While each Condominium and Planned Community Association faces unique challenges, some issues appear regularly in those organizations. While a telephone call, email or appointment is highly recommended to discuss these and other problems you may face, here are some helpful tips on recognizing potential problems so that you can seek legal advice at the earliest possible time.
Statutes, Declarations and Bylaws
It is important to understand the order of importance of state statutes, recorded declarations and bylaws. State statutes, such as the Planned Community Act and the Condominium Act, take precedence over recorded declarations and bylaws unless they specifically provided otherwise. Declarations and Articles of Condominium take precedence over the Association’s bylaws. This means that an Association cannot change Declarations or Articles of Condominium by amending its bylaws. Similarly, unless specified otherwise in the state statute, the Declarations and Articles of Condominium cannot contain provisions contrary to the state statutes.
We occasionally see Association Bylaws recorded with the Register of Deeds or combined with Declarations that are recorded with the Register of Deeds. Although this may be a common practice in other states, we strongly suggest that you NOT record your Association Bylaws or combine them with your Declarations. Recording the Bylaws may be interpreted as creating covenants that require the same formality for changes as required for Declarations. Bylaws are adopted to provide operating rules for the Association and should not address property rights. Property rights are more appropriately addressed in the Declarations. In addition, Bylaws will likely be changed more often than the Declarations.
Some Associations have permitted the combination of lots into one lot to reduce the assessments due by the lot owner to one assessment. However, the North Carolina Court of Appeals has held that in the absence of provisions in the Declarations specifically permitting reduction of assessments by combining lots, the assessments remain for each of the combined lots after the combination. The Declaration language must do more than permit combination of lots—it must specifically provide for reduction of the assessment associated with the lots prior to combination.
Voting with Proxies and Ballots
Voting by written ballot should be limited to simple “yes” or “no” issues that have been thoroughly discussed at a prior meeting as voting by written ballot has no ability to change the issue being voted upon as might occur at an actual meeting. The ballot should include the exact language of the proposal being voted upon and provide for both “yes” and “no” votes. Ballots should also provide information regarding where they should be sent and the last date and time by which they must be received in order to be counted.
Proxies offer more flexibility than ballots. Proxies are a special type of power of attorney or agency agreement that permits a vote to be cast on behalf of someone by a designated person. Proxies permit the proxy holder to hear debate at an Association meeting and make up their own mind about how to vote. This is especially valuable when there may be amendments adopted at a meeting that were not anticipated by the person giving a proxy prior to the meeting. A proxy should include an expiration date of no more than 11 months after execution even though a proxy may be withdrawn at any time by the maker. CLICK HERE to see a sample proxy form that can be customized for your Association.
If the Declarations permit variances to be made relieving some property from full compliance with the Declarations, an Association should be very cautious in granting such variances. If too many exceptions are made there is a risk that some of the Declaration provisions may become unenforceable. Take care to have a written application for a variance spelling out the reasons for the variance. Be sure to record in the minutes all of the factors that were considered in deciding to grant or deny a variance.
Maintaining Association Records
Minutes of Board and Member meetings should be kept in a notebook so that they can be passed along to successive Boards. Problems can arise when an Association does not know when or why an action was taken in the past. Other Association records such as financial and bank statements, membership lists, plats and receipts should also be kept in an orderly fashion and passed along to successive Boards.
Restrictions on Use of Property
Restrictions on use of property pose significant challenges in North Carolina. North Carolina courts have been hostile to restrictions on a property owner’s ability to use their property in any manner that they see fit. The North Carolina Court of Appeals has invalidated restrictions requiring property owners to avoid doing anything that caused “embarrassment,” “discomfort,” or “annoyance,” or was “noxious’ or “unsightly ” because those terms described subjective and personal experiences or feelings. Other restrictions aimed at restricting the use of property to single family residential use and prohibiting certain kinds of animals have also been struck down.
The common thread running through these cases is the lack of an “ascertainable standard” by which a person can tell if their conduct is prohibited. For example, restrictions prohibiting loud noises would likely be declared invalid because there is no ascertainable standard for determining when noise is too loud. On the other hand, if the restrictions prohibited noise above a certain decibel during certain hours, that restriction would likely be upheld.
Use of Assessment Funds
Declarations vary widely in describing how assessment funds can be used. North Carolina Courts are reluctant to permit the use of those funds beyond the particular uses specified in the Declarations. If a proposed use is not specifically identified in the Declarations you should consult one of our Community Association Attorneys at Cannon Law, P.C. for advice on how and if you can use assessment funds for a particular use.
Amendments to Declarations
The North Carolina Supreme Court has declared that amendments to Declarations must be “reasonable” in order to be effective. In addition, they cannot expand the scope of the original Declarations beyond the point that would have been reasonably foreseeable by a property owner purchasing property in reliance upon the Declarations. The Court reasoned that a purchaser should be able to rely upon the existing restrictions in determining what use is prohibited and any change that materially changed those prohibitions was an unfair limitation on the property rights of that owner.
As a result of the Supreme Court’s decision, it can be difficult to predict whether an amendment to Declarations will be upheld if challenged. Before adopting an amendment to your Declarations you may wish to talk to the Community Association Lawyers at Cannon Law, P.C. who can advise and guide your Association during the drafting and adoption of the amendment.