July 20, 2017
Are Legal Remedies of Owners and HOAs Equitable?
Supreme Court Justice Anthony Kennedy recently wrote in an opinion that, “Property rights are necessary to preserve freedom, for property ownership empowers persons to shape and to plan their own destiny in a world where governments are always eager to do so for them.” Murr v. Wisconsin, 198 L.Ed.2d 497, 509 (U.S. Jun. 23, 2017). This principle goes beyond the eminent domain issues in Murr v. Wisconsin. Many HOAs and condominiums boards or property managers are eager to make decisions for (or ignore their duties to) owners. In the old days, legal enforcement of restrictive covenants was troublesome and uncertain. In recent decades, state legislatures made new rules favoring restrictive covenants. Sometimes owners seek to do something with their property that violates an unambiguous, recorded covenant. I don’t see that scenario as the main problem. What I dislike more is community associations breaching their specific obligations to owners, as enshrined in governing documents or state law. Is the ability to enforce the covenants or law mutual? Are legal remedies of owners and HOAs equitable?
Why HOAs Wanted the Power to Fine:
Take an example. Imagine a property owner decides that it would be easier to simply dump their garbage in the backyard next to a HOA common area than take it to the landfill. Let’s assume that does not violate a local ordinance. Or substitute any other example where a property owner damages the property rights of others and the problem cannot be solved by a single award of damages. Before legislatures adopted certain statutes, the association would have to bring a lawsuit against the owner, asking the court to grant an injunction against the improper garbage dumping. This requires a demand letter and a lawsuit asking for the injunction. The association would have to serve the owner with the lawsuit. The owner would have an opportunity to respond to the lawsuit and the motion for the injunction. An injunction is a special court remedy that requires special circumstances not available in many cases. The party seeking it must show that they cannot be made whole only by an award of damages. The plaintiff must show that the injunction is necessary and would be effective to solve the problem. The legal standard for an injunction is higher than that for money damages, but it is not unachievably high. Courts grant injunctions all the time. However, the injunction requires the suit to be filed and responded to and the motion must be set for a hearing. Sometimes judges require the plaintiff to file a bond. Injunction cases are quite fact specific. The party filing the lawsuit must decide whether to wait for trial to ask for the injunction (which could be up to one year later) or to seek a “preliminary” or “temporary” injunction immediately. If the judge grants the injunction against the “private landfill,” the defendant may try to appeal to the state supreme court during these pretrial proceedings. These procedures exist because property right protections run both ways. Those seeking to enjoin the improper dumping have a right, if not a duty, to promote health and sanitation. Conversely, the owner would have a due process right to avoid having judges decide where she puts her trash on her own property. If the court grants the injunction, the judge does not personally supervise the cleanup of the dumping himself. If an order is disobeyed, the prevailing party may ask for per diem monetary sanctions pending compliance. That money judgment can attach as a lien or be used for garnishments. These common law rules have the effect of deterring the wrongful behavior. This also deters such lawsuits or motions absent exigent circumstances. Owners best interests are served by both neighbors properly maintaining their own property and not sweating the small stuff.
Giving Due Process of Court Proceedings vs. Sitting as both Prosecutor and Judge:
If association boards had to seek injunctions every time they thought an owner violated a community rule, then the HOAs would be much less likely to enforce the rules. The ease and certainty of enforcement greatly defines the value of the right. Boards and committees do not have the inherent right to sit as judges in their own cases and award themselves money if they determine that an owner violated something. That is a “judicial” power. Some interested people lobbied state capitals for HOAs to have power to issue fines for the violation of their own rules. To really give this some teeth, they also got state legislatures to give them the power to record liens and even foreclose on properties to enforce these fines.
Statutory Freeways Bypass the Country Roads of the Common Law:
Let’s pause for a second and pay attention to what these fine, lien & foreclosure statutes accomplish. The board can skip over this process of litigating up to a year or more over the alleged breach of the covenants or rules. Instead, the board can hold its own hearings and skip ahead to assessing per diem charges for the improper garbage dumping or whatever other alleged infraction. Instead of bearing the burden to plead, prove and persevere, they can fast track to the equivalent of the sanctions portion of an injunction case. Instead of enjoying her common law judicial protections, the owner must plead, file and prove her own lawsuit challenging the board’s use of these statutory remedies. Do you see how this shifts the burden? Of course, the HOA’s rule must meet the criteria of being valid and enforceable. In Virginia, the right to fine must be in the covenants. The statute must be strictly complied with. But the burden falls on the owner to show that the fast track has not been complied with.
