Tenant Tenets
One of the issues that many HOAs grapple with is renters. Some ban them outright, others limit their number. Most live and let live. Interestingly, the HOA has no direct legal authority over renters, only its homeowners. This disconnect creates some practical problems for the Board or Manager in communicating with tenants since there is always a middle person to deal with. So how does this all play out?

Rules Enforcement. The HOA has the right to expect all residents, whether owner or renter, to play by the rules. But with renters, it’s up to the landlord to enforce them, not the HOA. So, the Board should adopt a policy that requires all landlords to provide a set of the governing documents and all rules that have been adopted that affect the renter. The Board can also require that all rental agreements specifically make reference to and be subject to those documents. If a tenant violates a rule, the landlord should be informed of it immediately along with the expectation of enforcement. If there is a fine or penalty, the landlord should be levied for it as if he did the dirty deed himself. It’s up to the landlord to get reimbursement from the tenant.

There are several exceptions to the landlord middle man enforcement process. If a tenant parks illegally in a fire lane, the HOA has the authority to have the car towed and the tenant will, naturally, pay to retrieve the car. There are some things the HOA should not interfere or get involved with. When a renter crosses the line between HOA rule and civil law infraction, the HOA has the right to call in proper authorities. Those authorities include the police, fire safety, FBI and drug enforcement.

Short vs. Long Term Rentals. Most HOAs deal with renters who have entered into long term rental agreements (30 days or more). Most governing documents, in fact, require that the rental agreement be long term to avoid what would be a hotel operation. In resort areas (mountains, beach, etc.), the HOA may have been expressly built and sold allowing owners to rent their homes short term. (These homes or units are owned outright and are not timeshares with professional site management). However, unless virtually every owner has that in mind, there will be an ongoing clash between permanent residents and short term renters. Short termers have no allegiance to the community, don’t know the neighbors and frequently are in party mode.

These factors point to ongoing problems with the locals. If this is a reality, it’s important for the Board to press for consensus among the owners. If the majority want the flexibility to short term rent, it makes sense to have an onsite manager to control these issues and others like key exchange and housekeeping. The manager could be funded partly by the HOA to handle regular maintenance and partly by landlords to care for rentals. It’s a Win/Win.

Controlling Tenants. Renters generally are no better or worse than owner residents. Ongoing problems result from lack of landlord standards (or enforcement of those standards) by the HOA. Here are Landlord Standards which all HOAs should adopt:

• Landlords must provide a set of governing documents (CC&Rs) and rules to renters before move in.
• CC&Rs and rules must be a condition of all rental agreements.
• Landlords are held accountable for renter infractions.
• Renters must communicate requests to the HOA through the landlord.
• Board may demand termination of a tenant with multiple rule violations.
• Landlord must provide a copy of each rental agreement to ensure compliance with the HOA’s Landlord Standards and for emergency contact purposes.

Renter Surcharges & Fees. Some HOAs impose a Move In/Move Out or Renter Fee on landlords. Unless this fee is imposed on all residents, owner or renter, it is discriminatory. If a particular renter causes damage to the common area moving in or out, the landlord should be charged for it. Never surcharge classes of residents.

Communicating with Landlords. All tenant violations should be directed to the landlord in writing along with specifics, date and time. The communication should be clear what the landlord’s course of action should be and remind it’s up to the landlord, not the HOA, to deal with a renter.

Limiting Rentals. At one time or another, someone presses to limit rentals. There are right reasons for doing so but avoid the wrong one: the belief that renters are undesirable. While some tenants may be problems, so are some owners. Each must be dealt with as individuals, not a class. The only valid reason for limiting rentals is to protect financing and market values. Many lenders view HOAs with a high number of rentals as investment property. Investor loans are more expensive and in a tight market, loans may be hard to get. Since availability of cheap money drives market values, it’s important to avoid lender restrictions. Although there is no hard and fast guideline, maintaining at least two thirds owner occupancy seems to pass muster with most lenders. Falling below that level cause closer scrutiny by some lenders. When lenders scrutinize, it usually means the interest rate or fees go up. Restricted financing options cause market values to fall.

Limiting rentals to protect financing is a worthy rationale for doing so. However, placing a system in place that allows some owners to rent and others not has many problems. The Board must oversee the rental restriction policy and establish guidelines for who gets to rent and when. Also, there will be hardship cases (disability, job loss, down real estate market, etc.) that will press the Board to bend the policy.

And consider if a landlord simply ignores the restriction and rents his unit. The HOA has control over the owner but not tenants who are protected by Landlord-Tenant laws. For a variety of reasons, if limiting rentals is desirable, it should apply to all owners 100%. A total ban on rentals doesn’t totally eliminate the Board’s oversight, but it at least makes it fair to all owners.

