Category: Articles

Keeping Up the Standards of the Neighborhood

There is little doubt that when a community buildout goes as planned, the recently top-coated streets, brand new paint and immaculate landscaping often present the picture of an “ideal” neighborhood.  Unfortunately, time works its magic as paint peels, tree roots sprawl and pavement cracks.  What, then, is the Association to do to uphold the community standards that the first owner-elected Board of Directors was left with?  The answer is the use of architectural control combined with the maintenance obligations imposed by the covenants.  The purpose of this article is to provide advice – and issues to look out for – when attempting to ensure that the aesthetic condition of the neighborhood is maintained over time.  It is important to note that the authority granted by the covenants differs from community to community, so be sure to consult professionals before acting on any advice below.

Architectural Control

The purpose of an architectural control provision is to ensure a particular aesthetic standard in a community as it grows and evolves over the years.  This standard is subjective – meaning that it can change from board to board.  Because of this, each application for a modification to the exterior of a dwelling or Lot should be treated in a thoughtful and fair manner.  The following are recommendations that may help chart a course to keep a neighborhood looking as it good as it did when new:

1. Some covenants allow the association to create guidelines.  These guidelines can vary greatly in what they contain, but often they provide the procedure for submitting a modification application and include helpful information regarding what is authorized in the community.  Examples might include types of approved mailboxes or approved paint schemes and roofing material.  While guidelines are often not legally required, they can ensure consistency over time when responding to owner applications.
2. Keep good records of the reasoning behind approvals or denials.  Keeping meeting minutes that show the issues that were considered when deciding how to respond to an application can go a long way both in defending a claim that the decision is “arbitrary and capricious” and in allowing future boards to implement the same strategies.
3. Be Reasonable!  Sometimes a new board comes in wanting to “change” the way the community looks.  However, odds are good that if certain improvements have been allowed over the years it will not be possible to “put the genie back in the lamp.”  Many cases over architectural issues can be avoided by a thoughtful board or committee that understands that sometimes what a certain group of people desire must give way to the reality of what has been done in the past.
4. If you are going to change standards for something that has been allowed in the past, set the expectation with the members.  This can be done by guideline revisions, by email blast, at meetings, etc.  Letting owners know of a change ahead of time can avoid a lot of strife. 

Maintenance Obligations

The counterpart to architectural control is each Owner’s obligation to maintain the improvements that already exist.  Nothing can sap property values more than the slow degradation of the exteriors of homes in the community.  Keeping the association looking its best requires methodical and periodic oversight by the board and management.  Below are some pointers to ensure a solid legal basis:

1. Many covenants authorize the board to create reasonable rules regarding maintenance.  These can set out expectations for things like:  (1) expected lawncare standards; (2) exterior dwelling surface upkeep and (3) tree/shrub care.  
2. Keeping up with maintenance requires periodic inspections.  Failure to routinely perform visual inspections of the community not only allows maintenance violations to worsen, but it makes it hard to prove that the association is doing a proper job of enforcing the standards that make the neighborhood attractive.  We recommend deferring to a property manager to determine what constitutes “industry standard” for maintenance inspections of property.
3. Don’t play favorites.  This means more than not intentionally targeting a problem owner -it means doing your best to treat each scenario in a similar fashion to other, similar issues.  It is human nature to ignore “minor” violations while sending a “major” violator a laundry list of concerns.  Doing this, however, just gives the problem owner the ability to argue that they are being treated differently from a neighbor who has the “same fading paint.”  
4. Don’t forget about self-help (sometimes called “abatement”).  This term describes the authority of the Board to perform work on an Owner’s lot and charge them the fee.  While this can be legally problematic, it is often a great way of keeping the community in good condition while dealing with a problem owner.  It is important to consult with your property manager and attorney before taking this step.

One of the major benefits of a planned community is having a board in place to keep the expectations high for homes and lots.  However, it is only through setting reasonable standards and by remaining vigilant that a board can ensure that the condition of a community remains at the level the owners saw when they first purchased their homes.

How Should an Association Handle “Green” Modifications?

We live in an age of uncertainty.  Many fear for the condition of the country, the economy, and even the environment.  These issues, and others, have resulted in increasing numbers of owners seeking to improve their residences in ways that will give them resilience in the face of rising challenges.  These changes include, but aren’t necessarily limited to, electric vehicle charging stations, solar panel installations, and geothermal heating elements.  Even community associations have begun to look at these options as measures to improve the desirability and long-term sustainability of their communities and common areas.  Regardless of the reasons behind such requests, they pose the same question for a community association:  should such improvements – some of which may be the “first of their kind” in a community – be authorized and, if so, what is the proper way to allow them while still maintaining the aesthetic appeal of the neighborhood?

