Month: February 2016

Anyone who’s lived in or worked with a community association knows that the end of the calendar year usually brings a new board. The annual meeting is almost always the setting for a vote on new directors. This vote typically takes place just before the winter holidays set in with the new board taking the reins of authority sometime in the New Year. Because of the holidays, the moment of transition of authority from the old board to the new board is rarely an issue, as no one is eager to start work before the holidays are over. However, in certain instances, knowing the exact moment that transition occurs can be critical since only a legally seated board can make decisions on behalf of its association. This past year saw a board with two weighty decisions pending as the annual meeting approached. First, a decision was needed regarding an ongoing covenant violation that involved the operation of a business on common property. Second, an association loan was needed to cover the cost of a massive maintenance project to fix a water intrusion issue. The association’s annual meeting took place in early December and decisions on both issues needed to be made before the end of the year. Further complicating matters, both issues were hot topics in the community and several new directors had been elected at the annual meeting because of their vocal opposition to the current board’s position on those same two issues. The question presented to me: when does the new board of directors gain authority to make decisions on those two issues? Of course the first place to look (as is almost always the case) is the governing documents for an association. Generally, the provisions regarding election of directors can be found in the bylaws (although not always!). Sometimes the answer to the question is clear: the new board takes control immediately after the election or on the first day of the new calendar year. In this particular instance the language was unclear – the relevant provision only providing that the board would be elected at an annual meeting and that each director would serve for a year with no clarification as to when the term actually began. Nor was Georgia law much help: there appears to be no relevant case law and the Georgia Nonprofit Corporation Code specifies a time frame for when the first board of directors for a nonprofit corporation begins to serve. The beginning of a term for successor directors following an election is not contemplated. See O.C.G.A. § 14-3-805. In the situation described above, the property manager and 2015 board said that the  practice of the association had been to turn over authority at the first of the calendar year. Since the governing documents and Georgia law provided no further direction, I advised them to continue the practice of having the new board take power on January 1, 2016. Since the term for a director was clearly one year, if the 2015 board had not taken power until January 1, 2015 then  their term would not be up until December 31, 2015 regardless of when the new board’s election took place. While this appears to be an untested issue in Georgia, in this instance that approach was consistent with the law in place regarding a director’s term of office. Luckily, in the association I describe above, the old and new board channeled the light side of the force to amicably settle the issues and ended up agreeing on how to handle both the violation enforcement and association loan. In coming to an agreement, they avoided the whole issue of legal authority. However, if either board had given in to the dark side and not agreed on a course of action the situation could have devolved into a board v. board lawsuit that would have been expensive and destructive to the morale of the community. If your association’s governing documents do not specify when a newly elected board actually takes power, it is a good idea to amend the documents or create a clarifying policy before the transition date becomes an issue and the association finds itself with a costly mess on its hands.

Just as you can’t judge a book by a cover, you can’t judge a community by the way it looks on the outside. If you are looking at the exteriors in a development and you don’t know whether it is a townhome or a condominium community, don’t worry, you are not alone!! From the exterior, condominium and townhome communities can look identical. Even developers sometimes use the words “condominium” and “townhomes” interchangeably, as do real estate agents, without realizing the legal implications, thereby creating more confusion among homeowners. Consider this article a brief tutorial to help you learn and understand more about the legal differences between condominiums and townhomes.

Multi-story condominium units that are connected to another unit by a wall shared with an adjoining condominium unit may look exactly like a townhome from the outside, but the ownership rights with respect to both the interior of each unit and the property outside of each unit are extremely different. Typically, in a condominium, the unit owner buys the interior space of a unit beginning at the studs in the wall and he or she owns the interior of the unit, including the dry wall, windows, doors and air conditioning unit. However, the exterior of the building, the roof, any landscaping outside the building and any pipes or wires that serve more than one unit are owned by all of the condominium owners as tenants-in-common. What many people do not realize is that in a condominium form of ownership the condominium association does not actually own any property. Despite this lack of ownership, the condominium association almost always maintains the roof and exterior building surfaces of each unit and all amenities.

The fact that the condominium association does not own any property can come in particularly helpful during tax season. As April 15 has thankfully come and gone, many of you may have looked at your property tax bills and noticed that the tax bill for your condominium unit contained charges for the unit as well as an additional charge for other improved property. Since the association does not own any property in a condominium, it does not receive a separate tax bill for the property located outside of each unit. This property is owned by all unit owners equally and consequently, each unit owner is assessed his or her fair share of this property which in turn is reflected in each unit owner’s tax bill.

In Georgia, condominiums are governed by the Georgia Condominium Act, which places numerous requirements on developers when they are constructing condominium projects. For those of you who live in a condominium and would like to learn more about this type of ownership, you might find it helpful to review this legislation. It definitely will not be the most exciting work that you have ever read, but it may answer some questions about the contents of the declaration of condominium governing your community.

