Newsletters

Community Associations Update - March 2016

Date: March 15, 2016

Recent Developments - Amending Virginia HOA Governing Documents
By: Drew Terrell, Esq.

The Supreme Court of Virginia published an opinion relating to the process of amending the Declaration of a Property Owners Association.  The case titled Steven F. Tvardek, Jr., et al. v. Powhattan Village Homeowners Association, Inc., ruled that an Amended Declaration is not effective unless the President’s certificate recorded with the amendment verifies that the required majority of owners signed the amendment or ratification approving the amendment.  In this case, the certificate merely stated the owners approved the amendment.  The Court relied that this was insufficient to comply with the statute regarding amendments, and the amendment was not effective.   

Section 55-515.1(E) of the Virginia Code states there is a one (1) year statute of limitations that bars actions challenging the validity of amendments.  However, that applies if the action is “brought more than one year after the amendment is effective (emphasis supplied).”  Section 55-515.1(F) of the Virginia Code states that an amendment is effective when a copy of the amendment is recorded together with a certification signed by the principal officer of the association that states that the requisite majority of the lot owners signed the amendment or ratifications.   

In the present case, the certification filed with the amendment stated that the amendment was “approved by a vote of two-thirds of the Class A votes…”  The certificate goes on to state that this was “…evidenced by the results of the meeting at which the vote was taken.”  The owners argued that the amendment did not become effective as the certificate did not state that the requisite majority of the owners “signed” the amendment or ratifications.  

The Supreme Court of Virginia agreed with the owners.  The Court stated that restrictive covenants are viewed strictly.  The General Assembly used the word “signed” not approved.  It noted that there is a difference between adopting an amendment and signing it or some written ratification thereof.  

It is important to note, the Court in a footnote states that the Condominium Act starts the statute of limitations when the amendment is recorded. It does not impose the signature requirement.  Thus, this decision does not apply to condominiums.  

The association made a number of other arguments that were rejected by the Court.  While this opinion applies to only Virginia homeowners associations, it does stand for the greater proposition that covenants are strictly construed and focus on the details is extraordinarily important. 

Are District of Columbia Condominium Associations Required to Register with DCRA and/or Obtain Business Licenses
By: Michelle La Rue, Esq.

The registration and licensing requirements of condominium associations in the District of Columbia vary depending upon several factors.

REGISTRATION

The Department of Consumer and Regulatory Affairs (“DCRA”) Corporations Division serves as the Office of Corporate Registrar for the District of Columbia. The Corporations Division registers all entities that conduct business within the District of Columbia.

Registration is the first step in business regulatory compliance. This registration is separate and must be done before an entity applies for a business license, permit, tax registration or any other registration within the District, if required.

Unincorporated entities are not required to be registered with DCRA’s Superintendent of Corporations Office.  Accordingly, unincorporated condominium associations within the District of Columbia are not required to register with DCRA.  

However, incorporated District of Columbia condominium associations are required to register with the DCRA.  To register a nonprofit corporation in the District, the association must deliver its articles of incorporation (form DNP-1) to the Superintendent for filing online through the DCRA website at http://dcra.dc.gov/service/domestic-nonprofit-corporation.  The association may also register through mail or walk-in.

Associations must also file status reports every two (2) years in order to maintain good standing in the District.  The reports are due April 1st of each year, beginning with April 1st of the very next year from the year of registration.

LICENSING

There are various types of business licenses issued by the DCRA, all of which fall under the umbrella of a Basic Business License.

A District of Columbia condominium association does not need a general business license when it is only providing or offering services to the unit owners and not to the general public. Therefore, in most instances, an association does not require a general business license.

However, if the condominium association provides or offers to provide any services to the general public, a general business license is required, and may be obtained through the DCRA website at https://dcra.dc.gov/. The application may also be made via mail or walk-in.  The general business license is valid for two (2) years.

The association must comply with the following DC Code requirements when making application for a general business license:

  1. The association must be registered with DCRA;
  2. The association must submit the application for a general business license, together with payment and required documentation;
  3. The association must certify that no more than $100 is owed to the District of Columbia Government as a result of fees, penalties, interest, or taxes through completion of a Clean Hands Self-Certification. 
  4. The association must submit its tax identification number; and 
  5. The association must provide a Certificate of Occupancy or Home Occupation.

If a condominium association operates an elevator(s) on its premises, it must obtain a certificate of inspection from DCRA.  This applies regardless of whether or not the association is incorporated.  All applicants for a Certificate of Inspection must comply with the following DC Code requirements:

  1. Complete a Conveyance Equipment Information Card, remit the associated payment, and submit the required supporting documentation; and
  2. Present a Third Party Inspection Report to be reviewed and approved by an elevator inspector from the Department of Consumer and Regulatory Affairs. 