The Basis for the Association’s Authority

The first question to ask is what language in the governing documents creates the authority for the Board to weigh in on an improvement.  The applicable language nearly always comes from the declaration of covenants (although not always!) and takes the form of an architectural control provision.  These provisions, in short, require an owner to submit an application for the Association’s review prior to installing an improvement that will change the “look” of the property.  Keep in mind that this is not the only authority, however, and a careful look at the governing documents should be conducted to ensure the Board is acting in accordance with the same.  For instance, in a Condominium, where most of the exterior of the structures are Common Elements, the Board’s authority may come from language prohibiting an Owner from altering the Common Elements without approval.  

Once the language is found, it should be reviewed for scope.  Some provisions may limit the authority of the community association to approval of new “structures,” in which case the installation of solar panels or charging stations may not require approval.  More often, the language is broad in scope and there is little doubt that any modification to the exterior of the unit, lot, etc. requires approval.  Some newer declarations of covenants may even deal specifically with solar panels and similar environmentally friendly modifications.  Hand in hand with a review of the covenants should be a review of the community – are there already similar modifications installed?  If so, it is possible that the community association may have lost the right to say “no” to future, similar improvements.  The reviews above can be very language and fact dependent, and it is often a good idea to get legal counsel involved for clarification and assistance.

A Potential Missed Opportunity

Once the Board has determined that it has the authority to review and approve or deny a modification of this type, the next question is how to respond.  In my experience, many Boards faced with the first installation request for solar panels or a geothermal reservoir respond with a kneejerk “no” simply because no other similar improvement exists.  Depending on the motivation of the owner making the request – whether for financial or ethical reasons – a denial based on “it hasn’t happened before” may result in a determined pressure campaign to allow their improvement.  In some instances, owners have utilized community petitions or even filed suit asking a judge or jury to overturn the Association’s decision.  

To avoid this, a Board may want to do some research.  Asking directors in other communities, property managers and installation experts for information will assist in making a more informed decision.  For instance, a Board may learn that current technology allows solar panels of different colors and even shingles that serve as panels.  Doing a bit of legwork can help the Board provide a detailed response and alternatives.  Not only will more information inform the Owner of possibilities they may not have considered, it will also show them that the Board took the application seriously.

Smart Sustainability and Thinking Long Term

A single section of an article is insufficient to address all the things a Board may need to consider when dealing with an application for a sustainability improvement.  For instance, a charging station on a single-family lot may require substantially less thought than a request for one that ties into common element electrical lines to get to a limited common element space.  The point, however, is that a Board should always keep future improvements in mind when they accept or deny an application.  Written guidelines may help provide guardrails for future similar installations as well.  The more education a Board receives, the better they can factor in future requirements of a similar nature so that the first “approval” or “denial” doesn’t set an untenable precedent that becomes difficult to break from.

Conclusion

Because of the potential for reducing harm to the environment, saving money, and creating homes that are less reliant on the public sector, it is unlikely that sustainability improvement applications are going to decline in number.  If anything, we are at the cusp of a wave that will steadily build in the coming years.  Remember the cautionary tale of the satellite dish, the prohibition of which by a community association was eventually prohibited under federal law.  A Board would do well to avoid kneejerk reactions to these applications and, instead, educate themselves so that they can bring the community into an agreeable future instead of fighting to maintain a “past” status quo that may no longer be sustainable.

The Imperfect Art of Settling Association Disputes

It is human nature to want our way.  You don’t have to look further than a toddler throwing a tantrum in a grocery store to understand that we are hardwired to fight for what we want.  A large part of the journey into adulthood is learning to temper that desire to fit into that fundamental reality:  compromise is often the key to a successful personal and professional life.  This is rarely more true than in the community association context.  Boards must remember that, while they certainly have a duty to enforce the covenants, the subjects of those actions are most often their neighbors.  Aggressively pursuing enforcement with no pause for common sense or compromise can result in damaging the harmony of a community not to mention the very real possibility of losing in court.  In short:  if a bird in the hand is a negotiated compromise and two in the bush is winning everything you seek in a lawsuit, a good director should remember the point of the old adage and, where responsibility dictates, settle for the less than perfect outcome.

