Planned Communities

Creating a Homeowners Association in Oregon

 

Many older subdivisions have recorded CC&Rs but no homeowners association to govern the community. Who enforces the provisions of the CC&Rs?  Who maintains the common areas? Who ensures compliance with the architectural requirements? As a practical matter, it often makes sense to have an HOA handle these issues, rather than an individual owner or group of owners.

The Oregon Planned Community Act (ORS Chapter 94) contains a process for owners to use to form an HOA. The procedure applies to pre-2002 communities with shared maintenance responsibilities (private roads, perimeter fence, entrance monument) and with CC&Rs that require owners to pay assessments.

The process is started when at least 10% of the lot owners initiate the process. Once that happens, here are the following steps:

  1. Notice of an organizational meeting is sent to all lot owners in the community.

  2. The notice must include the names of the individuals initiating the process, a statement that the purpose of the meeting is to form an HOA, and a copy of the proposed articles of incorporation.

  3. In addition, the notice must state the required number of votes necessary to form the HOA. If the existing CC&Rs are silent, then at least a majority of the lot owners must vote to create the HOA.

  4. Lastly, the notice must state that the owners will vote to elect a board of directors to govern the new HOA.

  5. At the organizational meeting, a new board of directors is elected. The new board is then required to file the articles of incorporation and record any required documents in the county recording office.

Assuming the owners vote to form the HOA, all of the organizational expenses are a common expense shared by all owners.  Now, this is a simplified version of the process. The statute governing the process (ORS 94.574) is a bit more complex, and you should consult a qualified attorney before embarking on the formation of a homeowners association.

But what if the subdivision has recorded CC&Rs but no shared maintenance obligations or payment of dues? In that case, the owners must amend the CC&Rs to form an HOA. The CC&R amendment would add provisions creating the HOA and authorizing the election of a board of directors. The required vote may be high. Some CC&Rs required the approval of at least 90% of all owners. In that case, it’s critical that owners understand the benefit and value of forming an HOA.

Once the amendment is approved and recorded, the owners should incorporate as a nonprofit and file articles of incorporation with the Oregon Secretary of State. In addition, the owners should adopt bylaws. The bylaws are the operational guidelines for the new HOA and the board of directors, and should be recorded in the county recording office.

The process to form an HOA can be complicated, and as always, you are encouraged to seek competent legal advice.

Applying the Oregon Planned Community Act

The Oregon Planned Community Act (ORS Chapter 94) was adopted in the early 1980s. The Act applies to any subdivision where the owners have collective obligations. Collective obligations include maintaining common property or paying assessments that are used for association operations. A community may be subject to ORS Chapter 94 even if created prior to the adoption of the Act and even if the governing documents make no mention of the statute.

The applicability of the Act depends on the year the community was created, the number of lots, and the total amount of annual assessments. The number of lots and the total amount of annual assessments determine the "class" of the planned community. Class 1 planned communities contain at least 13 lots with at least $10,000 in total annual assessments. Communities with 5-12 lots and at least $1,000 in total annual assessments are Class 2 planned communities. All other subdivisions with collective obligations are considered Class 3 planned communities.

For Class 1 and Class 2 planned communities created prior to 2002, certain provisions of the Act apply to the extend the statute is consistent with the governing documents. Here is a quick way to determine which portions of ORS Chapter 94 apply to your community (if created before 2002): https://calaw.attorney/ors94applicability

 

 

 

 

 

 

 

Adverse Possession

The doctrine of adverse possession can be found in the Code of Hammurabi, written around 2000 B.C.E. The doctrine was also observed by the ancient Romans. American property law (inherited from the British) recognizes the idea that one property owner can take title to land belonging to someone else. Adverse possession claims frequently arise in community associations. For example, suppose an owner’s lot is adjacent to common property, and over the years the owner gradually builds a flower bed, installs a play structure, and mows the grass several times throughout the year. If this continues for 10 years, the owner may claim adverse possession and take title to part of the common property.

Suppose there are two adjacent parcels. We’ll call them “Redacre” and “Greenacre”:

 

Now, suppose the owner of Greenacre decides to built a fence. But when the fence is constructed, it’s on Redacre’s property:

After a period of 10 years (and assuming the requirements of adverse possession are met), the owner of Greenacre may take title and ownership of the 20’ strip of land:

In order to establish a claim for adverse possession, the claimant must prove that the use is:

  1. Open and Notorious
  2. Exclusive
  3. Hostile
  4. Continuous

Open and notorious means that the claimant has left no doubt in the mind of the true owner of the potential adverse possession claim. The type of use or occupation must be consistent with the nature of the land. For example, planting trees on property that already has shrubs, bushes, and trees, is not open or notorious. That wouldn’t be an obvious adverse use. Limited use of property isn’t open or notorious, either. Occassional hiking or hunting on someone else's land doesn’t meet the requirement.

The next element is exclusive use. This doesn’t mean the claimant must use or occupy the property on a daily basis. Exclusive possession only requires occupancy that is characteristic of exclusive ownership. Building a fence is almost always considered exclusive use. But cattle occasionally breaking through a neighbor’s fence and grazing is not considered exclusive use. Cattle frequently wander onto adjacent parcels of land.

Things get tricky when it comes to proving the “hostile” requirement. Whether possession or use is hostile depends on the mindset of the claimant. In most cases, a mistaken belief of land ownership constitutes hostile. Suppose I purchase property and wrongly assume that my boundary line is 50 feet beyond the true boundary line. I then build a shed within the 50’, all the while believing it’s my land. That mistaken belief satisfies the hostile requirement.

