1. Duties of Associations. In addition to compliance with law and governing documents, an association (whether acting through directors, officers, managers, or other agents, by homeowner vote, or otherwise) has the following duties to its homeowners:

a. To use ordinary care and prudence in managing property and financial affairs;

b. To treat homeowners fairly; and

c. To act reasonably in the exercise of discretionary powers, including rule-making, enforcement, and design-control powers.

2. Duties of Directors, Officers, Managers, and Other Agents. In addition to compliance with law and governing documents, association directors, officers, managers, and other agents must act in good faith, deal fairly with the association and its homeowners, and use ordinary care and prudence in performing their functions.

a. A director, officer, attorney, manager or other agent of an association shall not solicit or accept any form of compensation, gratuity or other remuneration that

i. would improperly influence or would appear to a reasonable person to improperly influence the decisions made by such agent; or

ii. would result or would appear to a reasonable person to result in a conflict of interest for such agent.

b. Unless appointed by the developer, a director or an officer of an association shall not

i. enter into or renew a contract with the association to provide goods or services to the association; or

ii. otherwise accept any commission, personal profit, or compensation of any kind from the association for providing goods or services to the association.

3. Protection Regarding Attorneys. In contracting for a lawyer to seek foreclosure or take other enforcement action, no association may make legal fees in whole or part contingent on the amount paid (for fees or otherwise) by a homeowner. Any homeowner payment to the lawyer shall be held for the association. No contract may authorize anyone to prevent a homeowner from seeking to resolve any dispute directly with directors or other agents of an association.

4. Protection Regarding Managers. All association managers must be licensed and bonded where required by law. In contracting with managers, associations may pay a flat fee, hourly rates, or a combination of flat fees and hourly rates. Managers may not be paid any fee, bonus, incentive, or other amount based on the number or value of violations they allege or address. Managers may not impose charges on homeowners, except where reasonable and expressly authorized by governing documents. All homeowner payments to the manager shall be held for the association.

5. Determination of Architectural Requests. A homeowner’s request that the association or related architectural body approve the homeowner’s planned construction, landscaping, maintenance, or repairs shall be deemed approved unless, within 30 days or such other period as the declaration may specify, the association or architectural body provides written notice specifically detailing a lawful basis for disapproval in whole or part. Such notice shall specify that homeowners have the right to reconsideration by the directors, unless the directors collectively made the original decision. Each year the association in writing shall remind homeowners that rules govern approval of construction, landscaping, maintenance, or repairs.

a. Where otherwise authorized by statute, associations may seek a court order to impose fines for a homeowner’s willful noncompliance with duties under corporate documents, but may not otherwise impose fines.

b. Where authorized by corporate documents, associations may recover reasonable compensation for damages or costs (such as late fees) when a homeowner’s rulebreaking actually harms the association; provided that the association cannot place a lien for such charges without a court judgment.

c. Nothing here prevents an association from withdrawing homeowner privileges to use recreational and social facilities where otherwise authorized, including withdrawal for nonpayment of fines or other charges authorized in this ¶ 6.

7. Retaliation Specifically Forbidden. No association, director, officer, manager, or other

agent of an association may take, or direct, or encourage another person to attempt retaliatory action against a homeowner because the homeowner has

a. complained about alleged violations of law or governing documents;

b. requested to review books, records, or other papers of the association; or

c. taken any other lawful action asserting homeowner rights or otherwise seeking to

improve association operations.

The retaliatory forbidden action includes, without limitation, ill-motivated litigation (e.g.,

Strategic Lawsuits Against Public Participation, or SLAPP suits) as well as deprivation of

other rights protected by law or governing documents.

8. Remedies. In addition to other remedies authorized by this model statute or other law, homeowners are entitled to recover compensatory and, for intentional violations, punitive damages from associations, and their directors, officers, managers, or other agents who act unlawfully. In addition, upon proof of intentional violations by directors, officers, managers, or other agents of the association, homeowners are entitled to appropriate relief in equity including (without limitation) removal of offenders from positions with the association, a bar against their return to office for a specified time, and an order requiring the offender to repay the association for expenses including legal fees. The attorney general (and if otherwise authorized, local government officials) may obtain the same relief as any homeowner, as well as other appropriate equitable relief including a bar against the offender’s serving in any capacity for an association.

