Moretz Law Group - Community Associations and Business Lawyers

Tuesday, April 21, 2020

Stay Out of My Tiki Hut! Court of Appeals Explores Extent of Access Easements in Recent Case

The Fiorentino home as seen from the street,
with the beach access boardwalk.

The North Carolina Court of Appeals issued an entertaining decision in Sea Watch at Kure Beach Homeowners' Association v. Fiorentino in November 2019.  In this case, a developer of a seaside residential community had reserved an access easement across a homeowner's lot, Lot 6, for other residents to access the beach.  Eventually, the access area was expanded to include not only a wooden boardwalk, but also a deck area, bathrooms, and a tiki bar.  After these improvements had been in place and in use for approximately 10 years, a homeowner who bought Lot 6 demanded that the improvements be removed and the easement area returned to its original documented use as set forth in the easement agreement for access to the beach only.  The homeowners association eventually filed suit and requested a declaratory judgment, which is a request for the court to declare the respective rights and obligations of the various parties.

The Fiorentino home in question is at top in this picture with what admittedly looks like a pretty large tiki hut on the walkway between the two homes shown.
             After a Superior Court trial, the trial court ruled in favor of the HOA and dismissed the counterclaims of the owner of Lot 6. The court stated that the improvements were allowed to remain, and the association was allowed to continue to use of the deck, bathrooms and tiki bar even though the written easement agreement only provided for an access easement.

            The trial court analyzed the history of the use of this area and made the legal determination that an "access easement" "is not merely one of ingress and egress; public representations made by the developer expanded the easement to one involving use of the improvements" as well.  The court seemed to also feel that it was important that the improvements had been in use for a substantial period of time and in fact, it appeared that the owners of  Lot 6 had had the use of them along with all of the other homeowners in the community for about 5 years, which was the amount of time that the owners of Lot 6 had lived in the neighborhood prior to purchasing Lot 6.

            This case is important for a couple of reasons.  First of all, it underlines the need for easements and other similar documents to be very specific as to the use which is intended by the original parties.  In this case, the court refused to interpret the phrase "access easement” strictly and ruled that an access easement could include the use of these types of pretty significant improvements since the easement document itself provided no specific limitations on what was meant by "access".  Homeowners associations, developers, and others entering into easements or placing restrictions on land should be explicit in describing what their intentions are in entering into the agreement as well as very specifically describing the various rights and duties granted in the document itself.

            In addition, the court found it important that the tiki bar and other improvements had been in existence for approximately 10 years  and were apparently well known to the Lot 6 owners even before they purchased Lot 6.  This brings up a couple of other important points.  The doctrine of estoppel is very important in understanding contract law and homeowners association law.  This is the doctrine of the enforcement of reasonable expectations between contracting parties.  In this case, the Lot 6 owners had purchased Lot 6 well knowing of the existence of these substantial improvements and therefore, the court found that they were estopped from later complaining about them. Estoppel is a key legal concept which prevents a party from reneging upon an expectation it reasonably induces in another party to the bargain.

            This decision also highlights that real property purchases are almost always a "buyer beware" transaction.  Notwithstanding the fact that sellers in North Carolina are required to fill out lengthy disclosures in residential real estate transactions, the law of the state of North Carolina with regard to the purchase of residential property is generally very buyer adverse. In other words, it is very difficult to sue a seller, or in this case a third party developer, for any condition on a piece of land which the buyer was aware of, or should have been aware of, or could have discovered using reasonable due diligence. Generally, even if the seller completely lies in a real property disclosure, that lie will not be actionable unless there is no way the buyer could have detected the true state of the property using reasonable due diligence prior to closing.  This decision further exemplifies the rule that a buyer generally buys property subject to any and all conditions that they could have reasonably discovered prior to closing.

            Please reach out to us if we can assist your homeowners association with any legal matters, or if you are a developer who prefers to stay out of court!

Friday, April 17, 2020

Virus Check: What do Businesses Need to Know About COVID-19 Liability?


Virus Check: What is Your Liability as a Business?


