Covenants expired - now what?

Hi all,

Interesting quandry over document expiry. While I have read a good number of articles on revitalization, most are centered on the methods of reinstating HOA docs. My question is a little different.

To better explain. My HOA's Restrictions & Covenants have expired, now some 3-4 years. This has only recently come to light (within the last 6 mo. or so). There are a fair number of people in the HOA membership who want out, notably as a result of 2-3 years of bitter infighting. Approximately 20% already have a Root Deed prior to the HOA's inception, and are able to claim MRTA (Marketable Real-Estate Title Act) relief from re-entering the Association, should they choose to. There are, unsurprisingly, 2 camps - one in favor of revitalization (with no new changes to the docs other than the removal of the "developer clauses", and one in favor of dissolution.

The question is this. The HOA owns some common areas (drainage, both meadow and sunken basin type) and all the subdivision roads. There have been 3 unsuccessful attempts to have the County assume control & ownership of the roads.

If the HOA dissolves, what happens to the roads and drainage/easement areas? It's not exactly practical to divvy up roads to the members. The drainage/easement common areas are probably easier inasmuch as there is no possibility of development as they would fall under the control (but not ownership) of the local water authority. I am particularly interested in hearing if others have experienced HOA dissolution and asset disposal, and whether this has been good, bad or ugly. If I own 1/166th of a road network, how DO I get rid of it or otherwise relinquish my ownership?

Our HOA of course favors revitalization of the documents, and indeed this may be the most prudent course of action. But the other side of the coin is either not being presented, or where it has come up is automatically dismissed as a non-viable option. Some of the homeowners would like to have the information both for and against revitalization in an unbiased manner, such that when the vote for revitalization is called they will make an informed choice, yea or nay.

Any help / commentary appreciated!

Gary Brown
Florida

Here are just my two cents. Your Association could be a perpetual entity even though your covenants or restrictions had gone belly up. If true, the Association would still own the roads and all common areas. The problem is who will maintain them. Otherwise, do your Articles of Incorporation describe ‘Dissolution or final liquidation of Association assets’? Our articles state that we can dedicate the assets to an appropriate public agency and if such dedication is refused acceptance, such assets shall be granted to any non-profit corporation, trust, etc. We, the owners do not own any % of such assets including roads, etc. Nor can we sell them. Perhaps this restriction follows the state law, am not sure.

IF you want to go for ‘revitalization’ I do believe that deleting the ‘developer clauses’ alone may not be enough. Any type of restriction that no longer allowed or applicable or does not comply with current laws may have to be rewritten. Am sure you have read the guidelines in Chapter 720. While looking into MRTA I have learned that finding a property attorney well versed in this area is the key or the process can be become quite expensive. Here is another hurdle.

The Department of Community Affairs (DCA) in Tallahassee used to oversee the revitalization of covenants. I believe it is being dissolved. It is not clear who will now help HOAs who are in your situation. You may contact Ms. Anderson, one of the DCA attorneys and perhaps she could give you some useful answers or direct you to someone who can. If you learn anything please post it. It is complicated. Here is the info:

Leslie O. Anderson-Adams, Assistant General Counsel
Florida Department of Community Affairs
2555 Shumard Oak Blvd., Room 330-D
Tallahassee, FL 32399-2100
(850) 922-1689
(850) 922-2679 FAX
email: [email protected]
website: www.dca.state.fl.us/

Peter is probably right on the fact that if you read the Articles of Inc papers, there is one teeny little sentence that states that the association automatically renews itself or is perpetual. You will need to look hard but it should be there.

Our HOA could be dissolved by the owners but has to be turned over to Management company. That is what our documentation says. Which was an avenue I once wanted to pursue, as I wanted to become the management company. If that happens, then the Management company creates/manages the rules and what owners pay. They could raise dues from what they are now. Plus the owners would have no recourse to stop it. Do the owners really want to relinquish their rights as owners not to run their own community?

If there is nothing about management companies, then disolution could go down a different path. You may want to have a chat with the city/county about taking over the streets. That means a lack of privacy of your roads and more traffic controls. They will be in control of all maintenance issues. A meeting with the city/county would be required to make changes instead of your HOA BOD. A much slower process indeed.

It's best to make a list of bad/good of being in the HOA. The owners lose control if they disband. The owners get to keep rights and run the place themselves if they stay.

