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Archive for the ‘HOA’ Category

Coronavirus and Impact on Landlords and Tenants

Posted on: April 1st, 2020

By: Michael Bruyere,Ryan Greenspan and Ali Sabzevari

Commercial and residential tenants, whether due to operational closures or loss of jobs or income, will face difficulties meeting their rent obligations, and some may even abandon their properties.  Landlords may face both a loss of rents, as well as physical closures or abandonment of properties making sites more vulnerable to vandalism or theft. We provide this brief overview regarding how each party’s rights and obligations may be impacted by the COVID-19 crisis.

Eviction Limitations

Regulations have recently been enacted in New York, Boston, Los Angeles, San Francisco and St. Louis banning evictions for nonpayment of rent, often in both the residential and commercial settings.  Some states, such as California and New York have also instituted statewide eviction moratoriums.  Federal agencies, such as U.S. Department of Housing and Urban Development, have also announced that they are suspending evictions and foreclosures until April 30, 2020, with the CARES Act placing a 120-day eviction moratorium on tenants in special housing assistance (Section 8) or federally backed mortgage loan programs.  While these provisions prevent evictions, they do not address the tenants’ ongoing rent payment obligations.

Lease Provisions and the Impact on Rent

Unless they are on a month-to-month tenancy, the parties’ rights and obligations are evaluated under their leases.  The most likely lease provisions relating to potential efforts to avoid rent payments include: 

  • Force Majeure.  It is unclear whether COVID-19 will fall within potential force majeure clauses.  Most of these clauses have detailed listing of covered items, but pandemics are not included.  An epidemic might not also be considered an “Act of God.”  As such, the interpretation of such clauses, which might vary from state-to-state, will need careful analysis.
  • Act by Civil Authority.  Given civil shelter-in-place/business cessation orders, this type of clause may be relevant to the extent a particular business is forced to close its operations.  Not all “civil authority” clauses are written in the same way, so careful attention to the language used will be needed.

Withholding Rent/Rent Strikes

While evictions might be halted, tenant groups are seeking the additional right to not just delay rent payments, but to also negate rent obligations during the COVID-19 crisis.  Finding a legal justification for the failure to pay rent may be difficult.

For month-to-month residential renters, as long as the premises remains “habitable,” rent can almost always be compelled in the absence of an overriding statute or regulation.  Because personal homes should remain “habitable,” absent very odd circumstances, residential renters should seemingly owe their rent.  Many jurisdictions do not apply the “habitability concept” to commercial properties.   In commercial and residential lease agreements, while there may be provisions allowing for “rent holidays,” such provisions often remain “landlord friendly” as well.  Consequently, there may be few (if any) instances where a commercial tenant can also legally avoid a rent payment obligation, even if their business has been shut down (unless the force majeure or civil authority provisions apply).

Yet, threatened “rent strikes” and general intent to not pay rent, particularly in cases where evictions are not presently permitted and money may be needed for other necessities, are likely to occur.  To avoid the loss of funds, without any benefit or potential chance of later recoupment due to possible bankruptcies or lack of collection opportunities, landlords may wish to consider lease alterations.  A renegotiated lease (extended period/modified terms), or an interim lease credit, may generate opportunities to work with a tenant to find the most satisfactory outcome in an adverse economic climate.  Such an approach, with a jointly signed writing, can also avoid later issues of “waiver’ or “estoppel” in seeking to enforce lease terms.  Involving both “business” and “legal” considerations, finding a path to try and continue a positive income stream for landlords, and a workable payment plan for tenants, might be in the best interests of all concerned.

Breakdown of COVID-19 Rules on Housing Across the Nation

A breakdown of COVID-19 rules on housing across the country can be accessed here.

If you have any questions or would like more information, the National Contract and Risk Management Team at Freeman Mathis & Gary, LLP is here to help. Most circumstances are case and state-specific.  To learn more, or if you have specific questions regarding your situation, please contact A. Ali Sabzevari at [email protected], Michael P. Bruyere at [email protected], or Ryan J. Greenspan at [email protected].

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include the CARES Act, education claims, law enforcement, the real-world impact of business restrictions, and the viruses’ impact on the construction industry. Click here to register.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.** 

Trying to Go Green May be Harder Than it Seems

Posted on: March 11th, 2020

By: Matthew Jones

There is more and more urgency for people to utilize “greener” products in an effort to be environmentally friendly and more efficient.  Some of these products include electric cars, water efficient toilets, and solar panels, to name a few.  The government, both state and federal depending on the jurisdiction, even incentivize people to use these products by discounting the purchase price or providing a tax credit.

However, purchasing and then using some of these products is not as simple as that.  Specifically, homeowners’ can run into problems using solar panels if they are part of a Homeowners’ Association (“HOA”).  As part of its governing power over the homeowners in its area, the HOA can control what is done in the common areas or even what is visible in the common areas.  Some people are experiencing that control and receiving pushback from HOAs that do not like the color, build, or location of the solar panels, thereby rejecting the homeowner’s request to utilize the product.  Such restrictions have resulted in frustration from the homeowner who is claiming an attempt to simply “go green” and save some money on electricity bills.

Given this back-and-forth between HOAs and homeowners, a common ground or solution needs to be reached.  And, with these always-changing products and incentives, generic HOA guidelines, rules and regulations, and bylaws will have to adapt, or else litigation is likely to follow.

If you have questions or would like more information, please contact Matthew Jones at [email protected].

Association Board Members Have Fiduciary Duties

Posted on: February 6th, 2020

By: Ali Sabzevari

The Georgia Property Owners’ Association Act and an HOA’s governing documents govern the creation and operation of a homeowners’ associations (“HOA”) and the duties of its board members.