The current situation we are facing is unprecedented from a legal standpoint. The ability to enforce contracts, loans, leases and all manner of legal relationships is now in question based on financial hardships as well as our court system working at greatly diminished capacity. Reasonableness, negotiation and working cooperatively are now more important than ever before.
Businesses of all types are concerned about being sued. What do you need to know?
Negligence is your first concern.Can a business be sued if an employee or customer were to contract a communicable disease at the employer’s workplace, or from a co-worker or customer? It depends on whether the business took reasonable actions to protect its employees and customers in light of the information available to it – in other words, whether the business was negligent.
Tort law, or the law of negligence, applies in this situation. It holds that a person can be liable to another person to whom the first person owes a duty if the first person commits an act which is unreasonable (or fails to take a reasonably necessary action) which could reasonably be anticipated to cause damage to the second person, and the second person did not help cause the wrongful act or omission.
For example, the Governor of North Carolina had previously prohibited all “mass gatherings” of 50 or more people (since reduced to 10); therefore, it was legal at that time (at least in most counties) to have mass gatherings of less than 50. But would this be reasonable in light of the CDC’s warnings against gatherings of more than 10 people? It depends on the situation, but a strong argument could be made that such would not be reasonable - in other words, we could not assure you that you would not get sued if someone got sick from such a gathering.
You owe a duty of reasonable care to your members, customers and employees; failure to take reasonable care to protect these parties from infection could result in liability. Reasonableness is the touchstone, based upon all the facts and circumstances involved. Failure to abide by local orders or regulations when they are directly intended to preserve public safety, as well as customary standards of care, have been held to constitute actionable negligence in other contexts. Cruise ship operators are already facing numerous lawsuits from those sickened while onboard based on this legal theory. Please contact us if we can help you work through liability issues of concern.

Workplace safety is also obviously very much in play today. In addition to the above negligence standards, workplaces of all types must abide by federal and state occupational health and safety requirements, typically as determined by OSHA. Employers must take efforts to maintain a hazard-free workplace, while still safeguarding the privacy rights of any affected employee.
OSHA requires that employers provide a safe workplace for all employees which is "free from recognized hazards … likely to cause death or serious bodily harm."
OSHA has not adopted specific regulations regarding COVID-19 in the general workplace at this time, but has instead recommended that employers follow CDC guidelines regarding personal safety, as well as any state or local guidelines or requirements - North Carolina's being found here.
The North Carolina Department of Labor, like OSHA, has not adopted specific regulations, but has emphasized the need to follow social distancing guidelines, maintain a clean workplace, and work from home where possible, and has emphasized the importance of proper personal protective equipment. Both the
NC Department of Labor and OSHA have especially emphasized worker safety with regard to respiration - in other words, being sure workers working with the public wear face masks, or more intensive respirators for those in healthcare, janitorial staff working with hazardous cleaning materials, and the like.

OSHA’s "free from recognized hazards" standard places much discretion in the hands of federal and state regulators if they feel an employer has not taken all reasonable steps to provide a hazard-free workplace for its employees. To be safe, employers should also implement procedures designed to promptly identify and isolate potentially infectious workers, per OSHA guidance. Illness or potential illness by employee must be kept confidential to the extent possible per federal ADA requirements; contact us if you run into this issue.

Contract law and force majeure clauses. Many contracts contain a force majeure clause, which translates from French as “superior force.”  It refers to uncontrollable events that are not the fault of any party and which interfere with a party’s ability to complete its end of the bargain or receive what it bargained for in the deal. Common examples are hurricanes, riots, labor stoppages and war. At first blush, it would appear that a pandemic would constitute a force majeure, but the terms of the contract control. You must review the specific language of the contract in question. Language such as “circumstances outside our control” is very broad and will cover the current situation and allow the party benefited by the provision to avoid the contract.  More specific language such as the common “acts of God, war, insurrection, civil strife, riots or labor disturbances” may not be as helpful depending since the list arguably excludes pandemics. If you are facing language which may not cover the current situation, you may have to negotiate and reach an agreement with your opposing party. If you do so, please, please document the agreement. Obviously, we can help. But even an exchange of emails can be sufficient to amend a contract if both parties agree.
Common law force majeure, or the doctrine of impossibility, may also apply if it is impossible or illegal for the parties to carry out the purpose and intent of the contract. Send your contract to us for review if you have issues or concerns. If upon reviewing your contracts, you find provisions which do not suit your needs in the current climate, do not forget that you may amend the current contract or at least change it going forward.  We can quickly supply you with alternative language and have already done so for some of our business clients.

Thursday, March 26, 2020

Virus Q&A for your HOA; Cabarrus County Institutes Stay-At-Home Restrictions

Virus Q&A for your Association; Cabarrus County Institutes Stay-At-Home Restrictions