Owners’ Options:
Statehouse lobbying and clever legal writing of new covenants has helped the boards and their retinue. Let’s take a moment to see what remedies the owner has. Imagine reversed roles. The board decided that they could save a lot of money if they dumped garbage from the pool house onto the common area next to an owner’s property. The board ignores the owners’ request to clean and maintain that part of the common area. Let’s assume that the governing documents require the board to maintain the common area and do not indemnify them against this kind of wrongful action. The owner can sue for money damages. If the case allows, the owner may pursue an injunction against the board to clean up the land and stop dumping trash. The owner must follow the detail-oriented procedures for seeking an injunction. The owner does not have a fast-track remedy to obtain a lien against any property or bank accounts held by the board.
Fine Statutes Should be Legislatively Repealed:
In my opinion, community association boards and owners should both be subject to the same requirements to enforce restrictive covenants. If state legislatures repealed their fine and foreclosure statutes, the boards would not be left without a remedy. They would not go bankrupt. Chaos would not emerge. They would simply have to get in line at the courthouse and play by the same rules as other property owners seeking to protect their rights under the covenants or common law.
“But Community Association Lawsuits are a Disaster:”
Many of my readers are skeptical of leaving the protection of property rights to the courts. They don’t like people who sue or get sued. They argue that whether you are defending or suing, the process is laborious and expensive. The outcome is not certain. I don’t agree that property owners should surrender their rights to associations or industry-influenced state officials. What if there was a controversy-deciding branch of government that the constitution separates from special-interest influence and the political winds of change? Wouldn’t that be worth supporting? I know that there are legal procedures that drive up the time and expense of the process without adding significant due process value. That does not mean that the courts should be divested of the power to conduct independent review and award remedies not available anywhere else.
Judicial Remedies Are Better Options Than Many Owners Think:
Fortunately, owners have many rights that their boards and managers are not informing them about. Many common law protections have not been overruled. In Virginia, restrictive covenants are disfavored. Any enforcement must have a firm footing in the governing documents, statutes and case law. The statutes adopted by the legislature limiting the common law protections are strictly (narrowly) interpreted by the courts. It is not necessary, and may be counterproductive to run to some elected or appointed bureaucratic official. Under our constitutional structure, the courts have the power to enforce property rights. Many owners cannot wait for the possibility that a future legislative session might repeal the fine statutes. If they are experiencing immediate problems (like improper dumping of garbage or whatever) they need help now. In rare cases law enforcement may be able to help. In most cases working with a qualified attorney to petition the local court for relief is the answer.
Photo Credit: duncan Commit no nuisance via photopin (license)
October 13, 2016
High Court Upholds Public Policies Against Restrictive Covenants
The issue of restrictive covenants often comes up in news or social media stories where a HOA or condominium demands that an owner take down an addition, a shed, a statue or some other architectural feature on the grounds that it offends the rules. The board claims that the rule is found in (or derived from) a document recorded in the land records encumbering all of the properties in the community. The board’s assertion of the restriction may come as a surprise to the owner. In a recent blog post, Does an HOA Disclosure Packet Effectively Protect a Home Buyer?, I wrote about how the existing legal framework fails to adequately disclose to the purchaser what it means to live in a HOA. That post started some great conversations with attorneys, realtors and activists about how consumers could be better protected during the sale process. Today’s post focuses on what the legal requirements are for a contractual relationship to arise between the community association and a resale purchaser who did not sign off on the restrictive covenants originally.
Restrictive covenants that bind future owners are a legal device that predate HOAs and condominiums by hundreds of years. Community associations derive their power to collect $$$ from and enforce rules against their owners through restrictive covenants. However, many owners are not aware that enforcement of restrictive covenants are disfavored by Virginia courts on public policy grounds.
Restrictive covenants are contract terms which, if enforceable, follow the property or the person around even after the contract between the original parties is over. They aren’t limited to real estate. For example, a pest control company may ask an employee to sign an agreement not to compete against the employer even after leaving the company. Courts are skeptical of contracts that restrict the ability of a worker to make a living in the future. For public policy reasons, workers should be able to reasonably put their skills to use in the marketplace regardless of what a written agreement might say. The courts enforce only very narrowly tailored covenants-not-to-complete in the employment context. Judicial precedent and the uncertainties of litigation make many businesses reluctant to sue former employees now working as rivals.
Courts disfavor restrictive covenants on real estate for similar policy reasons. Covenants that bind future owners narrow the usefulness of the property. Labor and property should be freely marketable without short-sighted, unreasonable restrictions. Such a policy protects property values and market liquidity.