There are a few paths to successful compromise when enforcing a violation of the covenants.  The first and most obvious is whether a violation must be “undone” to resolve the issue.  This question often arises in the architectural control realm.  It is entirely possible for an Owner to install an improvement that was not approved – and is therefore a violation – but that would have been authorized had an application been submitted.  The Board cannot turn a blind eye to this type of violation, or it risks to avoid giving a future Owner a claim of “arbitrary and capricious enforcement.”  That said, it’s often sufficient to give the Owner a stern notice or a nominal fine and leave the issue at that.  While a Board could technically sue to have the improvement undone based on the language in most covenants, a judge will often punish an Association for taking the path of litigation for a modification that, at the end of the day, fits within the neighborhood aesthetic.  In cases like this, a promise from the Owner to abide by the rules in the future may be a good compromise even though the Association could do more.

Once you get past the threshold question above, the next step is to determine how far the violation should be escalated.  This can be an easy answer in some cases – if an Owner has an ongoing violation and simply refuses to stop or acknowledge repeated notices regarding the same a Board may have little choice but to escalate to a lawsuit.  On the other hand, one loud party from an otherwise rule-abiding occupant probably would not warrant a $1,000.00 fine and an injunctive relief suit for a court order.  While the Board must remember that every enforcement decision creates a precedent for future, similar violations, it can be reasonable to stop at a courtesy notice, a fine, or self help, and forgo a lawsuit – especially when an owner or occupant acknowledges or accepts the violation.

Some disputes will end in suit, however.  This can be inevitable when you find an owner or occupant who simply does not believe in the authority of the covenants to control their behavior.  Compromise can become significantly harder once a suit is filed for the simple reason that both sides have spent more time and money on the issue at that point.  Even then, however, a good board will remember that success in a covenant violation suit is not guaranteed, nor is an award of the costs and expense (attorneys’ fees) from this type of lawsuit.  They can certainly use those amounts as a bargaining chip and remain optimistic about their chances of collection, but at the end of the day a judge or jury has the discretion to determine what fees they believe to be “reasonable” in light of the facts and circumstances of the case.  Because of that, sometimes the best thing for the community is to agree to forgo some of the costs associated with the suit if the Owner agrees to stop the violation.  Again, this will set a precedent so it is important to think through the ramifications, but if stopping the violation is the end goal then sometimes chalking up the fees to the “cost of doing business” is better than risking a loss at trial.

Striking a balance in covenant enforcement will never be easy, but a board of directors that remembers to use common sense in dealing with violations can certainly find success.  Often, accepting the deal offered – if it is reasonable and made in good faith – is the best path forward even though it may result in the association “giving up” something it has the technical right to demand.  

Micro-Rentals and Their Impact

Anyone in the community association industry knows that technology has a powerful effect on community.  The impact ranges from the good (virtual meeting software, the ease of email communication, electronic voting) to the bad (social media harassment, online misinformation campaigns, the ease of email communication).  The purpose of this article is to highlight the emergence of a new type of rental which, like short-term rentals before it, is made possible through technology and has the potential to be incredibly disruptive to a community.  The companies that offer the platform for these rentals vary, but the purpose is the same:  to allow an Owner to rent their yard, pool, or even their home for events that typically do not even last a full day.  

In practice, we have so far seen this in the form of owners renting out their backyard swimming pools for parties.  As with any rental, the impact of the usage itself will depend on the people and the event.  Unfortunately, because of the incredibly transient nature of these rentals (the renters do not even have to deal with the fallout of waking up in the same place they spent the night), it appears to result more often than not in events that give no consideration to the neighbors and the community.  In addition, as with any activity that potentially brings non-members into the community, the additional travel and usage increases the risk of a lawsuit against the Association for harm or damage occurring during the party.  The good news is that many associations will already have the tools in their governing documents to fight this type of behavior.  The following are ways that an Association may already be able to prevent this type of use should it occur:

Residential Use Only/No Business Use

Many covenants restrict owners from utilizing their dwellings for purposes that do not align to the residential nature of the community.  These provisions often have criteria to distinguish an allowed business use, like a home office, from a disallowed business use including a use that increases traffic or brings non-members to the community in heightened numbers.  Party space rentals, which is what this type of rental is at heart, would likely be construed as a restricted business use depending, of course, on the facts and circumstances of each individual rental.

Short Term Rental Restrictions

This may be the easiest provision to utilize to prohibit micro-rentals of this nature.  These provisions typically prohibit use of a dwelling for “short term” use and the rental of a swimming pool or yard for an afternoon event would seem to fall squarely within the definition of “short term.”

Leasing Restrictions

It is possible that even a traditional leasing restriction might be sufficient to combat rentals of this type.  Many such provisions prohibit partial rentals or subleasing of a property, and what is a rental of a pool for two years but a partial lease of the property.  Keep in mind that there may be as of yet unanswered questions about whether this kind of use actually constitutes a “lease” as that term is typically used.