For situations not covered by more specific statutes, the model statute follows the Restatement §§ 6.13 and 6.14, requiring ordinary care and prudence, fair dealing, good faith, and reasonability. Such protections (in ¶¶ 1 and 2) apply to associations and to directors, officers, managers, and other agents, reinforcing the foundation for homeowners. [156]

“Where the association exceeds its scope of authority, any rule or decision resulting from such an ultra vires act is invalid whether or not it is a ‘reasonable’ response to a particular circumstance.” [157] Moreover, when they act within the scope of their authority, associations and directors still must comply with laws including the federal Fair Housing Act, [158] and duties under the Fair Debt Collection Practices Act, the latter applicable to lawyers and others who collect debts for the association. [159] Nothing in the model statute reduces these or other existing protections for homeowners.

Like the Restatement, the model statute rejects use of the “business judgment rule,” which has

been cited by some courts to deny review of actions by associations or individuals. [160] By

contrast, the older UCIOA favored the business judgment rule. [161] However, as UCIOA also

recognized, the business judgment rule was developed for traditional corporate situations. In

those situations, owners can sell stock or easily resign their membership, whereas homeowners can avoid associations only by selling and moving, and so deserve greater protection.

Homeowners face significant practical limits on their ability to sell and move. [162]  As the Restatement recognizes, the home typically constitutes a large--often the largest-- investment by a homeowner, and “has personal and social significance far beyond the monetary value.”  [163]  In this context, the business judgment rule prevents effective judicial oversight by deferring too much to associations and their agents. [164]  “[T]he fit between community associations and other types of corporations is not very close, and [the business judgment rule] provides too little protection against careless or risky management.” [165]

[156] See also Restatement § 6.13 comment a, at 235 (homeowners “need and are entitled to protection against actions taken in breach of duty by either the [directors] or the membership acting collectively that cause them injury”). 

[157] Major v. Miraverde Homeowners Ass’n, Inc., 7 Cal. App. 4th 618, 628, 9 Cal. Rptr. 2d 237, 243 (1992).

[158] 42 U.S.C. 3601 et seq. Violations of this statute, some egregious, inexplicably persist. See, e.g., R. Jerome, et al., “Loathe Thy Neighbor,” supra n.12, at 125–36 (association’s unlawful policy banned wheelchair-using child from the front door); Consent Decree in Trujillo v. Board of Triumvera Tower, C.A. No. 04-1933 (N.D. Ill. 9/9/04).

[159] 15 U.S.C. 802 et seq. See, e.g., Fuller v. Becker & Poliakoff, 192 F.Supp.2d 1361 (M.D.Fla. 2002) (assessments are consumer debt, attorneys are debt collectors); Caron v. Maxwell, 48 F. Supp 2d 932 (D. Az. 1999).

[160]  Restatement at 236-37.

[161]  Id.; see § 3-103(a) & comment 6.

[162]  Restatement at 237–38.

[163] Id. at 237.

[164]  Id.

[165]  Id.at 236–37.

The specific conflict of interest provisions (¶ 2 a and b) follow Nevada’s example. [166] Some

directors, having been properly elected, may face a vote with respect to which they have a conflict of interest or the appearance of a potential conflict of interest. In some such cases, a director might be required to recuse from the decision, while in others it might be sufficient to disclose relevant personal information. The model statute does not attempt to anticipate all scenarios, but disagrees with statutes that always allow voting after disclosure of actual conflicts. [167]

The model statute (in ¶ 3) specifically prohibits associations from hiring lawyers to sue homeowners on a contingent fee basis. Experience confirms that such contingent fee retainers

lead to premature and excessive litigation because the lawyers typically face no risk and homeowners face unwarranted pressures to give in and pay fees, however, unwarranted the claim, as discussed in Section 103, The Right to Fairness in Litigation.

The model statute (in ¶ 4) also prohibits the equivalent of contingent fee billing by managers. To compensate managers for charging homeowners imperils efforts to cooperate in resolving disputes. Services can be billed to homeowners, such as for copying, or for supervision during document review, if such charges are reasonable. See Section 107, The Right to Oversight of Associations and Directors (¶ 1).

