Guest Post By George Nowack
Physiology is a branch of biology that deals with the functions of a living organism. Within the arena of physiological studies, there are many specialties. One such specialty is sports physiology. Sports physiologists test the physical limits of the human body, and their research establishes the parameters within which the human body functions. Exceed the limit, and the body can sustain damage. The extent and severity of the damage depends on how the limits were exceeded, and the results can either be temporary or permanent.
This article will look at a whole new specialty within the study of physiology – the physiology of members of the board of directors of community associations. It is the study of statutes and case law that impose legal limits on the actions of board members when exercising their duties to operate a community association. As occurs when physical limits are exceeded, exceeding the legal limits of a board’s authority can cause temporary and/or permanent damage. The difference is the damage is done to the association and its members.
1. ASSESSMENTS
A. Statutes
Several sections of the Georgia Condominium Act [GCA] and the Georgia Property Owners Association Act [POAA] establish the duty of members to pay assessments and establish limits on the actions a board can take to collect assessments from the members of an association.
O.C.G.A §§ 44-3-80(d)(1) [GCA] and 44-3-225 [POAA] require all property owners to pay assessments. No owner is exempted from any liability for any assessment for any reason whatsoever including, without limitation, abandonment, non-use, or waiver of the use or enjoyment of a unit or the common elements.
O.C.G.A §§ 44-3-109(a) and 44-3-225 impose an automatic lien against a property the minute a payment is late. To the extent provided in a declaration, the Acts authorize the imposition of interest of 10%, a late fee of $10.00 or 10%, whichever is greater, and reasonable attorney’s fees actually incurred.
In a condominium, O.C.G.A § 44-3-76 provides, to the extent provided for in the declaration, once an association obtain one or more judgments for unpaid assessments totaling $750.00 or more, the Board can terminate water, gas, electricity, heat and air conditioning services being provided to a unit by the association. Service to the unit does not have to be restored until the owner pays all amounts in the judgment(s) and all costs incurred in suspending and restoring the service are paid in full.
If a property is not subject to either the Georgia Condominium Act or the Georgia Property Owners Association Act, the authority to collect assessments must be specified in the declaration. O.C.G.A § 44-5-60(e) provides, to the extent provided in the covenants [declaration], the obligation for the payment of assessments and fees arising from covenants shall include costs of collection, including reasonable attorney’s fees actually incurred.
A delinquent owner cannot be evicted. If the property is subject to either Act, foreclosure proceedings can be commenced after an owner owes $2,000 (O.C.G.A §§ 44-3-109(c) [GCA] and 44-3-225(c) [POAA]). Foreclosure results in an association owning the unit, subject to any first mortgagee.
Unless the documents provide otherwise, in the declaration, O.C.G.A §§ 44-3-80(e) [GCA] and 44-3-225(e) [POAA] provides the purchaser of a unit is jointly and severally liable with the seller for all unpaid assessments up to the time of the sale.
B. Cases
(i) Forest Villas Condominium Association, Inc. v. Camereo
Association sued for non-payment of assessments and owners counterclaimed saying they did not pay because the Board failed to maintain and repair owner’s unit. Owners owned 23/94 units and owed almost $30,000, not including interest and late fees. Trial court said the word “exempt” in the GCA does not mean an owner could never have justification for withholding assessments. Court of Appeals overturned that decision. It held the meaning of the word “exempt” is plain and unambiguous. There is no legal justification for a condominium owner to fail to pay valid assessments.
The court also established the duty to pay assessments is independent of the association’s obligation to provide services. Allowing otherwise would jeopardize the functioning of the association if payments could be withheld during a dispute.
(ii) Frantz v. Piccadilly Place Condominium Association, Inc. (2004)
Association obtained judgment of $9,000 against owner for unpaid assessments. Association provided water as a common expense. Association amended declaration and sent notice to owner in accordance with the Act, informing the owner his water would be disconnected. Owner, an attorney, filed a request for a Temporary Restraining Order to prevent the shut-off of his water. Supreme Court ruled the suspension of water did not create a hazardous or unsanitary condition. The Act specifically allows an association to suspend water services so it is clear the legislature did not consider the suspension of water created a hazardous or unsanitary condition.
(iii) Fontaine Condominium Association v. Schnake (1998)
Association suspended electricity to defendant’s unit after obtaining a judgment of $10,058.35. The trial court insinuated the association was engaging in purposeful harassment – if the Association felt it had a valid judgment, “they should attempt to satisfy the judgment by other means”. The court issued an order preventing the association from suspending the electricity and awarded the defendant $725 lost rent and $2,300 in attorney’s fees. The Court of Appeals overturned the trial court, holding the association had the right to shut off the electricity and the association did not first have to attempt to collect the debt by other means.
