Client Alert: Significant Court of Appeals Decisions Impact Association Authority
Date: June 1, 2023
Two recent decisions from the Court of Appeals of Virginia underscore the need to closely review an association’s governing documents for recorded covenants, either monetary or nonmonetary, that association boards wish to enforce. In particular, the Court of Appeals has now addressed boards spending associations’ assessments on services unrelated to common areas (or presumptively common elements), and assigning parking spaces to unit owners using revocable licenses.
The Authority to Use Assessments to Fund Services Unrelated to Common Areas
In Burkholder v. Palisades Park Owners Association, Inc., decided on February 7, 2023, the Court of Appeals of Virginia ruled against the Association, reversing a trial court’s decision in an owner’s lawsuit alleging that the Association’s use of assessments to hire a third-party to inspect the lots in that Association for violations was unauthorized because that specific use for assessments was not expressly written in either the Property Owners’ Association Act (the “POAA”) or the Association’s recorded covenants. The Court of Appeals reasoned that Section 55.1-1805 of the POAA permits associations to use assessments paid by owners only for purposes related to use of the association’s common areas, unless other uses, such as inspection of the association’s lots, are expressly authorized by law or in an association’s recorded covenants. The Association countered that its Declaration authorized its board to monitor lot compliance, hire persons to carry out the duties of the Association, impose assessments for noncompliance with Association rules, and otherwise use assessments to enforce the Declaration. However, the Court of Appeals found none of these covenants was an explicit statement that assessments may be used to pay for inspection of the lots in the Association.
While the Court of Appeals conceded that the authority to impose assessments to pay for inspection of the Association’s lots could be implied from a reading of the documents as mentioned above, the Court of Appeals concluded implied authority in the Association’s governing documents is not enough. A dissent to the decision argued the majority of the Court of Appeals has now required an explicit statement of authority in order to pay for inspections of the lots if no inference of that authority may be made, whereas only an express statement, which would allow for reasonable inference to still be made, is all that is required by the POAA. While it is possible that the Burkholder decision may be revisited by the Court of Appeals, or by the Supreme Court of Virginia on appeal, Burkholder is the law in Virginia now and has a significant effect on the extent of Association authority.
Exclusive Parking Spaces on Common Elements Revisited
The Court of Appeals in Telegraph Square II, A Condominium Unit Owners Association v. 7205 Telegraph Square, LLC, decided on April 25, 2023, has affirmed a decision in favor of a unit owner that challenged a board decision about reserving parking spaces as outside of that board’s authority that was expressed in the Association’s condominium instruments. In Telegraph Square, the Association voted to reserve the entirety of one section of common element parking spaces to only a few unit owners while covering the costs of maintenance and repair of those spaces from the assessments collected to cover all of the capital components of that Association. The Court of Appeals relied on the Virginia Condominium Act to support the prohibition on condominiums from limiting owners’ access to the common elements without express authorization in the association’s condominium instruments.
The Court of Appeals did not find language sufficient in Telegraph Square’s condominium instruments to support the board’s reservation of parking spaces, although the condominium instruments said parking was available on a “first come, first served” basis, “except as the Board may otherwise determine,” and authorized the board to issue revocable licenses to unit owners for portions of the common elements. The Court of Appeals appeared concerned that the Association, despite the authority in the Association’s condominium instruments, did not assign parking spaces through an amendment to the condominium instruments as permitted by the Condominium Act. The Court reasoned that the Association’s attempt to license parking spaces (without an amendment) was insufficient because the existing licenses neither contained any conditions nor limited the duration of any license to make that license “revocable.” Moreover, the Court sought to protect a unit owner’s equal access to all of the common elements unless an association’s condominium instruments expressly provided otherwise and specifically authorized that an association may impose regulations that affect unit owners differently. The Association further did not persuade the Court that the Association had the authority to collect assessments from unit owners to fund reserved parking spaces to which those owners had no access and thus no benefit.
There were also other significant holdings in the case, including the Court’s approval of an award to the Unit Owner of monetary damages for lost rent, as well as approval of the Unit Owner’s withholding of assessment payments based upon the dispute with the Association. Each of these, and other holdings in the case, could have substantial impacts on associations that find themselves in disputes with owners.
Impact
The results in both of these cases are significant and will impact association operations in a variety of ways. The Court’s interpretation of the documents in each case is far narrower than many would have expected, and requires greater caution as associations seek to carry out their functions. As mentioned, associations should identify those portions of their governing documents or recorded covenants that authorize their boards to spend their associations’ existing or future assessments on services unrelated to common areas or common elements, and/or to keep or to adopt any parking scheme that reserves or licenses parking spaces. Please contact your association’s attorneys about the effect of these two new decisions by the Court of Appeals on the services offered by your association presently, or the rules or resolutions that have been adopted to regulate the use of the common elements and in particular any use that favors some unit owners to the exclusion of other unit owners.
*Law Clerk, 2023
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.