Lastly, my adverse use or possession must be continuous. In most states, continuous means a period of at least 10 years. However, claimants may take advantage of “tacking”. Let’s say John builds a fence on the neighbors property and has satisfied all of the other requirements of adverse possession. After 3 years, John sells to Jill, who after only 1 year, sells to Jack. Using “tacking”, Jack may use the previous 4 years of ownership by John and Jill to meet the 10 year requirement.

Getting title through adverse possession isn’t as simple as declaring you’ve met all the requirements. Title is granted by a court through lawsuit to “quiet title.” In other words, the claimant must prove to a judge that each and every element of adverse possession has been satisfied.

For property owners who think they may be subject to an adverse possession claim, there are couple of options—all of which must be exercised before the 10 year period. First, the true owner may file a claim for trespass. If I notice my neighbor building a fence on my property, they are technically trespassers. Similarly, the true owner may preemptively file a suit to quiet title.

Snow Removal in Community Associations

The Portland metro area and central Oregon are covered in snow and ice. As a result, dangerous conditions may exist in common area parking lots, sidewalks, or roadways.  What is the community association’s obligation to clear or remove natural accumulations of snow and ice?

Some states have adopted the “Massachusetts Rule”. This rule states that property owners have no obligation to remove snow or ice from common areas under an association’s control. However, if the association aggravates the natural conditions, there may be liability.  For example, suppose an association shovels snow from a walkway, but fails to put sand or salt on the surface. The walkway is now covered in a sheet of ice and has created an even more dangerous condition.  In that case, there may be liability.

There are dozens of cases in different jurisdictions dealing with a property owner or association’s obligation for snow and ice conditions. For instance, in a number of cases in which an individual slipped and fell on ice or snow while walking on or across a parking lot, the courts, reasoning in general that a defendant was not liable for slip-and-fall accidents on natural accumulations of snow but could be liable for unnatural accumulations or aggravations of natural conditions, held that it was or could be proven that there was liability because the defendant plowed, sanded, or otherwise cleared the snow in a poor manner, or left icy or slushy ruts or tracks in which the plaintiff slipped.

Many court decisions have found that It is unfair to make a landowner or community association absolutely liable for every slip-and-fall accident on snow in a lot, especially as this would require the owner or association to spend the entire winter clearing the lot on pain of losing a liability suit. Moreover, it is equally unfair to require the lot owner or association to shoulder the expense of plowing and replowing the lot during the course of a continuous storm. In this vein, many jurisdictions have ruled that there is no liability for an accident that takes place while a storm is still going on or a reasonable time thereafter, to give the owner a chance to clear out the lot.

Here are the general rules of thumb for community associations:

1. If the Declaration or Bylaws requires the association to plow, shovel, or clear common areas, the association must do so. Many community associations, particularly in central Oregon, are obligated under the governing documents to provide snow removal.  Use a licensed, insured, and bonded contractor to perform those services.

2. In the case where the association has no obligation for snow removal, there is a potential to create liability if the association engages in those activities.

3. If the association has common areas which are generally open to the public, there is typically an obligation to keep those areas clear of snow and ice, regardless of any requirements in the governing documents.

4. If the association has no obligation for snow removal, but decides to provide that service, it should hire a licensed, insured, and bonded contractor.  The removal of snow or ice must result in a safer condition than leaving the natural accumulation on the common areas.

Disclaimer: By reading the information above, you do not become a client of the firm. The information provided above is based on general legal principles, and may not be applicable to you. If you have a legal issue or question, you should speak with an attorney.

Free Speech in Community Associations

Condominium and homeowner associations in Washington and Oregon often deal with free speech issues.  Political signs are perhaps the most common issue. It is commonly misunderstood that owners have a right to display political signs.  Generally, there are no free speech rights in community associations unless granted under the governing documents or state law.  There are a few exceptions, though.

Some states, such as Maryland, have enacted statutes authorizing owners in community associations to display “candidate” signs. (Maryland Code Annotated, Section 11-111.2(c)). The Maryland statute specifically states that community association CC&Rs and rules may not prohibit the display of signs advocating for political candidates.  Illinois has adopted a similar statute. (765 ILCS 605/18.4(h)).

Another exception is the Federal Flag Act. (18 USC 700, et. seq.). The Act prohibits community associations from barring the display of the American flag.  Thus, if the association’s governing documents prohibit flags, that provision in the governing documents is void.

Free speech rights in community associations were given articulate treatment in a New Jersey Supreme Court case. (Committee for a Better Twin Rivers vs. Twin Rivers Homeowners’ Association, 192 NJ 344 (2007)). While the case is not binding in other jurisdictions, the reasoning and basis for the Court’s decision would likely be followed by most state courts. I’m attaching a copy of the decision to this letter. 

I’ll explain the facts and discuss the outcome: 

Twin Rivers is a planned community consisting of condominiums, townhouses, single family homes and commercial buildings.  The community consists of nearly 10,000 residents. The Twin Rivers Homeowners’s Association is a nonprofit corporation created to oversee the affairs and operations of the community.  Each owner, upon purchasing property in the community, becomes a members of the Association. 

