibit the rental of a unit to a tenant by a unit owner or make an assessment or impose a charge (except as otherwise provided by the statute). This seems helpfully broad to a unit owner challenging a board-adopted restriction.
- Charge a rental fee, application fee or other processing fee in excess of $50.00.
- Charge an annual or monthly rental fee.
- Require the unit owner to use a lease or addendum form prepared by the association.
- Charge any deposit from the unit owner or the tenant.
- Have the authority to evict the tenant or require the owner to delegate eviction power to the association. Buyers ought to be disturbed by provisions in condominium documents giving condominiums such authority.
Va. Code § 55-79.87:1(B) authorizes the association to require the unit owners to provide the names and contact information of tenants. Without such information, the association’s practical ability to enforce any rental restrictions in the covenants is limited. The authority to mandate registration is necessary to effectively regulate. This amendment made it easier to sort out what restrictions may be enforced without a deep dive into the case law.
Where the terms of restrictive covenants are clear and unambiguous, the duty of the court is to interpret them in accordance with their plain meaning. The association’s board or committee may not act in contravention of its governing documents. Unfortunately, many association governing documents are unclear, ambiguous or uncertain in meaning or effect, such that experienced judges, lawyers or professors may favor conflicting interpretations.
Attempts to use recorded covenants to restrict rental rights predates the rise of short-term rental websites. In Scott v. Walker, the Supreme Court of Virginia considered case precedents in deciding whether an HOA covenant requiring real property be used only for “residential purposes” would prohibit short term rental of a single-family dwelling. The Supreme Court of Virginia found the covenant ambiguous and for that reason construed it in favor of free use of land.
William Scott and Suzanna Scott owned a lot in the Harbor Village HOA on Smith Mountain Lake. Their lot was located near Roanoke. After purchase, the Scotts began to use their property as a short-term rental. Donald and Charlotte Walker, their neighbors, were unhappy about the Scotts’ short-term renting. They sued the Scotts. The Circuit Court of Bedford County found that rental on a nightly or weekly basis is not “residential” because the property is not being used as a domicile. Understanding the Circuit Court’s view is not difficult. A hotel or bed and breakfast is a business, not a collection of homes. If a hotel guest doesn’t pay, then the hotel probably won’t need to file an eviction lawsuit.
The Supreme Court of Virginia construed the covenant according to the plain meaning rule and the rule that errs on the side of free use when there is doubt or ambiguity.
It is . . . the general rule that while courts of equity will enforce restrictive covenants where the intention of the parties is clear, and the restrictions are reasonable, they are not favored, and the burden is on him who would enforce such covenants to establish that the activity objected to is within their terms. They are to be construed most strictly against the grantor and persons seeking to enforce them, and substantial doubt or ambiguity is to be resolved in favor of the free use of property and against restrictions.
Scott v. Walker, 274 Va. 209 (2007).
Given the limitations imposed by the Condominium Act and the series of decisions by the Supreme Court of Virginia, condominium unit owners owe it to themselves to not take their board or manager’s word for it when they waive a board-enacted “Policy Resolution” regarding the rental of units. The rules may not be enforceable or may not be enforceable in the manner that the board of directors wants. The right to rent out a condominium unit may determine whether the owner can keep the property. The Supreme Court of Virginia’s method of interpreting ambiguous covenants in favor of free use is something that any attorney dealing with rental restrictions in Virginia condominiums must fully understand.
Discussed Authorities:
Sully Station II Community Ass’n v. Dye, 259 Va. 282 (2000).
Va. Code § 55-79.87:1 (Condominium Act – Rental of Units).
Scott v. Walker, 274 Va. 209 (2007).
photo credit: sjrankin Unsettled Weather via photopin (license)
September 21, 2017
Standing to Sue While Sitting on the Board
Standing is a party’s right to make a legal claim in Court. When the judge comes out to sit on the bench, she will read the cases and the parties or their attorneys come forward as called. “Standing” is the right to seek a legal remedy as shown by the facts alleged. Judges ordinarily decide questions of standing without ruling on the merits of the case. That said, a party dismissed for lack of standing cannot win. Standing just means that the case can proceed.
“Standing” has been in the news lately. There was a federal court complaint filed a monkey, Naruto, who in 2011 took a selfie with a camera and later sued David Slater, the owner of the camera for copyright infringement. The monkey and photographer litigated over whether the nonhuman primate has standing to sue under the U.S. Copyright Act. The notoriety of the suit increased the popularity of the photograph, raising the stakes in the case. The case settled this month, so we may never know whether a monkey can have standing. (I am doubtful because monkeys do not have upright posture. They walk on their feet and the knuckles of their hands and do not “stand” like we do.) In most cases, the question of standing is not controversial. If someone is party to a contract, they ordinarily have standing to sue under that contract. If someone runs into my mailbox with their car, I have standing against them because they damaged my property.
The question is not always so clear. For example, in community associations, the declaration of covenants defines legal relationships among the board and owners. If an owner feels that that their rights have been infringed by the actions of others in their community, who do they have standing to sue? There are numerous possibilities:
- The HOA as a corporate entity
- Individual officers or directors
- An architectural review committee
- Individual neighbors
- Local land use officials
- The developer or declarant
This is relevant to whether the owner actually has a case. Because of filing deadlines, expenses and headaches, owners need to avoid “going ape” on the wrong party. If the HOA is not an issue, then the owner would have to look at another theory such as trespass, nuisance, negligence or other type of right that may exist outside of community associations law. When the dispute involves a right or duty imposed by the governing documents of an HOA or powers of the board, then the answer will be found in interpretation of the covenants and other governing documents. The answer may not be apparent from the four corners of the HOA covenants. Owners have rights, duties and potential remedies that exist under statute or common law that may be implied by, but not specifically referenced in, the association documents.