Nuisance Provisions

Nearly every set of covenants in Georgia contain some language prohibiting the use of property in a way that causes embarrassment, undue distress or discomfort to neighboring Owners.  The “nuisance” complained of cannot be “fanciful” and the behavior alleged must be sufficient that any reasonable person would find it disruptive to the use of their own property.  To the extent the rentals result in a loud party that snarls parking and traffic, a few pictures and eyewitness accounts can often be sufficient to show that the Owner of the property has violated the nuisance provision.

As with any enforcement action, each association’s individual covenants play an important role.  While some of the provisions above may work well for one association, another’s specific language may be just different enough to prohibit use of one or more provisions in enforcement.  In addition, it is important to remember that not all communities may oppose this type of use – it can certainly be a great way for owners to maximize their investment if the use can be performed in a way that is not disruptive.  If an association intends to allow this type of micro-rental, we strongly recommend contacting the association’s master insurance carrier to ensure that it is adequately insured against possible harm arising from the same.  And, as always, if an association runs into issues arising from micro-rentals, it is important to consult with legal counsel to ensure that any enforcement action taken is done in compliance with Georgia law and the governing documents.  

The Corporate Transparency Act

I will lead with the bad news:  there is still a great deal of uncertainty when it comes to The Corporate Transparency Act (“CTA”), which was enacted by Congress January 1, 2021 for the purpose of preventing financial crimes like money laundering, corruption, tax fraud and financing of terrorism.  In the simplest terms, it creates an ongoing requirement for a community association to file information about its directors and officers while imposing hefty fines for failure to comply.  The good news is twofold:  (1) many organizations have already challenged its enforcement, including CAI which has filed a lawsuit specific to enforcement against community associations and (2) while somewhat onerous, the filings required to keep an association compliant with the CTA are not complex or difficult.

The CTA creates a database of “Beneficial Ownership Information” (BOI) that became effective January 1, 2024 for any corporate entity that is not exempt.  As you probably have heard, under the current CTA language, most mandatory membership owners associations, such as homeowners associations, condominium associations or property owners associations, are not exempt entities and must comply with the requirements of the CTA.   

So, what does that mean for your association? Effective January 1, 2024, any “new” mandatory membership owners association (“Association”) created by filing articles of incorporation with the Georgia Secretary of State was required to file with Financial Crimes Enforcement Network (“FinCEN”) the following information: its business name, current address, state of formation and EIN, as well as the name, birth date, address and government issued photo ID (such as a driver’s license or passport) of every direct or indirect “Beneficial Owner” of the entity.  It is likely that every officer of an association is deemed a Beneficial Owner and must provide the above information to the filer of the BOI report, and every member of the board of directors of an Association who is not an officer likely will be subject to the same requirements.  An owner of 25% or more of an entity also is deemed a Beneficial Owner, and homeowners in smaller communities may need to provide BOI information even if they do not serve as a director or officer of the Association. 

The BOI report must be submitted to FinCEN through an electronic filing on its website. Currently, there is no charge for submitting the filing directly to FinCEN. The FinCEN database is secure but may be accessed by Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain BOI information for authorized activities related to national security, intelligence, and law enforcement.  While it may be unlikely that any Federal, State, local, Tribal officials or certain foreign officials would request access to an Association’s BOI information, Associations are currently required to comply with the CTA.

Associations that existed prior to the January 1, 2024 deadline are given until January 1, 2025 to submit the initial BOI report to FinCEN but are not required to submit information about the applicant who initially formed the Association.  Associations created on or after January 1, 2024 have ninety (90) days from the date the entity was formed with the Georgia Secretary of State to submit the initial BOI report to FinCEN and are required to submit additional information about the individual who initially formed the Association.   Associations which are created on or after January 1, 2025 will have thirty (30) days from the date the entity was formed with the Georgia Secretary of State to submit the initial BOI report to FinCEN and are also required to submit additional information about the individual who initially formed the Association.

While it is not currently clear how often a BOI report must be updated with FinCEN, any change in the Beneficial Owner(s) would result in a need to update that information within thirty (30) days of the date of said change.  For example, every annual meeting at which new directors and/or officers are elected would trigger an updated BOI report that would need to be submitted to FinCEN.  It is likely that this ongoing obligation will be the hardest part for most associations to comply with as it theoretically requires a new notice for every resignation and appointment, vote, or other transition of directors or officers.