In early 2000, a group of owners formed the Committee for a Better Twin Rivers.  The committee repeatedly placed signs throughout the community, and the Association promptly removed the signs each time.   The Committee filed a lawsuit against the Association to invalidate its rules governing signs on the basis of free speech protection.  The Association’s sign rules prohibited political signs on individual owner’s property and in the common areas of the community. 

The case went through the trial court, the Court of Appeals, and ultimately to the New Jersey Supreme Court. In summary, the Court held that in order to enforce constitutional rights, there must be “state action”. This means that a governmental actor or entity must attempt to curtail an individuals free speech rights in order to trigger enforcement.  Here, the court held that the Association’s enforcement of its sign rules did not constitute “state action” and that the owners’ expressional activities were not unreasonably restricted. 

Financial Review Requirements for Oregon Planned Communities

The following outlines the requirements for financial reviews in Oregon Planned Communities.  The requirements are found in ORS 94.670.

 Annual assessments less than 75k  Community Created after 1-1-2004  Annual Assessments more than 75k
  • Review required only if association receives petition signed by majority of owners
  • Review required only if association receives petition signed by majority of owners
  • Requires review of financial statement
  • Must occur within 180 days after the end of the fiscal year
  • Review must be done by an independent CPA
  • May skip review if 60% of the owners agree

Adverse Possession and Community Associations

There are several ways to acquire ownership of land.  The most common form, of course, is by purchase.  A buyer and seller enter into an agreement, and at the closing of the transaction title is conveyed to the new owner. But there’s another way to get land—without an agreement and without consent.  It’s called adverse possession.   

In Nickell v. Southview HOA, the owners purchased a lot in the subdivision in 1989. At the edge of their lot, shrubs and trees marked what they thought was the boundary of their lot. For many years the owners maintained the vegetation and even installed a sprinkler system.  Years later an adjacent owner surveyed their property. The surveyor found that the shrubs and tress maintained by the owners was actually on the HOA’s property.  The Washington Court of Appeals found that the owners had present sufficient evidence to establish a claim of adverse possession.

In a Maryland case, the court also found that owners in a subdivision acquired common property through adverse possession.  The HOA was created in 1959.  Much of the draw to the community was beachfront access.  The HOA common property included the strip of land between the water and the subdivision, and all owners were authorized to use the area.

The lots of most of the beachfront lots were marked and bounded by trees and shrubs. However, after a hurricane most of the vegetation was destroyed.  Several owners then built bulkheads, or retaining walls on the front of their property.  However, the bulkheads were actually constructed on the HOA’s common property.  The court found that the owners had title and ownership of the common property where the bulkheads were built.

Here’s what adverse possession requires:

1. Actual use or possession

2. Open and notorious

3. Exclusive

4. Hostile

5. Continuous

6. At least 10 years

If your association comes across an adverse possession claim, consider your options.  The association may demand removal of a fence or other improvement built on common property. If the owner refuses, the association would file a "quiet title" lawsuit.

The association could possibly enter into an easement agreement with the owner. The owner would be obligated to maintain the area and assume all liability for their use.  Another option is selling the portion of the common property which an owner claims they adversely possess.  These options often required a vote of the entire ownership.

In any event, consult qualified legal counsel to discuss the association's legal rights and options.

The First Amendment and Community Associations

My 15 year old son often argues that I have no authority or control over his right to say what he pleases. His justification is that he has First Amendment rights under the United States Constitution. He’s correct that he has First Amendment rights, but he’s wrong that the First Amendment applies in my home. The rights granted under the First Amendment prohibit government interference with free speech, the right to assemble, and the right to religious freedom.  But, you see, I am not the government and therefore not bound by the First Amendment.

For the most part, community associations are not bound by the First Amendment, either. CC&Rs and Bylaws often restrict owners’ rights to display signs, even political signs. In a well-known Pennsylvania case a unit owner wanted to place a “for sale” sign on the window of their condominium. The CC&Rs contained a “no sign” provision which the Association attempted to enforce.  The owner argued that the Association had no right to enforce the prohibition under the First Amendment. The Court held that the condominium is private property and that the Association’s enforcement of its CC&Rs was not state or governmental action. Thus, the First Amendment did not apply.

A few years ago the New Jersey courts decided perhaps the most significant case involving community associations and free speech. Owners at a condominium posted flyers in the common areas, which the Association quickly removed. The owners argued that the Association had no right to remove the flyers under the First Amendment. They also argued that the Association acted more as a municipality, since the community contained approximately 1 square mile of townhouses, single family homes, condominiums and commercial shopping and was home to about 10,000 residents.  That court ruled that "the minor restrictions on plaintiffs' expressional activities are not unreasonable or oppressive...," and that the association's rules didn't violate the freedom of speech and assembly clauses of the state constitution.

Some forms of expression are legislatively allowed regardless of the restrictions in the governing documents.  For example, the Freedom to Display the American Flag Act was adopted in 2005. This federal legislation prohibits homeowner associations from banning the installation or display of the American flag. The Washington Homeowners Association statute incorporates the federal law:

(1) The governing documents may not prohibit the outdoor display of the flag of the United States by an owner or resident on the owner's or resident's property if the flag is displayed in a manner consistent with federal flag display law, 4 U.S.C. Sec. 1 et seq. The governing documents may include reasonable rules and regulations, consistent with 4 U.S.C. Sec. 1 et seq., regarding the placement and manner of display of the flag of the United States. (RCW 64.38.030)

In addition, some states mandate that associations grant freedom of expression regardless of the contents of the governing documents. Arizona passed a law that community associations may not prohibit the indoor or outdoor display of a political sign within 45 days of an election and seven days after an election. However, associations may regulate the size and number of political signs as long as their rules aren't more restrictive than city or county ordinances.