If an association has an indoor and/or outdoor swimming pool, it must have a swimming pool license.   This permit is required regardless of whether or not the association is incorporated.  To obtain a license, the association must:

  1. Obtain a certificate of occupancy or home occupation permit;
  2. If incorporated, register with DCRA;
  3. Register with Office of Tax and Revenue;
  4. Certify that no more than $100 is owed to the District of Columbia Government as a result of fees, penalties, interest, or taxes through completion of a Clean Hands Self-Certification;
  5. Submit a properly completed Basic Business License Application;
  6. Obtain approval from the Department of Health; and
  7. Indicate other business activities (endorsement type) on application.

Condominium Associations are not required to be incorporated in order to obtain these licenses.

Prince George's County Council Recently Adopts New Legislation Establishing A Commission On Common Ownership Communities
By: Kevin Kernan, Esq.

The Prince George’s County Council recently adopted new legislation that establishes a Commission on Common Ownership Communities (the “PGCCOC”).  The Commission will be composed of nine (9) members appointed by the County Executive. Five (5) of the members will be selected from unit or lot owners who reside in a common ownership community, and four (4) of the members will be selected from professionals associated with common ownership communities, such as property managers, realtors and attorneys.  In many ways, the PGCCOC mirrors the commission established in Montgomery County that has regulated common interest communities in that county for years.

The Prince Georges legislation became effective February 1, 2016, but its implementation has been delayed.  The new law requires every common ownership community within the County register with the Office of Community Relations by December 31st of each year.  The legislation permits the County to impose a registration fee to be paid by all Associations in order to fund the administrative operations and dispute resolution services the PGCCOC may offer.  However, the County is still determining the appropriate amount of the registration fee.  Information on the registration procedure has not yet been provided but it should be forthcoming from the County’s Office of Community Relations. 

The registration shall identify, among other things, the Association’s officers, fidelity insurance information, current reserve balances, and budget information.  The grievance procedure for each community will also need to be disclosed.  Failure to comply with the registration requirements may result in the suspension of the Association’s registration status and its ability to file a legal action in the County. 

An interesting aspect of the legislation is the development of an alternative dispute resolution program.  It’s intended to allow the PGCCOC to attempt to resolve disputes between members and their associations.  However, participation is mandatory for all parties before either party may petition a Maryland court for resolution of the matter.  This provision is unique to the PGCCOC and it appears to delay the parties the right of access to the court system.  Another negative side effect to this provision is that it may allow a party to take advantage of inherent delays in dispute resolution proceedings in order to delay complying with Association governing documents.  Representatives from the Washington D.C. Metro Chapter of the Community Associations Institute are attempting to resolve this aspect of the legislation with the Prince Georges County Council.   

The new legislation further requires parties to exhaust all dispute resolution mechanisms in place by an Association before petitioning the PGCCOC to hear a dispute.  Complaints to the PGCCOC must be filed within thirty (30) days of exhaustion of the Association’s dispute resolution procedure. Even if the owner does not file a claim with the PGCCOC, the Association cannot implement any action permitted under its governing documents until the expiration of the thirty (30) day filing period. The dispute resolution applies only to disputes surrounding an Association’s breach of its governing documents or its enforcement procedures against owners; it is not intended to apply toward assessment collection disputes.

If a complaint is filed with the PGCCOC, a qualified dispute resolution specialist shall meet with the parties within thirty (30) days of the complaint filing.  Meanwhile, an Association may not implement any action to enforce its governing documents until the PGCCOC has held its hearing and rendered its own decision.  “Written decisions” are expected to be issued within sixty (60) days after the hearing, but the legislation is unclear on whether the decision is binding upon the parties.  The legislation is also unclear on the role of the dispute resolution specialist in resolving the matter, specifically, whether the specialist shall act as an arbitrator and has authority to force a resolution of a dispute or whether he should act as a mediator to assist the parties in voluntarily resolving their dispute.  If the specialist is expected to act as an arbitrator, the legislation will need to provide procedures to be followed at arbitration that preserves each party’s due process rights. If the specialist is expected to mediate the parties’ dispute, then the legislation will need to clarify that he or she attempts to reach a voluntary settlement between the parties.  Efforts are underway to clarify this aspect of the legislation with the Prince Georges County Council. 

Our office will continue to monitor the implementation of this legislation and will provide updates on any amendments that may be enacted.