Most people who live in communities with Home Owners Asssociations don’t understand their HOA Governing Documents. And who can blame them? Those documents were written by lawyers for lawyers and reading them is as easy and fun as giving yourself a root canal. Nevertheless, owners and potential buyers should possess a basic knowledge for reasons covered below. This post discusses some key characteristics of these instruments to facilitate a better understanding of how HOAs work.
State laws govern home owners associations so the requirements vary from state to state. In Minnesota, HOA’s must be incorporated and most are organized as non-profit entities. The developer files Articles of Incorporation which outline the association’s purpose, authority, and the selected type of corporation. The provisions contained in the Articles tend to be boiler-plate and uncontroversial.
The Declaration of Covenants, Conditions and Restrictions elaborates on the HOA powers and administrative authority granted in the Articles. Typical powers include the ability to collect and spend money, enforce the HOA’s rules and manage the community’s affairs. The Declaration also lists restrictions on individuals’ actions, sets community standards and describes the association’s maintenance duties.
Bylaws are the written operating procedures for conducting the HOA’s business. Here is where the rules and processes underlying HOA meetings, elections, notices to homeowners and assessments can be found.
The Rules and Regulations document is the one that most impacts daily life. It contains detailed restrictions on certain behaviors for the betterment of the community, as well as penalties for infractions. The Articles, Declaration, Bylaws and Rules make up the HOA’s Governing Documents. Rules can supplement provisions in the other three documents, but not change them. For example, Declarations often state that owners may lease their units, subject to reasonable regulation by the association. The Rules can require that leases be for at least one year or that only 20% of the development’s units can be leased at any given time. But the Rules cannot completely ban leasing as long as the Declaration says it is allowed.
The HOA Rules can also contain regulations and procedures not specifically mentioned in the other documents. Many people don’t realize that Rules can be added or changed without a vote of the residents. While some associations do solicit owners’ input, it’s optional because the Declaration and Bylaws typically grant exclusive rule-making authority to the HOA Board.
Why bother to read and understand these documents? Because these instruments give certain rights and duties to owners and well-informed owners keep HOAs healthy. Also, disagreements eventually happen and the documents provide a structure for managing disputes. Third, it is not unusual for these documents to unintentionally conflict with each other, so knowing which edict takes precedence is important. Finally, if someone doesn’t like a particular provision, it’s helpful to know up front how difficult changing it may be.
The chart below shows a common structure for MN Home Owners Associations for illustration purposes. Your HOA may be different.
|Document Title||Think of the document as the HOA’s…||What group(s)* can amend this document?||Minimum vote needed to amend?||Trump order if documents conflict***|
|Articles||legal framework||Homeowners||75% **||1|
|Declaration||broad powers and duties||Homeowners||67%**||2|
|Bylaws||business procedures||Homeowners||over 50%**||3|
|Rules||regulations impacting routine matters in daily life. Intended to uphold community standards and promote harmony among owners||HOA Board of Directors||Board Majority||4|
*The approval of mortgage-holders must also be obtained for some types of amendments.
**It’s important to note that the quoted percentage refers to the number of eligible votes, not the percentage of votes cast. So at least 75% of the owners would have to cast a “yes” vote to amend the Declaration.
***If any of these documents conflict with the state statutes governing home owners associations, those state laws trump everything else.
If you want to learn more about HOAs, check out my 9-part series “How to X-ray an HOA”.