LIVING IN A COMMUNITY ASSOCIATION - from the CAI handbook

Community Associations Institute (CAI) is a national, nonprofit 501(c)(6) association created in 1973 to provide education and resources to America’s 231,000 residential condominium, cooperative and homeowner associations and related professionals and service providers.

Download a free copy of CAI's homeowner education primer,  An Introduction to Community Association Living, and learn about the key documents that govern community associations, the function of association boards of directors.

Excepts from An Introduction to Community Association Living

PLANNED COMMUNITY

Planned communities are the most common type of community association.

Recent estimates indicate that 50–55 percent of all community associations are planned communities. In a planned community, each purchaser has exclusive ownership to a lot/unit, including the property the lot/unit sits on and the residential dwelling itself. Each resident generally owns an interest separate from the other owners, coupled with mandatory membership in an association.

The association owns the common area, but the owners have very specific rights and obligations with respect to the common area. Common areas in a planned community include the grounds, recreational areas, and sometimes, the roads. Because most planned communities consist of detached housing, common areas do not generally include walls and roofs, although they may.

There are many types of planned communities including townhouse developments, single family home developments, planned unit developments, planned residential developments, cluster developments, property owners associations, and master planned communities.

LEGAL BASIS FOR COMMUNITY ASSOCIATIONS

In order to effectively live in and participate in a community association, owners must understand the legal basis of community associations and learn the scope and limit of authority of the association board, manager, and service providers. 

Community associations derive their basic legal authority for their existence, activities, and actions from various sources including: 

• Federal, state, and local statutes; regulations; and case law 
• Legal documents unique to the community association that bind the association and its owners
• Lender requirements (e.g. requirements set by secondary mortgage institutions)
• Standards set by professional bodies (e.g. auditing standards set by the American Institute of Certified Public Accountants—AICPA)

STATE STATUTES, REGULATIONS, AND COURT DECISIONS

All states have statutes that enable the establishment of condominiums and corporations. Some states have statutes that enable the establishment of cooperatives or planned communities. Several states, including Florida and California, require or regulate such community association budget items as reserves for replacement, audits, insurance, and the conduct of financial operations.

State courts have also made decisions that affect the types of expenses community associations incur. For example, there have been “security” cases involving the adequacy of lighting, patrols, and off-duty police; cases involving parking and sign requirements; and “slip-and-fall” cases involving the adequacy of snow plowing. To find out more about the case law that applies to community associations, review the Community Association Law Reporter or consult with an attorney specializing in community association law.

LOCAL LAWS AND REGULATIONS

Local governments may have codes, laws, and, possibly, taxes that associations must meet. Any requirements in these areas will result in expense items for a community’s budget.

For example, a local fire code may require such items as sprinkler systems, exit signs, fire extinguishers, or elevator inspections. Local health and safety codes may require pool inspections, water quality tests, or mandatory procedures for sewage disposal or recycling. Property taxes may be levied on land commonly owned by the association. To find out what local laws and regulations apply to your community association, call your local government office or your local elected official.

GOVERNING DOCUMENTS

The purpose of a community association’s governing documents is to provide for the legal structure and operation of the community.

The documents:

• Define the rights and obligations of both the association and its owners
• Create a binding relationship between each owner and the association
• Establish the mechanisms for governing and funding the association’s operations
• Set forth rules and standards for the:
  1. Protection of both owners and the community
  2. Enhancement of property values
  3. Promotion of harmonious living

HIERARCHY OF AUTHORITY

The general hierarchy of authority for governing documents is a loose one because not all documents address all issues involved in operating a community association. 

For operating a community association, the general hierarchy of authority among governing documents consists of:

• Recorded map, plat, or plan
• Declaration; covenants, conditions, & restrictions; master deed; proprietary lease; or occupancy agreement
• Articles of incorporation (if incorporated)
• Bylaws
• Rules and regulations
• Other resolutions

RECORDED MAP, PLAT, OR PLAN

Some form of map is an essential document for a condominium or a planned community. A map, plat, or plan is recorded in the County Recorder’s office before any lots or units shown on it are sold. The purpose is to show the precise location of each lot or unit, as well as the common areas. The format and content will differ according to local requirements. A map, plat, or plan may help define an owner’s or a community’s title to property. On an operational level, it helps determine: 

• Who is responsible for maintaining a particular piece of property
• Whether a property improvement is properly located

Some states require cooperatives to submit a legal description of the land involved and an architectural drawing.

DECLARATION, CC&R’S, OR MASTER DEED

An understanding of the declaration; covenants, conditions, & restrictions (CC&R’s); or master deed requires an understanding of the rights of ownership first.

