One Person Does Not Make a Committee
For the past several years, HMS has been cautioning our clients that, more and more often, homeowners are not challenging the actions or decisions of the Board of Directors, but are instead challenging the decision-making process itself.
In our Board Training classes the we hold in our office every year, HMS President Michael Crew has stressed how critical it is that Community Associations follow the provisions in their Declaration and Bylaws. It’s easy to brush off the probability of being challenged on procedures, but ignoring the provisions of Declarations and Bylaws can lead to major headaches for the Board later on.
There are many processes that can be ripe for challenging: holding annual meetings each year, operating all meetings properly, handling proxies, preparing and distributing budgets, electing or appointing directors, and forming committees are just a few examples. Far too often, Community Associations think following the exact procedures doesn’t matter, or that nothing bad will happen if some shortcuts are taken. Improper actions, or variance from procedures defined in the Association’s legal documents, are an invitation for challenge and disaster.
However, Boards sometimes feel that they can not meet the requirements of the Association documents; and they may not be able to. Many Associations struggle with limited volunteer participation. Associations under Developer-control often have no volunteers due to the deliberate choice of the Developer, a lack of occupied homes, or plain apathy. If an Association is struggling with “following all the rules”, it is important to identify these issues and memorialize the issues in the Board Meeting or Annual Meeting minutes, before a legal challenge occurs.
Is This Really Going to Come Up?
The CAI Community Association Law Reporter brings us this example of a very common practice which ultimately goes very wrong for a Developer-controlled Association. But our story could easily apply to any community. Our abbreviated story goes like this…
A homeowner requested to install a fence, but was denied approval. That homeowner subsequently filed a lawsuit, which eventually found its way to the Court of Appeals of North Carolina in the case of Makar v. Mimosa Bay Homeowners Association, Inc., No. COA18-547 (N.C. Ct. App. Mar. 19, 2019)
During the time that the Developer had the right to appoint the Association's Board of Directors (the Developer-controlled period), the Developer also had the right to appoint all members of the Architectural Review Committee (ARC). Once the Developer-control period ended, the ARC was supposed to consist of at least three members. But, the Declaration did not specify the ARC's size during the Developer-control period. The Developer appointed himself and other employees as the Board of Directors, and then appointed himself as the sole member of the ARC.
Upon being denied approval to install a fence, a homeowner challenged the ARC’s decision. The homeowner claimed that the ARC was supposed to be a committee, and the Declaration said that a committee must have more than one member.
Ultimately, the North Carolina appeals court determined that the arrangement whereby the developer served as the sole decision-maker for ARC was not permitted under the Declaration. An architectural committee was not properly constituted where one individual made all the decisions, because the Declaration contemplated a committee comprised of more than one person, and the committee’s decisions were, therefore, invalid. No properly-formed ARC ever considered the homeowner’s application to install the fence. As such, the appeals court held that the homeowner’s fence was deemed approved by default, and that the fines levied were impermissible.
Fighting, and losing, a court case like this expensive, and it hurts everyone in the community. You don’t want to deal with all of that headache just because of a few shortcuts in the past.