A Board of Directors is typically responsible for managing all aspects of an HOA, but what some people may not understand is that board members have what are called “fiduciary duties” owed to the HOA members in the neighborhood.  A fiduciary relationship may be created by law, contract, or the facts of a particular case. The board members are in an important position of trust, and therefore owe a fiduciary duty to the HOA.

Board members owe fiduciary duties to the homeowners who form the HOA, including a duty of good faith and duty of care, among others. A board member’s failure to adhere to its fiduciary duties could expose the HOA to legal suits and potential liability. Under Georgia law, “a claim for breach of fiduciary duty requires (1) the existence of a fiduciary relationship, (2) breach of that duty, and (3) damage proximately caused by the breach.”

Before volunteering to serve on a Board of Directors, one should consider the legal duties involved.  Moreover, newly-formed and existing Boards need to fully understand and appreciate the governing documents and the duties imposed therein and under Georgia law, including fiduciary duties.  These duties should be taken into consideration when making decisions that impact the HOA members.  Dealing with these issues can be complex.

If you have any questions or would like more information, please contact A. Ali Sabzevari at [email protected].

Changes In Store for California HOA Elections

Posted on: November 18th, 2019

By: Nicole Clowdsley

With 2020 fast approaching, California HOAs should be proactively preparing to comply with a litany of new statutorily mandated changes to their election processes. On October 12, 2019, California Governor Gavin Newsom signed Senate Bill 323 into law resulting in amendments to multiple sections of the California Civil Code regulations governing HOA elections. These changes become effective January 1, 2020.

Among the more significant substantive changes are specific standards HOAs may use to disqualify candidates from running, such as ineligibility of persons with certain past criminal convictions. Also, in order for an HOA to allow for board member acclamation – meaning there are more open positions than nominees and the nominees simply take the board seats – an HOA needs to have at least 6,000 units! HOAs may no longer suspend any member’s voting rights for any reason other than not being a member. Finally, in addition to limiting who may serve as an inspector of elections, HOAs must now ensure the inspector retains additional election materials, such as candidate registration and voter lists, for one year following the election process.

In addition to all the new requirements HOAs must abide by, associations needing to amend their election operating rules must now do so no later than 90 days before an election. So, for those HOAs with elections after the first of the year, time is of the essence. HOAs must act quickly to ensure upcoming elections are conducted in accordance with California’s extensive new requirements, or, they could find their election results overturned for legal noncompliance.

If you have any questions or would like more information, please contact Nicole Clowdsley at [email protected].

‘Tis the Season. The HOA v. The Holiday Display

Posted on: October 15th, 2019

By: Nicole Graham

Piling the family in the car to drive through the neighborhood and see holiday displays is a time-honored tradition. With Halloween and the winter holiday season quickly approaching it is a good time to review the HOA’s guidelines on exterior, seasonal décor. Costly disputes between the HOA and an overly-festive homeowner may be avoided with clearly-expressed, seasonal guidelines that do not go beyond the scope of the HOA’s authority.
In Sainani v. Belmont Glen Homeowners Ass’n., 831 S.E.2d 662 (VA 2019), a fight over two strings of holiday lights between an HOA and homeowners went up to the Supreme Court of Virginia. The seasonal guidelines were intended to promote harmony in the community; avoid discourteous and unsafe conditions affecting property values; to avoid religious issues in the community; and to avoid the prolonged display of lights and decorations outside the respective holiday. The seasonal guidelines permitted “tasteful special decorative objects and lighting that are consistent with recognized Federal Holidays, Religious Holidays, Valentine’s Day and Halloween” for a specific length of time. The guidelines further required decorative lights be turned off by midnight each evening.

One home in the community displayed a string of lights on its front door and another string of lights on the railing along the back-deck in celebration of several Hindu, Sindhi, and Sikh religious holidays throughout the year. The HOA sent the homeowners letters outlining their violation of the seasonal guidelines.  The homeowners did not respond.  A hearing was held.  The homeowners did not appear. The review board who oversaw the hearing imposed a $10 per day fine for each day the violations went uncorrected for a period of up to 90 days. The homeowners did not correct the violations or otherwise respond.  Litigation ensued.

The homeowners argued the seasonal guidelines exceeded the HOA’s authority under its declaration of restrictive covenants and were thus unenforceable. The HOA claimed the seasonal guidelines were authorized by the declaration of restrictive covenants governing the community.

The Virginia Supreme Court sided with the homeowners and found the HOA’s justification for the seasonal guidelines was not reasonably related to any restrictive covenant and their enforcement was, therefore, arbitrary, capricious and unreasonable. The Court noted that restrictive covenants are to be construed most strictly against the grantor and persons seeking to enforce them, and substantial doubt or ambiguity is to be resolved in favor of the free use of property and against restrictions. The Court found none of the covenants in the declaration could be construed to authorize the seasonal guidelines. The only restrictive covenant that directly referenced exterior lighting was inapplicable because it merely prohibited directing exterior lighting outside the boundaries of the lot and causing any adverse visual impact to adjacent lots, whether by location, wattage or other features. The seasonal guidelines did not mention “adverse visual impact” and did not regulate location, wattage or other features. The seasonal guidelines only regulated the dates and number of days during which the residents may display decorative lighting. The Court concluded the seasonal guidelines exceeded the scope of the exterior-lighting covenant.

Both parties incurred far more in attorneys’ fees and costs than the $900.00 imposed by the HOA before the case was finally concluded. At the trial court level, the HOA had incurred approximately $40,000.00 in attorneys’ fees and costs to fight over two strings of lights it did not have the authority to regulate. For further information or questions, please contact Nicole Graham at [email protected].