Category: Community Associations

Proposed Virginia Legislation Would Empower Developers to Oppress Rights of Unit Owners in Sale of Terminated Condominium Developments

For many years, I have observed how state statutes enable condominium boards or developers to oppress the rights of unit owners in the termination and sale of condominium developments. I have work experience as an attorney representing unit owners or tenants in such cases. In 2019 I published a case study in a state bar journal relating to a case that is now the focus of efforts by the 2020 General Assembly to rewrite the Condominium Act through House Bill No. 1548. The 1993 amendments to the Virginia Condominium Act made it too easy for boards to sell all the units and common areas of the development to a real estate company for redevelopment purposes, without the consent of all unit owners, and giving unit owners a diminished, unfair share of the proceeds of the sale. My hope was that the Condominium Act would be amended to remove or reform those 1993 amendments. Unfortunately, 2020 House Bill 1548 would make it even easier for the interests of unit owners to be oppressed in condominium termination sales by removing common law protections. This blog post voices my opposition to this proposed bill. This blog post is not as polished of a writing project as I would prefer, because I’ve put it out quickly in the interest of quickly explaining my opposition to the bill.  

Existing Condominium Law. Condominiums are a form of common ownership where the owner owns a “unit” outright, and all of the unit owners own the common areas as tenants in common. The Condominium Association, acting by the Board of Directors, has the exclusive power to operate the common areas for the benefit of the unit owners. The respective rights of the unit owners and the association are defined by the declaration and bylaws recorded by the original developer on the entire project, with any amendments. The courts treat the declaration and bylaws as the “contract” between the unit owners and the association. Like any other real estate “contract” or “tenant-in-common” ownership, the common ownership arrangement can come to an end through termination. When condominiums were a new invention, judges and lawyers understood that because the common areas were owned by the unit owners as tenants in common, the statutes pertaining to partition of real property would apply to issues of termination and sale, along with whatever applicable provisions there are in the Condominium Act and the Declaration. Directors, lawyers, developers, lenders and unit owners involved in the termination of condominium declarations and the sale of the property discovered that the partition statutes did not make it easy for the board, prospective buyer, or a majority of the unit owners to cleanly sell the property and distribute the proceeds. This is because absent a guiding provision in the declaration, it is necessary to litigate the partition action in the court system if 100% agreement cannot be made among the tenants in common. The 1993 amendments to the Condominium Act made it easier for the requisite super-majority of unit owner interests to make a Termination Agreement allowing sale of the entire property and distribution of the proceeds to the unit owners. The reasoning being that a few holdouts should not be able to block the sale of a property that was no longer useable or could be sold for a good price. However, when condominium terminations are made, often the “majority” is not a consensus of individual unit owners, but a commercial interest that has purchased 51%-67% of the units and is in the position of controlling or influencing the seller while also being the buyer. When one party is the buyer and controls to some degree the seller, they can control the purchase price, and thus the proceeds that go to each unit owner according to their percent interest.

Virginia House Bill 1548 does nothing to remedy the problems that exist under the current system. In fact, it makes oppressive tactics faster and easier to conduct. The following identifies several problems with the proposed amendments to Va. Code 55.1-1936:

Erosion of Protections in Recording Acts. Ordinarily a purchaser of property takes the land subject to all defects and encumbrances known to her or reflected in the publicly recorded land records. One of the effects of the land recording system is that it encourages parties to record land instruments to protect their rights by putting potential purchasers or lenders on notice of an encumbrance. A Condominium Termination Agreement is an encumbrance because it evidences the terms by which the declaration is being terminated and how the entire property is going to be sold. This is exactly the kind of information that a prospective purchaser would want to know before buying a condominium unit or accepting the unit as security for a loan. Under present law, there is no reason why a termination agreement would bind a purchaser of a unit unless the agreement was recorded prior to the conveyance of the unit or the seller told them. The Proposed 2020 amendment would do away with this protection, by allowing the proponents of the termination and sale to get the requisite signatures on the Termination Agreement, place the instrument in a desk drawer for recordation at a convenient time, but any purchaser would nonetheless take title subject to that termination agreement. See HB 1548, section C. Allowing “pocket” terminations would create ripe opportunity for abuse by bulk-buyers of condo units who want to keep the remaining unit owners in the dark or see what happens in a rezoning activity. The proposed amendment attempts to provide a replacement safeguard by requiring a copy of the termination agreement to be included in the resale disclosure packet. However, the statutes in Virginia requiring resale disclosures are woefully inadequate. The terms of those statutes give buyers barely any time to evaluate the sufficiency of the disclosures. The remedy for a deficient disclosure packet is to void the sale, not void the omitted instrument from affecting the rights of the purchaser. Also, the persons preparing the packet would not necessarily know about the existence of the termination agreement unless the makers of the agreement told the board or the manager.

