Courts curb power of HOAs to amend Declarations

I’ve written before about amending the Declarations for a homeowner association. A new case handed down this month by the North Carolina Court of Appeals could make it harder for an HOA to amend the Declarations to their liking. The Linville subdivision in north Raleigh began construction in 2003. As an incentive to builders to construct homes in the planned community, the Declarations allowed a builder to pay only 25% of the annual assessments. When the housing boom ended, several builders were unable to sell the properties they have built but continued to pay reduced assessments pursuant to the Declarations. In 2011, The Linville Owners Association, Inc., passed an amendment to the Declarations following the amendment procedures in their documents and the statutes, ending the special status of the builders and requiring them to pay the same amount of assessments as all other homeowners. The builders refused to pay, and the North Carolina Court of Appeals eventually heard the issue.

The Court of Appeals found that the original assessments were included in the Declarations to induce and encourage builders to build in the community. To change that, even by following the amendment procedures in the Declarations, went against the original intent and purposes of the Declarations. The Court therefore found the amendments unreasonable, invalid and unenforceable.

I’ve only seen this rule applied before where an HOA didn’t have assessment power in the original declarations and then added that power in an amendment. This Court of Appeals ruling makes even an amendment of the amounts of assessments set in the Declarations to be called into question. When considering an amendment, HOAs should determine what their reasons are for the amendment, why it conforms and assists in the original purposes of the declarations, and why it does not unreasonably divert from those purposes.

-Bradley A. Coxe is a practicing attorney in Wilmington, NC who practices in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes, and all forms of Civil Litigation.  Please contact him at (910) 772-1678.