On March 25 Cabarrus County instituted a stay-at-home order. Residents must stay home and may not report to work or engage in non-essential travel other than for supplies, food, exercise and health care. As with the Mecklenburg County order, many industries are deemed Essential and are thus exempt. Click here to view the Cabarrus County order in its entirety. Note that the order became unavailable from the Cabarrus County website around 7 pm on March 25. The version provided here was downloaded by us before that happened. At this time we do not know if the order is being changed or if this is simply a problem with the County’s website. The Cabarrus County order is very similar to the Mecklenburg County order in most respects.
How do the current restrictions affect your community association? Here are answers to some common questions we are hearing:
- Will we be able to hold board meetings? The limitation is on 10 or more people gathering together, but it is advisable not to meet in person but to meet via teleconference or video conference. There are free conference call and free video calling options available online. Boards should be meeting regularly at this time to assess the effects of these events on your HOA.
- Will we be able to hold our annual meeting? Probably not. The size of most annual meetings would exceed 10 people. North Carolina law requires an in-person annual meeting each year. Boards will need to postpone any immediately upcoming annual meetings and investigate means for holding them online if the stay-at-home orders continue through the summer. Again, there are technological solutions for online meetings and voting which you may wish to investigate. The Community Associations Institute lists some electronic elections services companies in its Professional Services Directory.
- Your last year's budget and assessments should continue in place during this time. You won't be able to hold a budget ratification meeting so it will be difficult to adopt a new budget, and therefore change assessment amounts. It may be possible to do the budget ratification via online vote or postcard/mail-in vote. We are investigating this and will have more information forthcoming.
- What if our association is facing important issues upon which we need to hold a membership vote soon? Remember that in North Carolina by law, and according to the covenants of most HOAs and POAs, membership votes can be accomplished by electronic vote or mail-in ballot without the necessity of an in-person membership meeting. Only the annual meeting, where the board members are to be elected, is required to be in person. We can assist you in preparing the notice, ballot and proxy documents necessary to have a vote by mail or electronically.
- Can we continue maintenance and janitorial work? Janitorial services are specifically deemed essential and to the extent your HOA has common hallways, lobbies, etc. that need to be maintained or kept clean, those activities are even more important now and should be maintained according to CDC cleaning standards. Maintenance work can continue if it is necessary repair or maintenance, as opposed to optional upgrades or improvements.
- Can we collect on overdue assessments at this time? Assessments are still owed and your homeowners should be paying as normal. At the time of this writing, no changes to consumer debt laws have been passed which would prevent collection efforts; however, there have been discussions in Congress of instituting limitations on the collection of consumer debts during the virus situation. We will keep you apprised. In the meantime, courthouses remain open although with skeleton staffs, so we are still able to file liens and other legal proceedings; however, no hearings are currently being scheduled until June 1 and after. We are scheduling hearings in June now but expect those dates to quickly become filled, so you should not expect to be able to proceed with foreclosures or other legal proceedings quickly in the current environment. Therefore, we strongly recommend that all HOAs redouble their efforts to work out payment arrangements with homeowners in order to avoid the coming backlog of court proceedings.
We will provide further details as developments occur at https://www.moretzlaw.com/corona-updates. Stay safe, and stay essential!

Wednesday, March 25, 2020

Coronavirus/COVID-19 Updates for Businesses and Community Associations


Coronavirus/COVID-19 Updates for Businesses and Community Associations


The coronavirus situation is changing rapidly and each change has the potential to affect your business dramatically. Gatherings of 50 people or more are now prohibited statewide as of March 23, and the Mecklenburg County health director on March 24 instituted a stay-at-home order (although many business are deemed essential by the order and therefore are exempt.) How is your business affected? Because the COVID-19 situation is rapidly evolving, businesses must stay informed. Your course of action may be governed by focusing on employee morale or health, a desire to slow the epidemic, a need to address customer demands, public perception, and other imperatives. Your response will also vary depending upon your type of industry such as service or manufacturing.  In this article, Moretz Law Group addresses several areas of law and stakeholder groups that are most heavily impacted by the pandemic response.

New Employee Leave Laws – The Families First Coronavirus Response Act ("FFCRA") has become law and takes effect April 2. What do you need to know as an employer?
·         Applies to all private employers with 500 or less employees. Note that this is much broader than the FMLA, which excludes employers of 50 or less employees.
·         Adds “Emergency Paid Sick Leave” (a new mandate) and “Emergency Family and Medical Leave” (an enhancement to currently-required FMLA leave.)
·         Emergency Family and Medical Leave: Expands the FMLA to require paid leave for employees who are unable to work (including working from home) because they have or may have COVID-19 or are seeking a medical diagnosis, or who must stay home to care for such a person, or who must stay home to care for children whose school has been cancelled due to coronavirus concerns.
o   Employee must have been employed for at least 30 days.
o   Only applies when the employee cannot work from home or at the office.
o   The first 10 days are unpaid, but the employee can use paid time off if the employer offers it; maximum period, as with the FMLA, is 12 weeks.
o   After the initial 10 days, the employee must receive pay at a rate at least 2/3 their regular pay, not to exceed $200 per day or $10,000 total.
o   The employer will be reimbursed by the federal government by a quarterly credit to the employer’s payroll tax liability, including the employer’s share of any health insurance premiums if any.
·         Emergency Paid Sick Leave: Requires paid sick leave for employees who are unable to work (including working from home) because they have or may have COVID-19 or are seeking a medical diagnosis, or who must stay home to care for such a person, or who must stay home to care for children whose school has been cancelled due to coronavirus concerns
o   All employees are covered even if just hired.
o   Only applies when the employee cannot work from home or at the office.
o   Two weeks of paid time off in which the employee must receive pay at a rate at least 2/3 their regular pay, not to exceed $200 per day or $10,000 total.
o   Employee cannot be required to use other PTO first.
o   Does not apply where the employee is laid off, furloughed, or the business closes – in those cases, the new stronger unemployment insurance should apply.
o   The employer will be reimbursed by the federal government by a quarterly credit to the employer’s payroll tax liability for the full amount paid to the employee, including the employer’s share of any health insurance premiums if any.