Termination Agreement Can Redefine Unit Owners Rights. According to the proposed amendments to section I, new subsection 1, “Expect as provided in subsection 3, the respective interests of the unit owners shall be as set forth in the termination agreement.” This substantially inflates the powers of the supermajority voting interest promoting the termination sale. Ordinarily, the interests of condominium unit owners are defined by the declaration, condominium survey plat, bylaws and other instruments that define what rights are included in the condominium unit. This proposed amendment could allow the majority making the termination agreement to redefine the interests of the unit owners without their consent. The Bill proposes to amend Section G from reading,

If the property that constitutes the condominium is not sold following termination, title to the common elements and  . . . title to all the property in the condominium shall vest in the unit owners, upon termination, as tenants in common in proportion to the unit owners’ respective interests.

The bill would change this language to,

If the property that constitutes the condominium is not sold or otherwise disposed of following termination, title to all the property in the condominium shall vest in the unit owners, upon termination, as tenants in common in proportion to the respective share of the proceeds of sale paid to each unit owner.

So, this proposal would allow the supermajority voting block that approved the termination to, at their discretion, redefine the unit owners’ respective take or share in the context of a subsequent sale. This portion of the amendment may run afoul of the Constitution of Virginia, because the respective rights of the unit owners of existing condominiums are already defined by the Condominium Act and the common law of Virginia, and the legislature can’t pass laws that redistribute rights derived from preexisting contracts, declarations or deeds. With this amendment, the person or groups that make termination agreement would try to use this language to deprive other unit owners of rights by redefining the share of the proceeds. This is not a “mini-democracy.” It’s a tyranny of a super-majority of voting interests.

Further Dilution of the Appraisal rights of Unit Owners. According to the law currently in effect, the Board of Directors is supposed to hire independent appraisers who appraise each unit and use these appraisals to calculate each unit owner’s percentage interest in the net proceeds of the sale. Since the individual or group that has the requisite super-majority will undoubtedly place directors friendly to their cause on the Board, and because of the friendly relationship (or identity of persons) between the buyer and this voting bloc, the seller can greatly influence or control the process of appraising the units, or ignore the appraisal requirements to make the process faster and cheaper. The appraisal requirements in the current statute seem to be there to protect the interests of unit owners who spent considerable sums maintaining or improving their units, so that they would not be treated the same way as persons who neglected maintenance. The proposed bill makes it easy for the proponents of a termination to dispense of the appraisals by allowing the termination to require unit owners to demand appraisals within 30-days’ notice. If the appraisals come out 10% or more higher for the unit owner than the share the unit owner would receive according to the agreement, then the appraisals are used for valuation. If the appraisals come out 10% lower, then the dissenting unit owner’s share of the proceeds is reduced by the cost of the appraisals. This proposed system for challenging the appraisals does nothing to solve the problem of the buyer’s influence over the board that appoints the appraisers. This proposed change would bless the board to depress the share of the dissenting owner by 10%, even if the appraisals showed that the valuation method stated in the termination agreement undervalued a unit owners’ interest in the proceeds of the sale.

Leases and Mortgages. Section (I)(5) adds a new section, “Unless the termination agreement provides otherwise, each unit shall satisfy and cause the release of any mortgage, deed of trust, lease or other lien or encumbrances on his unit at the time required by the termination agreement.” Under the current Condominium Act, the leases and liens convey with the land if sold pursuant to a termination agreement, unless there is some limitation in the declaration that the tenant or lender takes subject to. The Condominium Act does not presently require unit owners to clear liens in the event of termination. Condominium units can be valuable as rental units, whether they are commercial or residential. Commercial leases can have terms that span many years and may involve rights of first refusal for purchase. In the commercial context, unit owners or their tenants frequently improve the interiors of the units at great expense to make them usable as a medical office or restaurant. The effect of this provision would be to devalue the use of condominium units as rental properties because the protections of the tenant and landlords’ leasing rights would be subject to this new provision. Many commercial tenants may refuse to willingly lease a unit where the landlord requires them to have the lease terminated by operation of a termination process outside of the landlord’s control. Also, its common for condominium unit owners to use their property as collateral for loans. Condominium terminations often occur when the economy is changing. In the event of a recession, many unit owners may be underwater on their loans. The effect of Section (I)(5) is to circumscribe condominium unit owners’ opportunities to leverage their investments through loans and leasing necessary to unlock value of the property. The condominium unit owner’s deed becomes less of an individual property right and more of a share in a communal resource.

