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Covenants, Conditions and Restrictions for Condos and Planned Communities

Drafting, Amending and Enforcing CC&Rs: Best Practices for Developers and Homeowner Associations

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, MAY 3, 2016

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Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

David A. Herrigel, Principal, Hyatt & Stubblefield, Atlanta Wil Washington, Principal, Chadwick Washington Moriarty Elmore & Bunn, Fairfax, Va.

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Covenants, Conditions and Restrictions for Condominiums and Planned Communities

May 3, 2016

Prepared and Presented by:

David A. Herrigel

Hyatt & Stubblefield, P .C. Hyatt & Stubblefield, P .C. Peachtree Center Harris Tower 233 Peachtree Street, N.E., Suite 1200 Atlanta, Georgia 30303 (404) 659-6600 dherrigel@hspclegal.com

The Developer Perspective

• Structuring new projects
• Governance documents

6

• A. Goals of Governance Structure

1. Long-term ownership, operation and maintenance of common areas and amenities 2. Creation and enforcement of community-wide standards of architecture, maintenance, and use 3. Smooth and efficient operation and administration before and after development period

7

• A. Goals of Governance Structure

(cont.) 4. Foster an environment for all uses to succeed 5. Maximize marketability, developmental control, flexibility 6. Create a community 6. Create a community

8

• B. Things to Avoid and Why

1. Significant direct interaction between residential and nonresidential owners

• a. Competing interests and expectations for

the community and for residential and nonresidential owners

• b. Different levels of communication and

participation

9

• B. Things to Avoid and Why

(cont.) 2. Creating a nonresidential association unless a reason exists to do so (e.g., ownership of common property)

• a. Nonresidential or commercial owners may
• a. Nonresidential or commercial owners may

not have time, resources, or interest to be involved in the day-to-day planning and affairs of the community

• b. Creates unnecessary administrative and
• ther costs

10

• B. Things to Avoid and Why

(cont.) 3. Too much governance – Service Areas v. Sub- Associations a. Administrative and other costs of Sub- Associations Associations b. Finding something for Sub-Association to do

11

• C. Drafting Tips/ Techniques

1. Know your audience

• Be user friendly
• Use plain language; Avoid legalese

2. Organization

• TOC
• Consistent use of defined terms

12

• C. Drafting Tips/ Techniques

(cont.) 3. Be wary of forms 4. Consider tables/ graphics to illustrate points 5. Flexibility v. certainty

13

• D. Significant Document Provisions

1. I dentify Players 2. I dentify Property Types 3. Assessments and Other Revenue Sources 4. Membership and Voting 5. Architectural Control – Standards; Responsibility; Control

14

• D. Significant Document Provisions

(cont.) 6. Maintenance Obligations; Standards 7. Use Restrictions and Rules 8. Enforcement 8. Enforcement 9. I nsurance

15

• D. Significant Document Provisions

(cont.)

• 10. Easements
• 11. Development Rights
• 12. Mortgagee Rights
• 12. Mortgagee Rights
• 13. Amendment

16

Amendments to CC&Rs

Wil Washington standing in for

• J. David Ramsey

Becker & Poliakoff

973.898.6502 dramsey@becker-poliakoff.com

Amendments to CC&Rs

• Leasing Restrictions – Common Provisions

– Six or twelve month minimum lease terms – Landlord required to make lease subject to terms of governing documents – If tenant breaches the rules, owner is responsible,

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• – If tenant breaches the rules, owner is responsible,

sanctions may apply and may be required to evict tenant – If Owner does not enforce the lease terms, power of attorney to association to enforce and evict if necessary

Amendments to CC&Rs

• Amendments to Lease Restrictions – Modifications

to Consider

– Keeping lease term to minimum of six months

• Satisfy new FHA project approval criteria

– Assignment of rents if owner defaults on payment of

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• – Assignment of rents if owner defaults on payment of

assessments – Assignment of Owner’s right to use amenities when Unit is leased – Prohibition on subleasing – Upon breach of rules, Association may suspend right to use amenities and other rights