The Supreme Court of Virginia still shares this viewpoint. On February 12, 2016, the Court decided Tvardek v. Powhatan Village HOA. That case was about the validity of an amendment to the HOA declaration, including its restrictive covenants. In ruling in favor of the homeowners, the Court reaffirmed the strict construction of covenants that run with the land, even in contemporary HOAs. Justice D. Arthur Kelsey’s opinion explains:
“The common law of England was brought to Virginia by our ancestors” in large part “to settle the rights of property.” Briggs v. Commonwealth, 82 Va. 554, 557 (1886). At that time, English common law had developed a highly skeptical view of restrictions running with the land that limited the free use of property. “Historically, the strict-construction doctrine was part of the arsenal of restrictive doctrines courts developed to guard against the dangers imposed by servitudes.” Restatement (Third) of Property: Servitudes § 4.1 cmt. a (2000).
Virginia real estate law generally views restrictive covenants as a threat to liberty. University of Virginia law professor Raleigh Minor prophetically wrote in his 1908 treatise, “perpetual restrictions upon the use of land might be imposed at the caprice of individuals, and the land thus come to future generations hampered and trammeled.” If only Professor Minor could see how property rights have eroded in many communities today.
The viewpoint of many people in today’s real estate industry and local governments is the opposite of what courts have traditionally held. Buyers are told that covenants protect their investments from barbarian neighbors who might do something to make the surrounding properties look undesirable. But as Professor Minor pointed out 100 years ago, these rules give an opportunity for capricious enforcement. Is the message of our contemporary industry an insight misunderstood by previous generations, an appeal to the preferences of certain buyers who dislike non-HOA neighborhoods or merely a sales pitch?
English common law recognized very few restrictive covenants running with the land. Those receiving judicial approval appeared to be limited to easements appurtenant “created to protect the flow of air, light, and artificial streams of water.” United States v. Blackman, 270 Va. 68, 77, 613 S.E.2d 442, 446 (2005); see also Tardy v. Creasy, 81 Va. 553, 557 (1886). Over a century ago, we noted that “attempts have been made to establish other easements, which the [historic common] law does not recognize, and to annex them to land; but the law will not permit a land-owner to create easements of every novel character and attach them to the soil.” Tardy, 81 Va. at 557. Since then, in keeping with our common-law traditions, Virginia courts have consistently applied the principle of strict construction to restrictive covenants.
The court applied this principle in the Tvardek case where the association sought to enforce an amendment to the declaration against certain owners who didn’t vote for it. As the court reaffirmed in this 2016 decision, restrictive covenants are not always enforceable. The Tvardeks opposed being deprived of their right to rent out their property. The covenant has to fall within a recognized category. The principle of “strict construction” works against the restrictor and to the benefit and protection of the owner.
A restrictive covenant running with the land that is imposed on a landowner solely by virtue of an agreement entered into by other landowners who are outside the chain of privity would have been unheard of under English common law. See generally 7 William Holdsworth, A History of English Law 287 (1925) (“Whether or not the burden of other covenants would run with the land, and whether or not the assignee of the land could be sued by writ of covenant, seem to have been matters upon which there is little or no mediaeval authority.”). Privity has long been considered an essential feature of any enforceable restrictive covenant. Bally v. Wells (1769) 95 Eng. Rep. 913, 915; 3 Wils. 26, 29 (“There must always be a privity between the plaintiff and defendant to make the defendant liable to an action of covenant.”). Many of our cases have recognized this common law requirement. See, e.g., Beeren & Barry Invs., LLC v. AHC, Inc., 277 Va. 32, 37-38, 671 S.E.2d 147, 150 (2009); Waynesboro Village, L.L.C. v. BMC Props., 255 Va. 75, 81, 496 S.E.2d 64, 68 (1998); Sloan v. Johnson, 254 Va. 271, 276, 491 S.E.2d 725, 728 (1997). We thus approach the statutory issue in this case with this historic tradition as our jurisprudential guide.
Someone is “in privity” with another if they have legal standing to sue them because he (or his predecessor-in-interest) was party to the contract that creates the rights at issue. The court affirmed the common law privity requirement, rejecting any suggestion that it should be discarded as outdated. For this reason, the legal requirements that the association disclose certain documents and the seller honor a right of cancellation of the purchase contract have the effect of establishing privity between the HOA and the subsequent purchaser. Do these statutes fairly balance the respective rights of resale purchasers and community associations?