Renters Have Rights. After considering the various issues, it’s important to remember that renters have rights that must be respected. Besides the state Landlord-Tenant laws, the Fair Housing Act speaks to unreasonable rental restrictions. Never impose restrictions based on sex, faith, culture or race. When it comes to HOA tenant tenets, don’t be tentative.    BACK 

Defining Signage
Every homeowner association relies on permanent signs to point the way and improve behavior. A directory and map sign guides guests, vendors and ambulances to member homes. Entry signs establish a community’s identity and theme. No Parking signs warn of dire consequences. Pet signs remind of neighborly responsibility.

Regardless of the message, HOA signs should be attractive, noticeable and few. Many HOAs establish a size, placement, number and color standard for signs. Some even require that real estate For Sale and For Rent signs conform to the standards.

Temporary signs come in the form of Garage Sale, For Sale, For Rent, Pet Lost, political and special event signs. Political signs, in particular, multiply like rabbits when left unchecked and the HOA landscape can quickly be festooned with them. While the HOA has the right to control member placed signs, an outright ban would usually raise a hue and cry of "Free Speech".

It’s best to lay out reasonable criteria such as: The number of signs should be limited to two per home and should not exceed 18" x 24" in size. The signs should not be placed in the common area but in the window. They must be removed promptly when the event has taken place (sold, rented, election or event held, etc.). Political signs can be displayed no earlier than 30 days prior to the election or vote.

The HOA can also use temporary signs to raise awareness. Posting signs relating to security awareness, speeding vehicles and pet patrolling can often be more effective when temporary and moved around to different locations. Permanent signs tend to fade into the landscape.

Older HOAs tend to accumulate signs that have outlived their usefulness, have become dilapidated or both. Why not survey the neighborhood and see how many should go away? Curb appeal is fundamental to market value so this is one way the HOA can safeguard member asset values. Clearly defining HOA signage will help maintain an uncluttered and manicured look.

For a sample Sign Policy, see Policy Samples.   BACK 

Disclosure Exposure
Buying a new home is challenging and exciting. Kicking tires and exploring new neighborhoods goes with the territory. Chances are growing that a homeowner association will be part of the prospect mix. Most zoning favors HOAs because of land use density and city/county governments like them because things like street, park and lighting maintenance are the HOA’s responsibility. Covenant enforcement against trashy property and junk cars is also handled by the HOA.

Home buyers like HOAs because they include amenities like pools, clubhouses, private parks, woods and ponds that would be prohibitively expensive for a lone owner. There is also a tighter control on architectural design and in condominiums, sharing major repairs like roofing and painting usually cut costs in half. Denser housing often means more affordable housing so many first time home buyers gravitate to condominium homeowner associations.

While there are many advantages to HOA living, there are significant responsibilities that come with the lifestyle. Shared common elements creates an interconnectedness between HOA homeowners that doesn’t exist in traditional subdivisions. Since the HOA collects money to maintain the common elements and administrative functions, the financial responsibility for each homeowner can be significant and unpredictable in poorly run HOAs. Poorly managed HOAs fail to plan adequately and levy unfair special assessments to close the gap. Those special assessment can range from several hundred to tens of thousands of dollars.

Architectural control is a common requirement, especially in single family planned communities where the HOA dictates paint colors, roofing, siding, fences, decks and even the look of landscaping. Folks that like to customize their home may run headlong into the ARC (Architectural Restriction Committee) which puts the kibosh on each and every proposal.

Then there are lifestyle issues like pets and vehicles. Many HOAs strictly control the type and number of pets and where they can and can’t roam. Most HOAs have restrictions on parking recreational vehicles, boats, jet skis and commercial vehicles. These issues strike very close to home for some home buyers.

Sorting out the issues becomes more complicated because many real estate agents are uninformed about homeowner associations and their requirements. And even if they are, many HOAs fail to maintain adequate or current records so that the agent and buyer can get better informed. Or if they do have the records, the person that has access to them is on vacation. If the records are actually located, some of them, like the governing documents, take a Kansas City lawyer to interpret. This exercise isn’t for the faint of heart.

So what information should an HOA homebuyer be allowed to review and understand to make an informed purchase? Here’s a handy checklist:

• Governing Documents (also called Declaration and Bylaws or CC&Rs-Codes, Covenants & Restrictions
• Rules, Regulations and Resolutions that are not found in the Governing Documents
• Specific policies relating to Pets, Parking, Collections and Rental Restrictions
• Financial Statements for the last twelve months
• Annual Budget
• Reserve Study showing schedule for major repairs and funding level of reserves
• Any special assessments coming up soon? If so, how much?
• Current percentage of delinquencies (more than 5% = big problems)
• Is the HOA involved in litigation as a defendant or plaintiff? If yes, get details
• Board and Annual Meeting Minutes for the last twelve months
• Insurance Coverages carried by the HOA
• Newsletters for the last twelve months
• List of architectural violations the subject home might have
• Key Contact Information

Exposing prospective buyers to this information is fair, honest and ethical. The HOA needs informed members to run harmoniously.

Virtually none of this information is needed to make an informed buying decision in a stand alone house in a typical subdivision. But when buying into an HOA, it is an 800 lb. Buyer Beware. Whether you are a real estate agent or buyer, don’t close the deal until you’ve reviewed and understood this information.