The Court of Appeals of the District of Columbia considered the doctrine of standing in HOA matters earlier this year. Wilfred Welsh owned a townhouse in Washington, D.C. He was a Director and Secretary of the Chaplin Woods Homeowners Association. Welsh was unhappy because Beverly McNeil and Alvin Elliott rented their townhouse to Oxford House. Oxford House organized a small group home for women recovering from alcoholism and substance abuse. Welsh pointed to the fact that persons living in this townhouse were not party to the Oxford House lease. Welsh contended that the Oxford House lease was not approved by the board. A board majority did not share his views so he filed a lawsuit against McNeil and Elliot in his own name. Welsh did not name Chaplin Woods as a party. Chaplin Woods made no effort to formally intervene in the case.
McNeil and Elliot filed a counterclaim against Welsh, asserting that he violated the Fair Housing Act and the D.C. Human Rights Act by his opposition to their request for an accommodation for their tenants. They said that as Secretary, he delayed and obstructed their request for an accommodation by not transmitting Oxford House’s letter to the HOA’s attorney. Welsh insisted that he had standing to sue McNeil and Elliot because the Bylaws granted individual members the same rights as the Association to enforce the governing documents. After he filed suit, the board formally approved the lease agreement to Oxford House. Welsh argued that McNeil and Elliot could not sue him for Fair Housing because he was just a single board member with no power to exercise the HOA’s corporate powers on his own. So Welsh v. McNeil had two juicy HOA law issues: (1) Can an owner individually enforce governing documents after the board waived the right to enforce? and (2) Can a rogue director or officer be sued individually under housing discrimination laws for obstructing a request for a reasonable accommodation for a disability?
For a few years, Oxford House functioned with leases with the owners that were not approved by the Board. Apparently, the occupants simply lived in the townhouse without board action to approve the leases or kick them out. When pressed on this issue, Oxford House formally requested a reasonable accommodation under fair housing laws. Oxford House sought permission for the women to live in the house, which would facilitate their recovery from substance abuse challenges without having their individual names on lease agreements approved by the board. Oxford House wanted the board to approve a lease in its corporate name. The lawyers for the HOA and Oxford House went back and forth on this.
Before the board decided, Mr. Welsh filed a complaint in his own name against McNeil and Elliot. He wanted the Court force them to stop leasing their property in a manner not contemplated by the bylaws. The rules required the leases to be in the names of the occupants. Welsh’s suit was not sanctioned by the board. After the suit was filed, the board met and decided to approve the disability accommodation request. Welsh apparently attended this meeting but did not vote, citing a conflict of interest caused by his pending suit. The President sent McNeil & Elliot a letter saying that the HOA approved the lease. The board did not subsequently walk back on this approval. This threw a “monkey wrench” of sorts into Welsh’s case. Was Welsh’s claim rendered moot by the board’s formal decision to waive the community’s rights to enforce the bylaw?
Both sides moved to dismiss each other’s claims as lacking standing to sue. The judge agreed with both and dismissed both claims. He found that because the board approved the lease, there no longer was a dispute to be litigated. He observed that Welsh did not sue the HOA so he had no way of disputing the board’s decision without suing them directly.
Welsh did have standing to sue when he filed his complaint. An HOA has the primary responsibility for enforcing its covenants, rules and regulations. However, an individual owner also has standing to enforce the governing documents unless they provide otherwise. If the HOA simply takes no action, then ordinarily an owner may bring his own action. The question in Welsh v. McNeil was what happens to the owner’s cause of action if the board “preempts” it by deciding one way or the other? The Court of Appeals interpreted the Bylaws to mean that once the board acted to approve the lease, an individual like Welsh was thereafter deprived of his claim: “Generally speaking, a homeowner’s association has the power to release or compromise any claim it has the right to assert, and to do so over the objection of individual homeowners, who then are bound by the association’s resolution of the claim.” The D.C. Court of Appeals cited the 1985 decision Frantz v. CBI Fairmac Corp., where the Supreme Court of Virginia observed that where a condominium association has the authority to bring a claim against a violation of a common right, it also has the power to compromise that claim and that the individual unit owners would be bound by that compromise.
The D.C. Court of Appeals observed that it would not make sense to give individual owners the power to “override” decisions of the board of directors when it comes to matters of community interest. The Court was careful to recognize that one must distinguish between matters of community concerns and individual property rights. For example, if one owner rents out their property in a manner that violates the rules or fails to abide by architectural appearance rules, then this is something that an individual owner could not legally enforce once the board took it up. On the other hand, the board has no authority to unilaterally compromise the claim of an individual owner against the board itself or another owner.
If an owner’s interests in a claim for enforcement against another owner is no different than any other owner, then it is probably one of common concern that the board can “foreclose” or “preempt” by pursuing, waiving or settling. On the other hand, if the owner’s own property rights were damaged, infringed or invaded, then it may not be something that the board can take away.
Wilfred Welsh did not contend that he was asserting any right other than the same right the association possessed to enforce against McNeil and Elliot for the common interests of the community. This makes sense because Welsh’s interests were not affected by having fellow residents whose names were not written on any deed or lease any differently than any other townhouse owner.
