HD22 - Report of the Efficiency and Effectiveness of the Property Owners' Association Act


Executive Summary:
House Joint Resolution 645 requested the Real Estate Board (the board) to study "the efficiency and effectiveness of the remedies available for the enforcement of the provisions of the Property Owners' Association Act (the Act) and the governing documents of these associations.'' Within this broad request the resolution directed the board to "conduct public hearings and otherwise solicit input from interested parties on the scope and nature of the problems related to the enforcement of the Property Owners' Association Act."

Examining the issue of the efficiency and effectiveness of the Property Owners' Association Act required that this study look broadly at the larger context. There is, in some instances, tension between homeowners and the boards of directors of some associations. Evidence of this tension was apparent in a portion of the public comment received during the study. For many experiencing this tension there is the perception that they are struggling to maintain some of their individual freedoms, while, at the same time, enjoying the amenities available to members of associations. This tension can lead to conflict, both of the emotional type, and occasionally of the legal type. Strengthening the statutory authority of the associations, without addressing some of the broader issues only serves to increase the conflict. Conversely, placing further statutory restrictions or responsibilities on the associations could result in difficulties locating residents who would be willing to volunteer to serve in any capacity for the association's board of directors.

This study utilized a number of data gathering techniques to ensure that there would be no single source that could cause a skewing of the conclusions. These included three public hearings, a survey, written public comment, and a review of the statutory and regulatory practices in place in other states. Participation in the hearings, survey and written comments exceeded expectations and provided some unique perspectives of the effectiveness of the Property Owners' Association Act as it pertains to individual situations.

In order to complete a panoramic view of the effectiveness of the Act, it was imperative to review the nearly exponential growth of property owners' associations in the last quarter century. The population explosion experienced in many parts of the Commonwealth in the last twenty-five years, coupled with the trend of many individuals and families to migrate to the suburbs, has led to a proliferation of housing developments. Homeowner associations govern many of these developments. The concept of covenantal agreements and the responsibilities inherent with residing in a development governed by a homeowner association was unique to most homeowners as very few property owners had previous experience with this type of supervision. Additionally, the responsibilities placed on the members of the associations' boards of directors, in most instances residents themselves, was at times, new, confusing, conflicting, and adversarial.

In conjunction with the increase in the population in Virginia, came an increase in new home construction. Developers, acutely aware of the competition in the housing market, were forced to find more unique amenities in an effort to market their subdivisions to the more demanding consumer. These features included, but were by no means limited to, swimming pools, athletic facilities, parks, playgrounds, and landscaped grounds. The developer generally completes the construction of these "common areas," however, once the developer completes the project, the responsibility of on-going maintenance must be borne by the individual homeowners. In addition to care and maintenance to common areas, other restrictions may be placed on developments in order that property values remain high and that residents are afforded certain assurances of a comfortable life style. The establishment of a property owners' association is required to ensure these requirements are met.

The statutory requirements confronted by property owners' associations in Virginia are generally comparable to those of other states in that they include basic procedures and guidelines for disclosure, record keeping, and accessibility to meetings by all association members. Information concerning the procedures followed in other states involving the registration of these associations was not always available. Additionally, it was unclear if any other states had any program comparable to the Common Interest Community Management Information Fund in place in Virginia (§ 55-528 et seq. of the Code of Virginia) .

Most states have statutory guidelines for condominiums and time-shares, however, few have statutes addressing property owners' associations. Furthermore, some of the states have the various types of properties addressed in the same section or chapter of their statutes. While the unit owner associations of condominiums and cooperatives are similar homeowner associations, there are some inherent differences that makes it difficult to regulate them in the same statutory act. Virginia has recognized this and utilizes separate statutes to govern the various types of properties. The standards set forth in the Property Owners' Association Act in Virginia are adequate and consistent with the growing protective legislation in the limited number of states with statutes in place regarding associations.

The primary difference between current Virginia law and the laws of an increasing number of states is that Virginia does not specifically address the formation of them executive organ of the association or the specific responsibilities of the executive organ or the association itself. Further, Virginia law contains language which allows the provisions of declarations recorded prior to July 1, 1998 to remain valid (a "grandfather clause") and excludes those associations which impose mandatory assessments of less than $150 per lot per year. Other states base exclusions, if any, on the size of the development and not the amount of the assessment. Calendar restrictions as to the applicability of the law are reserved for individual documents (e.g. California does not have a date exclusion to the entire statute, however, the section of the statute addressing the requirements of the recorded documents is restricted to those declarations filed after January 1,1986). While the differences between the statutes of other states are numerous, these differences are minor and the basic premise of consumer protection through disclosure is highly evident. Virginia and other states are in agreement, however, on the point of enforcement. The resolution of disputes between associations and their membership, and the enforcement of the various statutes is, in the vast majority of instances, conducted through either alternative dispute resolution, such as mediation, or the courts. The statutes of twenty states were reviewed and in no instance was the resolution of disputes or enforcement of the act directed by a regulatory agency or board.

While the Real Estate Board is aware that some consumer complaints involving property owners' associations and the enforcement of the Property Owners' Association Act are brought to the attention of both the board and members of the General Assembly, the key issue should focus on whether any of the problems, whether documented or alleged, would be prevented, remedied or otherwise addressed by modification to the current statutes. The Real Estate Board has concluded that the statutes, as currently written, provide adequate protection to the health, safety, and welfare of the public. The resolution of disputes and the enforcement of violations through alternative dispute resolution proceedings or through the court system, is consistent with the statutes of other states, and should not be changed. The board does, however, concede that education of association members and their executive organs in the provisions of the Act does need to be addressed and improved.