Community associations should strike a balance between the restrictions governing the community and owner’s rights to speech and expression.  Here are some things to consider when adopting amendments or rules which may impact freedom of speech or expression:

  • Consult state statutes. State law may already provide the maximum restrictions allowed. If the state regulates political signs in community associations, the association's rules must be consistent with state law.
  • Review city and county ordinances. If state statutes or court decisions don't allow association regulations to be more restrictive than those imposed by local government officials, the board members must follow the local regulations.
  • Don't prohibit political signs without exception. If the association's regulations are reasonable, content neutral and consistently enforced, the board is more likely to avoid expensive litigation and preserve the delicate balance between the community's aesthetic values and individuals' free-speech rights.
  • Remind residents of sign rules prior to election season or when they become effective. Use the association newspaper, website, a letter or a community meeting to remind residents of the rules at least 15 to 30 days before signs may first be displayed.
  • Don't forcibly remove signs. This should be done only as a last resort.
  • Approach enforcement reasonably and in a way that encourages compliance rather than acrimony or litigation. Don't feel compelled to measure the size of everyone's yard signs. If a sign obviously violates the size restrictions, then proceed with enforcement.

Transitional Advisory Committees

The Oregon Planned Community Act (ORS Chpater 94) and the Oregon Condominium Act (ORS Chapter 100) provide for the formation of a transitional advisory committee to facilitate the transition of the association from the developer to the owerns. For condominiums, the formation of a transitional advisory committee is only required if the condominium consists of at least 20 units or, if it is a staged or flexible condominium, the number of units that may annexed or created totals 20.

For a planned community created on and after January 1, 2002, a transitional advisory committee is only required for Class I Planned Communities.

A transitional advisory committee is advisory only.  However, it can request access to the information, documents and records that the declarant must deliver to the owners at the turnover meeting.  Serving on the committee provides owners an opportunity to become familiar with the governing documents, budgets, architectural and other restrictions, rules and other critical aspects of association operation and management.  Members of the advisory committee are often those owners who ultimately run for, and are elected to, board positions at the turnover meeting.

Understanding Easements

Easements are very common in condominium and homeowner associations throughout Oregon and Washington.  Simply put, an easement is the right of someone to use or access the property of another.

There are numerous forms of easements.  For example, an owner may have the right to drive across their neighbor’s property in order to access their own property.  This is called an "easement appurtenant", where there is a dominant estate (the property where the driveway is located) and a servient estate (the property benefited by the use of the driveway).

The other type of easement is called an easement in gross. With this type of easement, the ownership of an adjacent parcel doesn’t matter.  An easement in favor of a utility company through a subdivision is an easement in gross—it doesn’t matter that the utility company doesn’t own adjacent property.

Either type of easement may be created in a variety of ways. Typically, easements are written and then recorded in the county records.  The written document will detail the duration of the easement, the permitted uses, and who should maintain the easement area.  If the written document does not specifically state how long the easement lasts, the easement will typically last in perpetuity.

Besides a formal written agreement to create an easement, there are other ways that easements may be created.  Similar to adverse possession, an easement may be created by “prescription.”  This is similar to adverse possession, where an individual may take ownership of property by unauthorized, but continuous possession or use.  For example, if I walk across my neighbor’s property to access the beachfront (without my neighbor’s permission), I may ultimately create a prescriptive easement.

Another way to create an easement without a written agreement is through an easement by necessity.  Suppose I split my property into two separate lots, and sell one of the lots to a third party.  But the only way for the new owner to access the highway is across the parcel I kept.  The courts in that case would likely grant an easement of necessity.

Homeowner and condominium associations are affected by several types of easements.  First, utility companies have easement rights to establish and maintain water lines, sewer lines, and electrical wiring. In association with common property, the right of owners to use those areas is an easement right.  Lastly, many governing documents provide a “right of entry” authorizing the association to enter lots or condominium units to remedy violations.  This too, is a type of easement.

Here are some depictions of easements common in homeowner and condominium associations:

This is an easement in favor of the State of Oregon. This easement is a walkway/bikepath open and accessible to the public.

Screen Shot 2016-05-01 at 6.47.24 PM

The easement shown here is for a storm drain. The easement runs along the length of the individual owners' lot lines.

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The notations on plat maps often indicate maintenance and repair obligations.

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Another example of an access/utility easement found on a plat map.

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Drones in Community Associations

Drones are no longer exclusive to the military.  The prices continue to plummet and the technology has improved to allow even the not-so-tech-savvy consumer to easily pilot the flying devices.  But when drones land on the White House lawn or interfere with firefighting operations, public concern grows.

There are many practical uses for drones. Arial video and imagery are used by construction professionals, farmers, conservationists, and film makers. Most exciting: Amazon has announced that products will be delivered by drone in the near future.

