Category: Community Associations

Condominium Bylaw Liability Waivers and Claims for Water Damage

Many condominium unit owners experience water damage from leaks in pipes, walls or other common elements managed by the unit owners’ association. This happens in both new condominiums with construction defects and older associations with growing maintenance problems. Condominium associations have the privilege of controlling and the responsibility for maintaining the common elements. Unit owners must pay assessments to maintain the common elements, master insurance premiums, and other common expenses. The declaration and bylaws define the rights and responsibilities of the association and the unit owners with respect to the units, common elements and limited common elements. Although the unit owners hold title to the common elements as co-owners, the statutes and bylaws do not give unit owners rights to treat the common elements as their own. While the bylaws require the association to maintain the common elements, often the same instrument (or an amendment) includes a waiver relieving the association of liability for damages arising from a leak from a common element to a unit. Associations and unit owners often disagree over the scope of the liability waiver and the obligation to maintain. This is complicated by the failure of the association to properly fund its accounts through assessments.  While bylaw liability waivers may seem fair to the other unit owners voting for them or the boards relying on them, not all unit owners are affected in by a defect in the common elements in the same way. Efforts to keep costs down for the majority has the tendency to put particular units at higher risk later. Each condominium unit has a different location within the development. Just because something keeps costs down for most people, doesn’t make it intrinsically fair or wise. The District of Columbia Court of Appeals considered some of these issues in a May 2021 decision. Jennifer Baker owned a unit in the Chrissy Condominium on F Street, Southeast. Her unit began experiencing a severe water leak in May 2018 that forced Baker to offer her tenants free rent. Later the tenants left because of the water problem. The association ignored her requests for assistance. Ms. Baker retained a structural engineer who identified grading and waterproofing problems with the rear foundation wall that needed correction. This would cost in the range of $14,000.00 to $20,500.00. Ms. Baker passed this information on to the management company who said that they advised the association to complete the repairs to the foundation wall which was a common element. The association decided not to conduct the repairs because it would empty their reserve account. Ms. Baker could not sell, rent out, or use the condo unit herself because of the water infiltration problem. She could not unilaterally resolve the situation because the wall is a common element within the association. Baker sued the condominium association on a variety of claims related to the water infiltration problem, including damages for the diminution of the monetary value of her unit, pain and suffering, attorney’s fees and a request for an injunction that would require the association to complete the repairs. The D.C. Superior Court dismissed all of the claims. For reasons which are not clear, Baker did not appeal the dismissal of her claims for injunctive relief, damage to property values, and pain and suffering. With regard to the other claims, the association argued successfully in the Superior Court that the liability waiver in the condominium bylaws provided the association with a complete defense. That section, Provision 7.11, has language similar to that found in other condominium bylaws in D.C. and Virginia:

The Association shall not be liable for any failure of water supply or other services to be obtained by the Association or paid for as a Common Expense or for injury or damage to person or property caused by the elements or resulting from electricity, water, snow or ice which may leak or flow from any portion of the Common Elements or from any wire, pipe, drain, conduit, appliance or equipment.

