With the rise of subdivisions in our country and state has come a new relationship that affects many homeowners – the relationship between the resident and the homeowner’s association. Like all relationships, the relationship between the resident and the association may include love, hate, satisfaction, or frustration. Likewise, as laws were developed to peacefully resolve relationship conflicts, (example: family law, wills & estates, employment), there are laws that govern conflicts between residents and homeowner’s associations. The most notable is the Louisiana Homeowner’s Association Act.
Unlike the other relationships, the institution of homeowner’s association is rather young and the law is less defined. Unfortunately, the law will continue to evolve and become more defined as more disputes between residents and associations are decided in our courts.
But, let’s take a look at what we know now.
Louisiana law defines a homeowner’s association (HOA) as a “nonprofit corporation, unincorporated association, or other legal entity, which is created pursuant to a declaration, whose members consist primarily of lot owners, and which is created to manage or regulate, or both, the residential planned community”. (La. R.S. 9:1141.2). Key characteristics are:
· It is a legal entity separate from its members;
· It is created by declaration or legal documents;
· It manages or regulates the subdivision.
Some may argue that because our state has a specific body of law dedicated to homeowner’s associations, commonly referred to as the Louisiana Homeowner’s Association Act, that this body alone governs. In my humble opinion (or IMHO as my teenager says), this body of law heavily favors the HOA.
However, based on the above characteristics, I suggest that the relationship and disputes that arise between the resident and HOA are governed by Contract Law and Business Law and SHAPED by the Louisiana Homeowner’s Association Act. I will discuss these in turn.
Under contract law, I envision the resident and the HOA as completely separate entities with the resident standing outside of the HOA.
Generally, a contract is the law of the parties. This means that as long as the provisions of a contract are not unenforceable according to law, the provisions have the power of law between the parties to the contract. Yes - the power of law! That means those provisions may be enforced by either party in the courts of law and violations may be penalized by monetary damages or injunctions. That notion is reinforced in the Louisiana HOA Act, which states, “the community documents of residential planned communities shall have the force of law between the homeowners association and the individual lot owners and as between individual lot owners. The remedies for breach of any obligation imposed on lot owners or the association shall include damages, injunctions, or such other remedies as are provided by law.” (La. R.S. 9:1141.8)
So the first place I look when determining the right of my client is to the documents that form and govern the HOA. What are the stated duties of the HOA? What are the stated duties of the residents? Are any of the duties breached?
The third question is one of great importance because, as a general matter, a party in breach of a contract cannot enforce the contract against the other party.
So let’s say a client is being sued over nonpayment of HOA dues. The client-homeowner refused to pay dues because of non-repair of sidewalks in front of her home and falling signs. The HOA charter provides that the HOA is responsible for the upkeep of signs, sidewalks, and common areas. The charter also provides that each homeowner is responsible to pay dues and assessments on time.
Under that simple example, I would first challenge the HOA’s right to bring its suit because it is also in breach of its obligation to maintain the sidewalks and signs in the neighborhood. I would argue that it must bring these items into good repair before it can seek enforcement of the payment of dues.
Likewise, I would advise my client to consider paying the dues. Why? Because by resolving his breach of her duty, she may now have standing to seek a court order mandating the HOA to bring the items into good repair.
Louisiana Business Law
Under the Louisiana Business Law, I envision the resident standing inside the HOA as a member or stockholder of the HOA.
We saw above that an HOA is a legal entity – either a corporation, unincorporated association, or otherwise. The owners of the entity are the homeowners themselves. First, it is important to remember that ownership does not necessarily mean the power to govern the entity’s action. You may be a stockholder and part owner of Wal-mart, but I doubt your order to reduce all prices by 50% will be honored.
However, there is a vast body of law that governs the relationship between owners with no management rights and the manager of the legal entity. It is so large, it would take a full law review article to discuss all of the nuances. So, this will be a very brief and superficial pass.
One of the places I will look is the owner’s voting power. Is there behavior by the association that can be changed or stopped by a simple vote of the homeowners? The charter and by-laws of the HOA will largely govern this. However, Louisiana reserves some activities that can only be modified by the owners.
Next I will look at whether the managers of the HOA acted in good faith when they committed the act that offended my client. Generally, the managers of a legal entity are protected from personal liability is some way. The depth of the protection will largely depend on the type of entity. However, to be entitled to those protections, the manager must have acted in good faith. What is good faith? You guessed it. It’s a matter to be determined by the courts.
Under the Louisiana Homeowner’s Association Act, I would also look for the offensive action by the manager was “willful or wanton” misconduct. The Act provides that these actions are also unprotected. (La. R.S. 9:1141.7)
Next, I will look to see whether a writ of mandamus is appropriate. This is a writ that requests the court to order the HOA to carry out its legal duties.
Finally, I will look to determine whether a derivative action is appropriate. A derivative action is a legal action brought by the owners of the HOA brought against it by its members.
Under extreme circumstances, I may consider whether an action to force dissolution of the HOA is appropriate.
So there you have it. There is a reason we call it the practice of law. Different attorneys approach things different ways. But, I would advise looking beyond the HOA Act to the powerful and more defined bodies of law to approach any dispute. The goal is to help alleviate some of the uncertainty of decisions that may result from looking at disputes of the young and rarely challenged HOA law.