The penalties for noncompliance with the CTA are hefty: $500 a day up to $10,000, and up to 2 years in jail, so, while compliance will be onerous for most Associations, the penalties might be worse.  Please note that, as far as we can tell, no such fines have been levied against any community association to date and it is likely that multiple rounds of notices would be presented to an association prior the imposition of a fine.

In conclusion, it is best to begin prepping for these filings well ahead of the January 1, 2025 deadline to ensure that your association is ready to timely file the required information.  It is our fervent hope that CAI’s challenge will successfully exempt community associations from the CTA requirements given the unlikelihood that a community association would be the source of the crimes which the CTA is meant to prevent.  Until that time, however, it is better safe than sorry as no one needs the threat of fines or jail time hanging over their heads.  Please note that there is great information about CTA and its impact available on CAI’s website.

The lifeblood of any community association is the assessments paid by each member.  As the sole source of income for most associations, they give the community the means to provide for the well-being of the community.  Few things are more frustrating than members who fail to pay their fair share of those assessments.  The best way to keep delinquent assessments from undercutting the association’s budget – and ability to function – is to develop common sense collections practices to set the Association up for success.

Avoid Legal Costs

One of the best collection tools in any community association’s arsenal is the personal touch.  While it is important to have a good collection policy in place so that owners are treated equitably, it is also within the board of directors’ discretion to work with owners who are temporarily down on their luck.  Offering reasonable payment plans to owners from the outset of a delinquency instead of waiting until the case has been turned over “to legal” can help not only the association avoid unnecessary legal fees, but also the owner.  Similarly, a willingness on the part of the board to have conversations with owners before letting “legal” handle a case can obtain surprising results.  Again, these less formal measures should be implemented in a way that treats all owners equally, but they can be a formidable, pre-legal tool to avoid costly fees and delay in obtaining payment.

Prep the Case Before it Leaves the Door

Some days it seems like the rare collection case where we do not have to reach out to the association for more information about a delinquent owner’s ledger – the primary piece of evidence used in collection suits.  This extra time (and fees) can sometimes be avoided through directors tasked with reviewing owner ledgers before the account is turned over to legal.  A few things to look out for include:

1. The dreaded “balance forward.”  If your association has recently changed management companies, treasurers, or accounting software, you may see a line item on the “new” ledger for an owner that is a lump sum with the description “balance forward.”  This indicates that there is another, older ledger out there with a series of entries that add up to the balance on the new ledger.  Judges will often throw out amounts that are described only as a “balance forward” – ensuring that the association has that prior ledger and providing it along with the new ledger will cut down on attorney prep costs and give the board a chance to make sure there was no mistakes in the balance transfer.

2. Incorrect Late Fees and Interest.  Most associations – but not all! – have the ability to impose ten percent interest and ten percent late fees on any unpaid balance.  The “but not all” caveat is important, however, because some governing documents do not specify any amounts or specify other amounts.  Make sure the Board has reviewed (or had an attorney review) the declaration to verify that late fees and/or interest are authorized and double check the amounts showing up on the ledger.  If your community association attorney catches an incorrect amount, they will need to go back to you to get it fixed and it will result in additional time, delay and fees.

3. Unexplained entries, double entries, etc.  Sometimes, an entry on a ledger does not contain an understandable note describing it.  Sometimes “fat fingers” result in an entry appearing twice on a ledger.  Sometimes fines are placed on the wrong account.  People are human – even treasurers and accountants – and make mistakes.  Double checking the entries to make sure there aren’t any glaring errors or amounts that require additional explanation can avoid delay and expense.

During the Lawsuit

Sometimes, despite generous offers of payment plans and attempts to work out deals, a suit will still be necessary.  There are a few things a board can do to greatly facilitate the lawsuit and even influence the end results.  

First, the board should be responsive to requests from counsel.  These usually involve requests for updated ledgers, decisions needed on settlement offers from delinquent owners, or requests for witnesses at hearings or trial.  Staying on top of these requests and timely responding can ensure that cases move along as they should.  

Second, consult with counsel before accepting payments from an owner that has been sent to legal.  Few things can prejudice a case as severely as an owner showing up at a hearing or trial with “proof” they sent a payment for some or all of the amounts owed directly to the association without the lawyer’s knowledge!  The same goes for any communication with a delinquent owner relevant to the collection process – let your attorney know if it occurs so they do not get surprised. 

Third, be reasonable and treat the lawsuit as “business.”  While owners who haven’t paid for years upon years can start to feel like a personal insult, remember that the association is a business and should be run like one.  Leave anger, frustration and other unhelpful emotions outside the board room when making decisions about whether to accept a payment plan offered by an owner.