Baker’s attorney argued that the association ignored other language in the Bylaws that expressly required them to maintain the common element wall. Baker pointed out that the association’s reading of the Bylaws, if correct, would leave Baker without any remedy for the failure to maintain this particular common element. Baker pointed out that there are other damages that arise out these actions beyond the damage to property resulting from water leaking from the common elements into her unit. Baker seems to be arguing for this liability waiver to be construed strictly or narrowly as an exception to a generally recognized duty of a condominium association to maintain its common elements. The Superior Court agreed with the association, ruling that the liability waiver language was not limited by the other provisions requiring the association to maintain the wall. The trial court and the association’s arguments relied heavily upon a 1998 D.C. appellate decision, D’Ambrosio v. Colonnade Council of Unit Owners. In that earlier case, the unit owner sued the association after a pipe burst and caused damage to the unit. The limited liability bylaw in Chrissy was functionally the same as the Colonnade Council’s instruments. The 2021 Baker decision, like the earlier D’Ambrosio case concluded that such liability waiver language does not allow the unit owner to recover for damage to the unit attributable to the deficiency with the common element. However, that’s not all that Baker sought in her lawsuit. Baker argued that the association’s persistent and continuing failure to repair the wall after timely notice resulted in extensive financial and emotional damage. This includes the diminished value of the condominium unit and the loss of rental income. Baker argued that these damages resulted from the failure to maintain and were not limited by the waiver language. In Baker, unlike some other cases, it was clear that the association was responsible for maintaining the thing at issue. The Court of Appeals rejected the association’s arguments that the consequential economic injuries alleged by Baker were not semantic reclassifications of damages from the water intrusion itself. The Court agreed with Baker that such damages could be traced to the association’s failure to correct the wall after it had been called to their attention. The Court found that the association’s obligation in the bylaws to maintain the wall was meaningless unless there was some way that breach of it could give rise to a cause of action with a legal remedy. The Court of Appeals concluded that the Superior Court incorrectly short-circuited this case before trial. The case is presently back in the Superior Court awaiting a new pretrial schedule. In 1989, the Supreme Court of Virginia considered analogous issues related to similar language in the instruments of the Ocean Owners’ Council in Virginia Beach. The Supreme Court held in the case brought by Arthur Nido that the liability waiver language was not void as against public policy, and effectively limited damages resulting from the events listed in the provision. However, like the D.C. Court of Appeals, the Supreme Court of Virginia also found that this kind of waiver did not completely absolve the association of all responsibility. The other language in the bylaws requiring the association to maintain the common element was enforceable. “This limitation does not leave the owners a right without a remedy. The owners retain the right to sue the Council for damages in instances where the damage arises from circumstances other than those enumerated.” The Superior Court’s dismissal of the claim for injunctive relief was not appealed. An injunction is an order by the court for the defendant to specifically do something or refrain from doing something. The liability waiver provisions limited the association’s responsibility for damages caused by the leaking itself, but that doesn’t prohibit injunctive relief, because as the court of appeals recognized, the provisions in the bylaws requiring the wall to be maintained must have some legal meaning. The duty to maintain the common areas and the exclusive right to manage them is what makes a condominium what it is, as opposed to some other kind of shared property arrangement. This is the justification for all of the debt collection tools that the D.C. condominium act gives the unit owners association. The District of Columbia’s laws regarding condominium unit foreclosure for the failure to pay assessments is much more board-friendly than the laws in Virginia and some other states. It makes no sense for Ms. Baker to lose her unit if she fails to pay her assessments, but there is no consequence if the association fails to uphold their end of the “bargain” reflected in the recorded bylaws. This is why unit owners and their attorneys ought not to give up if the association insists that the liability waiver provisions completely absolve them of all responsibility in the event that the failure to maintain causes a problem for a unit owner. Legal Authority: Baker v. Chrissy Condominium Association, 251 A.3d 301 (D.C. May 27, 2021) Nido v. Ocean Owners Council, 237 Va. 664 (1989) Media: The photo at the top of this blog post is something that I took with my cell phone camera of the back of the D.C. Court of Appeals during construction in June 2018.

Can HOA Boards be Overridden through Group Action by Owners?

Many owners want to know what options they have to overturn bad board decisions without using litigation and when waiting to the annual director election isn’t an option. This raises the issue of what legally binding results “community organizing” can accomplish when the board majority appears to have already made up their mind.

How a Lawyer Can Help Owners Protect their Rights in HOAs and Condominiums

According to trade association data, approximately 1,980,000 Virginians live in 778,000 homes in more than 8,7000 community associations (HOAs, condominiums, etc.). In the District of Columbia, approximately 111,000 residents live in 48,000 homes located in more than 1,300, community associations.

Can a Board of Directors Make Decisions for the HOA by Unanimous Emails?

Condominium and HOA leaders usually expect the owners and tenants to do what they tell them to do, and often struggle to back down when their authority is questioned. At the same time, boards and committees like to make decisions that affect others without being monitored or disclosing what was done.

Worlds are Colliding! When Attorneys Sit on HOA Boards

Before Jaime Harrison ran for U.S. Senate or became chair of the Democratic National Committee, he was a director on the board of a condominium in Alexandria, Virginia while I was an owner-occupant. We had annual elections for board positions. Sometimes there was an election, other times we left without voting because there was not quorum.

