Community association management contracts play a crucial role in defining the relationship between community associations and their management companies. This is the second installment of the series focusing on some key provisions of community association management contracts. In the first post, we discussed the concept of indemnification and indemnification provisions in such contracts.

As discussed previously, community management relationships are often memorialized by written management contracts.  While these contracts may look routine and boilerplate, community management contracts are binding legal contracts that have serious implications for the parties, including community associations.  

In this post, we will discuss the topics of (i) terms and (ii) notice provisions.

Terms: Beyond Merely Start and Stop Times

A critical topic that needs to be clearly addressed in a community management contract is the term of the contract. The term is the length of the contract.  In general, this means the length of time that the community management company will provide management services to the association and the length of time that the parties will have obligations to one another under the contract. Notably, some provisions of the contract will often survive termination of the contract, such as, for example, the provisions regarding indemnification.

The term of the contract sounds straightforward, but it is important to review these provisions carefully. First, it is advisable to define a clear start and end date for each term of the contract. Often, a community management contract will contain an automatic renewal provision. Notably, Virginia’s General Assembly recently passed legislation in both the property owners’ association context as well as the condominium context on the topic of termination rights for community management contracts containing automatic renewal provisions. We will discuss that recent legislation in a future post in this series.

Clearly defining the term of the contract is essential because the parties need to understand when their contractual obligations begin and when they end. Often, a community management company and association will negotiate for several weeks or longer before signing a community management contract and agreeing on a start date for the term of the contract.  If the term of the contract has not yet commenced, the community management company will generally not have any obligation to perform its agreed-upon duties, such as the issuance of covenant violation correspondence or the payment of liability insurance premiums, for example, unless the community management contract provides otherwise.  The parties will also want to understand when the contract term ends.  By way of illustration, a community management company will want to be sure of the date of the term’s conclusion through which it must perform under a community management contract, even if a termination notice has recently been issued.  Failure to continue to perform its obligations, such as the payment of utility bills or insurance premiums, could have serious negative consequences and lead to legal liability.

The parties should also ensure that the community management contract addresses whether or not there will be a termination fee in the event that the community management contract is terminated or not renewed at the end of the term.  Moreover, the term provisions should address what happens if the community management contract is renewed.  For example, how long will the new term be?  What will the new management fee be, and how will that be calculated? 

The community management contract will also often want to address whether it is an exclusive agreement.  In other words, is the community association permitted to retain other community management professionals for other purposes, such as financial management, for example? Or, alternatively, is the community management contract exclusive between the parties such that the community management company is the only permissible community management company that the community association may engage during the term of the contract?

Notice Provisions

Another critical aspect of a community management contract is the “notice” provisions.  ”Notice” provisions are the provisions in the community management contract referring to how one party gives “notice” to the other party under the community management contract. 

Often, a commercial contract will have specific notice provisions that set forth how notice is to be given and to whom in order for “notice” to be deemed given under such a contract.  In a commercial contract, there will likely be various rights that may be exercised or obligations that may arise after one party to the contract gives “notice” to the other party, but what does “notice” mean exactly?  It is important to note that failing to adhere strictly to a notice provision, even if notice is received by the other side in a timely fashion, could result in a court finding that such purported notice was not sufficient for the purposes of the contract.  This failure to properly give notice could have serious potential consequences, including legal liability.

In a community management contract, it is critical to review the notice provisions to understand what notice is required, to whom it is required to be given, and when such notice is required to be given.  Often, the notice provisions will set forth the specific method of how to deliver the required notice: e.g., U.S. mail, electronic mail, commercial courier, or hand-delivery.  Additionally, the notice provisions will often list the required recipient(s) of such notice, for example, the President of the Board of Directors, the attorney for the community association, or an officer of the community management company.  Notice provisions often typically contemplate how the designation of a required recipient of notice may be changed by the receiving party.

It is critical to review a draft community management contract with legal counsel before signing one.  Reviewing draft community management contracts with legal counsel can help the community association better understand and manage its risk, as well as help it understand its rights and obligations.  Additionally, if a community association desires to terminate or take some other action with respect to a community management contract, it is also prudent to discuss the procedure and implications of such with counsel. implications of such with counsel.

Community association boards and managers in Virginia play a vital role in maintaining the well-being of their communities. However, this role comes with numerous legal responsibilities and potential pitfalls. This article explores ten legal challenges that community association boards and managers may encounter in Virginia.

Failure to Follow Governing Documents

One of the most common legal pitfalls for community association boards and managers is failing to adhere to the association’s governing documents. These documents, including the Declaration of Covenants, Conditions, and Restrictions (“CC&Rs”), establish the rules and regulations for the community, and deviating from these documents may result in legal disputes.

