HOA Regulations: Substantive Limits & Statutory Requirements

1. Property II: Class #8Wednesday 9/5/18Power Point PresentationNational Cheese Pizza Day

2. Music to Accompany NahrstedtThe Stray Cats, Built for Speed (2002) • Next Week • Monday: No Class (Rosh Hashanah) • Wednesday: Regular Class Meeting • Friday: Make-Up Class Here Early (8:30-9:50) • Course Page Postings • Materials for Wednesday by Tomorrow Noon • Materials for Friday by Monday Noon • I’ll List Info Memo Additions as I Make Them • I’ll E-Mail re Picking Up Feedback on Submission

3. Chapter 2: Actual and Desirable Limits on Homeowners’ Association RegulationsBrief Intro to Statutes & StructureSubstantive Limits: The California Standards (Nahrstedt)

4. HOAs: Brief Intro to Statutes & Structure FROM YESTERDAY • HOA = Common modern form of promissory servitude • Binds an adjoining group of residences to identical restrictions • Owners belong to the association & elect a governing board that enforces the restrictions. • Millions of people live in residences governed by an HOA (Condos, Co-ops, Developments of Townhouses or Single Family Homes)

5. HOAs: Brief Intro to Statutes & Structure Set up HOA by Creating Governing Documents • Contain rules for owners/residents: “C C & Rs” (covenants conditions & restrictions)) • Include substantive limits on use of units & rules for transfer • Include governing procedures • Election and duties of governing board • Procedures for amending rules • Assessment and collection of fees or dues to pay for administration of common areas, etc.

6. HOAs: Brief Intro to Statutes & Structure Set up HOA by Creating Governing Documents • Contain rules for owners/residents: “C C & Rs” (covenants conditions & restrictions)) • Usually recorded prior to sales of units, so all buyers have notice • “Recorded” means … • Why notice to original purchasers? • Why notice to subsequent purchasers?

7. HOAs: Brief Intro to Statutes & Structure State Statutes re HOA • Mandate Particular Forms for Governing Documents (I’ll give you some links to actual governing documents) • In Most States, Statutes Say C C & R’s “Run with the Land” IF • properly recorded • statutory forms followed • Statutes Often Provide Substantive Limits on HOA Regulations (We’ll See Examples) • I’ll Provide FL Condo Statute (& Comparison with FL Co-Op & Non-Condo HOA) in Info Memo for Chapter 2

8. HOAs: Brief Intro to Statutes & Structure State Statutes & Governing Documents: Our Coverage • You should recognize and understand statutory provisions we go over that create substantive limits (e.g., CA: “unless unreasonable.” or FL: must allow peaceable assembly). • In lawyering Qs, can make quick reference to procedural requirements: “Check if By-Law Change followed proceduires from state statute and governing dox”

9. Chapter 2 Issues: Nahrstedtis Nice Intro Primary Focus: Assuming C C & R’s created with appropriate procedures, what are (or should be) the substantive limits on what HOA can do? In other words, are there some rights we will not let homeowners contract away (or impose on each other)? Keep in Mind: • We are considering substantive limits on right to contract • Similar to issues raised by Shack, Implied Warranty of Habitability, Impermissible Conditions in Estates & Future Interests, etc.

10. Chapter 2 Issues: Nahrstedtis Nice Intro • Existing Limits on Content of HOA Rules Generally • State Caselaw & Statutes • California Rules: Nahrastedt • Florida Cases & Statutes • Special Problems re Restrictions on Alienation • Where Should We Draw the Lines? • Circumstances Raising Concerns about Freedom of Contract • Specific Proposals: Susan French, the Restatement, & Responses • Written Submission will be Short Policy Q

11. Nahrstedt v. Lakeside Village Condominium Ass’n (Cal. 1994) • Assn has “no cats/dogs” rule in declaration. • P wants to keep 3 cats anyway. • No claim of improper procedures • P’s claim of lack of notice legally barred b/c rule was in recorded declaration. • State Ct App ruled for P; Cal SCt Reverses

12. Nahrstedt: DQ2.01 & California Statute Cal Statute: Enforce CC&R’s in HOA Declaration “Unless Unreasonable” • How did the Court of Appeals in Nahrstedt interpret that command?