There are other problems with the bill to which there is inadequate time to explore on short notice. Owners, lenders and tenants of condominium units in Virginia deserve better than to have ill-considered legislation impair their rights and make it easier for others to oppress their property rights through termination sales. For many Virginians, their condominium unit is their greatest investment and where they live or earn a living. Condominium ownership is promoted as a carefree means of living the American dream. The General Assembly has the opportunity to reduce the risk of nightmare for many of their constituents by voting against HB No. 1548.

February 7, 2020 Update: Today the House of Delegates approved HB No. 1548 by a 81-18 margin. To follow the bill status, go to www.lis.virginia.gov

For Further Reading:

Current Version of Va. Code § 55.1-1937 in effect

2020 House Substitute Bill No. 1548 Reported from General Laws Committee, February 4, 2020

My Fall 2020 Fee Simple Journal Article about Owners Rights in Condominium Termination

photo credit: Coastal Elite Construction in Halifax, Nova Scotia – September 2018 via photopin (license)(Doesn’t Depict Anything Mentioned in Post)

Where is Virginia on Selective Enforcement of HOA Covenants?

In Greek mythology, Procrustes was a robber who deceived his victims into entering his house by offering a free bed for the night. Once inside, if the visitor was too short, he violently stretched them to the full length of the bed. If the visitor was too tall, he would chop off their legs to fit them. Either way, Procrustes ended up with their valuables. Procrustes met his end when the hero, Theseus “fitted” Procrustes to the length of the bed in his own guest room. In the law, judges, lawyers and professors sometimes deride arbitrary or unwise legal standards as “Procrustean.”  

Subdivision deed restrictions often seem “Procrustean.” But at least Procrustes held all visitors to the same “standard.” When a HOA or condominium seeks to enforce a restrictive covenant against a particular owner, often there are other properties for which the board has failed to enforce that covenant against for a number of years. The owner, reading her notice of violation, may wonder if the HOA had effectively abandoned enforcement of the restriction or if the notice is an unfair “selective enforcement” against some lots but not others. The Supreme Court of Virginia considered this question in the 1992 decision, Raintree of Albemarle Homeowners Association v. Charles & Glenda Jones. Raintree brought suit against the Jones family, seeking an order prohibiting them from keeping a “wrecker” tow truck on their residential property. The HOA’s enforcement was a sore subject. Two other owners, Gordon Nicely and Dennis Powell parked pickup trucks owned by a utility company at their homes without HOA objection. The disputed covenant prohibited lot owners from parking trucks “of any nature” overnight on property in the subdivision, except in an enclosed garage. The section also prohibited, “school buses, commercial vehicles or habitable motor vehicles” outside of an enclosed garage. The Supreme Court disagreed with the HOA’s view that the utility company pickup trucks were not commercial trucks or “trucks of any nature” prohibited by the covenant. The HOA also argued that its failure to enforce the covenant against Messrs. Nicely or Powell, did not constitute a waiver of the enforceability of that covenant in the Jones case. The Supreme Court of Virginia’s longstanding rule says that the right to enforce a restrictive covenant may be lost by “waiver, abandonment or acquiescence” by the association to violations thereof. But 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 so as to render the enforcement of the restriction of no substantial value to the property owners.” The Supreme Court found that the HOA’s failure to enforce the covenant against Nicely and Powell did not substantially devalue of the covenant in the context of the overall architectural scheme of the development.

