May 5, 2017
When owners have disputes with their condominium or HOA boards, sometimes it is unclear where or how they must go about seeking redress or defending their rights. Owners must understand how association dispute resolution procedures work so that they do not prejudice their own claims or defenses by failure to go to the proper forum or meet deadlines. What options are available will depend upon the facts of the case and the governing documents. Sometimes it can feel like a labyrinth without an aerial view of sorts. The following is a summary overview and is not intended to explain everything:
In the absence of other dispute resolution procedures, owners have the option of filing or defending a lawsuit. The Property Owners Association Act and Condominium Act both provide that owners or associations may bring suit in order to enforce the declaration of covenants. They also provide that the prevailing party shall receive an award of reasonable attorney’s fees. The Supreme Court of Virginia recently made an owner-favorable decision on the issue of attorneys fees. See my post, Condo Owner Prevails on her Request for Attorney Fees.
Some suits where the amount in controversy is $25,000.00 or less can be brought in the General District Court (GDC) for the city or county where the property is located. The advantage of the GDC is that cases go to trial faster and are in most situations less expensive to litigate. Suits over $25,000.00 or where equitable remedies are sought by the owner must be brought in the Circuit Court. The procedures there are more complex. This blog post explains how they usually start, The Beginning of a Virginia Circuit Court Case. Community association cases usually don’t end up in the U.S. District Court. If one of the parties is in bankruptcy, the case may end up in the U.S. Bankruptcy Court. While litigation is more time-consuming and laborious than some other dispute resolutions options, the outcomes tend to be more favorable because of the independence of the judiciary.
Internal Nonjudicial Dispute Resolution:
The most common “venue” for resolution of disputes between owners and boards is internally within the association’s governance structure. Declarations of covenants, bylaws, architectural standards, rules & regulations and articles of incorporation may provide for claims to be brought by owners or the association before the board of directors or the architectural review committee.
The most notorious form of this is where the association issues a notice to an owner that she has violated a covenant, rule or regulation and must appear in a hearing before the board or committee. See, Don’t go it alone on a Notice of Violation. The courts allow this under the statutes, but there must also be provisions in the covenants that allow for the association to assess nonjudicial fines. These procedures are controversial because they allow the association to act as prosecutor, judge, jury and collection agent in their own case.
Sometimes owners have disputes with one another over party walls or boundary fences. Many covenants have provisions that require them to submit disputes over party walls or boundary fences to the board of directors as arbitrator. I don’t like these provisions because board members typically don’t have experience or training as arbitrators. Arbitration is not the same as rules violation hearings. Board members may have a vested interest or bias in the outcome of the party wall arbitration.
Some newer governing documents have internal dispute resolution procedures that seem all-encompassing. For example, an owner may be required to exhaust detailed procedures under the governing documents before acquiring the legal right to bring suit. Rules may require deadlines and procedures for seeking board of directors “appellate” review of decisions adverse to the owner. This may require an owner or their lawyer to compare multiple governing documents and to analyze them under Virginia statutes and case-law to determine whether action is necessary in order to protect one’s property rights. If the owner fails to first exhaust the” internal remedies” before going to court or fails to follow some dispute resolution procedure, they may be prejudiced in their ability to get a judge (or arbitrator) to consider it on its merits.
In general, the world of these internal nonjudicial procedures favors the boards. Not only do they sit as decision makers, they also may have authority to record liens, foreclose or even act as trustee in condominium termination proceedings. That said, owners should not ignore these procedures. If the board fails to follow its own internal rules, then that may position the owner for a favorable outcome in litigation or arbitration. The board has no authority outside of what the covenants and statutes create. See, Do your association’s parking rules pass the small test?
Virginia law allows community associations to put binding arbitration clauses in their covenants. This means that in the event of a dispute, an owner may find out that they cannot simply bring the case before the judiciary. Arbitration clauses typically designate a company such as the American Arbitration Association as the “venue” that acts in the place of a court. Sometimes, arbitration can be more expensive to the participants than litigation. Significant up-front fees may be required. The covenants may require the case to be arbitrated through an agency that has cozy relationships with real estate industry people and doesn’t have a consumer protection orientation. The arbitration process doesn’t favor the “little guy.” See, Overcoming Delay Tactics in Arbitration.
Office of the Ombudsman of the Common Interest Community Board:
If there weren’t already enough potential venues, the General Assembly created another one. If an owner has a grievance against a board or licensed property manager, they may submit an adverse decision to the state Common Interest Community Board for review. This has been touted by some as a way of having a government regulator review the legality of a board or property manager action without having to court or arbitration. As my previous blog post explains, the Ombudsman does not render decisions adverse to boards where the parties are arguing opposing interpretations of statutes or governing documents. See, Condo Owner Prevails on her Request for Attorney Fees. Since both sides need to take opposing interpretations for a dispute to arise in the first place, this is not a useful process for an owner to pursue when they are concerned about the outcome.
In my practice, I prefer to help clients to understand and protect their rights without unnecessary legal action. Ideally, boards and owners can negotiate a mutually acceptable outcome without going to court or arbitration. Unfortunately, this is not always possible in many owners’ circumstances. When a HOA or condominium board seems to be taking improper action or failing to fulfill its obligations under the governing documents, owners need to know where they can turn to obtain useful and cost-effective relief. As this survey shows, in Virginia there is a potentially confusing array of procedures and venues. An owner can potentially become focused on one or two and run the risk of having a deadline expire on bringing the claim properly. When owners need some help making sense out of the governing documents, laws and correspondence from the association, they need an attorney who practices community associations law but isn’t allied with the boards or association industry. That’s why I started my little firm where we don’t accept cases where we represent boards.