The Tvarkeks did not contest that they were not bound to the HOA covenants that existed when they bought their home. Instead, they sought to have an amendment to the covenants declared invalid because the statutory procedures were not properly followed. If you are curious about the technical reasons why the court found this particular amendment invalid, there are other bloggers, such as Jeremy Moss, following community associations law developments in Virginia have written about Tvardek from this angle. An HOA may have hundreds of members. The membership changes every year. Most owners have never personally made any transactions with the developer or the owners who voted to amend the declaration of covenants. How can privity exist if the declaration can be amended without a signature from every owner? That’s where the legislature comes into play:
The Virginia Property Owners’ Association Act, Code §§ 55-508 to 55-516.2, expanded the concept of privity considerably beyond common-law limits. In general terms, the Act permits the creation of a restrictive covenant running with the land and enforceable against subsequent owners of the parcels covered by the declaration, whether or not they consent, so long as the association follows the statutorily prescribed procedures governing the association’s declaration and amendments to it.
The enactment of the HOA statutes do not wipe out the rule of strict construction of covenants that run with the land. Instead, the General Assembly expands certain exceptions to the privity requirement for the enforceability of restrictive covenants. The basic rule of skepticism holds. The Property Owners Association Act must be understood within the context of the common law.
One might think that the modern age of statutes would have marginalized the role of English common law, but this is not so. “Abrogation of the common law requires that the General Assembly plainly manifest an intent to do so.” Linhart v. Lawson, 261 Va. 30, 35, 540 S.E.2d 875, 877 (2001). We do not casually presume this intent. “Statutes in derogation of the common law are to be strictly construed and not to be enlarged in their operation by construction beyond their express terms.” Giordano v. McBar Indus., 284 Va. 259, 267 n.8, 729 S.E.2d 130, 134 n.8 (2012) (citation omitted). A statute touching on matters of common law must “be read along with the provisions of the common law, and the latter will be read into the statute unless it clearly appears from express language or by necessary implication that the purpose of the statute was to change the common law.” Wicks v. City of Charlottesville, 215 Va. 274, 276, 208 S.E.2d 752, 755 (1974).
Case law is very important to make sense of any HOA. Otherwise the statutes just seem to be an enablement of legal powers for the boards that are not found in the governing documents.
The Virginia Property Owners’ Association Act authorizes the creation and enforcement of restrictive covenants against nonconsenting landowners in a manner unknown to the common law. The General Assembly, however, policed the imposition of these covenants with a host of strict procedural requirements — not the least of which is the plainly worded command that no recorded amendment shall be “effective” unless it is accompanied by a certification verifying that the requisite majority signed the amendment or a ratification of it. See Code § 55-515.1(F). In effect, the General Assembly created something entirely new to the law (the right to form private associations having power over land use) while adding precautions to honor the common law’s ancient antipathy toward restrictions on the free use of private property.
The POAA is not some sort of freeway that allows boards to completely bypass the old traffic lights of the common law. As attorney John F. Faber, Jr. observes in his July 2016 Hampton Roads Realtor magazine article about Tvardek, “‘close enough’ does not count when interpreting statutes that allow broad application of restrictive covenants prohibiting the free use by owners of their properties.” In Tvardek, the court articulates three important, related legal protections for owners:
- A restrictive covenant has to be expressly stated in a public land recording (or fairly implied by very narrow exceptions).
- Restrictive covenants must fall within narrow exceptions to the general rule prohibiting them in order to be enforceable.
- If the board relies upon the POAA to enforce the covenant but can’t show that it meets the strict requirements of the statute, it is out of luck.
Does this mean that an owner should disregard notices from the HOA or condo that there is a rules violation or monthly assessments due? Certainly not. Owners should presume that courts will enforce clear and validly adopted restrictive covenants. But what the board, property manager or other representatives of the association is tell the owner may not accurately reflect what the owner’s legal obligations actually are. The owner may not even have a complete set of the governing documents in her possession. In any dispute with an HOA or condominium, owners should see a qualified attorney to help them protect their rights.
For Further Reading:
Tvardek v. Powhatan Village Homeowners Ass’n, 291 Va. 269, 784 S.E.2d 280 (2016)
Photo Credit:
Geoff Livingston The Georgetowner via photopin (license)
August 17, 2016
Court Determines that an HOA is Not Legally Valid
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.
Case Citation: Evans v. Seven Springs Farm HOA, No. CL15001273 (Culpeper Co. Va. Cir. Ct. Jul. 13, 2016)(Whitlock, J.)
Photo Credit: Culpeper County Courthouse via photopin (license)