Public Health Law and Stay-At-Home Orders - On March 10, Governor Roy Cooper declared the a state of emergency in North Carolina due to the COVID-19.  NC G.S Chapter. 166A-19.3(6) defines an emergency as “[a]n occurrence or imminent threat of widespread or severe damage, injury or loss of life or property resulting from any … public health, … incident.”  This declaration increased funding to address COVID-19 (e.g. monitoring, investigating, testing, disinfecting) and kicked in some of the consumer protections laws (for example, against price gouging).  The laws clearly outline who has the authority to take specific actions to protect the public by cancelling events, closing schools and other facilities, and restricting the movement of individuals.  Public health law allows county health directors to take very wide-ranging steps to protect public health. The steps taken so far, including today’s lockdown in Mecklenburg County through April 16, appear initially severe, but there are often helpful exceptions. For example, many businesses are excluded from that order as “essential” – please review the FAQ information carefully, especially the list of essential services on page 3, and determine if your business is excluded.

Negligence – While too complex to fully discuss here, we are being asked whether a business could be sued if an employee or customer were to contract a communicable disease at the employer’s workplace, or from a co-worker or customer. It depends on whether the business took reasonable actions to protect its employees and customers in light of the information available to it – in others words, whether the business was negligent. Tort law, or the law of negligence, applies in this situation. It holds that a person can be liable to another person to whom the first person owes a duty if the first person commits an act which is unreasonable (or fails to take a reasonably necessary action) which could reasonably be anticipated to cause damage to the second person, and the second person did not help cause the wrongful act or omission. For example, the Governor has prohibited all “mass gatherings” or 50 or more people; therefore it is legal (at least in most counties, as of this writing) to have mass gatherings of less than 50. But would this be reasonable in light of the CDC’s warnings against gatherings of more than 10 people? It depends on the situation, but reasonableness is the touchstone given all the facts and circumstances involved. Failure to abide by local orders or regulations, when they are aimed at public safety, has been held to constitute negligence in the past. We can help by drafting waivers or releases, for example, if you do need to hold a gathering or are concerned about liabilities to employees or customers in the current situation. Don’t hesitate to call or email us.

Contract Law and Force Majeure Clauses – Many contracts contain a force majeure clause, which translates from French as “superior force.”  It refers to uncontrollable events that are not the fault of any party and which interfere with a party’s ability to complete its end of the bargain or receive what it bargained for in the deal. Common examples are hurricanes, riots, labor stoppages and war.  At first blush, it would appear that a pandemic would constitute a force majeure, but the terms of the contract control. You must review the specific language of the contract in question. Language such as “circumstances outside our control” is very broad and will cover the current situation and allow the party benefited by the provision to avoid the contract.  More specific language such as the common “acts of God, war, insurrection, civil strife, riots or labor disturbances” may not be as helpful depending since the list arguably excludes pandemics. Common law force majeure, or the doctrine of impossibility, may also apply if it is impossible or illegal for the parties to carry out the purpose and intent of the contract. Send you contract to us for review if you have issues or concerns. If upon reviewing your contracts, you find provisions which do not suit your needs in the current climate, do not forget that you may amend the current contract or at least change it going forward.  We can quickly supply you with alternative language and have already done so for some of business clients.

Insurance – Business Interruption Insurance, a type of property insurance, applies when a business is damaged from an insured peril (e.g. fire or flood) and the collateral damages such as decrease in orders/sales, loss of customers, employees leaving result.  Business interruption insurance protects against financial loss and allows businesses to insure its income. The application of Business Interruption Insurance to the pandemic is not clear in all cases.  Often an exclusion is written into an insurance contract.  For example, the ISO policy exclusion form CP 01 40 07/06 is frequently included in commercial insurance policies. It states, “We will not pay for loss or damage caused by or resulting from any virus… that induces or is capable of inducing … illness or disease.”[i]  Whether business interruption insurance applies, and what losses it may cover if it does apply, will vary from case to case.  For example, if a manufacturing plant closes down upon governmental order, coverage may be available as loss due to a competent authority’s denying access, rather than due to a virus capable of causing disease.  Statutes, executive orders, and the rulings of administrative agencies can affect the interpretation of contract language based on particular circumstances.  Please contact us if we can assist.  