Discrimination Claims

Community associations must avoid discriminatory practices when enforcing rules. Fair housing laws prohibit discrimination based on factors like race, gender, religion, and disability. Community association boards and managers must be knowledgeable about these laws to avoid costly legal battles.

Inadequate Record-Keeping

Proper record-keeping is essential for community associations. Failure to maintain accurate records can lead to disputes over dues, maintenance issues, or other matters. Inadequate records can hinder the association’s ability to resolve disputes efficiently.

Mismanagement of Funds

Community associations must manage their finances meticulously. Misappropriation of funds or lack of transparency can lead to allegations of financial mismanagement and legal actions against the association.

Violation of State Laws

Virginia has specific laws governing community associations, and failure to comply with them can lead to legal problems. For instance, community associations must follow state laws related to meetings, elections, and disclosure requirements.

Failure to Maintain Common Areas

Community association boards and managers must ensure that common areas are adequately maintained. Neglecting this responsibility can result in lawsuits from homeowners who claim that their property values are declining due to the lack of upkeep.

Inconsistent Enforcement of Rules

Inconsistent enforcement of community association rules can lead to accusations of favoritism or discrimination. It is essential for community association boards and managers to apply rules uniformly to avoid legal disputes.

Unlawful Assessment Collections

Community associations depend on homeowners’ assessments to cover operating expenses. Collecting assessments improperly or failing to follow proper legal procedures when pursuing delinquent payments can result in legal challenges.

Navigating Architectural Control

Community associations often have authority over the design and appearance of properties within the community. Managing this aspect while respecting homeowners’ property rights can be legally complex.

Handling Disputes and Litigation

Community association boards and managers must be well-versed in conflict resolution and mediation. Disputes can arise between homeowners and the association, and knowing how to navigate these issues legally is crucial.

Conclusion

Overseeing a community association in Virginia presents unique challenges, particularly when navigating the intricate legal landscape of community governance.  Avoiding these ten legal pitfalls is essential for community association boards and managers to ensure the smooth operation of the association and maintain a harmonious community. Staying informed about state laws, being consistent in enforcement, and promoting open communication with homeowners are key steps to mitigate these legal challenges.

Contact the author or a member of GRSM’s Community Association Law practice group with questions or for assistance.

Community associations are engaged in multi-faceted and dynamic operations, often handling a wide assortment of items from handling reserve funds to arranging for swimming pool operations. There are also considerable administrative burdens in the operation of a community association such as handling communications with owners, payment of insurance premiums, collection of assessments, and preparing Virginia State Corporation Commission (“SCC”) annual reports. To assist with these administrative items, community associations are often managed by professional community management companies. These management relationships are often memorialized by written management contracts. 

Hopefully, the relationship between the management company and the community association is both productive and pleasant. Unfortunately, community associations may find themselves in disputes with their management company. In some cases, a community association may end up wanting to terminate their management contract and change their management company. Conversely, it is also possible that a management company may no longer wish to manage a particular community association, necessitating the community association to begin the process of finding new management. 

It can be very time-consuming for community associations to interview and select a community management company. Typically, once a new management company is chosen, the community association is presented with a draft management contract from the management company. 

While these draft contracts may look routine and boilerplate, community management contracts are binding legal contracts that have serious implications for the parties, including community associations. Community management contracts may include all sorts of provisions, including provisions setting forth the management fees and other charges, the scope of services the management company will provide, and insurance requirements, to name a few.

It is critical for a community associations to review the draft management contract with their legal counsel before agreeing to the contract. Often, a community association lawyer can review and suggest edits to the draft management contract for the management company’s consideration.

This next series of blog posts will focus on some key provisions of community association management contracts. This first post will be about the concept of indemnification. 

Indemnification: A Basic Explanation

According to the Legal Information Institute, indemnification “means compensating a person for damages or losses they have incurred or will incur related to a specified accident, incident, or event.” Indemnification is a way to address, shift, and allocate legal risk among the parties to a contract.

Often, contracts will contain indemnification provisions that provide that one or more parties to a contract will indemnify (pay certain expenses of) another in certain circumstances. An indemnification provision may also include additional obligations to “defend” (meaning to defend a person in litigation or in response to a legal claim or other action) or “hold harmless.”

For example, a management contract may contain an indemnification provision that provides that a community association will indemnify the community management company for all expenses, costs, etc. in the event that the community management company is sued while carrying out its duties under the management contract.