What it Means for Ultra Vires HOA Actions to be Void

Wrongful legal actions by community association boards generally fall into two categories. The first are contracts, resolutions or other actions that the board generally has the authority under the declaration to take, but they failed to properly do so pursuant to the bylaws or applicable law. For example, suppose the HOA has the authority to enter into a landscaping contract, but the documents required the contract to be signed by a director and it was only signed by a manager. Or the HOA has the power under the declaration to regulate use of the service elevator, but the rules on the website have not yet been formally adopted by the board, and were only signed by one director. As another example, the declaration allows the board to adopt rules and regulations regarding parking on the common area, and the manager is towing guest cars despite the fact that the board has not adopted a parking permit system. These are the kinds of defects that can be corrected by conducting a proper meeting with a quorum and conducting necessary business according to the governing instruments. For such items, the board’s discretion is probably protected by the business judgment rule, so long as they follow the declaration. When HOA officers take actions informally, sometimes later these actions are “ratified” by formal board action with a quorum in a properly noticed meeting. It can often by difficult for lot owners who are not aligned with the majority to challenge policies on such matters, if the board can later “fix” any procedural defects by a later, properly conducted assembly. This is why HOA boards, managers and attorneys argue for a broad reading of the declaration and other governing instruments. It can be difficult for an owner to challenge a decision or policy such as this if they at one time acted in a way that seemly condoned it or failed to object. Nonetheless, just because an issue lies within the board’s discretion does not give them carte blanche. Ineffectively adopted policies are unenforceable until properly decided according to the statutes and bylaws, and they have to be enforced equitably. For these reasons, the scope of the board’s “mandate” in the development is important to directors and owners alike, but it may not be 100% clear if the governing instruments are ambiguous. Just because a covenant seems ambiguous does not mean that it is devoid of meaning or means whatever the board says. The law of property includes rules on how to interpret conflicting or ambiguous legal documents.

The other, more exciting kind of problems are where the association’s leaders act in a way that is outside the scope of their legal authority. For example, the covenants say nothing about regulation of trees and shrubs, and only talk about architectural standards for garages and sheds. If the board adopts and tries to enforce rules regarding replacement of dead trees that are cut down, such rules may be void from the get-go. As other examples, the board may be dominated by directors who want to undertake the maintenance and repair of property that is not actually a common area.  The state laws and governing instruments establish parameters around which a community may regulate or spend money. Where the “line” is may not always seem clear, but the existence of such legal limits on board authority is important. If the association does not have the authority to do something, then the corporate action may be deemed “ultra vires” (Latin for  “beyond the powers”). Challenges by individual owners to ultra vires HOA actions often have more “traction” or “legs” than those that concern things properly within the board’s authority. This is because “ultra vires” acts are ordinarily “void ab initio” (void at the outset).

An older, published Virginia case involved an ultra vires contract made by agents of a bank, City of Bristol v. Dominion Nat ‘l Bank, 153 Va. 71 (1929). The Virginia Supreme Court of Appeals observed that, “When the contract is once declared ultra vires, the fact that it is executed does not validate it, nor can it be ratified so as to make it the basis of suit or action, nor does the doctrine of estoppel apply.” Lawyers are always trying to find ways to make things workable despite the lack of authority. The doctrine of estoppel allows for a party to be held responsible for something because they induced another party to rely upon a representation or action that was made. What the Supreme Court was saying in City of Bristol v. Dominion National Bank was that when an action is truly ultra vires, it cannot be rendered valid because people acted as though it was. Colorfully, Justice Henry W. Holt remarked about ultra vires contracts: “As a contract it is wastepaper and as a contract worthless.” Lawyers have nightmares about court’s ruling like that about that things they draft for clients.

Justice Holt observed that an ultra vires contract may nonetheless include a remedy: “But it by no means follows that a claimant is always without remedy. There may be a recovery on an implied assumpsit for benefits conferred and kept.” So, if someone received goods or a service then they might be responsible for paying for them, on a theory of quasi-contract. The doctrine of ultra vires does not necessarily mean that everything becomes “free.”  

When homeowners find themselves in legal disputes with HOA or condominium boards and managers, frequently they will be told that the association’s lack of specified authority in the governing instruments does not matter, because the lot owner waited too long to challenge what is being done, or they agreed to pay a fee or assessment, or otherwise knew about what was happening but did not quickly object. However, such arguments ignore longstanding legal principles about what it means to be a “chartered” organization. Community Associations often assert such defenses as estoppel, statutes of limitation, laches, waiver, condonation, and so on. However, if the board’s action was truly ultra vires, then those arguments may not apply.