The Supreme Court found that the Circuit Court properly denied the HOA’s request for an order prohibiting the Joneses from parking their wrecker truck on Old Brook Road. The Supreme Court observed that Old Brook Road is State Route 652, not a private right of way. The HOA had no authority to regulate parking on Old Brook Road because it had been incorporated into the state system of highway maintenance. If VDOT didn’t have a problem with the truck, then there wasn’t anything that could be done against it. This is one reason why many HOAs like to own their own roads.

Many HOA declarations prohibit the keeping of commercial vehicles or motor homes in the subdivision. These rules can be onerous to small business owners who need a commercial vehicle to earn a living. Usually, owners are permitted to use their home as an office for professional work that does not impact the curbside views of the lot. Commercial vehicle or home business restrictions can hit working class people harder than professionals. Enforcement of such rules often “drives” small business owners further away from their service areas, require them to pass on “overhead” garage costs to their customers in higher prices, or force them out of business. This can discourage useful economic growth between services and consumers of ordinary means.

“Selective Enforcement” is a difficult defense to prove when relying upon the rule in Raintree. Motor vehicles are transitory by nature. If this was a case where a majority of the lot owners violated a covenant prohibiting sheds in the front yards for many years, then it would be much more likely to be found to render the prohibition useless. Or if the original declaration called for the association or developer to establish bridle paths across the front of each lot for equestrian activity, and instead of doing so, many lot owners built fences and other structures in the areas originally contemplated for horse trails.

There are other rules which lot owners may be able to use to assert a “selective enforcement” defense other than the “defeat of common scheme” rule discussed in Raintree. For example, federal or state fair housing laws may prohibit certain enforcement actions related to race, religion or other criteria.

Supreme Court of Virginia seem receptive to “textualist” challenges to HOA enforcement actions. Under this approach, set out in Tvardek and Sainani, interpreting the specific language in covenants or statute narrowly to limit enforcement, is more likely to result in a successful challenge. For example, in this case, if the Jones used unmarked mini or compact vans for a house cleaning business that they parked overnight at their property, then such a practice might not violate the covenants, because the minivans look no different than those used by large families.

The covenant at issue in the Raintree strikes me as unreasonable, in its prohibition against “trucks of any nature” being “parked overnight.” Pickup trucks are commonly used by passenger vehicles, and many automobiles used by families are classified as a kind of truck. It doesn’t make sense to put a covenant in a declaration that treats ordinary pickup trucks, SUV’s, vans, etc. like commercial service vehicles. Also, the “overnight” temporal limitation seems unreasonable. By this rule, a commercial vehicle could sit in an open driveway all day and go elsewhere at night. This doesn’t protect onlookers from the “eyesore” of the commercial vehicle. A literalistic enforcement of this covenant would require lot owners to ask their friends, who come to visit using compact pickups, to leave as soon as the sun sets.

Many people want HOA disputes to be resolved based on what others in the subdivision are doing or on “common sense” arguments. However, the courts in Virginia have explained that what the declaration and the statutes actually say is often more important than what some people may be doing. Different lawyers and judges often disagree as to what particular HOA covenants actually mean. At least with Procrustes, people trapped inside his house knew how tall they needed to be to get out unscathed. There were no arguments as to how long the bed was. When the legal standard is unclear as to what compliance would actually look like, then there is a greater problem. This is why the recent trend in Virginia whereby courts refuse to enforce overly general or ambiguous covenants makes sense.  

Selected Legal Authority:

Raintree of Albemarle Homeowners Ass’n, Inc. v. Jones, 243 Va. 155 (1992)

Tvardek v. Powhatan Vill. Homeowners Ass’n, 291 Va. 269 (2016)

Sainani v. Belmont Glen Homeowners Ass’n, 831 S.E.2d 662 (2019)

photo credit: akahawkeyefan RADIATOR SPRINGS? via photopin (license)

This photo does not depict anything discussed in the blog post.

Judicial Limitations on HOA Fining Authority

It’s December. Santa is coming. But for many, Santa isn’t the only person leaving things at homes. Many households using outdoor decorations to share holiday cheer will receive, in addition to gifts from their friends and family, HOA violation notices. Fortunately, Christmas came early in 2019, bringing Virginia landowners new, owner-friendly legal precedent.

Years ago, state legislatures made it easier for HOAs to use handbooks of architectural standards to enforce private land use restrictions.  Upon proper observation of certain formalities, HOAs can make up rules adding to those in the declaration and  impose fines and liens for violation of those rules.