In conclusion, a healthy budget usually means a healthy association.  Nothing is better for a budget than a low delinquency rate and streamlining the collection process is a great way to keep delinquency down.

A Song for the Hard Times

This can be sung (preferably loudly and around others) to the tune of a similarly named song from “The Sound of Music”:  

Meetings with quorum and minutes well-written

Board driven initiatives that leave members smitten

A nice balanced budget with enough for savings

These are a few of my favorite things

Enforcement of restrictions, impartial and for cause

Violation notices compliant with by-laws

Dwellings maintained and the value that brings

These are a few of my favorite things

Records retained in compliance with law

Amendments to CCR’s approved without flaw

Reserve studies for all of the streets and buildings

These are a few of my favorite things

When cold pipes break

When contract costs rise

When the members get mad

I simply remember my favorite things

And then I don’t feel so bad

Maintenance plans with periodic inspections

Architectural Guidelines divided in sections

A homeowner hearing where nobody screams

These are a few of my favorite things

Swimming pools with rules and obvious signage

Boards that know when not to try to self-manage

Gates that can close without causing car dings

These are a few of my favorite things

Annual meeting notices with date, time and places

Clear owner ledgers to help win our cases

Abatement instead of long court proceedings

These are a few of my favorite things

When lawsuits strike

When premiums double

When directors are sad

I simply remember my favorite things

And then I don’t feel so bad

Always remember the good things when there are bad times.  Here’s to a 2024 with more of our favorite things!

How a Board Should Make the Tough Calls

Community associations in Georgia are typically nonprofit corporations governed by the Georgia Nonprofit Corporation Code (“Nonprofit Code”).  The board of directors is the decision-making body and must manage and operate the association and all of its assets and enforce all applicable covenants.  The governing documents of any community, such as the declaration of covenants and the bylaws of the association, usually allow the board of directors some amount of discretion in making the various decisions that arise.  These decisions will run the gamut from picking a particular type of seasonal flower for the entry feature all the way to determining how to come up with funds for a major, unexpected repair.  With each decision of the board comes the potential for a challenge by a homeowner who may be adversely affected or who otherwise disagrees with the decision.  Although a community’s governing documents may allow discretion in decision-making, they do not address the standard by which a decision would be judged should their decisions be challenged.  Fortunately, Georgia statutes and case law give some guidance into this process.  

Section 14-3-830 of the Nonprofit Code sets forth the general framework for a director’s actions: “A director shall discharge his or her duties as a director, including his or her duties as a member of a committee: (A) In a manner the director believes in good faith to be in the best interests of the corporation; and (B) With the care an ordinarily prudent person in a like position would exercise under similar circumstances.”  Board members of homeowner-controlled community associations are volunteers with other obligations and generally have a finite amount of time and energy they are able to dedicate to their duties.  The Nonprofit Code authorizes directors to rely on information, opinions, reports, or statements, including financial statements, in coming to decisions, if prepared or presented by officers or employees of the association or by professionals engaged by the association, such as legal counsel or a certified public accountant.  In relying on information and/or documents given by individuals who are not on the board, a director must believe such individuals to be reliable and competent and must not have knowledge contradictory to the information presented.  

The standard for judicial review for any discretionary action taken by a board of directors pursuant to a declaration of restrictive covenants, that is, whether a court will allow challenges to such an action to be considered by a jury, was established by the Georgia Supreme Court in the context of a homeowners association: “Where… the declaration delegates decision-making authority to a group and that group acts, the only judicial issues are whether the exercise of that authority was procedurally fair and reasonable, and whether the substantive decision was made in good faith, and is reasonable and not arbitrary and capricious.”  Saunders v. Thorn Woode Partnership, 265 Ga. 703, 704 (1995).  This standard has also been applied by the Georgia Courts in the context of condominium associations.  See Atlanta Georgetown Condo. Assoc., Inc. v. Chaplin, 235 Ga. App. 460, 461 (1998).