The discussion about HOAs and ultra vires contracts and resolutions illustrates why association directors and their advisors want to be able to easily amend the governing instruments, and control that amendment process. Older HOAs and condominiums tend to have covenants and bylaws that are more “owner friendly” in terms of allocation of rights between the lot owners and the board. A valid amendment can change the size or shape of the board’s procedural requirements and/or substantive authority, potentially transforming something that would otherwise be ultra vires into legitimately within their mandate. Even the “benign” community associations are one election or one amendment away from a potentially toxic situation. The good news is that the reverse is also true: election of good directors or adoption of an improved declaration can improve the situation in a community association. Sometimes its hard to tell if the person or document being proposed would be good or bad.

(Note that the photograph associated with this blog post is a stock image and does not depict anyone or anything referenced in the article)

When a HOAs Entity Status becomes Inactive by Automatic Termination

Under Virginia law, a nonstock corporation must submit annual filings to avoid having its corporate status automatically “terminated” by the State Corporation Commission pursuant to Va. Code § 13.1-914. When people see that a corporation’s status is deemed “inactive” as terminated by a regulatory agency, they wonder if it no longer “exists,” particularly in the HOA context. It is common for HOA boards to neglect their annual registration requirements, because every one or two years a new board is elected that may not be aware of such requirements. Lot owners become interested in the meaning of the “inactive” status because HOAs are frequently demanding that members pay assessments and obey architectural restrictions. Anyone can check the status of a corporation by logging on to the SCC website. As a legal matter, the “automatic termination” of the HOA’s corporate status usually does not mean much. Under Virginia law, “incorporated” status is a feature of statutes that confer certain powers and responsibilities on a business or association that would not otherwise apply. Persons in business or associations are attracted to incorporation because of the liability shield, legal immunities available to the board of directors, and the ability to open a bank account.

Ordinarily, upon termination, the property and business of a corporation pass to the last board of directors as “Trustees in Liquidation” who are responsible for winding up the affairs of the company. Va. Code § 13.1-914. This sounds like a big deal. However, Va. Code § 13.1-916 allows a nonstock corporation to reinstate its active corporate status by filing a form and certain fees within five years of the date of automatic termination. BOOM! The corporation is “active” again. If a HOA corporation has periods of “automatically terminated” status in its history, what does that mean? Does that mean that the actions of the board of directors or officers are voided? Do all debts owed to or duties owed by the HOA vaporize? No. If the automatically terminated corporation is reinstated within the five year period, by Virginia law its as though the “termination” was never in effect:

Upon entry of the order of reinstatement, the corporate existence shall be deemed to have continued from the date of termination as if termination had never occurred, and any liability incurred by the corporation or a director, officer, or other agent after the termination and before the reinstatement is determined as if the termination of the corporation’s existence had never occurred.

Va. Code § 13.1-916.

This statute is not some sort of scheme dreamed up by a HOA industry lobbyist. The statutes for stock (for profit) corporations and limited liability companies are similar. But in any case it can be the cause of confusion. If a nonstock corporation is currently in a state of “automatic termination,” its members may not know whether will ever reinstate. According to the statutes, the last board of directors acts as trustees for the corporation, and can sue or be sued in a fiduciary capacity.

Even if the HOA’s directors or trustees fail to reinstate the corporation’s active status within five years, that does not mean that the association necessarily ceases to exist. Virginia law allows for unincorporated associations, including property owners associations. Of course, an unincorporated association does not enjoy the legal powers of an incorporated association. But that does not mean that it ceases to exist. This is because the incorporated status is a legal characteristic of the group, and not its cause for existing. When HOAs are automatically terminated for over five years, sometimes their leaders decide to re-incorporate. Corporate law includes the notion of a business maintaining continuity that perpetuates beyond the change of business form.

As a side note, some community associations in Virginia are initially organized in a manner that does not contemplate incorporation. Condominium associations are usually not incorporated. Some HOAs are initially organized as unincorporated associations and the covenants may not accommodate future incorporation without amendment. Such associations may need to amend their declaration if they incorporate.