(iv) Chattahoochee Chase Condominium Association v. Ruben (1996)
Mr. Ruben sold a 99% interest in his unit and kept a 1% ownership interest. Ruben lived in the unit and failed to pay assessments. The Association sued Mr. Ruben and the other owner. The Association obtained a judgment, but could not find the 99% owner, so the Association sought to collect the entire judgment from Mr. Ruben. The trial court held Mr. Ruben only owed 1% of the assessment, and the Association had to find and collect the remainder of the amount due from the owner of the 99% interest. The Court of Appeals ruled Mr. Ruben was a unit owner and was jointly and severally liable for the entire amount, not just the amount of the ownership interest.
(v) Kingsmill Village Condominium Association, Inc. v. Homebanc Federal Savings Bank (1992)
Bank foreclosed the mortgage on a unit. The Association sued the Bank for unpaid assessments that accumulated before the foreclosure. The Bank argued 44-3-80(f) exempted it from paying those assessments. Association’s attorney advised the Board it could rely on another portion of the statute that any unpaid assessment or assessments become a common expense collectable from all owners, including a successor owner. Court of Appeals held the Bank could not be assessed any amount that related to the assessments that were not paid before the foreclosure. A party cannot do indirectly what the law does not allow to be done directly.
(vi) Carey Station Village Home Owners Association, Inc. v. Carey Station Village, Inc. (2000)
Developer failed to pay assessments on unsold lots. Association sued. Developer countersued claiming the Association’s lawsuit had hurt its ability to sell the lots and to refinance the lots. The trial court jury ordered the developer to pay $40,527.09 for unpaid assessments and awarded the developer $170,722.91 for lost sales and interest. The Court of Appeals overturned the award to the Developer. It held that since all lots were subject to the declaration and all lot owners had to pay assessments, the association’s liens and suit to collect assessments, which resulted in third parties (potential purchasers) learning of the claim for unpaid assessments, did not support the developer’s claim those actions resulted in an interference with his business.
(vii) Heard v. Whitehall Forest East Homeowners Association, Inc. (1997)
The Property was not subject to either Act. Heard failed to pay assessments for more than 4 years. Association sued and the trial court held the statute of limitations in which to file suit to collect assessments was for a breach of contract and the limitation was 6 years. The trial court awarded the Association $16,455.04 plus interest. Heard appealed claiming the statute of limitations was 4 years. The Court of Appeals held O.C.G.A § 9-3-29 specifically applied to covenants that included a duty to pay assessments. The Association could not collect on assessments that were more than 4 years old.
2. BEHAVIOR/RULES AND REGULATIONS
A. Statutes
O.C.G.A §§ 44-3-76 [GCA] and 44-3-223 [POAA] require every owner and all those entitled to occupy a unit to comply with all lawful provisions of an association’s documents, including reasonable rules and regulations adopted by a board. Rules and regulations can be adopted only if that authority is stated in the declaration.
B. Cases
(i) King v. Chism (2006)
Association documents authorized the Board to enact rules and regulations which led to the towing of King’s vehicle – which had rarely been moved in three years. It was not licensed and the battery was dead. Board adopted and published rules and regulations authorizing the towing of a vehicle after notice and opportunity to move the vehicle. King argued the towing process in the rule contradicted the due process provision of the bylaws that required notice and a hearing before any sanction could be imposed. The Court of Appeals held that under general rules of contract interpretation, a limited or specific provision that applied to a board’s behavior will prevail over one that is more general. The procedure in the bylaws applied to all sanctions, while the rule applied specifically to towing.
(ii) Sweeney v. Landings Association (2004)
The declaration authorized the board to adopt rules and regulations and to impose sanctions for infractions, including suspending an owner’s privileges to use the common elements for up to 30 days. Sweeney refused to abide by a rule that required dogs to be leashed when on common property. The board suspended Sweeney’s use of an electric gate pass and required him to stop at the entrance gates. The trial court and Court of Appeals ruled the declaration authorized the adoption of rules and regulations and suspending an owner’s right to use the common elements was an acceptable sanction.
(iii) Timberstone Homeowners Association, Inc. v. Summerlin (1996)
Mr. Summerlin refused to pay assessments. He claimed he was exempt because the declaration was not referenced in his deed. The trial court ruled in favor of Summerlin. The Court of Appeals held where a restrictive covenant is recorded, the purchaser is charged with legal notice of the covenant, even if it is not stated in the person’s deed. This is known as constructive notice – a person cannot avoid complying with recorded covenants by claiming lack of knowledge.
