August 17, 2016
HOAs and Condominiums derive from the covenants and state statutes’ powerful tools to use against homeowners. However, if the association does not meet the legal definition of a HOA or condo, then it cannot use the statuary toolbox. Instead of issuing fines, it must file a lawsuit each time it wants to obtain a lien against an owner’s property. The Virginia Condominium Act and Property Owners Association Act contain many protections for owners. However, they also provide associations with powerful debt-collection tools if they fit within the statutory definition. If a court determines that an HOA is not legally valid, this is a big win for owners being bullied by the board. Every once in a while, owners will take a stand and challenge whether their “HOA” exists. Recently, George Evans, Karen Evans, Gilbert Kesser & Yvonne Kesser brought such a case against their “HOA” in Culpeper, Virginia. On July 13, 2016 they won an important motion, setting the stage for big changes in Seven Springs Farm Subdivision (SSF). I am originally from Culpeper County, but I have never been to Seven Springs. We lived in a quiet residential development of modest wooded lots a few blocks from a lake. No one ever complained that their quality of life or property values suffered for lack of an HOA. When I left to go to college in 1995, there were few HOAs. Since then, development transformed Culpeper County from a farming community into a suburb of Northern Virginia. HOAs played a key role in that transformation.
This case arose over a dispute about assessments for road improvements. The covenants required the HOA to take a member vote before apportioning an assessment against the unit owners. On March 29, 2014, the Board made a $12,000 “blanket” assessment against homeowners without taking their votes. When the Kessers and Evans refused to pay, the HOA placed liens against their properties. Many owners of HOA properties believe that their Boards have the power to “tax & spend” for the “general welfare” of the community and that there is little way to challenge this. However, the Seven Springs Farm HOA case shows that everything a Board does must be authorized according to proper interpretation of the governing documents.
My friend, Mark Sharp, brought a suit on behalf of the Evans & Kesser families. They sought a judgment declaring that SSF is not a HOA for purposes of the Virginia Property Owners Association Act (“POAA”). Usually, the developers’ lawyers who set up HOAs take care that the Association qualifies as an HOA under the POAA. However, just because it calls itself an HOA and acts as though it has those powers doesn’t mean that it is an HOA. In Virginia, the declaration of covenants must provide, among other things, that the Board has the power to make assessments and also an affirmative duty to maintain common areas. This makes sense, because a contract is only meaningful if obligations go both ways. Contracts that fail to exchange something by both sides are invalid because of lack of “consideration.” In the HOA context, fundamental unfairness would arise if the board had the power to assess and lien but no obligation to spend the money on the common areas. Without this mutuality of obligation, an association is not entitled to the toolbox of remedies provided in the POAA.
In the Seven Springs case, the declaration gave the “HOA” the power to assess. The board had the power to do common area maintenance but were not specifically obligated to perform it. Under Virginia law, “valid covenants restricting the free use of land, altogether widely used, are not favored and must be strictly construed.” Accordingly, “substantial doubt or ambiguity is to be resolved against the restrictions, and in favor of the free use of property.”
Culpeper Circuit Court Judge Susan Whitlock’s opinion applied this strict construction principle to the question of whether the association qualifies as an “HOA” under the Property Owners Association Act. Anything in a declaration of covenants can be strictly construed. HOA lawyers typically make the governing documents many pages long in order to avoid having a judge find any “substantial doubt or ambiguity.” Judge Whitlock observed that an HOA is subject to such a challenge even if there was an ongoing pattern of owners paying dues and the Board spending the money on the common areas.
When the owners brought this challenge, SSF filed a demurrer, asking the judge to dismiss the case for legal deficiencies and not allow it to proceed to trial. Judge Whitlock overruled this demurrer, finding that “The Defendant’s Declaration fails to expressly require SSF to maintain the common areas, and therefore the Defendant is not a “Property Owners’ Association” under the POAA. Merely stating that those fees shall be used for maintenance of Lots and upkeep of roads fails to bridge the gap of ambiguity to be considered an affirmative duty to maintain.”
While the board, its managers and lawyers may interpret ambiguous governing documents to empower them to do what they want, in the end it is the counts that oversee HOAs, which a judge may very well reject. Judge Whitlock permitted the owners challenge to the road improvement assessment to proceed in Court.
This Seven Springs Farm HOA reminds us of several things: First, an owner must understand what the governing documents mean under state law to know what their rights and responsibilities are. In a dispute, this will require attorney assistance. The president, manager or HOA lawyer approaches the issue from a different perspective and cannot be expected to disclose to the owner all of her rights. The governing documents may or may not be consistent with what someone might think to be a common-sense approach to solving a problem.
Second, the Supreme Court of Virginia views a HOA as a contractual relationship. Ambiguous or uncertain provisions of these “contracts” can be strictly construed in the owners’ favor. A Virginia HOA board is not a “mini-government” empowered to exercise general legal authority within the boundaries of the development.
Third, Judge Whitlock’s decision is a pleasant reminder that not only do HOAs sometimes lose in Court, sometimes they are found to be less than a card-carrying member of the HOA club. Owners considering litigating against their community association should take this opinion as a reminder that a good case is winnable.
Fourth, just because a judge rules that an association is not an HOA under Virginia law doesn’t mean that the declaration of covenants is completely invalid. Such a ruling just means that its board cannot benefit from all of the intensive lobbying that the industry has done to empower HOAs and condominiums. A non-HOA association may still be able to exercise dominion over common areas and take owners to court to resolve disputes.
Property owners considering court action involving their boards of directors should begin the process with careful consideration of the recorded governing documents with the assistance of a qualified attorney. In many cases, they have more rights than what others explained to them.