But for many individuals, drones raise safety and privacy concerns. Federal laws impose some expectations and regulations on drone pilots.  For example, the FAA encourages recreational or hobby users to follow certain guidelines:

  • Fly below 400 feet and remain clear of surrounding obstacles
  • Keep the aircraft within visual line of sight at all times
  • Remain well clear of and do not interfere with manned aircraft operations
  • Don't fly within 5 miles of an airport unless you contact the airport and control tower before flying
  • Don't fly near people or stadiums
  • Don't fly an aircraft that weighs more than 55 lbs
  • Don't be careless or reckless with your unmanned aircraft – you could be fined for endangering people or other aircraft

Oregon has adopted legislation governing the use of drones which may be used to regulate the flying of drones. ORS 837.380 allows property owners to sue a drone operator if (1) a drone has flown less than 400 feet above the owner’s property at least once; (2) the property owner has told the drone operator that they do not consent to the drone flying over their property, and; (3) the operator then flies the drone less than 400 feet above the property again. If these three conditions are met, the property owner can seek injunctive relief, “treble damages for any injury to the person or the property,” and attorney fees if the amount of damages is under $10,000.

What can community associations do to limit or regulate drones? The answer is: not much.  Some associations would like an all out ban.  Other associations have taken a more moderate approach, and amended the governing documents to allow the board to adopt rules and regulations which govern the flying of drones within the community.  This allows flexibility as technology changes and unanticipated uses arise. If the use of drones in your community creates a nuisance or violates other owner’s privacy, there may already be tools in your governing documents to handle those types of violations.

Stay tuned for a sample set of rules and regulations governing the use of drones in community associations.

  

The Importance of Bids

Most homeowner and condominium associations engage the services of professionals to help with the operations of the community. These professionals include accountants, landscapers, contractors, and managers. As board members, you have a duty to ensure that association funds are spent carefully and responsibly.  Part of the process to ensure financial responsibility is soliciting and reviewing competitive bids prior to hiring professionals or vendors.

  1.  Define the Scope of Work

Prior to seeking competitive bids the board or committee must develop a comprehensive scope of work. In other words, what services does the board want performed? Let's suppose the association wants to hire a landscaping company to maintain the common areas. The scope of work may look something like this:

 SERVICE  FREQUENCY  COST
 GRASS MOWING, FERTILIZING, AND MAINTENANCE  3X MONTH
TRASH COLLECTION IN COMMON AREAS  WEEKLY
 TREE & SHRUB PRUNING & MAINTENANCE  MONTHLY
 IRRIGATION SYSTEM MAINTENANCE  BI-ANNUALLY
 APPLICATION OF HERBICIDES AND INSECTICIDES  AS NEEDED
TOTAL ESTIMATED COST:

Each potential contractor receives the same bid form and returns the form to the association with their total estimated costs and a break-down of each line item cost.  Otherwise, its easy to be misled. Perhaps one contractor's price appears significantly lower, but it's because they haven't included the costs associated with the maintenance of the irrigation system.

Ideally, three bids should be solicited and compared.  However, some associations develop strong and lengthy relationships with vendors. That's ideal, but it makes sense to occasionally compare services and prices of other vendors even if the board is intent on continuing its relationship with its preferred vendor or contractor.

2.  Do Your Homework

Once bids are received, ask around about the vendors who submitted bids. What's their reputation? In Oregon and Washington you can check on the status of a contractor's license, review their insurance, and see if anyone has submitted complaints against the company.

For Oregon contractors visit: http://search.ccb.state.or.us/search/

For Washington contractors visit: http://www.lni.wa.gov/TradesLicensing/Contractors/HireCon/verify/Default.asp 

3.  Hammer Out The Contract

Very few people enter into a contract with the expectation of future disputes or that the other party may breach the terms of the agreement.  At a minimum, service contracts should contain the following elements:

  • Detailed statement of when and how work will be performed;
  • Amount and terms of the contract price;
  • Acts or omissions which entitle a party to terminate the contract;
  • A warranty of any work or services performed;
  • A statement by the contractor that it is licensed, insured and bonded;
  • Indemnification language whereby the contractor will indemnify and hold harmless the association and the board members from legal claims arising out of the contractor's work; and
  • Provisions governing how disputes will be resolved, i.e. mediation, arbitration.

As always, have an attorney prepare or review all contracts prior to signing.

4.  Review

Once the bidding and contracting are done, follow-up with contractors and vendors to ensure that the terms of the contract are fulfilled.  The board or a committee should review all association contracts on an annual basis to verify that services have been performed, if new bids should be solicited, and that payments have been made.

 

Security Cameras in Community Associations

Much of the case law involving an association’s duty to provide security relies on long standing landlord-tenant laws and cases.  In general, an association has a duty to provide safety and security against foreseeable risks.  There are many cases involving security cameras and community associations.  In one case the court held that an association had a duty to install cameras because of frequent and repeated car break-ins and other criminal behavior in the common area parking lot. Keep in mind that placing security cameras on common property may very well impose or create a duty on the association that may not otherwise exist.  Of course, cameras don’t prevent crimes, they merely record crimes.  But the understanding of the average person assumes that cameras provide some form of actual security.

If the association is aware of repeated criminal acts on common property, it may make sense for the board to install security cameras.  But, there should be actual knowledge—and thus foreseeability—of future acts which a security camera may curtail.

What about signs that say there is surveillance, but there are no actual cameras? The major concern is that owners or guests at the community will see those signs and have a false expectation of safety or security.  In the event a crime occurs on the property, the Association may be exposed to liability if the victim asserts: “I thought there were cameras and video footage may have prevented the incident or allowed the assailant to be identified.”  Generally, it is not prudent to use signage suggesting there are cameras when there are not.

Before making a decision to install security cameras or other security measures, talk with a qualified attorney.