Under Anglo-American common law, the ownership of land has been characterized as a “bundle” of rights. In the absence of any restrictions, the landowner traditionally has the full bundle. For example, he or she possesses the right to lease the property, build on it, mortgage it, occupy it, etc.

When people buy a parcel of real estate, the bundle of rights is defined in the deed to the property, as it is in the previous deeds for the same parcel. All of them are recorded in the land records. These documents are sometimes called the “chain of title.”

The provisions in deeds which define or limit the rights of ownership are often called deed covenants or deed restrictions. The legal community speaks of these covenants or restrictions as “running with the land.” That is, they apply to the land, no matter who owns it in the future.

Instead of inserting all of the same covenants and restrictions into each individual deed in a community development, the developer draws up a declaration of covenants, conditions, and restrictions - or something with a similar name. The developer records this declaration in the County Recorder’s office before any of the real estate is transferred to any other owner.

This means that the declaration is in the chain of title for each piece of real estate. Its terms are binding on the real estate itself, as well as on its original and succeeding purchasers. As a result, the declaration defines the bundle of rights of each owner in the community association.

The declaration, CC&R’s, or master deed generally:

• Defines the portions of the development owned by the individual owners and those owned by the community association
• Creates interlocking relationships binding all of the owners to one another and to the association for the purposes of maintaining, governing, and funding the development
• Establishes protective standards, restrictions, and obligations in areas ranging from architectural control to prohibitions on various activities in order to promote harmonious living
• Creates the administrative framework for the operation and management of the association - although many of the specific administrative details are spelled out in the bylaws
• Provides the mechanism for financial support of the association through assessments
• Provides for a transition of control of the association from the developer to the owners

ARTICLES OF INCORPORATION

Incorporation may or may not be a legal requirement for a community association. It is essential for cooperatives to be incorporated because they are based on the corporation concept.

Planned communities are almost always set up as not-for-profit, non-stock corporations. Condominiums often are incorporated. However, they do not have to be because they exist under the authority of a state condominium statute.

A community association’s corporate structure is established when a developer sets up the association. The developer files articles of incorporation - sometimes called a corporate charter - with the appropriate state corporation agency. Different states have different names for this agency.

The articles of incorporation:

• Bring the corporation into existence
• Define its basic purposes and powers
• Indicate whether stock will be issued
• Indicate whether there will be a board of directors - and if so, identify the initial board
• There are a number of benefits to incorporating a community association. Incorporation:
• Limits the liability of individual owners for acts of the community association
• May make it easier to deal with other parties, such as utility companies or vendors

BYLAWS

Bylaws are formally adopted governing regulations for the administration and management of a community association. Planned communities, condominiums, and cooperatives all have bylaws. Sometimes bylaws are developed as part of the declaration. At other times, they are adopted as soon as a corporation is established.

Bylaws address such topics as:

• Requirements for membership in the community association
• Requirements for membership meetings
• Voting rights of member owners
• Procedures for electing the board of directors
• Procedures for the board of directors to elect officers
• General powers and duties of the board
• Provision for indemnification of officers and directors—except in cases of gross negligence or willful misconduct
• To indemnify and hold harmless means:
  • To exempt an individual or entity from responsibility for claims made against the organization
  • To reimburse the individual or entity for damages or expenses incurred as a result of such claims

RESOLUTIONS

Rules and regulations for all three types of community associations are also established by means of board resolutions. A resolution is a motion that follows a set format and is formally adopted by the board of directors. Resolutions may enact rules and regulations or formalize other types of board decisions.

There are four types of resolutions for a community association:

1. Policy Resolutions. These are resolutions that affect owners’ rights and obligations. For example, rules for the use of common areas and recreational facilities, architectural guidelines, enforcement procedures, etc.
2. Administrative Resolutions. These are resolutions that address the internal operations of the community association. Examples include operating procedures, collection procedures, and where board meetings will be held.
3. Special Resolutions. These are resolutions stating board decisions that apply a policy or rule to an individual situation. For example, a decision about an alleged rule violation or authorization of a lawsuit constitutes a special resolution.
4. General Resolutions. These are resolutions which involve routine events. Examples include adoption of the annual budget or approval of a contract. 

The power of the board to enact rules and regulations is generally defined in the declaration and/or the bylaws. Sometimes, the board’s right to enact rules is limited by the requirement that the members approve the rules.

Resolutions should be kept in a Book of Resolutions.  This is an orderly, indexed record of the resolutions adopted by the board. In some communities, it includes the resolutions adopted by the architectural guidelines committee as approved by the board.