If Welsh was unhappy with the way that the board decided to compromise the claim for himself and everyone, he would not be completely without options. Welsh could have tried to sue the association directly for breaching their contractual duties to him by deciding the issue about the Oxford House as they did. But he did not.
Welsh argued that the HOA’s decision did not moot his claim because the board did not properly approve the lease. He contended that the board did not actually obtain the requisite number of votes to approve the lease. The Court of Appeals decided that whether they did or not, the President sent a letter to McNeil and Elliot did, and the board never retracted that letter. McNeil and Elliot had a right to rely upon the President’s letter.
Many people are attracted to involving themselves in HOA boards and committees because they believe enforcement of the rules will prevent the “wrong” types of people from moving into their community. Many may fear recovering alcoholics or drug addicts living on their street. For many people HOAs seem to carry an aura of exclusivity that they find very attractive. I don’t like these attitudes – what if my neighbors were to decide that they consider me to not be the kind of person they want living near them? HOAs tend to weaken individual property rights and strengthen the notion that someone else can do a better job of deciding how an owner should use their own property. I also believe that societal problems like substance abuse are too complex to be solved by NIMBY initiatives.
This case would have unfolded very differently if a majority on the board agreed with Welsh. That is certainly not unheard of. Housing discrimination cases against HOAs and condo boards are common. The board could have denied the accommodation request outright, attempted to enforce the leasing rules, or allowed Welsh to proceed on his own without ruling one way or the other.
Some of my readers may be wondering how it can be fair for the board to take away rights provided to owners by the governing documents by waiving or settling the violation. Bear in mind that an average homeowner in a HOA does not want every other member of the association to have the authority to sue for alleged violation of the governing documents. It is in the interest of owners to narrow the number of parties who can assert legal claims against them.
The other issue raised in this case is whether a director or officer, acting on his own without the support of a majority of the board can engage in conduct opening himself up to liability under housing discrimination laws. The residents of Oxford House could be found to be disabled persons entitled to accommodation because they seek treatment for drug and alcohol abuse. The D.C. Superior Court ruled that Welsh could not suffer personal liability because as a single board member he could not bind the association. The question was rendered moot because the board ultimately approved the Oxford House lease. However, Welsh did not argue that it was moot because he contended that the approval of the lease was not valid and binding. The Court of Appeals reversed, finding that the fair housing claims against Welsh could proceed. While Welsh had no power to ultimately decide the accommodation requests on his own, as corporate secretary he had an ability to delay board decisions by holding onto written requests and not forwarding them on to the board’s attorney or other representatives. McNeil and Elliot alleged that Welsh substantially contributed to delays to approval of the accommodation. The Court of Appeals observed that delays like this, which go on for considerable lengths of time with no apparent end in sight have the effect of an outright denial. While McNeil and Elliot may not ultimately prevail on their fair housing claim against Welsh, the Court of Appeals ruled that it may proceed through the courts.
In any dispute involving property associations, an owner who has suffered damage or invasion of property rights must carefully consider the party against whom she may have a legal claim. She must also consider whether the association or other owners also have a claim, and whether the association can compromise or waive such claims for everyone. For many owners, it may not make sense to pursue claims against neighbors for the kinds of claims that the board can come along and make moot by a decision at a meeting. Claims like technical violations of architectural conformity standards may not make sense to bring because the commitment required to pursue such legal action might not result in any money or rights upon the claimant. Understanding the difference between “private” claims between owners and “common” claims is important to bringing or defending any case among individual owners in a community association. Qualified legal counsel can help to sort through and interpret the governing documents to provide critical insight into the nature of a claim by an owner, neighbor or association.
Case Citations:
Welsh v. McNeil, 162 A.3d 135 (D.C. 2017)
Frantz v. CBI Fairmac Corp., 331 229 Va. 444 (1985).
photo credit: A. Nothstine LeDroit Park Rowhouses via photopin (license) (Does not depict any property described in article, to my knowledge)
September 4, 2017
Show and Tell
September is when students go back to school. My daughter recently started at a new daycare. I feel like I have gone back to school too. Her school’s daily procedures are as new to me as they are to my daughter. One back-to-school activity is “Show and Tell.” Show and Tell is a great introductory public speaking educational activity for kids. The student might bring in something they acquired over their summer vacation. Her turn comes, she stands before the class, shows the item and explains its story. My daughter is not old enough for Show and Tell yet. At her age, the other kids want to grab any interesting new item that a classmate brings. I’ve learned not to let her bring her own toys to school because of the tendency for items to be disputed, damaged or lost. Home toys stay at home, daycare toys stay at school. Peace on earth.
When we become adults, our property we tell friends about has more complex stories than finding a horseshoe crab shell on the beach. I work with property owners who find themselves in various disputes over land, homes or major renovations. With a child, possession of a toy is often enough to justify shouts of “mine, mine, mine” to a classmate who wants it. With property, there is a maze of land records, contracts, statutes, rules, etc. that affect the respective rights of the parties. Adults see analytical thinking as important to deciding property and contract disputes. However, there is a deep emotional connection between owners and their property rights. At stake is one’s livelihood, sense of home, financial future, interpersonal relationships and a host of other matters that touch upon someone’s identity. All professionals who have experience in the residential property sector learn to accept the very real emotional dimension to all of this. Disputes in residential construction and property matters are emotional for the participants.