Ventana Partners, LLC v. Lanoue Dev., LLC (Or. App., 2014)

For some interesting reading on a planned community association's authority or ability to convey common property, take a look at Ventana Partners, LLC v. Lanoue Dev., LLC (Or. App., 2014). Especially interesting is the section of the case which reads:

"Common property" includes property "designated in the declaration for transfer to the association." ORS 94.550(7) (2005). Accordingly, ORS 94.665(1) allowed the MOA to transfer common property, even if it had not yet been transferred from the declarant to the association.

Finally, plaintiffs contend that the amendment to the declaration was ineffective to convey title to Lot 1 to LaNoue because "the recorded [amendment to the declaration] was not fully executed" because the signature line for the City of Portland was not filled in. However, a signature from the city is not required on an instrument conveying title to common property under ORS 94.665(1). See ORS 94.665(6) (formal requirements for an instrument conveying common property do not include signature from the city). And, as noted above, the city gave the approval required by the declaration.

Thus, the trial court correctly construed ORS 94.665(1) in accordance with the plain meaning of its text. That provision allowed the MOA to convey the townhouse owners' interests in the common areas in Lot 1 to LaNoue after receiving consent from 80 percent of the townhouse owners.

Click here to read the full case: Ventana Partners, LLC v. Lanoue

How Covenants Are Created

Covenants are promises made by the purchaser of property to do (or not do) something upon the land. The most common form of covenants are CC&Rs: covenants, conditions and restrictions.  Almost always in writing, covenants may attach to the property in several different ways: 1. Deed

When the purchaser of property takes title, it is usually done so through a written and recorded deed.  The deed itself may contain covenants preventing the purchaser from certain activities, like mining for minerals or creating a nuisance affecting adjacent land owners.

2. Declaration

A declaration refers to a "declaration of covenants, conditions and restrictions"--the full title of CC&Rs. The declaration subjects multiple lots or parcels in a subdivision or community to the same set of covenants prior to the developer or "declarant" conveying the first lot in the community.  Often, the declaration is incorporated or referenced in the deeds to individual purchasers.  In most states, the recording of the declaration is sufficient without having to incorporate or reference the declaration in each individual deed.

3. Plat

Similar to a declaration, a developer may place covenants on the recorded plat of the community. The plat is a graphical depiction of the lot lines, roads, and common property.  For condominiums, the plat will also show the elevation profile of the units and common elements.  Covenants contained in plats are typically noted in the narrative portion of the plat or referenced on the affected parcels.

The Importance of Reserves

Adequate reserves are important to maintain property values and avoiding large special assessments. Most importantly, reserves increase the marketability of homes or condo units. Savvy buyers will base much of their purchase decision on whether or not there are adequate reserves. Typically, the amount of reserves is based upon a reserve study. The reserve study identifies all of the common property or common elements which the association is obligated to maintain, repair or replace. For single family home communities, this often includes entrance gates or monuments, play structures, fences or roads. For condominium communities, reserves are used to maintain or replace roofs, siding, clubhouses, decks and other limited or general common elements.

There are two components to reserves: the financial and the physical. A qualified professional first identifies all of the physical components of the community. Next, a reserve study and financial analysis are prepared showing how much money must be reserved. For example, if the professional indicates that the condominium roof must be replaced in 18 years, the reserve analysis will indicate how much money the association must save on a regular basis so that in 18 years it will have the necessary funds to pay for a complete roof replacement.

When choosing a reserve study provider, make sure the company carries liability insurance. If the association has complicated reserve items, it’s usually best if an engineer or architect conducts the site visit and reserve study.

Here’s an overview of the legal requirements in Oregon and Washington:

Oregon

  • Reserve account must be established for all improvements which require major maintenance, repair or replacement in more than 1 and less than 30 years.
  • Amount of reserves must be based on reserve study or other reliable information.
  • Must perform reserve study (or review) annually and update accordingly.
  • Reserve study must include:

- All items for which reserves are established - Remaining useful life for those components - Estimated costs of repair, maintenance or replacement

  • Association may borrow from reserves for unforeseen expenses, but must do so with a resolution stating how and when the money will be returned to reserves.

Washington

  • Non-condominium associations are “encouraged” to have reserves.
  • Reserve account must be in the name of the association and administered by the board of directors.
  • Amount of reserves is based on reserve study, which must be updated by a visual site inspection every three years by a “reserve study professional.”
  • Reserve study must include:

- Component list - Date and statement of compliance with RCW - Level of detail of the reserve study - Association’s reserve balance - Other financial information - Reserve disclosure

  • Association may borrow from reserves to pay for unforeseen or unbudgeted costs, but must do so by resolution sent to owners which explains when and how the funds will be repaid into the reserve fund.
  • Association may be exempt from reserve requirements if there are 10 or fewer homes or units.

Turnover in Condominiums and HOAs - Oregon

Organization of Association The Oregon Planned Community Act (PCA) and the Oregon Condominium Act (OCA) require that an association of owners be formed for the purpose of administrating, managing, and operating the development. The PCA specifically requires the declarant to organize the association as a nonprofit corporation under the Oregon Nonprofit Corporation Act (See ORS chapter 65) and adopt and record the initial bylaws not later than the date on which the first lot is conveyed.   With respect to a condominium, upon the recording of the declaration and bylaws, an unincorporated association is created by operation of law. Typically, the governing documents require the declarant to incorporate the association as a nonprofit corporation under ORS Chapter 65 prior to the conveyance of the first unit or by the turnover meeting discussed below.

