- Make sure that the Homeowners Association (HOA)/Condominium board of directors includes protocols wherein its owners are aware of the rules (declaration and by-laws) and have appropriate expectations when living in the community.
- In litigation, courts sometimes intervene and substitute its finding for the board’s finding in accordance with the business judgment rule, but are prohibited from intervening where the board acted in good faith and exercised honest judgment in the lawful and legitimate furtherance of the HOA/condo.
- Boards should regularly work with their professional liability carriers and keep up-to-date on developing real property issues that were not contemplated when the HOA/condo was formed.
Goldberg Segalla has handled many cases involving HOAs/Condos. We often represent the HOA/condo board of directors in defending positions it took on behalf of the community, and are adverse to the board by owners who present issues regarding their ownership of their properties. Quite often, the ensuing litigation implicates a Directors and Officers (D&O) Liability Insurance Policy, which protects the HOAs/condos. Some of the common claims that arise concern whether the board properly denied an architectural application for construction on an owner’s property, whether a leasing policy is being inequitably applied to a specific owner, whether an owner is obligated to follow the declaration and by-laws given the role of the sponsor and the owner’s purchase of his/her property, and whether an owner properly split his/her property to allow for multiple units.
In all of the above-mentioned scenarios, an analysis is undertaken whether the board acted appropriately, and whether the court should intervene to substitute its decision in accordance with the business judgment rule. However, courts are prohibited in getting involved as long as the board acted in good faith and exercised honest judgment in the lawful and legitimate furtherance of the HOA/condo. It is important for boards to be aware of the business judgment rule and keep up to date on developing real property items that were not contemplated when the HOAs/condos were formed. A perfect example of a developing item involves the role of Airbnb’s in HOAs/condos.
Individuals who purchase property in an HOA/condo sometimes have a difficult time acknowledging the role of the HOA/condo and what rights they have and do not have in their property. While being under the HOA/condo umbrella can be very beneficial and convenient for some, it can also be a hindrance for others who do not necessarily want to be in alignment with the rest of their community. Therefore, it is important that boards properly advise their owners about what they should expect when moving into a community. If the owners go in with blinders on and ignore the rules, they will be extremely disappointed when the HOA/condo attempts to enforce the rules and removes their interest in their property through fines, liens, and foreclosure. If, however, the owners are aware of the situation, boards can avoid many potential headaches that could ensue throughout their subsequent ownership. This would also, in turn, protect professional liability carriers by limiting potential litigation under D&O and other related insurance policies. By being proactive, boards can find a means to be compliant, they can appropriately advise their owners, and they can avoid ensuing litigation that is costly for them and the D&O carriers.