Every year, common interest communities focus on state and federal legislators as they consider proposed legislation that may have consequences on how associations operate. We tend to focus on those pieces of legislation that are passed into law. This concentration on new law is absolutely appropriate and necessary; in fact, ignoring legislation can result in significant headaches and an increased risk of liability for an association. However, while it is important for communities to be vigilant in adopting procedures to comply with newly adopted legislation, it is productive to also look at those bills that fail with the same critical eye.
In Virginia, the Property Owners Association Act and the Condominium Act are amended almost every year. Of the 40+ bills that were strategically tracked by the Virginia Legislative Action Committee this year, only a handful were successfully adopted by the General Assembly. This year, the legislation that failed in Virginia focused on board of director’s transparency as well as reserve studies. These bills included:
- An attempt to effectively eliminate a board’s ability to take action between meetings (HB 722)
- A requirement for boards to inspect and maintain stormwater management facilities owned by their association (HB 1039)
- Further regulation over the recording of board meetings (HB 1043) and requirements for board record keeping (HB 1122, 1123)
- Additional disclosure requirements on the funding of an association’s capital reserves (SB 705, 706)
Additionally, the last couple of years have shown a pattern of attempts to curb association authority to regulate rentals and home-based businesses. Although these bills may have failed for any number of reasons, we can (and should) learn from the failed legislation.
Transparency: Board transparency was a theme in a number of bills that failed this year in Virginia. It is absolutely imperative that all boards of directors conduct their business as transparently as possible. Condominium associations and homeowners’ associations are private businesses that many people argue resemble local governments. Clearly, associations are not governmental entities; however, it may be prudent for boards to conduct their business as they would want their elected government officials to govern. For example, there is a similarity between assessments paid to associations and the taxes paid to local governments. Citizens of localities want to know how their elected officials are using tax dollars and they expect those officials to be diligent and careful when making those decisions. Board members should keep those thoughts in mind and put them into practice as they conduct their business.
Reserve Studies: Like board transparency, Virginia legislators also took aim at the use of reserve studies this year. In Virginia, reserve studies are required to be done every five years. Generally, these reports are prepared by licensed engineers who identify the remaining useful life of each capital component owned by an association as well as their expected replacement values. Using this information, reserve studies outline what amount of money should be contributed to an association’s reserve fund every year so that the association will have enough money to maintain, repair, and replace those assets. Members of boards of directors, not just their community managers, should be familiar with these studies and should read and really understand them. There are many communities in the D.C. Metro Area whose reserves are underfunded, but the significance of that depends in part on what their boards are doing on an annual basis to protect their associations’ assets. Directors should be able to thoughtfully explain reserves and the importance of and the reasons behind annual contributions to members of the community.
Limits on Lot/Unit Usage: You may have heard the adage of how one’s home is their castle. You may also appreciate the significance that is placed on the sanctity of private property. Common interest communities are unique in that homeowners “contract away” some of their private property rights in order to live in a community that preserves the values and appearances of the homes in it. In order to accomplish those goals, boards of directors are provided with some authority to impact how an individual may use and enjoy their own property. Unlike regulating the use of common areas/elements, over which they exercise significantly more control, boards need to proceed carefully when regulating how homeowners can use their property. First, boards must have the authority to adopt any rule restricting members’ use of their own homes (note, this is a legal issue and should always be confirmed by the association’s attorney). Second, the rules must be “reasonable.” Consider the issue the board is trying to regulate and try to create a solution that is as least restrictive as possible but still addresses the problem (this is “less” legal, but it’s not a bad idea to check with an attorney on this too). Passing rules and regulations affecting one’s use of their property can get personal and are ripe for requests for “special legislation” by unhappy homeowners.
In the end, failed legislation does not have any immediate impact on common interest communities. However, those bills can always be proposed again (and history shows this frequently happens). If stories continue to surface of boards lacking transparency, not accounting for the anticipated expenses outlined in a reserve study, and inappropriately or unfairly adopting property use restrictions, you can be sure these restrictive bills will be back. So, take a moment every year and thoughtfully consider the failed legislative efforts, particularly those that would have had a negative impact on communities, and try to glean lessons from the issues they attempted to impact. Strive to continually do better and to preserve the integrity and enhance the reputation of common interest communities.
By Tiago D. Bezerra ESQ. and William A. Marr, Jr. ESQ.
Tiago is an attorney with the Law Office of William A. Marr, Jr., representing community associations and small businesses across Virginia. He serves on the Virginia Legislative Committee and enjoys helping clients make sense out of legal nonsense.
William “Bill” is the sole proprietor of the Law Office of William A. Marr Jr., where he has represented community associations and small businesses in Virginia and Washington, D.C. for over 30 years. He is the co-chair of the Virginia Legislative Committee and serves on the Virginia Legislative Action Committee.