Why is this controversial? It allows boards to bypass the normal, difficult process of obtaining votes of 1/2 to 2/3 of the owners to amend the restrictive covenants in the declaration. The power to adopt and enforce such rules (or the discretion not to do so) can make owners feel like someone is controlling their life or the value of their investment. When such power falls in the hands of an association board, owners are one election away from (1) a civic-minded group doing their best to help the community, (2) a controlling group of bullies acting out of self-interest, or (3) a board that is unengaged or incompetent.

Many people have a mistaken belief that the law empowers these organizations, the language of the documents doesn’t matter, and there is no real way to protect oneself. This is false. In August of 2019, the Supreme Court of Virginia explained in Sainani v. Belmont Glen Homeowners Association, Inc. that the law strictly construes HOA statutes, declarations and rules when Boards try to enforce such rules, and in favor of free use of property. This blog post explains what happened in the Sainani case, and how the legal method outlined in that case can be used to resist other efforts by HOAs to fine owners for violating rules and regulations.

SanJay and Sona Sainani owned a home in Belmont Glen HOA in Loudoun County, Virginia. For several years, the HOA sent them violation letters for the stringed holiday lights that adorned their front door and deck most days of the year. For the months of September through April, the Sainanis would leave up lights for several Hindu, Sindhi, and Sikh religious holidays. The HOA’s notices referred to its Handbook of Architectural Design Guidelines.  That document limited display of holiday lights to certain days around Halloween, Thanksgiving, Winter Holidays, and the Fourth of July. Beyond that, the Handbook required owners to obtain written approval from the HOA’s Architectural Review Board. At a hearing that the Sainanis did not attend, the HOA imposed a fine of $10.00 per each day that the violations continued. The ARB suspended the Sainanis voting privileges and their use of common facilities. The HOA filed suit in the General District Court and obtained a default judgment. The Sainanis retained counsel, appealed the GDC order, and filed counterclaims against the HOA on appeal in the Circuit Court of Loudoun County.

The Sainanis took the position that the seasonal display guidelines in the Handbook were unenforceable because their adoption was not authorized by the subdivision’s amended declaration of covenants. The Circuit Court decided that the holiday light rules were enforceable, and entered judgment against the Sainanis for $884.17 in unpaid fines and almost $40,000.00 in attorney fees and court costs. The Supreme Court of Virginia granted the Sainanis an appeal.

Justice D. Arthur Kelsey wrote the opinion of the Supreme Court. The “strict construction” analysis of HOA covenants follows the approach taken in Tvardek v. Powhatan Village HOA which I have written about previously. The general rule of strict construction is that restrictive covenants, “are not favored, and the burden is on [the party] who would enforce such covenants to established that the activity objected to is within their terms.” Covenants, “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 or the free use of property and against restrictions.” A  longstanding principle of the English common law is protection of the free use, enjoyment and disposal of property without restriction except by the laws of the land.

Most HOA covenants include lists of prohibited activities that range from the specific to the general, using terms that may or may not be clearly defined.  Under the rule of “ejusdem generis,” when a particular class of things is enumerated, and general words follow, the general words are construed in a sense similar to the more specific language. The corollary to this is the rule, “noscitur a sociis”, states that when general and specific words are grouped, the general words will be construed to embrace only objects similar in nature to the specific things mentioned.

Because the language of restrictive covenants is construed in favor of free use, covenants are only enforced where the intention of the covenant is clear and the restrictions are reasonable. Virginia courts are required to determine the meaning of covenants by considering the instrument taken as a whole. Parties are not permitted to cherry-pick bits and pieces of language that, if taken out of context, support their arguments.

The HOA pointed to several sections of the Declaration which they contended allowed for enforcement of anti-holiday light rules against the Sainani family:

1. The Declaration prohibited nuisances. A section provided: “No exterior lighting on a Lot shall be directed outside the boundaries of the Lot. Exterior lighting which results in an adverse visual impact to adjacent Lots, whether by location, wattage or other features, is prohibited.”  Because this covenant concerned the “adverse visual impact” of lighting on one lot to an adjoining lot, the Handbook rules about which days and times one could display decorative holiday lights, the activity objected to fell outside the scope of the light nuisances restrictions. The Court was not persuaded that the general prohibition against nuisances could apply to lighting features that were not proscribed by the “lights” subsection or any other subparts.
2. The Declaration required lot owners to obtain approval of the HOA’s ARB before any “modification or “alteration” of any lot or structure shall be made, installed, constructed, erected, placed, altered and/or externally improved. The Supreme Court used “strict construction” principles to limit the scope of this section to permanent changes to a lot, and not seasonal displays. The Court approved a section of the Restatement (Third) of Property: Servitudes § 6.7 which provides that design-control powers do not include an implied power to impose controls for purely aesthetic purposes, absent express authorization by statute or the declaration. Restatements are treatises where academic experts attempt to summarize and clarify common law doctrines.
3. The Declaration gave the ARB the authority to regulate the external design and appearances of the property so as to enhance property values and to maintain harmonious relationships. The Supreme Court found this grant of authority in the declaration to be overly general and found that it failed to specifically enumerate rulemaking powers beyond the “light nuisance” section previously considered.

The Sainani opinion does not mean that owners can just throw HOA violation notices into the trash. Fines are not now abolished. Owners ought to consult with qualified legal counsel whenever served with a notice to appear in a hearing at the HOA or courthouse. Sainani will prompt lawyers who draft HOA covenants to be more specific in describing prohibited conduct and grants of power to HOA boards and committees. This may avoid having the “void for generality” Sainani principle prevent covenant enforcement.

The court quotes a section of the HOA Handbook which states that the purpose of the holiday guidelines was, in addition to other purposes, “to avoid religious issues in the community.” This opinion doesn’t mention whether or not the Sainanis presented any arguments that any orders of the GDC or Circuit Court’s orders functioned as a restraint on free speech or exercise of religion. The Sainani opinion shows that it is not necessary to frame an issue in terms of first amendment rights for an owner to prevail.

What does the Supreme Court’s approach in the Sainani case mean for lot owners who are concerned about how the board is enforcing rules in the community? Since the Boards are the usual enforcing authority of HOA governing documents, the new opinion is a blow to many board or committee adopted systems of notices of violations, hearings and liens that rely heavily upon thick handbooks only loosely supported by the recorded covenants. The principles of strict construction shine light through loopholes in the HOA fine systems that may be offensive. The Court is 100% correct that interpretation of HOA statutes and covenants ought to look through a lens focused on the free use of property by landowners. The practical value of land comes from its free, un-interfered with use.

What the Sainani case (like the Tvardek case and others before it) introduce into the community associations system is substantial uncertainty about whether sections of governing documents are enforceable, and if so, how. The Supreme Court is not saying that the declaration or the exterior lighting provisions are invalid or that the Board may simply be ignored. The opinion says that the HOA cannot enforce particular sections of a Handbook adopted by the board by imposing fines through a statutory process. This enforcement uncertainty is of great interest to lawyers looking to enable or resist an Association’s rulemaking and enforcement practices. There are active owners in every community who will continue to strive to make other owners lots look a certain way, even if the judiciary raises the banner of private property rights higher. Lobbyists, specialist lawyers and professional managers who represent HOAs will go back and draft new legislation, covenants, rules, and procedures, trying to strengthen the authority of HOA boards and committees The uncertainty imposed by “strict construction” strengthens the rights of owners in the face of Boards and legislators who would like to limit those rights. However, this may be unhelpful to an owner who wants to be able to make plans and decisions now without months or years of litigation.  That’s why I would like to see the 2020 Virginia General Assembly take action to reform HOA fines.  

Selected Legal Authority:

Sainani v. Belmont Glen Homeowners Ass’n, 831 S.E. 2d 662 (Va. Aug. 26, 2019)

Va. Code § 55.1-1819, formerly, Va. Code § 55-513 (Adoption & enforcement of rules)

Photo Credit:

NathalieSt Christmas Flowers via photopin (license)(for decorative purposes only, does not depict anything featured in text of blog post)

Appeals Court Deems Association Street a First Amendment Public Forum

Disputes between individuals and HOAs frequently occur on the roads or sidewalks owned by the Association. The rights of way are usually the HOA’s largest budgetary and operational responsibility. The lot owners and their invitees rely upon the roads to access properties. State and local governments benefit financially by shifting the maintenance burden of the roads, sidewalks and drainage features onto an association that assesses dues on lot owners. Despite this public function, many associations or their residents want to use the roads’ “private” status to exclude undesired visitors or limit the roads’ use by lot owners. Representatives of the board may accost visitors as unwelcome. Managers may try to stop owners from communicating with residents on the sidewalks.