The model statute (in ¶ 4) requires managers to be licensed (and sometimes bonded) because of their significant responsibilities over homeowners and their money. Agencies in other contexts commonly test licensees that have far less responsibility. Moreover, individual associations have little ability to evaluate potential managers. The prospect of losing a mandatory license should serve as a disincentive to misconduct by managers. CAI likewise favors licensing. [168]

Requests to add to or renovate a home invariably reflects strong desires of homeowners, whether concerning “additions or renovations, landscaping, choice of exterior paint colors, coverings, or roofing materials, changes to windows and balconies, and other such changes to the structure or appearance of the property.” [169] As provided in Section 104, The Right to Be Told of All Rules and Charges, (¶ 3b), the model statute allows architectural regulation in the declaration.

The model statute (in ¶ 5) focuses on securing prompt decisions for homeowners, with specification of the basis for any rejection or limitation on use of their home. [170]  Moreover, homeowners denied a requested change obtain the right to seek review by the directors, without waiving other rights. [171]  “These requirements would improve the fairness of the process, without imposing significant costs on the association.” [172] This does not change any standards if lawfully adopted by the association.

The association must provide notice of these rights at least annually, such as when sending bills for assessments. [173] This assumes no alternative, always-accessible posting of such rights. If an association provides this information in an always-accessible place, such as a posting in a common room or on a web site, then a reminder every two years may be sufficient. Reminding homeowners of architectural review rules avoids hardship that can result if homeowners inadvertently proceed without first seeking approval.

Where otherwise authorized by law, the model statute (¶ 6a) permits associations to seek fines as a judicial sanction for willful noncompliance with homeowner duties under corporate documents or applicable statute. [174] In addition, the model statute (¶ 6b) permits associations to recover reasonable compensation for damages or costs (such as late fees) when a homeowner’s rulebreaking actually harms the association, provided that the association cannot place a lien for such charges without a court judgment. [175]

Following the Restatement § 6.8, the model statute allows enforcement by reasonable withdrawal of privileges, but only for “common recreational and social facilities.” [176] Section 108, The Right to Vote and Run for Office, specifically forbids denial of voting rights based on alleged violations.

The model statute adds a specific prohibition of retaliation following Nevada’s example, [177] and to confirm this mandate specifies strong remedies. Retaliatory litigation poses particularly grievous problems, reflecting both the direct attack on a family home and the ability to pursue that attack by misusing association funds and information (sometimes including confidential information) available to the association. [178]  Homeowners deserve protection against retaliatory suits, as in Florida. [179]

[166]  Nev. Rev. Stat. 116.31185 & 31187.

[167]  E.g., Ariz. Rev. Stat. 33-1811.

[168] CAI “Public Policies,” supra n.59 at 3 & 16–20 (eff. 10/19/01). See also Nev. SB 325 §§ 23-29 (on licensing managers and reserve study specialists).

[169]  Common Interest Development Law: Architectural Review and Decisionmaking, 34 Cal. L. Revision Comm’n Reports 107, 114 (2/6/04).

[170]  See id. at 113; Cal. Civ. Code 1378 (a) (1 & 4).

[171]  Id. at 114; Cal. Civ. Code 1378(a)(5).

[172]  Id. at 111-12.

[173] See Cal. Civ. Code 1378(c).

[174] The requirement to go to court reflects the need for separation of powers to ensure fairness in imposing fines. Cf. Tumey v. Ohio, 273 U.S. 510 (1927) (unconstitutional for the person who decides whether to impose fines also to keep the fines). Some cases hold that only governments, not associations, have constitutional power to impose fines. E.g., Foley v. Osborne Court Condominium, 1999 R.I.Super. LEXIS 50; see also Walker v. Briarwood Condominium Assn., 274 N.J. Super. 422, 428 (App. Div. 1994) (suggesting fines and penalties are uniquely governmental); Unit Owners Ass’n of BuildAmerica-1 v. Gillman, 223 Va. 752, 292 S.E.2d 378 (1982) (distinguishing late fees); but cf. Va. Code 55-79.80:2 (enacted before Gillman recognized the constitutional ban). 

[175] See also Committee for a Better Twin Rivers, supra n.7, 890 A.2d at 970 (no liquidated damages unless reasonably related to harm alleged).

[176] See also Fla. Stat. Ann. 720.305(2) (suspend common area privileges only, not including parking).

[177]  Nev. Rev. Stat. 116.31183.

[178]  See also Brooks v. Northglen Association, 141 S.W.3d 158 (Tex. 2004) (describing an association that sued to stop homeowners from protesting and sought damages in libel/slander, these claims all eventually dropped before the homeowners won declaratory judgments underscoring the righteousness of their protest) (author was counsel).

[179] Fla. Stat. Ann. 720.304(4).