Homeowners Association

The law of unintended consequences theorizes that the actions of people – especially government – often have effects that are surprising or unplanned. The idea of unintended consequences is generally traced back to English philosopher John Locke. In 1692, in a letter to Sir John Sommers, a member of England’s Parliament, Locke counseled the defeat of a parliamentary bill designed to regulate interest rates. Locke argued that instead of benefiting borrowers, as the bill intended, it would hurt them because creditors would find ways to circumvent the law, and those related costs would be borne by the borrowers, namely “widows, orphans and all those who have their estates in money.” John Locke, Some Considerations of the Consequences of the Lowering of Interest and the Raising the Value of Money (1691). Oregon House Bill 2661 (“HB 2661”) should be considered with unintended consequences in mind.

HB 2661’s goal is to curtail or reduce the spiraling costs of new residential construction in order to make housing more affordable. While that is an admirable and laudable goal, the key features of this bill remind me of Locke’s letter to Sommers and his concerns about that century’s old bill to regulate interest rates.

HB 2661’s key features include:

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Construction defects plague many buildings in Florida, leading to lawsuits against developers and contractors. Seasoned developers have tried placing limits on their liability in a variety of ways, including inserting provisions in associations’ governing documents to limit associations’ and owners’ ability to bring a lawsuit against the developer. While developers have been creative in coming up with ways to limit liability exposure, this article focuses on what developers may not include in the governing documents that govern homeowner and condominium associations.

Governing Documents

To form a condominium or homeowners association, among other things, one must record a declaration in the respective county public records. Fla. Stat. § 718.104. “The declaration of condominium, which is the condominium’s ‘constitution,’ creates the condominium and ‘strictly governs the relationships among the condominium unit owners and the condominium association.’” Neuman, 861 So.2d at 496–97 (quoting Woodside Vill. Condo. Ass’n v. Jahren, 806 So.2d 452, 456 (Fla.2002)). The same applies to declarations for a homeowners association.

These declarations are binding documents and contain covenants, conditions, and restrictions for the community. Such covenants, conditions, and restrictions pertain to a range of topics including, but not limited to, whether pets are allowed; where to store garbage cans; regulation of TV antennas; and the operation of home businesses. The developer drafts these declarations and, while ambiguities are construed against the drafters,[1] developers are still given wide latitude in drafting declarations. Further, restrictions which may be found in a declaration of condominium are clothed with a very strong presumption of validity when challenged. See, e.g., Grove Isle Ass’n, Inc. v. Grove Isle Assocs., LLLP, 137 So. 3d 1081, 1091 (Fla. Dist. Ct. App. 2014) (citing Woodside Vill. Condo. Ass’n, 806 So.2d at 457).

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After having successfully recovered, borrowed, or assessed funds for the repair of damaged buildings, an owner, property manager, or homeowners association (I’ll use the term “Owner” in this piece for brevity) must shift gears, and determine how most wisely to spend those funds.  The Owner may not have experience with significant construction projects, and likely must rely on outside expertise for management of reconstruction.

  1. Continuation with Forensic Consultants

If the Owner engaged a forensic analyst to study the damage, continuing a relationship with that analyst through the construction project usually makes sense. The analyst can be hired to continue assistance in a number of capacities: convert its recommended repairs to formal construction drawings, review and administer construction through completion, or provide peer review and comment on the work of others. The Owner should confirm with the analyst up front whether it has that capacity and expertise to perform these functions, and meet with the personnel at the firm who would be assigned such duties.
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Oregon subdivisions often have Declarations of Covenants, Conditions, and Restrictions (“CC&Rs”) with varying degrees of restrictions on the characteristics of homes to be built there. For example, some CC&Rs restrict how tall homes can be to protect views of all of the homes in the neighborhood, or may specify certain materials for roofing or siding, to keep a consistent aesthetic in the community. Other CC&Rs require levels of upkeep on homes and give the HOA the power to fine owners that do not comply. It is important that prospective purchasers and owners in communities governed by CC&Rs know the restrictions in order to avoid potentially costly disputes.
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Developers often maintain control of homeowners associations for years after construction is complete, partly in order to ensure that the warranty process runs smoothly.  However, it can also unintentionally create long-term problems for the association and the developer. For example, in a recent Washington Court of Appeals decision, a developer’s continued control of the association concealed construction problems from the owners and ultimately ended up exposing the developer/general contractor to liability years after the statute of limitations would have otherwise run.  A copy of the Alexander v. Sanford opinion is here: http://www.courts.wa.gov/opinions/pdf/696378.pdf.
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Rowhomes and townhomes are a popular form of multi-family dwelling, but not all attached homes are organized the same way, and they don’t all have the same maintenance obligations between the homeowners’ association (if there is one) and the individual owners. Knowing how a townhome community is organized can help you decide if purchasing is right for you.  If you already own a townhome, it is important to understand the maintenance responsibilities of the homeowners’ association and yourself, should any issues arise.

Rowhomes and townhomes in Oregon may be organized as Condominiums, under the Oregon Condominium Act (ORS Chapter 100) or as Planned Communities, under the Planned Community Act (parts of ORS Chapter 94).  To add a wrinkle to all of this, people often refer to Planned Communities as “Townhomes,” but a community may look like townhomes and be organized as Condominiums and a community of detached homes could be organized as a planned community.
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In Oregon, residential owners traditionally have up to ten years from when their home is substantially completed to bring a claim for construction defects.  Less clear is the timeline for townhomes.  Traditionally defect claims involving townhomes in Oregon are brought by a homeowner’s association and on behalf of all owners within the townhome.  This is

It is a fact of life: Over time, property will require repair or replacement due to normal lifecycle and usage or damage. A homeowners association (HOA) Board of Directors is responsible for the maintenance and repair of common elements. However, many HOAs have language in their governing documents that limit the Board of Directors’ ability to make capital improvements, typically requiring a super-majority vote of the unit owners. How can a Board of Directors tell a proposed repair from a capital improvement? Unfortunately, at least in Oregon, there is no clear answer; but rather, there is a fact sensitive inquiry into the scope and character of the work being performed.
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