Amendments to CC&Rs

• Amendments to Leasing Restrictions

– Legal issues

• In most states changing the restrictions on leasing is

enforceable – See Woodside Village Condominium Association, Inc. v Jahren, 806 So.2nd 402 (Fl. Sup Ct. 2002)

20

• Association, Inc. v Jahren, 806 So.2

402 (Fl. Sup Ct. 2002)

• Violation of FHAA does not require intent; disparate impact is

sufficient

– See Villas West II of Willowridge HOA v. McGlothin, 841 N.E.2d 584 (Ind. Sup. Ct. 2006)

• New HUD Rule on discriminatory impact -

http://portal.hud.gov/hudportal/documents/huddoc?id=discrim inatoryeffectrule.pdf.

Amendments to CC&Rs

• Qualifications for Candidacy

– Common provision

• Must be Unit owner of record
• Many documents do not require candidate to be in “good

standing”

21

• standing”

Amendments to CC&Rs

• Qualifications for Candidacy

– Considerations for drafting

• Allow spouse or domestic partner of record owner to be a

candidate

• Require that assessments be paid in full; avoid requirement

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• Require that assessments be paid in full; avoid requirement

that there be no violation of rules

• Restrict each Unit to one member on board
• Consider whether residency requirement is important

Amendments to CC&Rs

• Description of Unit Boundaries

– Existing provision often confusing or internally inconsistent – Language defining Unit is vague – Sometimes doesn’t match maintenance obligations

23

• – Sometimes doesn’t match maintenance obligations

creating confusion – Depending on type of insurance carried by association, can also impact insurance obligations – In some instances state statute will “fix” some drafting issues

Amendments to CC&Rs

• Description of Unit Boundaries

– Drafting tips

• May be able to add to what is included in Units, cannot subtract
• Dialog with client concerning what it wants to include in the Unit

– utilities are problematic when lying outside Unit boundaries

• Be clear in definition of “additional components”

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• Be clear in definition of “additional components”

– Include in “windows” and “doors” all components – Include skylights in definition of windows – Use plainer language than “No . . . systems designed for the service of any particular Unit, which are not removable without jeopardizing the structural, safety or usefulness of the remainder of the buildings, shall be deemed to be a part of any dwelling Unit.”

• Where ownership of Unit component proves problematic

consider altering maintenance responsibility – such as windows in high rise

Amendments to CC&Rs

• Maintenance of Common Elements and Units

– Existing documents may simply state that Common Elements are maintained by Association, Units by Owners – Not always satisfactory when Unit components lie

25

• – Not always satisfactory when Unit components lie
• utside of Unit boundaries

– How do documents deal with owners who fail or refuse to properly maintain?

Amendments to CC&Rs

• Maintenance of Common Elements and Units

– Consider inclusion of maintenance chart; require client to carefully review – If Unit components lie outside Unit boundaries, have Association maintain, either at Owner’s or

26

• Association maintain, either at Owner’s or

Association’s expense – Consider impact on reserves when altering maintenance responsibilities – With Limited Common Elements don’t rely on common “routine maintenance” is responsibility of Owner, all else is Association’s – Be specific

Amendments to CC&Rs

• Pet Restrictions

– Often issue of greatest emotional impact – Many “no pet” communities have failed to enforce; issues of waiver – Where pets are permitted, problems with noise,

27

• – Where pets are permitted, problems with noise,

cleanliness and attacks by aggressive dogs often exist, creating “us versus them” mentality – Many vague terms, such as “two household pets” – Of course, Fair Housing Act accommodation requirement impacts all pet restrictions

Amendments to CC&Rs

• Pet Restrictions

– Drafting tips:

• Evaluate whether prior “no pet” provision has been waived –

case law makes waiver argument difficult on party seeking to assert it

• Specifically state type of animals permitted

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• Specifically state type of animals permitted
• Give Board discretion in being able to require removal of hostile
• r overly aggressive dogs; or specify certain breeds as not

permitted

• Balance rights of owners currently with pets that will no longer

be permitted with new requirements and provide method of identifying such “vested” pets