Employment Law Issues
Employment law in the face of the COVID-19 is certainly wide-ranging and beyond the general scope of this update. We can provide specific advice for your particular issues, but typically concerns involve the Americans with Disabilities Act. Employers cannot take actions which might single out those with disabilities or which would require employees to disclose specific conditions which could potentially lead to discrimination, including being regarded as having a disability even if there is no actual disability. The questions we are hearing most often are:


  • May employers monitor the health of employees at work?  Yes, but this must be done even-handedly and in the same manner for all employees. Employees may not be asked about pre-existing conditions or personal attributes which may make them more susceptible to the virus, but may be asked general questions applicable to all employees. See this guidance by the EEOC: https://www.eeoc.gov/facts/pandemic_flu.html
  • How about monitoring asymptomatic employees? Yes, this can be done via questionnaire which is worded in a general manner. See the example on the EEOC website above.  
  • Can an employee with a cough or other symptoms be sent home? Yes.
  • If so, with or without pay? Whatever the employer’s specific policy is with regard to sick leave. North Carolina employers are not required to provide paid sick leave, but if your company does, any such leave should exhaust all PTO prior to becoming unpaid.
  • How should an employer treat an employee who becomes infected or one who has been quarantined?  What measures should be taken in the workplace to avoid stigma?  Private, personal information of employees is required to be kept confidential pursuant to N.C. Gen. Stat. § 75-66 and other statutes.  All information and records which may identify a person who has or may have a disease required to be reported by the North Carolina Commission for Public Health must be strictly confidential. N.C. Gen. Stat. § 130A-143. Therefore, any information that an employee may have tested positive for COVID-19 or any other communicable disease should be kept confidential.
  • HIPAA, while generally not applicable to employers since they are not health care providers, does apply where employers have private personal medical information in their records. Such information is required to be maintained in a separate, locked file only accessible to those with a genuine need for it. Thus, such information cannot be disclosed formally or informally.
Of utmost importance, implement policies consistently and evenly among all employees.  Communicate your message frequently and before you communicate check the facts from reliable sources and check them again.  Consider issuing your company policies/directives in this growing situation in writing and as amendments to your company employee handbook.

Realtors – The NC Real Estate Commission has allowed 90 extra days to complete all continued ed, and all continuing ed must now be completed online or via webcast, not in person. See https://www.ncrec.gov/  More information also available from the NC Association of Realtors - see https://www.ncrealtors.org/nc-realtors-coronavirus-information/

Real Estate Transactions – Recording of deeds and other real estate documents is continuing electronically and we have in fact recorded a transaction just this morning electronically, which proceeded as normal with no significant delay from the Register of Deeds office. No in-person business can be conducted at the Register of Deeds office – call and make an appointment if you need a marriage license or your notary commission renewed, for example.

Legal Proceedings and Courthouses – Courthouses are still open but running on skeleton staffs. We are able to file lawsuits, motions, pleadings and the like, but no hearings will be held until the stay on all but emergency court hearings is lifted by the N.C. Supreme Court and the N.C. Administrative Office of the Courts. This does not change or extend any statutes of limitations! In addition, any filings which were due between March 16 and April 17 have now been extended until close of business on April 17. The legal system is considered an “essential service” and is therefore not directly affected by Mecklenburg County’s stay-in-place order issued on March 24, 2020.  

Landlords, Homeowners Associations and Lenders – Your tenants, members and borrowers are still required to pay you and nothing is anticipated to change that at this time. Residential borrowers may receive special dispensation from the federal government but that is unlikely to apply to any private mortgage transactions. Lawsuits, liens and foreclosures may still be filed, but no hearings will be held until the stay on all but emergency court hearings is lifted by the N.C. Supreme Court and the N.C. Administrative Office of the Courts. We can assist you in getting things filed so that matters can be immediately heard once the stay is lifted.