Declarant Rights Relating to Control of Association.  

Subject to certain statutory limitations, a declaration may provide for a period of declarant control of the association. A declarant’s control of an association may include the authority to appoint and remove officers and members of the board of directors of the association, to exercise powers and responsibilities otherwise assigned by the declaration and bylaws to the association, to approve amendments to the declaration or bylaws and, to allocate a greater number of votes to lots or units owned by the declarant. However, even though a declarant may initially control an association, the association itself is a separate entity.

Transition from Developer Control to Control by Owners

Transition is frequently characterized as a process and not an event. This concept is reflected in the PCA and OCA, both of which require the formation of a transitional advisory committee. This committee provides for the transition from administrative control by the declarant to administrative control by the association and its board and is generally referred to as a “turnover.” The timetable and procedure for turnover is established by the PCA or OCA and the declaration. A smooth transition, one that is well organized and amicable, will minimize conflicts and be in the best interests of all involved parties. A successful transition significantly contributes to the success of a development.

Transitional Advisory Committee

As mentioned, the PCA and the OCA provide for the formation of a transitional advisory committee to facilitate the transition from the administrative control by the declarant to control by the association. For condominiums, the formation of a transitional advisory committee is only required if the condominium consists of at least 20 units or, if it is a staged or flexible condominium, the number of units that may annexed or created totals 20. For a planned community created on and after January 1, 2002, a transitional advisory committee is only required for Class I Planned Communities. A transitional advisory committee is advisory only. However, it can request access to the information, documents and records that the declarant must deliver to the owners at the turnover meeting. Serving on the committee provides owners an opportunity to become familiar with the governing documents, budgets, architectural and other restrictions, rules and other critical aspects of association operation and management. Members of the advisory committee are often those owners who ultimately run for, and are elected to, board positions at the turnover meeting.

Turnover Process

Turnover marks the time when legal control of an association is transferred from the declarant to the owners. However, a developer who retains a majority of the units may still practically control the association.

Calling of the Turnover Meeting

The PCA and OCA require the declarant to call the turnover meeting within 90 days of the expiration of any declarant control specified in the declaration. If no such control has been reserved in the declaration, the PCA and OCA specify a time by which such meeting must be called. The declarant must give notice of the turnover meeting in accordance with the bylaws and PCA or OCA. If the turnover meeting is not called by the declarant within the time specified, for a condominium, the meeting may be called and notice given by an owner. In the case of a planned community, the meeting may be called and notice given by an owner or the transitional advisory committee.

Turnover Meeting

At the turnover meeting, owners elect a board of directors and the declarant has the obligation to deliver all property of the owners and association held or controlled by the declarant, as well as all items specified in the PCA and OCA. This includes the association’s governing documents and financial records. Turnover is a critical time in the life of an association. It is therefore important that the association consider retaining the assistance of an attorney experienced in HOA law to ensure a smooth transition and enable the new board to function in a manner that is consistent with all applicable laws and meets the needs of the development.

Three-Month Period After Turnover Meeting.

To facilitate an orderly transition, during the three-month period following the turnover meeting, the declarant, or an informed representative, is required to be available to meet with the board of directors on at least three mutually acceptable dates to review the documents delivered at the turnover meeting.

Review of Financial Statement

For communities with annual total assessments of more than $75,000, the PCA and OCA require the financial statement of to be reviewed in accordance with statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.

Audit of Association Affairs

After the turnover meeting, the owner-elected board of directors should conduct an audit of the affairs of the association. The board will ultimately need to decide the breadth and scope of the audit. However, consideration should, at a minimum, include a review of the following:

(1) Property Inspection. An inspection of the physical components of the association’s property is critical. In conjunction with such inspection, the following are recommended:

(a) An inspection of and written report regarding the physical condition of the development by someone with experience to recognize faulty workmanship, shoddy maintenance and construction defects.

(b) A written report by an engineer or other qualified person to determine if plans and specifications were followed in construction of the development.

(c) Determination of the status of any unfinished construction repairs.

(2) Association Status. The declaration and bylaws govern matters relating to the operation of the association, including whether it must be incorporated. Unless the declarant provided a copy of the articles of incorporation at the turnover meeting, the board of directors must review the governing documents and determine whether the association is required to be incorporated. If so, after confirming with the Corporation Division in the office of the Oregon Secretary of State, the board should cause the articles of incorporation to be drafted and filed in accordance with Oregon law.

(3) Association Records. As noted above, the PCA and the OCA require that the declarant deliver to the association at the turnover meeting specific documents and items. If not provided by the declarant, the board should specifically request:

-An original or photocopy of the recorded declaration and copies of the bylaws and articles of incorporation;

-A deed to the common property, unless contained within the declaration;

-The recorded minutes of the association and board of directors;

-All rules and regulations adopted by the declarant;

-Financial statements;

-Any and all records of association funds and accounts;

-Any and all tangible personal property of the association and an inventory of such property;

-Records of all property tax payments to be administered by the association;

-Copies of all income tax returns filed by declarant in the name of the association;

-Any and all bank signature cards;

-Reserve account and reserve study information;

(4) Assessment Collections Audit. There should be a complete analysis and evaluation of the collection process and the adequacy of the reserves fund. If there are a significant number of past due assessments, immediate action should be considered. Even if there are only a few assessments that are past due, it is recommended that if there is a transition committee, that it have a collection resolution drafted and ready for adoption by the owner-elected board of directors to facilitate the collection process. A professional reserve study may be needed to help properly fund this account.