(iv) Wright v. Piedmont Property Owners Association, inc. (2007)
Property located in a subdivision was titled solely in the name of the wife. The covenants prohibited the construction of a fence without the approval of the architectural control committee Association sued wife and husband to force them to remove the fence. Wife testified she had nothing to do with the construction of the fence – only her husband could stop construction. Husband
claimed he was not subject to the covenants so he could install the fence. The trial court and the Court of Appeals held the husband was the wife’s agent and was bound by the same covenants that applied to the wife.
(v) Godley Park Homeowners Association, Inc. v. Bowen (2007)
Covenants prohibited homeowners or occupants from erecting any sign on a lot without the approval of the Architectural Review Board. The homeowner’s real estate agent placed a For Sale sign on the homeowner’s lot. The homeowner refused demands from the ARB to remove the sign and the Association sued, asking for an order forcing the homeowner to remove the sign. The homeowner defended her action by claiming the covenant only applied to her, the homeowner, and did not apply to the real estate agent. The trial court agreed with the owner. The Court of Appeals disagreed with the trial court. It ruled the prohibition applied to the agent, as well as the homeowner.
(vi) Carter v. Willowrun Condominium Association, Inc. (1986)
The son of a tenant in a unit performed a lewd act on the common property. The board had the association’s attorney send a letter to the unit owner advising the owner of the tenant’s son’s action and asking that action be taken to prevent further disruptions. The tenant sued the board, the attorney, and others, alleging their behavior of discussing his son’s behavior and the letter sent to the unit owner informing the owner of the son’s action libeled and slandered the tenant and his son. The trial court and the Court of Appeals held the discussions of the members of the board of directors and the letter to the unit owner were intra-corporate communications that were not actionable.
3. STANDARDS OF CONDUCT FOR DIRECTORS
A. Statutes
The Georgia Non-Profit Corporate Code establishes the standard of conduct for directors. O.C.G.A § 14-3-830 requires a director to discharge his or her duties as a director (A) in a manner the director believes in good faith to be in the best interest of the corporation and (B) with the care an ordinarily prudent person in a like position would exercise under similar circumstances. A director is not liable to the corporation, any member, or any other person for any action taken or not taken as a director if the director acts in accordance with the standards in (A) and (B).
That is known as the Good business Judgment Rule. Georgia courts initially refused to apply that standard to decisions of boards of directors of community associations. The courts required a board to prove it acted reasonably when enforcing the use restrictions of covenants against an owner. With few exceptions, an association’s action against a single owner always looked unreasonable . . . the big association making the little homeowner remove a fence. Courts in other states recognized the statute did not distinguish directors of community associations from directors of all other nonprofit corporations. Georgia courts subsequently adopted that standard which shifts the burden of proof to an owner to prove a board’s action was unreasonable, rather than the board having to prove it acted reasonably.
B. Cases
(i) Atlanta Georgetown Condominium Association, Inc. v. Chaplin (1998)
Mr. Chaplin refused to pay assessments because he disagreed with the board’s decision to pay the property manager for achieving certain rates of occupancy. The community was almost entirely occupied by tenants. The board based its decision on its determination that high occupancy translates into a safer community and better sale and rental opportunities. The Court of Appeals held it would not second-guess the wisdom of the decision of the board. To prevail, the owner had to show the court that the board breached its standard of conduct. Mr. Chaplin had to show the board’s decision was procedurally unfair or unreasonable or was not made in good faith. Courts will not interfere in matters involving merely the judgment of a majority of the members of the board of directors in exercising control over corporate affairs.
(ii) Southland Owners Association v. Myles (2001)
The association sought an injunction requiring Myles to remove a driveway that was installed without approval. The covenants authorized the Architectural Review Committee to approve or disapprove plans based on the harmony of external design with surrounding structures. The ARC could also deny a plan for purely aesthetic considerations so long as the grounds were not arbitrary or capricious. After the driveway was completed, Myles submitted plans and requested the approval of the ARC. The ARC disapproved the request. The trial court ruled in favor of the Myles. The Association’s appeal alleged the trial court erroneously required the Association to prove it had not acted arbitrarily or capriciously. The Association contended the ARC acted in accordance with the Good Business Judgment Rule so no court could overturn the decision unless it acted arbitrarily or capriciously. The Georgia Court of Appeals disagreed with the Association. It held Myles had successfully shown there were other driveways in the neighborhood that were similar to the one he constructed. The testimony of a member of the ARC that it denied the driveway because it could, for purely aesthetic reasons, shifted the burden to the Association to prove the decision of the ARC was not arbitrary or capricious.