COMMUNITY RULES, REGULATIONS, AND FEES

Membership in community associations is mandatory. When you buy a house or unit in a community association, your real estate agent should provide you with a copy of the rules and regulations of the community and information on the association dues.

It is a homeowner’s responsibility to abide by the rules and regulations as set forth by the community association’s governing documents.

PURPOSE OF RULES AND REGULATIONS

The fundamental purpose of community association rules is to provide a basis for protecting members’ equity in the development and to provide the framework within which people can live in harmony in a group situation.

Specific purposes of rules also include:

• Enforcing the community’s CC&R’s, bylaws, and policies in a fair, diplomatic way
• Protecting, enhancing, and promoting the purposes of the association as stated in the legal documents
• Restricting and governing the use of the common areas and amenities
• Establishing architectural guidelines and controls for aesthetic value
• Establishing rules for the use of facilities by owners, guests, and tenants
• Amplifying, expanding, clarifying, and interpreting the broad restrictions in the association’s governing documents
• Protecting and preserving the property and assets of the association and the owners

Most rules are merely expressions of unit owners being courteous and considerate of their neighbors, and respectful of their rights and investment in the community. For a purchaser, the rules establish the standards of life-style of that particular community. He or she should look elsewhere if this is not the standard that he or she wants and is willing to support, maintain, and enhance as an owner-member.

COMMUNITY FEES

All community associations have fees (assessments) that must be paid to the association. Depending on the association, the assessments may be paid monthly, quarterly, or annually. 

The fees may cover such costs as:

• landscape and maintenance of common areas
• snow removal
• garbage collection
• street lighting
• fees for amenities (pool, tennis court, golf course, exercise room, etc.)
• social activities
• police patrol
• insurance

Many associations are now starting plans where the fees can be electronically drafted from your checking or savings account. Consequently, homeowners always have the right to review the financial documents of the association and to ask the board of directors where their money is going.

A legal report - the annual budget - is usually approved at the annual meeting of the association. Many associations distribute the annual budget of the association or make it available through the treasurer of the association, as required by the governing documents.

COMMUNITY GOVERNANCE

Community associations are composed of different groups of people working together. To govern a community association effectively, association leaders must understand the roles and responsibilities of these groups and how they interact. The groups are comprised of owners, board members, officers, and committees.

ROLE OF THE OWNERS

Although board members run community associations, governing documents and the law often reserve certain powers for the owners. For example, there are often provisions in the governing documents and the law stating that the owners must elect the board members. Also, some governing documents only permit owners to fill vacant positions on the board. 

It is the owners - not the board members - who generally have the power to amend the declaration (master deed) or proprietary lease. The owners also may have the power to amend particular provisions of the bylaws, such as those dealing with the assessments and sale of common property. This usually requires consent from a specified percentage of the owners. 

Along with these rights come obligations. The owners are obligated to adhere to the restrictions imposed in the governing documents. If they do not, a court can force them to comply.

Owners are also obligated to share in the financial operation of the community by paying their assessments on time. If they do not, the association may file a lien on their home and they may lose their home through foreclosure.

Although the owners do not have a legal obligation to actively participate in the association, the association will not be able to function if no one participates. Therefore, it is important for the board to foster a sense of community spirit to encourage participation.

ROLE OF THE BOARD

The board manages the community. The board’s authority to act on behalf of the association is not, however, unlimited. The governing documents - and sometimes the law - grant the board the authority and obligation to act. They also restrict the board’s ability to act. 

Provisions that permit the board to act use words such as may. 

Provisions that obligate the board to act use words such as shall.

The role and scope of authority of the board may be broad or specific, depending on the association’s governing documents and the law. Some governing documents and state law provide the board with the same authority as a corporation. Others precisely state the powers of the board.

Examples of the powers generally granted by the governing documents and state law to the board include:

• the authority to set goals, standards, and policies for the association
• enforcing the governing documents
• maintaining the property
• maintaining the association’s financial stability
• purchasing adequate insurance
• entering into contracts for services
• creating and supervising committees
• conducting annual meetings and board meetings

The board holds regular meetings as defined by the governing documents. Homeowners not on the board are always welcomed and encouraged to attend. The board also serves as advocates for homeowners. They are available to listen to suggestions and concerns and answer questions from homeowners.

COMMUNITY MANAGEMENT

Each community association must decide which form of management best meets its needs, unless otherwise specified in the governing documents. There are three different types of community association management:

1. Volunteer or self-management. This is management of the association by the board itself or by committees under the direction of the board.
2. Association-employed manager. This is a manager directly employed by the community.
3. Management company. The manager is a representative of a management firm contracted by the community association.

