The HOA/condo attorneys at Law Firm Carolinas are regularly asked to create or to amend association bylaws. On any given day, different attorneys are working on edits or even complete rewrites of association bylaws. Before getting into why that is so often necessary, let’s make sure we’re all on the same page.
Here are the governing documents most all associations have (or need to have):
- Declaration. The highest association document is the “Declaration” (sometimes called the “Restrictions” or the “Covenants” or the “Declaration of Covenants, Conditions and Restrictions,” or the “CCRs”). The Declaration is a contract among all homeowners in an association and filed with the county Register of Deeds. While specific circumstances matter, if you want to tell someone what they can or cannot do on their own property or to charge an owner money, it almost always has to be in the Declaration.
- Articles of Incorporation. The Articles of Incorporation are a corporate document filed with the Secretary of State. The Articles make the association a nonprofit corporation or “Inc.” Almost all associations incorporate for several important reasons, including that a corporate entity can help shield board members and owners from liability. Most modern Articles of Incorporation have few provisions of day-to-day concern to owners. Modern Articles of Incorporation (older ones can vary) tend to provide the official name of the association, location of the corporate office, a description of the initial board of directors, indemnification provisions, and name a registered agent who will be served with any lawsuit or government notice.
- Bylaws. The bylaws are supposed to be a governance document. That is, they tell how to run the association, much like a user’s manual. The Bylaws address questions like: When is the annual meeting? What is the size of the board? When are directors elected? How long are board members’ terms? How many officers are there and what are their duties? Are there committees named in the bylaws (also known as “standing” committees)?
- Rules and Regulations. Rules and regulations do not rank as high as the other documents above. Most often, rules and regulations are adopted by the board and govern the common area. Occasionally, rules and regulations are used to interpret vague language in the Declaration.
With that background as to the different documents, let’s focus again on why bylaws so often don’t seem well crafted for a community association. The primary reason we are so often asked to assist with bylaws is because the initial bylaws were not drafted with homeowners in mind. That’s understandable, because the first bylaws were almost certainly drafted by the developer. There’s nothing wrong with that, but circumstances are different at the beginning. The initial developer board tends to be small with no owners on it. As a result, there doesn’t need to be a nominating process for directors. Board member terms don’t need to be staggered because the directors tend to remain the same. Qualifications for serving on the Board or as an officer, such as that you must be an owner, make little sense while the developer controls everything (and no one tends to live in the community when the bylaws are first drafted). There usually is little to no language concerning any budgeting process or the required budget ratification meeting. The phrase we most often hear about developer-adopted bylaws is that “these bylaws seem like they were drafted for a corporation” other than an HOA or condo.
Once homeowners take control of the association following transition, bylaws that worked during the community’s development often aren’t detailed enough or “user friendly.” (For instance, we’ll sometimes see “cumulative voting” for directors, which is a for-profit corporation concept that is not well suited for nonprofit associations). As a result, our attorneys are often asked to do a bylaws “audit” or to recommend changes or draft a bylaws “revision,” which is an entirely new or replacement set of bylaws. The good news is that association bylaws in North Carolina, except for condominiums, tend not to be filed with the county Register of Deeds. That makes them easier to amend than the declaration. Also, bylaws amendments tend to be a more straightforward process. By statute, declaration amendments usually require a supermajority vote of ALL of the owners in the association. In contrast, bylaws amendments most often just take a vote of the members voting at a meeting or by written ballot outside of a meeting (or for a first set of bylaws, just a vote of the Board of Directors). The end result is that bylaws amendments or revisions tend to be far cheaper and quicker to complete than declaration amendments.
If your association is not happy with its bylaws or in need of a bylaws review or amendment, contact one of the community association attorneys at Law Firm Carolinas in North or South Carolina for assistance. We’ll be glad to take a look at things.
Author: Jim Slaughter
Articles have been Reprinted with permission from Black, Slaughter, Black.
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