Homeowners and Condominium Associations – Annual meetings are likely to have to be postponed since most associations require these to be held in person. Board meetings can, and should, be held telephonically in the current situation – all directors must be able to hear each other for the meeting to be valid. No such allowances exist by law in North Carolina for annual membership meetings to be held electronically. Boards should be meeting regularly by teleconference to adjust and react to current events. (Contact us if you need a review of your governing documents to see if there are ways to accomplish meetings electronically or other than in person.) Regarding common areas, be sure to read the section about Negligence elsewhere in this article. There is now plenty of information available from the CDC and others for best practices in keeping common areas clean and avoiding personal contact to quell the spread of disease – disregarding them could constitute negligence, making the association liable.
Taxes - An delay from April 15 to July 15 was announced by Treasury Secretary Steven Mnuchin for federal income tax filing for all taxpayers and businesses. North Carolina has also extended its state tax filing deadline to the same date. No specific written guidelines or rules had been published at the time we wrote this update, so be sure to consult your CPA for further details before relying completely on this informal announcement at this time.

Breweries, Distilleries and Other ABC Licensees – The NC Alcoholic Beverage Commission has issued very specific rules in response to the Governor’s COVID-19 Executive Orders. These new rules need to be followed strictly in order to ensure that you are not both in violation of the Executive Orders – a class 2 misdemeanor – as well as putting your ABC license in jeopardy. See the ABC Commission announcement: https://abc.nc.gov/PublicResources/LegalAnnouncement/261

Unemployment Benefits – This is an important change which provides a streamlined process to access benefits for those newly unemployed or with reduced hours or wages. Employees should be sure to specify that they are temporarily out of work or working reduced hours due to COVID-19 when filing a claim to make sure they are eligible for any extra benefits and to ensure that the employer’s unemployment insurance account is not charged for these benefits. Employers should be sure to indicate that the separation was due to COVID-19 when/if they receive a request for separation information from the NC Employment Security Commission. Details here: https://des.nc.gov/need-help/COVID-19-information

Parties, Events and Mass Gatherings - On March 23, 2020 Governor Cooper issued new Executive Order No. 120 adding further restrictions to businesses and prohibiting all mass gatherings of 50 or more people - down from 100 or more previously. Read the Executive Orders here for details.
Briefly, the Governor's orders cancel public schools (K-12) until May 15 and prohibits mass gatherings of 50 or more until further notice. The prohibition of mass gatherings has specific definitions and is worthy of clarification.  These orders have the rule of law - violation constitutes a Class 2 misdemeanor pursuant to N.C.G.S. 14-288.204. There are more details on our website here.

Stay tuned for more legal updates from us on this continually evolving issue.

Resources for Businesses to Stay Informed:
·         Read the Executive Orders here

Moretz Law Group is prepared to help you with your business needs in this situation We are fortunate to have Marjorie Benbow as part of our firm due to her expertise in virology and public health.  Prior to receiving her J.D. and M.B.A degrees from Wake Forest, Marjorie received her Masters of Science in Public Health from UNC-Chapel Hill. She worked as a virologist at Burroughs Wellcome after finishing her coursework. She also worked for the state's health agency in the areas of epidemiology focusing on communicable diseases. Marjorie is also a registered patent attorney and assists our clients with trademarks and copyright matters as well as with brewery and distillery law. Marjorie can be reached here. Reach Zac Moretz here. Our coronavirus updates are here.

Tuesday, July 23, 2019

Agency Law and Your HOA or Small Business

A client recently posed this question:

"If a singular board member of an HOA incorrectly tells an owner that a requested fence installation is approved, does it bind the HOA?  I recently had a board member tell an owner he was approved incorrectly."

Seems simple, right? If an architectural review request did not go through the right procedure and was not properly approved by the board or the Architectural Review Committee (aka the "ARC"), then no approval can be valid, right? Or, if an employee signs a contract on behalf of a company, but that employee had no authority to do so, the company is not bound by the contract, is it? Well, it depends.

This question involves the legal theory of agency. Agency law addresses under what circumstances one person (the "agent") can legally bind another person or an entity (the "principal"). Unfortunately, agency issues come up all too often in the practice of HOA and small business law because HOAs and other small businesses are generally run by volunteers or others without legal training who sometimes speak when they should not.

(Note: We are not talking about the law applicable to real estate "agents" here. While the law applicable to real estate agents, more commonly called "brokers" nowadays, certainly includes agency law, we are speaking here of agency law in general - i.e., the legal ability of one person to legally speak or act on behalf of another person or entity - and not with regard to any particular type of agent.)

There are generally two types of agency authority: actual authority and apparent authority. Actual authority is of two types - express and implied. From an HOA perspective, actual authority occurs, for example, where the board has met and considered whether to approve a fence request, has approved it, and has authorized the president of the HOA, as its agent, to communicate the approval to the homeowner. The president has actual, express authority to legally bind the HOA, the principal, as its agent in communicating the approval to the homeowner. The approval is binding on the HOA.