For more, see the Resale Disclosure section.   BACK

Rules: Less is More
The owner’s manual of every homeowner association are the governing documents, sometimes called Declaration, Bylaws, Rules and Regulations or CC&Rs (Codes, Covenants & Restrictions). The CC&Rs are usually drafted by attorneys that are knowledgeable about HOA law and practice, but not always. Some developers think CC&Rs are boilerplate (one size fits all) so may use documents from another project. This is ill advised since each HOA has its own unique needs and state HOA laws change almost every legislative session. This could lead to inappropriate or illegal provisions being included or appropriate provisions being excluded.

These anomalies aside, many Boards are consternated by the fact that the CC&Rs are so, well, vague. Rather than neatly laying out the parking and pet rules, they are only mentioned in general terms if at all. The collection procedure is barely addressed except, perhaps, the date homeowner fees are due. What about bounced checks, late fees and finance charges? The details are usually absent. This is crazy! How is the Board supposed to know what to do?

There is reason behind the apparent madness. The governing documents are intentionally left vague in many areas to allow the members to decide how they want things to run. This is particularly true of rules. Rule making does not require amending the governing documents since the authority to make (promulgate) rules is always granted to the Board. However one essential of rule making is to compile them in a Book of Rules so they don't get buried in Board Meeting minutes.

When it comes to making rules and policies, less is more. Only adopt those that are really needed. We live in a world of rules and laws. Think long and hard before adopting a rule that is governed by common sense. (Do you really need a rule against loud parties that disturb the neighbors?) A rule is useless unless it’s enforceable. A parking rule that requires someone to sneak around recording license plates or a pet rule that requires taking pictures of dog doo doo is no way to spend a life or HOA money. The goal is to get most folks to willingly comply, not to set them up for confrontation.

When it comes to rule making, remember: "Locks keep your friend out". No number of rules is going to control someone who takes great joy in breaking them. To these folks, this adage applies: "Never try to teach a pig to sing. It’s a waste of time and irritates the pig." Rather than trying to out-rule a scofflaw, personal persuasion or compromise is usually more effective. However, if the issue is important enough, like a resident dealing drugs, stockpiling garbage or raising pitbulls for malicious purposes, using law enforcement and the courts may be the most expeditious solution.

The HOA actually can establish rules that are stricter than city, county and state statutes and many do especially in the area of zoning. For example, even though local zoning may allow certain businesses like daycare facilities, the HOA may prohibit them. Prohibiting all home businesses, however, is not reasonable. The business ban should be tied to its impact on the neighbors (parking, deliveries, noise, smell, dust, storing flammables, etc).

HOAs can also establish very stringent appearance and design rules which leave little wiggle room for creativity. These regulations can have a negative effect on market values when restrictions are placed on things like color and roofing. Color preferences change every five to ten years. Requiring all buildings to adhere to 1970s color scheme will cause values to fall. And those cedar shingles are now a roofing dinosaur. Cedar shingles are both a fire hazard and expensive to maintain and replace. New roofing alternatives have much longer useful lives, warranties, require little maintenance and have smaller price tags. When it comes to appearance rules, allow flexibility and review based on changing consumer preferences.

The Resolution Process is a great way to deal with complex issues like collections, parking and architectural design. Resolutions can be enacted without amending the CC&Rs and provide a template for defining the issue, penalty for violation and appeal process. The Resolution Process includes a member review of the proposed resolution prior to enactment. Adding this feature ensures greater compliance since all members have been put on notice and have been given a chance to comment. Resolutions can be recorded (and should be) so prospective buyers are put on notice of significant issues.

The Board does not have authority to make a rule or policy that contradicts the CC&Rs. To change the CC&Rs requires a vote of the appropriate number of members to amend them. The Board may enact rules, policies and resolutions that expand on and are in keeping with the CC&Rs. For example, if the CC&Rs state "The homeowner association may enact architectural design restrictions", the Board could enact a policy that states "No awnings, fences or play structures are allowed" and it would pass the test. The Board, however, is not required to pass design restrictions. The CC&Rs only provide that option.

Amending CC&Rs can be quite expensive. Sometimes there is a good reason to do so to remove an illegal provision or to conform with changes that have taken place in state or federal law. Amending CC&Rs should only be done in consultation with an attorney that specializes in HOA law. Many provisions in CC&Rs are interrelated and changing one can impact another. A good attorney understands how it all fits together. Once the amendment(s) are passed, the amended CC&Rs should be recorded so the world is put on notice.

If there are many substantial changes to the CC&Rs that are being proposed, they should be voted upon separately rather than lumping them together which could result in the good going down with the bad or controversial.

Expanding the CC&Rs is one of the Board’s greatest challenges. It can be done by amending them or adding Rules and Resolutions. When expanding, take your time and get member input. Measure twice and cut once. Finally, it’s okay to NOT make rules. Less in more.

For more, see Regenesis.net "Resolution Process" and "Policy Samples".   BACK