Since the standard for review for discretionary action taken by a board of directors was first articulated, Georgia courts have allowed homeowners to challenge decisions made by a board of directors where the homeowners offer evidence that the decision is “procedurally unfair and substantively arbitrary and capricious”, for example if an association is not enforcing its covenants uniformly throughout the community, and the homeowners association offers no evidence to the contrary.  See Southland Owners Assoc., Inc. V. Myles, 252 Ga. App. 522 (2001).  Although there is no method of predicting whether a court in Georgia would find a particular decision made by a board of directors to a proper exercise of discretion or an “unreasonable, arbitrary, and capricious” decision subject to challenge, a homeowners association will not be able to adequately defend a decision made by its board of directors unless it offers some kind of evidence supporting the board’s decision.  See King v. Chism, 279 Ga. App. 712 (2006) and Wright v. Piedmont Prop. Owners Assoc. Inc., 288 Ga. App. 261 (2007).  Therefore, it is critical to keep good minutes of meetings at which decisions are made.  The minutes should reflect the various points of view expressed and show that a vote was taken.
In conclusion, the governing documents of homeowners and condominium associations usually grant the board of directors discretion in how the association and the community are operated and managed.  In coming to decisions regarding the community, board members may rely on outside information and documentation.  For any decision made by a board of directors pursuant to discretionary authority granted under a community’s governing documents, the board should examine why it is coming to its decision and should record its reasoning in well documented minutes so that, in the event that challenge is made, there is sufficient evidence to defend the board’s actions.  Of course, each decision of the board is distinct and may present unique challenges.  A board of directors may want to consult with the association’s legal counsel for assistance in establishing a general procedure the board can follow when coming to decisions regarding the community and reflecting those decisions in the association’s records.

Behind the Scenes Preparation for a Covenant Violation Suit

The facts change from community to community, but the story is similar:  after years of “cooperative” neighbors a new Owner moved in and modified their property without approval.  Now the Board is dealing with complaints about the pink house, metal shed, 12-foot fountain, etc.  The Board approaches association counsel and points to the declaration, which clearly requires approval before any modification can take place.  At this point in the conversation things can get a little uncomfortable because the attorney will start asking questions about past enforcement, enforcement policies, and other issues not directly related to the matter at hand.  The purpose of this article is to explain why covenant violation suits are often not as simple as they seem and the behind-the-scenes actions that can make the difference between getting the violation cured or having a costly loss in court.

The Path to Enforcement

One of the most important things for directors to remember when faced with an unapproved modification is that, at the end of the day, they are going to have to ask a judge or jury to force an owner who paid money for an improvement to spend more money to remove that improvement.  If you think about this from the perspective of a person who doesn’t live in the community, you can see why it can be a lot to ask.  That is why a board should always attempt to get initial construction stopped through emergency injunctive relief if it can – that way the judge is only asked to stop construction and not to “undo” what has already been completed.  An order can be obtained by getting the association’s attorney to file an emergency motion and complaint with the court immediately upon noticing the preparation or initiation of an unapproved modification.  This will result in some up-front attorneys’ fees but is far more likely to succeed in stopping the modification than a suit brought after it is complete.

Sometimes it is not possible to stop construction before it begins – whether because it was “hidden” from view or because it only took a day to complete.  When faced with a completed, unapproved modification, the first thing a board should consider is whether the violation is something that absolutely must be removed or whether it can be accepted as is or with slight modifications.  If it can be accepted as is or with slight modifications, the board should try to pursue settling the matter without a lawsuit.  Sometimes a simple phone or sidewalk chat explaining why it is important to follow the requirements is enough to avoid a lot of time and money.  

The Dreaded “Arbitrary and Capricious Enforcement”

While some owners will negotiate, others will not budge.  One of the only effective legal defenses that an owner can raise when they’ve clearly violated a restrictive covenant is to claim “arbitrary and capricious enforcement.”  This defense argues that the owner is being treated differently from other owners with similar violations.  The crux of this defense is whether the owner can show other, similar violations that the association has not pursued or, if looked at from a different perspective, whether the association can show reasonable enforcement of the restriction in similar circumstances. 

Sometimes this is as easy as showing that a similar violation has never occurred.  In most communities, however, it is not so simple.  The owner or their attorney will likely demand records from the association showing enforcement of the declaration in other circumstance and may even request records about specific addresses in the hopes of finding evidence of a failure to enforce.  This defense is highly fact-specific, and it can be hard to determine, at the outset of the case, whether it will have any merit.  Because of this, one of the things the association’s attorney will likely discuss at length is past enforcement action:  how it was done, what steps were taken and what the outcome was.  Ensuring that the Board and association have policies in place to make enforcement actions reasonably uniform and keeping good records of violations and outcomes can go a long way in avoiding a successful defense to the violation.

But is it Reasonable?

Georgia judges and juries, for better or worse, are given wide discretion when issuing orders in covenant violation cases.  For instance, they have the authority to award all fines, some fines or no fines levied for a covenant violation.  Similarly, they can allow an association to recoup all of its attorneys’ fees and costs enforcing a violation or none at all.  Finally, a judge or jury could agree that an owner is in violation but still not require them to fix the violation.  The question of fines, fees and resolution are all reviewed by the judge or jury on a “reasonableness” standard, meaning they ask themselves the question “is this reasonable” when deciding what to award in an order.