Implied actual authority to legally bind an entity as its agent is the authority that naturally and reasonably comes with an officer's position in a company. For example, the president of the company or HOA has the natural ability to sign checks, issue purchase orders and the like in the ordinary course of business, and third parties who know that person is in fact the president need not worry whether the president has the actual express authority to do such things - they can rely on his or her implied authority as the holder of that office.

Apparent authority is more problematic. This is the authority that a person appears to have from their words and actions, and which may appear to be reasonable to a third party, but which may or may not have been authorized by the board of directors or other governing body of the entity. 

The problem with apparent authority is that an agreement or commitment entered into with a third party by an agent of an entity who may have no authority may still be binding on the entity even if completely unauthorized, if the agent had apparent authority to do so in the eyes of the third party.

Apparent authority will arise when the agent appears to have authority and holds themselves out as having it, and when such authority would not be unreasonable for he or she to have when viewed by the third party, and when the third party has no reason to know that the agent may not in fact possess such authority. If the third party then changes their position in reasonable reliance upon the commitment of the agent - for example, spends the money to erect the fence in reliance upon the approval - the commitment of the agent will then be binding upon the principal even if completely unauthorized by the principal. This is also an example of the legal doctrine of "estoppel".

Back to our situation with the improper fence approval. This is how I answered my client:

"If it was just a board member and not the president or a vice president, or the head of the ARC, communicating the fence approval improperly, I would say it was clearly not binding upon the HOA. But the general rule of agency is, did the recipient have a reasonable belief that the speaker was authorized to bind the entity? If so, then the entity can be bound notwithstanding that the speaker did not have actual authority. Sorry to answer with an "it depends", but that is the law. Officers generally have apparent authority to bind the entity, even if not actual authority. So based on only the facts you gave me, the answer is no. But there could be more to the story..."

You can see how apparent authority can be an issue for HOAs and other small businesses. It is important to have clear roles established for officers, and where certain responsibilities have been delegated to committees, draw up a written committee charter which clearly specifies what that committee can and cannot do. Can the ARC chairperson communicate approvals or disapprovals to applicants? Bad idea. Have that done through the board, which is the governing body of the HOA. Make clear to officers what they can and cannot do without express board authority. And make sure that board and committee members know that serving on a board or committee gives them no authority whatsoever - only the officers of the company generally have authority to legally bind the company in any way.

Be in touch if you have questions or concerns regarding agency and your HOA or small business.



Monday, December 17, 2018

Update on New South Carolina HOA Legislation - Don't Miss the January 10 Deadline!


While this is generally a North Carolina HOA law blog, we represent many South Carolina HOAs as well, and as most of them are aware by now, the new South Carolina Homeowners Association Act was enacted on May 17th, 2018 and was the first major legislation in South Carolina to regulate homeowners associations. The major focus of this new law is to provide owners access to all of a community’s governing documents and rules, regulations, policies and procedures. Obviously, this applies to HOAs located in South Carolina only.

On or before January 10, 2019, all “governing documents” and rules and regulations must be recorded with the register of deeds’ office to remain enforceable. All governing documents other than bylaws must be recorded already under present law, so no change there.

All “rules and regulations”, which presently need not be recorded, must now also be recorded by January 10 to remain enforceable. This includes:
o   Bylaws;
o   Rules and regulations;
o   Architectural guidelines;
o   Any other policies and procedures, such as collection policies.
o   Basically, anything you want to be enforceable against a homeowner or a lot or unit in your HOA.
  • In addition to the recording requirement, all “rules and regulations” must be made accessible to members upon request, or posted conspicuously on the common areas, or posted on the community’s website.
  • Any amendments to any of the above made after January 10 must be recorded by January 10 of the year following their adoption. 
  • The act also requires the South Carolina Department of Consumer Affairs to collect and publish online data regarding complaints by and against homeowners associations. It will provide copies of any complaint to the HOA and/or the owner. The Department will publicly report the complaints in a searchable database.
  • The act provides that small claims court is now a proper forum for resolving disputes between homeowners and HOAs.  
  • Finally, the act requires sellers of homes in HOAs to provide additional disclosures to prospective buyers.

If you're a South Carolina HOA, make sure you don't miss the January 10 deadline!
  • Contact your attorney or management company and get your documents compiled and to your county Register of Deeds or Clerk of Court (depending on how your particular county handles these types of recordings).
  • You should also post all of these same documents in PDF form on your website.

Call us if we can help! Good luck!

Thursday, June 21, 2018

The Wild West, Tamed a Bit


Although far from comprehensive, the South Carolina legislature has successfully taken its first steps to regulate homeowners’ associations.   The South Carolina Homeowners Association Act (“Act”) became official on May 17, 2018 when the governor signed it into law. Up to this point, South Carolina has never had a comprehensive law governing homeowners’ associations. Until now, there was only the South Carolina Horizontal Property Act, which governs condominiums, and the South Carolina Nonprofit Corporation Act, which deals with operational issues within nonprofit corporations and generally applies to homeowners’ associations since they are non-profits.