13. Nahrstedt: DQ2.01 & California Statute Cal Statute: Enforce CC&R’s in HOA Declaration “Unless Unreasonable” • Ct App: Burden on assn to show reasonable in particular case • How did the CalifSCt interpret the same language?

14. Nahrstedt: DQ2.01 & California Statute Cal Statute: Enforce CC&R’s in HOA Declaration “Unless Unreasonable” • Ct App: Burden on assn to show reasonable in particular case • CalifSCt (relying on policy of deference & statutory language) • presumption of reasonableness • No need to show in particular case • Significance of Change in Statutoiry Language from “where reasonable”? [Important lawyerly argument]

15. Nahrstedt: Deference & DQ2.02 & 2.03 Cal. S.Ct.Arguments for giving HOA’swide latitude to do as they please? (beyond statutory language) • Expectations: honor people’s agreements

16. Nahrstedt (H10): Expectations [W]e are of the view that our social fabric is best preserved if courts uphold and enforce solemn written instruments that embody the expectations of the parties rather than treat them as “worthless paper” as the dissent would. Our social fabric is founded on the stability of expectation and obligation that arises from the consistent enforcement of the terms of deeds, contracts, wills, statutes, and other writings. To allow one person to escape obligations under a written instrument upsets the expectations of all the other parties governed by that instrument (here, the owners of the other 529 units) that the instrument will be uniformly and predictably enforced.

17. Nahrstedt: Deference & DQ2.02 & 2.03 Cal. S.Ct.Arguments for giving HOA’swide latitude to do as they please? (beyond statutory language) • Expectations: honor people’s agmts (social fabric quote (p.933-34) • Stability (fewer challenges/less litigation) • Too great a burden on HOA to review for individual reasonableness • Nature of condos: (A) close living & (B) give up some rts to make workable Counter-argumens re deference?

18. Nahrstedt: Deference & DQ2.02 & 2.03 Counter-argumens re deference? • Nature of condos: (A) close living & (B) give up some rts to make workable • Not really fully free choice • people shouldn’t have to buy whole package to get unit they want • If same restrictions in many HOA • Some too intrusive/burdensome/trivial

19. Nahrstedt: Deference & DQ2.02 & 2.03 • Nahrstedtdistinguishes covenants found in the initial documents setting up the HOAand those created in by-laws passed later by the owners. Why should these types of regulations be treated differently? • Original declaration presumed100% consent • Subsequent A) didn’t buy w knowledge of substance B) BUT bought w knowledge of procedure How Should Notice of Procedure Affect Treatment?

20. DQ2.04 Nahrstedt 3-Prong Test Presumption of Reasonableness Overcome if Challenged CC&R… • Violates public policy; • Is arbitrary = no rational relationship to protection, operation or purpose of affected land; OR iii) Burden on affected land far outweighs any benefit. Useful for us on skills level:= practice applying multiprong test

21. DQ2.04 Nahrstedt 3-Prong Test Presumption of Reasonableness Overcome if Challenged CC&R… • Violates public policy; • Is arbitrary = no rational relationship to protection, operation or purpose of affected land; OR iii) Burden on affected land far outweighs any benefit. Definition/Examples of Each

22. DQ2.04 Nahrstedt 3-Prong Test Presumption of Reasonableness Overcome if Challenged CC&R… • Violates public policy; • Is arbitrary = no rational relationship to protection, operation or purpose of affected land; OR iii) Burden on affected land far outweighs any benefit. Majority Application to Pet Restriction

23. Nahrstedt Dissent Justice Arabian & the Wars of the Roses

24. DQ2.04 Nahrstedt 3-Prong Test Presumption of Reasonableness Overcome if Challenged CC&R… • Violates public policy; • Is arbitrary = no rational relationship to protection, operation or purpose of affected land; OR iii) Burden on affected land far outweighs any benefit. Dissent Seems Ok with Test; His Likely Application to Pet Restriction

25. Nahrstedt Dissent Test & DQ2.05 Justice Arabian suggests that associations should not be able to regulate activities that are “strictly confined to the owner’s interior space” if they do “not in any manner invade other units or the common areas.” Language Ambiguities? • “strictly confined” • “in any manner invade”