While a provision such as this may appear relatively boilerplate, it is important to analyze such a provision closely. For example, it is critical to look at who will be indemnifying whom.  Oftentimes, indemnification provisions will include a broad scope of persons to be indemnified, for example, the management company, its agents, owners, members, managers, employees, and representatives. Might this be too broad? Could that possibly cover an unapproved third-party vendor hired by the community management company that the community association did not know of? 

Additionally, it is important to look at which expenses the indemnifying party will indemnify for the indemnitee (the person receiving the benefit of the indemnification obligation). In other words, what expenses and amounts of money are to be paid if the indemnification provision is actuated? For example, in an indemnification provision that provides for the community management company to indemnify the community association under certain circumstances, is the scope of what expenses are to be indemnified broad enough to adequately protect the community association? In this case, does the indemnification provision include attorney’s fees and costs as well as all court judgments and monetary awards? Does it include attorney’s fees and costs incurred pre-litigation? Often there are significant expenses incurred in investigating and defending a claim before a lawsuit is filed.

Another consideration is under what circumstances the indemnification obligation arises.  For example, does the indemnification obligation in favor of the community management company arise in situations in which the community association or its agents are grossly negligent or willfully negligent, or is it far broader to include situations where the community association or its agents are simply negligent (which is typically much easier to prove compared to gross negligence)? Or, is a showing of negligence required, and is the indemnification actuated by acts or omissions of the community association or its agents?

Additionally, it is often prudent to build in some exceptions to an indemnification provision such as when the indemnification obligation will not arise, such as in the cases of the indemnitee’s or its agents’ own negligence, gross negligence, willful misconduct, illegal conduct, or misconduct. As one can see, an indemnification provision can have serious implications for the parties to a contract. Indemnification provisions can result in serious legal risk, liability, and expenses for the parties. Reviewing draft management contracts with legal counsel can help the community association better understand and manage its risk. If you have any questions about indemnification or would like assistance reviewing draft management contracts, please contact an author or a member of Gordon Rees Scully Mansukhani’s Real Estate practice group.

Little can be more frustrating to an association than when a non-compliant homeowner files for bankruptcy. The bankruptcy laws are complex, and navigating them can be a challenge even for the most sophisticated managers. One of the broadest protections for homeowners that file bankruptcy is the “automatic stay.” This provision of the bankruptcy code immediately halts all efforts to enforce any claim against the debtor that may affect the homeowner’s property, including collection of overdue assessments and non-compliance fees. What’s more, it hampers associations’ ability even to enforce the governing documents related to upkeep of the property due to the prohibition of acts to “exercise control over property of the [bankruptcy] estate,” which may include the home and property on which it sits.

Luckily, the Bankruptcy Code creates a method for associations to work through the rules to be able to enforce the covenants. An association can seek relief from the automatic stay by filing a motion with the Court, explaining the violation, how it is damaging the community, and why the Court should allow the association to seek judicial remedies to enforce the restrictions. The Bankruptcy Courts generally look favorably on these motions as they are not seeking to collect money owed from the homeowner but rather are simply trying to compel the owner to keep the property in compliance with the governing documents. In fact, many times, homeowners, the association, and the Trustee (the individual tasked with managing the bankruptcy estate) can work together to agree to the relief from the automatic stay without ever having to enter a Courtroom.

Fortunately, the Bankruptcy Courts handle hundreds of similar motions every year, so they have created a streamlined process. If the association, homeowner, and Trustee come to an agreement, they can submit an order that the Court will generally review and sign promptly. Otherwise, the association can file a motion with the Court and set a hearing within as little time as a few weeks to have the matter heard. This can be very beneficial to an association with a homeowner that has violations that are long overdue for correction.

Gordon & Rees has experienced bankruptcy attorneys that can help associations seek relief from the automatic stay. Their bankruptcy attorneys can also help file proofs of claim and attempt to ensure that the association receives everything they are entitled to through the course of the bankruptcy.

Many people are generally familiar with the concept that housing providers, real estate agents, and property management companies are subject to state and federal fair housing laws. However, it is important to know that community associations are also subject to those laws. State fair housing laws vary from state to state. These laws typically set forth a statutory procedure for the resolution of complaints of violations of those laws.

This post will focus mainly on the Virginia Fair Housing Law (“VFHL”) (Virginia Code Section 36-96.1, et seq.) and the Virginia process for complaint resolution.

