Homeowners Associations (“HOAs”) are associations formed, frequently as non-profit corporations, to own and manage common interest developments. In Florida, your HOA might be referred to just as an “association,” or if you live in a condominium, a “condominium association.” For purposes of this article, however, the term “HOA” will be used to describe all common interest developments.
So, under what circumstances might members of an HOA wish to take their HOA to court?
To answer that question, we first need to look at how HOAs are actually governed. To begin with, HOAs in Florida are largely governed by three separate sets of laws: (i) the Homeowners’ Association Act; (ii) the Condominium Act; and (iii) the Cooperative Act. Each of those “Acts” lays out the ground rules regarding how HOAs may be formed, governed, and dissolved. In other words, all HOAs in Florida, depending upon the “type” of housing found in a particular community (e.g., single family home, condominium, or a co-op) must abide by the particular Act that governs that type of housing unit (as well as other applicable Florida laws, of course).
Each HOA in Florida is further governed by its own set of “governing documents,” the most important of which is a document known as the Declaration of Covenants, or in the case of a condominium association, the Declaration of Condominium. For our purposes, however, we’ll call that document by its most well-known name—the “CC&Rs” (which stands for Covenants, Conditions, and Restrictions). An HOA’s CC&Rs describes not only the rights, duties, and obligations that each member owes to the HOA, and vice versa, but also the rights, duties, and obligations that the members owe to each other.
An HOA’s CC&Rs are, therefore, intended to address a wide scope of governance type issues ranging from the maintenance of the common areas and property use restrictions (e.g., setbacks, view rights, neighborhood “character,” architectural guidelines, etc.), to enforcement powers, the raising and spending of revenues (e.g., regular and special assessments), and dispute resolution. HOAs have other governing documents (e.g., articles, bylaws, rules & regulations, etc.), but it’s not necessary for purposes of this article to go into too much detail about those documents.
Like all corporations that you’re probably familiar with, an HOA is governed by a board of directors elected by its members. And just like other corporations, the board of directors of an HOA is responsible for managing its affairs and conducting the HOA’s business. To accomplish the task of managing and conducting the affairs and business of an HOA, its board of directors typically enjoys many of the same powers that any corporation’s board of directors enjoys, such as:
- creating committees and appointing people to sit on those committees;
- calling and running membership meetings;
- setting elections and selecting election inspectors;
- adopting and enforcing architectural guidelines and rules;
- filing and defending against lawsuits;
- entering into contracts (with, for example, vendors, contractors, management companies, etc.);
- hiring employees (e.g., handymen, landscapers, etc.);
- hiring accountants, attorneys, architects, and other professionals to guide the board;
- levying and collecting assessments (e.g., regular and special);
- paying HOA expenses;
- maintaining, improving, and/or repairing the HOA’s common areas;
- disbursing reserves; and
- adopting and managing budgets.
Because an HOA’s board of directors is tasked with so many important obligations, the law also imposes on the board, as well as on each individual board member (also called a director), a heightened duty of care and loyalty, often referred to as a “fiduciary duty.” This fiduciary duty requires an HOA’s board of directors to act reasonably and in good faith in carrying out the affairs of the association. An HOA’s board of directors must also treat all members of the HOAs fairly (i.e., an HOA can’t enforce certain rules against certain HOA members, but not others), without showing favoritism to certain members (e.g., to directors sitting on the board, or to families and friends).
When Things Go South with an HOA
The problem is that unlike in the case of most regular corporations, for the most part, HOA boards are made up of volunteers who often have no experience running a business—especially one with millions of dollars in assets. Think about it. If a particular HOA is large (i.e., has lots of homes and common amenities), then it’s quite possible that it has extremely valuable assets. This is especially true if, for example, the HOA has the big ticket amenities like swimming pools, tennis courts, club houses, parks, roads, a lot of shared roofs/walls, etc.
