Landscaping Budget in Covenants Vs. General Budget in Bylaws

Started by BrianM28 • 3 replies • 46 views

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BrianM28 (Oregon)
Posts: 1

Posted:

Our community has Protective Covenants written in 1993 which established a Owner’s Committee that included the line... "...establish the amount of assessment be levied to each Lot for the maintenance of the entry and traffic island landscaping: said amount not to exceed $100 per Lot year." The $100 was handwritten in.

The HOA incorporated in 1995. The bylaws have an article on assessments. This includes multiple sections and subsections on things like Capital Improvement Assessments, Reserve Account for Replacing Common Property, Insurance, Taxes, Accounting, etc.

It's a small HOA with less than 100 houses and the only common property is a traffic island and entrance monument.

Because our expenses are so low, dues have been under $100/year until now. There are some homeowners that view the $100 cap on landscaping written for the transitional committee to apply to the HOA and its annual budget. The argument is the Covenants take precedence over the Bylaws.

Is this a common issue? Does anyone have any guidance.

ElleN (Idaho)
Posts: 1,415

Posted:

There are some homeowners that view the $100 cap on landscaping written for the transitional committee to apply to the HOA and its annual budget. The argument is the Covenants take precedence over the Bylaws.

When there is a conflict between the Covenants and the Bylaws, and state statutes and the Articles of Incorporation say nothing relevant, the Covenants control (take precedence).

Here the catch is one can argue that the state HOA statute, state nonprofit corporation statute and possibly the Articles of Inc and elsewhere in the covenants say the Board is obligated to maintain the common area. If $100 per lot is not enough to cover operating expenses, insurance and funding a reserve, then the statutes and possibly Articles and elsewhere in the Covenants give the Board the authority to assess more than $100 per lot.

The state HOA statute seems clear enough on the subject of establishing a reserve fund and borrowing from the fund to "meet unexpected increases in expenses" ordinarily budgeted from operating funds.

As well the state HOA statute is clear about insurance requirements. Insurance is arguably a maintenance expense of the common elements.

Here is my advice to the Board:

Set the budget as if there were no cap. Use the reasoning above to explain why there is no cap. If someone resists, explain that now the Board has to get a HOA attorney's opinion, and this is estimated to cost about $100 per owner all by itself.

As well if the HOA attorney says there is a cap, then the Board will be forced to seek a vote to amend the covenants. Such a vote all by itself is highly expensive and will also require an attorney's assistance.

Alternatively if there are enough dissidents among the owners, go ahead and get the HOA attorney's opinion. Special assess as needed to pay the attorney (ha). Don't be surprised if you pay this HOA attorney $8000 and he or she says something like, "It's not so clear. The only clearcut answer you will get is if you take this to a judge and on up through the courts." Which means the Board is back to doing what is responsible and waiting to see if someone (recklessly) sues.

ElleN (Idaho)
Posts: 1,415

Posted:

Maybe this is the most relevant section of the Oregon HOA statute:

94.580 (2) The declaration shall include:

(i) A method of determining the liability of each lot for common expenses and the right of each lot to any common profits of the association;

The board can say flatly that it interprets the Declaration (of Covenants) to be lacking a "method." This means a genuine conflict exists between the Declaration and the state HOA statute. Hence the state HOA statute controls.

EliK1 (Texas)
Posts: 12

Posted:

Brian, I'd read the sentence exactly as written and ask who it binds. It gives the Owner's Committee, a transitional body, the job of setting a landscaping assessment with a cap. It says nothing about insurance, reserves, administration, or any other line in the bylaws' assessment article. So the narrow reading is the honest one: $100 per lot per year is a ceiling on the entry and island landscaping line, not on the whole budget.

What I'd do: (1) build the budget by line item, with landscaping shown separately and under $100 per lot; (2) adopt a short board resolution recording that reading, quoting the covenant language, and send it to owners with the budget summary; (3) if the landscaping line alone ever needs more than the cap, put a declaration amendment to the owners rather than quietly exceeding it.

Oregon's planned community statute (ORS chapter 94) has sections on budgets and reserve accounts, but which of them reach a 1993 community depends on the chapter's own application rules, so read those alongside your documents, and it's worth a quick word with the association's attorney before the budget goes out.

— Eli

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