What VFHL Covers

Virginia has a stated policy to provide fair housing throughout the Commonwealth. Va. Code § 36-96.1. The VFHL prohibits covered persons or entities from engaging in unlawful discriminatory housing practices. Va. Code § 36-96.3. Continue Reading Virginia Fair Housing Law and Community Associations: Procedural Background and Best Practices in Handling Complaints

For more than a year, community associations have been struggling with managing the use of their pools amidst the COVID-19 pandemic. With ever-changing regulations, vacillating infection rates, and differing opinions on boards and within communities, the decision may be overwhelming. However, with some simple education and adherence to guidelines, community associations can feel confident in reopening their pools while at the same time limiting liability. Last year, we provided information to assist community associations, and this year, with updated orders from the Governor, we hope to provide the most current information for community associations to make fully informed decisions.

On April 21, 2021, Governor Northam issued his Fifth Amended Executive Order Seventy-Two. The language in the Order mirrored that of last year’s order regarding pools:

Outdoor and indoor swimming pools may be open, provided occupancy is limited to no more than 75% of the lowest occupancy load on the certificate of occupancy and all swimmers maintain at least ten feet of physical distance from others who are not family members.

Continue Reading 2021 Update: Opening HOA Pools in the Pandemic: Community Association Considerations in Opening Pools in Virginia Amongst the COVID-19 Pandemic

In the world of enforcing covenants, deeds, and restrictions, injunctions are one of the most powerful tools association managers have in their arsenal. An injunction is an order from a Court either requiring a homeowner to comply with particular rules or restrictions or ordering the homeowner to cease violating the restrictions. Associations can request injunctive relief whether or not the association wishes to seek monetary damages against the homeowner.

Courts are often willing to award injunctions for several reasons. First, in most cases where injunctions are appropriate, the association has taken many steps prior to filing suit to enforce the covenants, including communications with the homeowner, calling the owner to a due process hearing of the board, assessing non-compliance charges, and oftentimes demands for compliance from the association’s attorney. The association can then plead with the Court, arguing that there is little else the association can do to enforce the restrictions. Judges are frequently sympathetic to these arguments, especially considering the fact that the restrictions are legally deemed to be a contract with the homeowner, and if the homeowner refuses to abide by the contract, then the only avenue for redress is with the Courts. Additionally, most violations affect the neighboring properties and often decrease home values and/or make it difficult for neighbors to sell their property. Continue Reading The Almighty Injunction

By recent decision, the Virginia Supreme Court weighed in on an insurance subrogation dispute arising out of a fire at a Virginia condominium. The case is illustrative as to situations that sometimes face community associations when there are casualty losses.

Subrogation: A Basic Explanation

Subrogation is a legal doctrine where a party who pays a loss on another’s behalf is permitted to “step into the shoes” of the payee (person receiving the funds) and enforce their rights as to a legal claim. An elementary principle of subrogation is that an insurer may not subrogate against its own insured. In other words, an insurer cannot sue its own insured for negligence under a subrogation theory. This is intuitive because if an insurer could sue an insured to recover such losses then there would not be much of a concept of insurance coverage (as any time the insurer paid a loss to an insured, there would be a strong incentive for the insurer to sue its own insured to recover the loss). Subrogation may be waived by contract. Continue Reading Subrogation: Stepping into the Shoes of Another to Enforce Claims: the Virginia Supreme Court Hands Down an Opinion on Subrogation in the Context of a Condominium Fire

For those who live in a community with a homeowners association (also referred to in Virginia as a “property owners’ association” or a condominium association) (an “Association”), you are no doubt familiar with assessments that go toward landscaping, parks, and pools, and declarations and bylaws that govern architectural changes to the exterior of the homes. How strictly these are enforced may go to the nature of the people serving on the board of the Association, or it may be due to the rights included in a development’s founding documents: Declaration, Articles of Incorporation, and Bylaws. What can be enforced by law and in what manner starts with an examination of these documents. Continue Reading Collections Overview: A Summary of Collecting Delinquent Community Association Assessments

“When will the community association pools open?” No question has been on the forefront of community association board members and frazzled parents more. On March 12, 2020, Governor Northam issued an executive order, declaring a state of emergency due to the coronavirus. Five days later, the Governor limited capacity to fitness facilities, and on March 23, completely closed all recreational and entertainment businesses, which included public pools. Then, on June 30, Governor Northam issued his executive order regarding Phase 3 of reopening Virginia, which included the following provision:

Outdoor and indoor swimming pools may be open, provided occupancy is limited to no more than 75% of the lowest occupancy load on the certificate of occupancy and all swimmers maintain at least ten feet of physical distance from others who are not family members.

Community association residents rejoiced, but board members began handwringing at the prospect of potential liability. This article is intended to provide clarity to the issue and give community associations the knowledge and tools they need to decide if and how to open community pools safely. Continue Reading Opening HOA Pools in the Pandemic: Community Association Considerations in Opening Pools in Virginia Amongst the COVID-19 Pandemic