And much more frequently than many would like to admit, homeowners find themselves dealing with board members who like to tell other homeowners what to do, or who refuse to properly manage the HOA (by, for example, failing to take care of the common areas or by failing to make repairs to a member’s property when it is the HOA’s responsibility to do so). Sometimes an HOA board may breach its obligations to the homeowners by refusing to enforce the governing documents (e.g., by permitting one member to negatively impact the rights of another member), while another HOA board might do so by acting arbitrarily, dishonestly, or capriciously in its decisions to prohibit a member from making some improvement to their home.
Often, you’ll find that such conduct is engineered by one or two directors who manage to exert more influence on the board as a whole than one might expect. To put it simply, sometimes board members are dishonest, sometimes they are power hungry jerks who like to flaunt their authority, and sometimes they become directors solely to benefit themselves at the expense of the other members, viewing their HOAs as their personal fiefdoms.
Regardless, in all cases where one or more directors on an HOA’s board are violating their obligations under the CC&Rs, members of that HOA may sue the HOA as a whole, or in some cases, even individual board members, to compel the HOA’s compliance, and even to remove one or more bad board members.
Alternative Dispute Resolution
In many instances, an HOA and its members cannot just decide to sue each other without first trying to resolve things informally. Rather, in such cases, they must first engage in what’s commonly called alternative dispute resolution (“ADR”), and in the context of homeowner/HOA dispute, the two most common types of ADR are mediation and arbitration. Before going further, it might be helpful to provide a brief explanation of the difference between those two terms.
Mediation is just a fancy word for “settlement talks” guided by a neutral mediator. While mediators have their own ways of handling their mediations (e.g., some sit the parties and their attorneys down together in the same room to hash things out, while others keep the opposing sides in different rooms). Regardless of how a specific mediator runs things, the important thing to understand is that mediations don’t result in judgments or decisions of any kind. There is no “testimony,” no rules of evidence, no court reporter, and nobody is forced to accept a settlement that they don’t like.
Arbitration, on the other hand, is more like what most people think of when they think of going to court (except there’s no jury). An arbitrator is like a judge, in that he/she will hear evidence, decide what evidence he/she finds most convincing, and then apply that evidence to the law to come up with a ruling. In those situations that require arbitration rather than mediation, the ruling from the arbitrator is most often non-binding, meaning either party can reject it (and, if they want to, proceed with a lawsuit in court). There are some instances, however, such as under the Homeowners’ Associations Act relating to election or recall-related disputes, where arbitration is both required and binding—meaning that the arbitrator’s ruling is final, rarely appealable, and can be entered in the local court as a judgment.
Now, while ADR is often required prior to being able to move forward with a lawsuit, disputes between homeowners and their HOAs (or other members)—even serious ones—can frequently be resolved through the ADR process (i.e., mediation). At the very least, ADR accomplishes three things: (1) it tells the HOA that a homeowner is serious about whatever dispute is at issue; (2) it provides an opportunity for the homeowner and the board to have one-on-one time to hash out the dispute; and (3) both sides get to hear the opinions of an experienced, knowledgeable, and impartial mediator regarding the dispute. With respect to the latter, that’s often enough to convince a stubborn board to do what the HOA is required to do.
Whether required or not, it’s at this phase of the dispute that most homeowners will hire an attorney (preferably one familiar with Florida’s HOA laws). And in such cases, an experienced attorney will work to get the HOA to agree to mediation. While the HOA is not obligated to agree to repay a member’s attorneys’ fees as part of the ADR process, attorneys representing HOAs know that if the case does not settle at ADR, and a lawsuit becomes necessary, if the homeowner prevails against the HOA in court, there is a good chance that the applicable HOA-related Acts (as well as many CC&Rs) empowers the court to award the homeowner his/her attorneys’ fees and costs (including those spent engaging in the ADR process).
Filing a Lawsuit & Attorneys’ Fees
Sometimes, however, no matter how hard homeowners try to resolve things with their HOAs, a lawsuit is necessary. If the parties attempted ADR but failed to reach a settlement, or if the HOA rejected or ignored a member’s request to engage in ADR in the first place, the homeowner interested in filing a lawsuit can proceed in court, or in the case where the CC&Rs require binding arbitration, proceed with filing a demand for arbitration. And again, upon prevailing, there’s a good chance homeowners will be entitled to reimbursement for their attorneys’ fees and costs.