Understanding Governing Documents
Definition of a Community Association
Adopted from CAI
A community association is a legal entity in which the owners enjoy the protection, enhancement, maintenance and preservation of their homes and property.
A community association has three defining characteristics:
- Membership in the community association is mandatory and automatic for all owners. This is unlike other associations whose membership is voluntary.
- Certain association governing documents bind the owner and the association to each other through mandated actions. These “mutually binding documents” also create the automatic lien which provides for severe consequences if the owner fails to pay his or her assessments and other charges.
- Mandatory lien-based assessments (maintenance fees) are levied on each owner in order to operate and maintain the community association.
Purpose of Community Association
The primary purpose of a community association is to provide for the community, business, and governance aspects of the association. This is achieved by administering, maintaining, and enhancing a residential real estate development, and through the establishment of a system of property rights, binding covenants and restrictions, and rules and regulations.
The purpose of a community association’s governing documents is to provide for the legal structure and operation of the community.
- Define the rights and obligations of both the community association and its owners
- Create a binding relationship between each owner and the community association
- Establish the mechanisms for governing and funding the community association’s operations, including the establishment of the automatic lien
- Set forth rules and restrictions for the:
- Protection of both owners and the community
- Enhancement of property values
- Promotion of harmonious living
General Hierarchy of Authority for Governing Documents
The general hierarchy of authority for governing documents is important to know because each document addresses different issues involved in operating a community association. However, on occasion, there may be conflicting information in these documents, so community managers must know which document prevails. For example, the declaration may state that there will be five board members, while the bylaws may call for seven board members. The document that is higher in the hierarchy would prevail.
For operating a community association, the general hierarchy of authority among governing documents consists of:
- Recorded map, plat, or plan
- Declaration, CC&Rs, master deed
- Proprietary lease or occupancy agreement
- Articles of Incorporation (if incorporated)
- Board resolutions (Resolutions cannot conflict with documents above it in the hierarchy.)
Recorded Map, Plat, or Plan
Some form of map is an essential document for all three types of community associations. A map or plat or plans recorded in the County Recorder’s office before any lots or units shown are sold. The purpose is to show the precise location of each lot or unit, as well as the common areas. The format and content will differ according to local requirements.
A map or plat or plan may help define an owner’s or a community’s title to property.
On an operational level, the map can help clarify:
- Who is responsible for maintaining a particular piece of property
- Whether a property improvement is properly located
Declaration, CC&Rs or Master Deed
An understanding of the declaration, Covenants, Conditions, & Restrictions
(CC&Rs) and master deed requires comprehension of the rights of ownership.
The terms CC&Rs, master deed and declaration are sometimes used interchangeably.
All deeds should be recorded in the land records to create what is called the “chain of title. “The provisions in the declaration which define or limit the rights of ownership are often called deed covenants or deed restrictions. The legal community speaks of these covenants or restrictions as “running with the land.” That is, they attach and apply to the land, no matter who owns it now or in the future. Instead of inserting all of the same covenants and restrictions into each individual deed in a community association, the developer’s attorney draws up a declaration which he records in the County Recorder’s Office before any of the real estates transferred to a new owner.
This means that the declaration is in the chain of title for each piece of real estate. Its terms are binding on thermal estate itself, as well as on its original and succeeding purchasers. As result, the declaration defines the bundle of rights of each owner in the community association.
The Declaration, Master Deed or CC&Rs generally:
- Defines the portions of the development owned by the individual owners and those owned by the community association-if any
- Creates interlocking relationships binding all the owners to one another and to the community association for the purposes of maintaining, governing, and funding the development
- Establishes standards, restrictions, and obligations in areas ranging from architectural control to prohibitions on various activities in order to promote harmonious living
- Creates the administrative framework for the operation and management of the community association-although many of the specific administrative details are spelled out in the bylaws
- Provides the mechanism for financial support of the community association through assessments
- Provides for a transition of control of the community association from the developer to the owners
Articles of Incorporation
Incorporation may or may not be a legal requirement for a community association. It is essential for cooperatives because the corporation owns all the property. The cooperative comes into existence when its articles of incorporation are recorded or filed.
If a community association is incorporated, it is typically as a not-for-profit, or nonprofit, corporation. Stock usually is not issued for incorporated condominiums and planned communities, while stock may be issued to cooperative owners.
A community association’s corporate structure is established when a developer’s attorney creates the association’s governing documents. The attorney may file articles of incorporation-sometimes called a corporate charter-with the appropriate state corporation agency. Different states have different names for this agency.
The articles of incorporation:
- Bring the corporation into existence
- Define its basic purposes and powers
- Indicate whether stock will be issued
- Indicate the number of board member sand identify the initial board
There are a number of benefits to incorporating a community association.
- May help to limit the liability of individual owners for acts of the community association
- Entitles the community association to the rights granted to all corporations understate law-this could be useful in areas such as obtaining financing, obtaining insurance, or bringing suit against another party
- May make it easier to deal with other parties, such as utility companies or vendors
- Grants the board of directors the same rights as all board members of incorporated entities under state statutes
Bylaws are formally adopted regulations for the administration and management of a community association. Sometimes bylaws are developed as part of the declaration although usually, they are a separate document. While bylaws should be included in the original set of governing documents prepared by the developer’s attorney, they are sometimes overlooked and must be created and adopted by the board after control of the association is turned over to the homeowners.
Bylaws address such topics as:
- Requirements for membership in the community association
- Requirements for membership meetings
- Voting rights of member owners
- Procedures for electing the board of directors; qualification of directors
- Procedures for the board of directors to elect officers (in a very few associations, the association members elect the officers in addition to the board members.)
- General Powers and duties of the board
- Provision for indemnification of officers and directors-except in cases of gross negligence or willful misconduct
- To indemnify and hold harmless means:
- To exempt an individual or entity from responsibility for claims made against the organization and
- To reimburse or directly pay for the individual or entity for damages or expenses incurred as a result of such claims
Rules and regulations for community associations are usually established by means of board resolutions. A resolution is a motion that follows a set format and is formally adopted by the board of directors. Resolutions may enact rules and regulations or formalize other types of board decisions.
State or federal statutes trump any Association governing documents