What, exactly, is “reasonable” is very difficult to answer in most circumstances.  Take fines, for example.  Georgia has a few recorded cases where “reasonable” fines have been awarded, but not much guidance is given on what made them “reasonable.”  Because of this, the Board and association attorney will likely need to have a series of conversations as the lawsuit progresses to develop a strategy for ensuring, to the extent possible, that the ultimate “ask” of the association for fees, fines and resolution is something that most people will find “reasonable.”  This could be as simple as cutting off fines at a certain amount.  It could also be as complicated as asking for a series of smaller changes to an unapproved modification instead of asking for its complete removal.  The board will be a key player in this process because, when it comes to reasonableness, everyone has a valid opinion.

At the end of the day, a covenant violation suit is almost never as simple as the language in the declaration makes it out to be.  It is nearly always better to avoid one – if possible – through responsible settlements.  If a suit cannot be avoided, a board should remember that the decision maker will not just be looking at the current violation but possibly at a series of past violations.  They will also be weighing the amount of fines and fees demanded in the lawsuit as well as the ultimate violation resolution sought by the association.  With all this in mind, it is important that each board work behind the scenes to set the association up for success when that suit finally comes.

Knowing Your Limits

Volunteer directors these days must be superheroes.  From mastering the art of negotiation to understanding the individual components that make up the exterior of a dwelling, the amount of skill and knowledge necessary to be a competent director cannot be understated.  It is important to remember, however, that even superheroes have their limits.  Just as Superman’s renowned strength begins to wane if he’s near kryptonite, a director must remember that, while knowledge about a number of issues is necessary to make informed decisions, it is also necessary to obtain input from professionals when dealing with questions or situations that exceed their layman’s knowledge.  

The Georgia Nonprofit Corporation Code requires all directors to act “[i]n a manner the director believes in good faith to be in the best interests of the corporation; and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.”  O.C.G.A. § 14-3-830(1)(A) and (B).  Usually, a director and association are not liable for actions taken in accordance with the above duties, but if they forget their own limitations, they can be held responsible for damages resulting from imprudent actions taken without keeping the best interests of the association in mind and can even create liability for the association.  

A common example of this is the director who believes they are an expert handyman but lack the training and skill.  Repairing a leaking showerhead or “sticky” door in the clubhouse may seem simple, but if done improperly the former can result in serious flooding and the latter can disrupt keycard and lock systems.  If maintenance is needed for something that is the Association’s responsibility, a call to a professional is necessary to avoid the unintended consequences of amateur repairs.  Keep in mind that even if these small maintenance concerns are handled correctly, more or less, by a non-professional director, those actions may be enough to invalidate warranties or future insurance claims.  

Another common kryptonite for a director is the “Google” legal/accounting/management degree.  An unwary director can find themselves attempting to wade into complex situations that carry legal or financial implications.  No matter how smart a director is, the lack of expertise in these fields is enough to make uninformed decisions dangerous for both the director and the association.  The worst part is that the pitfalls often take expertise to spot and may not materialize for years after the decision is made.  Better to talk with your attorney, accountant or property manager – all of whom have specialized knowledge and ongoing educational requirements – to lay a foundation for a good decision.

Finally, a superhero director can sometimes forget they are not architects or engineers when reviewing construction or modification plans for architectural approval.  While covenants can differ, most make very clear that the main purpose of architectural review is to ensure that proposed improvements fit in with the rest of the neighborhood.  Most also have express disclaimer language that notifies each applicant that the architectural committee and/or board is not reviewing for ordinance violations, engineering concerns or other technical matters and that the association is not legally responsible for harm arising from those issues even when a plan is approved.  Despite this language, some directors may feel the urge to offer guidance on what building permits are necessary or what engineering concerns they have based on the submitted plans.  Undertaking a review that strays from aesthetic concerns into compliance or engineering territory is too great a risk for any superhero director and could result in the director or association being on the hook for any damages arising from lack of permitting or engineering failures – something the association would have had no liability for if the director had just refrained from attempting to address the issues.

In short, no one doubts the extraordinary abilities that a good volunteer director needs to be successful, nor do most doubt the incredible diligence and effort that goes into being a “good” director (angry owners who have never served on the board aside).  Even superheroes cannot do it all, however, and a truly great director will know when they need to consult with a professional instead of trying to do something on their own.