Remember that a property owners’ association is not some sort of local government entity created by a municipal charter coming from the state capital. When a community association law problem arises, the starting point of any legal analysis is the declaration of covenants and any amendments. That is the document that the courts treat as the “contract” between the lot owners and the association.  

Update (Feb. 5, 2021):

The 2018 Mendez case in Fairfax Circuit Court is instructive about what can happen with a “lapsed” nonstock HOA corporation. The Huntington Forest HOA negligently allowed their corporate status to lapse for longer than five years, while continuing to function through a board of directors. When the board later realized what had happened, they re-incorporated the homeowners association with the SCC. The Circuit Court observed that the declaration of covenants “survived” the automatic termination of the corporation’s existence. Upon termination, the property of the association is held by the last board of directors as trustees in liquidation. However, the POAA does not require for property to be formally owned by the incorporated HOA entity to endure in its status as a common area. The POAA looks to whether the common areas are designated as such in the declaration, and whether the association is obligated to maintain or operate the common areas. The Circuit Court found the nonstock corporation holding the “new” SCC charter to be in continuity with the original throughout the functioning yet unincorporated period of its organizational history. The Court found that the newly incorporated entity to be the “true” Huntington Forest HOA board, and not the trustees in liquidation of the terminated one. The “new” corporation was not owed legal recognition because it was calling itself the same HOA or was performing the functions as before. The court, in essence, ruled that this is NOT one of those instances where a group of interested neighbors get together and form a nonstock corporation for the purposes of collecting dues and telling people what to do with their land. The subdivision maintained continuity through the declaration of covenants as the principal governing instrument. The outcome of the Mendez case may have been different if the declaration had different language or had been amended in a way that was incompatible with the reincorporation.

Mendez v. Huntington Forest HOA, 99 Va. Cir. 160 (Fairfax Co. Jun. 4, 2018).

Modernizing HOA Law or Exploiting a Crisis?

“Never let a good crisis go to waste.” -Winston Churchill.

The Virginia General Assembly is currently in session. One interesting bill to Virginia homeowners is 2021 HB1816. This bill seeks to amend the Property Owners Association Act and Virginia Condominium Act regarding the use of “electronic means” for meetings and voting. Making videoconference a larger and better part of HOAs and condominiums is a good thing. But this flawed bill ought to undergo changes necessary to protect Virginia landowners and the integrity of the community association “open meeting” policies in place in Virginia.

I am a practicing attorney who represents lot owners and unit owners in community association matters. Sometimes my clients are in opposition to association boards, and in other cases they are dealing with a dispute with a neighbor where they are aligned on the same side as the board. I am familiar with the essential role of already existing “open meeting” statutes for community association in establishing procedural safeguards. To the extent that state law gives associations substantial power, these open meeting rules must be preserved and strengthened.

As Virginia law currently stands, the statutes require almost all deliberations of boards of directors to be conducted in properly-noticed meetings that owners are able to attend or follow along and participate in contemporaneously. The POAA (and Condo Act) prohibits boards and committees from doing business in informal “work sessions” or email exchanges (with very limited exceptions for executive session). Va. Code § 55.1-1816. This is important, because most HOAs have the power under their governing instruments and the POAA to adopt rules and regulations that can impose limits on how they can use or improve their property. Va. Code § 55.1- 1819. This is significant because the ability to use or improve property is an essential aspect of its value as an investment, and the freedoms we enjoy as Americans have to be exercised somewhere, and the home is the most important place for exercising freedoms of all kinds. The “open meeting” requirements for HOAs and Condos, which are supposed to (supposedly) function as “mini-democracies”, are similar to the open government laws that require local government board members to conduct all business (with very limited exceptions) in noticed meetings.

HB1816 would weaken these protections, and in associations where safeguards are not otherwise enshrined in their governing instruments, facilitate common practices by HOA boards, committees, and managers to circumvent the “open meeting” requirements by making important decisions for the community by text message, email, telephone, or informal social gatherings.