When anyone feels that their property rights are under attack, or they are accused of attacking someone else’s property rights discussions quickly acquire a moral quality. Right versus wrong. Us versus Them. When property owners reach a certain point in disputes with mortgage companies, buyers, sellers, tenants, contractors, HOAs or neighbors it often seems like their requests or explanations are not being heard. Angry people tend to “tell” things and struggle to also “show” key points. I frequently see how escalating stress in property disputes leads otherwise smart, good people to “over-moralize” their perception of a dispute and possibly miss opportunities to resolve it without any more delays, headaches and expenses than are necessary. I will describe how a “show AND tell” approach can be a powerful tool to getting things going in the right direction.
First, I would like to provide a hypothetical so that you can understand what I am talking about. Ted and Julianna hired Claude to build an addition on their house. They signed a contract. Claude started working on the project. Claude repeatedly requested that Ted and Julianna provide advance payments so that he would have funds to proceed. Wanting him to get done quickly, they did. Things progressed to the point that Claude got paid 90% on the job at a time when he was only 70% done on the project. Claude became less interested in the work once he got paid almost everything he was supposed to be paid. Ted and Julianna had a list of items that were not correctly built or not finished. One of the items was a leak into their house. They believed flashing around a window was not properly installed. Ted and Julianna grew weary of sending Claude multiple voicemails and emails about this and other defects. Claude sent someone to repair it. This required Ted and Julianna to cancel their annual garden party to accommodate the worker’s schedule. The “repairs” did not stop the leak. Realizing that they paid more than they received and were being given the runaround, Ted decided to fully document everything. Ted and Julianna had good reason to be upset at what Claude did. Ted took a video of the water coming into his house on his smartphone during a rainstorm and spoke during the video, adding a few choice words for Claude and his crew. One text message later, Claude received the video. All Claude could see was a close up of drops of water around what seemed to be the corner of the window of the interior of a house. He heard Ted’s upset voice. Claude forwarded the video to his lawyer Sean. Claude and Sean could tell that Ted was not happy. They did not know what to make of the video because it was unclear what house it was in, which window it was, what date it had been made. It was just a close up of a leak. Claude and Sean decided to just lie low and see what Ted and Julianna did next. Ted and Julianna became even more upset because their proof of the defect had been ignored by the contractor. They went online and noticed that a subcontractor filed a small claims case against Claude on another case. Several years ago someone left a zero star review about Claude on a website. They began to think about what they could do to force Claude to do something or at least get his attention. During a subsequent telephone call between Julianna and Claude, the discussion escalated further.
As you can see, Ted and Julianna have legitimate grievances about Claude’s work. They know that they need to do something. They decide that Claude isn’t hearing them, so they decide to tell Claude what is happening a little louder with the video with the angry voiceover. However, this does not “show” what is happening. The video is a closeup which lacks adequate context for someone unconnected to the dispute, like a judge, arbitrator or professional to understand the meaning of what they are being “told.” Claude and Sean decided to wait and see what Ted and Julianna do because so far they have not shown that they know how to explain their case. What often happens in these situations is the consumer who feels they are being ignored does not try to “show and tell” but merely to “tell” louder and louder.
When real estate and construction disputes escalate, eventually they are heard by regulatory officials, judges, arbitrators or juries. These “neutrals” are the audience for numerous complaints. If the complaining party is over-moralizing the dispute and only “telling” the story of how their opponent is a bad person instead of also “showing” through an accurate and engaging narrative, the neutrals are likely to side with the defendant. All the neutral knows is that an angry person is pointing fingers and is not prepared to explain how rules, contract documents and/or evidence support their claims. The aggrieved party does not understand why others cannot see what they know and feel. Disputes that escalate like this can become difficult to settle because of the attenuation of the circumstances and the “right and wrong” focus of the parties. If the opposing party feels that they cannot negotiate with the consumer they may be inclined to simply fight fire with fire. Sometimes angry people have a difficult time even coming up with a demand letter because the truth is something they live with every day. Explaining and proffering evidence seems unnecessary. But that is what is needed.
What is the answer to avoiding or resolving these kinds of disputes? I have a few ideas:
- Focus on “Show and Tell,” not just “Tell.” Consider how the narrative presents itself to the intended audience.
- Use qualified professionals such as attorneys, estimators, inspectors and engineers to provide an independent evaluation of the circumstances.
- Take deep breaths. Stick to a diet and exercise routine. Commit to one’s own mental and physical wellness.
- Focus on solving the problem the best it can, not on destroying one’s opponent.
- Be patient. The dispute took a long time in the making and it will probably not be resolved with a single letter.
- Stay focused on the relevant issues and avoid the temptation to become distracted by peripheral matters such as some other legal dispute one’s opponent experienced in the past with somebody else.
- Understand who to turn to for help. Often the answer is a judge or arbitrator and not a regulatory official.
Succumbing to the temptation of “over-moralizing” is dangerous is because the victim becomes susceptible to further manipulation. The consumer might do or say something that might prejudice their case. They might fall victim to further fraud by accepting the assurances of their opponent and then letting down their guard and missing some sort of deadline such as filing a lawsuit or warranty claim.
