VA - Developer uses HOA as instrument and locks us in to 75 year contract? Recourse?

Started by CaseyT1 • 6 replies • 1597 views

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CaseyT1 (Virginia)
Posts: 2

Posted:

Hello-

Here's how it happened. The condominium act of Virginia restricts contracts to 2 years in duration during declarant control to avoid long-term, self dealing, contracts between the developer and their own entities. However, this language isn't present in the Property Owner's Association Act. While our community is governed by a Condominium Association, and this association can easily stand alone, the developer also instated a Homeowners Association in our community. Between the HOA and the developer's own company, they have entered in to a 25 year contract, extendable to 75 years. The agreement is for cable services. In addition to paying the cable service fee, because the HOA was needed as an instrument to put the long-term contract in place, we also have to pay the standard administrative fees for upkeep of the HOA (paper statements/CPA Fees/etc).

The outcome is a contract we cannot break, where the bill continues to rise each year. We're now paying $95.50 for basic services, which includes ~50 channels, 4mb/512kb internet, and no digital box. In addition, we're paying $16.50/mo for the HOA upkeep. Seemingly, $112.00/mo for basic cable services to each household. And we cant shut it off.

Here's the questions:
1. Is it legal for an entity to bypass the intent of the law (condominium law, contract restrictions) and use an HOA strictly as an instrument to impose a long term, self dealing, contract?
2. Are there any Government/State organizations that put effort towards protecting a consumer in this case?
3. Are there any Attorneys around these forums that have experience with this situation that are available for consultation?
4. Can our HOA/Condo Associations file bankruptcy and re-establish without the burden of this contract?

Any guidance you can provide would be most appreciated.

RogerB (Colorado)
Posts: 5,067

Posted:

Casey, First contact the parties involved and request an amendment to the contacts involved. If that doesn't satisfy the Board of Directors then contact a good HOA attorney and ask them those questions and to process necessary to get these legal agreements changed.

KevinK7 (Florida)
Posts: 1,343

Posted:

I would think the FCC may be a good place for some information. While the developer may have thought themselves to be too slick for the law and came up with some kind of contractual go-around, there may be some regulations that prevent the kind of dealings the developer is attempting to pull off.

Also, is this neighborhood still under control of the developer? I would imagine there could be an argument made that they lack the authority to create longstanding contracts that would continue beyond their exit from the community. That would be like me paying for a two year cable contract, moving away, and the new owners of the home have to pay me to use the remaining time on the contract.

RayC4 (Virginia)
Posts: 173

Posted:

Casey, did this happen fairly recently? If so, this change to the POAA happened (I believe) just this year, and seems like it may apply to your situation. (I especially like that they thought to include Section 'D'....)

§ 55-509.1:1. Limitation on certain contracts and leases by declarant.

A. If entered into any time prior to the expiration of the period of declarant control contemplated by the declaration, no contract or lease entered into with the declarant or any entity controlled by the declarant, management contract, or employment contract that is directly or indirectly made by or on behalf of the association, its board of directors, or the lot owners as a group shall be entered into for a period in excess of five years. Any such contract or agreement may be terminated without penalty by the association or its board of directors upon not less than 90 days' written notice to the other party given no later than 60 days after the expiration of the period of declarant control contemplated by the declaration.

B. If entered into any time prior to the expiration of the period of declarant control contemplated by the declaration, any contract or lease entered into with the declarant or any entity controlled by the declarant, management contract, or employment contract that is directly or indirectly made by or on behalf of the association, its board of directors, or the lot owners as a group may be renewed for periods not in excess of five years; however, at the end of any five-year period, the association or its board of directors may terminate any further renewals or extensions thereof.

C. If entered into at any time prior to the expiration of the period of declarant control contemplated by the declaration, any contract, lease, or agreement, other than those subject to the provisions of subsection A or B, may be entered into by or on behalf of the association, its board of directors, or the lot owners as a group if such contract, lease, or agreement is bona fide and is commercially reasonable to the association at the time entered into under the circumstances.

D. This section shall be strictly construed to protect the rights of the lot owners.

DaveD3 (Michigan)
Posts: 796

Posted:

Sounds like Ray has it. The laws of the state > what may have been omitted from the CC&Rs.
Sounds like firm ground for the homeowners.

RayC4 (Virginia)
Posts: 173

Posted:

Quote:

Posted By RayC4 on 03/29/2013 2:18 PM
this change to the POAA happened (I believe) just this year,

To clarify, I should have said "this past year." I believe the statute was enacted into law around mid-year 2012.

CaseyT1 (Virginia)
Posts: 2

Posted:

Thanks everyone.

I didn't even think to take a look at recent changes to the POAA of Virginia. I lobbied for years to get a restriction on contracts clause included and simply gave up hope that it would ever happen.

I reached out to a trusted HOA attorney and will provide feedback as soon as we have some movement here. I'm hoping this is the ticket to a smooth getaway.

Casey

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