HB1816 , in the amendments to § 55.1-1832(F) and § 55.1-1935(E), would allow any meeting of a HOA or condominium, be it a board meeting, committee meeting, or annual or special meeting of the members to be conducted by “electronic means.” Most Virginians are now familiar with various forms of videoconference, be it Zoom, WebEx, Google Meets, Microsoft Teams, GoToMeeting or other similar programs. The Coronavirus has made these technologies a common practice. I have previously posted about the use of remote meeting technology in my December 2020 article, Presenting to HOA Boards and Committees in Remote Hearings. I use these services and think that they are a great thing. I think that they ought to be used in Condominium and HOAs because they have the power to increase participation by many members who may not otherwise be able to participate because of a disability, mobility concerns, inability to drive, or childcare obligations. This also promotes access to justice because homeowners are more likely to be able to retain an attorney to help them in such hearings because it reduces travel time.

In 2020, the General Assembly passed special, emergency legislation that helped for association boards to meet and conduct business during the coronavirus epidemic. I posted analyses of that in my May 2020 post, Virginia Temporarily Relaxes HOA Open Meeting Statutes for Coronavirus. HB1816 would work to make that permanent and more. It’s the “more” part that is a problem.

The problem with HB1816 is not that it facilitates use of these videoconference programs in HOAs is that it goes well beyond that. In conjunction with other changes, HB1816 seeks to broaden the definition of “electronic means” in Va. Code § 55.1-1800 and § 55.1-1900 to include “teleconference, videoconference, internet exchange, or other electronic methods.” Those statutes incorporate the definitions found in Va. Code § 59.1-480 of the Uniform Electronic Transactions Act. That statute defines “Electronic” as “relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.” But the referenced statute doesn’t define “internet exchange” or “other electronic methods”. The definition as written is broad enough to encompass text message and email correspondence between board members, committee members and/or members. This is a terrible way for HOAs and condominiums to decide important questions such as enactment of million dollar budgets, to change rules to governing the use of land in the subdivision, or to impose penalties against an owner for an alleged rule violation. In many HOAs and condominiums, this would facilitate boards changing the rules on an informal basis, as they see fit. Founding Father John Adams believed that the USA ought to be “a government of laws, not of men.” In other words, everyone has to follow the laws (or the declaration or contract), including the rulers or directors. HB1816 would in many cases cause the POAA to reflect a public policy that the rules and standards in the governing documents simply don’t matter, its whatever the board wants. The is because HB1816 would remove statutory protections requiring HOA boards to follow their own rules and to not change the rules whenever they want to do something different.

HB1816 easily passed the House of Delegates and now sits in the General Laws Committee of the Virginia Senate. I hope that it does not get out of that committee, without changes to the definition of “Electronic Means.” Note that passage of this bill as written would not be “game over” for homeowners dealing with HOA bullies. But failure to fix the language would “bless” all sorts of mischief that needs to be stopped. Boards still need to follow the declaration and bylaws and the other protections of the POAA and common law. But legal reforms ought to make the law better and more clear, not the opposite. It appears to me that certain people are promoting this bill at this time to try to exploit the pandemic before it is over, by use of this bill which is ostensibly to help people do social distancing. For these reasons, I do not support HB1816. I think that the definition of “Electronic Means” needs to be revised, to only include technologies similar to Zoom, WebEx, MS Teams and the like, and to not include text message, chat rooms or emails.

January 28, 2021 Update:

On the evening of January of January 27, 2021, the Virginia Senate General Laws Committee reported out SB 1183 which appears to be a bill originating in the senate that is identical, or nearly so with, HB1816. This legislation has not yet been voted on by the full senate.

February 9, 2021 Update:

Around February 5, 2021, the Virginia Senate postponed further action on HB1816 and SB 1183 to the General Assembly’s “special” 2021 session which is essentially an extension of time for the “general” session.

Close of Special Session Update:

In the General Assembly’s 2020 Special Session 1, HB1816 was passed by both legislative chambers and signed by Governor Northam.

Referenced Legal Authority:

Va. Code § 55.1-1800 (POAA Definitions – Existing Law)

Va. Code § 55.1-1816 (POAA Board Meetings – Existing Law)

Va. Code § 55.1-1832 (POAA Technology – Existing Law)

Va. Code § 55.1-1900 (Condo Act Definitions – Existing Law)

Va. Code § 55.1-1935 (Condo Act Technology – Existing Law)

Va. Code § 55.1-1949 (Condo Act Meetings – Existing Law)

HB1816 (General Assembly Website)

SB1183 (General Assembly Website)

Who Is My Virginia Legislator?

(the photo for this post is a stock image and doesn’t depict anyone having to do with this post)