I am not saying that the difference between right and wrong is unimportant. It is very important. Also, I don’t like it when people call for someone to “strip your emotion out of this.” That’s not possible. The key is to bring the right “pitch” to one’s emotional response to a situation. Not too high and not too low. If one’s voice is on pitch, then the decision-makers will be able to hear it. If the advisors and allies of one’s opponent can see that the consumer is disciplined in their approach to defending their rights and is prepared to both “show and tell” then the necessary steps have been taken to settle the dispute or achieve the best result in court or arbitration.
photo credit: Onasill ~ Bill Badzo Waterloo Ontario ~ Canada ~ Italianate Architecture via photopin (license)
July 28, 2017
Freedom of Speech is a Hot Topic in Community Associations
Freedom of speech is a hot topic in community associations. Some of these First Amendment disputes concern the freedom of a property owner to display flags, signs or symbols on their property in the face of board opposition. Conflict between association leadership and members over free speech also spreads into cyberspace. One such case recently made its way up to Florida’s Fifth District Court of Appeals. On July 21, 2017, the appellate judges reversed part of the trial court’s ruling in favor of the association. Howard Adam Fox had a bad relationship with certain directors, managers and other residents of The Hamptons at MetroWest Condominium Association. Several lessons here for anyone who communicates about associations on the internet.
The July 21, 2017 appeals opinion does not describe the social media communications and blog posts that gave rise to the dispute. I imagine that they consisted of personal attacks that may have been alleged to contain slanderous material. The details are left out of the opinion, probably with a sensitivity towards the persons discussed by Mr. Fox online. In general, I do not like the spreading of false, slanderous statements in personal online attacks. To the extent that Fox had legitimate grievances about goings on at the Hamptons at MetroWest, the character of his criticisms seems to have eclipsed any merit. There are usually better ways of solving problems than angrily venting them in online forums.
The board filed a complaint seeking a court order prohibiting Mr. Fox from, “engaging in a continuous course of conduct designed and carried out for purposes of harassing, intimidating, and threatening other residents, the Association, and its representatives.” The association alleged Mr. Fox violated the governing documents of the condominium by his blog posts and social media activity. The court granted an ex parte injunction prohibiting the alleged wrongful conduct. This means that the judge initially considering the case did not wait for Mr. Fox to make a response to the lawsuit. Later, Mr. Fox and the board reached a written settlement wherein Fox agreed to cease certain activities. The final order in the court case incorporated the terms of the settlement. Making terms of the settlement a part of the final order means that the association does not have to start its lawsuit all over again to enforce the deal. They just need to bring a motion for contempt if Fox violates the order. Howard Fox represented himself and did not have an attorney in the trial court and appellate litigation.
Soon thereafter, the association filed a motion for contempt, alleging that Fox violated the settlement and final order. In the contempt proceeding, the trial court went further than simply enforcing the terms of the settlement. The judge forbade Fox from posting or circulating anything online about any residents, directors, managers, employees, contractors or anyone else at the Hamptons. The judge required him to take down all current posts. If someone asked him on social media about his community, and he wanted to respond, he would have to call them on the telephone.
Fox appealed this contempt order on the grounds that it violated his First Amendment rights under the U.S. Constitution. The Fifth District Court of Appeals agreed. The trial court’s ruling was what is called a “prior restraint.” The contempt order did not punish him for past wrongful actions. It looked permanently into his future. Prior restraints against speech are presumptively unconstitutional. Temporary restraining orders and injunctions are “classic examples” of prior restraints.
The appellate court focused on the public nature of the type of speech the lower court order forbade. This makes sense. While an association is private, it is a community nonetheless. There is no real conceptual difference between online communications and other types of speech. Matters of political, religious or public concern do not lose their protected status because the content is insulting, outrageous or emotionally distressing. In a condominium, many matters of community concern could easily be characterized as political, religious or public. Federal, state or local rulemaking may impact the common business within the association. While community associations are “private clubs,” the things that members communicate about are mostly public in the same sense as town or city ward communities. To paraphrase this opinion, “hate speech” is protected by the constitution, unless certain very limited exceptions apply, such as obscenity, defamation, fraud, incitement to violence, true threats, etc.
This Florida appellate court found that the trial court violated Fox’s First Amendment rights when it ordered the “prior restraint” against him making any posting of any kind online related to his community. On appeal, the court preserved the rulings finding contempt for violation of the settlement agreement. So, Fox must still comply with the terms of the settlement. The case will go back down for further proceedings unless there is additional appellate litigation. Nerd-out further on the constitutional law issues in this case by reading the useful Volokh Conspiracy blog post on the Washington Post’s website.
The appeals court did not find that any covenants, bylaws, settlements, or other association agreements violated the First Amendment. This opinion does not mean that people cannot waive their rights in entering a private contractual relationship with each other.
Usually, only “state actors” can be found to violate the Constitution. An association is not a “state actor” because it is not really governmental. Here, the “state actor” in the constitutional violation was the trial-level court and not the association. What difference does it make? Ultimately, the courts, review the validity of board actions, determine property rights and enforce covenants. The association board requested relief that apparently lacked support in the covenants or the settlement agreement. To protect their rights, owners must understand when their board is doing something or asking for relief outside of its contractual authority.
There is one final point that the court opinion and the Volokh Conspiracy blog do not discuss which I want my readers to appreciate. Owners of properties in HOAs do not simply have a right to communicate with each other and the board. They have an obligation. The covenants, bylaws and state statutes provide for the board to be elected by the members. Members can amend governing documents by obtaining a requisite of community support. The non-director membership is supposed to be an essential part of the governance of the association. If the members and directors do not have an effective means to communicate with each other, then the community cannot function properly. Community associations can have thousands of members and residents. The may cover the acreage like that of a town or small city. The internet, in both password protected and public sites provides a convenient way for information and messages to be shared. Limits on an owner’s ability to communicate with her board or other parties to the “contract” prejudices her rights under the governing documents. I do not like covenants or bylaws that limit an owner’s ability to obtain information or communicate concerns within the governance of the association. Donie Vanitzian recently published a column in the LA Times entitled, “Freedom of Speech Doesn’t End Once You Enter a Homeowner Association.” She discusses proposed California legislation to enshrine owners’ rights to assemble and communicate with each other about community concerns. Ms. Vanitzian makes an important point that because speech may be deemed “political” should not justify management suppression. Having rights to participate in the meetings of one’s HOA without the right to talk about what is going on is like owning land deprived of any right of way or easement to the highway. While the new Florida opinion does not discuss this point, it is consistent with the basic values of the First Amendment.