4. SANCTIONS AND ENFORCEMENT
A. Statutes
O.C.G.A § 44-3-76 [GCA] provides, to the extent provided in the documents, a board may impose and assess fines, as well as temporarily suspend voting rights and the right of use of certain common elements in order to force compliance with the association’s governing documents. No such suspension shall deny any unit owner or occupant access to the unit owned or occupied, nor shall it cause any hazardous or unsanitary condition to exist.
O.C.G.A § 44-3-223 includes the same duty of owner and basic enforcement action as in 44-3-76 (fines, voting suspension, suspension of use of common elements). The POAA does not address suspension of utilities.
B. Cases
(i) Spratt v. Henderson Mill Condominium Association, Inc. (1997)
Association sued owner for violating a leasing restriction. The board imposed fines for 515 days at $25.00 per day. Ms. Spratt alleged the board acted unreasonably when it denied her request for an undue hardship exception to the leasing restriction and that the fine was not reasonable. The Court of Appeals held where a declaration delegates decision-making authority to a group and that group acts, the only issues for judicial review are: (1) did the group exercise that authority in accordance with the procedures in the declaration and (2) whether the substantive decision was made in good faith and was not arbitrary and capricious.
5. ARCHITECTURAL CONTROL
A. Statutes
O.C.G.A §§ 44-32-106 [GCA] and 44-3-231 [POAA] authorize the board of directors to grant or withhold approval of any action by one or more owners or other persons entitled to occupancy of any unit if such action would change the exterior appearance of any unit/lot or any other portion of the community. Those sections also authorize a board to elect or appoint an architectural control committee to grant or withhold such approval.
B. Cases
(i) Hech v. Summit Oaks Homeowners Association, Inc. (2005)
The subdivision covenants expressly prohibited the construction of above-ground swimming pools. The Hechs knew that, but installed one anyway. The association sued to force the Hechs to remove the pool. The Hechs claimed the Board did not have the authority to make them remove the pool. The trial court and the Court of Appeals ruled there was no dispute that the Hechs intentionally violated the covenant and the covenants authorized the Board to sue to enforce the covenants, which included the removal of the pool.
(ii) Black Island Homeowners Association, Inc. v. Marra (2003)
O.C.G.A § 9-3-29(c) establishes the statute of limitations to file suit to enforce a covenants is two years. The time begins to run “immediately upon the violation of the covenant”. It does not commence when the violation is discovered by the Board.
(iii) White v. Kaminsky (2004)
The Court of Appeals overruled a trial court’s decision that construction plans submitted by an owner were automatically approved because the Architectural Review Committee did not contact the owner within 30 days after the plans were submitted for approval. The ARC acted within 30 days after complete plans were submitted. The Court of Appeals held the provision in the declaration that stated the 30 days commenced upon the submission of the plans and specifications, was modified by a later sentence in the same paragraph that required the ARC to notify the owner upon receipt of all required plans and that the 30 days would begin to run on the date of that notification.
(iv) King v. Baker (1994)
The Bakers sued the Kings to stop the Kings from keeping a large number of pit bulls and other dogs in dog pens and maintaining a dog breeding business from their home. The covenants only allowed a reasonable number of household pets to be kept on a lot and prohibited any structure for the housing of animals. The Kings defended their action by arguing the Bakers waited too long to attempt to stop them. They argued the Bakers should have sued to stop them before they poured the concrete pads and erected the pens. They argued it was unfair that the Bakers saw them spending money on the construction but did not sue until the work was completed. That is a legal concept known as laches. It is an equitable principle that a person whose rights are violated by another cannot sit back and allow the person to spend money before acting to stop the violation. The Court of Appeals agreed laches would preclude the Bakers action had they not complained before the construction was started and continued complaining while the work progressed. A board’s behavior is clear. It cannot sit back, observe a violation and not say anything until the violation is completed. Reasonable notice must be given advising the owner not to proceed. Thereafter, the owner assumes the risk of proceeding and the possibility the owner will have to remove or otherwise remedy the violation.
(v) Prime Bank v. Galler (1993)
The developer of a subdivision established construction standards and required all construction to be approved by an Architectural Control Committee. That ACC approved plans that violated the construction standards. The houses in the community were designed so that the windows of each house faced one another and the blank walls faced one another. The plans approved by the ACC flipped the plan of one house. Prime Bank became the owner of the houses through foreclosure. The trial court held the ACC did not have the authority to approve the “flipped” plans and ordered the house demolished. Prime Bank argued the neighbors were guilty of laches. The Bank asserted it was inequitable to order the demolition of a $325,000 house. The Georgia Supreme Court ruled the Gallers had complained throughout the construction, so laches did not apply. The Court did hold it was inequitable to require the house to be demolished if it could be modified to eliminate the concerns of the neighbor.