The declaration of covenants will contain provisions that define the respective rights of owners and the board with respect to common areas such as right of ways. By deed or “contract,” a lot owner may find that she has rights or duties with respect to these private roads that vary in scope or character from government-owned streets. However, owners are not the only parties that use HOA roads. HOA boards and committees are not the only authorities that regulate use of land in subdivisions. While the answers to most HOA problems are in the governing documents, sometimes broader legal principles apply. When do courts treat HOA roads or common areas as public forums for purposes of free speech analysis under the Bill of Rights? In July 2019, the U.S. Court of Appeals for the Sixth Circuit considered such a case.

5325 Summer Avenue Property Owners Association, Inc. owns Virginia Run Cove, a two-lane asphalt street in Memphis, Tennessee. The public uses Virginia Run Cove to access a gas station, a church, a federal government office, and, since May 1, 2017 a Planned Parenthood Clinic. John Brindley, who does not live or work in this subdivision, decided to stand on this private street near Planned Parenthood’s parking lot to share with others his pro-life, anti-abortion message. In his Complaint, Brindley explained that he wanted to speak with Planned Parenthood patrons about alternatives to abortion without having to shout at a distance. His Complaint states that he wanted to share his views about abortion, as informed by his religious faith, in a nonviolent and non-harassing manner. Planned Parenthood complained to the Memphis police department that Mr. Brindley was trespassing on a private street in front of their business. The police arrived. Based on Planned Parenthood’s explanation that this was private property, they instructed Brindley to relocate. Under fear of arrest, Brindley left.

Mr. Brindley filed suit against the City of Memphis and representatives of its police department for infringing upon his First Amendment rights because Virginia Run Cove functions as a “public forum” for purposes of Free Speech analysis under the Constitution. Mr. Brindley did not name Planned Parenthood or the Association as co-defendants.

The case went up to the Sixth Circuit Court of Appeals after the federal trial-level court denied Mr. Brindley’s motion for a preliminary injunction.

On appeal, the outcome turned on how “public” Virginia Run Cove is for purposes of the First Amendment. Brindley contended that the road was a “traditional public forum,” requiring the court to strictly scrutinize governmental restriction on speech activities. The City of Memphis contended that it was a non-public forum, and the courts ought to defer to the police department’s actions.

Under federal case law, there is a strong presumption that public streets are traditional public forums. Also, the Supreme Court has held that a street does not lose its status as a traditional public forum simply because it is privately owned. If the street looks and functions like a public right of way, it suffices as a traditional public forum regardless as to who may hold ownership of it. The emphasis in this analysis is on how the road, sidewalk, park or other public space functions in the daily commerce and life of the neighborhood

The District Court for the Western District of Tennessee denied Brindley’s Motion for a Preliminary Injunction. The District Court Judge wrote:

When property is privately owned, it is subject to the First Amendment in proportion with the owner’s authorization of public use. “The more an owner, for his advantage, opens up his property for use by the public in general, the more do his rights become circumscribed by the statutory and constitutional rights of those who use it.” Marsh, 326 U.S. at 506. Inversely, where a property owner invites the public for a more limited use, reflected in a utilitarian design facilitating only the specific commercial purpose of the invitation, the balance tips in favor of the owner, as the limited invitation results in the retention of some of the property’s private nature. See Lloyd Corp. v. Tanner, 407 U.S. 551, 569 (1972).

Brindley v. City of Memphis, 2:17-cv-02849-SHM-dkv, 2018 U.S. Dist. Lexis 117481 (W. D. Tenn, Jul. 13, 2018)

The district judge denied the motion on the grounds that at the hearing, Brindley failed to carry his burden of establishing that the present or historic uses of Virginia Run Cove made it a “traditional public forum.”