For Further Reading:
Photo Credit:
torbakhopper pictures in the night : san francisco (2014) via photopin (license)(does not depict anything discussed in article)
July 20, 2017
Are Legal Remedies of Owners and HOAs Equitable?
Supreme Court Justice Anthony Kennedy recently wrote in an opinion that, “Property rights are necessary to preserve freedom, for property ownership empowers persons to shape and to plan their own destiny in a world where governments are always eager to do so for them.” Murr v. Wisconsin, 198 L.Ed.2d 497, 509 (U.S. Jun. 23, 2017). This principle goes beyond the eminent domain issues in Murr v. Wisconsin. Many HOAs and condominiums boards or property managers are eager to make decisions for (or ignore their duties to) owners. In the old days, legal enforcement of restrictive covenants was troublesome and uncertain. In recent decades, state legislatures made new rules favoring restrictive covenants. Sometimes owners seek to do something with their property that violates an unambiguous, recorded covenant. I don’t see that scenario as the main problem. What I dislike more is community associations breaching their specific obligations to owners, as enshrined in governing documents or state law. Is the ability to enforce the covenants or law mutual? Are legal remedies of owners and HOAs equitable?
Why HOAs Wanted the Power to Fine:
Take an example. Imagine a property owner decides that it would be easier to simply dump their garbage in the backyard next to a HOA common area than take it to the landfill. Let’s assume that does not violate a local ordinance. Or substitute any other example where a property owner damages the property rights of others and the problem cannot be solved by a single award of damages. Before legislatures adopted certain statutes, the association would have to bring a lawsuit against the owner, asking the court to grant an injunction against the improper garbage dumping. This requires a demand letter and a lawsuit asking for the injunction. The association would have to serve the owner with the lawsuit. The owner would have an opportunity to respond to the lawsuit and the motion for the injunction. An injunction is a special court remedy that requires special circumstances not available in many cases. The party seeking it must show that they cannot be made whole only by an award of damages. The plaintiff must show that the injunction is necessary and would be effective to solve the problem. The legal standard for an injunction is higher than that for money damages, but it is not unachievably high. Courts grant injunctions all the time. However, the injunction requires the suit to be filed and responded to and the motion must be set for a hearing. Sometimes judges require the plaintiff to file a bond. Injunction cases are quite fact specific. The party filing the lawsuit must decide whether to wait for trial to ask for the injunction (which could be up to one year later) or to seek a “preliminary” or “temporary” injunction immediately. If the judge grants the injunction against the “private landfill,” the defendant may try to appeal to the state supreme court during these pretrial proceedings. These procedures exist because property right protections run both ways. Those seeking to enjoin the improper dumping have a right, if not a duty, to promote health and sanitation. Conversely, the owner would have a due process right to avoid having judges decide where she puts her trash on her own property. If the court grants the injunction, the judge does not personally supervise the cleanup of the dumping himself. If an order is disobeyed, the prevailing party may ask for per diem monetary sanctions pending compliance. That money judgment can attach as a lien or be used for garnishments. These common law rules have the effect of deterring the wrongful behavior. This also deters such lawsuits or motions absent exigent circumstances. Owners best interests are served by both neighbors properly maintaining their own property and not sweating the small stuff.
Giving Due Process of Court Proceedings vs. Sitting as both Prosecutor and Judge:
If association boards had to seek injunctions every time they thought an owner violated a community rule, then the HOAs would be much less likely to enforce the rules. The ease and certainty of enforcement greatly defines the value of the right. Boards and committees do not have the inherent right to sit as judges in their own cases and award themselves money if they determine that an owner violated something. That is a “judicial” power. Some interested people lobbied state capitals for HOAs to have power to issue fines for the violation of their own rules. To really give this some teeth, they also got state legislatures to give them the power to record liens and even foreclose on properties to enforce these fines.
Statutory Freeways Bypass the Country Roads of the Common Law:
Let’s pause for a second and pay attention to what these fine, lien & foreclosure statutes accomplish. The board can skip over this process of litigating up to a year or more over the alleged breach of the covenants or rules. Instead, the board can hold its own hearings and skip ahead to assessing per diem charges for the improper garbage dumping or whatever other alleged infraction. Instead of bearing the burden to plead, prove and persevere, they can fast track to the equivalent of the sanctions portion of an injunction case. Instead of enjoying her common law judicial protections, the owner must plead, file and prove her own lawsuit challenging the board’s use of these statutory remedies. Do you see how this shifts the burden? Of course, the HOA’s rule must meet the criteria of being valid and enforceable. In Virginia, the right to fine must be in the covenants. The statute must be strictly complied with. But the burden falls on the owner to show that the fast track has not been complied with.