• Consider creating standard method of responding to request for

service or comfort animals

Amendments to CC&Rs

• Noise Provisions Relating to Flooring

– Many mid and high rise documents have requirements relating to floor coverings to dampen noise transmission – Sometimes inadequate in not preventing transmission

29

• – Sometimes inadequate in not preventing transmission
• f noises from foot falls, high heels, children playing,

etc. – In some instances, owners claim disability prevents use of carpeting

Amendments to CC&Rs

• Noise Provisions Relating to Flooring:

(q) Floor Covering. Sufficient carpeting and padding shall be installed and maintained by the Unit Owner on a minimum of eighty percent (80%) of the floor surface (excluding kitchens, closets and bathrooms) in Units

30

• (excluding kitchens, closets and bathrooms) in Units

located over other Units to effectively reduce transmission of sound between Units.

Amendments to CC&Rs

• Noise Provisions Relating to Flooring

(a) Restrictions on Hard Surface Floors. Despite the requirements of Paragraph (q) above, the Owner of any Unit wishing to install a hard surface floor must submit to the Board the following: i. (i) A construction drawing clearly indicating the type of flooring to be installed and the underlayment to be provided to mitigate against impact noises such as footfalls. The drawing must clearly identify all materials, their ii. iii.

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i. noises such as footfalls. The drawing must clearly identify all materials, their composition and thickness. ii. (ii) A plan view drawing of the hard surface flooring area indicating the location of all adjacent partitions, cabinets, etc., with referenced details indicating the method of isolating the hard surface flooring along the entire perimeter. iii. (iii) A test report from a qualified acoustical testing laboratory clearly showing that the Impact Isolation Class of the construction selected has a minimum rating of IIC-50.

Amendments to CC&Rs

• Noise Provisions Relating to Flooring

(iv) A copy of the installation instructions from the resilient floor underlayment manufacturer. (v) The name, qualifications, and experience of the contractor who will install the hard surface flooring and resilient underlayment with a listing of his

32

install the hard surface flooring and resilient underlayment with a listing of his experience in the installation of floors utilizing impact insulation materials. (vi) The proposed individual(s) who will oversee the installation in order to verify that the installation is in accordance with the manufacturer's requirements.

Amendments to CC&Rs

• Casualty Insurance Provisions

– Insurance industry has evolved in the definition of policy types – Many older documents do not conform to newer policy types

33

• policy types

– Typical policy types include “bare walls,” “single entity,” “all in,” and “follow form”; the latter of which has become more common – Fannie Mae and FHA now requiring that entire unit be covered; if not entirely by association, then by combination of Owner’s and Association policies

Amendments to CC&Rs

• Casualty Insurance Provisions

– Requires understanding with client, which often doesn’t understand the issue – Options:

• Limit policy to bare walls, but allow Board to adopt resolution

34

• Limit policy to bare walls, but allow Board to adopt resolution

increasing required coverage

• If choosing minimum of single entity coverage, make clear

whether this includes original builder grade improvements; all improvements originally installed by the builder whether or not builder grade; or including both originally installed improvements plus owner replacement of those with higher quality

Amendments to CC&Rs

• Casualty Insurance Provisions

– Tips:

• Waiver of subrogation provisions
• Assignment of responsibility for deductibles
• Trustee provisions for recoveries in excess of stipulated

35

• Trustee provisions for recoveries in excess of stipulated

amount

• Responsibility for shortfall in proceeds
• Responsibility for restoration tied to type of policy

Amendments to CC&Rs

• Megan’s Law Restriction

– Where registrant moves into community demands are

• ften placed on board that can’t be met

– In many states, Associations are responsible for “foreseeable criminal conduct”

36

• “foreseeable criminal conduct”

Amendments to CC&Rs

• Megan’s Law Restriction

– Requires that residents not be a Tier 1 or Tier 2 registrant – Does not place burden on seller, burden is on buyer; same as any other use restriction

