HOAs Gone Haywire, Part IV: How to Decode Your HOA or COA's CC&Rs
Thus far in my HOAs Gone Haywire series, I have discussed the most common issues of life in an HOA or COA community. Disputes and imbroglios go from the mild - you're ordered by the Association to take down a flag, you find out you can't put up the fence you planned, a neighbor runs for the Board just to change a law in his favor -- to true scandals and legal dramas -- embezzlement of Association funds, Board Election fraud, and homes foreclosed on due to late Association dues.
In my HOA series I have pointed out that Association-related issues such as these can never be entirely avoided. However, a more informed homeowner can prevent most of them.
Prevention starts with reading the HOA or COA's Declaration of Covenants, Conditions and Restrictions, or CC&Rs.
Reading a typical set of CC&Rs is about as fun as the title makes it out to be. These documents - which homeowners must automatically abide by when they purchase property in an HOA or COA managed community -- can run well over a hundred pages and be full of enough legalese to make even the most micro-managing Type A homeowner personality want to give it a quick skim, put it down, check their Facebook and hope for the best.
Unfortunately, that's how typical homeowner issues usually start, because every aspect of a highly regulated HOA or COA managed community is clearly outlined in the CC&Rs.
Reading a typical set of CC&Rs -- or Declaration of Covenants, Conditions and Restrictions -- is about as fun as the title makes it out to be, but doing so is the number one prevention for all too typical Association-related issues.
The CC&Rs are intended to protect both quality of life and property values. These protective measures might include reducing vehicular traffic through maintaining gates, addressing water infrastructure management, and putting all kinds of restrictions on everything you can imagine, from what colors a house can be painted and where a pool can be built to where cars can and cannot be parked and what kind of holiday decorations can be put out and for how long... I've seen it all.
CC&Rs put restrictions on everything you can imagine. So if you don't want to deck hour house out with holiday decorations only to get a fine for them, best get familiar with your Association's CC&Rs.
With 66 million Americans and climbing currently living in common interest communities such as Homeowners' Associations, Condominium Associations, retirement communities, vacation timeshares, and gated subdivisions, both the benefits outlined by the CC&Rs -- enhanced control over their environment and property values -- and the collateral issues -- bureaucracy, legal imbroglios, unexpected expenditures, and fines for everything you can imagine -- have become a part of the American way of life.
In other words, if you plan to live in an HOA or COA managed community, it is best to be extremely familiar with your CC&Rs. Although every Association's CC&Rs differs from the next because they are written for a specific community, they have many boilerplate aspects. Given how intimidating and daunting a typical set of CC&Rs can look at first blush, here is a general guideline to what you should look for, what you can skim over, and how to decipher what they really mean:
Property Subject to Declaration: This simply defines how the property and the Association were set up. You can skim over it -- it won't have much to do with your day to day life in your community.
Permitted Use: This portion defines what residential property is versus the community property. It's pretty obvious, but important to know nonetheless.
Common Property: The common property of a community can range from the insignificant -- such as a signage wall -- to vast, including a clubhouse, tennis courts, and a pool. This section will tell you many important things, such as how many guests you are allowed to have on the common property at any given time and what conditions can restrict your use, such as being late on the payment of your dues. So if you don't want to host a wedding party of 50 people in the clubhouse only to find out the day of that you're limited to 10 guests, then get familiar with the regulations in your CC&Rs.
Association: How the voting rights of members of the Association works is very important to know, which is why the Association section is a must-read. For starters, it articulates how the Developer will run the Association prior to resident turnover, which usually happens when 90% of the houses are closed. This includes the Developer's appointment and/or election of the HOA Board of Directors, and how many votes the Developer will get per lot (usual several) versus how many votes "resident owners" will have (one).
Functions of the Association: If you want to know what your HOA or COA is actually responsible for, pay close attention to this language. This section makes clear what the duties of the Association are, including things like establishing and enforcing rules, maintaining common property, collecting dues, conducting Association business, publishing rules and regulations, etc. Get to know it intimately.
The Functions of the Association section makes clear what the duties of the Association are, including things like maintaining gates. If you want to know if the Association is keeping its end of the bargain, get to know this section intimately.
Easements: An Easement refers to a portion of your property given over for a specific purpose, which gives a right of access based on certain needs like utilities or storm water management. For instance, if you have a Conservation Easement which requires that a certain portion of your property be kept in its natural state, you will have a bad surprise when you find you are not allowed to put the pool in that area that you planned. Familiarizing yourself with this section can prevent that.
A Conservation Easement might require that that wooded back yard of yours stays that way, so if you don't want to find out the hard way that you can't put a pool in after all, read the Easements section.
Assessments: This section breaks down everything you need to know about the bills you are going to get from your Association and where the money is supposed to go. This covers not just your dues but also a wonderful little thing called "Special Assessments", which are bills sent out to all homeowners, say, when the balconies need replacing or the pool needs refinishing. A Special Assessment can come at any time, and you want to be aware of when, why and how so you won't have Assessment-shock every time you get a surprise bill in the mail.
Architectural Control: One thing your Association is going to manage is any kind of architectural changes to your property. If you want to have a deck built, you'll need Board approval both before the fact, and after the fact with final approval. Find out what will need approval here before you commission any work.
Restrictive Covenants: If any section of a CC&Rs pertains most to your daily life, it is this one. This section can put restrictions on short term rentals, parking of commercial vehicles or recreational vehicles, whether you can dry clothes outside, if you can or can't put up a chain link fence, install a flag or an antennae, and even what kind of trash cans you use and the color of your curtains. I have seen residents get fined for everything from having too many potted plants to placing a 'For Sale' sign in their own front yard. If you want to know ahead of time how your day to day life will be restricted and possibly micro-managed then red flag this section and read it through and through... it will become your Association bible.
Turnover: Before a certain percentage of the properties have been sold -- usually around 90% -- the Developer is in de facto control of your Board. So if you've moved into a new community you definitely need to know when and how this will happen, which this section will detail.
Declarant Rights: The "Declarant" referred to here is the Developer. By definition, the Declarant has inherent and prescribed rights. For instance, the Developer is in control until usually around 90% of the homes are sold and can change the CC&Rs at will during that time. Find out the Declarant's rights here.
Insurance and Casualty Losses: This section details all the various kinds of insurance you're going to be required to have, not just on your own property, but also on common property which every homeowner is partially liable for. Get to know these details so these insurance bills don't come a as a big surprise when they arrive. Most important, make sure your Association is fully insured, because if anything happens on common property, you are potentially liable.
General Provisions: A set of CC&Rs will be established for a certain number of years and then renewed over certain periods of time. This section clarifies those details. One relevant part of this section, however, deals with the procedures for amending articles in the CC&Rs. Doing so usually involves a vote of 2/3rds of homeowners, which, believe me, is a great preventative for suggested changes that never should have seen the light of day in the first place.
As tedious as your CC&Rs can look and seem, they are in fact the bedrock of the enhanced control, uniformity, security and quality of life that living in an HOA or COA brings with it. You may not want to cozy up to it by the fire on a snowy night, but you do want to get to know it very well so you can spend more time hanging out in the club house with neighbors instead of getting mired in disputes over what color you painted your shutters.