On appeal, the Sixth Circuit Court of Appeals took up the question of how “public” Virginia Run Cove is for purposes of the First Amendment. Brindley contended that the road was a “traditional public forum,” requiring the court to strictly scrutinize governmental restriction on speech activities. The City of Memphis contended that it was a non-public forum, and the courts ought to defer to the police department’s actions.
Under federal case law, there is a strong presumption that public streets are traditional public forums. Also, the Supreme Court has held that a street does not lose its status as a traditional public forum simply because it is privately owned. If the street looks and functions like a public right of way, it suffices as a traditional public forum regardless as to who may hold ownership of it. The emphasis in this analysis is on how the road, sidewalk, park or other public space functions in the daily commerce and life of the neighborhood or community. The Sixth Circuit summarized the judicial opinions regarding whether a private street is a traditional public forum according to a two-part test: (1) is the privately-owned street physically indistinguishable from a public street and (2) does the street function like a public street. If both of these criteria are met, it is a “traditional public forum.” The Sixth Circuit observed that Brindley did not need to prove the past and present history of the use of Virginia Run Cove because consideration of its objective characteristics is sufficient. The appeals court arrived at a different result because it applied the First Amendment with greater generosity than the trial-level court.

The Sixth Circuit reversed the District Court. The appeals court found Virginia Run Cove physically indistinguishable from a public street. There were no signs or visual indicators that it was privately owned. The Court also found that the Cove functioned like public streets in the way it gave cars and pedestrians access to the businesses on that street. The City of Memphis argued that Virginia Run Cove was distinguishable from a public street because its street sign was blue, unlike the green signs used for public streets. The Sixth Circuit found that this open but subtle indicator to be insufficient to make Virginia Run Cove “distinguishable” as a nonpublic forum. This suggests that the “indistinguishable” requirement is not a rigid one.

The Court considered the effect of recorded land instruments. Under the Constitution, courts do not defer to state-law definitions whether the street is a publicly dedicated right of way to decide whether it is a traditional public forum. However, if such a dedication exists, that may be used in support of a free-speech argument. The final plat of the development contained a certification of dedication of the streets for public use.
The Sixth Circuit found that Virginia Run Cove is a “traditional public forum” for First Amendment purposes. The City admitted that under a strict scrutiny standard, they could not identify a compelling governmental interest in excluding demonstrators. The appeals court reversed the denial of the preliminary injunction and remanded the case to the District Court. On October 15, 2019, the District Court entered a consent order enjoining the city of Memphis police from infringing upon Brindley’s constitutionally protected right of self-expression on Virginia Run Cove.

Notice that the HOA was not party to this lawsuit. The complaint and opinion don’t mention HOA involvement. However, this case illustrates how the legal status of HOA common areas affect the rights of visitors and residents. This can be confusing if someone tells a visitor that they must leave because the right of way or common area is “private property.” Bill of Rights protections might not apply. This is further confused by the fact that HOAs often enjoy status as a tax-exempt entity because they perform a public benefit by maintaining roads, playgrounds and other public open spaces that would otherwise fall upon the government. HOA roads, easements and playgrounds are commonly used by persons who don’t reside or work in the community.

When people feel threatened in the HOA or condominium setting, they often call the local police department. While the police may have the authority to detain, arrest or summon someone under certain circumstances, they may not want to get involved in neighbor disputes. Also, the accused will have constitutional protections against governmental officers not ordinarily available in civil disputes. Its often unclear to whom an aggrieved party ought to state their claims in the event of a dispute involving an association.

The growing body of case opinions defining privately owned roads or other open spaces as “traditional public forums” shapes the way that developers and HOA boards treat common areas and rights of way. Desires to have the government take over maintenance of roads for financial reasons runs contrary to restrictions on use for free speech. HOA boards may erect signage viewable to the public that may not be consistent with the terms of recorded instruments regarding the road or other common area. In fact, in some subdivisions, people may make a road or open space appear private when in fact the land instruments show that it is publicly dedicated. The signs may suggest that land is controlled by the HOA as a common area when in fact it is part of lots.

The City of Memphis did not attempt to appeal the adverse decision up to the U.S. Supreme Court. I see nothing to suggest that the Brindley case was incorrectly decided on appeal. This is good news, because every year more and more rights of way and park-like open spaces are developed as common areas of HOAs and condominiums. Citizens ought not to lose recourse to protections for speaking with others on public forums because they are developed as privately-owned land.

Judicial Opinions Discussed:

Brindley v. City of Memphis, 934 F.3d 461 (6th Cir. 2019).

Brindley v. City of Memphis, 2:17-cv-02849, 2018 U.S. Dist. Lexis 117481 (W. D. Tenn, Jul. 13, 2018).

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)