37

• same as any other use restriction

– If registrant takes occupancy, contains a provision allowing association to purchase unit at average of two appraisals less cost of re-sale – See Mulligan v. Panther Valley, 337 N.J.Super. 293 (App.Div. 2001)

Amendments to CC&Rs

• Amendment Provisions

– Typical amendment provision requires 67% of all

• wners to approve amendments

– All owners not voting effectively count as “no” votes – As community ages, it becomes very difficult to get

38

• – As community ages, it becomes very difficult to get

67% to vote, let alone vote “yes”

Amendments to CC&Rs

• Amendment Alternatives

– Consider allowing Board the authority to amend when documents are inconsistent with law or lending requirements of secondary mortgage market – Modify super-majority vote to require that 67% of

39

• – Modify super-majority vote to require that 67% of

those voting may approve, with a quorum requirement

• f 50% to pass future amendments

– Disadvantage: Courts may grant less deference to validity of amendment – See Panther Valley

Covenants, Conditions and Restrictions for Condominiums and Other Planned Communities Covenants, Conditions and Restrictions for Condominiums and Other Planned Communities

Wil Washington Chadwick Washington

703-352-1900 wwashington@chadwickwashington.com

Smoking Amendment

 Ban smoking on common areas  Ban smoking on common elements  Ban smoking in units

Sample language: Smoking is not permitted in or on the general common elements (i.e., the lobby, hallways, roof deck, courtyard, etc.). In addition, no person shall allow smoke to escape from any condominium unit into the common elements of the Condominium. Smoking within a unit is not prohibited, however, no person is permitted to allow smoke to permeate the common elements surrounding the unit. Accordingly, it shall be a violation

• f these Bylaws if any person causes or allows smoke from any tobacco

product (or any similar ignited product that is inhaled by the smoker) to escape from a unit into the general common elements such that they may affect any person outside of the unit in which the smoker is smoking.

 Ban smoking on common areas  Ban smoking on common elements  Ban smoking in units

Sample language: Smoking is not permitted in or on the general common elements (i.e., the lobby, hallways, roof deck, courtyard, etc.). In addition, no person shall allow smoke to escape from any condominium unit into the common elements of the Condominium. Smoking within a unit is not prohibited, however, no person is permitted to allow smoke to permeate the common elements surrounding the unit. Accordingly, it shall be a violation

• f these Bylaws if any person causes or allows smoke from any tobacco

product (or any similar ignited product that is inhaled by the smoker) to escape from a unit into the general common elements such that they may affect any person outside of the unit in which the smoker is smoking.

41

Collection Authority

 Late charges, interest, costs, attorneys fees (whether or not

suit is filed)

 Lien with first priority over other liens except taxes, first

mortgage

 Acceleration of all unpaid installments  Suit on personal obligation without foreclosing lien  Foreclosure in the same manner as mortgages  Application of payments first to late charges, then interest,

costs, attorneys fees and finally to past due assessments

 Late charges, interest, costs, attorneys fees (whether or not

suit is filed)

 Lien with first priority over other liens except taxes, first

mortgage

 Acceleration of all unpaid installments  Suit on personal obligation without foreclosing lien  Foreclosure in the same manner as mortgages  Application of payments first to late charges, then interest,

