The nuts & bolts of an HOA
So now you are part of a homeowners association.20th Sep 2017
The main function of a Homeowners’ Association (HOA) is to enforce a set of rules, policies and procedures, contained in a document called a Memorandum of Incorporation (MOI) or Constitution, that serve the best interests of a group of property owners. Many HOAs include common property, such as parks and roads, or what is known as common areas.
Individual property owners are required to pay levies (usually monthly) to enable the HOA to operate and maintain that common property. Common property insurance, security, waste management, office administration, staff costs and common rates and taxes also come out of the levy.
Who serves on Homeowners’ Associations?
HOAs are governed by a board of volunteer owners, known as trustees or directors, elected by the remaining owners at an Annual General Meeting.
The board holds regular meetings to enforce the standard rules and regulations, to establish a budget, authorise expenditures, collect levies, solve problems and oversee maintenance of the common property. The board acts in much the same way as a corporate board of directors, and many HOAs also utilise committees to help administer the association. For example, architectural control committees are commonly used to maintain architectural consistency in the community.
What kind of legal power do such associations have to enforce their rules?
The legal authority enabling an HOA to enforce its rules comes from the recorded MOI and is bound by the Companies Act 2008. Because the documents are recorded with the registrar, property owners are legally bound by the provisions in these documents when they purchase their property.
HOA rules may also provide additional legal authority not contained in the HOA’s documents. HOA actions are usually upheld in court if authority is provided in the documents or by statute, and the board acts reasonably in carrying out the authority.
If I buy property in an area governed by a Homeowners’ Association, how will I know the rules?
The MOI and rules are recorded documents and potential buyers should obtain a current copy and read them before buying. These articles permit the HOA to make rules and regulations governing the conduct of the members and the use of the common property. The HOA should have copies of all current documents available for review. Often a copy can be obtained from the estate agent who sold the home.
Homeowners who disagree with a rule should address concerns to the board. Rules can be amended or revoked if they are unreasonable, unnecessary or simply unwanted by most owners. The amendment or revocation will require a member vote at an AGM or a properly constituted special general meeting. Voting requirements are usually found in the documents. If owners disagree with a rule and are unsuccessful in getting it amended or revoked after following the proper procedures within the HOA, the owners can always bring a legal action to declare the rule unenforceable. However, this could become very expensive.
What are some of the common problems faced by directors?
Rule creation and enforcement are areas of concern. Owners will need (and deserve) adequate notice of any alleged rule violation, including an opportunity to be heard, before any penalties are imposed. When owners fail to pay levies, the board often struggles to find the best way to get payment. When conducting meetings, it is recommended that the board use a guide like Robert’s Rules of Order. This will allow the orderly participation of HOA members and assist the board to reach decisions on important issues.
It is not uncommon for volunteer board members to have little experience in running an HOA. For this reason, it is important that all directors become familiar with the governing documents. While the documents often outline the steps necessary for proper action, some situations may require guidance from experts with greater experience. Most HOAs employ a management team to assist with administrative duties. Experienced attorneys also provide much-needed assistance in interpreting and amending documents, levy collection, internal dispute resolution and other complex issues.
Finally, and perhaps most importantly, harmony can be maintained by encouraging open communication and cooperation between owners and the board.