The Act places new requirements upon homeowners’ associations. It defines a homeowners’ association as any entity developed to manage and maintain a planned community or condominium in which there is a recorded declaration requiring a person to pay assessments.  This definition covers all mandatory homeowners’ and condominium associations.



The Act requires every homeowners’ association to have recorded its declaration and bylaws by January 10, 2019 in order for those documents to remain enforceable.  This does not present a new requirement for declarations; declarations already had to be recorded to be enforceable.  The requirement to record bylaws, however, is new.   Most HOAs do not typically record their bylaws, so those whose bylaws are not presently recorded will need to do so prior to January 10, 2019 (some declarations have the bylaws attached as an exhibit when they are recorded and in that case the bylaws will not need to be re-recorded independently, unless they have been modified since they were first recorded.) The unspoken requirement is that the bylaws must be formally adopted by the HOA, which is sometimes an overlooked corporate formality during the rush to incorporate an HOA. By way of comparison, North Carolina does not require HOA bylaws to be recorded.  

A note regarding what we mean by the term “recorded”. This term means filed with the county office which oversees land records.  Originally known as the “Register of Mesne Conveyances”, the name of the land records office in some counties is known as the Register of Deeds, or in some counties, the Clerk of Court’s office records land records (“mesne” is an Old English term referring to the office which records the documents making up the chain of title for a particular piece of real estate). Upon recordation, a recorded document serves as public notice of the contents of that document to all the world.

In an unprecedented move, the Act also requires HOA rules and regulations to be recorded by January 10, 2019 to be enforceable, and by January 10 of each successive year to remain enforceable. Somewhat confusingly, the Act states that rules and regulations are effective at the time they are properly adopted by the HOA, but to remain effective as of January 11 and thereafter, they must be recorded by January 10 of each year. So again, this provision does not affect the current enforceability of an HOA’s current rules and regulations, but HOAs must record them by January 10th of each year. And, given that they will now be a public record, HOAs may now wish to be more careful in the wording of their rules and regulations, and most likely, make sure they have been vetted by legal counsel to ensure, for example, that they do not contain provisions which could be deemed to be discriminatory. 

The rules and regulations must also be made accessible to members.  The Act allows such accessibility through a website maintained by an HOA, or by posting the rules and regulations in a conspicuous area within the common areas. This makes sense since arguably rules and regulations are not enforceable if there is no way for members to know of them.

Unincorporated homeowners’ associations, a rarity nowadays, must now provide members with notice at least 48 hours in advance of a meeting where the budget is to be increased in a given year. Incorporated HOAs are presently subject to lengthier notification requirements, and are therefore exempted from the 48-hour notification provision.

The Act authorizes Magistrates Courts (generally referred to as “small claims court”) to hear HOA disputes, provided the dispute does not exceed the jurisdictional limitation of small claims court, currently $7,500.00. This is new, as it was previously uncertain whether the very limited subject matter jurisdiction of small claims court allowed HOA disputes to be heard there.

The Act authorizes the South Carolina Department of Consumer Affairs to produce and disseminate educational information to the general public about homeowners’ associations and rights, responsibilities and the roles of homeowners’ associations, boards of directors and homeowners. The Department is directed to collect and publish data about homeowners’ complaints against homeowners’ associations, or homeowners’ associations’ complaints against homeowners, including the HOA name and any property management company. Notably, personal identifying information of the complaining party may not be published, allowing the complainant to remain anonymous while spotlighting the HOA and management company publicly, which we hope does not end up becoming a harassment tactic for disgruntled homeowners.

BOTTOM LINE: As with most new laws, time will tell how effective this new legislation is at enabling homeowners to educate themselves about their subdivision’s governing documents. In general, we are big believers in transparency and are in favor of HOAs’ governing documents, including rules and regulations, being publicly available and easily accessible. We are glad that the South Carolina General Assembly did not seek to regulate the content of declarations, bylaws or rules and regulations, but only seeks to ensure that they are publicly available. We hope this legislation may silence some of the dubious complaints that we sometimes hear that a member did not know about the homeowners’ association or what was required for compliance. It should also result in more accountability for board members. We query whether the reporting of conflicts between owners and their associations will have a positive effect. At least in our experience, a single or small group of vocal complainers may give the appearance of systemic disagreements; however, in reality, most interactions between homeowners’ associations and their members are positive.

Please stay tuned as this new law is implemented, and of course feel free to contact us to discuss any of these issues and steps needed for compliance, or any other issues affecting your South Carolina or North Carolina HOA. 

The full legislation is available here.