Association directors have many responsibilities. These include adopting a budget, authorizing year-end disclosures, pursuing delinquent assessments, conducting proper elections and enforcing the governing documents, especially the CC&Rs (CC&Rs) and Operating Rules.
The majority of homeowner association residents owners and tenants alike - follow the CC&Rs. Usually, most of those who don't are unaware of a particular community rule; with a letter or phone call violations are quickly resolved. Of course, this isn't always the case. Disputes can escalate for lots of reasons including perceptions of unfairness, incursion of great expense, stubbornness or sincere disagreements over the extent to which the free use of property becomes subordinated to the CC&Rs and decisions of an association's board or a committee.
It falls to the board to determine whether, how and to what extent a CC&R violation will be addressed. Usually, the tools available include imposition of fines; suspension of the right to vote, run for or serve on the board; and denial of access to common area amenities. The procedures used in connection with these remedies may include a simple conversation, a noticed disciplinary hearing or the meeting and conferring with the owner and a director as part of an internal dispute resolution process.
If the violation remains unresolved, the board will evaluate whether to seek mediation, arbitration or to initiate litigation to compel compliance with the CC&Rs. This involves several considerations, including the magnitude and visibility of the violation; precedent, the cost and the chances of a successful enforcement action; and the number and type of other items on the board's agenda. Input from experienced counsel is essential when the violations have potentially significant consequences for the community.
I've advised many boards evaluating the pros and cons of aggressive CC&R enforcement. Over the years, I've noticed that directors may initially make assumptions about CC&R enforcement that are not always true:
Not every violation must be aggressively enforced. Some are relatively unimportant (the unauthorized construction of an improvement that cannot be seen and would have been approved had application been made; a one-time violation of the nuisance clause occurring during a high-school graduation party) and some will be hard to address (an unauthorized modification made long ago by a prior owner). Each of these may constitute CC&R violations but common sense suggests a board pause before upping the ante on a claim.
A violation cannot be viewed in a vacuum as if the association has had no past and will have no future role in dealing with violations. Precedent is very important in terms of looking back and looking ahead. A board seeking to compel compliance with the CC&Rs may face an owner's defense that the association has waived its right to enforce because it has failed to do so consistently in the past. And, looking ahead, a board that permits a violation may hamper future enforcement efforts. A key consideration in negotiating the settlement of a CC&R dispute is how it will help or hinder future CC&R enforcement.
Insurance will not cover claims initiated by the board to enforce the CC&Rs. Insurance may cover CC&R claims and related lawsuits (typically for breach of fiduciary duty) brought against the board and association. Claims routinely excluded by an insurance policy are those based on breach of contract (i.e., the CC&Rs), noise (including those based on noisy floors), discriminatory conduct (even when no evidence of discrimination exists) and claims also asserted against the manager (who will always demand indemnification from the association). The importance of understanding the association's insurance policy so that coverage issues can be properly handled cannot be overestimated.
Most directors assume judges and arbitrators will automatically support upholding the CC&Rs. They won't. Some judges are more concerned with seeing a dispute from the owner's point of view rather than the community perspective. With a well-prepared case, even judges and arbitrators who initially may have sympathy for an owner can be persuaded to ultimately rule in the association's favor but it certainly isn't a given.
A really surprising thing is that disputes, even those which seem to be the most intractable, can still be resolved without going to trial. Even when there are hurt feelings, strong egos and lots of money at stake, an effective mediator working with lawyers and parties acting in good faith can find their way to a settlement before or even after a dispute escalates into a lawsuit. The key is to avoid over investing in a particular outcome and being open to alternative points of view.
In many cases, decisions relating to CC&R enforcement can be made by the board with input from an experienced manager. In other cases, especially those involving questionable insurance coverage, alleged breach of fiduciary duty or long term precedent, it will be wise to confer with experienced association counsel.
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