Small associations generally tend to be self-managed communities. Self managed community associations make up a majority of all associations; there are approximately 150,000 self-managed community associations currently in the United States. Such communities often lack the resources to acquire services from association-employed managers or professional community management firms. Volunteers in self-managed associations routinely invest significant contributions in terms of both time and effort to their communities.

Many larger associations choose to hire a management company to assist in maintaining their community. This is typically the case for mid-size to large communities. Management companies specialize in managing community properties. They are usually experts in landscaping issues, budget maintenance, board of directors’ development, newsletter preparation, governing document development, and more. In addition, management companies are accustomed to serving as a contact with repair contractors, developers, local politicians, city/county or state government agencies, and other offices with which community associations need to work.

Large communities routinely have an on-site manager, who may either be an employee of the community association or an employee of a management company. Smaller communities who employ a management company are assigned a community manager who primarily performs duties off-site.

HOMEOWNER RIGHTS AND RESPONSIBILITIES

"Members of the homeowners association have two responsibilities, one to themselves and to their individually owned property and one to the association and the community concept. Apathy by individual members can render the association ineffective and can destroy the community concept. To maintain the quality of life that accompanies a well-maintained residential community, each individual member must do his or her part. The success of the homeowners association will depend on how well each member meets and keeps the responsibilities that are established by the covenants creating the overall community concept."       - The Homeowners Association Manual, by Peter M. Dunbar, ESQ.

As a homeowner and a dues-paying member of the community association, owners are entitled to certain rights and, in return, have certain responsibilities.

Included among these rights and responsibilities are each of the following:

1. Use of Common Area - The right to use the association easements, common areas, and recreational amenities is guaranteed to each unit owner. Owners are responsible for using them in accordance with the purposes for which they are intended.
2. Membership and Voting Rights in the Association—Every unit owner is entitled to membership in the homeowners association designated by the declaration of covenants as the managing entity for the community. On account of his or her membership in the homeowners association, each owner is assigned a voting interest in the association by the governing documents. Owners are responsible for becoming actively involved in association activities and for making their opinions known by means of voting in community elections.
3. Participation in Association Affairs - Each member has the right to participate in important parts of the association’s decision-making processes. All members have the right to attend and participate in all meetings of the membership and to exercise their voting interest, either in person or by proxy, on any and all decisions made at such meetings, including the selection of directors in the association. Owners are responsible for taking advantage of this right by actively participating in their community association’s affairs.
4. Access to Association Records - All records of a homeowners’ association should be available to the association members. Upon request, it is appropriate for the association to provide a complete copy of the community’s governing documents to any association member or prospective purchaser who asks for them. Owners are responsible for being knowledgeable about their association and remaining up-to-date on current issues facing the association.
5. Financial Obligations - The governing documents will specify the financial obligations for each parcel owner. In accordance with these obligations, each subsequent owner is liable for all assessments or amenity fees that come due while he or she is the owner. The association owner is afforded each of the aforementioned rights through abiding by his or her fiscal responsibility.

A FORM OF DEMOCRACY

Community associations are one of the most representative and responsive forms of democracy in America today. Residents of a community freely elect neighbors to serve on the board of directors of the community. Numerous other owners or residents serve on committees and help with special tasks as they arise.

Board members and committee members are volunteer leaders who meet regularly to discuss pertinent details about running their community. A board meeting at a community association is comparable to a town council meeting of a municipality.

The basic authority in a community association lies with the owners. However, the owners elect a board of directors to act on their behalf. Usually the governing documents delegate almost all of the association’s decision-making powers to a board. This leaves the owners with very few direct powers. 

Typically, owners have only the voting power to:

• Elect and remove directors
• Amend any of the governing documents, except board resolutions

Occasionally, owners will approve the annual budget for their association. But all other decisions are usually left to the board. As a result, if owners are unsatisfied with a board decision, they usually do not have the direct authority to “veto” or “undo” its action. Under such conditions, their only remedy is to elect a new board to represent them. On the other hand, the board has an obligation to listen to the owners’ concerns and to take those concerns into consideration in making its decisions.

Formal means for obtaining owner input include the:

• Resident/owner forum at board meetings
• Participation of owners on committees
• Annual membership meeting

Other means of owner input include owner surveys and letters and suggestions from owners.

Just as a board has the responsibility to encourage owner input via these means, owners have the responsibility to use them to make their views known.

Volunteers from community associations are clearly in charge of the operation and governance of their associations. These people are almost always unpaid volunteers, who devote their personal time to managing the affairs of their community.

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