Townhomes, on the other hand, are owned in fee simple by the unit owner. Even though townhomes are also connected to another unit by a party wall, the homeowner typically owns the dirt below and the air above the unit and perhaps a bit of the property in front or behind the unit as well. Another key difference is that the townhome or homeowners association owns the common property and the amenities. The association’s maintenance obligation with regard to the townhomes themselves is determined by the developer at the time of the drafting of the declaration and consequently, the association’s maintenance responsibility may vary greatly between communities. In some townhome projects the association maintains the exterior of the unit, similar to a condominium, regardless of ownership by the unit owner and in other communities the owners are responsible for maintaining the roof and/or the exterior building surfaces. The declaration of protective covenants applicable to your community should delineate what your association is obligated to maintain. Keep in mind that the more your association is responsible for maintainaining, the higher your annual or general assessments will likely be. On the other hand, having the association maintain the exteriors will ensure that maintenance is performed uniformly and hopefully in a timely manner!

Since the townhome association usually owns the common property in the community, it generally has the right to convey this property to other business entities and can make rules and regulations pertaining to the use of the common property. As you know now, a condominium association does not own any property in the condominium community and therefore can not convey the common elements without the consent of every unit owner in the condominium. In this way, owners in a condominium essentially have more rights with respect to the property outside of their units than owners in a townhome community.

After reading this brief article you may be thinking that you still can’t look at a community and determine whether the homes are condominium units or a townhomes. But now you know how to find out! It is only after sifting through all of the relevant association documents that govern the community that you will truly be able to determine whether you are looking at a condominium or townhome unit and what the differences are between the two.

When do Declarant Rights Terminate?

Eight years ago, Mr. and Mrs. Smith moved into what was planned to be an upscale community containing one hundred single family detached homes with a mandatory membership homeowners association subject to a declaration of restrictive covenants. Since then, the original declarant defaulted on its loan and the unsold property all went back to the bank. The lender, however, did not acquire the rights of the declarant and the declarant rights remained with the defaulting borrower. The community currently contains forty-seven homes. To protect their property values, the homeowners association and the existing homeowners want to amend the declaration to impose a leasing restriction in the community, but the declaration requires that any amendments thereto require the consent of the declarant. The declarant ceased all business activity in the community three years ago and the declaration does not contain any language indicating when the rights of the declarant expire. Unfortunately, in the current real estate market, the above scenario is all too common, leaving many associations to wonder when the rights of the declarant to take, consent to or approve actions under their restrictive covenants expire and whether action taken without the consent of the declarant, if required, is enforceable.

In condominium communities the rights of the declarant expire by virtue of the express language in the Georgia Condominium Act (O.C.G.A. 44-3-70, et seq.). In single family detached and townhome communities sometimes the answer to this question is straightforward as the declaration contains explicit language stating when the rights of the declarant expire. Typical termination language usually provides that the rights of the declarant will expire when the declarant no longer owns any property in the community, all lots intended to be part of the community have been conveyed to owners for occupancy and the declarant no longer has the right to annex additional property to the provisions of the declaration; essentially, when the community has been completed.

However, it is also very common, as with the scenario above, that the declaration is silent with respect to the termination of declarant rights. Not surprisingly, there is very little case law on point, though the Georgia Supreme Court did address this issue in Armstrong v. Roberts, et al (254 Ga. 15; 325 SE2d 769) (1985). This case addressed the ability of the developer to waive restrictions in restrictive covenants. The court held that “a developer of a subdivision who reserved the authority to waive restrictions in covenants running with the land no longer possesses that authority after divesting himself of his interest in the subdivision.” The court essentially held that a developer’s economic interest in the subdivision dictated its rights under the declaration. When the developer no longer owns any property in the community and no longer has the right to add any additional property to the community, it has no economic interest in the subdivision and its rights have arguably expired. It can be argued that the rationale can be applied to any action taken by the declarant under restrictive covenants.

Homeowner associations should examine their governing documents to see if there is a provision setting forth a time period during which the declarant has the right to add additional property to the community. In the absence of such a provision, a strong argument can be made that the developer’s rights have expired when the declarant no longer owns any property and thus, amendments or other actions taken under the declaration would not require the consent of the declarant. Contacting the original developer to see if it would be willing to execute a document to be filed in the land records stating that it has voluntarily terminated its rights under the declaration is recommended. This minimizes potential challenges to amendments or any other actions under the declaration that require the consent of the declarant and eliminates any confusion regarding the status of the rights of the declarant.

If the declaration permits the declarant to annex additional property to the declaration for a certain period of time and that time period has not expired, there are a few options available to homeowner associations to ensure that actions taken without the consent of the declarant are valid and enforceable. As noted above, if the declarant will execute a termination document, this should resolve any outstanding issues regarding the rights of the declarant. In the current real estate climate, a declarant that still has rights under the declaration many have either voluntarily dissolved or been administratively dissolved by the Georgia Secretary of State for nonpayment of the required annual registration fees. In such instances, I recommend that the homeowners association, or its legal counsel or management company, send written correspondence to the last known registered agent and officers of the declarant entity, as shown on the Georgia Secretary of State corporate records, of its intent to amend the declaration or take such other action that requires the consent of the declarant. Additionally, in the case of an amendment, I recommend that the amendment contain language stating why the declarant consent is not required despite the express language in the declaration to the contrary. If an amendment or other action taken by a homeowners association is challenged for failing to obtain the consent of the declarant, and the above referenced actions are taken, it would be difficult for a court to conclude that the association did not take all reasonable and appropriate action to ensure that the amendment or other action is valid and enforceable.

Because the issue of declarant rights is not always clear, associations would be well advised to consult with their legal counsel.