A new bill in North Carolina is set to make changes for homeowners associations, specifically to limit declaration amendments. The bill, filed in early April, has yet to pass.
New NC Bill Poised to Limit Declaration Amendments
Changes are on the horizon for homeowners associations in North Carolina should a bill make it to pass. The proposed bill, Senate Bill 553, will have quite a drastic effect on planned communities with regard to declaration amendments. SB 553 was filed on April 4, 2023, with Sen. David Craven, Sen. Timothy Moffitt, and Sen. Jim Perry as primary sponsors.
An identical House Bill, HB 511, was filed a day prior. The primary sponsors of House Bill 511 are Rep. John Bradford, Rep. Jon Hardister, and Rep. Kyle Hall.
The two bills bear the name, “Landlord/Tenant and HOA Changes.” These bills mainly concentrate on rental issues among landlords and tenants. However, while yet to pass, the proposals would also spell significant changes for HOA communities as they would also amend the North Carolina Planned Community Act and the North Carolina Condominium Act.
How Will the Proposed Bill Limit Declaration Amendments?
According to the proposed bills, if passed, any member-made amendments to an HOA’s declaration would “only affect lot owners whose lots are conveyed or transferred after the amendment takes effect.” This essentially means that any amendments the HOA makes will not affect lot owners who currently own lots. The amendment would only apply to a lot should it be conveyed or transferred to a new lot owner. It further goes on to say, “A lot owner takes the lot subject to existing rules in the declaration at the time of conveyance or transfer of the lot.”
It remains unknown at this time what wording the General Assembly may use for the bill. But, should it adopt the same wording, it may put associations in North Carolina in a bind.
Many experts in the HOA industry are against the proposed bill because associations will undoubtedly suffer unfavorable consequences should it pass. Associations would have to jump through hoops and perform exhaustive research every time they amend their declaration or apply a violation to a lot owner. Whether or not an owner is in violation of a covenant will depend on when they purchased the lot and when the covenant was made.
For example, if a lot owner defies an HOA’s rental restrictions, the board would need to consider whether the restrictions apply to that owner. That would mean having to check when they adopted the restrictions in addition to when the owner bought their home. An association that wishes to enact new restrictions would not get the desired outcome quickly. These new restrictions would only apply to future lot owners, not current ones.
The Adverse Impact of the Proposed Bill on HOAs
The proposed bill, if passed, would have a negative impact on HOAs. Many associations have older declarations that require updating. If their amendments can’t take effect instantly, they can’t accomplish the desired objective of the update.
For instance, some associations’ declarations provide a flat amount for member dues. Should these associations wish to increase dues, such an amendment would only apply to future homeowners. That would force them into a corner to work with a deficient budget because they can only collect a limited amount. The same would happen to an older HOA that needs to update its maintenance or insurance requirements.
Declaration amendments are already rather hard to achieve. Most associations require a certain percentage of homeowners to approve an amendment before it can pass. In North Carolina, associations must secure the affirmative vote or written agreement of at least 67% of lot owners as per Section 47F-2-117 of the Planned Community Act. A similar stipulation exists under Section 47C-2-117 of the Condominium Act.
This barrier is arguably sufficient to limit substandard amendments and gauge homeowner approval. Thus, the proposed bill would only make an already difficult process even more difficult, which is why many experts oppose it.
The Future Is Unclear
It is important to understand that while the proposed bill would limit declaration amendments, it has not yet been passed into law. There is also some ambiguity as to the wording of the final bill. The limitation may not apply to all amendments but only specific amendments, such as rental restrictions.
However, given our limited information, homeowners associations should prepare themselves for what might come. Board members, managers, and lawyers should know the proposed bill and monitor its status.
Many associations may have amendments in the pipeline, are currently considering amendments, or have amendments already set out for a vote. If your HOA is planning on making amendments any time soon, it is better to act now. Adopt those changes and file them in the public record before the ability to do so becomes significantly restricted.
Should the proposed bill pass into law as is, associations will need to make a switch. But, for now, associations would be better off sticking to their current approach. After all, the proposal can still go through changes or end up scrapped altogether. Still, it is important to remain in the loop.
The Takeaway
Homeowners associations go through changes just like any other organization. These changes are typically a response to internal and external stimuli and an effort to preserve property values. Should the proposed bill push through and universally limit declaration amendments, many associations will certainly suffer. Since the bill has yet to pass, HOAs should not change their approach but would be wise to make amendments sooner.
Cedar Management Group can help your association navigate the often-confusing landscape of HOA laws and provide other expert services. Call us today at (877) 252-3327 or contact us online to get a free proposal!
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