Responding to several posters..

- My HOA docs HAVE indeed expired (excess of 30 years), and there is no clause of perpetuity or auto renewal. The Board's attorney has arrived at this conclusion too.

- In addition, of the 166 lots, at least 35 could leave under MRTA, if they so chose.

There has been several efforts to have the County assume control/ownership of the roads (which, at the time of construction, were built to County spec.)
The County has refused to take the roads as they fail to meet their current spec.
There are (I think) 6-7 common areas, each approximately 1-1.5 acres, used for stormwater runoff / drainage and under the "control" of the St' John's River Water Management District (meaning that any other use has to be sanctioned by SJRWMD).

These are the only material assets of the HOA. The other assets are the monies that it possesses for the benefit of the membership.

The Board is moving forward with the revitalization process, albeit slowly. However, it is believed that a vote for revitalization / reinstatement of the restrictions may likely fail. This will be due in part to 2 reasons:
1. Apathy
2. Reasonably active anti-HOA group

Should the vote for revitalization fail to garner 84 or better votes, it is generally accepted that the HOA will be dissolved.

What the membership really needs to know is what that means. With regard to the roads, all we know is that a years ago judicial ruling forbade the HOA from restricting the roads' use to other non-HOA parties. Thus the notion that someone could charge or prevent travel on these private roads has been shot down (altho' I still don't understand it ). The common areas are either grass meadow or sunken grassed basins that need nothing. There is, of course, the liability implications to consider, as well as the general repair of the roadway that no-one wants.

I cannot imagine that we're leading the herd on this one. Someone must have been through an HOA dissolution and asset disposal. I still hope to hear of both positive AND negative experiences here, and that goes double if private roads are involved!

Cheers,

G

Yes Donna, the common areas constitute the street drainage. The older section of the neighborhood has open meadows, the newer section sunken basins. These fall under control of the local water authority and must not be sold or indeed altered. Of course, there's not much here to maintain, unless you count moving (optional).

As to the anti-HOA crowd...

1. Some may exit via MRTA (since our restrictions are expired and void).
2. Some may wait / actively campaign for a "no" vote on revitalization, which, if realized, kills the HOA as I understand it. Then no-one has an HOA.

I personally will respect the democratic outcome, either way. But if it should transpire that the revitalization of the HOA is voted down, the impact of the private roads and common areas and how these are managed is the $64,000 question! Divvying up the cash assets is easy - hard to turn down money in the pocket in this economy. The anti-HOA crowd may be banking on it.

Has anyone been through this?

G

No Gary, I have not been thru this but my Florida HOA had all kinds of issues with these retention basins. The HOA is always responsible for their upkeep, no matter how many people are against the idea. SFWMD managed ours but we paid all of the bills to keep them working, even to the point of replacing very expensive flow pipes that connected them to the outside water district system. I cannot imagine how the rebels think that they can just walk away from even this one important common element.

You must keep us updated. I also wonder where MYRTA comes into this equasion

Gary,

Perhaps I am not clear on what info you really looking for but: Revival of Covenants vs. Dissolving the Association are two different issues because the Associations are usually perpetual entities.

Even if your membership does not vote for ‘revival under MRTA’ you are still an Association(as you are now). And if you decide to dissolve the Association, you will have to meet the state law requirements dictating how the nonprofit corporations, such an HOA, can be dissolved.

To revive covenants requires approval of only a majority while the Association can be usually dissolved only with the written consent of 75% or 80% of its members.
There must be a termination agreement that is signed by the members who approve the dissolution, and the agreement is recorded in the county land management office, or such. The certificate of dissolution is filed with the secretary of state. How the property and assets shall be contributed is determined by the Articles (or state law) at the time of dissolution. There are also circumstances under which the state can dissolve your corporation. It can get complicated and it is very Association specific. At least this is the way I understand it after reviewing the ‘revival’ issue.
If you are certain that your membership will not approve ‘the revival’ why spend the money on attorney’s fees? Go for the dissolution which can be done at any time. Seriously, you ought to consult a property attorney and send a letter to all owners clearly explaining the options you may have. There is always a possibility the members could change their views and vote for the revival.

Larry,

You made me laugh in a good way that is. Love your sense of humor, well thought out observations and knowledge.