 

 

 

 

Model Code of Ethics - Condominium and HOA Board Members

 Model Code of Ethics for Community

Association Board Members

Board members should:

Strive at all times to serve the best interests of the association as a whole regardless of their personal interests.

Use sound judgment to make the best possible business decisions for the association, taking into consideration all available information, circumstances and resources.

Act within the boundaries of their authority as defined by law and the governing documents of the association.

Provide opportunities for residents to comment on decisions facing the association.

Perform their duties without bias for or against any individual or group of owners or non-owner residents.

Disclose personal or professional relationships with any company or individual who has or is seeking to have a business relationship with the association.

Conduct open, fair and well-publicized elections.

Always speak with one voice, supporting all duly-adopted board decisions even if the board member was in the minority regarding actions that may not have obtained unanimous consent.

Board members should not:

Reveal confidential information provided by contractors or share information with those bidding for association contracts unless specifically authorized by the board.

Make unauthorized promises to a contractor or bidder.

Advocate or support any action or activity that violates a law or regulatory requirement.

Use their positions or decision-making authority for personal gain or to seek advantage over another owner or non-owner resident.

Spend unauthorized association funds for their own personal use or benefit.

Accept any gifts—directly or indirectly—from owners, residents, contractors or suppliers.

Misrepresent known facts in any issue involving association business.

Divulge personal information about any association owner, resident or employee that was obtained in the performance of board duties.

Make personal attacks on colleagues, staff or residents.

Harass, threaten or attempt through any means to control or instill fear in any board member, owner, resident, employee or contractor.

Reveal to any owner, resident or other third party the discussions, decisions and comments made at any meeting of the board properly closed or held in executive session.

Understanding Common Interest Developments

“Common Interest Developments” or “CIDs” is a broad term used to identify condominiums, cooperatives, planned communities, or other housing developments where more than one owner shares in ownership or control of property. Chances are, you or someone you know lives in a CID. In 2006, there were approximately 57 million people living in some form of a CID. While news coverage of CIDS typically focuses on overbearing board members or angry owners, CIDs do offer advantages. Owners often share the expenses of utilities, maintenance and replacement of common property or facilities and in some communities, owners don’t have to worry about maintaining their yards or the exteriors of their homes. Gated communities offer security and high-rise condominiums offer a unique and enjoyable social setting. Most importantly, purchasing property in a CID usually comes with the benefit of knowing that your property value will be maintained.

With the increase of CIDs, most states have adopted laws which govern the operations and creation of these communities. Most states have very specific laws containing the requirements to form and operate a condominium, and there has been an increase in the number of states which have adopted legislation governing planned community developments in which owners own their lot and structure, but have a collective ownership interest in common property such as a recreation center or golf course.

It’s important to know the type of CID in order to know which statute may apply. A condominium is a form of legal ownership (not an architectural style) whereby owners own the “sheetrock inward” of their unit and are joint owners of the remainder of the buildings and structures, often referred to as “common elements.” Condominiums may take the form of a high-rise building, a townhouse style development, or even an office complex.

A cooperative is similar to a condominium, but in a cooperative a corporation holds title to the units and the common areas, and owners or members receive an exclusive occupancy right for his or her unit through a lease agreement.

Planned communities, on the other hand, are developments where individual owners own their land in “fee simple”, but are obligated to pay assessments used for maintaining common property typically owned by the homeowners association.

Both types of CIDs usually have recorded documents which bind the owner to certain obligations and restrictions. These documents are often referred to as “CC&Rs”, an acronym for “Declaration of Covenants, Conditions and Restrictions.” This document may restrict owners from painting their homes certain colors, requiring approval by the board prior to building fences or other structures, or prohibiting loud or obnoxious noises or behavior.

Most CIDs also have Bylaws which may or may not be recorded depending on the jurisdiction. The Bylaws contain the provisions on how the CID is to operate, such as how many individuals serve on the board of directors, when and how to hold the annual owners meeting, and the required number of votes in order to approve certain actions. If the CID association is incorporated, which many states now require, the CID will also be governed by its articles of incorporation.

Boards of Directors, with authority from state law or its governing documents, may also adopt rules and regulations. The rules and regulations must be consistent with the other governing documents, and are often used to interpret ambiguous language or set forth procedures for issues like violations of governing documents or failure to pay assessments.

CIDs are typically governed by a board of directors. The board is elected each year by a vote of the entire membership at an annual meeting. Although the board members may volunteer owners in the community, the law requires these board members to exercise “fiduciary duties.” This means that board members must act in the best interests of the association and the membership at all times, avoid conflicts of interest, and ensure that common property is maintained, repaired or replaced when needed.

Owners also have obligations to the association. The primary obligation is the payment of regular assessments or “dues.” These assessments are used by the association to purchase and maintain insurance, pay for common area landscaping, maintain recreation facilities, and for professional management of the association.

Most states and governing documents allow the association to place a lien on the property which may be foreclosed upon if an owner fails to pay these assessments. Although foreclosing on an assessment lien may sound harsh, it’s important to remember that when an owner fails to pay his or her assessments, the rest of the owners must make up that difference in order for the association to continue to operate.

Other owner obligations may include avoiding activities that may be a nuisance to other owners, and maintaining their unit or lot so that the aesthetics of the community remain consistent.

Ultimately, the goal of a CID is to foster a community, preserve property values, and create an enjoyable place to live.