Owners’ Options:
Statehouse lobbying and clever legal writing of new covenants has helped the boards and their retinue. Let’s take a moment to see what remedies the owner has. Imagine reversed roles. The board decided that they could save a lot of money if they dumped garbage from the pool house onto the common area next to an owner’s property. The board ignores the owners’ request to clean and maintain that part of the common area. Let’s assume that the governing documents require the board to maintain the common area and do not indemnify them against this kind of wrongful action. The owner can sue for money damages. If the case allows, the owner may pursue an injunction against the board to clean up the land and stop dumping trash. The owner must follow the detail-oriented procedures for seeking an injunction. The owner does not have a fast-track remedy to obtain a lien against any property or bank accounts held by the board.
Fine Statutes Should be Legislatively Repealed:
In my opinion, community association boards and owners should both be subject to the same requirements to enforce restrictive covenants. If state legislatures repealed their fine and foreclosure statutes, the boards would not be left without a remedy. They would not go bankrupt. Chaos would not emerge. They would simply have to get in line at the courthouse and play by the same rules as other property owners seeking to protect their rights under the covenants or common law.
“But Community Association Lawsuits are a Disaster:”
Many of my readers are skeptical of leaving the protection of property rights to the courts. They don’t like people who sue or get sued. They argue that whether you are defending or suing, the process is laborious and expensive. The outcome is not certain. I don’t agree that property owners should surrender their rights to associations or industry-influenced state officials. What if there was a controversy-deciding branch of government that the constitution separates from special-interest influence and the political winds of change? Wouldn’t that be worth supporting? I know that there are legal procedures that drive up the time and expense of the process without adding significant due process value. That does not mean that the courts should be divested of the power to conduct independent review and award remedies not available anywhere else.
Judicial Remedies Are Better Options Than Many Owners Think:
Fortunately, owners have many rights that their boards and managers are not informing them about. Many common law protections have not been overruled. In Virginia, restrictive covenants are disfavored. Any enforcement must have a firm footing in the governing documents, statutes and case law. The statutes adopted by the legislature limiting the common law protections are strictly (narrowly) interpreted by the courts. It is not necessary, and may be counterproductive to run to some elected or appointed bureaucratic official. Under our constitutional structure, the courts have the power to enforce property rights. Many owners cannot wait for the possibility that a future legislative session might repeal the fine statutes. If they are experiencing immediate problems (like improper dumping of garbage or whatever) they need help now. In rare cases law enforcement may be able to help. In most cases working with a qualified attorney to petition the local court for relief is the answer.
Photo Credit: duncan Commit no nuisance via photopin (license)
July 5, 2017
To Whom Should Owners Turn with Contractor Complaints?
Property owners are frustrated when their builder fails to properly complete the agreed upon work for the purchase price. Sometimes these difficulties are relatively minor. Perhaps only a timely warranty claim letter to the builder will get the problems fixed. Not all disputes can be resolved amicably. For relatively simple matters, the owner may be able to sue pro se in small claims court. Many construction disputes require greater commitment of time, know-how and resources to resolve. When the relationship between the contractor and the owner breaks down, it may not be clear to whom should owners turn with contractor complaints. This blog post highlights various options owners may have for obtaining assistance with builder problems.
The Contracting Company’s Leadership:
Owners should first seek to amicably resolve disputes over a contractor’s performance with the company’s representatives. If the concerns can be effectively communicated and negotiated, the owner may avoid having to go to court, arbitrator or governmental agency. Sending a certified letter to the contractor may be necessary under the provisions of a statutory or contractual warranty. Check out my previous post about “Construction Defect Warranty Claims.” Communication can be a useful means of obtaining information. The owner may need to contact the leadership if their inquiries to company employees are ignored.
City or County Government Officials:
In Virginia, the city or county has the legal mandate to enforce the statewide building codes. There are offices staffed with experienced officials who conduct inspections and reviews to determine whether the project meets the building codes. The primary purpose of building code enforcement is to protect public health and safety. The code enforcement process begins long before anyone brings a complaint before the local government. Many projects, especially major renovations and new home construction require drawings to be submitted and a permit granted before work may commence. When presented with a complaint, code enforcement will look at the work on the property and consult the approved drawings and the building codes.
While compliance with the building codes is important, it is not the end of the story. If the contractor only builds to the minimum standard required to pass county inspections, the owner may be disappointed. The concept of a “dream home” includes code compliance, but goes significantly beyond that. Owners have rights not simply to a product that passes code inspection but work that conforms to the contract, warranty and drawings. There are quality control issues that aren’t addressed in most contracts, drawings or building codes. Take caution regarding contractors who talk about “dream homes” before the contract is signed and then only in terms of “code compliance” after getting several payments.
It is important for owners to understand what code enforcement is not. While the officials promote a public function, they do not exist to provide pro bono expert services. They will not provide cost estimates to finish or repair the work. Their job is not to make sure that the owners get what they bargained for in the contract with the builder. In some situations, they may enforce the building code against the owner. If the project is shut down because of code enforcement action, this may cause delays and additional expenses to the owner.
In general, the code enforcement offices do a great job within their specific legal mandate of enforcing the building codes. However, owners must understand that the county or city does not have the broad powers of a court to provide remedies and protections.
If a contractor or owner does not agree with a decision made by code enforcement, there is an appeal process available. However, appeals are rare because of the expenses and delays.