costs, attorneys fees and finally to past due assessments

42

Board Authority Issues

 Board’s Spending Authority



Be sure to align with Association’s assessment purposes



Unlimited for maintenance, repair and replacement



Limited (reasonably) for additions, alterations and improvements

 Board’s Borrowing Authority



Cap on amount borrowed without owner approval



Authority to pledge assessment income



Authority to mortgage property

 Board’s Authority to Sanction Owners



Specifically authorize fining authority



Authorize suspension authority over voting, use, and access

 Board’s Spending Authority



Be sure to align with Association’s assessment purposes



Unlimited for maintenance, repair and replacement



Limited (reasonably) for additions, alterations and improvements

 Board’s Borrowing Authority



Cap on amount borrowed without owner approval



Authority to pledge assessment income



Authority to mortgage property

 Board’s Authority to Sanction Owners



Specifically authorize fining authority



Authorize suspension authority over voting, use, and access

43

Board Authority Issues

 Board’s authority to regulate & reserve parking



Handicapped parking accommodations



Parking where some homes have garages and others don’t



Vehicle caps per unit/home



Parking limited to use by owners/residents

 Board’s Authority to Remove Absent Board Members



“Any Director who fails to attend three (3) consecutive meetings

• f the Board of Directors may be adjudged ineligible to serve on

the Board of Directors and may be removed from the Board of Directors by a majority vote of the remaining Directors.”



Limited (reasonably) for additions, alterations and improvements

 Board’s authority to regulate & reserve parking



Handicapped parking accommodations



Parking where some homes have garages and others don’t



Vehicle caps per unit/home



Parking limited to use by owners/residents

 Board’s Authority to Remove Absent Board Members



“Any Director who fails to attend three (3) consecutive meetings

• f the Board of Directors may be adjudged ineligible to serve on

the Board of Directors and may be removed from the Board of Directors by a majority vote of the remaining Directors.”



Limited (reasonably) for additions, alterations and improvements

44

Board Authority Issues

 Authority to bar sales to corporations:



“No owner shall sell or transfer their unit to a corporation, partnership, trust or any other entity that lacks the capacity to personally occupy and reside in the unit. Transfers to trusts for the benefit of an owner who intends to continue to occupy the unit shall be exempt from this provision. In addition, this provision shall not apply to any transaction entered into by the holder of any first mortgage on a unit where it becomes the owner of the unit through foreclosure or any other means pursuant to the satisfaction of the indebtedness secured by such mortgage.”

 Authority to Shift Deductible Cost to Unit Owner



Specifically authorize Board authority to specially assess



Establish authority to assess deductible in insurance provision

45

 Authority to bar sales to corporations:



“No owner shall sell or transfer their unit to a corporation, partnership, trust or any other entity that lacks the capacity to personally occupy and reside in the unit. Transfers to trusts for the benefit of an owner who intends to continue to occupy the unit shall be exempt from this provision. In addition, this provision shall not apply to any transaction entered into by the holder of any first mortgage on a unit where it becomes the owner of the unit through foreclosure or any other means pursuant to the satisfaction of the indebtedness secured by such mortgage.”

 Authority to Shift Deductible Cost to Unit Owner



Specifically authorize Board authority to specially assess



Establish authority to assess deductible in insurance provision

Sign of the times

46

Without rules . . .

47

Is there a problem here?

48

The Good Dish

49

Location, location, location

50

Signs Matter

51

Take a Closer Look

52

Who doesn’t like ponies?

53

You’ve Got Mail

54

Love My House

55

Ah but my neighbor…

56

Nice shot ace

57

Nice engine too

58

Buena Vista

59

Not So Buena

60

It’s only been a year. . .

61

Covenants Are Good!!!

62

Rules Protestor

63

Beauty is in the eye of the beholder . . .

64

Controlling Exterior Appearance

 Location – Declaration, Bylaws, Design Guidelines  Who Controls Changes? – Association, Board, ACC  Clearly delineate what is permitted without approval  Clear list of what requires prior approval  Consider use of sample pictures and drawings  Remember to cover non-structures – portable basketball

goals, toys, removable flag poles

 Capture everything that can be seen outside, including through

windows

 Satellite Dishes – Manage Since

You Can’t Prohibit

 Location – Declaration, Bylaws, Design Guidelines  Who Controls Changes? – Association, Board, ACC  Clearly delineate what is permitted without approval  Clear list of what requires prior approval  Consider use of sample pictures and drawings  Remember to cover non-structures – portable basketball

goals, toys, removable flag poles

 Capture everything that can be seen outside, including through

windows

 Satellite Dishes – Manage Since

You Can’t Prohibit

66