Sunday, March 6, 2016

Your Homeowners Association’s Governing Documents: Please Don’t Call Them Bylaws!

Our HOA Ninjas here at Moretz & Skufca have a little pet peeve when it comes to terminology: folks who refer to the governing documents for their community association as “the bylaws.”  So (to borrow from Shakespeare) what’s in a name?  Turns out that when it comes to homeowners association documents, names mean a lot.  There are articles, bylaws, declarations, CCRs, deed restrictions, board resolutions, policies and procedures, and rules and regulations, among other animals.  Help us stop the malapropism trend by understanding these different documents and how they relate to one another.  (Note that while we use North Carolina nomenclature here, these concepts apply to community associations in virtually every state.)

Articles of Incorporation

An HOA’s articles of incorporation, also known as its “charter”, legally create the corporation when filed with the Secretary of State’s office, and confer upon it all of its legal authority, as well as its non-profit status.  Think of the articles of incorporation as your community association’s Declaration of Independence – the document that creates a new entity out of thin air.  Since a corporation has no legal authority to act in any manner not authorized by its articles of incorporation, the articles are typically very broadly-worded and non-specific in order to avoid inadvertently limiting the corporation’s authority to do business.  Articles for homeowners associations must limit membership to lot owners only and include language specified by the IRS in order to qualify as a non-profit.  Your HOA will almost never deal with its articles once they are filed. 

Bylaws

The bylaws establish a corporation’s internal governance, voting and administrative procedures.  These include details about membership and board meetings, board elections, descriptions of the officers, how they are appointed and their authorities, and other similar matters.  Think of your homeowners association's bylaws as its Constitution – the rules of how the people will elect their representatives and what those representatives can do.  Bylaws need not be filed with the Secretary of State or recorded with the local register of deeds.  (While many HOA declarations have the bylaws attached to them when they are recorded with the register of deeds, this is not legally required.)  You will typically refer to your homeowners association's bylaws only when there are questions regarding elections, special assessments or how other important matters may be voted upon by the membership and/or the board.  Generally, bylaws are fairly boilerplate and should not require a lot of thought or attention by your board or your members unless there are major issues facing your HOA.

This is where our pet peeve comes in.  We often hear folks refer to their declaration of restrictive covenants, or to all of their homeowners association’s governing documents, as “the bylaws” (cringe). Please don’t do this!  The bylaws are a specific document, different from the other documents governing your HOA.  If you need to refer to them all together, the proper term is “governing documents.”  Use the word “bylaws” only when referring to the bylaws themselves.

The most important document for your homeowners association is the declaration of covenants, conditions and restrictions, or, for condominiums, the declaration of condominium (sometimes called a "master deed" in South Carolina) – what we call the “declaration.”  These are also referred to variously as the “covenants”, the “restrictions”, or the “CCRs.”  These are recorded with the register of deeds where the association is located prior to any lots being sold, which causes the provisions of the declaration to “run with the land” and be binding upon all current and future owners of each lot.  The declaration states what can and cannot be done with a lot owner’s land and the homeowners association’s common areas, and provides details as to how the HOA is to be operated.  In this latter regard there can be substantial overlap between the declaration and the bylaws, and this may be part of the confusion we see in terminology.  In general, the declaration controls over the bylaws if they are in conflict.


Deed Restrictions

An aside about deed restrictions.  Some subdivisions have “deed restrictions” in addition to, or in lieu of, a declaration.  The term generally refers to a document which places limits on what can be done with a lot owner’s land, but which does not create a full homeowners association operational structure like a declaration does.  This type of restriction was used primarily in the old days before homeowners associations with detailed declarations became prevalent, but deed restrictions can also be used now to place additional or special restrictions on a subset of lots within a larger HOA, or for small subdivisions where no formal HOA is required.  We avoid using this term except in these limited situations.  Modern declarations include deed restrictions (specific restrictions on what can be done on the owners’ lots) in addition to lots of other details regarding the operation of the community association, so “declaration” is the proper term for modern, detailed declarations of restrictive covenants as opposed to simple limitations on lots.

Everything Else 

The final category of governing documents is board resolutions, policies and procedures, and rules and regulations.  While these different terms are often used based upon type or level of formality, they are all positions formally adopted by the board of directors setting forth how a particular matter or situation will be handled now and in the future.  We refer to them generally as the homeowners association’s “policies.”  Policies serve to spell out in detail matters that may be addressed more generally in the declaration or the bylaws. 

While the articles of incorporation, the declaration and the bylaws ultimately control the governance of your homeowners association (in that order), the board of directors has the legal authority to adopt policies which are in general accordance with the authority granted by those documents.  For example, an HOA’s declaration may restrict leasing to no more than 15% of the homes in the subdivision, but it may not go into specific detail regarding how the leasing restrictions are to be implemented.  The board has the legal authority to adopt a policy describing how a homeowner may apply to lease his or her home, defining who is considered to be a tenant versus a guest, how a waiting list will be maintained, and other similar details.  Conversely, the board could not adopt a policy restricting leasing if such a restriction were not set forth in the declaration.

Policies can usually be adopted by the board acting alone, and need not be recorded or filed anywhere – although the best practice is to make sure they are made known to the members, usually by mailing, newsletter or website.  The board should be sure that the board meeting minutes reflect the research and consideration underlying the adoption of a particular policy, including the board’s consultation with its management company and professional advisors if necessary, and should take care that the policy is well thought out and written down in clear and specific detail.

We hope this discussion has shed some light on the various common HOA documents and the proper terminology for each.  If we can provide further information to assist your HOA, don’t hesitate to contact us.

Please give us a call or drop us an email if our HOA law team can assist your HOA or management company with your governing documents, or if we can be of assistance in any other way. We appreciate your reading our HOA law blog and encourage you to share it with others who may be interested. Thank you!