State Board of Contractors:
Contractors must be licensed to engage in the construction services they deliver. The state board performs a useful function in the contracting field. Consumers and the public have good reason to expect the government to protect their health and safety. Also, contractors often take large amounts of money from owners who then expect them to perform on the work. Some people lose motivation once they get the money in their bank account. While we don’t usually categorize contractors as “fiduciaries,” in a sense they are such. The Virginia Board of Contractors deals with the application, issuance and suspension of contractors’ licenses. They also have regulations that can be the basis of a professional disciplinary proceeding if violated. The Contractor’s Recovery Fund provides a means for financial recovery for some consumers in egregious suits where the contractor lacks resources to satisfy a judgment. In a previous post I explored the question, “Should Homeowners Bring Complaints Against Contractors Before Courts or Regulators?” As discussed there in more detail, often there isn’t much benefit to owners to go to the state board until they exhaust remedies elsewhere. However, owners and their attorneys should know what the requirements are for recovery against the state fund so that they can meet those requirements in the lawsuit. The state board will look to the records of the proceedings of the lawsuit in the city or county courts in their investigation. Also, the failure to pay a court judgment is a violation of the licensure regulations. For many aggrieved owners, petitioning the state board only makes sense towards the end of the legal process.
Law Enforcement:
In particularly egregious cases of fraud, embezzlement or other wrongful activities, the contractor may have criminal liability. In most cases, inquiring with law enforcement will not result in charges or restitution order. However, owners should not rule out going to law enforcement entirely. Some cases do rise above civil disputes.
Arbitration Services:
As the years go by, more builders put arbitration clauses in their consumer contracts. In many cases, these arbitration clauses do not help owners. Often, they tend to limit or practically eliminate the consumer’s rights to legal remedies. It can be difficult for owners to navigate the arbitration process without legal counsel because of certain delaying tactics that often occur in arbitration. I recently wrote a blog post about a New Jersey case where a consumer overcame obstructionist use of arbitration provisions. Many property owners do not focus on these provisions when they review the contract during the sales process. When a legal dispute develops, the parties should check the dispute resolution provisions of the contract to see if they mandate arbitration, waive the right to a jury trial or limit the courts where claims may be brought.
Judges & Juries:
Last but not least, owners can bring their complaints against builders before state or federal courts. Under our legal system, the judiciary, i.e. judges, have the legal mandate to interpret contracts and statutes and provide remedies for any breach. In Virginia, if the claim is for $5,000.00 or less it may be brought in the Small Claims Division where the parties do not ordinarily have attorneys. However, any party may bring a case out of small claims by retaining an attorney and filing for removal. Claims for money for $25,000.00 or less (not including court costs, attorney’s fees or interest) may be brought in the General District Court for the city or county where the property is located. The General District Court has the advantage that proceedings there tend to be faster and cheaper for consumers. Claims over $25,000.00 may be brought in the Circuit Court where cases may take up to a year to be resolved. Litigation in the Circuit Court tends to have lots of motions, discovery and other pretrial activities. Some of my readers say that consumers and owners should not go to litigation because it can be expensive and uncertain. In my view, there are reforms that the general assembly or the judiciary could take to reduce the laboriousness of litigation. I do not believe that creating an alternative to the court system within government agencies procedures works for owners or consumers. I explored this in a previous post on this point. That makes it too easy for special interests to gain control over the process through lobbying.
The Bank:
The bank exercises a significant amount of control over the construction process. The builder typically looks to the bank for payment. The bank will send out its own private inspectors to look at the progress on the job site and report to the loan officer whether completion of a phase of construction warrants disbursement of a draw. The purpose of the bank inspector is to protect against fraud and to confirm that the payment would be adequately secured by the bank’s lien on the property. This inspector works for the bank and does not focus on whether the owner would ultimately be happy with the work that is being done. Owners should not impede the bank inspection process and take heed if the loan officer calls to their attention that the inspector raises any questions.
Mechanic’s Lien Agent:
In Virginia and some other states, the law requires that a Mechanic’s Lien Agent be appointed at the beginning of the project. The purpose of the MLA is to accept delivery of notices by subcontractors and material suppliers that they have not been paid so that such issues can be resolved without a mechanic’s lien being filed by anyone working or supplying to the jobsite. The MLA is not there to provide a dispute resolution service regarding any threatened lien but may be a source of information for owners seeking to confirm what is happening with their contractor and its subs.
Conclusion:
To whom should owners turn with contractor complaints? That depends upon the facts of the case. One of the problems with all these separate venues, officials or information sources is that an owner might focus on one and miss a deadline to obtain the remedy they are entitled to from another. This consumer protection landscape is ripe for confusion by the people it is designed to protect. Ideally, the owner will not need to resort to any of these options and can negotiate a good deal and obtain a great result without having to bring grievances before an official, judge or arbitrator. Many owners experience this. However, owners are at a disadvantage. While they have the money that contractors want, they don’t have the technical or legal experience needed to get what they want out of the process. Contractors have experience preparing and negotiating written contracts and change orders. They know what to say to sell their services. They know the officials that work at the county inspection offices. They have their own lawyers. Consumers look to the builder for both the service itself and information about how to shop for the service. For most property owners, a custom home is the largest purchase they will ever make. Getting an attorney or other experienced person to review the contract before signing it can go a long way towards getting the bargain they seek. Owners should not rely upon their adversary to provide them with useful legal counsel. Seeking legal counsel may not require a commitment to a year of litigation. In fact, it may be the best means of avoiding that.
Photo Credit:
Shadowgate Swarovski Museum via photopin (license)
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:
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.
Referenced Authorities:
Tvardek v. Powhatan Village HOA, 784 S.E.2d 280 (Va. 2016)
Photo Credit:
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.
Case Citation:
Walker v. Vanderpool, 225 Va. 266 (1983)
Photo Credit:
