Is Your Community On Board?

Earlier this year, the Georgia Court of Appeals issued a decision for a community where the declarant had not appointed a Board of Directors.  Unfortunately, this situation is more common because of the impact of the recent recession.  Many developments that were started several years ago ground to a halt, with some developers going out of business, and declarant rights turned over to bank control.  In such instances, many banks found themselves both unprepared and unwilling to address homeowner association needs.

What is the difference between a declarant and a developer?  Often these are one and the same, but a developer could choose to deed its powers as declarant to another party (i.e. another developer, a bank, or even an individual).  The power of the declarant is immense, able to set up and remove rules in a community development as it sees fit, with only government zoning as a restriction.  The length of time these declarant powers remain in effect is governed by state law, and varies based on the type of development being overseen:  5 or 10 years is not uncommon.

If your community is under developer or bank control without the existence of a Board, had a Board appointed years ago which no longer exists, or the authority has disappeared completely - your Association is in dire straits.

In the case of Hall v. Town Creek Neighborhood Association, the court determined that an assessment levied by a declarant, not a Board of Directors, was unenforceable.  The homeowners were not required to make payments in this situation.  Just because a declarant has the ability to appoint a Board, it does not automatically have the powers a Board would have.  In Georgia, a community’s Declaration is handled as a contract. If an item isn’t in writing, it doesn’t exist for this contract.   Normally a Declaration does not explicitly assign Board powers to the declarant.  Because of this, the court determined that it was intended that a Board had to be appointed.

The impact of this court decision extends to any decisions rendered by a Board of Directors.  Any rule or regulation issued, any vendor service hired, is invalid without a Board.  What should you do if your community finds itself in this situation?  If the declarant (determined by what is filed in the courthouse records) exists, a letter should be sent to it, asking for the immediate appointment of a Board.  If the declarant refuses, or a declarant no longer exists, the homeowners (with legal counsel) should conduct an election to bring the community in compliance:  The Association is a corporation, and under state law must have a Board.  Once this Board is installed, it has the option of retroactively affirming past decisions/actions taken.  More importantly, it needs to establish good governance to carry the community to a positive place.

For fledgling Board members, obtaining training and counseling are a must.  Whether this is obtained through a community association management company or an attorney versed in homeowner association law, the Board should be patient with itself during the initial years, recognizing the time and money is a good investment that will benefit the community in the long run.